Week in Review

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Week in Review

02/04/2023

For the week 1/30-2/3

[Posted 6:00 PM ET, Friday]

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Edition 1,242

Leading off…this could be an important weekend, or maybe not, but this afternoon’s postponement of Secretary of State Antony Blinken’s trip to China, that was slated to begin Sunday (the highest-level official in the Biden administration to do so) due to the suspected Chinese spy balloon hovering over the U.S., is a really big deal. 

Blinken called the surveillance balloon a “clear violation” of U.S. sovereignty, as well as international law, the secretary saying it was an “irresponsible act,” even as the U.S. remained committed to engagement and he would visit when conditions allowed.

“The first step,” said Blinken, “is getting the surveillance asset out of our airspace.”

The Republican chairman of the House Foreign Affairs Committee, Rep. Michael McCaul (Tex.), said the balloon should never have been allowed in U.S. airspace in the first place and shot down over water.

I was kind of shocked that the U.S. equity market, apprised of the decision after 3:30 p.m., initially dropped a bit but recovered to finish with minimal losses on the day.  If we shoot it down this weekend, who knows how China would respond.  But hopefully we can somehow bring it down in a controlled manner to collect our own intelligence.

I have far more on the topic in general down below.

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As I’ve been warning for weeks now, the U.S. markets also ignore the Russia-Ukraine war at their peril, as it’s about to get far uglier than it already is.

Ukrainian Defense Minister Oleksii Reznikov said a fresh Russian offensive could begin around Feb. 24, the first anniversary of Russia’s invasion.

Oleksiy Danilov, the secretary of Ukraine’s National Security and Defense Council, said in an interview with Sky News, “Russia is preparing for maximum escalation. It is gathering everything possible, doing drills and training.”

Danilov also talked of Feb. 24 being a key date, though with Russia’s bombardment of the city of Kramatorsk this week, killing at least four civilians and injuring scores (U.S. news crews on the scene barely escaping death themselves), President Volodymyr Zelensky said the offensive may have already started.

Thursday, at an event marking the 80th anniversary of the Red Army’s victory over Nazi Germany in Stalingrad, known today as Volgograd, Vladimir Putin drew parallels between the Soviet Union’s fight in the second world war and Moscow’s intervention in Ukraine.

“It’s unbelievable but true.  We are again threatened by German Leopard tanks,” he said in the southern city.  “Again and again we are forced to repel the aggression of the collective West.”

“We aren’t sending tanks to their borders but we have something to respond with, and it won’t be just about using armored vehicles.  Everyone should understand this,” Putin added.  “A modern war with Russia will be completely different.”

In the 1942-43 Battle of Stalingrad, which raged for nearly six months, when it was over the city was in ruins and more than a million soldiers and civilians had lost their lives.

“Readiness to go until the end, to do the impossible for the sake of the motherland, for the sake of truth was and is in the blood, in the character of our multinational people,” Putin said.

On the eve of Putin’s arrival, a bust of dictator Joseph Stalin was unveiled in Volgograd.  Understand the name of the city was changed years after Stalin’s death upon a reassessment of his decades in power.  But since Vlad the Impaler took control in 2000, a growing chorus of Russians is taking a positive view of Stalin’s role in history, and analysts have pointed to the creeping rehabilitation of one of the worst people in the history of the world.

This is sick.  But the Soviet Union lost an estimated 20 million people in World War II, which is known as the Great Patriotic War, and you can see why casualties mean nothing to Putin.

This week in Ukraine….

--Over the weekend, an Iranian military factory was hit by a drone attack that a U.S. official said appeared to have been carried out by Israel.

Kyiv implied that the attack on Iran was payback for Tehran’s military support for Russia; “Explosive night in Iran,” senior Zelensky aide Mykhailo Podolyak tweeted.  “Did warn you.”

Iran summoned the charge d’affaires at Ukraine’s embassy over Podolyak’s remarks.

Russia said the strike on Iran “could have unpredictable consequences for peace and stability in the Middle East.”

--In a video address late on Sunday, President Zelensky said: “The situation is very tough.  Bakhmut, Vuledar and other sectors in Donetsk region – there are constant Russian attacks.

“Russia wants the war to drag on and exhaust our forces. So we have to speed up events, speed up supplies and open up new weapons options for Ukraine.”

Three people were killed and six injured on Sunday by Russian strikes on Kherson that damaged a hospital and a school.  Ukraine recaptured Kherson in November, but since its liberation, the city has been regularly shelled from Russian positions across the Dnipro river.

--President Zelensky described Russia’s assault in the east as an attempt to exact “revenge” for its earlier losses.

“And I think that they will not be able to provide their society with any convincing positive result in the offensive.  I am confident in our army.  We will stop them all, little by little, destroy them and prepare our big counteroffensive,” he said on Monday. 

Kyiv says the Russian assaults of recent weeks have come at a huge cost, initially relying on mercenaries, including thousands of convicts recruited from Russian prisons and sent into battle in human waves without proper training or equipment.

But Russia’s call-up of hundreds of thousands of reservists late last year means Moscow has now been able to reconstitute regular military units exhausted or depleted earlier in the war.

--Tuesday, Russia claimed to have captured a village just to the north of Bakhmut, as it tries to surround the city in a major push for what would be the biggest battlefield prize in Ukraine since last summer.  There was no immediate response from Kyiv to Moscow’s assertion about the village of Blahodatne in Ukraine’s east.

Three days before, the head of Russia’s Wagner Group said the mercenary force had seized Blahodatne in an attack Kyiv said it had repelled.  A Belarusian volunteer fighting for Ukraine told Reuters from inside Bakhmut that Russia was shelling the city constantly and its troops were trying to encircle it.  Fighting was under way building by building, the volunteer said.

The reports from the scene that are aired are horrific looking, brutal warfare.

Separately, a large Russian force launched an assault on the Ukrainian-held bastion of Vuhledar this week, further south along the same eastern front.  Russia claims to have gained a foothold there, while Kyiv says it has largely repelled that attack so far, inflicting heavy losses on the attackers.

In an unusually detailed intelligence update, the British defense ministry said Russian forces had advanced hundreds of meters across a river toward Vuhledar and could make more localized gains there.  It said the assault was unlikely to lead to a significant breakthrough, but could be intended to draw Ukrainian forces away from defending Bakhmut.  The Brits said the Russians were using a brigade, normally comprising several thousand troops, to attack Vuhledar.

“There is a realistic possibility that Russia will continue to make local gains in the sector.  However, it is unlikely that Russia has sufficient uncommitted troops in the area to achieve an operationally significant breakthrough.”

Ukraine’s general staff said Russia had carried out air strikes and three missile strikes in the past 24 hours, one of them on Kharkiv in northeast Ukraine.

According to the Institute for the Study of War, Ukraine is bracing for a coming Russian ground offensive pushing out from occupied territory, particularly in the Donbas region.  ISW writes that some kind of Russian offensive seems to make sense “in the coming months,” in part because of winter temperatures that keep the ground from turning into a mess of mud and stuck vehicles.

I follow the weather constantly in Ukraine and, for example, starting Saturday, the air temp in Kharkiv is not going above freezing for the next ten days.

--Ukrainian Foreign Minister Dmytro Kuleba said Ukraine would receive 120 to 140 modern Western battle tanks in a “first wave” of deliveries from a coalition of 12 countries, but no word on timing.  Poland said it aims to get training time on Leopard 2 battle tanks down to five weeks at a center where Ukrainian soldiers are to be taught how to operate the battlefield workhorse against the Russians.

Military experts say Moscow is determined to make gains in Ukraine in the coming months, before Kyiv receives the tanks from the West, as well as other armored vehicles for a counter-attack.

Tuesday, President Biden said the U.S. will not be sending F-16s to Ukraine.

The Institute for the Study of War said “the West’s failure to provide the necessary materiel” last year was the main reason Kyiv’s advances had halted since November.  That had allowed Russia to apply pressure at Bakhmut and fortify the front against a future Ukrainian counter-attack, its researchers said in a report, though they added Ukraine could still recapture territory once the promised weapons arrive.

President Zelensky said: “The more defense support our heroes at the front receive from the world, the sooner Russia’s aggression will end and the more reliable security guarantees will be for Ukraine and all our partners after the war.”

At a meeting Thursday and Friday, Zelensky pressed EU leaders in Kyiv to slap more sanctions on Russia, and that they should aim to ensure Moscow cannot rebuild its military capability.

Russian Foreign Minister Sergei Lavrov said Russian forces would respond to the delivery of longer-range Western weapons to Kyiv by trying to push Ukrainian forces further away from its borders to create a safe buffer zone.

Former Russian president Dmitry Medvedev said Russia’s arms suppliers would “significantly” increase their deliveries in 2023 to help its forces inflict a “crushing defeat” on Ukraine.

Zelensky, flanked by the EU leaders at a news conference, said Ukraine would not give up Bakhmut.  “We will fight for as long as we can.  We consider Bakhmut our fortess.”

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--The number of Russian troops killed and wounded in Ukraine is approaching 200,000, according to American and other Western officials.   They say that while Moscow notoriously undercounts its war dead (and Covid deaths, I’d add, especially the first two years of the pandemic), the slaughter from fighting in and around Bakhmut and the town of Soledar ballooned what was already a heavy toll.

But war dead are no deterrent to Vlad the Impaler, though higher numbers will cut into his political support.

--The State Department said on Tuesday that Russia is in violation of the New START treaty.  Moscow is barring U.S. inspectors from nuclear weapons facilities and has also missed a deadline to convene the bilateral consultative commission, State said in a statement. Both actions violate the treaty, which is the only agreement currently binding the strategic arsenals of the world’s two largest nuclear powers.

Two years ago this month, the U.S. and Russia renewed New START for five years, keeping in place its limits on long-range nuclear warheads, launchers, and delivery vehicles.

--Ukraine protested to Hungary’s ambassador over “disparaging” comments made by Hungarian Prime Minister Viktor Orban, and urged Budapest to stop what it called anti-Ukrainian rhetoric.

--German Chancellor Olaf Scholz’s bid to rally support for Ukraine in the face of Russia’s invasion during his first South American tour fell flat, with Brazilian President Luiz Inacio Lula da Silva reiterating his view both parties shared blame. 

Lula told reporters: “I think Russia made the classic mistake of invading another country’s territory, so Russia is wrong.  But I still think that when one won’t fight, two won’t fight.  You have to want peace,” he said, adding he had heard very little from either side about finding a peaceful end to the war.

Lula is an idiot.  Scholz was hoping Brazil would provide ammunition for German-made Depard anti-aircraft guns.

Argentina and Chile’s leaders also dialed down hope they might lend more support.  But in contrast to Lula, the presidents of both at least clearly condemned the Russian invasion.

--Ukraine hopes to secure widespread international support for banning Russian and Belarusian athletes from the Paris Olympics due to Moscow’s invasion, its sports minister said.

--Opinion….

Bernard-Henri Levy / Wall Street Journal

“It was 2008, on the eve of the Bucharest Summit, where the North Atlantic Treaty Organization considered expanding by inviting new members from the Balkans and the former Soviet Union.  Andre Glucksmann and I co-signed an open letter to the French president and the German chancellor urging them to hear the pleas of Ukraine, which had sought to protect itself from the Russian empire since it declared independence in 1918….

“We argued that the nascent 21st century wasn’t so favorable to the West that we could so easily reject a country that, at its own peril, was undertaking to join our institutions. We explained that lowering the flag in the face of the Kremlin’s pressure and blackmail, curling up in a ball and closing our door, two decades after the fall of the Berlin Wall, to the last of the voices of the captive Europe, would be a grave political and historical error.

“I spent the following years – with Glucksmann until his death in 2015 – repeating what we’d learned from the two Chechen wars, the invasion of Georgia and the testimony of the early dissidents: that Vladimir Putin has one main enemy he wants to bring to heel, the Europe of democracy, rule of law and free republics….

“For the past 11 months, I have accompanied, listened to and filmed the Ukrainian troops in action.  These brave fighters are like the Athenian soldiers Pericles celebrated in his address to heroes as described by Thucydides.  They fight for their country but also in defense of the higher values of liberty, democracy, rights – in short, Europe.

“Are they not our champions?  Our bulwark against the common enemy?  Do they not defend us, in their trenches, as much as we defend them?  Have they not become, by force of circumstance, the most seasoned, the most experienced, the best of the armies of Europe?  And this army – which will soon operate our Leclerc, Abrams and Leopard tanks – doesn’t it possess a strategic and tactical know-how that, in the coming troubled times, will prove invaluable?

“Bringing Ukraine into NATO is as much in our own strategic interest as it is our moral duty.  Accelerating the process to make up for time lost since 2008 is, for all parties, a matter of security as much as dignity. The sooner it happens, the sooner peace will return, a real peace that can be achieved only through the total capitulation of Mr. Putin, his regime and his army.”

Editorial / Wall Street Journal

“President Biden is saying the U.S. won’t supply F-16 fighter jets to Ukraine, but anyone following the war in the past year knows what that means: Ask again later.

“The Biden Team hems and haws on every new weapon request for Ukraine before it later comes around, and let’s hope the President changes again and offers more military support that helps Ukraine immediately on the battlefield and after the war ends.

“ ‘We don’t see any signs’ that Vladimir Putin is ‘preparing for peace,’ NATO Secretary General Jens Stoltenberg said on a trip to South Korea this week.  ‘We see the opposite.’

“Russia is mobilizing perhaps another 200,000 soldiers, ‘actively acquiring new weapons, more ammunition,’ and Mr. Putin hasn’t backed off his core goal ‘to control Ukraine,’ he added.  ‘As long as this is the case, we need to be prepared for the long haul.’

“Ukrainian President Volodymyr Zelensky renewed calls this week for the West to put more weapons into the field faster, and one item is especially urgent: The Army tactical missile system, known as ATACMS.  The missile can be fired from Himars rocket systems, which Ukrainians are using well, firing munitions and then high-tailing it to avoid Russian counter-battery tracking.  The 185-mile range of the ATACMS would allow the Ukrainians to strike from much farther distances and push the Russians out of their dug-in positions.

“These missiles could make a fast difference on the battlefield and give the Ukrainians a fighting change of putting Crimea in play.  But the U.S. is still reluctant to offer the Army missile system, and press reports suggest the Biden Team may have modified the Himars so the Ukrainians can’t fire such long-range missiles.  But it’s hard to see how ATACMS are more provocative than other U.S. weapons….

“Mr. Putin is mobilizing Russia for a longer war, thinking he can outlast Ukrainian resolve and Western support. That puts a premium on getting more aid sooner for Ukraine so its military can push Russia out of most or all of Ukrainian territory this year….

“U.S. support for Ukraine isn’t an exercise in nation-building, or willy-nilly intervention.  Americans aren’t fighting and dying.  Aid for Kyiv is in the Reagan Doctrine tradition of helping others fighting and dying for their own freedom.  The White House can do more to help Ukraine more quickly – with long-range missiles now and jets as soon as possible.”

***In an arms package announced today, the Pentagon said it was sending Ukraine a new rocket, the Ground Launched Small Diameter Bomb (GLSDB), that will allow Ukraine’s military to hit targets at twice the distance of the rockets now fired using the Himars, 94 miles, which puts all of Russia’s supply lines in eastern Ukraine within reach and parts of Crimea.

But the slow-walking of weapons systems continues.  The GLSDB is not the ATACMS.

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Wall Street and the Economy

The Federal Reserve, as expected, hiked its benchmark funds rate 25 basis points to a new range of 4.50% to 4.75%, and clearly said it will continue hiking rates, but the market took the comments of Chair Jerome Powell in his press conference after to mean that the next move, following the March 21-22 Open Market Committee, could be the last, and some traders believe the Fed will be cutting rates by year end, which to me is nonsensical.  If that were to be the case, that means we have a very sick economy, and that won’t be good for stocks that once again are nearing overvaluation given the economy is clearly slowing.

If the economy ends up being stronger than expected, the Fed will be keeping rates high to ensure inflation stays low.

The Fed said in its statement:

“Recent indicators point to modest growth in spending and production.  Job gains have been robust in recent months, and the unemployment rate has remained low.  Inflation has eased somewhat but remains elevated.

“Russia’s war against Ukraine is causing tremendous human and economic hardship and is contributing to elevated global uncertainty….

“The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time.”

I’ve been saying just listen to what Powell says and he’s been incredibly consistent, emphasizing the core PCE (personal consumption expenditures index) in his press conference, as I said he would last week when it came out at 4.4%, and he continued to emphasize, as he did in December, that the Fed is focused on “core services ex-housing,” which is “55% to 60% of inflation and is above 4%.”

“It would be premature, it would be very premature, to declare victory or to think that we’ve really got this,” Powell said.  “We see ourselves as having a lot of work left to do.”

Will the Fed stop hiking the funds rate before core inflation gets down to 2%?  Yes, of course, but we’re far from being there, so it remains ‘higher for longer’ once it does decide to pause.  Chair Powell also flat out said market participants should not expect the FOMC to cut rates in 2023.

Editorial / Wall Street Journal

“Investors seem to think the central bank is close to the end of its tightening cycle, but that isn’t making Federal Reserve Chairman Jerome Powell’s anti-inflation job any easier.

“We’ll admit to being puzzled by this market exuberance.  Mr. Powell couldn’t have been clearer that he thinks inflation remains a problem and that the Fed is a long way from done.  ‘We have more work to do,’ he said.  Inflation ‘remains too high.’

“Mr. Powell conceded that ‘disinflation,’ or a decline in the rate of inflation, is finally under way.  But he rightly said the evidence of slower inflation is clear so far mainly in the price of goods, with some portents in the price of housing. But service prices, which represent more than half of the government inflation basket, are still showing no signs of falling.

“The employment cost index for the 2022 fourth quarter, released this week, showed compensation up 1%, and 5.1% over the preceding 12 months.  Personal-consumption expenditure inflation is still 5% on an annual basis while the Fed’s target is 2%.  That sounds like more work-to-do to us.

“But markets must believe that Mr. Powell doesn’t mean what he says, or else that inflation is going to fall so fast and so clearly that the Fed will stop at one more 25 point increase in March…..

“(The) Fed is right in our view not to declare premature victory.  The worst result would be stop-and-start policy that leaves inflation well above the Fed’s target.  Markets can make their bets, but the central bank’s vital job is correcting its historic inflation mistake.”

And so I wrote up all of the above Thursday and nothing the Fed saw Friday morning in the January jobs report Friday morning will change their minds to stay higher for longer, that’s for sure, as nonfarm payrolls soared 517,000 vs. an estimate for around 185,000, a massive beat, while the unemployment rate fell to a 53-year low, 3.4%.  December was revised upwards to 260,000.

Average hourly earnings rose 0.3%, 4.4% year-over-year.

President Biden and the Democrats have something to crow about, and it’s hard for Republicans to talk of a lousy economy with numbers like these.  Perfect ammunition for Biden’s State of the Union Address next Tuesday.

But after his victory lap this morning, he was asked if he took any blame for inflation and he said ‘No,’ that it was rising when he took office, which is a flat-out lie.  So Republicans will focus on that.

Importantly, given Chair Powell’s focus on service sector inflation, the ISM services reading for January, also released today, was robust as well, 55.2 vs. consensus of 50.4 (50 the dividing line between growth and contraction).  Earlier, the ISM manufacturing reading for the month was a disappointing 47.4, below consensus, and the figure for the Chicago region on the manufacturing side was a worse-than-expected 44.3.

But it’s the service sector we need to be focusing on in terms of Powell and Co.

Just a few other data points for the week.  December construction spending fell 0.4%, while factory orders in the month fell 1.8%.

On the housing front, the November S&P CoreLogic Case-Shiller national home price index fell 0.6% month-over-month, with housing prices now down 3.6% for this key barometer between June and November.  Year-over-year, prices are still up 7.7%, vs. 9.2% in October, while for the 20-city index, the rise was 6.8% vs. 8.6%, with the price decelerating in all 20.

Freddie Mac’s latest 30-year fixed-rate mortgage came in at 6.09% vs. 6.13% last week and a November peak of 7.08%.  This is a big deal, and huge help to the housing sector.

The Atlanta Fed’s GDPNow barometer for first-quarter growth is at 0.7%.

Meanwhile, the International Monetary Fund sees a “turning point” for the global economy as it raised its growth outlook for the first time in a year.

GDP will likely expand 2.9% in 2023, 0.2 percentage points more than forecast in October, the fund said Tuesday in Singapore in a quarterly update to its World Economic Outlook.  While that’s a slowdown from a 3.4% expansion in 2022, the IMF said it expects growth will bottom out this year before accelerating to 3.1% in 2024.

Inflation remains a big challenge.  “We are far from having won the fight against inflation,” IMF Chief Economist Pierre-Olivier Gourinchas said in an interview.  “We’ve had a few good prints. It’s encouraging. It’s in the right direction.”

But it will still be a challenging year, he said.

The IMF sees U.S. growth at 1.4% in 2023, and 0.7% in the Euro area, with 0.1% in Germany.  The UK is estimated to contract 0.6% this year, after previously expected growth of 0.3% in the IMF’s October forecast.

The IMF sees China expanding at a 5.2% clip this year and 4.5% next, after 3% in 2022.

The IMF has also cautioned that the war in Ukraine could imperil its brighter estimates, and “geo-economic fragmentation” in the form of re-shoring and friend-shoring efforts remains a “deep source of worry for us.”

Europe and Asia

Eurostat issued a preliminary flash estimate for fourth quarter GDP in the eurozone, and it was a better than expected up 0.1% over the prior quarter, with a first estimate of annual growth for 2022 of 3.5%, which is better than the U.S.’s 2.1%, by the way.

For Q4 over Q3: Germany -0.2%, France 0.1%, Italy -0.1%, Spain 0.2%.

And then we saw the January PMI readings for the euro area, courtesy of S&P Global.

The final manufacturing PMI came in at 48.8, a 5-month high, but still contraction, while the service sector reading was 50.8, a 6-month high.  The final Composite Index was 50.3, a 7-month high.

Germany: 47.3 manufacturing, 50.7 services
France: 50.5 mfg., 49.4 services
Italy: 50.4 mfg., 51.2
Spain: 48.4 mfg., 52.7
Ireland: 50.1 mfg., 54.1
Netherlands: 49.6 mfg.
Greece: 49.2 mfg.

UK: 47.0 mfg., 48.7 services

Chris Williamson / S&P Global Market Intelligence:

“A resumption of business output growth, even marginal, is welcome news and suggests that the eurozone could escape a recession. With price pressures down markedly in recent months, supply constraints easing and near-term energy market worries, alleviated by subsidies, lower prices and a warm winter, business confidence has also lifted higher, adding to hopes that the upturn will gather steam in the coming months.

“However, it remains too early to completely disregard recession risks.  In particular, the impact of higher interest rates on economic growth has yet to be fully felt, and many companies are relying on backlogs of previously placed orders, accumulated during the pandemic, to sustain growth.  Demand growth needs to accelerate to drive a more robust upturn, and it is worrying in that respect to see new orders continue to fall in January.

“It therefore remains to be seen whether the eurozone can build on the marginal expansion seen in January or whether we might see a repeat of 2012, when an encouraging return to growth at the start of the year proved fragile and gave way to a fresh downturn.”

We had a flash estimate on January 2023 inflation for the EA19, down to 8.5% in the eurozone from October’s peak of 10.6%, and December’s 9.2%.  But ex-food and energy, the core rate continued to tick up, 7.0%.  It’s been up every month since August when it was 5.5%.  So this is not good.

Headline inflation: Germany N/A (9.6% in Dec.), France 7.0%, Italy 10.9%, Spain 5.8%, Netherlands 8.4%, Ireland 7.7%.

[Spain’s government is set to approve an 8% raise to the national minimum wage.]

A reading on December industrial prices rose 1.1% in the EA19 compared with November, up 24.6% vs. December 2021.  Not good.

And Euro area unemployment for December came in at 6.6%, down from 7.0% in Dec. 2021.

Germany 2.9%, France 7.1%, Italy 7.8%, Spain 13.1%, Netherlands 3.5%, and Ireland 4.3%.

The European Central Bank raised interest rates again on Thursday and penciled in at least one more hike of the same magnitude next month.

The ECB has been increasing rates at a record pace, a la the Federal Reserve, to combat inflation and it raised its benchmark rate another 50 basis points to 2.5%, in line with what it said in December and with market expectations.  Crucially, it said the next rate increase would be of the same size but left its options open further ahead.

So that’s 3.00%, and maybe another 25bps more after, which would take it to 3.25%, which would be the highest since the turn of the century.

As you saw above, headline inflation has been in rapid decline since peaking in October, but core prices have been rising at a steady or accelerating pace.

The Bank of England raised rates a half point as well on Thursday, saying more increases will be needed if signs of an inflationary spiral persist, the UK’s benchmark lending rate up to 4%, the highest since 2008.

The decision came with a bleak outlook, with the central bank forecasting two years of falling output and supply potential in the economy a little more than half of its previous estimate.

“We have seen a turning of the corner (on prices) but it is very early days, and the risks are very large,” BOE Governor Andrew Bailey said at a press conference after the decision.  He added that it’s “too soon to declare victory. Inflationary pressures are still there” and the BOE would have to be “absolutely sure” before shifting its stance.

Britain: The UK marked three years since leaving the European Union on Tuesday, and as noted above, it will be the only major industrial nation in recession in 2023, according to the IMF.

An analysis by Bloomberg Economics had concluded that Brexit is costing the UK economy $123 billion a year.  The economy is 4% smaller than it might have been with business investment falling behind and a widening shortfall in EU workers.

“Did the UK commit an act of economic self-harm when it voted to leave the EU in 2016?  The evidence so far still suggest it did,” wrote Bloomberg’s economists.

You’ve long known how I felt.  I was blasting the decision to leave the union before the EU vote.  Pure idiocy; with Boris Johnson the chief liar on the supposed benefits for the people.

Meanwhile, Prime Minister Rishi Sunak hit the 100-day mark this week and he continues to have to deal with waves of public sector strikes, such as ambulance workers calling another one for Feb. 10.

On a totally different topic, according to defense experts in the country, the British Army is the smallest since the days of Napoleon and is “unable to protect the UK and our allies,” the sources told Sky News.  A U.S. general evidently told British Defense Secretary Ben Wallace that the Brits are “no longer regarded as a top-level fighting force,” various media outlets reported.  And this is a big problem because with the war in Ukraine, the British military would run out of ammunition in just a few days if asked to fight, and the UK does not have the ability to defend itself against the type of missile and drone attacks happening now in Ukraine.

France: French unions plan new strikes and demonstrations on Feb. 7 and 11 against President Emmanuel Macron’s plans to raise the retirement age from 62 to 64, after another large wave of them this past week.

Turning to Asia…China began to get back to work following the holiday, and the National Bureau of Statistics reported that the January manufacturing PMI was 50.1 vs. 47.0 prior, with the service sector reading a robust 54.4 vs. 41.6 in December as the economy reopened from the Covid lockdowns.

The private Caixin readings on the private sector vs. NBS’s state company data, had January manufacturing at 49.2, with services at 52.1.

Japan’s manufacturing PMI for January was 48.9, unchanged from December, with services at 52.3.

Separately, December retail sales rose 3.8% year-over-year, with industrial production for the month -2.8% Y/Y.

South Korea’s January manufacturing PMI was 48.5; Taiwan’s reading 44.3, still putrid.

Street Bytes

--As January goes, so goes the year…so the old saw on Wall Street goes…and it was indeed a terrific month, with the S&P 500 up 6.2% and the Dow Jones 2.8%, while Nasdaq gained a whopping 11%, its best start to the year since 2001.  [2001, by the way, was an awful year, part of the 2000-02 brutal bear market after the tech bubble burst.]

As for the week overall, it was a mixed performance, the Dow Jones falling 0.2% to 33926, while the S&P 500 gained 1.6% and Nasdaq 3.3%, taking its return for the year to 14.7%. 

--U.S. Treasury Yields

6-mo. 4.81%  2-yr. 4.29%  10-yr. 3.52%  30-yr. 3.61%

It was a deceiving week as the bond market loved the supposedly dovish tone of Chair Powell (irrationally so), the yield on the 10-year falling to 3.38%, but then today’s strong jobs report led to a return to somewhat rational behavior, and we finished largely unchanged across the board overall (save for the yield on the key 2-year climbing 9 basis points over last Friday).

I do have to note that Greece’s 10-year yield fell to 3.97% from 4.23% a week ago on a debt upgrade to one level below investment grade.  Looking back at the Greece Debt Crisis, who wudda thunk it?

--Exxon Mobil Corp. posted a $56 billion net profit for 2022, the company said on Tuesday, taking home about $6.3 million per hour last year, and setting not only a company record but a historic high for the Western oil industry.  Oil majors are expected to break their own annual records on high prices and soaring demand, pushing their combined take to near $200 billion, which has renewed criticism of the industry and sparked calls for more countries to levy windfall profit taxes on the companies.

Exxon’s results far exceeded the then-record $45.2 billion net profit it reported in 2008, when oil hit $142 per barrel, 30% above last year’s average price.  Deep cost cuts during the pandemic helped supercharge last year’s earnings.

“Overall earnings and cash flow were up pretty significantly year on year,” Exxon CFO Kathryn Mikells told reporters.  “So that came really from a combination of strong markets, strong throughput, strong production, and really good cost control.”

Exxon said it incurred a $1.3 billion hit to its fourth-quarter earnings from a European Union windfall tax that began in the final quarter and from asset impairments.  The company is suing the EU, arguing that the levy exceeds its legal authority.  Ex-charges, profit for the full year was $59.1 billion.

Production was up about 100,000 barrels of oil and gas per day over a year ago to 3.8 million bpd.  Adjusted per-share profit of $3.40 beat consensus of $3.29. Exxon posted $12.8 billion in Q4 in net profit ex-charges, down 35% from the previous quarter as oil prices eased and some operations suffered from cold-weather-related outages.

Exxon’s spending on new oil and gas projects bounced back last year to $22.7 billion, up 37% from the prior year.  Investments may hit $25 billion this year, CEO Darren Woods said.

The White House has blasted oil firms for pouring cash into shareholder payouts rather than production.  Exxon distributed $30 billion in cash to shareholders last year, more than any of its Western rivals.

--Shell Plc posted a fourth-quarter profit that was well ahead of expectations as its natural gas business thrived.  Q4’s adjusted net income of $9.81 billion beat the average analyst estimate of $7.97 billion compiled by the company.  It posted a profit of $39.87 billion for the full year, beating the previous record of $28.4 billion set in 2008.

--Natural gas prices continue to crater and it’s pretty simple; the warmer than normal winter in both the U.S. and Europe, which in the case of the former, at least, looks to continue through mid-February, after the current cold wave.

Prices have also been depressed for weeks due in part to expectations Freeport LNG’s liquefied natural gas export plant in Texas was still at least a month away from pulling in big amounts of gas to produce LNG.

It was the warmest January in the Lower 48 since January 2006, and nat gas futures posted their second-biggest monthly drop ever, sitting at their lowest levels since April 2021.

And then they kept falling throughout the week, to a low of $2.36 today, lowest since Dec. 2020.

--Rising factory output led to strong U.S. sales at the end of 2022, pushing General Motors’ fourth-quarter net income up 16% over the same period a year ago.

The automaker made $1.99 billion from October through December, or an adjusted $2.12 per share, easily beating Wall Street projections for $1.69.  Quarterly revenue rose 28% to $43.1 billion, also beating forecasts for $39.96 billion, and the shares rose 8% in response.

For all of 2022, GM’s operating profit was $14.5 billion.  About 42,000 hourly auto workers will get profit-sharing checks of roughly $12,750, up from $10,250 in 2021, which is great.

The company also announced that it will invest $650 million in Lithium Americas to jointly develop the Thacker Pass lithium mine in Nevada.  Lithium is a key element in electric vehicle batteries, and GM says Thacker Pass is the largest known source of lithium in the U.S. and the third largest in the world.  GM has plans to produce 1 million EVs per year by 2025.

Paul Jacobson, GM’s CFO, told reporters that the company has no plans to cut electric vehicle prices in response to recent price cuts by Tesla and Ford*.  He also said, “We continue to face some supply chain and logistics issues, but overall, things remain trending in the right direction.”

GM sold 2.27 million vehicles for the year in the U.S., up 2.5% over 2021.  But fourth-quarter sales rose 41% to more than 623,000.  By the end of the year the supply of vehicles on dealer lots had improved 14% to almost 411,000.

GM’s average U.S. vehicle sales price in Q4 was $52,833 due largely to a higher mix of expensive trucks and SUVs.  That’s down about $1,000 from the same period in 2021, according to Edmunds.com.

The automaker gave guidance of adjusted EPS of $6 to $7 for the current year, compared with the Street’s forecast of $5.74.

*Ford said it is cutting prices on its Mustang Mach-E electric SUV by as much as $6,000 just weeks after market leader Tesla took similar steps.  Ford said it is increasing production of the Mach-E this year and said it is taking advantage of streamlined costs to reduce prices across the board.

--Meanwhile, Ford reported earnings for the fourth quarter of 51 cents, operating profit of $2.6 billion, and sales of $44 billion.

But the Street was looking for 62 cents, profit of $3.4 billion, and sales of $40.6 billion.  Operating profit for the full year amounted to $10.4 billion.

Looking ahead, Ford expects to generate an operating profit of about $9 billion to $11 billion, the midpoint of analysts consensus of $10 billion.

Ford didn’t break out sales and earnings by electric vehicle and traditional operations, saying that change would come later in the year.

Whereas Amazon is holding onto its share in Rivian, Ford is not.

Ford stock fell 6%.

--JetBlue Airways pilots, represented by the Airline Pilots Association, approved a two-year contract extension that increases their compensation by 21.5% over 18 months.

--Boeing’s 747, the original and arguably most aesthetic “Jumbo Jet,” revolutionized travel only to see its more than five-decade reign as “Queen of the Skies” ended by more efficient twinjet planes.  The last commercial Boeing jumbo was delivered to Atlas Air in the surviving freighter version on Tuesday, 53 years after the 747’s instantly recognizable humped silhouette grabbed global attention as a Pan Am passenger jet.

“This was THE airplane that introduced flying for the middle class in the U.S.,” said Air France-KLM CEO Ben Smith.  “Prior to the 747 your average family couldn’t fly from the U.S. to Europe affordably,” Smith told Reuters.  The jumbo also made its mark on global affairs, from America’s “Doomsday Plane” nuclear command post to papal visits on chartered 747s nicknamed Shepherd One.  Now, two previously delivered 747s are being fitted to replace Air Force One.

It was Pan Am founder Juan Trippe who sought to cut costs by increasing the number of seats.  On a fishing trip, he challenged Boeing President William Allen to make something dwarfing the 707.  Allen put legendary engineer Joe Sutter in charge.  It took only 28 months for Sutter’s team known as “the Incredibles” to develop the 747 before the first flight on Feb. 9, 1969.

The plane would become a cash cow but initially, the 747 was riddled with problems and the $1-billion development costs almost bankrupted Boeing, which saw the future as being in supersonic jets, ironically.  [Valerie Insinna and Tim Hepher / Reuters]

--TSA checkpoint numbers vs. 2019

2/2…102 percent of 2019 levels
2/1…90
1/31…96
1/30…93
1/29…110
1/28…104
1/27…138
1/26…112

[The Midwest/Southeast ice storm caused 1,982 flight cancellations on Tuesday and 2,419 on Wednesday.]

--Apple Inc. missed Wall Street estimates for both revenue and profits when it reported for the December quarter after the market closed on Thursday.

Sales in the iPhone, Mac and wearables segments, in particular, were well short of forecasts, raising new questions about how well demand for Apple products – and other consumer electronics goods – will hold up in the face of softening consumer spending and a weakening macroeconomic environment.

For the quarter, Apple posted sales of $117.2 billion, down 5% from a year ago, and below consensus of $121.7 billion.  Profits were $1.88 a share, also missing estimates of $1.95 a share, and down from $2.10 a share a year earlier.

CEO Tim Cook said on a call with analysts that sales in the quarter were reduced by nearly 8 percentage points from foreign exchange headwinds – and that sales were therefore higher year-over-year on a constant currency basis.  He also said results were hurt by production issues in China for the iPhone 14 Pro and Pro Max, as disclosed last November.  And he said that Apple is “not immune” to currently difficult economic conditions.

Apple said iPhone sales in the quarter were $65.8 billion, down 8% from a year ago, and missing the Street’s forecast of $68.3 billion.  The debate will be whether the miss is due only to the company’s China-related production problems early in the quarter, or whether the company is seeing the impact of softer consumer spending.

Mac sales were $7.7 billion, down 29%, and well off the Street consensus of $9.3 billion.

On the other hand, iPad revenue was $9.4 billion, up 29.6%, ahead of forecasts for $7.9 billion.  Services revenue was $20.8 billion, up 6.4%, and a little above consensus.

While Apple did not provide specific guidance, CFO Luca Maestri said total revenue growth for the March quarter would be similar to that in the December quarter.  He said Mac and iPad sales will be down double-digits from a year ago due to difficult comparisons.  And iPhone sales should accelerate from the December quarter.

Cook said Apple reached an installed base of more than 2 billion active devices, up over 150 million year-over-year.  The company also said it now has more than 935 million paid subscriptions across its services offerings.

Tech maven Roger McNamee told the BBC that the biggest issue facing Apple was its supply chain in China.

“China has taken a more combative approach with Western economies over the past year and a half, partly due to their zero tolerance on Covid but I think there are other geopolitical issues factoring in as well and Apple, which has historically done the vast majority of its manufacturing in China, has had supply chain issues,” he said.

“It is unclear to what degree Apple may have demand problems. It is super-clear they can’t get all the supply that they want to get.”

--Meta Platforms shares soared after the company disclosed fourth-quarter results that were more or less in line with expectations, not spectacularly so, but the market liked it had announced a new round of cuts to its 2023 spending plan, and it increased its stock buyback program.

The rally stood in stark contrast to the 25% drop triggered by third-quarter results.  That drop was the result of Wall Street concerns that Meta was spending too aggressively.  In response, Meta then announced 11,000 job cuts and other spending reductions – and now Meta is making deeper cuts, and investors are celebrating the company’s new focus on costs.

“Our management theme for 2023 is the ‘Year of Efficiency’ and we’re focused on becoming a stronger and more nimble organization,” Meta CEO Mark Zuckerberg said in a statement.

Meta reduced its forecast for full-year total expenses to between $85 billion and $95 billion, from a previous forecast of $94 billion to $100 billion.

For the fourth quarter, Meta posted revenue of $32.3 billion, down 4% from a year ago, but towards the higher end of its guidance range, and above Street consensus at $31.6 billion.  The company earned $1.76 a share, below consensus at $2.27.

The company is projecting first-quarter revenue of between $26 billion and $28.5 billion, roughly in line with the Street’s outlook for $27.5bn.

Revenue from the company’s “family of apps” segment was $31.3 billion, slightly above consensus of $31 billion, while Reality Labs, which includes VR headsets and the nascent metaverse business, had revenue of $727 million, also slightly above Street forecasts.  The company had operating income from apps of $10.68 billion, below estimates of $12.35 billion.

Meta posted strong growth in user metrics.  Daily active people, a measure of users across the company’s social networks, which include Facebook, Instagram, and WhatsApp, were 2.96 billion in December, up 5% from a year ago.  Monthly actives were 3.74 billion, up 4%. The company also said Facebook daily active users hit 2 billion for the first time, up 4% from a year ago.

For all of 2022, the company had revenue of $116.6 billion, down 1% from a year ago. The company earned $8.59 a share for the year, down 38% from $13.77 a year ago.

The stock ended up surging 23% on Thursday, its biggest daily gain in nearly 10 years.  It was a huge move for a company its size, adding nearly $100 billion in market value in a single day, or about as much as Citigroup’s entire market capitalization.

--Amazon.com fell in late trading Thursday after the company posted mixed results for the fourth quarter, reflecting the ongoing pressure from a softening economy.

The company reported better-than-expected fourth-quarter sales growth, but weaker-than-expected profits, due largely to a loss on the company’s stake in electric-truck maker Rivian Automotive.

Revenue at the company’s closely watched Amazon Web Services unit was a little shy of expectations.

For the quarter, Amazon posted sales of $149.2 billion, up 9%, and above the company’s guidance and Street consensus of $145.9 billion.  Operating income was $2.7 billion, in line with expectations.  Net income was $300 million, or 3 cents a share, including a loss on the value of the company’s stake in Rivian.

For the full year, sales were $514 billion, up 9%.

Amazon Web Services had revenue of $21.4 billion in the fourth quarter, up 20%, falling short of estimates, and decelerating from 27% growth in the September quarter.  The softness in the company’s cloud revenue is consistent with recently weakening growth in Microsoft’s Azure cloud business.

CEO Andy Jassy, speaking on the earnings call, said that “most enterprises right now are acting cautiously,” and looking for ways to “cost optimize.”  He said AWS will continue to help customers find ways to spend less money on cloud services.  “We are trying to build a set of relationships that will outlast all of us,” he said, rather than focusing only on short-term financial performance.

But he also said that Amazon believes that 90% to 95% of all IT spending remains on premises, and that, over the next 10 to 15 years, most of that will shift to the cloud, leaving a substantial growth opportunity for AWS.

Fourth-quarter online store sales were $64.5 billion, down 2%, and slightly worse than analysts had expected.

But Amazon sees revenue in the first quarter of $121 billion to $126 billion, which is short of the Street consensus for $139.2 billion.

--An advertising slowdown weighed on Google-parent Alphabet during the fourth quarter, the company on Thursday reporting slowing revenue growth and an earnings miss.

Alphabet reported net income of $13.62 billion, or $1.05 a share on revenue of $76.05 billion, vs. consensus of $1.18 a share and revenue of $76.18bn.

Revenue growth slowed to just 1% during the quarter, or 7% on a constant currency basis.  Revenue in the Google Search & Other category fell 1.6% to $42.6 billion, while YouTube ad revenue fell 7.8% to $7.96 billion.  Google Cloud revenue grew 32% to $7.32 billion.

--Caterpillar Inc. reported quarterly adjusted earnings of $3.86 per share for the quarter ended in December, below consensus.  Revenue rose 20% to $16.60 billion from a year ago, beating expectations.

Fourth-quarter profits were down 29%, the company citing higher manufacturing costs and foreign currency effects that weighed on the industrial bellwether’s margins.  The machinery maker has a robust $30 billion order backlog, but like other manufacturers it continues to grapple with supply constraints that have boosted raw material and freight costs.

CAT’s CFO, Andrew Bonfield, told shareholders on a conference call that fourth quarter margins “were lower than we needed them to be” and that the company will adjust operating profit margin targets in the year ahead to account for high inflation.

An uptick in dealer inventories* was a bright spot for the manufacturer with equipment levels returning to a typical range of three to four months.  Sales were up across Caterpillar’s three primary business segments.  Strong pricing that the company implemented over the past two years in an effort to mitigate rising manufacturing costs have sustained top-line growth.

CEO Jim Umpleby did say “China is slow and we continue to expect it to be slow – below 2022 levels.”

*Some analysts saw the inventory news as a bad sign amid a slowing economy.

--United Parcel Service Inc. on Tuesday beat expectations for quarterly adjusted profit, as it prioritized lucrative shipments and kept a tight lid on costs as global recession threatens and inflation deflates e-commerce demand.

CEO Carol Tome described the outlook for economic growth in 2023 as “cloudy.”  “Geopolitical tensions are rising and we have a labor contract to negotiate for us to enter the year of rebuilding,” she said, referring to the July 31 expiration of the contract covering the company’s Teamsters-represented workers.

UPS forecast 2023 revenue between $97.0 billion and $99.4 billion, below analysts’ average target of $99.98 billion.

For the fourth quarter, UPS reported an adjusted profit of $3.62 per share, above the Street’s forecast of $3.59, even as revenue fell slightly.  Revenue fell 2.7% to $27.03 billion from a year ago; analysts expected $28.09 billion.

--FedEx Corp. on Wednesday said it would cut its officer and director team by 10% as part of a broad cost-reduction effort that has reduced staffing at the delivery giant by 12,000 workers since June. 

The company has vowed to cut expenses by $3.7 billion this year, but did not say how many positions would be affected by the new layoffs.  Its overall workforce reductions account for a little over 2% of FedEx’s 547,000 full-time and part-time workers reported for the year ended May 2022.

--Advanced Micro Devices reported adjusted earnings of $0.69 for the fourth quarter, down from $0.92 a year earlier, but better than consensus of $0.67.  Revenue for the quarter was $5.6 billion, up from $4.83 billion a year ago, also better than forecasts.

The company said it expects Q1 revenue to be about  $5.3bn, plus or minus $300 million, with the Street at $5.51bn.

AMD gave the tepid guidance on fears of fewer orders due to worsening PC demand and a slowing data center market, an outlook mirroring Intel’s gloomy outlook for the PC market, which, according to Intel CEO Pat Gelsinger, is seeing “some of the largest inventory corrections literally that we’ve ever seen in the industry.”  PC shipments fell 16.5% last year to 292.3 million units, according to research firm IDC.

But AMD shares surged because its data center business grew 42% in the quarter, compared to Intel’s 33% decline in its data center and artificial intelligence unit.

--Samsung Electronics said profit for the last quarter plummeted nearly 70 percent as the weak global economy depressed demand for its consumer electronics products and computer memory chips.  Revenue fell 8 percent.

After thriving for the first two years of the pandemic thanks to its dual strengths in parts and finished products, benefiting from robust demand for PCs, TVs and chips powering computer servers, it has been harder for the company to weather the economic shock unleashed by Russia’s war on Ukraine, which disrupted industrial supply chains and left major economies grappling with higher inflation.

But Samsung made a surprisingly aggressive decision to keep capital spending at the same level as last year, while warning it expected a recovery in chips to begin only in the second half of the year, while smartphone demand would likely contract in 2023.

--Qualcomm Inc. forecast second-quarter revenue and profit below Wall Street estimates on Thursday as the chipmaker grapples with a combination of weak demand for smartphones and a supply glut, a situation that is expected to persist into the first-half of this year.  Inflation and macroeconomic uncertainty have hurt consumer electronics sales.

“The handset industry continues to experience reduced demand, and we are now expecting elevated channel inventory levels to persist at least through the first half of calendar 2023,” Cristiano Amon, Qualcomm CEO told investors.  To cope, he said the company would further cut spending and streamline operations.

In its fiscal first quarter revenue dropped 12% year-on-year to $9.46 billion, below Wall Street’s expectations of $9.6 billion.

--Royal Philips NV said it would cut an extra 6,000 jobs by 2025, including 3,000 this year, as part of a reorganization aimed at improving its performance.

The Dutch health-technology company said Monday the job cuts are in addition to the 4,000 roles it said it would eliminate in October.

The cuts at Philips, which sell products including MRI scanners and ultrasound machines, come as the Dutch company has grappled with supply-chain challenges, lower sales in China and the fallout from the war.  Philips also had to deal with a huge recall of devices used to treat sleep apnea.

--A federal appeals court in Philadelphia rejected Johnson & Johnson’s use of chapter 11 bankruptcy to freeze roughly 40,000 lawsuits linking its talc products to cancer, blunting a strategy the consumer health giant and a handful of other profitable companies have used to sidestep jury trials.

J&J is now exposed once again to talc-related cancer claims that have cost the company’s consumer business $4.5 billion in recent years and are expected to continue for decades.

The shares fell nearly 4% in response.

--McDonald’s on Tuesday reported mixed fourth-quarter results impacted by foreign currency headwinds, which are expected to continue to weigh on the fast-food chain giant’s profit in the near term.

The company’s adjusted earnings climbed to $2.59 a share from $2.23 a year earlier, topping the consensus of $2.46. Revenue for the December quarter ticked down 1% to $5.93 billion, but beat the Street’s view for $5.75 billion.

Comparable sales on a global basis were up about 13%, compared with the Street’s forecast for 8.6%.  In the U.S., same-store sales rose more than 10% driven by price increases, more customer visits (up 5%), marketing promotions, and digital and delivery growth.

CFO Ian Borden said the company was “gaining share right now among low-income consumers” in the U.S. because of McDonald’s “affordability.”

CEO Chris Kempczinski said in an earnings statement: “Our Accelerating the Arches strategy is driving growth and building brand strength, delivering exceptional full year performance in 2022… While we expect short-term inflationary pressures to continue in 2023, we remain highly confident in Accelerating the Arches, which now includes a greater emphasis on new restaurant openings.”

McDonald’s plans to open about 1,900 restaurants this year, including 400 in the U.S. and its international operated markets, as well as 900 in China.  The company opened more than 700 in 2022.

--Starbucks stock fell after its quarterly results came in worse than expected, partly because of a poor performance in China.

Starbucks posted earnings of 75 cents a share, missing estimates of 77 cents, as problems in China contributed to a 6-cent decline in earnings per share, the company said.  Net income rose 5% to $855 million.

Sales came in at a record $8.7 billion, a little below estimates, while same-store sales were up 5% globally, under forecasts for 6.7%.  Same-store sales in China fell 29% compared with the same quarter last year, owing to widespread lockdowns as part of the country’s zero-Covid policy.

“In early December, zero-Covid was lifted, and Covid infections spiked across China resulting in a dramatic decline in consumer activity across the country and causing the most severe Covid disruptions any retailer had encountered,” said interim CEO Howard Schultz in a call with investors.  Schultz said operating challenges will continue to take a bite out of profit in the current quarter, before improving in the second half of the year.

In the U.S., same-store sales rose 10% as customers spent more per order.  Overall transactions rose just 1%.

--Snap is forecasting its first ever quarterly revenue decline, citing a flurry of changes to Snapchat’s advertising products that may be disruptive to the social media app’s business.

Revenue is projected to drop 2% to 10% in the first quarter from a year earlier, the company said in a statement, below analysts’ estimate for growth of 1.5%.

Snap shares fell 13% on the news as the company also reported flat revenue for the fourth quarter of $1.3 billion vs. a year ago. 

Snap ended the quarter with 375 million daily users, for a 17% increase.

The company has become a bellwether for other digital advertising companies, as last year, it was the first to raise concerns about the slowdown in marketer spending online and to fire a significant number of employees – 20% of its workforce – to cut costs in the face of falling revenue.

--As it happened….

The record $2.5 billion share sale by Gautam Adani’s flagship firm was fully subscribed on the final day, offering Asia’s richest man a reprieve after his empire was rocked by allegations of fraud by short seller Hindenburg Research.

Investors had placed orders for about 100% of the total shares on offer by Adani Enterprises Ltd. – India’s largest follow-on share sale.

The stakes were high for Adani, who has already suffered one of the world’s biggest-ever declines in personal wealth after Hindenburg last week alleged his conglomerate used a web of companies in tax havens to inflate revenue and stock prices even as debt piled up.  A successful deal signals he still has the ability to attract investors with bold expansion plans in industries ranging from green energy to ports and e-commerce.

But then Adani called it off due to prevailing market conditions, the company said later in the day, Wednesday.  The selloff in Adani group stocks and bonds resumed, with shares in Adani Enterprises plunging 28% and Adani Ports and Special Economic Zone dropping 19%, the worst day on record for both.  The withdrawal marked a stunning setback for Adani.

“Today the market has been unprecedented, and our stock price has fluctuated over the course of the day. Given these extraordinary circumstances, the company’s board felt that going ahead with the issue will not be morally correct,” Adani said.  “Our balance sheet is very healthy with strong cashflows and secure assets, and we have an impeccable track record of servicing our debt.  This decision will not have any impact on our existing operations and future plans,” the billionaire added in a statement to Indian exchanges.

Editorial / The Economist

“From meagre beginnings in the 1980s, Gautam Adani has emerged as India’s richest citizen.  Now, in just a few days, the foundations of his sprawling empire have been shaken.  On January 24th a small New York investment firm, Hindenburg Research, published a report calling the Adani Group ‘the largest con in corporate history.’  In a series of statements, the group responded by saying that the report was ‘maliciously mischievous,’ ‘unresearched’ and intended to ‘sabotage’ a secondary share offering of the group’s flagship listed company, Adani Enterprises.  The group also said that Hindenburg had published its report ‘without making any attempt to contact us or verify the factual matrix.’  ‘We are deeply disturbed by this intentional and reckless attempt by a foreign entity to mislead the investor community and the general public,’ wrote the group’s top lawyer, Jatin Jalundhwala.

“These fierce denials have not averted a sell-off of shares in Mr. Adani’s seven listed companies… Mr. Adani’s personal fortune declined from $122 billion at the end of 2022 to $93bn, according to Hurun Report, a research firm.  The episode has also drawn the world’s attention to one of India’s corporate success stories – and a significant motor of the country’s recent economic growth….

“Mr. Adani is widely regarded as a master operator, with a genius for navigating the complicated legal and political landscape of Indian capitalism.  Some investors have, though, occasionally expressed concerns about his group’s governance and opaque finances.  That is the focus of Hindenburg’s report.  It describes a complex network of funds and shell companies, some based in Mauritius, which interact with 578 subsidiaries spread through the seven publicly listed firms.

“Last year, Hindenburg claims, these entities engaged in 6,025 related-party transactions.

“Byzantine corporate structures are common in India and other emerging markets. But the report contends that the Adani Group is ‘engaged in a brazen stock-manipulation and accounting-fraud scheme.’  The point of the complexity, Hindenburg alleges, is to manipulate the listed firms’ share prices and to shift money onto their balance sheets ‘to maintain the appearance of financial health and solvency’ amid high debts and relatively few liquid assets.

“As a consequence, Hindenburg wrote, valuations for the companies were overstated by as much as 85% and financial holes were temporarily papered over, despite severe shortages of liquid assets in five of the public firms.  The group’s ‘obvious accounting irregularities and sketchy dealings’ were enabled by ‘virtually non-existent financial controls.’  Hindenburg claimed that Adani Enterprises had 156 subsidiaries but its reports were audited and signed off by a tiny accounting firm employing a handful of people, including some in their early 20s.”

Responding to Adani Group’s rebuttal of its report, Hindenburg said: “To be clear, we believe India is a vibrant democracy and an emerging superpower with an exciting future.”

“We also believe India’s future is being held back by the Adani Group, which has draped itself in the Indian flag while systematically looting the nation.”

Adani’s businesses had lost $107 billion in a week as of Wednesday, one of the biggest wipeouts in India’s history.  Adani’s personal wealth has plummeted by around $57 billion.

The tumult has become a national issue with lawmakers disrupting parliament to demand answers from Prime Minister Narendra Modi’s government, given how closely Adani’s interests are intertwined with the nation’s growth plans.  There are legitimate contagion fears.

--Bitcoin had its best January since 2013, when it changed hands below $20.  At 4 p.m. in New York on Jan. 31, the price stood at about $23,100, up from around $16,600 on the last trading day of the year, Dec. 30.

--According to the Partnership for New York City, Manhattan’s office occupancy ticked upward to between 53 and 55 percent on an average workday, up from 49 percent reported for September.  Employers and landlords foresee 57 percent occupancy by the year’s end.

Not great, but a little encouraging.  My informal look at two local commuter parking lots shows little improvement since early December, about 50% of available spaces, and only Tues. through Thursday.

--CVS Health Corp., the largest U.S. drugstore chain by revenue, plans in March to cut or shift hours at about two-thirds of its roughly 9,000 U.S. locations.  Walmart plans to reduce pharmacy hours by closing at 7 p.m. instead of 9 p.m. at most of its roughly 4,600 stores by March.

Walgreens Boots Alliance Inc. previously said it was operating thousands of stores on reduced hours because of staffing shortages.  Combined, the three chains operate some 24,000 retail pharmacies across the U.S.  This is largely a result of the Covid-related labor shortages that developed earlier in the pandemic.

--Bed Bath & Beyond Inc. said it was closing an additional 87 of its flagship stores and its entire Harmon chain of drugstores, as the retailer struggles to find financial support to keep its operations funded.

The company, which is expected to file for bankruptcy soon, faces limited options to reorganize as a going concern, as its lenders have cut off credit, it hasn’t secured a buyer to acquire its business, and it is struggling to raise financing to survive chapter 11 even in shrunken form as many vendors have stopped shipping goods to the retailer.

--CNN just notched its lowest ratings in nine years across all its day parts for the week of Jan. 16 through Jan. 22, 2023, according to Nielsen, averaging just 444,000 viewers in primetime and 417,000 for total day.  It’s the first time since May 2014 that the network failed to reach 450,000 viewers.

By comparison, during the same period Fox News drew 1.4 million viewers, while MSNBC notched 629,000 total viewers.  In primetime, Fox News had 2 million viewers and MSNBC had 943,000 viewers.

CNN’s primary programming move, “CNN This Morning,” also suffered the lowest week since its launch just three months ago. It averaged only 331,000 viewers while “Fox & Friends” had nearly 1 million and “Morning Joe” drew 760,000.

Personally, I watch CNN’s 5:00-6:00 a.m. program with Christine Romans, which I think is outstanding, but then switch to CNBC’s “Squawk Box” at 6:00 a.m., before switching to the first 20 minutes of “Today,” then back to CNBC.

Foreign Affairs, Part II

China: Beijing said Friday it was looking into reports that a Chinese spy balloon has been flying in U.S. airspace and urged calm, adding that it has “no intention of violating the territory and airspace of any sovereign country.”

You can stop laughing, this coming from the country that steals islands and builds military bases on them, destroying the environment around it.

But this comes as U.S. Secretary of State Antony Blinken is scheduled to head to Beijing for meetings, including with President Xi Jinping.

Foreign Ministry spokesperson Mao Ning said: “China is a responsible country and has always strictly abided by international laws, and China has no intention of violating the territory and airspace of any sovereign country.”

Ominously, Mao said he had no information on Blinken’s visit, which was slated to start Sunday.

China was responding to Pentagon reports that the U.S. has “very high confidence” that the object was a Chinese high-altitude balloon and was flying over sensitive sites to collect information, specifically over Montana, which is home to one of America’s three nuclear missile silo fields at Malmstrom Air Force Base.

The Pentagon said the balloon is “currently traveling at an altitude well above commercial air traffic and does not present a military or physical threat to people on the ground.”

But Pentagon press secretary Brig. Gen. Patrick Ryder said similar balloon activity has been seen in the past, making it curious that during this time of heightened tensions between the two, the U.S. decided to make it public.

President Biden was briefed and has been presented options, including to shoot it down.  Defense Secretary Lloyd Austin and Army Gen. Mark Milley, chairman of the Joint Chiefs of Staff, advised against taking “kinetic action” because of risks to the safety of people on the ground, the administration said.

China then said later in the day that the balloon was used for weather research and was blown off course.

Friday afternoon, Sec. Blinken canceled the meeting, as noted above.

On the topic of Taiwan, the Philippines granted the United States expanded access to its military bases, greatly enhancing Washington’s presence in the region at a time of growing concern about Chinese aggression.

Washington would be given access to four additional military bases in “strategic areas of the country,” without specifying the locations, the Philippines military said Thursday in a statement.  Washington will allocate more than $82 million toward infrastructure investments at five previous bases it was given access to.

It has been widely reported that the U.S. has asked for access to bases on Luzon, the closest part of the Philippines to Taiwan, and on the island of Palawan, the closest landmass to the disputed Spratly Islands in the South China Sea.  These are the top two flashpoints involving China.  And it would provide more areas where the U.S. can pre-position forces so as not to have just one or two concentrations of forces that could be vulnerable to Chinese missile attacks.

This week, Taipei scrambled fighter jets in response to nearby operations involving 34 Chinese military aircraft and nine warships.

The large-scale maneuvers come as Beijing increases preparations for a potential blockade or outright attack on Taiwan.

In a memo last month, U.S. Air Force Gen. Mike Minihan instructed officers to be prepared for a U.S.-China conflict over Taiwan in 2025.

Editorial / Wall Street Journal

“Honesty is not the default policy in Washington these days, so the political and media classes were jolted this weekend by the leak of a private warning by a U.S. general telling his troops to prepare for a possible war with China over Taiwan in two years.  Imagine: A warrior telling his troops to be ready for war.

“In an internal memo leaked to NBC News, Gen. Michael Minihan told his troops: ‘I hope I am wrong.  My gut tells me we will fight in 2025.’ …[Gen. Minihan] says in his memo that he wants his force to be ‘ready to fight and win in the first island chain’ off the eastern coast of continental Asia.  He called for taking more calculated risks in training.

“The general’s document won’t be remembered for subtlety.  One of his suggestions is that airmen with weapons qualifications start doing target practice with ‘unrepentant lethality.’

“Another tells airmen to get their affairs in order….

“(While) Gen. Minihan’s words may be blunt, his concern is broadly shared, or ought to be….

“No less than Secretary of State Antony Blinken said last year that Beijing was ‘determined to pursue reunification’ with Taiwan ‘on a much faster timeline’ than it had previously contemplated.  Are war-fighters supposed to ignore that message as they prepare for their risky missions?

“Gen. Minihan is doing his troops a favor by speaking directly about a war they might have to fight. A recent war game conducted by the Center for Strategic and International Studies warned that, in a conflict over Taiwan, ‘the scale of casualties’ would ‘stagger a U.S. military that has dominated battlefields for a generation.’  Gen. Minihan’s boom operators are accustomed to working in skies the U.S. controls.  Tankers would be essential in a fight for Taiwan given the vast distance over the Pacific – and would be vulnerable to heavy losses.

“Former naval officer Seth Cropsey explained on these pages last week that America isn’t investing in the ships and weapons stockpiles that would be required to support a long war in the Western Pacific. Such yawning gaps in U.S. preparedness make a decision by Beijing to invade or blockade the democratic island more likely.  Preventing a war for Taiwan requires showing Beijing that the U.S. has the means and the will to fight and repel an invasion.

“Whatever his rhetorical flourishes, Gen. Minihan seems to understand this, and what Americans should really worry about is that some of his political and military superiors don’t.”

CIA Director Williams Burns said on Thursday that President Xi’s ambitions toward Taiwan should not be underestimated, despite him likely being sobered by the performance of Russia’s military in Ukraine.

Burns said that the United States knew “as a matter of intelligence” that Xi had ordered his military to be ready to conduct an invasion of self-governed Taiwan by 2027.  “Now, that does not mean that he’s decided to conduct an invasion in 2027, or any other year, but it’s a reminder of the seriousness of his focus and his ambition,” Burns told an event in Washington.  “Our assessment at CIA is that I wouldn’t underestimate President Xi’s ambitions with regards to Taiwan,” he said, adding that the Chinese leader was likely “surprised and unsettled” and trying to draw lessons by the “very poor performance” of the Russian military and its weapons systems in Ukraine.

Burns also said “it’s a mistake to underestimate the mutual commitment” (to the Russia-China partnership), “but it’s not a friendship totally without limits.”

--On the Covid front, China has reported a nearly 90 percent drop in Covid deaths and severe cases among hospital patients since infections peaked last month, suggesting the end is in sight for the massive outbreak that followed Beijing’s pandemic policy pivot.

In a report published on Wednesday, the Chinese CDC said there were 434 Covid-related deaths on Monday, down 89.8 percent since peaking on January 4 when there were 4,273 deaths per day.

China reported 6,364 Covid-related deaths from January 20 to 26 – about half the number reported in the previous week, health authorities said, noting that the country’s latest wave of infections was on a steady decline nationwide.

The number of new severe Covid-19 cases among hospital patients dropped to 14,000 on January 30, down 89.3 percent from a peak of 128,000 on January 5.

Travelers made a total of 226 million trips during the Lunar New Year period, according to the Ministry of Culture and Tourism; 308 million during the seven-day period starting on January 21, up 23 percent compared with last year’s holiday.

Tourism revenue nationwide rose by 30 percent compared with last year, reaching $55.4 billion, or 73 percent of what was seen in 2019.

Of course, who knows, when it comes to the accuracy of all the above.  What I’ve noticed is a dearth of media coverage in China the last few weeks, which isn’t helping us get the facts.

North Korea: The White House on Wednesday rejected North Korean accusations that joint military exercises in the region are a provocation and said the United States has no hostile intent toward Pyongyang.

“We have made clear we have no hostile intent toward the DPRK (North Korea) and seek serious and sustained diplomacy to address the full range of issues of concern to both countries and the region,” said a White House spokesperson.

The comment came after North Korea’s Foreign Ministry said the drills by the U.S. and its allies have pushed the situation to an “extreme red-line” and threaten to turn the peninsula into a “huge war arsenal and more critical war zone.”

Iran: Tehran threatened to “raze Tel Aviv and Haifa to the ground” in an unprecedented nuclear attack, as nonproliferation experts warn that the country now has enough enriched uranium for at least one nuclear bomb.

The threat came after Israel appeared to have been behind a drone attack on a military factory in Iran, as noted above.  The extent of any damage could not be independently ascertained, but Iranian officials said there were no casualties and that they had intercepted the drones behind the strike.

Israel has long said it is willing to strike Iranian targets if diplomacy fails to curb Tehran’s nuclear or missile programs, and diplomacy has failed.

The attack came amid tension between Iran and the West over not just Tehran’s nuclear activity and its supply of arms – including long-range “suicide drones” – for Russia’s war in Ukraine, as well as months of anti-government demonstrations at home, though the protests appear to be receding.

Pakistan: What an awful two weeks for this country.  Last week it was about a nationwide power outage that lasted hours.  This week we had a boating accident in a lake in northwest Pakistan that killed at least 51.  The wooden boat carrying children and teachers from a seminary on a picnic was overcrowded and at least 10 students drowned.

The same day, Sunday, a passenger bus crashed into a pillar and fell off a bridge in southern Pakistan, catching fire and killing at least 40 of the 44 passengers.

And then on Tuesday, a suicide bombing ripped through a crowded mosque in a heavily fortified part of Peshawar, killing at least 101, all but three of them police.

The attack was the deadliest in a decade to hit this restive northwestern city near the Afghan border, and comes amid a surge of violence against the police. 

At least 225 people were wounded in the blast, which demolished the upper story of the mosque as hundreds of worshippers performed noon prayers.

Given the security concerns in Peshawar, the mosque was built to allow police to pray without leaving the area.  The bomber was in the first row in the prayer hall when he struck.

At first the Pakistani Taliban, the most active militant group in the area, claimed responsibility.  Then it pulled the claim back, blaming the attack on a splinter faction.

Czech Republic: Retired NATO general Petr Pavel beat former prime minister Andrej Babis, a populist billionaire, in the presidential election over the weekend, Pavel taking over 58% of the vote.

The 61-year-old general is a social liberal and an independent who won the backing of the center-right, conveying a message of unity.

“Values such as truth, dignity, respect and humility won,” he told supporters after the vote.  Turnout was a record high 70.2%.

While Czech presidents do not have many day-to-day duties, they pick prime ministers and central bank heads, have a say in foreign policy, and are powerful shapers of public opinion.

I can guarantee Pavel will be on “60 Minutes” before July.  He is bigtime pro-West, and the day after the election was calling Taiwanese President Tsai, in a conversation that no doubt infuriated Beijing.

Pavel’s first call was to President Zelensky, and he later told Bloomberg in an interview: “Ukraine can defeat Russia on Ukrainian soil. That means to push Russian forces out of Ukraine and restore full territorial integrity and full sovereignty of Ukraine.”

Pavel also said the only limit to weapons deliveries to Ukraine should be nuclear arms.

Random Musings

--Presidential approval ratings….

Gallup:  41% approve of Biden’s job performance, 54% disapprove; 36% of independents approve (Jan. 2-Jan. 22).

Rasmussen: 43% approve, 55% disapprove (Feb. 3).

Biden Bits

--In a new NBC News poll, an equal number of Americans – 67% - say they are as concerned about classified documents found at President Biden’s residence and former office as they are about those found at Donald Trump’s Mar-a-Lago home, despite differences in how the two men responded to these controversies.

In addition, half of Americans disapprove of the job Biden is doing and give him low marks on uniting the country, as well as on having the necessary mental and physical health to be president – even after a string of recent political and legislative victories.

Biden’s overall approval rating is 45%, 50% disapproving, essentially unchanged from before last November’s midterm elections.

Only 36% of registered voters approve of Biden’s handling of the economy (down from 40% in September 2022).

Also, only 34% consider Biden honest and trustworthy, with 31% saying he is competent and effective as president, while only 28% consider Biden to have the necessary mental and physical health to be president.

--The FBI searched President Biden’s Rehoboth, Del., beach house on Wednesday, as the investigation into why classified materials ended up at his primary home and former office advances.

Special counsel Robert Hur’s investigation into how and why classified documents remained on premises used by Biden is underway, an inquiry that is expected to take months.

Meanwhile, we learned this week that the FBI was involved in a search of Biden’s former office at a Washington think tank for classified documents in November, shortly after his aides earlier that month found such material and surrendered it to the National Archives.

But neither the White House nor the Justice Department mentioned the November office search even as Attorney General Merrick Garland appointed a special counsel.

--President Biden and Republican House Speaker Kevin McCarthy held initial talks on Wednesday about raising the debt ceiling in a first test of how the two will work together, with both sides agreeing to talk more. The White House said after the meeting that Biden told McCarthy he was eager to work with Republicans “in good faith.”  McCarthy said the two men could find common ground.  But no breakthrough.

“The president and I had a good first meeting,” McCarthy told reporters after the more-than-hour-long meeting.  He said the two shared their perspectives with each other.

“President Biden made clear that, as every other leader in both parties in Congress has affirmed, it is their shared duty not to allow an unprecedented and economically catastrophic default,” the White House said in a statement.  “It is not negotiable or conditional.”

But this is the opening bell for months of back-and-forth maneuvering.  McCarthy expressed optimism if they can reach a deal, “we could have a funding agreement for the next two years.”

--Hunter Biden’s lawyers, in a newly aggressive strategy, sent a series of letters Wednesday to state and federal prosecutors urging criminal investigations into those who accessed and disseminated his personal data – while Fox News host Tucker Carlson was sent a letter threatening a defamation lawsuit.

The actions marked a change from the advice of those who told Hunter not to make public waves, so as not to invite more news coverage.

Editorial / New York Post

“For more than two years, Hunter Biden and his father have dismissed the ‘laptop from hell’ as a fraud, a hack or ‘Russian disinformation.’

“Then, Wednesday evening, Hunter’s lawyers did an abrupt U-turn.  Yes, the laptop computer is his, they finally admit.  But information from it was published without his permission!

“Why the change?  Well, investigations are coming from the Republicans in Congress, and pretending the laptop isn’t real won’t work anymore… even The New York Times admitted, grudgingly, that Hunter’s emails are authentic.

“New tactic; Hunter is the victim.

“His privacy was invaded.  He has struggled with demons, we all know, but Congress is just victimizing him to go after his dad.

“Don’t buy a word of it.  Hunter Biden is a privileged son who leveraged his family’s name and access to make millions – much of which he frittered away on drugs and prostitutes. His laptop wasn’t ‘stolen.’  He dropped it off at a computer repair shop, handed over the password, then never picked it up because he was too addled to do so.

“Hunter Biden isn’t a victim.  He’s a con artist. One lie has been admitted.  Let’s see what is revealed next.”

--The Biden administration said Monday that it will end Covid-19 emergency declarations on May 11, three years after they were put in place by then-President Trump.  Republicans are seeking to end the emergency declarations immediately.

Trump World

--The former president slammed “radical Democrats” and brushed aside concerns about momentum last Saturday in the first of two stops of a presidential campaign that has been idling since he launched it in November.

Addressing a small crowd at the New Hampshire Republican Party’s annual meeting in Salem, before heading to Columbia, South Carolina, Trump insisted he was motivated to win as he embarks on his third White House bid.

“They said, ‘He’s not doing rallies, he’s not campaigning.  Maybe he’s lost that step.”

But “I’m more angry now and I’m more committed now than I ever was,” Trump said.

The former president pulled out his same-old issues, railing against illegal immigration, claiming without evidence that other countries were intentionally sending criminals and people with mental illnesses to the United States.

He did unveil a new education plan that vows to cut federal funding to “any school pushing critical race theory, gender ideology, or any other inappropriate content,” which mirrors a law passed in Florida last year with the backing of Gov. DeSantis.

In South Carolina, Trump further dismissed speculation he wasn’t committed to the campaign by saying that “we have huge rallies planned, bigger than ever before.”

After his South Carolina speech, Trump told reporters that it would be “a great act of disloyalty” if DeSantis opposed him in the primary and took credit for the governor’s initial election.

“If he runs, that’s fine.  I’m way up in the polls,” Trump said.  ‘He’s going to have to do what he wants to do, but he may run.  I do think it would be a great act of disloyalty because, you know, I got him in.  He had no chance.  His political career was over.”

Karl Rove / Wall Street Journal

“There’s a lot of skepticism about former President Donald Trump’s campaign launch for the 2024 Republican nomination.  His rambling, hour-long mid-November announcement was widely panned.  There have been few endorsements and no trademark rallies.  He’s trailing Gov. Ron DeSantis in Florida and New Hampshire polls and is having fundraising difficulties. All this leaves an impression of – dare we say – low energy.

“However, Mr. Trump could still be the Republican nominee.  He’s a known quantity.  His committed following is larger than any prospective GOP rival’s.  He’s been underestimated before by many – including by me on numerous occasions.  He has time to up his game.  But will he?

“There’s also a downside for each of Mr. Trump’s strengths.  He’s well-known, sure, but also overexposed. His shtick is old, his speeches boring.  More and more Republicans want to turn the page: Only 31% in the Dec. 11 USA TODAY/Suffolk University poll wanted him to run again.

“While Mr. Trump leads most national polling matchups, it’s easy to flame out early. The GOP frontrunner at this point in 2007 was New York Mayor Rudy Giuliani and in 2015 Jeb Bush.  This happens to early Democratic presidential picks, too.  Gallup had Rep. Dick Gebhardt and Sen. Joe Lieberman swapping the pole position early during the late winter of 2002 and early spring of 2003.  In February 2007, Hillary Clinton was way out in front.

“In short, other Republican hopefuls shouldn’t rush campaign announcements just because Mr. Trump has….

“Alone in the spotlight, it’s hard for Mr. Trump to do what he usually does in an election – go on the attack.  When he attacked his primary opponents in 2016, he was punching up and it made him look strong.  Now as a former president, he’s punching down and it makes him look weak….

“As the 2024 GOP presidential contest heats up, Republican voters are being seized by an increasingly urgent desire to win.  After the 2020 and 2022 contests, it’s clear Donald Trump has turned off a large part of the electorate. If Republicans want the White House, they must find a way around him.”

--Despite Karl Rove’s advice, former South Carolina Governor Nikki Haley will kick off her campaign for the Republican presidential nomination this month, specifically Feb. 15 at an event in Charleston. South Carolina will be hosting one of the first Republican primaries in 2024.

Haley, the daughter of two Indian immigrants, has gained a reputation within the GOP as a solid conservative who has the ability to address issues of gender and race in a more credible fashion than many of her peers.  She has also pitched herself as a stalwart defender of American interests abroad, having served as U.S. ambassador to the United Nations under Trump from 2017 to 2018.

Florida Gov. Ron DeSantis has yet to declare whether he will run so Haley can grab the voters’ attention.

Both Haley and South Carolina Republican Sen. Tim Scott opted to skip Trump’s campaign appearance in Columbia on Saturday.  Trump told reporters that day that Haley had called him to say she was considering a run and that he told her “Go by your heart if you want to run.”

Thursday, during an appearance on “The Hugh Hewitt Show,” Trump was asked about Haley’s potential run and the former president said “she should follow her heart,” but noted her previous statement when she said she would never run if Trump got into the race.  Trump said Haley was a “very ambitious person” and that “she just couldn’t stay in her seat.”

“Nikki suffers from something that’s a very tough thing to suffer from: She’s overly ambitious,” Trump said later in the interview.

He also said that DeSantis had “begged” for an endorsement with “tears coming down from his eyes.”

And ever the asshole, Trump said that if he were not elected by the American people as the Republican nominee, he said it would depend on who won the nomination for them to receive his support.

--A Granite State Poll conducted by the University of New Hampshire Survey Center showed Gov. DeSantis as the early front-runner in a primary next year, if he runs.  DeSantis received 42% support, a 12-point advantage over Donald Trump.  Nikki Haley drew 8% support, which isn’t bad, really, as once she announced, you’d think she’d do better.

Just 46% of respondents say Trump should run again in 2024, with 50% saying that he should not.

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--Rep. George Santos told fellow Republican lawmakers he will agree to not sit on any committees amid controversies over his serial lies about his background, education and finances.

Santos made the pledge, which is unlikely to quiet rising demands for his resignation, at a closed door meeting of the Republican caucus.

A new poll says 78% of voters in his NY-03 district want him to resign compared to just 13% who say he should stay in office to serve out his two-year term.  Even 71% of Republicans want to see him gone for good.

Needless to say, with polling data like this, as much as they want Santos to go, local Republican leaders know that should he resign, the odds of a Democrat taking the seat in a special election are large.

--Authorities announced that a total of seven Memphis Police officers were relieved of duty this month after law enforcement brutally beat, Tased and pepper sprayed 29-year-old Tyre Nichols after pulling him over.  Nichols died on Jan. 10, just three days after the traffic stop.  The seven officers include the five who were fired and charged with murder.

I watched in horror and disgust the video last Friday night.  It was pathetic, infuriating that the officers could act in such a fashion, and I’d have no problem seeing the five officers receive life in prison.  We’re also being told there is more video that eventually will be released.

But you also saw the EMTs just standing around, not treating Tyre.  The Memphis Fire Department then fired three* of them for failing to provide Nichols an “adequate patient assessment” when they were called to provide medical aid.

*The third was a lieutenant who drove the two paramedics to the scene and remained in her vehicle after arriving.

Editorial / Wall Street Journal

“Americans owe a debt of gratitude to the family of Tyre Nichols… The Nichols family called for protesters to avoid violence as they demanded justice in the case, and for the most part that is what happened over the weekend after the police video of the arrest was released Friday evening.

“The bodycam video is infuriating… Whatever justice is meted out won’t make up for the loss of an apparently innocent young man’s life, but the cops are being held accountable….

“The urge to blame all police for the excesses of a few took hold after the murder of George Floyd in Minneapolis… But the  attacks on police in general led to cuts in funding and other limits on law enforcement that produced a surge in crime and homicides in many big cities.

“Yet the fact that there is inadequate training and poor recruitment for police in many parts of the country is undeniable.  The answer must come primarily from local and state officials as policing is rightly a local function. The federal government can help with funding and the distribution of best practices, but not with politically motivated mandates….

“A case as ugly as this one is cause for dismay and reflection, but the solution is to recruit and train more good police, not condemn all police.”

--Homicides fell in many large U.S. cities last year but were still above pre-pandemic levels, according to new data from the Major Cities Chiefs Association, which represents police chiefs from large cities.  The number of killings dropped 5% in 70 big cities in 2022 from a year prior.

A separate report issued this week by the Council on Criminal Justice, a think tank, found that killings declined 4% between 2021 and 2022 in 27 major American cities, but noted that the homicide rate was still 34% higher than it was in 2019.

The FBI won’t release national crime figures for 2022 until later in the year.  Murders rose 4% in 2021 after increasing nearly 30% in 2020, according to the agency’s most recent data.

--This is a serious warning.  If you use a popular brand of eyedrops by the name of EzriCare Artificial Tears, it is being recalled over vision loss and bacterial infection concerns, according to the CDC.

There have been dozens of reports in 12 different states, as well as one death.  Three people have been blinded by the drops, according to the agency.

The drops could contain an antibiotic-resistant bacteria.

--Congrats to the Australian authorities who found a radioactive capsule smaller than a coin that was lost in the vast Outback after nearly a week-long search involving around 100 people along an 87-mile stretch of highway.

The Caesium-137 capsule lost in transit more than two weeks ago was discovered when a vehicle traveling at 70 km per hour (43 mph) equipped with specialist detection equipment picked up the radiation, according to officials from the state of Western Australia.  The search team then used portable detection equipment to find the capsule, which was located about 2 meters from the side of the road in a remote area far from any community, they added.

The radioactive capsule was used to measure the density of iron ore feed from a Rio Tinto mine.  People had been told to stay at least five meters away if they spotted the capsule, because exposure could cause radiation burns or radiation sickness.  However, driving past it was believed to be relatively low risk, akin to taking an X-ray.  But the Caesium-137 emits radiation equal to 10 X-rays per hour.

I mean think of it…870 miles…and they found this little thing.

--California entered February with deeper snowpack than it has seen in four decades, reflecting a healthy boost in the state’s supply of water but also spurring concerns about dryness, flooding and other potential hazards over the rest of the year.

Statewide Sierra snowpack was 205% of normal for the date on Wednesday, said officials with the Department of Water Resources during the second snow survey of the season.  More promising, it is 128% of its April 1 average, referring to the end-of-season date when snowpack in California is typically at its deepest.

“Our snowpack is off to an incredible start, and it’s exactly what California needs to really help break from our ongoing drought,” DWR snow survey manager Sean de Guzman said.  The state’s snowpack is currently outpacing the winter of 1982-83 – “the wettest year on record dating back about 40 years,” he said.

Snow levels at Phillips Station near South Lake Tahoe, where the monthly surveys are conducted each winter, were 193% of average for the date.  The UC Berkeley Central Sierra Snow Lab at Donner Pass reported that it had reached a season total of 360 inches – a number it usually averages in an entire year.

And California’s two key reservoirs are getting a boost.  Lake Shasta ended January at 56% capacity, up from 33% a month prior. Lake Oroville was at 65% capacity, up from 36% at the end of December, according to state data.

But you need another winter like this before the all-clear on the drought can be issued, as groundwater supplies remain perilously depleted.

And Southern California’s other major water supply, the Colorado River, remains at crisis levels.

--New York City / Central Park finally received measurable snow on Feb. 1, a whopping 0.4 inches, thus breaking the latest first snow on record.

I apologize. I think in one of my earlier bits on the lack of snow I said “one inch” was considered the minimum necessary, but one-tenth of an inch qualifies.  I’ve been put on double-secret probation for this muff.

Meanwhile, Punxsutawney Phil predicted six more weeks of winter, and indeed I told you last week that AccuWeather is calling for a rough March, starting by late February.

And if you’re looking for a vigorous hike in the dark tonight, I suggest you not try to climb Mount Washington in New Hampshire, where the windchill is at -100 as I write.  The record for this rather windy spot is -102.6.

But wait…at 5:15 PM ET, it is minus 102-103…Was a record officially set?!

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

Pray for Ukraine.

God bless America.

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Gold $1878…down $50 on the week
Oil $73.19…down $6

Regular Gas: $3.49; Diesel: $4.66  [$3.41 / $3.75 yr. ago]

Returns for the week 1/30-2/3

Dow Jones  -0.2% [33926]
S&P 500  +1.6%  [4136]
S&P MidCap  +3.4%
Russell 2000  +3.9%
Nasdaq  +3.3%

Returns for the period 1/1/23-2/3/23

Dow Jones  +2.4%
S&P 500  +7.7%
S&P MidCap  +11.4%
Russell 2000  +12.7%
Nasdaq  +14.7%

Bulls 47.1
Bears 27.2

Hang in there.

Brian Trumbore

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