Week in Review

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Week in Review

10/15/2022

For the week 10/10-10/14

[Posted 7:00 PM ET, Friday]

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Edition 1,226

JPMorgan Chase CEO Jamie Dimon has always harbored presidential aspirations, even if he won’t admit it, and truth be told, he’d be OK, certainly probably better than our last four presidents.

And this week, in an interview with CNBC in London, Dimon nailed the current crisis in Ukraine.

Referring to the war more broadly, Dimon dubbed it an attack of similar magnitude to that of Pearl Harbor or the invasion of Czechoslovakia in 1968.

“It’s Pearl Harbor, it’s Czechoslovakia, and it’s really an attack on the Western world,” he said.

However, Dimon said it also presented an opportunity for the West to “get its act together” and defend its values in the face of autocratic regimes.

“The autocratic world thinks that the Western world is a little lazy and incompetent – and there’s a little bit of truth in that,” he said.

“This is the chance to get our act together and to solidify the Western, free, democratic, capitalist, free people, free movements, freedom of speech, free religion for the next century,” he continued.

“Because if we don’t get this one right, that kind of chaos you can see around the world for the next 50 years.”

Dimon’s comments came after Russian President Vladimir Putin ordered “massive” long range strikes after Saturday’s attack on the bridge linking Russia to the annexed Crimean peninsula, and threatened more strikes in the future if Ukraine hits Russian territory.

Ukraine’s defense ministry said that Russia had staged at least 84 missiles and air strikes, with Ukraine’s air defense destroying 43 cruise missiles and 13 drones.

The air strikes come after a blast damaged the bridge the Kremlin built after seizing Crimea in 2014, killing three.

Russia blamed Ukraine and called the deadly explosion “terrorism.”

“To leave such acts without a response is simply impossible,” said Putin.

Ukraine, which views the bridge as a military target sustaining Russia’s war effort, celebrated the blast without claiming responsibility.

The head of Ukraine’s National Security and Defense Council, Oleksiy Danilov, posted a video of the burning bridge on social media alongside a video of Marilyn Monroe singing “Happy Birthday, Mr. President,” the blast on the bridge coming a day after Putin’s 70th birthday.

G-7 leaders condemned the Russian missile blitz, saying it was a significant escalation, but there are fears the conflict is expanding. 

Belarusian President Alexander Lukashenko said for the first time that his nation would deploy armed forces alongside Russia’s.  Russia used Belarus as a staging ground early in the war but Lukashenko has not sent in his troops and by all accounts is not about to do so.

Ukraine’s Volodymyr Zelensky wrote on Telegram that air defense was the “number 1 priority in our defense cooperation.”

President Biden told him the U.S. will provide advanced air defense systems, over the next two months or so, which won’t be soon enough for some.

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Russia’s biggest aerial assaults on cities since the beginning of the war, with missiles hitting cities across Ukraine on Monday morning, killed at least 19 and injuring more than 100, as they tore into intersections, parks, and tourist sites in the Kyiv area.

The Russian missile strikes on Ukraine’s power network caused blackouts in many parts of the country, deepening fears of outages this winter and prompting Kyiv to halt electricity exports.

The attacks left four regions temporarily without electricity, and supplies were disrupted in several other areas, the State Emergency Service said.

Authorities asked civilians and businesses to limit energy use, and the energy ministry said it was halting electricity exports to the European grid after the biggest attack on the energy system in some areas.

With no end in sight to the war, Ukrainian authorities had already been warning of Russian attacks on critical infrastructure and preparing for a grim winter.

Ukrainian military intelligence said the main goal of the attacks was to destroy thermal power plants as well as to “create panic among Ukrainians and intimidate the European public.”

The war has wrought huge damage to the energy network, and the Zaporizhzhia nuclear power plant in southern Ukraine is in “cold shutdown” after being occupied by Russian forces.  The plant usually produces about one-fifth of everything from firewood to electric generators, with the fear disruptions to the centralized home-heating season are hard to prepare for because so many different things could go wrong.

In his address Monday night, Zelensky said: “We will do everything to strengthen our armed forces.  We will make the battlefield more painful for the enemy.”

Putin threatened more missile strikes in retaliation for the blast on the Kerch Strait Bridge.

Among his remarks on Monday:

“If attempts to carry out terrorist attacks on our territory continue, Russia’s responses will be harsh and, in terms of their scale, will correspond to the level of threats posed by the Russian Federation.  No one should have any doubts about this.”

“Forensic and other data, as well as operational information, indicate that the explosion on Oct. 8 was a terrorist act. A terrorist act aimed at destroying Russia’s critical civilian infrastructure.  It is obvious that the Ukrainian secret services ordered, organized and carried out the terrorist attack.”

“Representatives of Russia are not allowed to investigate the causes of the explosions and the destruction of the international gas transmission systems passing along the bottom of the Baltic Sea.  But we all know well the ultimate beneficiary of this crime.  Thus, the Kyiv regime, by its actions, put itself on a par with international terrorist groups. With the most odious groups.  It is simply impossible to leave crimes of this kind unanswered.”

Ramzan Kadyrov, the head of the Chechnya region in the North Caucasus who has been repeatedly calling for an escalation of the war in Ukraine and sent hundreds of fighters to the front line, said he is “one hundred percent satisfied” with Moscow’s war strategy.

“We warned you, Zelensky, that Russia hasn’t really started yet, so stop complaining like some hokeypokey – better run before (a missile) arrives (to you),” Kadyrov wrote on Telegram.  “Now I am one hundred percent satisfied with the special military operation.”

Kadyrov last week called for the use of tactical nukes.

While Ukraine hasn’t claimed responsibility, as Bloomberg’s Ros Krasny wrote, the “ability to target a structure thought to have been heavily secured is another embarrassment” eight months into Putin’s invasion.

President Biden condemned Monday’s widespread Russian missile attacks, saying they targeted civilians and served no military purpose, and vowed that the United States and its allies will continue to impose costs on Moscow.

“(These attacks) once again demonstrate the utter brutality of Mr. Putin’s illegal war on the Ukrainian people,” the president said in a statement.  “These attacks only further reinforce our commitment to stand with the people of Ukraine for as long as it takes.  Alongside our allies and partners, we will continue to impose costs on Russia for its aggression, hold Putin and Russia accountable for its atrocities and war crimes, and provide the support necessary for Ukrainian forces to defend their country and their freedom.”

With troops suffering weeks of setbacks on the battlefield, Russian authorities have been facing the first sustained public criticism at home of the war, with commentators on state television demanding ever tougher measures.

On Saturday, Russia’s defense ministry named General Sergei Surovikin as commander of Russian forces in Ukraine.

Surovikin was known as the butcher of Aleppo in Syria, as he led an air campaign that helped the government crush its enemies.

The Kremlin’s barrage of missile strikes elicited celebratory comments from Russian officials and pro-Kremlin pundits, who in recent weeks have been actively criticizing the Russian military for a series of embarrassing setbacks on the battlefield.

Russian nationalist commentators and state media’s war correspondents lauded Monday’s attack as an appropriate, and long-awaited, response to Ukraine’s successful counteroffensive in the northeast and the south and then the attack on the Kerch Strait Bridge.

Many argued, however, that Moscow should keep up the intensity of Monday’s missiles strikes in order to win the war now.

In an interview with CNN Tuesday evening, President Biden said he doubted whether Vladimir Putin would use a tactical nuclear weapon.

Putin is a “rational actor who has miscalculated significantly,” Biden said.  Asked how realistic he believed it would be for Putin to use a tactical nuke, Biden responded: “Well, I don’t think he will.”

Biden also said that comments he made last week warning about the threat of nuclear “Armageddon” in the Ukraine conflict, were aimed at Putin himself.

“I’m talking to Putin,” Biden said in the interview.  “He, in fact, cannot continue with impunity to talk about the use of a tactical nuclear weapon, as if that’s a rational thing to do.  And it could end in Armageddon.”

Biden also said he had no intention of meeting with Putin at the upcoming G20 meeting on the topic of Ukraine, but would talk to the Russian leader if it was about the status of Brittney Griner.

NATO has not noticed any change in Russia’s nuclear posture following the threats, Secretary General Jens Stoltenberg told reporters in Brussels on Tuesday.

The Ukrainian military said on Tuesday night that Russian missile strikes had damaged more than 10 cities.  Another 30 cruise missiles were fired.  Further missile strikes on Zaporizhzhia killed another seven (after 19 died there the prior Thursday in a separate strike).  A strike on a crowded market in the town of Avdiivka Wednesday killed another seven.

The Ukrainian command said its forces killed more than 100 Russian troops in the southern Kherson region.

Wednesday, Russia’s Federal Security Service (FSB) said it had arrested eight people over the Crimea bridge attack; five Russians and three citizens of Ukraine and Armenia.

Ukraine dismissed as “nonsense” Russia’s investigation into the explosion.

Russian missiles then pounded more than 40 Ukrainian cities and towns for a fourth straight day.  The capital region of Kyiv was struck by Iranian-made kamikaze drones, with “critical infrastructure facilities” in the area having been hit, according to Ukraine’s presidential office.

In the southern city of Mykolaiv, overnight shelling destroyed a five-story apartment building with a number dead, buried in the rubble.  An 11-year-old boy who was rescued hours later, died in the hospital.

Today, Vlad the Impaler, speaking to reporters at the end of a summit in Kazakhstan, said Russia should be finished calling up reservists in two weeks, promising an end to a divisive mobilization that has seen hundreds of thousands of men summoned to fight in Ukraine and huge numbers flee the country.

Putin also said Russia had no plans “for now” for more massive air strikes like those carried out this week.

Putin defended the mobilization by saying the front line was too long to defend solely with contract soldiers.  He said 222,000 out of an expected 300,000 reservists had already been mobilized.  “This work is coming to an end,” he said.  “I think that in about two weeks all the mobilization activities will be finished.”

But a Western official said that some of the newly mobilized Russian troops were already on the battlefield taking casualties, and that their presence was unlikely to turn the tide in the war in Moscow’s favor.

“It is clear that they have been fielded with very, very limited training and very, very poor equipment, and that is the reason why we say that it is really unlikely that they have any sort of positive impact in the near term,” the official told Reuters.  The official also suggested Russia did not have enough missiles to sustain attacks like those of this week.

--France will step up its military presence in eastern Europe, with plans to deploy additional Rafale fighter jets in Lithuania and additional armored vehicles and tanks in Romania, as the war in Ukraine intensifies, the defense ministry said on Tuesday.  Paris also plans to deploy additional infantry troops to Estonia.

France and Germany are also, finally, going to step up in sending Ukraine air defense systems.  In the case of Germany, long promised, not delivered, until hopefully now.

--As part of a statement from the G7 this week, citing the UN Charter: “Ukraine has the legitimate right to defend itself against Russian aggression and to regain full control of its territory within its internationally recognized borders.”  They also promised “financial, humanitarian, military, diplomatic and legal support” for Ukraine and its people “for as long as it takes,” and vowed to help “Ukraine in meeting its winter preparedness needs.”

The leaders highlighted “the negative impact of Russia’s aggression for global economic stability, including by continuing to cooperate to ensure energy security and affordability across the G7 and beyond.”

--A Russian nuclear strike would change the course of the conflict and almost certainly trigger a “physical response” from Ukraine’s allies and potentially NATO, a senior NATO official said on Wednesday.

Any use of nuclear weapons by Moscow would have “unprecedented consequences” for Russia, the official warned.  It would “almost certainly be drawing a physical response from many allies, and potentially from NATO itself,” he said.  The official added that Moscow was using its nuclear threats mainly to deter NATO and other countries from directly entering its war on Ukraine.  [Reuters]

Thursday, NATO Sec.-Gen. Stoltenberg told reporters after the two-day meeting of the alliance’s defense ministers: “Russia’s nuclear rhetoric is dangerous, reckless, and they know that if they use nuclear weapons against Ukraine, it will have severe consequences.”

NATO has vowed to go ahead next week with its annual nuclear preparedness exercise dubbed “Steadfast Noon,” in which NATO air forces practice how to use U.S. nuclear bombs based in Europe with training flights, without live weapons.

--The Russian-installed governor of Ukraine’s southern Kherson region told residents on Thursday to take their children and flee, in one of the starkest signs yet that Moscow is losing its grip on territory it claims to have annexed.

But Russian-backed forces have made some advances in eastern Ukraine, Britain said on Friday, even as Moscow’s hold weakens in the south.

A British intelligence update said forces led by the private Russian military company Wagner Group had captured two villages south of the fiercely-contest town of Bakhmut, the first such advance in more than three months.

--Wednesday, Pope Francis condemned Russia’s “relentless bombings” of Ukrainian cities, saying the attacks had unleashed a “hurricane of violence” on residents.  Speaking to thousands of people at his weekly general audience in St. Peter’s Square, he also appealed to “those who have the fate of the war in their hands” to stop.

“My heart is always with the Ukrainian people, especially the residents of the places that have been hit by relentless bombings,” Francis said.

“May (God’s) spirit transform the hearts of those who have the fate of the war in their hands, so that the hurricane of violence stops and peaceful coexistence in justice can be rebuilt.”

Francis directly called on Vladimir Putin for the first time 10 days ago to stop the “spiral of violence and death,” saying the crisis was risking uncontrollable global consequences.

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Opinion….

David Ignatius / Washington Post

[After his most recent trip to Ukraine]

“What became clear after several dozen conversations here is that for Ukraine, there’s no middle ground.  The resiliency and resolve I heard reminded me of Londoners during the Blitz in World War II.  For Ukraine, there’s no turning back, and I was asked repeatedly why some in the West still talk about compromise with Putin.

“Ukraine’s determination to go all the way worries some in the Biden administration, who believe that the war must be settled through negotiations and that the United States has a responsibility to contain this conflict before it expands into something much worse.  I share those concerns, but it’s hard to make arguments for conciliation to Ukrainians whose nation is being hammered by Russian attacks.

“ ‘It would be extremely difficult to explain to society why we need to sit down at the table with these terrorists and negotiate,’ Oleksiy Danilov, head of the Ukrainian national security council, told us….

“Ukrainians seem convinced that they’re winning.  Children play atop captured Russian tanks in St. Michael’s Square at sunset, in the warm fall weather that Ukrainians call ‘grandmother’s season.’  Datsiuk, the television producer, allows: ‘We will have to talk with the Russians sometime.  But not now.’  In a survey of the American Chamber of Commerce here, hardly an activist group, 92 percent said Ukraine will win the war, according to an American who talks with the chamber.

“Military officials are more cautious.  They know that there is still brutal fighting ahead, and they don’t joke about the nuclear risk.  Hanna Maliar, deputy minister of defense, told us in measured tones that Russia is continuing to mount intense attacks in the Donetsk region, despite its disarray on other fronts, and that the Iranian-made drones the Russian army is using are ‘difficult to track and neutralize.’  As for the nuclear threats by Putin, Maliar said, ‘We have no choice but to be ready for any scenario.’

“Maliar had talked with me and an earlier German Marshall Fund group here a few weeks before the war started, and I asked her what had surprised her most in the months since.  The biggest shock, she said, was how ‘barbaric’ the Russian attacks had been – destroying kindergartens, maternity wards, homes for the elderly.  ‘In our civilized world, no one assumed this could happen in the 21st century,’ she said.

“Ukraine fought back.  Its citizens think they will be victorious. What they want from the West is weapons and money to fight Putin.  A visit here left me with the feeling that steady, sustained military assistance to this astonishingly brave nation – despite Russian threats and for as long as it takes – is an investment in a safer and better world.”

George Will / Washington Post

“Under Russia’s czars, military officers had the right to inflict summary punishment on unsatisfactory soldiers by punching them in their faces. When, in spring 1917, disorder spread, the lynchings of police and other representatives of order were sometimes accomplished by tying their legs to vehicles and dragging them through the streets.  A pastor in Petrograd – soon, Leningrad – said ‘thirty or forty policemen were pushed through a hole in the ice [of the Neva River] without as much as a stunning tap on the head – drowned like rats.’  Others were ‘lifted on bayonets’: impaled by perhaps half a dozen and lifted off the ground.  When some undesirables, thrown from upper windows, hit the ground, a bystander remembered, ‘I heard their bones breaking.’

“These vignettes are from Antony Beevor’s just-published ‘Russia: Revolution and Civil War, 1917-1921.’  A military historian who has written about many cockpits of savagery – the Spanish Civil War, Stalingrad, Berlin in spring 1945 – Beevor has chronicled much beastliness. But he seems taken aback by what his new research found.

“The Cheka, a domestic terror instrument to which Lenin granted unreviewable power to torture and kill, published an anthology of verses, including: ‘There is no greater joy, nor better music / Than the crunch of broken lives and bones.’

Beevor writes, ‘They pulled ‘gloves’ off people’s hands, i.e., the skin, after soaking the hands in boiling water. …An old colonel was roasted alive in the furnace of a locomotive.’  The ‘ice statue’ method of killing economized bullets: Water was poured over naked victims who were left outside to freeze solid. Or: ‘A short length of pipe was attached to the stomach of a victim. …A rat would be introduced into the pipe, and a fire was lit at the far end, forcing the rat to eat its way into the intestines of the prisoners to escape.’

“Both sides in Russia’s civil war were barbarous.  ‘Europe,’ writes Beevor, ‘had not seen such conspicuous cruelty used as a weapon of terror since the wars of religion.’  Where, he wonders, ‘did the extreme sadism’ come from?  His answer: from eliminationist rhetoric of political hatred.  This Russian tradition lives in Vladimir Putin’s Goebbels-like talk about Ukraine’s Jewish president being a Nazi bent on genocide against ethnic Russians….

“(As) the behavior of the Russian army in Ukraine demonstrates…Russia has a centuries-old continuity: a culture of cruelty.

“After reading a Post report from Bucha, where Russian occupiers beheaded a man, then ‘burned his head and left it out for all to see.’  After reading the Associated Press report on the 10 torture sites its reporters visited in Izyum after this Ukrainian city was liberated from Russian occupation.  (‘They beat him, over and over: Legs, arms, a hammer to the knees, all accompanied by furious diatribes against Ukraine.’).  After reading the Wall Street Journal report from Izyum.  (‘Most of the 436 bodies had signs of violent death including gunshot wounds, broken limbs, bound hands and amputated genitalia.’)  After reading the Journals’ report from the city of Vovchansk.  (‘They were beaten, their heads slammed between the door and the door frame.’)  After reading in the New York Times snippets of phone calls, intercepted by Ukrainian agencies, from Russian soldiers to friends and family in Russia.  (‘They gave us the order to kill everyone we see. …I’ve already become a murderer.’)  And after reading Putin’s speech on the ‘outright Satanism’ of ‘the West,’ this is the question:

“Is Russia’s endemic cruelty (and the related, rabble-like looting by Russian soldiers, stealing everything portable, from screwdrivers to televisions) germane to U.S. policy regarding Ukraine? The answer:

“Putin has correctly cast this as a civilizational conflict.  Were he visiting violence and corruption only on Russians, the West would have neither prudential reason nor practical means to restrain him.  The history of the previous century, however, teaches the pertinence of a nation’s internal dynamics to its external behavior.  Putin’s Russia has a metabolic urge to export its pathologies, becoming the collectivist alternative to open societies of rights-bearing individuals fulfilled through private rather than nationalist aspirations.  If this export is not defeated – if the West chooses, in the name of ‘realism,’ to let it metastasize, which it may – the West will wither from self-loathing, and will deserve to.”

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Wall Street and the Economy

The International Monetary Fund issued its World Economic Output report this week and said the global economy was headed for “stormy waters” as it downgraded growth projections for next year and warned of a harsh worldwide recession if policymakers mishandle the fight against inflation.

“In short, the worst is yet to come, and for many people 2023 will feel like a recession,” the IMF report said.

The IMF maintained its most recent forecast that the global economy would grow by 3.2% this year but now projects that will slow to 2.7% in 2023.  At the start of the year, the IMF projected much stronger global growth of 4.4 % in 2022 and 3.8% in 2023, highlighting how the outlook has darkened in recent months.

The IMF kept its 2023 U.S. growth forecast unchanged at 1.0%.  Eurozone growth will fall to 0.5% next year as high energy prices slam output, the Fund predicted, with some key economies including Germany and Italy entering technical recessions.

Meanwhile, the Federal Reserve’s Open Market Committee will be meeting on Nov. 1-2, and it gained all the ammunition it needed for yet another 75-basis point rate hike as the September inflation data was miserable.

Producer prices rose more than expected on headline, 0.4%, and in line ex-food and energy, 0.3%, but the critical year-over-year numbers were 8.5%, and 7.2% on core, down from August’s readings but not nearly enough.

The next day consumer prices were disturbing…above forecasts on both headline and core, and year-over-year, 8.2% and 6.6%, the latter a 40-year high.

One other important economic data point…September retail sales were unchanged, 0.1% ex-autos.

And Freddie Mac’s weekly look at a 30-year fixed-rate mortgage came in at 6.92%, the highest since April 2002, and vs. 3.05% a year ago.

Two other items…while regular gas at the pump, nationally, only ticked up a penny this week to $3.90, diesel is soaring anew, up 30 cents to $5.21 ($3.50 a year ago).

I maintain that when it comes to the economy, you need only look at mortgage rates and the price of diesel.  The latter has everything to do with what you pay in your grocery store.  Teach your kids the importance of those big tractor trailers in the back of your neighborhood Kroger’s or ShopRite, or the CVS or Walgreen’s, when it comes to rising prices.

The Atlanta Fed’s GDPNow barometer for third quarter growth is at 2.8%.

Editorial / Wall Street Journal

“So much for the hope that inflation, once unleashed, would be easy to reduce.  That mirage vanished Thursday with the September report that showed a rebound in prices from July and August.  The Federal Reserve has a lot more monetary tightening to do….

“Prices rose sharply last month for car rentals (2.5%), health insurance (2.1%, vehicle repair and maintenance (1.9%), and airline fares (0.8%). Americans can save money by not traveling – at least until the holidays – but most can’t afford to go without health insurance or a car if their current jalopy breaks down.

“Shelter costs are also driving the core index, with owners’ equivalent rent up 6.7% in a year, the largest annual increase ever.  The shelter measure usually lags increases in home prices and rents, which soared coming out of the pandemic.  The Fed’s interest-rate increases have started to cool the housing market in some cities, and the question is how fast this will roll into the CPI calculation.  The average fixed 30-year mortgage rate hit a new 20-year high of 6.92% Thursday, which will price more buyers out of the market.

“The important point for the Fed is that inflation has become entrenched across much of the economy. Even if it has peaked, the breadth of the price increases will take time and tighter money to reduce.  This raises the risk of recession or some financial accident from misplaced investment bets during the fantasy years when Modern Monetary Theory was in vogue.

“Workers are now paying the price for inflation, as a separate Labor Department report showed that real wages have declined in nine of the last 12 months, and 3% overall.

“The report will have political ramifications, or at least it should.  President Biden put a happy face on the news, claiming in a statement that ‘today’s report shows some progress in the fight against higher prices.’  You can’t drive your car on ‘some progress’ and, judging by the spike in Treasury yields on Thursday, the bond market didn’t agree with him.

“Mr. Biden also said the cost of living has been a longstanding problem. But consumer prices never rose by more than 3% a year in the decade before he became President.  Wages after inflation have now fallen more since he took office – 4.3% - than they did during the financial crisis of the late 2000s….

“(The Fed) was too slow to tighten despite evidence that inflation wasn’t transitory.

“The Fed is now trying to squeeze demand – that is, reduce consumer and business spending – and the President could help mitigate the economic pain with regulatory and fiscal policies that boost supply.  But he’s doing the opposite, signing a corporate tax increase and imposing new regulatory burdens on business that create uncertainty and will discourage hiring.  A case in point is this week’s rewrite of the independent contractor rule.

“He could also help bring down energy prices by encouraging more U.S. oil and gas production.  Instead he’s seeking to ease sanctions on Iran and Venezuela and begging OPEC to pump more.  If Donald Trump had asked the Saudis to delay a cut in oil production until after the midterms, as the Journal reports Mr. Biden did, Democrats would have accused him of inviting foreign election interference.

“Democrats understandably want to make the election about Mr. Trump and abortion.  But the main legacy of this Congress is the return of a virulent inflation that has punished Americans of every class and region.  The election deserves to be a referendum on that record.”

One positive result of the high inflation…millions of Social Security recipients will get an 8.7% boost in their benefits in 2023, an historic increase and welcome news for American retirees and others – but it’s tempered by the fact that it’s fueled by record high inflation that’s raised the cost of everyday living.

The boost in benefits will be coupled with a 3% drop in Medicare Part B premiums, meaning retirees will get the full impact of the jump in Social Security benefits.

While the above is great news for some, without an accompanying increase in Social Security contributions, it could put additional pressure on a system that’s facing a severe shortfall in coming years.

The annual Social Security and Medicare trustees report released in June says the program’s trust fund will be unable to pay full benefits beginning in 2035.

If the trust fund is depleted, the government will be able to pay only 80 percent of scheduled benefits, the report said.  Medicare will be able to pay 90 percent of total scheduled benefits if the fund is depleted.

Europe and Asia

Just one broad datapoint for the eurozone this week…August industrial production rose 1.5% over July, up 2.5% from a year ago, as reported by Eurostat.

But the story of the week, again, was Britain, and the dysfunctional government of Prime Minister Liz Truss, who fired her Chancellor of the Exchequer (Treasury Sec.) Kwasi Kwarteng for putting together their financial plan, after Truss, the markets roiled, had to backtrack on it.  Veteran Jeremy Hunt replaces Kwarteng.

Politicians across the political spectrum, including scores in her own party, are calling for Truss’ head and it is a virtual certainty early elections will be called.

But who will lead the Conservatives into that election?  It’s likely to be Rishi Sunak, who lost to Truss in the party vote, and whose policies are now basically going to be adopted.  Nuts.

The Bank of England warned Wednesday that other parts of the non-bank financial system could be vulnerable to sharp rises in government bond yields, after it was forced to intervene to support U.K. pension funds.

The central bank launched a program of government-debt purchases in late September, following sharp falls in bond prices.  Those declines left pension funds needing to come up with cash to shore up LDIs, or liability-driven investments – derivative-based strategies that were meant to help match the money they owe to retirees over the long-term.*

*From the Wall Street Journal: “LDI strategies are highly sensitive to a rise in interest rates, which reduces the value of some hedges and triggers calls for collateral. Those calls set off the mass selling of gilts that prompted the Bank of England to intervene with bond purchases to stabilize (or rather, manage) long-term interest rates.  Fund managers could and should have seen this risk, and many probably did.  But they had to cope with ultralow rates, and they heard eminent economists promising that low interest rates and low inflation were here to stay.”

The BOE confirmed Wednesday that the bond-buying program would end Friday, as scheduled.

The rise in bond yields is feeding through the real economy.  House prices showed the weakest growth in September since early in the coronavirus crisis and they look set to fall with mortgage rates surging.

Turning to Asia…China reported out September inflation figures from the National Bureau of Statistics, up 2.8% year-over-year on consumer prices vs. 2.5% prior, but only 0.9% on producer (factory gate) prices from a year ago vs. August’s 2.3% number, so more good news on this front.

Earlier, the private Caixin services figure for September was a weak 49.3 vs. 55.0 in August (50 the dividing line between growth and contraction) and far below the 54.8 consensus forecast.  I don’t recall a miss this severe with this metric.  Frankly, I kept waiting for it to be corrected, but you see the impact of the Covid lockdowns.

But the big news this week was that out of nowhere, the Customs Bureau failed to report trade data as expected on Thursday and there has been no explanation.  Of course, the Communist Party congress convenes tomorrow (see below).

In Japan, unlike in China, the producer price data continues to be most worrisome, up 9.7% year-over-year in September vs. 9.4% prior.

Street Bytes

--Stocks finished mixed this week, with extreme volatility Thursday and Friday, and in the end it reminded me very much of the period 2000-2002, as the Nasdaq bubble popped.

With initial earnings for the third quarter largely coming in worse than expected, and all kinds of tangential issues, including tension between the U.S. and China on the tech side (let alone everything else between us), the Dow Jones managed a 1.2% gain on the week to 29634, but the S&P 500 fell 1.6% and Nasdaq 3.1%.  As in we haven’t seen this kind of disparity in returns for quite a while.

So I went back to my terrific archives and just pulled a week out…the week ending March 30, 2001.

Dow Jones +3.9%, Nasdaq -4.6%.

Tech stocks have been so beaten down, when the heavyweights report over the coming weeks it will be fascinating what the market reaction is.  The commentary from tech CEOs isn’t likely to be good, but how much buying will emerge? 

--The International Energy Agency warned that the OPEC+ production cut threatens to push prices to levels that tip the global economy into recession.

“The massive cut in OPEC+ oil supply increases energy security risks worldwide,” with “resulting higher price levels exacerbating market volatility,” the IEA said in its monthly report.  “Oil prices may prove the tipping point for a global economy already on the brink of recession.”

The Paris-based agency slashed forecasts for global oil demand growth for next year by 470,000 barrels a day – or roughly 20% - because of “stronger economic headwinds” ranging from inflation to higher interest rates.

Crude futures surged last week when Saudi Arabia and its partners announced a substantial 2 million barrel-a-day output cut, but prices subsided this week.

Global oil consumption will increase in 2023 by 1.7 million barrels a day, down from a forecast of 2.1 million in last month’s report, the IEA said.  This year, demand will expand by 1.9 million barrels a day to average 99.6 million a day.

OPEC+ is likely to implement only half of the advertised 2 million barrel cut, because production in most member countries is already far below their assigned targets.

--In his comments to CNBC Monday, Jamie Dimon said the U.S. should forge ahead in pumping more oil and gas to help alleviate the global energy crisis. Likening the situation to a national security risk of war-level proportions, Dimon said Western allies should support the U.S. in shoring up supply. 

“In my view, America should have been pumping more oil and gas and it should have been supported,” Dimon told CNBC.

“America needs to play a real leadership role.  America is the swing producer, not Saudi Arabia.  We should have gotten that right starting in March,” Dimon continued, referring to the onset of the energy crisis following Russia’s invasion of Ukraine on Feb. 24.

Dimon said leaders should now be looking ahead to future energy security concerns.

“We have a longer-term problem now, which is the world is not producing enough oil and gas to reduce coal, make the transition [to green energy], produce security for people,” he said.

“I would put it in the critical category.  This should be treated almost as a mater of war at this point, nothing short of that,” he added.

As for the price action in crude this week, it was all over the place, particularly Thursday and Friday, and settled at $85.58, down over $7 on the week for West Texas Intermediate, but this was after a huge spike the week before on the OPEC+ production cut.

--U.S. Treasury Yields

6-mo. 4.30%  2-yr. 4.50%  10-yr. 4.02%  30-yr. 3.99%

The yield on the 10-year has risen 11 weeks in a row.  But rates have been soaring all over.

Look at this comparison of 10-year yields…the week ending March 4, 2022, vs. today.

Germany… -0.08% vs. 2.34%
UK… 1.21% vs. 4.31%
Italy…1.53% vs. 4.78%
U.S. … 1.74% vs. 4.02%

--Some of the big banks released earnings today.  JPMorgan Chase & Co. reported a smaller-than-feared drop in third-quarter profit, as a rise in interest income cushioned a blow from higher loan loss provisions and a slump in dealmaking due to a worsening economic outlook.  Shares of the largest U.S. bank rose 2% on the news, despite the overall market bias.

Typically, rising rates are good for banks as they can charge more interest from borrowers, but a potential economic slowdown due to a higher cost of borrowing is also seen as a risk to future earnings.

CEO Jamie Dimon highlighted those risks, while noting that the American consumer had kept up spending and businesses remained healthy.  He flagged stubbornly high inflation leading to rising global interest rates, the uncertain impacts of quantitative tightening, the war in Ukraine and the fragile state of oil supply and prices as near-term headwinds.

JPM’s revenue rose 10% to $32.72 billion, helped by a 22% increase in revenue from fixed income trading.  Overall, markets revenue rose 8%.

The bank’s adjusted profit was $3.36 per share, well above expectations, though net profit fell 17% to $9.74 billion as it set aside $808 million in reserves.  By comparison, in the same quarter last year, the bank had released $2.1 billion of reserves.  Revenue from investment banking, one of the bank’s biggest businesses, slumped 43% to $1.7 billion as a mix of high inflation and fears of looming recession forced buyers and sellers to hit pause on deals.  Morgan Stanley’s revenue from the business more than halved, while Citigroup’s investment banking revenue tumbled 64%.

Speaking of Citi, it reported a 25% drop in third-quarter profit as it set aside funds to cover soured loans from a potential economic downturn, while its investment bank struggled with a slump in global dealmaking.  Citi added $370 million to its loan-loss reserves in the latest quarter, compared with a reserve release of $1.16 billion a year earlier.

Net profit was $3.5 billion, or $1.63 per share, in the three months ended Sept. 30, compared with $4.6 billion, or $2.15 per share, a year earlier.

Morgan Stanley reported a 30% slump in third-quarter profit, missing analysts’ estimates as a slowdown in global dealmaking hurt the investment bank’s core underwriting business, sending the shares down 5%, while shares of JPM and Citi rose.

MS’s net revenue in the quarter fell 12% to $13 billion, while the bank reported a profit of $2.49 billion, or $1.47 per share, compared with $3.58 billion, or $1.98, a year earlier.

Morgan Stanley’s wealth management business, which tends to generate steady income, was a bright spot, posting a 3% rise in revenue.

Lastly, Wells Fargo & Co. reported a 31% decline in third-quarter profit as the bank racked up costs related to a fake accounts scandal and boosted its loan loss reserves in preparation for a potential slowdown.

The bank posted $2 billion in operating losses related to litigation, customer remediation, and regulatory matters associated with the now six-year-old scandal over sales practices.

“Our top priority remains strengthening our risk and control infrastructure which includes addressing open historical issues and issues that are identified as we advance this work,” CEO Charlie Scharf said in a statement.  “We remain at risk of setbacks as we work to complete the work and put these issues behind us and expenses this quarter reflect our ongoing efforts.”

Ex-items, the fourth-largest lender earned $1.30 per share, beating expectations.  The bank set aside $784 million in the quarter for credit losses, compared with a $1.4 billion release a year earlier, when extraordinary government stimulus helped the economy to rebound from the pandemic hit.

The bank reported a profit of $3.53 billion, compared with $5.12 billion a year earlier.

Commenting on a call with reporters, Charlie Scharf said: “Both consumer and business customers remain in a strong financial condition, and we continue to see historically low delinquencies and high payment rates across our portfolios.”

--Delta Air Lines Inc.’s quarterly profit missed Wall Street estimates on Thursday, but the carrier expects travel demand to remain robust despite growing risks of an economic recession.  Adjusted profit for the quarter through September came in at $1.51 per share, below analysts’ expectations of $1.53.  The company reported $12.84 billion in adjusted revenue.

Delta said Hurricane Ian, which led to mass flight cancellations last month, hurt earnings by three cents a share.  Strong travel demand, however, helped the Atlanta-based carrier generate its highest-ever quarterly revenue in the third quarter.  The airline expects its revenue in the fourth quarter to be up as much as 9% from the same period in 2019.

CEO Ed Bastian said a shift in consumer spending from goods to services is driving the travel recovery.  With consumers’ finances still “quite healthy,” he doesn’t expect a letup in travel demand.  “We’re seeing in the bookings some very strong demand signals,” Bastian said in an interview.

Delta said corporate bookings – the industry’s cash cow – have increased after last month’s Labor Day holiday, reaching 80% of the pre-pandemic level by the end of September.  Its international passenger revenue has also recovered to 97% of the 2019 levels, driven by the demand for transatlantic flights.

Yet growing risks of economic recession have sparked worries about travel spending, hammering airline shares and taking the focus away from what is shaping up to be the industry’s best earnings performance in three years.

Carriers, which are facing higher fuel and wage bills, have been relying on robust demand to mitigate inflationary pressures with higher fares.  Higher ticket prices, for example, led to a 23% jump in Delta’s total revenue per available seat mile in the latest quarter even though its capacity remained well below the pre-pandemic level.  But now with the aggressive Fed tightening, the industry’s pricing power is under threat.

Bastian said Delta would focus on further reducing its non-fuel costs, which are projected to ease in the December quarter from a quarter ago.  But he expects the urge to travel to remain strong.  “We don’t think that just one busy summer of traveling is going to quench the desire and the needs of consumers,” Bastian said.  “This demand surge is going to continue for some time.”

--TSA checkpoint travel numbers vs. 2019

10/13…93 percent of 2019 levels
10/12…89
10/11…90
10/10…92
10/9…95
10/8…97
10/7…92
10/6…91

--Taiwan Semiconductor Manufacturing Co. slashed its 2022 capital spending target by roughly 10%, a dramatic sign of trouble for the technology industry from the world’s most valuable chip company.

TSMC said it expects to spend about $36 billion in 2022 on capital equipment, down from at least $40 billion previously.  The sharp reduction in expenditure – an important indictor of its own expectations for growth across sectors from smartphones to servers and electric vehicles – suggest the Taiwanese firm is bracing for a broader-than-expected downturn.

TSMC and its peers are grappling with Washington’s sweeping restrictions on doing business with China, which are sending shock waves through the global semiconductor industry.  Applied Materials Inc., a leading producer of chip-making equipment, slashed its forecast for the fourth quarter, while Intel Corp. is said to be preparing to fire thousands.

The moves unveiled last week are the Biden administration’s most aggressive yet as it tries to stop China from developing technological capabilities it sees as a threat.  Beijing is incensed, and the actions threatened to further disrupt the global economy.

Chinese state media and officials over the weekend raged against the action, warning of economic consequences and stirring speculation about potential retaliation.

Washington did allow TSMC, Samsung Electronics and SK Hynix Inc. to secure narrow exemptions to the chip curbs for operating and building out certain lines at Nanjing, China.

The grants allow Asia’s three largest chipmakers to maintain their existing plants and operations in the world’s biggest semiconductor market and allow them to buy, import and upgrade American tools.

TSMC did report great earnings for the third quarter.  Revenue rose 36% to $20.23 billion from  a year ago.  Earnings were well above expectations…but…the estimates had been falling in the last three months knowing the environment.

--Back to Intel, as first reported by Bloomberg, the company is planning a workforce reduction that will cut thousands of positions, including a possible 20% downsizing of its sales and marketing team.  The collapse of the PC/laptop market is primarily to blame.

--PepsiCo lifted its fiscal 2022 profit outlook despite expectations for a slightly worse foreign-exchange impact, as the beverages and snacks company posted higher third-quarter results that topped analysts’ estimates and the shares rose.

Aside from adjusting its original earnings guidance for the fiscal year from $6.63 to $6.73 per share, PEP also anticipates organic revenue growth of 12%, up from its prior projection of 10%.

For the quarter ended Sept. 3, the company’s adjusted EPS climbed to $1.97 from $1.79 a year earlier, with revenue of $21.97 billion, up from $20.19 billion in the 2021 quarter, both ahead of the Street’s views.

In North America, the company’s Frito-Lay snack business saw an organic revenue rise of 20%.

Quaker Foods organic revenue jumped 16%.

And in beverages, sales advanced 13%, with double-digit revenue growth in Gatorade and Pepsi.

The big takeaway?  Pepsi is able to raise prices.  Good for the company, bad for the consumer and all part of the Fed’s equation.

--Kroger reached an agreement to merge with rival Albertsons Cos. in a $20 billion deal (along with the assumption of $4.7 billion in debt) that would create a U.S. grocery giant, as announced Friday morning.

Kroger Chairman and CEO Rodney McMullen, who would retain those titles at the combined company, said a merger could save $1 billion annually in lower administrative costs, more efficient manufacturing and distribution and shared investments in technology.  McMullen said the company would plow those savings back into lower prices, higher wages and improved stores.

Kroger, based in Cincinnati, Ohio, operates 2,800 stores in 35 states, including brands like Ralphs, Smith’s and Harris Teeter.  Albertsons, based in Boise, Idaho, operates 2,273 stores in 34 states, including brands like Safeway and Shaw’s.  Together the companies employ around 710,000 people.

The transaction will likely face antitrust scrutiny and require asset sales. If approved, the deal would close in 2024.

Roughly 22% of all dollars spent on groceries in the U.S. are spent at Walmart, according to Euromonitor.  Kroger and Albertsons have roughly 8% and 5% of the U.S. grocery market, respectively.

--The Biden administration is proposing a new rule that could put more gig workers on company payrolls, scrapping a Trump administration order from 2021 that made it easier for firms to classify workers as independent contractors.

The proposal, released Tuesday, would affect millions of workers across a range of industries, including healthcare, restaurants, construction and ride-share transportation, the Labor Department said.

As in it could lead to a push to classify drivers for ride-share or food delivery companies such as Uber, Lyft or DoorDash as employees rather than gig workers.  The companies have opposed similar efforts in the past.  The shares in all three fell sharply on the news.

Under labor law, employees are eligible for protections such as the minimum wage, medical leave or overtime pay that don’t apply to independent contractors.

Labor Secretary Marty Walsh said in a statement: “We have seen in many cases that employers misclassify their employees as independent contractors, particularly among our nation’s most vulnerable workers.  Misclassification deprives workers of their federal labor protections, including their right to be paid their full, legally earned wages.”

The companies will fight this attempt to reclassify gig workers in the courts.  And the Labor Department has to accept public comment on the rule change for 45 days.  The administration likely won’t finalize the order until next year.

--Tesla reported sales of 83,000 in China for the month of September, up 8 percent from the previous month, according to the China Passenger Car Association.

The record monthly tally suggested supply chain bottlenecks in the country were easing and upgrades at its Shanghai facility were boosting production.

The strong performance comes at a critical juncture for Elon Musk in China. After receiving special treatment from Chinese regulators in the late 2010s, Tesla’s grip on the luxury EV market is being loosened by a number of local rivals.

And then you have Musk weighing in on the subject of Taiwan last weekend in an interview in the Financial Times.  China’s ambassador to the U.S. thanked Elon, saying in a tweet that Musk’s proposal was “the best approach to realizing national reunification.”

Musk proposed a special administrative zone similar to Hong Kong.

Oh yeah, that’s great, Elon.    

What a freakin’ jerk.  Bi-khim Hsiao, Taiwan’s de facto ambassador in Washington, responded: “Our freedom and democracy are not for sale.”

[Musk’s remarks on Ukraine and Starlink are for next week.]

Tesla’s September sales were less than half of more than 201,000 vehicles sold by rival BYD, though many of the Chinese carmaker’s models are plug-in hybrid vehicles, which use a large battery in addition to a traditional engine for longer journeys.

And then late today we learned Tesla will not start mass production of battery cells at its European gigafactory near Berlin before 2024, according to German business daily Handelsblatt, citing experts close to the company.  Supposedly, problems have been discovered with an important production process presented by Musk two years ago.

The share price for Tesla sits at $205, down from $289 on Sept. 28.  Musk has officially bitten off more than he can chew, including with Twitter, where according to reports he faces a federal investigation.

--Another example of how tough the inflation fight is going to be, Italian unions on Monday demanded a wage rise of 8.4% for next year to offset rising inflation as they prepare for official talks with industrial groups Stellantis, Ferrari, Iveco and CNH Industrial.  The request could pave the way for similar requests in wage bargaining in Italy, while companies across all Europe from airlines to retailers face demands from workers for major pay rises to cushion the impact of soaring prices.

Recall, the last inflation print for the eurozone was 10%!

--Domino’s Pizza Inc. beat quarterly U.S. same-store sales estimates on Thursday, as it saw steady demand for its pizza and chicken wings helped by heavy discounts offered by the company amid rising inflation.

The shares rose 10% in response to a 2% rise in same-store sales in the third quarter.  The company said its decision to double down on discounts and promotions helped it attract consumers, who were looking for more-pocket friendly offers.

While Domino’s was not immune to the price pressures on labor and raw material costs, which  forced it to raise prices on some menu items, the price increases failed to protect profit margins.

The shares lost about half their gains on Friday.

--Macau casino stocks tumbled in response to a report that travel during the National Day Golden Week holiday from Oct. 1 through Oct. 7, was 39% lower than in 2019.  Tourism revenue dipped by 26% from a year earlier.

It was all about new Covid outbreaks and tighter containment measures ahead of the Party Congress.

--The unusually low water level in the lower Mississippi River is causing barges to get stuck in mud and sand, disrupting river travel for shippers, recreational boaters and even passengers on a Viking cruise ship.

The Viking ship with about 350 passengers on board, was originally supposed to launch from New Orleans last Saturday, but the water there was so low that the launch was moved to Baton Rouge, Louisiana, according to R. Thomas Berner, a Penn State professor who was one of the passengers.

By Tuesday, the ship was halted near Vicksburg, Mississippi, due to the backup caused by the grounding of the barges.  The scheduled two-week trip was then called off and Viking made arrangements to get passengers home and a letter from the company said they would get a full refund.

I didn’t realize the basin from St. Louis south has been largely dry for three months, according to the National Weather Service.

--According to the readers of Conde Nast Traveler, the top 3 airports in the world….

1. Istanbul Airport…a bit of a surprise to me
2. Singapore Changi
3. Seoul Incheon

In the U.S. ….

1. Savannah Hilton Head
2. Hartford Bradley International
3. Indianapolis Int’l

Conde Nast also ranked its “best cities,” and the No. 1 major U.S. city went to Chicago, the sixth win in a row.

Best small city…Charleston, South Carolina.  No argument here…the perfect two days, three nights getaway for those on the East Coast.   And take the boat ride to Fort Sumter.

--The Nobel Prize in Economic Sciences was awarded to three U.S.-based economists “for research on banks and financial crises.”

The award, announced Monday in Stockholm, went to Ben Bernanke, Douglas Diamond and Philip Dybvig.

Foreign Affairs, Part II

China: I’ll have quite a bit on this place next week as the Communist Party’s congress begins in Beijing on Sunday.  Held every five years, Xi Jinping will receive an unprecedented third 5-year term and there will be some top leadership changes surrounding him.  Also expect a ton of anti-Western, belligerent rhetoric.

But as for hopes that following the congress, Xi would open up the country and finally loosen anti-Covid measures that have been stifling the economy, don’t look for that. 

China has ramped up anti-Covid measures in some big cities ahead of the congress, where 2,300 delegates are descending on Beijing.  And to counter an uptick in infections after the National Day holiday, Shanghai locked down some neighborhoods all over again, closed entertainment venues and tourist attractions and will double the frequency of its mass testing.

This week, the Communist Party mouthpiece People’s Daily urged China to stick with its zero-Covid strategy in the clearest sign yet that the party is determined to continue with the stringent approach.

Xi has been portrayed by state media as leading a national pandemic control effort that has resulted in few deaths.  He has staked considerable political capital on the purported superiority of China’s handling of the crisis compared with the West.

According to the People’s Daily commentary, China’s dynamic zero-Covid approach has balanced pandemic control with economic and social development, allowing China to achieve “extremely low” mortality and “smooth” social and economic functioning.

“Dynamic zero is the anti-epidemic strategy with the lowest overall social cost and is the best option for the timely control of epidemics in China at this stage,” it said.

On the Taiwan front, President Tsai Ing-wen said on Monday that armed confrontation between Taiwan and China is “absolutely not an option,” as she pledged to boost the island’s defenses and reiterated her willingness to talk to Beijing.

“I want to make clear to the Beijing authorities that armed confrontation is absolutely not an option for our two sides.  Only by respecting the commitment of the Taiwanese people to our sovereignty, democracy and freedom can there be a foundation for resuming constructive interaction across the Taiwan Strait,” Tsai said in her national day speech.

Beijing has suspended official exchanges and interactions with Taipei since Tsai was elected president in 2016 and refused to accept the “one-China” principle.

No doubt Xi will have something to say about the island in his remarks this week.

North Korea: Pyeongyang fired a short-range ballistic missile into the sea off its east coast on Friday, South Korea’s military said, the latest in a series of launches by the nuclear-armed country…fifteen since the North resumed testing activities on Sept. 25.

Earlier, South Korea’s military said it scrambled fighter jets when a group of about 10 North Korean military aircraft flew close to the border dividing the two countries, amid heightened tensions over repeated North Korean missile tests.

North Korea’s official KCNA news agency quoted the North Korean military as saying it took “strong military countermeasures” after South Korean artillery-fire drills on Thursday.

The incident followed a KCNA report on Thursday that Kim Jong-un had overseen the launch of two long-range strategic cruise missiles on Wednesday, calling this a test to confirm the reliability of nuclear-capable weapons deployed to military units.

It was not immediately clear if the launches were detected by authorities in South Korea, Japan, or the United States.

It’s long been anticipated the North, with its increased activity, is leading up to a nuclear test for the first time since 2017, but now some don’t expect this before China concludes its Communist Party congress.

South Korea scrambled fighter jets a few weeks ago after North Korean warplanes staged an apparent bombing drill as allied warships held missile defense drills in response to North Korean missile tests.

Then, also today, North Korea fired 170 rounds of artillery shells toward the sea. 

“Whatever the intentions are, North Korea’s repeated ballistic missile launches are absolutely impermissible and we cannot overlook its substantial advancement of missile technology,” Japanese Defense Minister Yasukazu Hamada said.

The U.S. Indo-Pacific Command said in a statement that the U.S. commitment to the defense of South Korea and Japan remains “ironclad.”

Iran: Iranians kept up anti-government protests this week despite an increasingly deadly state crackdown, social media reports showed, as Supreme Leader Ayatollah Ali Khamenei dismissed the demonstrations as “scattered riots” planned by Iran’s enemies, namely the U.S. and Israel.

Khamenei said: “The cure against enemies is to stand up to them.”

Protests ignited by the death of 22-year-old Mahsa Amini while in police custody have turned into one of the boldest challenges to the clerical leadership since the 1979 revolution.

Friday, Khamenei said that no one should dare think they can uproot the Islamic Republic, in his toughest warning to protesters yet.

Khamenei compared the Islamic Republic to an unshakeable tree.  “That seedling is a mighty tree now and no one should dare think they can uproot it,” he said in remarks on state TV.

Editorial / Washington Post

“What has been happening in Iran the past four weeks is not their father’s revolution.  After years of pent-up anger, young people are taking to the streets in a direct challenge to the theocracy that has ruled since 1979, cheered on by prominent figures in culture and sports.  What began as a protest by women over oppressive hijab rules and their strict enforcement by the ‘morality police’ has fast become a broader generational and social uprising.  ‘Down with the dictator!’ has become a common slogan throughout the country.

“On Oct. 8, President Ebrahim Raisi addressed professors and students at Alzahra University in Tehran, reciting a poem that equated ‘rioters’ with inconsequential flies.  Fearlessly, female students changed back, ‘Get lost!’ and ‘Mullahs, get lost!’ The demonstrators have been galvanized by a protest anthem, ‘baraye,’ from 25-year-old musician Shervin Hajipour, with lyrics based on tweets expressing grievances with the regime going back decades.  They came in the aftermath of the death of Mahsa Amini, 22, while in police custody on Sept. 16, detained by Iran’s ‘morality police’ for allegedly wearing a headscarf improperly.    Mr. Hajipour’s song, posted on Instagram, went viral with 40 million views in less than 48 hours.  He was detained Sept. 29 and accused of ‘propaganda against the system’ and ‘inciting people to violent acts’ before being released on bail and prohibited from leaving the country….

“Actors, athletes and others spoke out, too – and were immediately punished….

“It is not clear how many have been killed, but the total is clearly in the dozens across 17 provinces.  Iran Human Rights says 185 are dead*.  The wide and unrelenting protests – oil field workers joined this week, and ethnic minorities, too – have been met by the regime with the usual mindless deployment of thugs, batons and guns.  But what has become clear is how deeply and broadly Iranians yearn for normalcy and to be free of the dictatorial clerics.  It is a spirit of disenchantment that cannot be arrested.”

*Now at least 201, including 23 minors.

--Separately, Iran is racing ahead with a planned expansion of uranium enrichment with advanced centrifuges at its underground plant at Natanz and now intends to go even further, a confidential UN nuclear watchdog report seen by Reuters showed on Monday.

The third of three cascades, or clusters, of advanced IR-6 centrifuges recently installed at the underground Fuel Enrichment Plant at Natanz has now come onstream, the International Atomic Energy Agency report said, adding that Iran had informed the agency it plans to add an extra three cascades of IR-2m centrifuges on top of the 12 already planned there.

Saudi Arabia: The spat between the United States and the Saudis, along with its fellow OPEC members over the management of petroleum supplies intensified Thursday when Riyadh accused Washington of “politicizing oil” and declared it would not submit to “dictates” from supposedly friendly countries.

The Biden administration, in turn, said it was reassessing its relationship with the desert kingdom after its “shortsighted” decision on oil production.

President Biden is under mounting pressure from Congress and others to take forceful steps against Saudi Arabia – including possible suspension of weapons sales – after it and Russia successfully pushed a move to reduce the production of oil by 2 million barrels a day, virtually guaranteeing higher revenue for Moscow that will help finance its war against Ukraine.

Secretary of State Antony Blinken said the Saudis have repeatedly indicated they wanted to reduce oil production, even though they knew it would benefit Russia and hurt Ukraine by weakening sanctions that the U.S. and Western powers have enacted against Moscow.

“We made clear that would be the wrong decision,” Blinken told reporters at the State Department.

“The recovery is fragile,” Blinken said.  “We’re dealing with head winds from Covid. We’re also dealing with head winds from the Russian aggression itself.  And so, now is not the time to take energy off the market.”

Saudi officials are waging an all-out media counteroffensive, including a stern statement from the Saudi Foreign Ministry on Thursday.  It quoted an unnamed spokesperson saying the government expressed “its total rejection” of accusations that it was taking sides in international conflicts or that its decision was aimed at the U.S., as Washington has claimed.

“The Kingdom affirms that outcomes of the OPEC+ meetings are adopted through consensus among member states, and that they are not based on the unilateral decision by a single country,” the statement said, adding that the outcomes were based purely on economic considerations, that its relationship with the U.S. was a strategic one based on mutual interest and that attempts to distort its position on Ukraine was unfortunate.

[Saudi Arabia voted against Russia’s annexation of Ukrainian regions in a UN General Assembly meeting Wednesday.]

The statement said the Biden administration had requested postponing the group’s decision on the cuts for one month, presumably so as to avoid any fallout on fuel prices that would then affect Democrats’ chances in the November midterm elections.

Asked about the delay request, Blinken said the administration asked OPEC to wait until its next meeting, in November, to assess how market prices were faring after the summer spikes.

Israel / Lebanon: Israel’s prime minister said Tuesday that the country has reached an “historic agreement” with neighboring Lebanon over their shared maritime border after months of U.S.-brokered negotiations.

It’s a rare agreement between two countries that are bitter enemies.  But the deal still faces some obstacles, including some expected legal challenges in Israel.

At stakes are rights over exploiting undersea natural gas reserves in areas of the eastern Mediterranean that the two countries – which do not have diplomatic relations – claim.

The agreement is expected to enable additional natural gas production in the Mediterranean.  Lebanon hopes gas exploration will help lift its country out of its spiraling economic crisis.

Random Musings

--Presidential approval ratings….

Gallup: 42% approve of President Biden’s job performance, 56% disapprove; 39% of independents approve (Sept. 1-16).

Rasmussen: 44% approve of Biden’s performance, 55% disapprove (Oct. 14).  Unchanged.

In a new CNN poll conducted by SSRS, Biden’s approval rating was 44%, up six points from the last June 13-July 13 survey.  Fifty-six disapprove of the president’s job performance vs. 62% in the prior poll.

--A separate CNN poll has bad news for the Democrats.

Nationally, the generic ballot test – would you vote for a Democrat or a Republican for Congress if the election were held today – puts Democrats at 50% to Republicans’ 47% among likely voters.

This is consistent with other national generic ballot tests.

But CNN then asked the same question of a subsample of people living in competitive congressional districts, and among likely voters in the 50-60 seats where both parties a) have a reasonable chance of winning and b) are spending money to bring about that outcome, 48% said they would vote for the generic Republican candidate while 43% said they would opt for the generic Democratic candidate, a significantly different finding than in the electorate more broadly.

Bottom line, the GOP will roll in the House.

--Pennsylvania voters should thank NBC reporter Dasha Burns for exposing Democratic Sen. Candidate John Fetterman’s health issues following a stroke better than anyone else has to date.  Burns conducted an interview with the lieutenant-governor only after his camp insisted he be allowed to use closed-captioning.  Pennsylvanians can thus now base their decision on whether Fetterman is up to the job based on some facts, such as Burns exposed that when they were having a casual conversation beforehand, Fetterman was having a tough time grasping what she was saying.

I also actually believe Dr. Mehmet Oz would be an O.K. senator.

--As for the Georgia Senate race between Herschel Walker and Raphael Warnock, I’ve held back on this one.  I don’t know what kind of senator Warnock has been, but when it comes to Walker, I don’t need to bring up his personal life and the recent accusations against him that he has denied.

All I know is the guy is a flat-out idiot. And it is beyond comprehension that Georgia’s Republicans would want this guy as one of their two U.S. Senators.

This isn’t the state senate…this is the U.S. Senate, the chief foreign policy body.  An institution that has produced the likes of Everett Dirksen, Howard Baker, Mike Mansfield, Scoop Jackson, Barry Goldwater, and Margaret Chase Smith.

A Quinnipiac University poll of Georgia voters this week had Warnock with a 52-45 lead, but other polls have it much closer.  The margin in this one is little changed from a September survey, prior to the latest allegations against Walker.

Biden Agenda

--In the aforementioned CNN poll, just 22% of Americans rate economic conditions in the country as good, with 41% calling conditions somewhat poor, and another 37% saying they’re very poor. 

Half of Americans say that Biden’s policies have served to worsen economic conditions, 26% that his policies have improved conditions, and 24% that they’ve had no effect.

Most Americans say the U.S. government is doing too little to reduce the rate of violent crime (81%), reduce inflation (73%), protect democracy (72%), prevent a recession (72%) or help people like them financially (about 70%).

--Editorial / The Economist

“While campaigning for the presidency, Joe Biden described his predecessor’s handling of the border and immigration issues as ‘a moral failing and a national shame.’  He promised to develop a ‘fair and humane’ immigration system.  Yet what Mr. Biden has delivered since he took office is exactly the opposite.

“The situation at America’s southern border is only becoming more chaotic and unpredictable.  Nationality, family status, the location of border crossings, operational capacity and Mexico’s decisions about whom to take back all dictate migrants’ fates.  These random results only encourage more desperate people to try their luck – in record numbers, when measured by encounters with Border Patrol.

“Mr. Biden’s strategy so far has been to ignore the problem.  Meanwhile Republicans have made the border a prominent issue in November’s midterm elections, especially in border states, such as Texas and Arizona.  They have played up immigration in past elections too, but this time is different, for two reasons.  First, the numbers are so high that the border has evolved from a mere symbol of nationalism into a more concrete problem of processing, ensuring equal outcomes and providing services to new arrivals.  Second, whereas border security used to be a bipartisan issue, Democrats have pushed to the left and are now uncomfortable with sounding tough about enforcement and sharing images of people being deported.

“If you listen to Republicans, it is all Mr. Biden’s fault.  The reality is far more complex. Around the world, more people have been displaced from their home countries than at any time since the second world war.  Mr. Biden should be more willing to talk about the border publicly and come up with a sensible plan. A few things could make a difference.  Mr. Biden should visit the border.  He has reportedly gone only once, and that was on a drive-by during the 2008 presidential election campaign, when he was Barack Obama’s running mate.  Talking to migrants, border-patrol officials and nearby communities will clarify how pressing this problem is and how complex it is to resolve.

“Mr. Biden could also appoint a ‘border tsar,’ who can work between agencies with the single focus of managing the border.  This position would function much like Mr. Obama’s ‘car tsar,’ who oversaw the successful bailout of America’s auto industry in 2009.  Last March, Mr. Biden tasked Kamala Harris with helping oversee the border, but the vice president seems unwilling, judging it politically poisonous.  Mr. Biden must appoint someone willing to grapple with this complex problem and the stomach to make hard calls….

“Ultimately, it is up to Congress to repair and upgrade America’s broken immigration system.  Republicans running for office today say that the border can be easily fixed but have failed to offer ideas that would actually do so.  Finishing the wall and impeaching Alejandro Mayorkas, the secretary of homeland security, would do nothing to reduce the number of migrants arriving in America.  Like the busing of migrants to blue states, these are political stunts rather than solutions. If anything, the polarized conversation about the border is a lens into America’s broader political dysfunction.  That shows no sign of being repaired, whatever the results of next month’s elections.”

--Editorial / Wall Street Journal…on Joe Biden’s pronouncement Vladimir Putin’s use of a tactical nuclear weapon could end up in “Armageddon.”

“Mr. Biden is right about how dangerous Mr. Putin is now that his military is losing ground in Ukraine.  He has trapped himself in a place where he lacks the conventional military power to win, but he can’t afford to lose a war without risking his position at home.  The war has revealed the low morale and discipline of Russian forces, and his mobilization of 300,000 more men may not stop Ukraine’s advances.  He faces growing criticism in Russia for the war’s mismanagement.  All of this suggests no small risk of nuclear escalation.

“But such a step would also carry grave risks for Mr. Putin. The battlefield utility of tactical nukes is limited against dispersed forces, and his own troops would be vulnerable.  He’d poison with radiation land he hopes to own.  He could lose the support of the allies he has left, such as China and India.  President Xi Jinping doesn’t want to see the first use of a nuclear weapon since Nagasaki prompt Japan to get the bomb.

“Mr. Putin might hope to demoralize Ukraine enough by nuking a city, but the opposite effect is more likely.  Ukraine’s fury would cause it to press on, no doubt with more support from the U.S. and NATO.

“Which brings us back to Mr. Biden.  If he really does fear a nuclear escalation, he owes more of an explanation to the American people than cocktail-party doomsday chatter. He needs to marshal support in Congress and around the world to do everything possible to deter Mr. Putin.  A crucial part of deterrence in a democracy is preparing the public for the challenges it might confront.  Instead his comments have needlessly frightened Americans and maybe undermined deterrence.”

--The U.S.’s third largest railroad union rejected a deal with employers Monday, renewing the possibility of a strike that could cripple the economy.  Both sides will return to the bargaining table before that happens.  And there is no immediate threat of a strike because the union agreed to keep working for now.

President Biden pressured the railroads and unions to reach a deal last month ahead of a mid-September deadline to allow a strike or walkout.  He trumpeted the agreement.

As Roseanne Roseannadanna would have said, “Never mind….”

Trump World

--The House January 6 committee took the extraordinary, and theatrical, step of voting to subpoena former president Donald Trump on Thursday as it wrapped up the public phase of its work.  The committee still has a report to publish and could also request that the Justice Department pursue charges against Trump or his former aides for their roles in helping to incite the attack on the Capitol and their efforts to overturn the 2020 election.

Trump responded on social media, calling the committee a “BUST” and a “laughing stock” and accusing members of dividing the country, which is a bit rich.

Meanwhile, the Supreme Court on Thursday refused to intervene on Trump’s behalf in the Mar-a-Lago classified documents inquiry.

In refusing to reinstate Judge Aileen M. Cannon’s order that a special master review classified documents taken in the search of Trump’s Florida home and private club, there were no noted dissents to the court’s unsigned, one-sentence order.  It amounted to a quick and sharp rejection of an emergency request by the former president to intervene in the high-profile document review, which is part of an ongoing criminal investigation of the potential mishandling of classified material after Trump left the White House.

The U.S. Court of Appeals for the 11th Circuit put on hold Cannon’s order that 103 of the 11,000 seized documents that bore classified markings should be part of special master Raymond Dearie’s review.  It also reversed Cannon’s finding that the Justice Department could not continue its use of the classified documents in a criminal probe.

--Editorial / Wall Street Journal

“What the committee has accomplished is to cement the fact surrounding Mr. Trump’s recklessness after Nov. 3 and his dereliction of duty on Jan. 6.  The Justice Department and Mr. Trump’s own campaign repeatedly told him that his fraud claims were without basis.  Whether it was willful blindness or an intentional strategy, he kept repeating them.

“In testimony played Thursday, former White House Communications Director Alyssa Farah Griffin said that about a week after Joe Biden was declared the winner, ‘I popped into the Oval just to, like, give the President the headlines and see how he was doing, and he was looking at the TV, and he said, ‘Can you believe I lost to this effing guy?’  Yet Mr. Trump still pressured Mr. Pence to stop the Electoral College count, while calling for a Jan. 6 rally that he tweeted ‘will be wild!’

“That day he riled up the crowd and urged it to march on the Capitol.  Mr. Trump allegedly intended to go there himself, if the Secret Service hadn’t refused. Then he watched the riot on TV. Another striking video Thursday was a question the committee put to his White House counsel, Pat Cipollone: ‘When you were in the dining room in these discussions, was the violence at the Capitol visible on the screen, on the television?’  His reply: ‘yes.’

“Committee members said Thursday they will write a report summarizing their findings.  Transcripts of the testimony ought to be released at the same time, so that posterity can see what Mr. Cipollone and others said in full.  Ditto for the documents gathered.  The committee’s credibility has suffered without GOP cross-examination of the witnesses.  And the way that the committee selectively leaked Ginni Thomas’ text messages was outrageous, and appeared to be an effort to discredit her husband, Supreme Court Justice Clarence Thomas.

“The Jan. 6 committee probably won’t get Mr. Trump under oath, but the evidence of his bad behavior is now so convincing that political accountability hardly requires it.”

Trump issued a response Friday to the committee voting to demand documents and testimony from him about his role in the attack on the Capitol.

Instead, he repeated debunked claims of election fraud with the likes of:

“The Unselect Committee has perpetuated a Show Trial the likes of which this Country has never seen before.”

In his 14-page letter, Trump complains that the committee failed to investigate claims of election fraud, which were proven to be false and rejected by the courts.

The whole letter was beyond pathetic.

--A former employee of Donald Trump has told federal agents the former president asked for boxes of records to be moved within his Florida residence after receiving a government subpoena demanding their return, the Washington Post reported on Wednesday.

The testimony of the key witness, coupled with surveillance footage the Justice Department also obtained, present some of the strongest known evidence to date of possible obstruction of justice by Trump.

The employee who was working at Mar-a-Lago was cooperating with the DOJ and has been interviewed multiple times by federal agents, the Post reported.

--Trump spoke at a rally in Minden, Nevada, last Saturday and it was clear he is still obsessed with crowd size.  Speaking of the large number of supporters who gathered in Washington, D.C. on Jan. 6, 2021, after he spent weeks pushing baseless claims that the 2020 election was stolen from him:

“You know the biggest crowd I’ve ever seen?” Trump told supporters at the rally.  “January 6th.  And you never hear that.  They were there largely to protest a corrupt and rigged and stolen election.”

Also addressing the Nevada rally, Alabama Republican Sen. Tommy Tuberville, in support of Nevada Senate candidate Adam Laxalt, said Democrats are “pro crime.”

“They are not soft on crime.  They’re pro-crime.  They want crime. They want crime because they want to take over what you got.  They want to control what you have. They want reparations because they think the people that do the crime are owed that,” Tuberville said.

Just a bit racist.  And as one analyst put it, this is a guy, Tuberville, a former major college football coach, who made $tens of millions off unpaid Black men.

The Pandemic

--Only 5 percent of eligible people have received the new coronavirus booster shot, leaving many susceptible.

Only about 40 percent of Americans have received the third shot of vaccine initially offered a year ago, according to federal data, a far lower rate than countries like the United Kingdom, where more than 70 percent of adults have gotten a third dose.

--The U.S. Food and Drug Administration on Wednesday authorized Omicron-tailored Covid booster shots from Moderna and Pfizer for children, a move that will boost the government’s fall vaccination campaign.

Moderna’s bivalent vaccine is authorized for those aged six and above, while Pfizer’s updated shot can be administered in children of five years of age and above.

The redesigned bivalent booster shots from both Moderna and Pfizer target the original version as well as the currently circulating BA.4 and BA.5 subvariants of Omicron.

--The retooled Covid-19 booster from Pfizer and BioNTech SE generated a strong immune response against the Omicron substrains BA.4 and BA.5, the companies said.

The data, which the companies reported in a news release Thursday, offer the first window into how the new shots rolling out across the U.S. perform.

“These early data suggest that our bivalent vaccine is anticipated to provide better protection against currently circulating variants than the original vaccine and potentially help to curb future surges in cases this winter,” Pfizer CEO Albert Bourla said.

An early look at data from ongoing testing in people at least 18 years old found the booster generated higher levels of neutralizing antibodies against the two substrains compared with levels measured before the extra shot, the companies said.

--Well, alas, I failed to get the latest booster and I got Covid this week.  I didn’t start testing myself until Saturday, but probably had it the prior Thursday and I have to admit it was tough putting out last week’s column because I was so fatigued…and then really fatigued on Saturday, as I kept falling asleep.  The other symptoms were those of a classic bad head cold.

But otherwise I survived, though I kept testing positive through Wednesday, and since I’m just hanging out here today as I always do Fridays, I’ll test again Saturday morning before I head out, though I have felt good for days.

Bottom line, I’m glad I had the first two boosters but I obviously had waning immunity as my last shot was in April, and I was not prepared for the subvariants.

And there are subvariants beyond BA.4 and BA.5 that are worrisome.  According to British health officials, the BQ variants have shown remarkable abilities to spread and evade immunity, while the XBB strain has been linked to surges in Bangladesh and Singapore. 

So I looked up Singapore on worldometers.info and they are indeed seeing a big spike in cases and hospitalizations, the latter per Dr. Scott Gottlieb today on CNBC.

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--Alex Jones must pay at least $965 million in damages to numerous families of victims of the 2012 Sandy Hook mass shooting for falsely claiming they were actors, who faked the tragedy, a Connecticut jury said on Wednesday.

The verdict, which came after three weeks of testimony in a state court in Waterbury, Conn., far outstripped the $49 million Jones was ordered to pay by a Texas jury in a similar case in August.  The plaintiffs were relatives of 20 children and six staff members who were gunned down at Sandy Hook Elementary School in December 2012.

Jones claimed for years that the massacre was staged as part of a government plot to take away Americans’ guns. 

Lawyers for families of eight Sandy Hook victims during closing arguments last week said Jones cashed in for years on lies about the shooting, which drove traffic to his Infowars website and boosted sales of its various products.  The families, meanwhile, suffered a decade-long campaign of harassment and death threats by Jones’ followers, attorney Chris Mattei said.  “Every single one of these families (was) drowning in grief, and Alex Jones put his foot right on top of them,” Mattei told jurors.

--St. Louis was ranked the most dangerous city in the U.S. in a new study because of high rates of crime and dangers like natural disasters and car accidents.

St. Louis came in dead last in a WalletHub report comparing the safety of 182 U.S. cities.

WalletHub compared the cities across home and community safety, natural-disaster risk and financial safety metrics.  A total of 42 subcategories, including hate crimes, unemployment, natural disaster risk and even vaccination rates, comprised the three metrics.

St. Louis fared only slightly worse than Fort Lauderdale, Florida.  Fort Lauderdale was rated the most dangerous city in 2020.

New York City scored better than 55 other cities.

--The spacecraft that NASA deliberately crashed into an asteroid (Dimorphos) last month succeeded in nudging the rocky moonlet out of its natural orbit – the first time humanity has altered the motion of a celestial body, NASA’s chief announced on Tuesday.

“This is a watershed moment for planetary defense and a watershed moment for humanity,” NASA chief Bill Nelson told reporters in announcing the results.

The $330 million Proof-of-Concept DART mission, which was seven years in development, also marked the world’s first test of a planetary defense system designed to prevent a potential doomsday meteorite collision with Earth.

Comparison of pre- and post-impact astronomical measurements of the Dimorphos orbit around the parent asteroid, Didymos, showed a 32-minutes shortening of its trajectory, proving the exercise as a viable technique to deflect an asteroid from a collision course with Earth, if such an asteroid were ever discovered.

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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 $1650
Oil $85.58

Regular Gas: $3.90, nationally; Diesel: $5.21 [$3.29 / $3.50 yr. ago]

Returns for the week 10/10-10/14

Dow Jones  +1.2%  [29634]
S&P 500  -1.6%  [3583]
S&P MidCap  -1.0%
Russell 2000  -1.2%
Nasdaq  -3.1%  [10321]

Returns for the period 1/1/22-10/14/22

Dow Jones  -18.5%
S&P 500  -24.8%
S&P MidCap  -21.0%
Russell 2000  -25.1%
Nasdaq  -34.0%

Bulls 25.0
Bears 44.1

Hang in there.

Brian Trumbore

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