Week in Review

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Week in Review

09/25/2021

For the week 9/20-9/24

[Posted 9:30 PM ET, Friday]

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Special thanks this week to Vince V. and Ralph C. for their support.

Edition 1,171

Next week, and perhaps the one after, could be sheer chaos in Washington as President Biden and the White House face dual crises…funding the federal government at the start of a new fiscal year and reaching an agreement on the debt ceiling.

Then you have the president’s legislative agenda.  He must get a win…at least passage of the bipartisan infrastructure bill, but success is going to be hard to come by.

And it’s really all about his own party, and the battle between progressives and moderates, with the centrists, who are just trying to figure out how they retain their seats in 2022, stuck in the middle.

The first deadline arrives Sept. 30, at which point Congress must strike a deal to fund the government or critical federal services could cease on October 1.  Millions of federal employees could see interruptions to their pay.  Federal agencies that perform critical tasks in homeland security, law enforcement and housing could partially or entirely go dark.  National parks and monuments could close.

Three years ago, a shutdown under Trump’s watch cost the country an estimated $1.5 billion each week.

Both parties reportedly had largely agreed on a short-term extension of federal funding through Dec. 3, but Democrats have attached the debt-ceiling suspension to that must-pass measure and Republicans say they won’t vote for it because they don’t approve of Democrats’ plans to spend trillions more on social programs.

The likely scenario is that the debt ceiling language is stripped out from the funding bill.  They could also pass a one- or two-week stopgap funding measure to continue negotiating.

Democrats argue raising the debt limit has traditionally been a bipartisan exercise and government debt includes money spent under President Trump.  Republicans say Democrats can and should use a fast-track budget process to avoid the Senate’s typical 60-vote threshold and allow them to pass the bill Democrats-only in the evenly divided chamber.

Democrats realize that they will have to use the filibuster-proof budget reconciliation process to suspend the debt ceiling on their own in the next several weeks.

As for the infrastructure bill, Speaker Pelosi had pledged she would allow a vote on it on Sept. 27.  But progressives are threatening to tank the measure because the $3.5 trillion package funding many of their priorities through a series of tax increases isn’t yet ready for a vote.

The House Budget Committee and a group of moderates are both planning to work over the weekend to advance the reconciliation bill.

But the $3.5 trillion package is not clearing the Senate because Democratic Senators Joe Manchin and Kyrsten Sinema have said they won’t vote for a bill that big, period.  Democrats would have to settle for something less.

Speaker Pelosi and Senate Majority Leader Chuck Schumer then announced Thursday they had reached a framework agreement with the White House over how to pay for the $3.5 trillion tax-and-spending measure, but there were zero details.

Today, President Biden said talks over the $3.5 trillion rebuilding plan have hit a “stalemate” as he made the case for his expansive effort to recast the nation’s tax and spending programs and make what he sees as sweeping, overdue investments.

Biden said the process is “going to be up and down” but “hopefully at the end of the day I’ll be able to deliver on what I said I would do.”

Anyway, no one knows what the heck is going to happen over the coming week(s).

And it’s a waste of time to write further on the topic today.

Meanwhile, I said last week that it’s clear, you better do your holiday shopping now.  As I describe below, all manner of companies are having supply chain issues and this holiday season is going to be unlike any other.  There are disruptions all over the globe, including a shortage of truckers.  I give examples of this below as well but consider what a mess it is in Europe, where Brexit made it harder for workers to drive in Britain and the pandemic prevented new workers from qualifying.  The trucking industry is short some 90,000 drivers, in Britain alone, at last report, and it’s impacting everything from groceries to oil deliveries.  It’s the same situation all over the continent.

Speaking of Europe, it is not going to be a good winter across the pond.  There will be serious energy shortages, particularly in natural gas, with prices already skyrocketing, and the natives will be riled up.  There will be mass demonstrations and more than a bit of unrest and it’s going to be ugly.

It’s just not going to be really joyous anywhere these next six months or so, is my guess, including on Wall Street.

I’ve been sanguine all year when it comes to the market.  Not anymore.  At best, by end of March 2021, we are exactly where we are today.

Lastly, I’ve provided some pretty good insight from time to time in this space.  Like in my last, ill-fated trip to Fujian province in China (2014) and the area surrounding the city of Fuzhou.  I told you of how my driver this particular day took the superhighway back into the city, and the airport, after a little misadventure south of there, the two of us not getting along in the least, me wondering if I had tempted fate perhaps once too often.

But the drive ended up being very educational, because I got to see all the high-rise apartment buildings going up…cookie-cutter 40 story towers…all empty, as I wrote.  You could see right through them.  Who was financing all of this, I mused?

My long-time friend, and supporter, Bobby C., reminded me of this trip today as we exchanged notes on China’s real estate colossus, China Evergrande Group, which is on the verge of a catastrophic collapse…a company with over $300 billion in debt.  I get into the story in detail below, but this is no surprise to yours truly.  Nor should it be to you.  How President Xi and his government handle the crisis will be critical for both Xi and, potentially, the world.

Biden Agenda

--In his initial address to the UN General Assembly as president, Joe Biden called on world leaders to work together to defeat the Covid-19 pandemic and address the challenge of climate change, vowing to respect allies and partners as America shows the way to defeat the ever more difficult shared problems facing the entire globe.

“We will lead not just with the example of our power but with the power of example,” Biden told more than 100 assembled leaders, others opting to stay home and give their presentations virtually.

“We will lead on all the greatest challenges of our time from Covid to climate,” he said.  “But we will not lead alone.  We will go together.”

The world faces a “decisive decade,” he said, and leaders need to work together to fight a raging pandemic, a warming planet and cyber threats.

Biden also called for diplomacy to solve rifts with rivals like Iran and North Korea while warning that the U.S. would continue to flex its military muscle when needed.

Amid growing tensions with China, Biden declared the U.S. is “not seeking a new Cold War,” even though he didn’t mention China by name, which was weak.

Sen. Tom Cotton (R-Ark.) told Fox News after Biden’s address: “He said we don’t seek a new Cold War.  Well, China has been waging a Cold War against America and our workers and our military for decades. So the question is not whether we seek one, the question is whether or not we will fight back in it.

“Yet, Joe Biden wouldn’t even say the word ‘China,’” the senator added.  “He’s apparently too scared to even mention China’s name in a speech addressed to the world’s leaders. What kind of signal does that send to them?  What kind of signal does it send to the leaders of Beijing?  I can tell you what they’re doing right now: They are laughing at Joe Biden.”

At least the president was greeted warmly by those in attendance, but the speech was rather rich when talking about cooperation with allies, this after he failed to warn NATO allies ahead of time with his abrupt departure from Afghanistan, and he screwed France in the Australian sub matter by failing to give them a heads up.

--Haitian Americans, human rights advocates and some Democrats were outraged at the crackdown on thousands of Haitian migrants who had crossed into the U.S. and were waiting in squalor near the town of Del Rio, Texas.

More than 1,000 were deported by planes to Haiti, even though many of the migrants came from South America and have not lived in their homeland for years.

And we had the issue of the U.S. Border Patrol and some of its officers, riding on horseback, captured on film using their reins to intimidate frightened Haitian men, women and children.

The American special envoy for Haiti resigned in protest over the “inhumane and counterproductive” crackdown on migrants along the southern border.

Daniel Foote, who was appointed to the position only in July following the assassination of Haiti’s president, quit in a letter to Secretary of State Antony Blinken that fiercely denounced the harsh treatment of thousands of Haitians seeking to enter the U.S. from Mexico.

“I will not be associated with the United States inhumane, counterproductive policy of deporting thousands of Haitian refugees,” Foote wrote in a letter that was first obtained by PBS Newshour.  “Our policy toward Haiti remains deeply flawed and my recommendations have been ignored or dismissed.”

The ex-envoy said the U.S. must take more responsibility for rescuing Haiti’s collapsed economy and toxic politics – or face the inevitable results of its hands-off approach.

“Surging migration to our borders will only grow as we add to Haiti’s unacceptable misery,” Foote wrote.

Well, by this afternoon, the impromptu camp in Del Rio was empty, bulldozers clearing out the ramshackle tent city that had sprung up.  Texas State Troopers lined the river bank to discourage new crossings, as Department of Homeland Security Secretary Alejandro Mayorkas said nearly 30,000 migrants had been encountered in Del Rio in the past two weeks.  More than 12,000 will have a chance to make their case for protection before a U.S. immigration judge, an estimated 8,000 voluntarily returned to Mexico, and 2,000 were expelled to Haiti.  The fate of others detained is to be decided.

Del Rio Mayor Bruno Lozano praised the agents for trying to provide food and medical care in tough circumstances.

--President Biden on Wednesday spoke with French President Emmanuel Macron and admitted to botching the rollout of a new security pact with the UK and Australia by snubbing France in the process.

In a joint statement, Biden and Macron said, “The two leaders agreed that the situation would have benefitted from open consultations among allies on matters of strategic interest to France and our European partners.  President Biden conveyed his ongoing commitment in that regard.”

Macron recalled France’s U.S. ambassador (and ambassador to Australia) after being blindsided by the launch of AUKUS, which will help Australia build nuclear-powered submarines.

The primary reason for AUKUS is to counter China and it was unclear why the pact would leave out France, a leader in nuclear energy and a colonial power that has several large island territories in the Pacific and Indian Oceans.

France accused Australia of concealing its intentions to back out of the $66 billion contract for French majority state-owned Naval Group to build 12 conventional diesel-electric submarines.

Macron and Biden are to meet in person in October.

For its part, Australian Prime Minister Scott Morrison said France would have known Australia had “deep and grave concerns” that the submarine fleet the French were building would not meet Australian needs.

Morrison blamed the switch on a deteriorating strategic environment in the Indo-Pacific. He has not specifically referred to China’s massive military buildup, which has gained pace in recent years.

“The capability that the Attack class submarines were going to provide was not what Australia needed to protect our sovereign interests,” Morrison said.

“They would have had every reason to know that we have deep and grave concerns that the capability being delivered by the Attack class submarines was not going to meet our strategic interests and we have made very clear that we would be making a decision based on our strategic national interest,” he added, referring to the French government.

Last Saturday, French Foreign Minister Jean-Yves Le Drian denounced what he called the “duplicity, disdain and lies” surrounding the sudden end of the contract and said France was now questioning the strength of the alliance.

The Pandemic

Aside from vaccines (see below), there is some better news these days.  In this latest Delta variant surge, Covid-19 cases peaked, both in the U.S. and around the world, 4-5 weeks ago, though the daily death count is still far too high, ditto total case load.

And in the case of Southeast Asia, cases are still far too high in the likes of Vietnam, Malaysia, and Thailand, critical to the global supply chain, but at least Indonesia appears to have done a good job in bending the curve.

Covid-19 death tolls, as of tonight….

World…4,750,444
USA…705,237
Brazil…593,698
India…446,690
Mexico…274,139
Russia…202,273
Peru…199,156
Indonesia…141,258
UK…135,983
Italy…130,603
Colombia…126,068
Iran…118,792
France…116,420
Argentina…114,828
Germany…93,933
South Africa…86,967
Spain…86,229
Poland…75,551
Turkey…62,745
Ukraine…55,424
Chile…37,423
Philippines…37,405
Romania…36,109
Ecuador…32,720
Czechia…30,451
Hungary…30,151
Canada…27,620
Pakistan…27,482
Bangladesh…27,368
Belgium…25,543
Tunisia…24,676
Malaysia…24,931
Iraq…22,039
Bulgaria…20,423

[Source: worldometers.info]

U.S. daily death tolls…Sun. 311; Mon. 746; Tues. 1,927; Wed. 2,228; Thurs. 1,974; Fri. 1,948.

Covid Bytes

--U.S. coronavirus deaths surpassed 675,000, higher than the death toll of the 1918 influenza pandemic, which is really not just tragic, but pathetic. 

“I think it reflects the fact that the U.S. was very, very slow in 2020 to step up and take Covid-19 seriously,” said Dr. Philip Landrigan, director of Boston College’s global public health program.  “I think we made an enormous mistake in the beginning by minimizing the epidemic.”

“The Trump administration, in my opinion, is culpable in not having taken this thing seriously, not having paid attention to their doctors and public health professionals, and not having mandated masking and social distancing and other common sense protections right from the beginning,” he said.

--An advisory panel to the Centers for Disease Control and Prevention recommended booster doses of Pfizer’s vaccine for millions of Americans, specifically, people 65 and older, nursing home residents, and people who are 50 to 64 with underlying medical conditions.  It also said boosters can be offered to people 18 to 49 with underlying conditions.

The shots would be given at least six months after the second dose of the Pfizer vaccine.

So then CDC Director Dr. Rochelle Walensky signed off on the recommendations, but then decided to make one recommendation that the panel had rejected.

The panel voted against saying that people can get a booster if they are ages 18 to 64 years old and are health-care workers or have another job that puts them at increased risk of being exposed to the virus, such as teachers, and Walensky disagreed and put that recommendation back in.

“As CDC Director, it is my job to recognize where our actions can have the greatest impact,” Walensky said in a statement late Thursday night.  “At CDC, we are tasked with analyzing complex, often imperfect data to make concrete recommendations that optimize health. In a pandemic, even with uncertainty, we must take actions that we anticipate will do the greatest good.”

Experts say getting the unvaccinated their first shots remains the top priority, and the panel wrestled with whether the booster debate was distracting from that goal.

--Separately, Pfizer said Monday that its Covid-19 vaccine works for children ages 5 to 11 and that it will seek authorization for this age group soon – a key step toward beginning vaccinations for youngsters.

The vaccine is already available for anyone 12 and older, but this would be big.

For elementary school-age kids, Pfizer tested a much lower dose – a third of the amount that’s in each shot given now.  Yet after their second dose, children ages 5 to 11 developed coronavirus-fighting antibody levels just as strong as teenagers and young adults, Dr. Bill Gruber, a Pfizer senior vice president, told reporters.

--A second shot of the Johnson & Johnson vaccine boosts protection against symptomatic and severe Covid-19, the drug company announced Tuesday.  Those booster shots also generated additional antibodies to help fight off infections.

The company said a second dose, given 56 days after the first, further improves protection.

“We now have generated evidence that a booster shot further increases protection against Covid-19 and is expected to extend the duration of protection significantly,” Johnson & Johnson chief scientific officer Paul Stoffels said in a statement.

The data J&J is providing needs to be reviewed by the Food and Drug Administration before recommendations can be made.

Those receiving the one-shot J&J vaccine have been concerned they are being left out when it comes to repeat vaccination but now a booster is probably in their future.

--Meanwhile, a report from the CDC last Friday that I didn’t have a chance to note in last week’s review, showed that the Moderna vaccine was more effective at preventing severe cases of disease over the long term than Pfizer’s shot.

Data collected from 18 states between March and August suggest the Pfizer-BioNTech vaccine reduces the risk of being hospitalized with Covid-19 by 91% in the first four months after receiving the second dose. Beyond 120 days, however, that vaccine efficacy drops to 77%.

Moderna’s vaccine, on the other hand, was 93% effective at reducing the short-term risk of Covid hospitalization and remained 92% effective after 120 days.

--The Biden administration is easing foreign travel restrictions into the U.S. beginning in November, with all foreign nationals flying into the country required to be fully vaccinate.

All foreign travelers flying here will need to demonstrate proof of vaccination before boarding, as well as proof of a negative Covid-19 test taken within three days of flight.

Fully vaccinated passengers will not be required to quarantine, the White House said.

--According to a Fox News poll released Sunday, 67% of respondents said they support mandatory mask-wearing for students and teachers in schools, with 66% also saying businesses should require face coverings.

Fifty-four percent of Americans also said they support vaccination requirements to participate in indoor activities, up from 50% last month.

But while 90% of registered Democrats said that they believe masks are effective against the coronavirus, 51% of registered Republicans think differently.

--Florida Gov. Ron DeSantis appointed a new surgeon general who is a Harvard-trained doctor, but one who’s skeptical of several Covid mitigation measures, including lockdowns, mask-wearing and vaccines.

At the press conference announcing his appointment, Dr. Joseph Ladapo said that “Florida will completely reject fear as a way of making policies.”

When asked whether Florida should promote vaccination, Ladapo said that “vaccines are up to the person.  There is nothing special about them compared to any other preventative measure.”

“The state should be promoting good health, and vaccination isn’t the only path to that.  It’s been treated almost like a religion, and it’s senseless,” he added.

You, Dr. Ladapo, are an idiot.

Wall Street, the Fed, and the Economy

The White House budget office notified federal agencies this week to begin preparations for the first shutdown of the U.S. government since the pandemic began, as lawmakers struggled to reach a funding agreement.

Both Democrats and Republicans have made clear they intend to fund the government before its funding expires on Sept. 30, but time is running out and lawmakers are aiming to resolve an enormous set of tasks in a matter of weeks.

House Democrats earlier this week approved a measure to fund the government, suspend the debt ceiling, and approve emergency aid such as disaster relief.  But that plan is expected to die in the Senate amid GOP refusal to support Democratic attempts to lift the debt ceiling.

So here we are…it’s all about next week, at least partially.

Treasury Secretary Janet Yellen / Wall Street Journal

“Congress has raised or suspended the country’s debt ceiling about 80 times since 1960.  Now it must do so again.  If not, sometime in October – it is impossible to predict precisely when – the Treasury Department’s cash balance will fall to an insufficient level, and the federal government will be unable to pay its bills.

“The U.S. has always paid its bills on time, but the overwhelming consensus among economists and Treasury officials of both parties is that failing to raise the debt limit would produce widespread economic catastrophe.  In a matter of days, millions of Americans could be strapped for cash.  We could see indefinite delays in critical payments.  Nearly 50 million seniors could stop receiving Social Security checks for a time.  Troops could go unpaid.  Millions of families who rely on the monthly child tax credit could see delays.  America, in short, would default on its obligations.

“The U.S. has never defaulted.  Not once.  Doing so would likely precipitate a historic financial crisis that would compound the damage of the continuing public health emergency.  Default could trigger a spike in interest rates, a steep drop in stock prices and other financial turmoil.  Our current economic recovery would reverse into recession, with billions of dollars of growth  and millions of jobs lost.

“We would emerge from this crisis a permanently weaker nation.  For about a century, America’s creditworthiness has been a major advantage over our economic competitors.  We can borrow more cheaply than almost any other country, and defaulting would jeopardize this enviable fiscal position.  It would also make America a more expensive place to live, as the higher cost of borrowing would fall on consumers.  Mortgage payments, car loans, credit card bills – everything that is purchased with credit would be costlier after default.

“There is no valid reason to invite such an outcome, certainly not fiscal responsibility, the most commonly stated reason. Raising the debt ceiling doesn’t authorize additional spending of taxpayer dollars.  Instead, when we raise the debt ceiling, we’re effectively agreeing to raise the country’s credit card balance, and in this case, 97% of that balance was incurred by past congresses and presidential administrations.  Even if the Biden administration hadn’t authorized any spending, we would still need to address the debt ceiling now.

“Paying America’s bills shouldn’t be a controversial issue, and during the previous administration Congress suspended the debt ceiling three separate times with bipartisan support and without much fanfare. For this reason, I’m confident our lawmakers will address the debt ceiling once again, but they must act quickly.

“There is a big difference between avoiding default by months or minutes.  We saw that in 2011 when debt-limit brinkmanship pushed America to the edge of crisis.  America’s credit rating was downgraded, and there was a severe stock market downturn.  This led to financial-market disruptions that persisted for months.  Time is money here, potentially billions of dollars.

“Neither delay nor default is tolerable.  The past 17 months have tested our nation’s economic strength.  We are just now emerging from crisis.  We must not plunge ourselves back into an entirely avoidable one.”

As for the Federal Reserve, on Wednesday, Chairman Jerome Powell and his band of merry pranksters signaled that they would likely start tapering their $120 billion a month bond-buying scheme soon, like in November, with the goal to finish the program by mid-2022, thus clearing the way for a rate hike.  Half of Fed officials now think rates will start rising by late next year., when six months ago, a majority of officials didn’t see that happening until 2024.

Now half of Fed policymakers think borrowing costs should increase to at least 1% by the end of 2023, reflecting a growing consensus that gradually tighter policy will be needed to keep inflation in check.

The swifter pace of interest rate hikes compared to the central bank’s last set of projections in June comes as the economy continues its rapid recovery, after a brief recession last year, and robust debate about balancing the Fed’s maximum employment and 2% average inflation goals.

It also shows that officials continue to see the Delta variant as having a short-lived effect on the recovery despite the current turbulence and uncertainty it is causing.

At the press conference following the FOMC meeting in which the benchmark lending rate remained in its 0% to 0.25% range, where it has been since March 2020, Fed Chair Powell said the latest set of forecasts showed a growing convergence of views on the rate-setting committee that the economy will continue to strengthen, and pointed to fewer people now seeing rates as needing to stay on hold beyond 2023 as evidence.

“It’s not really an unusually wide array of views about this,” Powell said.  The chairman, who remains of the view that the higher-than-expected inflation is temporary, acknowledged inflation has so far confounded many policymakers’ expectations.

As for the tapering of the bond-buying program, Powell wanted to make clear: “The timing and pace of the coming reduction in asset purchases will not be intended to carry a direct signal regarding the timing of interest-rate liftoff.”

Meanwhile, the Fed’s latest economic projections show a big reduction in growth for 2021, from June’s 7.0% forecast to 5.9%.

The core personal consumption expenditures index (the Fed’s preferred inflation barometer) is now pegged at 3.7% for this year vs. 3.0%, and 2.3% next year.

The unemployment rate is expected to drop to 3.8% in 2022, and the magical 3.5% in 2023.

Meanwhile, on the economic data front, it was housing week. August housing starts came in better-than-expected, a 1.615 million annualized rate vs. 1.554m the prior month; August existing-home sales fell for the first time in two months, down 2% to a seasonally adjusted annual rate of 5.88 million, with a median existing-home sales price of $356,700, up nearly 15% annually; and August new home sales were at a 740,000 annual rate, vs. a prior revised figure of 729,000.

The Atlanta Fed’s GDPNow barometer is at 3.7% for the third quarter.

Europe and Asia

We had flash PMI data for September from IHS Markit for the eurozone and the composite came in at 56.1, a 5-month low.  Manufacturing was 58.7, a 7-month low, services 56.3, a 4-month low.  While the figures are all off recent all-time highs, they are still solidly in growth mode (50 the dividing line between growth and contraction).

Germany: 58.5 mfg., 56.0 services
France: 55.2 mfg., 56.0 services (yes, the same for both)

UK: 56.3 mfg., 54.6 services

All of these are also multi-month lows.

Chris Williamson / IHS Markit

“September’s flash PMI highlights an unwelcome combination of sharply slower economic growth and steeply rising prices.

“On one hand, some cooling of growth from the two-decade highs seen earlier in the summer was to be expected.  On the other hand, firms have become increasingly frustrated by supply delays, shortages and ever-higher prices for inputs. Businesses, most notably in manufacturing but also now in the service sector, are being constrained as a result, often losing sales and customers.

“Concerns over high prices, stressed supply chains and the resilience of demand in the ongoing pandemic environment has consequently eroded business confidence, with expectations for the year ahead now down to the lowest since January.

“For now, the overall rate of expansion remains solid, despite slowing, but growth looks likely to weaken further in coming months if the price and supply headwinds show no signs of abating, especially if accompanied by any rise in virus cases as we head into the autumn.”

Turning to Asia…in China, it’s all about China Evergrande, the country’s largest developer by contracted sales, with the equivalent of $111.9 billion in such transactions (mostly apartments) in 2020, as well as the world’s most indebted developer.  The company inched closer today to the potential default that investors fear, missing a payment deadline in one of the clearest indications yet that the developer whose debt struggles have spooked markets is in dire trouble.

The company owes $305 billion, has run short of cash and investors are worried a collapse could pose systemic risks to China’s financial system and reverberate around the world.

A deadline for paying $83.5 million in bond interest passed without remark from Evergrande and bondholders had not been paid nor heard from the company.

The firm is now in uncharted territory and enters a 30-day grace period.  It will default if that passes without payment.

Most followers of the situation expect some kind of resolution, or announcement, in the next ten days.

Chinese authorities have been silent on Evergrande’s predicament and China’s state media has offered no clues on a rescue package.

Evergrande warned of default last week and world markets fell heavily on Monday amid fears of contagion, though since stabilized.

The issue for policymakers is how do they impose financial discipline without fueling massive unrest, since an ugly collapse at Evergrande would crush a property market which accounts for 40 percent of Chinese household wealth.  Many buyers of its apartments made large cash down payments or paid up in full for homes that were scheduled to be completed in a few years.  Evergrande has presold more than 1.4 million apartments valued at $200 billion that it has yet to finish, according to estimates from research firm Capital Economics.

Overall, President Xi Jinping’s crackdowns on property developers, technology firms and other private enterprises is starting to weigh on business activity and analysts are rapidly marking down their growth forecasts.

In Japan, core consumer prices were flat in August vs. a year ago, marking the first time since July 2020 that core CPI emerged from negative territory as weak consumption discouraged firms from passing on raw material costs to customers.  Japan’s so-called core-core inflation, ex-food and energy like in the U.S., fell 0.5% in August from a year earlier.  So the central bank’s elusive 2% inflation target is nowhere on the horizon, and no one is expecting it at least through 2023.

Separately, the flash September PMI figures were released, with Japanese manufacturing at 51.2 and services 47.4.

Street Bytes

--Despite a big swoon on Monday in the face of the growing Evergrande crisis in China, stocks still managed to finish up on the week, albeit fractionally, with the Dow Jones gaining 0.6% to 34798, the S&P 500 +0.5% and Nasdaq up four points, 0.02%.

Evergrande and the Fed dominated discussions this week.  Next week it’s fiscal policy and the looming earnings season.

With four trading days left in the month, the S&P is down 1.5% in September, historically the worst month for stocks.

--U.S. Treasury Yields

6-mo. 0.04%  2-yr. 0.27%  10-yr. 1.45%  30-yr. 1.99%

Yields on long-term Treasuries surged the most in 18 months on Thursday as traders brought forward their expectations for the first rate hike by the Fed to the end of 2022 following a hawkish policy meeting.

It didn’t help that the Bank of England the same day raised the prospect of increasing interest rates as soon as November to contain a surge in inflation, a move that sent the yields on 10-year gilts up 10 basis points to 0.9%, and our own 10-year up 10 bps as well to 1.41% yesterday, finishing the week at 1.45%, the highest weekly close in three weeks.

Separately, Fed Chair Powell said on Wednesday he was displeased with the active investing carried out by two Fed regional bank presidents and pledged the central bank’s ethics rules will be tightened after a thorough review.

“We need to make changes and we are going to do that,” Powell said at his press conference.

Though rules limiting the trading activities of Fed policymakers are somewhat stricter than those for government employees generally, the current framework is “now clearly seen as not adequate to the task of really sustaining the public’s trust.”

Dallas Fed President Robert Kaplan and Boston Fed President Eric Rosengren apparently traded actively in stocks and other investments last year as the economy was being roiled by the pandemic.  Both pledged to divest their holdings.  Powell said he had not been aware of their trading activities before they were reported earlier this month by the Wall Street Journal and others.

--There are growing fears of a pricing crisis in California and New England this winter when it comes to natural gas.  U.S. inventories are tight, and a harsh winter could lead to a supply crunch, particularly in New England which has always had issues on this front, with limited pipeline capacity.

California’s prime issue is a deadly explosion in August along one of Kinder Morgan Inc.’s pipelines in Arizona, which led to a reduction in supplies from the Permian basin.  There are concerns restrictions on the system will persist.

--As alluded to above, Europe faces an energy crisis this winter, and now in the UK, oil giant BP said on Thursday it was having to temporarily close some petrol filling stations because of a lack of truck drivers.  But Small Business Minister Paul Scully said Britain was not heading back into a 1970s-style “winter of discontent” of strikes and power shortages amid widespread problems caused by supply chain issues.

Soaring wholesale European natural gas prices have sent shockwaves through energy, chemicals and steel producers, and strained supply chains which were already creaking due to insufficient labor and the tumult of Brexit.

--Daniel Yergin and Matteo Fini / Wall Street Journal

“The chip famine is starving the global auto industry and putting car buyers on a strict diet.  So far this year, seven million cars that were supposed to be produced haven’t been, according to IHS Markit data. Auto companies are shutting down production lines for weeks at a time and furloughing employees as a result of the chip shortage.  Toyota has slashed its production 40% in September.

“All this is hitting consumers. Car dealers’ lots across the U.S. are sparse. The inventory of new cars in the U.S. is only about 30% of pre-pandemic levels, and buyers snap up used cars as soon as they find them….

“The chip famine won’t be solved quickly. The automotive team at IHS Markit calculates that semiconductor supply won’t catch up with industry demand until late 2022, and shortfalls of some advanced-function chips will likely persist into 2023….

“While the auto industry represents only 10% of semiconductor demand, it has borne that brunt of the supply crunch.  In the summer of 2019, IHS Markit noted that the auto industry’s reliance on a shrinking supply base to produce semiconductors was risky. The pandemic has turned that risk into a serious shortage.  Beginning in 2020, auto markers had to compete for chips against electronics manufacturers producing goods for locked-down consumers and rising demand for 5G mobile networks.

“Covid outbreaks have also shut down factories, breaking links in the supply chain. The Vietnamese plants that play a key role in fabricating chips for Asian manufacturers stopped working in August as the Vietnamese army enforced a pandemic lockdown.  A drought in Taiwan disrupted water-intensive chip production; a fire at a Japanese semiconductor factory further restricted supply; and a winter storm hit semiconductor plants in Texas.  As auto makers and suppliers work to replenish their inventories, some companies are reportedly paying premiums to secure chips….

“The obvious answer to the chip famine is to increase manufacturing capacity. But that is expensive and takes time. Semiconductor companies may not want to invest in traditional chip technology when future demand likely will come from higher-value chips for applications like artificial intelligence.  While the chip industry has announced nearly $400 billion in new investment as the chip famine unfolded, only a small portion of this investment will be used to address the chip shortage afflicting auto makers.

“This shortage has made companies and governments anxious about national-security concerns given that Asia dominates the semiconductor industry.  Government initiatives in the U.S. and Europe have begun to reshore some manufacturing. But these initiatives are focused on advanced chip technology and aren’t expected to solve the automotive industry’s woes….

“The auto industry needs solutions.  In the short term, several auto players are considering moving away from their just-in-time sourcing model and instead are providing chip suppliers more certainty about future demand.  Some are giving priority to vehicles with higher profit margins.  One company has reverted to mechanical dials on some cheaper models instead of digital displays so that those chips can be used for more expensive models….

“Some advice for consumers: You will likely have to wait until next year for your dream car as the supply chain straightens out. If you want a new car now, try to find an available model that works for you, or if you spy a used car you want on one of those barren lots, grab it.  And if you are considering selling your car, inventory-hungry auto dealers with open checkbooks will be eager to meet you.”

--Speaking of supply chain issues, shares in Nike tumbled Friday, 6%, after the company cut its fiscal 2022 sales expectations and said it expects delays during the holiday shopping season, blaming a supply chain crunch that has left it with soaring freight costs and products stuck in transit.

Nike also said it expects second-quarter revenue growth to be in the range of “flat to down low-single digits versus the prior year” due to factory closures.  Revenue in its first fiscal quarter rose to $12.25 billion from $10.59bn a year ago, but this was less than the Street’s forecast of $12.46bn.

Nike’s net income rose 23% to $1.87 billion, or $1.16 per share in the quarter.

Months-long factory closures in Vietnam, where about half of all Nike footwear is manufactured, have piled more pressure on global supply chains already reeling from the impact of the pandemic.

“In Vietnam, nearly all footwear factories remain closed by government mandate.  Our experience with Covid-related factory closures suggest that reopening and ramping back to full production scale will take time,” Nike’s CFO Matthew Friend said.

Nike said it had lost 10 weeks of production in Vietnam so far and it would take several months to ramp back to full production.

Retailer inventories are already trending at historic lows.  Data from the Federal Reserve Bank of St. Louis showed that at the end of July, stores had enough merchandise to cover only a little more than a month of sales, a sharp drop from the near two-month lead they had in April last year.

--The Justice Department and officials in California and five other states have filed a lawsuit to block a partnership formed by American Airlines and JetBlue Airways, saying it would reduce competition and lead to higher fares for flights between many U.S. cities.

The Justice Department said Tuesday that the agreement would eliminate important competition in Boston and New York and reduce JetBlue’s incentive to compete against American in other parts of the country.

Attorney General Merrick Garland said the lawsuit was about ensuring fair competition that lets Americans fly at affordable rates.

“In an industry where just four airlines control more than 80% of domestic air travel, American Airlines’ ‘alliance’ with JetBlue is, in fact, an unprecedented maneuver to further consolidate the industry,” Garland said in a statement.  “It would result in higher fares, fewer choices, and lower-quality service if allowed to continue.”

American and JetBlue announced their deal last year and say it is a pro-consumer arrangement that has already added dozens of new routes, while challenging Delta and United in the region.

Together, the airlines say, they controlled 16% of the region’s air-travel market before the partnership, and that has grown to 24%.  They also say nothing in their deal controls pricing, and that each airline will continue to set its own fares.

Southwest Airlines and Spirit Airlines filed formal complaints against the American-JetBlue alliance, however, arguing that – along with a similar deal on the West Coast between American and Alaska Airlines – it will make American too big.

--TSA checkpoint travel numbers vs. 2019…

9/23…76 precent of 2019 level
9/22…67
9/21…66
9/20…75
9/19…82…first day over 2M since 9/6
9/18…76
9/17…76
9/16…75

*8/1 remains top day post-pandemic with 2,238,462 travelers.

--Huawei Technologies Co. executive Meng Wanzhou has reached a deal with U.S. prosecutors that will allow her to return to China, according to various reports.  Meng, who has been detained in Vancouver for nearly three years, appeared via video at a U.S. federal court hearing in New York today.

The resolution ends a legal dispute that helped to throw Beijing’s relations with Canada and the United States into crisis.

Meng, who was arrested at Vancouver International Airport in December 2018 on a U.S. warrant, was indicted on bank and wire fraud charges for allegedly misleading HSBC about Huawei’s business dealings in Iran.

Canada’s Globe and Mail, however, reported that the plea agreement does not include any deal that would release Canadians Michael Spavor and Michael Kovrig, who were arrested in China shortly after Meng’s detention on charges of espionage.

The agreement will require Meng to admit to wrongdoing in exchange for prosecutors deferring and later dropping charges, the Wall Street Journal reported.  She will also pay a fine, according to CNBC.

--Cryptocurrencies had a rough week, capped off by China’s central bank announcing that all cryptocurrency-related transactions are illegal, reinforcing the country’s tough stance against digital rivals to government-issued money.

In a statement posted on its website this afternoon, the People’s Bank of China said the latest notice was to further prevent the risks surrounding crypto trading and to maintain national security and social stability.

Bitcoin, which traded at $52,500 on Sept. 7, is $42,800 as I write, but had been much lower in the day.

--General Mills, a good proxy for the consumer, post-pandemic behavior and the food industry, reported better-than-expected results for the fiscal first quarter, with earnings coming in a penny lower than a year earlier while sales climbed and the food maker tweaked its fiscal 2022 financial forecast.

The Cheerios and Pillsbury parent reported adjusted profit of $0.99 per share, compared with $1 for the same period in 2020 and ahead of consensus. Sales for the quarter ended Aug. 29 were $4.54 billion, up from $4.36bn the prior year and topping views for $4.3 billion.

North American retail sales for the quarter were down 3% at $2.64 billion, due in part to stores stocking up in the 2020 period, while convenience store and food service sales soared 23% to $482 million as schools and businesses reopened.  Pet food sales shot up 25% to $488 million.  Sales in Europe and Australia rose 5% to $518 million, while sales in Asia and Latin America jumped 8% to $413 million.

General Mills said that it sees pandemic-related changes in consumer behavior continuing as people spend more time working from home.  The company also sees continued consumer interest in home cooking and baking, along with growing demand for quality pet food products due to increased pet ownership.

But the company also talked of issues impacting all manufacturers…the supply chain and the cost of raw materials.

--FedEx shares tanked 9% Wednesday after the company reported its first earnings miss since the pandemic started and it was a bad one.  Adjusted EPS fell 10% year-over-year to $4.37, a $0.55 miss, the largest in the past five years.  Revenue was generally in-line while full year EPS guidance was lowered.

The biggest culprit for the huge earnings miss was higher labor costs, some $450 million higher than a year before.  The inability to hire, particularly package handlers, has driven wage rates higher.  However, the more significant impact is the widespread inefficiency in operations that results as FedEx uses overtime to cover open shifts and route volume.

For example, FDX says its Portland, Oregon, hub is running with just 65% of the staffing needed to handle its normal volume.  This results in diverting 25% of the volume that would normally flow to this hub because it simply cannot be processed in time, creating significant inefficiencies.

Across the FedEx Ground network, more than 600,000 packages a day are being rerouted.

Last June, FedEx officials offered hope that the labor situation had begun to abate, but instead it only got worse.

And now we have the peak holiday season?!  As I said above, shop early.

--General Motors said it would start to fix Chevrolet Bolt electric cars that were recalled for fire risk in October, although many owners likely will have to wait months to receive the remedy.

GM said Monday it would start shipping new battery cells to dealerships as early as mid-October to begin replacing potentially faulty battery modules.  GM and supplier LG Energy Solution have identified and fixed a manufacturing defect, and LG recently resumed production of cells at a factory in Michigan.

The recall now covers roughly 142,000 vehicles produced since the electric car went on sale in late 2016.

The Chevy Bolt is GM’s only electric model sold in the U.S., but in coming years, the automaker plans to introduce a few dozen electric models, including a GM pickup truck later this year and a new Cadillac SUV by next summer.

The recall campaign is estimated to cost GM $1.8 billion, making it one of the company’s costliest safety actions in history.  The company said it was aware of 13 fires linked to what it has described as a defect in some battery cells.

--The National Highway Traffic Safety Administration (NHTSA) opened a probe into 30 million U.S. vehicles from the 2001 through 2019 model years with potentially defective Takata air bag inflators.  The vehicles in question were built by nearly two dozen automakers, including Honda, Ford, Toyota, and GM.

The vehicles in question are on top of the 67 million vehicles with defective Takata air bag inflators already recalled in the United States – and more than 100 million worldwide – in the biggest auto safety callback in history because inflators can send deadly metal fragments flying in rare instances.  There have been at least 28 deaths worldwide, including 19 in the U.S., tied to faulty Takata inflators and more than 400 injuries.

--Google said it is buying a Manhattan office building for $2.1 billion, one of the clearest signals yet of big technology companies’ growing appetite for office space, even as the same companies embrace remote work.

The deal for the new building on Manhattan’s West Side is the most expensive sale of a single U.S. office building since the start of the pandemic – and one of the priciest in U.S. history, according to data company Real Capital Analytics.

The purchase of the waterfront property is a sign that fears of the office building’s demise look overblown.  While vacancy rates across the U.S. are well above pre-pandemic levels and office rents have tumbled, there is evidence cheaper space is luring back corporate tenants, who are planning years ahead.

In Manhattan, office rents are down to where they were in 2017, but August leasing activity for Midtown was more than double the previous month, according to real-estate firm Colliers. 

New office buildings are also finding buyers again.  In March, private-equity firm KKR & Co. paid $1.1 billion for a San Francisco property.

As for the tech giants, as Brian Kingston, CEO of real estate at Brookfield Asset Management put it, “Even if they have 20% of their workforce working remotely, business is just growing so fast that the other 80% still needs a place to go.”

--Homebuilder Lennar reported revenue totaled $6.94 billion for the quarter ended Aug. 31, up from $5.87 billion.  The Street estimate was $7.26 billion.

Stuart Miller, Executive Chairman of Lennar, said, “During the third quarter, our company and the homebuilding industry as a whole continued to experience unprecedented supply chain challenges which we believe will continue into the foreseeable future.  As a result, our third quarter deliveries of 15,199 homes were about 600 homes below the low end of our guidance.  Additionally, we are adjusting our fourth quarter delivery guidance to, more or less, 18,000 homes, reflecting this supply chain constraint.”

--Macy’s said it plans to hire about 76,000 full- and part-time workers at its stores, call centers and warehouses ahead of the holiday season.  Now it has to find said workers.

--There was a changing of the guard at Sunday’s Emmy Awards as Netflix captured its first-ever wins for drama series (“The Crown”) and limited series (“The Queen’s Gambit”), and amassed 44 total Emmys, tying a record that CBS has held since 1974.  Apple TV+ stormed the comedy categories with wins, including best series for “Ted Lasso.”

The broadcast, on CBS, drew 7.4 million viewers, up 16% from last year’s show, a largely virtual event that hit a record ratings low on ABC.  After a decade of declining viewership, this one was the largest audience since 2018.

Foreign Affairs

Afghanistan: The Taliban announced several senior appointments on Tuesday, naming two veteran battlefield commanders from the movement’s southern heartlands as deputies in important ministries. The two, Mullah Abdul Qayyum Zakir (deputy defense minister) and Sadr Ibrahim (deputy interior minister) were identified in UN reports as being among the commanders loyal to the former Taliban leader Mullah Akhtar Mansour who were pressing the leadership to step up the war against the Western-backed government.

The appointments add to the roster of hardliners in the main group of ministers, which included figures like Sirajuddin Haqqani, head of the militant Haqqani network, blamed for a string of attacks on civilian targets.

Zakir was a former detainee at Guantanamo Bay and was a close associate of late Taliban founder Mullah Omar.  He was captured when U.S.-led forces swept through in 2001 and was incarcerated at Guantanamo until 2007, according to media reports.

Meanwhile, female employees in the Kabul city government have been told to stay home, with work only allowed for those who cannot be replaced by men, the interim mayor of Afghanistan’s capital said Sunday, detailing the latest restrictions on women by the new Taliban rulers.

The decision to prevent most female city workers from returning to their jobs is another sign that the Taliban is enforcing its harsh interpretation of Islam despite initial promises by some that it would be tolerant and inclusive.

In recent days, the new Taliban government has issued several decrees rolling back the rights of girls and women.  It told female middle- and high school students that they could not return to school for the time being, while boys in those grades resumed studies this weekend.  Female university students were informed studies would take place in gender-segregated settings from now on, and that they must abide by a strict Islamic dress code.

The Taliban also shut down the Women’s Affairs Ministry, replacing it with a ministry for the “propagation of virtue and the prevention of vice” and tasked with enforcing Islamic law.

Iran: UK Foreign Secretary Liz Truss met Secretary of State Antony Blinken on the sidelines of the UN General Assembly this week.

Iran said on Tuesday that talks with world powers over reviving its 2015 nuclear deal would resume in a few weeks, the official Iranian news agency IRNA reported.

“Every meeting requires prior coordination and the preparation of an agenda. As previously emphasized, the Vienna talks will resume soon and over the next few weeks,” an Iranian Foreign Ministry spokesman said.

Britain and the U.S. agreed on the need for Iran to return to negotiations in Vienna on the Joint Comprehensive Plan of Action (JCPOA).

The world powers, including China, France, Russia and Germany, have held six rounds of indirect talks between the United States and Iran in Vienna to try and work out how both can return to compliance with the nuclear pact, abandoned in 2018 by former president Trump.

Trump reimposed harsh sanctions on Iran, which then started breaching curbs on its nuclear program.

Now, Iran has just been stalling for time as it ramps up its nuclear work.

Israel: The House Appropriations Committee introduced legislation on Wednesday to provide $1 billion to Israel to replenish its “Iron Dome” missile-defense system, a day after the funding was removed from a broader spending bill.

Some of the most liberal (progressive) House Democrats had objected to the provision and said they would vote against the broad spending bill.

The removal led Republicans to label Democrats as anti-Israel, despite a long tradition in the Congress of strong support from both parties for the Jewish state.

The U.S. has already provided more than $1.6 billion for Israel to develop and build the Iron Dome system.

But some progressive Democrats have voiced concerns this year about U.S.-Israel policy, citing among other things the many Palestinian casualties as Israel responded to Hamas rocket attacks in May.  Israel said most of the 4,350 rockets fired from Gaza during the conflict were blown out of the sky by Iron Dome interceptors.

The House bill would provide the funding to replace the interceptors used during that conflict.

China:  President Xi Jinping used his General Assembly speech to reject the American portrayal of his government as authoritarian, predatory and expansionist, asserting that he supports peaceful development for all peoples and that democracy is “not a special right reserved to an individual country.”

Regarding the new security pact between the United States, Australia and Britain that will put American nuclear-powered subs in the Australian arsenal, Xi, without mentioning the United States or Australia by name, said the world must “reject the practice of forming small circles or zero-sum games.”  Disputes between countries, Xi said, are hardly avoidable and “need to be handled through dialogue and cooperation on the basis of quality and mutual respect.”

Separately, in his prerecorded remarks, President Xi said his country would stop building coal-burning power plants overseas, ending its support for construction projects that rely on the world’s dirtiest fossil fuel.

“China will step up support for other developing countries in developing green and low carbon energy and will not build new coal-fired power projects abroad,” Xi said.

Within its own borders, China is by far the biggest producer of coal domestically and the largest financier of coal-fired power plants abroad.

But there have been hints China was shifting its policy.  Chinese coal projects in countries like Bangladesh, Kenya and Vietnam have faced stiff opposition, mainly from civil society groups.  UN Secretary General Antonio Guterres said that “accelerating the global phaseout of coal is the single most important step to keep the 1.5-degree goal of the Paris Agreement within reach.”

But President Xi said nothing about his coal plants at home, as it continues to build the world’s largest fleet of coal-fired plants within its borders, and most of China’s electricity still comes from coal.

Last year, China built more than three times more new coal power capacity than all other countries in the world combined, equal to “more than one large coal plant power per week,” according to estimates from the Centre for Research on Energy and Clean Air in Finland.  China’s latest five-year development plan, approved earlier this year, allows for expanded coal-power construction at home in the coming years.

According to the International Energy Agency, after a pandemic-year retreat, demand for coal is set to rise 4.5 percent this year, mainly to meet soaring electricity demand.

Meanwhile, Taiwan’s air force was forced to scramble again on Thursday to warn off 19 Chinese aircraft that entered its air defense zone, the latest uptick in tensions across the Taiwan Strait.  The Chinese aircraft included 12 J-6 fighters and two nuclear-capable H-6 bombers, Taiwan’s defense ministry said.

And on a different matter, Beijing’s application to join a trans-Pacific trade pact could undermine Taiwan’s chances of gaining access to the regional bloc if Beijing becomes a member ahead of the self-ruled island.

Taipei officially submitted its application on Wednesday to join the now 11-member Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) under the name “the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu (Chinese Taipei)” – a title it used in the World Trade Organization, of which Beijing is also a member.

David Ignatius / Washington Post

“Anyone who has visited China over the past several decades has heard anguished stories from Chinese friends about the results of Mao Zedong’s social engineering in the Great Leap Forward and the Cultural Revolution.  China spent 40 years recovering from those disasters to become a great, modern nation.

“So, I can almost hear the gasps inside China, from the generation that lived through the nightmare years, as President Xi Jinping has moved down a Maoist path this year toward tighter state control of the economy – including ‘self-criticism’ sessions for Chinese business and political leaders whose crime, it seems, was being too successful.

“Xi’s leftward turn represents a major change in the management of the Chinese economy, in the view of a half-dozen experts I’ve consulted over the past week.  It has the idealistic goal of ‘common prosperity’ and a fairer distribution of China’s new wealth.  But Xi will drive these changes using the ruthless instrument of an authoritarian, one-party state – and you can already see the purges and figurative ‘dunce caps’ for those he views as obstacles….

“The best account I’ve read of Xi’s plans was an article Monday in the Wall Street Journal by Lingling Wei, the paper’s senior China correspondent. She described a campaign that has included more than 100 regulatory and policy directives over the past year that have shattered the power of the companies that had dominated China’s new economy – the internet giants Alibaba and Tencent, and a real estate behemoth called Evergrande. Xi has also attacked gaming and education companies that he thought were skewing the values of Chinese youth.

“The most chilling detail in Wei’s account involved Vice Premier Liu He, a market advocate who has over the past decade been China’s most important contact with the West.  The article noted that Liu offered ‘self-criticism’ for allowing the ride-sharing company Didi to float a $4.4 billion IPO this summer.  This humiliation of a senior official was an echo of Mao’s Cultural Revolution, which eviscerated China’s educated middle class in the 1970s.

“Xi is a cunning and ruthlessly successful politician; since taking power in 2013, he has purged a generation of leaders in the Communist Party, the military, and the intelligence and security services to gain absolute control.  His hubris is that, like Mao, he now seeks to become a man-God, whose thoughts are holy writ.

“Xi’s unabated hunger for power is evident in his drive for a third term as party leader.  That would break the two-term rule that has prevailed in China’s modern history and provided the checks and balances of group leadership.  ‘China had solved the major problem of one-party state – succession.  Now they are un-solving it,’ argues a former top-level U.S. national security official.

“To drive his internal revolution, Xi has his own vanguard organizations.  One is the party’s United Front Work Department, which earlier organized campaigns against Uyghurs, democrats in Taiwan, foreign critics in the West and other ‘threats.’  Another is the party’s Central Commission for Discipline Inspection, which organized the purges of the past decade under its chief, Wang Qishan, who may be Xi’s most decisive deputy.

“When Wang left that post in 2017 and became a vice president without portfolio, an intelligence source tells me, he was assigned the job of breaking dissent in Hong Kong; now, ominously, it’s said he has been assigned the Taiwan file….

“Xi’s campaign to remake China – from the video games people play to the ways children are educated – was explained in a Sept. 9 report by The Post’s Lily Duo. The warning lights are blinking red, so to speak.

“Xi is animated by what he has called his ‘China Dream,’ of a nation of unparalleled wealth and power – and also the egalitarian ideals of socialism. His problem is that, like Mao and other visionaries, he has a messianic streak that could prove destabilizing for the world and downright toxic for China.”

North Korea: South Korea’s call to declare a formal end to the Korean War is premature as there is no guarantee it would lead to the withdrawal of the “U.S. hostile policy” toward Pyongyang, North Korea state media KCNA reported on Friday, citing Vice Foreign Minister Ri Thae Song.

Tuesday, South Korean President Moon Jae-in repeated a call for a formal end to the Korean War in an address to the UN General Assembly and proposed that the two Koreas, with the United States, or with the United States and China, make such a declaration.

The two Koreas are still technically at war after their 1950-53 conflict ended in a ceasefire rather than a peace treaty.

“Nothing will change as long as the political circumstances around the DPRK remains unchanged and the U.S. hostile policy is not shifted, although the termination of the war is declared hundreds of times,” Ri said on KCNA.  “The U.S. withdrawal of its double-standards and hostile policy is the top priority in stabilizing the situation of the Korean Peninsula and ensuring peace on it.”

Friday, Moon said he was confident that Pyongyang will realize it is in its interest to renew dialogue with Washington, but not certain that moment will come during his term, which ends in 2022.  “It seems that North Korea is still weighing options while keeping the door open for talks, since it is only raising tension at a low level, just enough for the U.S. to not break off all contact,” Moon told reporters.

Tuesday, in his UN General Assembly speech, President Biden said he wanted “sustained diplomacy” to resolve the crisis surrounding the North’s nuclear and ballistic missile programs.

Well, then today, the influential sister of Kim Jong Un, Kim Yo Jong, issued a statement saying her country is willing to resume talks with South Korea if it doesn’t provoke the North with hostile policies and double standards.

“If (South) Korea distances itself from the past when it provoked us and criticized us at every step with its double standards and restores sincerity in its words and actions and abandons its hostility, we would then be willing to resume close communication and engage in constructive discussions about restoring and developing relations,” Kim Yo Jong said.

To achieve the end-of-the-war declaration, she said: “We must ensure mutual respect toward one another and abandon prejudiced views, harshly hostile policies and unfair double standards toward the other side first.”

North Korea desperately needs aid, and this is a play for it.

Canada: Prime Minister Justin Trudeau won a third term in Canada’s snap election but fell short of regaining the majority he was seeking, faced with relying on smaller parties in another fragmented parliament.

Trudeau’s Liberal Party was elected or leading in 156 of the 338 seats in the House of Commons, last I saw, which is little changed from the last vote in 2019.  The main opposition Conservatives, under Erin O’Toole, were ahead in 122 seats, one more than they won last time.

While Trudeau is likely to be able to pursue his left-leaning agenda with the backing of other parties in parliament, he lacks the broad-based support from voters needed to govern alone.

For a second straight election, his party lost the popular vote to the Conservatives, 34.1% to 31.8% of the national vote, which would be the lowest share for any governing party in Canada’s history.

It’s also not exactly a ringing endorsement of either major party.

But Trudeau does have a stable minority, with multiple potential partners to pass legislation.

Germany: We have a big election on Sunday here, as Germans go to the polls to elect their next chancellor, replacing Angela Merkel after nearly 16 years at the helm.  It’s going to be a big change for all of Europe, as Merkel has dominated the scene.  This also creates an opportunity for the likes of France’s Emmanuel Macron and Italy’s Mario Draghi to assume more of a central role in European affairs, as Merkel’s successor, whoever it ends up being, will have far less influence than she had.

Ukraine: A top adviser to President Volodymyr Zelensky was shot at on Wednesday while being driven in his car outside Kyiv, in what authorities said was an assassination attempt.

The adviser, Serhiy Shefir, was not injured in the attack, but the driver of the car was wounded and hospitalized.

The attack occurred while Zelensky was addressing the UN General Assembly and he used his speech to denounce the attack, speak out against Russia’s military intervention in eastern Ukraine and rally diplomatic backing for Kyiv.

“It’s time to wake up,” Zelensky, animated and upset, told the assembled diplomats in the General Assembly hall.  “This is the price of changes in the country.”

While Zelensky did not blame Russia directly for the attack, he assailed Ukraine’s giant neighbor, as he has done in earlier UN speeches, for its seizure of the Crimean peninsula and support for the separatists in eastern Ukraine. Fighting there has claimed thousands of lives over the past eight years.

Zelensky reminded his audience how the allied victors of World War II, who would help create the United Nations, had met in the Crimean peninsula.  Now, he said, “the very cradle of the place the UN was born remains occupied by a permanent member of the Security Council.”

Russia: The European Court of Human Rights ruled on Tuesday that Russia was responsible for the 2006 killing of ex-KGB officer Alexander Litvinenko, who died an agonizing death after he was poisoned in London with Polonium 210, a rare radioactive isotope.

Meanwhile, in their sham national election, Russia’s ruling party won control of two-thirds of the seats in the Russian Parliament, a showing that will allow the government to enact changes to the constitution and bolsters the power of President Vladimir Putin.

The result reflected the weakness of the opposition led by jailed Kremlin critic Alexei Navalny, which claimed that the vote was neither free nor fair.

Multiple videos surfaced that appeared to show ballot stuffing and other tampering.

Random Musings

--Presidential approval ratings…

Gallup: The oldest, and most reputable polling firm issued its monthly update and the news is terrible for Joe Biden.  Only 43% of registered voters approve of the president’s job performance, 53% disapprove (Sept. 1-17).

This compares with a 49-48 favorable split last month (Aug. 2-17).

Even worse, far worse in my mind, is the data on those calling themselves independents.  Only 37% now approve, vs. 55% who did so in June.  This spells death for Biden and the Democrats come Nov. 2022, let alone 2024. 

Rasmussen: 42% approve, 56% disapprove of Biden’s job performance (Sept. 24).

A new Fox News poll has Biden’s approval rating at 50%, 49% disapproving, and while this seems ‘off’ compared to other recent surveys, it is down from a 56-43 positive split in June.

--In a new Des Moines Register/Mediacom Iowa Poll, only 31% of Iowans approve of how President Biden is handling his job, while 62% disapprove.

That’s a 12 percentage point drop in approval from June, the last time the question was asked.  Biden’s disapproval numbers dropped by 10 points during the same period.

Back in March, 47% approved, 44% disapproved.

Only 29% of independents approve, 62% disapprove.

“This is a bad poll for Joe Biden, and it’s playing out in everything that he touches right now,” said pollster J. Ann Selzer.

As in everything the president touches these days turns to merde, as Emmanuel Macron might say.

--Former President George W. Bush is holding a campaign fundraiser for Rep. Liz Cheney in October in Dallas.  Cheney has received campaign contributions from a who’s who of the party establishment, including Senate Minority Leader Mitch McConnell, as well as former House Speakers John Boehner and Paul Ryan.  She has raised nearly $2.4 million this year and had nearly $2.9 million in the bank after her last campaign finance report.

So, needless to say, as one of the 10 House Republicans who voted to impeach Donald Trump for his role in the Jan. 6 insurrection, and an outspoken critic of Trump and her belief he should not play a role in the party going forward, Mr. Trump is none too pleased.

“RINO former President George ‘Dubya’ Bush and his flunky Karl Rove are endorsing warmongering and very low polling, Liz Cheney,” Trump’s emailed statement began.

The 45th president reiterated earlier statements about the 43rd president being “the one who got us into the quicksand of the Middle East and, after spending trillions of dollars and killing nearly a million people, the Middle East was left in worse shape after 21 years than it was when he started his stupidity.

“It ended with Biden’s most embarrassing in history withdrawal from Afghanistan, a total surrender, leaving $85 Billion dollars [sic] of equipment and many young Warriors lives behind,” Trump continued.

--Speaking of No. 45, Trump sued his estranged niece and the New York Times over a 2018 story about his family’s wealth and tax practices that was partly based on confidential documents she provided to the newspaper’s reporters.

Trump’s lawsuit, filed in state court in New York, accuses Mary Trump of breaching a settlement agreement by disclosing tax records she received in a dispute over family patriarch Fred Trump’s estate.

The Times’ story challenged Trump’s claims of self-made wealth by documenting how his father, Fred, had given him at least $413 million over the decades, including through tax avoidance schemes.

In a statement to NBC News, Mary Trump said of her uncle, “I think he is a loser, and he is going to throw anything against the wall he can.  It’s desperation. The walls are closing in and he is throwing anything against the wall that he thinks will stick. As is always the case with Donald, he’ll try and change the subject.”

--In the Bob Woodward / Robert Costa book “Peril,” we have the revelation that Sens. Lindsey Graham and Mike Lee examined the Trump campaign’s claims of election fraud and found nothing.  The book also documents Graham’s repeated – and unsuccessful – attempts to convince Trump to concede the election.

Trump then went after the two staunch Republicans.

“I spent virtually no time with Senators Mike Lee of Utah, or Lindsey Graham of South Carolina, talking about the 2020 Presidential Election Scam or, as it is viewed by many, the ‘Crime of the Century,’” Trump wrote in a statement via his Save America PAC.  “Lindsey and Mike should be ashamed of themselves for not putting up the fight necessary to win.”

So pathetic.

--Editorial / Wall Street Journal

“(Donald) Trump’s focus on the 2020 election is a major problem for the GOP.  It divides the party, wasting energy and money on internecine fights rather than running against the damage from the Pelosi-Schumer-Biden agenda.  It focuses on the past when voters want to hear about the present and future.

“It also puts GOP candidates in a tough spot as they attempt to retake the suburban seats they will need to win the House, as well as swing Senate seats in Nevada, Arizona, Georgia and New Hampshire.  If they don’t swear fealty to the stolen election canard, they’ll risk being attacked by Mr. Trump and his supporters. But if they do agree with the Trump line, they’ll give Democrats an opening to tie them to the Jan. 6 riot and Mr. Trump’s attempt to overturn the election result.

“The latter won’t go down well in suburban swing districts, which are full of voters who rejected the GOP in 2018 to send a message to Mr. Trump. They gave Mr. Trump a chance in 2016 but had enough by 2020 and made Joe Biden the President.  Mr. Trump doesn’t want to admit the centrality of his role in these defeats, but the electoral data are clear.

“As Democrats march to the socialist left on economics and use identity to divide America by race and other categories, the country desperately needs a Republican Party that can attract a broad coalition.   A party that purges the likes of (Rep.) Anthony Gonzalez is diminishing its prospects to build a durable majority.”

--A partisan review of the 2020 presidential election commissioned by Arizona Republicans has confirmed Joe Biden’s victory over Donald Trump in the state’s most populous county, according to a draft report of the review’s findings.

Maricopa County announced what it said were the main findings on its Twitter feed late on Thursday, saying the draft “confirms the country’s canvass of the 2020 General Election was accurate and the candidates certified as the winners did, in fact, win.”

--So much for the “Justice for J6” rally last Saturday at the Capitol.  Demonstrators supporting the rioters found themselves far outnumbered by police, journalists and counterprotesters.

But this doesn’t mean Donald Trump’s influence is waning.

--Next Tuesday is a big day.  Gen. Mark Milley, chairman of the Joint Chiefs of Staff, will appear before the Senate Armed Services Committee to explain his actions in the days after the Nov. 2020 election and on up to the inauguration of Joe Biden ten weeks later.  They were controversial, some say unconstitutional.  Next week, Milley has a chance to explain himself.  Let’s see how he does.

In the meantime…David Ignatius / Washington Post:

“As Inauguration Day approached, Milley and other officials across government organized the huge show of force that surrounded the nation’s capital, and Joe Biden took office without incident.  Since then, Milley apparently hasn’t been shy about explaining his activist role in trying to protect the military and Constitution.  Other officials similarly have discussed their roles in checking Trump’s actions during those fraught months.

“Milley doesn’t do anything quietly, unlike his predecessor, (Gen. Joseph) Dunford.  And he may have been indiscreet in some of his attempts to ring the alarm bell.  But his contacts with foreign officials to reduce the risk of conflict weren’t much different from what other chairmen have done. What was unusual were his pledges to Pelosi and other U.S. officials to restrain any unlawful or improper actions by the commander in chief.

“Milley is a target right now. But even as we underline the proper limits on the role of military leaders, we should remember that this problem was with a lawless president who threatened to politicize the military – to the point that the top-ranking general decided to fight back to fulfill what he saw as his paramount duty, to safeguard his country.”

--According to the Defense Department’s latest twice-a-year Futures Survey, years of racial tension, and the use of the National Guard last June (2020) after the death of George Floyd, have hurt the military’s ability to recruit minorities, the head of Air Force recruiting said this week.

This is part of a worrisome long-term trend that the military is fighting against: that fewer recruitment-age youth show an interest in serving.

Most concerning, said Maj. Gen. Ed Thomas, commander of the Air Force Recruiting Service, was that “the biggest drop in propensity to serve is from Black males, Hispanic males, and females.”

For example, the percentage of Black respondents who reported an interest in military service dropped from 20 percent in summer 2019 to 11 percent in summer 2020, according to the data.  By fall 2020, that percentage had fallen to 8 percent.

After Floyd was killed by a Minneapolis police officer, then-president Trump pitted the military against those protesting his death.  He urged governors across the nation to bring out the National Guard and “dominate the streets”; he warned if those governors didn’t deploy Guardsmen, he’d do it himself and “quickly solve the problem for them.”

--Fred Hiatt / Washington Post

“On Sept. 11, 2001, only 57 percent of key national security positions in the George W. Bush administration had been filled.

“The commission that investigated the attacks of that day recommended changes in the nomination and confirmation process for those jobs to lessen the chances of an American government ever being caught so flat-footed again.  There was widespread agreement on the need for reform.

“On Sept. 11 of this year, 20 years later, the share of key national security positions filled was…26 percent.”

Who is responsible? To a great extent, Republican Sen. Josh Hawley (Mo.), who has vowed to do everything he can to keep the Pentagon and State Department from filling a single position.

As Fred Hiatt points out, it starts with the crazy system where roughly 4,000 federal officials – the political appointees chosen to oversee the civil service – stand to lose their jobs every time a president is elected.  Of those 4,000, 1,237 require Senate confirmation!

Hiatt: “Which means that, after they endure months of FBI investigations and other vetting, these nominees wait additional months for a Senate committee to weigh their fitness, and then perhaps months more for the full Senate to vote.

“A president is expected to govern from Day One, in other words, but without much of his government.  The Post and the Partnership for Public Service have been tracking 801 of the most important of those jobs. As of Friday, President Biden had nominated 368 people to fill them – and Congress had confirmed 131.

“Does it matter? Biden probably would have conducted his withdrawal from Afghanistan on the same timetable even if all his national security positions had been filled.  But would the administration have so thoroughly botched the handling of Germany, the United Kingdom and other allies who had fought alongside Americans in Afghanistan?  That was an own-goal that ambassadors, assistant secretaries for Europe and other senior officials might have blocked, if they had been in place.

“Certainly, senior Bush administration officials saw these delays as an impediment when they reflected on the events leading up to 9/11.

“ ‘So when people say, ‘Well, you had nine months to get an alternative strategy on al-Qaeda,’ no, you didn’t,’ Stephen J. Hadley, deputy national security adviser in 2001, recalled for the oral history project at the University of Virginia’s Miller Center.  ‘Once people got up and got in their jobs you had about four months…’

“Hadley described trying to shape a new counterterrorism policy while ‘dealing with professional civil service folks at the office director level, or maybe Deputy Assistant Secretary level, who have only worked under the prior administration.  It’s nuts.’”

Consider this.  At the State Department, the ambassador to only one country (Mexico) had been confirmed after 200 days, at which point the Bush administration had 48 new ambassadors confirmed, Obama 49 and Trump 16.

So now you have Sen. Ted Cruz (R-Tex.) who, “ostensibly to protest Biden’s failure to block a gas pipeline between Russia and Germany, has been holding up every nominee he can at State.

“Last week Hawley pledged to do the same for State and Pentagon nominees – until Biden’s secretary of state, secretary of defense and national security resign. This is to protest what Hawley sees as the failed withdrawal from Afghanistan.

“Of course, it is only showboating. Cruz knows the pipeline story is over; Hawley knows Biden’s Cabinet is not going to step down at his request.

“But it is showboating with a cost.  One senator cannot block a nominee, but he can force the Senate to spend hours debating each one.  With judicial nominees, infrastructure bills, a debt ceiling, a budget and other essential business looming, that means ambassadors, assistant secretaries and everyone else just waits.  And the corridors of power remain empty.

“Depressingly, the next incarnation of a 9/11 Commission will be able to pick up right where the last one left off.”

--Big race for governor in my state of New Jersey this fall, one of the few major races in the country, and a Monmouth University poll has Gov. Phil Murphy leading his Republican challenger, Jack Ciattarelli, by 13 points, 51-38.  An August poll had Murphy up by 16 points.

--Last year the U.S. endured the highest increase in murders since the FBI started tracking national crime records in 1960, preliminary FBI data shows.

In 2020, there were about 5,000 more homicides across the country than a year earlier – for a total of roughly 21,500.

That’s a 29 percent rise in murders last year, well-above the previous record increase of 12.7 percent in 1968, according to the report.

An overwhelming majority – 77 precent – of murders last year were committed with guns, which represents another record high number.

The increase was seen in every U.S. region last year, the report said.

Those cities with populations over 250,000 that reported full data saw a 35 percent increase in killings.

But…despite the astronomical rise in murders compared to 2019, the number of killings is still far below the rates experienced in the U.S. in the early 1990s, the FBI said.

--According to a Monmouth University poll, broad majorities of Americans oppose key provisions of a restrictive Texas abortion law, 70 percent saying they disapprove of “allowing private citizens to use lawsuits to enforce this law rather than having government prosecutors handle these cases.”

Eighty-one percent say they disapprove of giving $10,000 to “private citizens who successfully file suits against those who perform or assist a woman with getting an abortion.”

The poll also found that 54 percent of Americans disagree with the Supreme Court’s decision to let the law stand while the legal battle over it continues.

“The American public is largely pro-choice, although many would accept some limitations on abortion access. This Texas law goes way too far for most people,” Patrick Murray, director of the Monmouth University Polling Institute, said in a statement.  “The ‘bounty’ aspect in particular seems objectionable.”

The poll finds that 62 percent of Americans say abortion should either be always legal or legal with some limitations.  About 24 percent of respondents say it should be illegal except for rape, incest or to save the mother’s life, and 11 percent say it should always be illegal. Those numbers are largely unchanged from a Monmouth poll on the topic two years ago.

Meanwhile, Monmouth asked Americans of their overall opinion of the Supreme Court, and only 42 percent approve of the job the court is doing while 45 percent disapprove.  Five years ago, 49 percent approved and 33 percent disapproved.

--An example of the impact of the pandemic on our youth and their education is a report from James Vaznis in the Boston Globe.

MCAS (Massachusetts Comprehensive Assessment System) scores tumbled by hefty margins across the state, according to results released Tuesday “that offer the first statewide measurements on how much students have struggled with learning during the pandemic.

“Math scores took the biggest hit, dropping 16 percentage points for students in grades 3-8 and 7 percentage points in Grade 10 who took the tests this spring, as compared to two years ago when the tests were last given.

“Achievements on the English/Language Arts exams were mixed.  Scores decreased 6 percentage points in grades 3-8 compared to 2019, but they increased 3 points in Grade 10.”

The tests were given this past spring, over the objections of many educators, parents, and students, who argued they were an unnecessary distraction and would provide little useful information, which is stupid. They had been canceled in spring 2020 because of the statewide lockdown.

Many students did just fine.  46 percent of students in grades 3-8 met or exceeded grade-level expectations in English last spring and 33 percent did in math.  On the Grade 10 tests, 64 percent of students met or exceeded grade-level expectations in English and 52 percent scored that high in math.

Both ‘well-off’ and ‘not-so-well-off’ school districts appeared to fare the same in terms of declines in scores.

And some of the state’s highly-regarded charter schools, long MCAS standouts, experienced the most dramatic declines in math in the lower grades.

--Robert Lee Hotz / Wall Street Journal

“From hummingbirds to eagles, birds across North America flocked to once frenetic urban areas that had locked down in response to the Covid-19 pandemic, according to a new study based on millions of observations by amateur bird-watchers.

“Populations of dozens of bird species rose significantly around city centers, major roads and airports apparently in response to the lull in human activity, a research team led by scientists at the University of Manitoba in Winnipeg found.  Some species were as much as 14 times more numerous during the lockdowns than before pandemic restrictions were imposed.

“ ‘I am shocked at the fact we saw so many changes in bird behavior,’ said Nicola Koper, a conservation scientist at the university and senior author of the study.  ‘All birds are way more sensitive to human disturbance than we had really realized.  Once we reduced traffic, we got almost immediate movement of birds into these landscapes.’”

The research was published in the journal Science Advances. 

--Congratulations to Elon Musk, SpaceX and the four space tourists for a successful three-day journey orbiting earth, their capsule parachuting into the Atlantic off the Florida coast on Saturday in a flawless performance.

The all-amateur crew was the first to circle the world without a professional astronaut.

This was the first space flight with a crew that splashed down in the Atlantic since Apollo 9 in 1969, which is kind of amazing, for us old-timers.

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

We thank our healthcare workers and first responders.

God bless America.

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Gold $1750
Oil $73.95

Returns for the week 9/20-9/24

Dow Jones  +0.6%  [34798]
S&P 500  +0.5%  [4455]
S&P MidCap  +0.8%
Russell 2000  +0.5%
Nasdaq  +0.02%  [15047]

Returns for the period 1/1/21-9/24/21

Dow Jones  +13.7%
S&P 500  +18.6%
S&P MidCap  +17.0%
Russell 2000  +13.8%
Nasdaq  +16.8%

Bulls 47.1…lowest since May 2020
Bears 22.3

Hang in there.

Brian Trumbore

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