Week in Review

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Week in Review

02/03/2024

For the week 1/29-2/2

[Posted 5:00 PM ET, Friday]

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Edition 1,294

European Union leaders on Thursday reached an agreement to create a 50-billion-euro ($54 billion) fund for Ukraine, bringing on board Prime Minister Viktor Orban of Hungary, who was the primary obstacle to a deal.

Orban – a close ally of President Putin – blocked the EU aid package in December.

The aid approved by the EU will cover about a quarter of Ukraine’s national budget this year, and in succeeding years, paying for things like teacher salaries, pensions and medical care for the population.  There are prior agreements on munitions that are being fulfilled, though in some cases there are production issues.  The EU said Wednesday that it had promised to deliver a million artillery rounds by March; but now only 524,000 shells are expected by that date.

Orban said he gave in after he “received a guarantee that Hungary’s money would not be transferred to Ukraine.”

Ukraine hailed the EU’s approval of a major aid package and said it hoped the U.S. would follow suit and unlock financing it called “critically important” for economic stability as its war with Russia approaches a third year.

Speaking of the U.S., aid for Ukraine (Israel and the Indo-Pacific) has been stalled by Republicans’ insistence that it be tied to an unrelated shift in immigration policy.  There is hope for a vote on Monday in the Senate and then we’ll see what happens in the House, as former President Trump opposes the legislation because he doesn’t want to give Democrats something positive to run on this fall.  So, the good of the country, and of our allies, be damned.

Quite a statement, as this afternoon America watched the dignified transfer at Dover Air Force Base of three U.S. troops killed last weekend in Jordan, the first fatalities in months of strikes against American forces across the Middle East by Iranian-backed militias amid the Israel-Hamas war in Gaza.

Retaliatory air strikes in Iraq and Syria commenced about an hour before I went to post.

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Walter Russell Mead / Wall Street Journal

“As the White House ponders its response to the attack on Tower 22, the U.S. military outpost in Jordan, the news from the Middle East could hardly be worse. From Gaza to the Red Sea and from Jordan to Iraq, a stream of unprovoked attacks by Iran and its proxies are driving President Biden into the greatest crisis of his presidency.

“This isn’t what the president or his top aides expected or hoped.  In January 2021, Team Biden anticipated a quick agreement with Iran that would put Middle East tensions on ice while the U.S. focused on countering China’s rising power in the Indo-Pacific. But that was not what the mullahs wanted, and Iran, not the U.S., has controlled the pace and direction of Middle East politics since Mr. Biden took office.

“Many Americans find our involvement in the Middle East both frustrating and confusing….

“Nevertheless, 10 successive American presidents repeatedly learned, often to their chagrin, that the Middle East can’t be ignored….

“As these 10 presidents learned, what happens in the Middle East often doesn’t stay there.  The region’s dominant role in global energy markets means that even countries like the U.S. that don’t depend on Middle Eastern oil can’t escape the consequences if regional instability disrupts the flow of oil and gas to places like Europe, India, China and Japan.  Bitter ethnic, ideological and sectarian conflicts, civil wars, long-running insurgencies and political instability create world crises and, as in the case of the 9/11 attacks, threaten American security at home.

“Five decades of often painful experience should teach Americans that we can neither ‘fix’ the Middle East nor ignore it.  We are not going to turn Middle Eastern countries into a collection of peaceful democracies.  We aren’t going to eliminate the ethnic, social and religious conflicts that keep the region on edge.  And we aren’t going to be able to simply walk away.

“Given the limits on American resources and the range of our global interests, America’s Middle East policies must focus on essentials.  We need to prevent aspiring hegemons like Iran, Russia and China from acquiring the power to dominate the region or interrupt the flow of energy to key economies. We also need to limit the effect of the Middle East’s regional conflicts, terrorist movements and radical ideologies on the wider world.

“The Middle East is on fire today because the Biden administration’s core regional strategy – to reach some kind of détente with Iran – has catastrophically failed.  Iran, closer every day to nuclear weapons, is at the point of upending the regional balance of power even as its Houthi proxies have largely blocked trade through the Red Sea.  Meanwhile, the Taliban’s humiliation of the U.S. in Afghanistan, the shock of Hamas’ Oct. 7 attack on Israel, and the success of jihadist movements across much of Africa have combined to breathe new energy into global terror networks.

“The past 50 years teach that strategic failure in the Middle East destroys presidencies.  As the White House scrambles to respond to Iran’s latest attack on American forces, let’s hope it recognizes how high the stakes have become.”

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Israel and Hamas….

--Monday, Qatar said that American retaliation for a drone attack that killed three soldiers in Jordan could endanger a possible truce in Gaza.  Details of the deal were presented to Hamas following negotiations with Israel over the weekend.

--The United Nations agency for Palestinian refugees said last Friday it had opened an investigation into allegations that a dozen employees* were linked to the Oct. 7 attacks in Israel, prompting the U.S. to announce a temporary pause in additional assistance while the matter is reviewed.

*One is accused of kidnapping a woman. Another is said to have handed out ammunition.  A third was described as taking part in the massacre at a kibbutz where 97 people died.  The UN fired at least nine of the 12 accused employees after being briefed on the allegations.

The U.S. envoy to the United Nations said on Tuesday that Washington needs to see “fundamental changes” before its funding to UNRWA (the United Nations Relief and Works Agency) can resume following Israeli allegations that some agency staff were involved in the Oct. 7 attack by Hamas.

Linda Thomas-Greenfield, the U.S. Ambassador to the UN, welcomed the UN’s decision to conduct an investigation and review.

“We need to look at the organization, how it operates in Gaza, how they manage their staff and to ensure that people who commit criminal acts, such as these 12 individuals, are held accountable immediately so that UNRWA can continue the essential work that it’s doing.”

The Israeli accusations prompted a cascade of countries to halt funds for the agency, as many as 20 last I saw.

An Israeli intelligence dossier, sent to the press last weekend, includes allegations that some staff took part in abductions and killings during the Oct. 7 raid.  The dossier alleges some 190 UNRWA employees have doubled as Hamas or Islamic Jihad militants.

Earlier on Tuesday, the UN Security Council expressed concern about the “dire and rapidly deteriorating humanitarian situation” in the Gaza Strip and urged all parties to work with the senior Humanitarian and Reconstruction Coordinator for Gaza, Sigrid Kaag.

Kaag briefed the body behind closed doors for the first time since she was appointed about a month ago. Kaag said there was no substitution for the humanitarian role of UNRWA, which runs schools, healthcare clinics and other services in Gaza, as well as distributing aid.

--The IDF said it’s begun flooding portions of the tunnel system Hamas fighters have built beneath Gaza.  “The [Israeli military] takes into consideration the soil and water systems in the area, matching the method of operation to each specific case,” officials said Tuesday on social media.  Right, I’m sure they do.

--The Palestinian death toll rose above 26,000, according to the Hamas-run Ministry of Health, which Israeli intelligence officials reportedly view as reliable.  [The Israeli government likes to say it is not.]

--Hamas leadership is studying a new proposal for a ceasefire in the Gaza war and release of hostages from the Strip, in what is being considered the most serious peace initiative in months.

The ceasefire proposal followed talks in Paris involving intelligence chiefs from Israel, the United States and Egypt, with the prime minister of Qatar.

In a mark of the seriousness of the negotiations, Hamas chief Ismail Haniyeh said he was going to Cairo to discuss it.

Haniyeh said the group’s aim remained to end Israel’s military offensive in Gaza and secure a full pullout of Israeli forces from the territory.

Egypt, Qatar and the U.S. are hoping the two sides can be persuaded to accept a ceasefire lasting at least a month, which would offer the chance for almost all the hostages to be released.

But Prime Minister Netanyahu has said he will not accept any ceasefire deal that requires the departure of Israeli troops from Gaza or the release of thousands of Palestinian prisoners.

Leaks from the talks suggest the first phase of the ceasefire would include the release of about 35 hostages including civilian women, older men and hostages who are ill or injured, in return for a six-week pause of the fighting.

The second stage would be focused on male and women soldiers, and the third stage would see the release of the bodies of dead hostages.

--At the same time the parties are contemplating a ceasefire, the Israeli military says it is engaged in its fiercest fighting in Gaza yet in the southern city of Khan Younis, where it hopes to kill or capture Hamas leaders presumed to be hiding in tunnels with hostages.

In a briefing, an Israeli military intelligence officer said that of Hamas’ five fighting brigades, Israeli troops have killed or captured most of the commanders of two of them, both based in the north of Gaza.

The focus is now on the Khan Younis brigade, where Rear Admiral Daniel Hagari, chief military spokesman, said in a press conference Wednesday night that troops have “killed hundreds of terrorists and arrested more than 300 people suspected of terror activities.” Hagari also said that for the first time, troops are now fighting in the tunnel network that runs beneath Gaza.

Defense Minister Yoav Gallant then said Thursday that the IDF had dismantled the Hamas brigade in Khan Younis, saying Israel had killed 10,000 Palestinian fighters, overall, with the same number wounded.

“We are achieving our missions in Khan Younis, and we will also reach Rafah and eliminate terror elements that threaten us,” he said in a statement, referring to a city on Gaza’s border with Egypt that has been packed with displaced civilians.

--President Biden issued an executive order targeting violent Israeli settlers in the West Bank whom he has said have undermined stability in the area.  The new directive will impose sanctions on several individuals accused of having participated in the violent acts.

This is one of the more significant actions the president has taken to critique Israel since the war started, and it’s no doubt also intended to be a signal toward Muslim and Arab-American voters who are upset with his refusal to call for a ceasefire.

--Josh Rogin / Washington Post

“Many in Washington were rightly shocked last week by allegations that 12 UN employees in Gaza participated in the Oct. 7 Hamas terrorist attack against Israel. But the Biden administration’s knee-jerk reaction to suspend vital food and health aid to Palestinians across the region will only deepen their suffering, undermine U.S. long-term goals and push more burden onto already struggling allies.  It’s an inhumane and strategically stupid policy.

“On Monday, more details emerged about the evidence the Israeli government provided about the alleged actions of these employees of the UN Relief and Works Agency….

“National Security Council spokesman John Kirby said (last) Friday that the actions of a few UNRWA employees should be punished, ‘but that doesn’t impugn the entire organization.’  Nevertheless, the State Department did not wait for the results of the investigation before announcing Friday it had ‘temporarily paused’ additional funding for UNRWA, while acknowledging that the organization ‘plays a critical role in providing lifesaving assistance to Palestinians.’

“Nine countries followed the U.S. lead. The European Commission announced it would withhold action until all the facts come in. And even though the State Department said it will continue disbursing funds previously obligated, the effects for the aid organization are already devastating…

“To be clear, any UNRWA employees found guilty of terrorism or other crimes committed on Oct. 7 deserve no sanctuary and no mercy.  And, to be sure, UNRWA has big questions to answer about this and other instances of some of its 13,000 employees in Gaza seeming to support violence against Israelis.  But the Biden administration’s action is not only cruel; it will have ripple effects that will make solving all the Middle East’s problems more difficult….

“UNRWA is the largest provider of food and health services for civilians in Gaza, by far.  According to the U.S. Agency for International Development, approximately 1.4 million of Gaza’s 1.9 million internally displaced civilians are sheltering inside UNRWA sites and 400,000 more are relying on UNRWA assistance.  UNRWA also operates overcrowded schools and struggling health clinics, and assists in the delivery of food and hygiene products trickling into Gaza from Egypt… More than 140 UNRWA employees have been killed in Gaza since the war began….

“Perhaps the Biden team acted quickly to get out ahead of any political criticism of its past support for UNRWA during an election year.  But that won’t appease Biden’s critics – and comes at the cost of undermining the administration’s argument to its supporters that it cares about the Palestinians’ plight.

“Earlier this month, Secretary of State Antony Blinken said the Biden administration was ‘determined to do everything we possibly can to ameliorate the situation for men, women and children in Gaza.’ Now, he is essentially pulling the rug out from under the Gazans’ primary means of getting vital food and medicine in the middle of an already historic humanitarian catastrophe.”

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The Week in Ukraine….

--Ukrainian President Volodymyr Zelensky told his top commander, Gen. Valery Zaluzhnyi, that he was firing him in a meeting on Monday, a disruptive military shakeup amid Ukraine’s struggles on the battlefield and after months of friction between the president and the popular general.

Monday, a Zelensky spokesman said Zaluzhnyi had not been fired.

But as reported by the Washington Post: “In their conversation, Monday, Zelensky told Zaluzhnyi that Ukrainians have tired of war and the country’s international backers have also slowed military assistance, so perhaps a new commander would rejuvenate the situation, the person familiar with their conversation said.”

That said, Zaluzhnyi was offered another post but declined and so for now he remains in the top job and the formal order dismissing him has apparently been delayed.

Zaluzhnyi, as I’ve written before, is very popular in Ukraine, his portrait hanging in coffee shops and bars, so he’s a potential threat if presidential elections were to take place.

On the battlefield, Ukraine is in a precarious position, facing intensified Russian assaults in the southeast and uncertainty over whether the United States and Europe will provide more military and financial support.  But, as noted above, this issue has been only partially solved.

So then Zaluzhnyi called in an opinion piece published Thursday for a “completely new state system of technological rearmament.”  Zaluzhnyi made no mention of a rift with Zelensky or the possibility of him leaving his post in the piece published by CNN.

CNN said he wrote it before “an expected announcement of his dismissal.”

The general opined: “The challenge for our armed forces cannot be underestimated.  It is to create a completely new state system of technological rearmament.  Taking everything into account at this moment, we think the creation of such a system could be achieved in five months.”

--Ukraine’s security service says it has uncovered corruption in an arms purchase by the military worth about $40 million.  The SBU said five senior people in the defense ministry and at the arms supplier were being investigated.

It said the defense officials signed a contract for 100,000 mortar shells in August 2022, payment was made in advance, with some funds transferred abroad, but no arms were ever provided.

Corruption has been a major stumbling block in Ukraine’s bid to join the European Union.

--Ukraine issued a stark warning to allies that it faces a “critical” shortage of artillery shells as Russia deploys three times as much firepower on the frontlines.  And the shortage is growing worse, according to Ukrainian Defense Minister Rustem Umerov.

Umerov wrote to his EU counterparts this week describing the massive numerical disadvantage his troops are facing as they try to fight off fresh Russian assaults.  He said Ukraine is unable to fire more than 2,000 shells a day across a frontline that stretches 930 miles.  This is less than a third of the ammunition Russia uses.

Ukraine’s weapons shortages are growing worse by the day, Umerov added.

“The side with the most ammunition to fight usually wins,” Umerov said, according to the document reviewed by Bloomberg.

The EU acknowledged on Wednesday that it will supply barely half of the shells it had promised by a March deadline, resolving to deliver almost 600,000 more by the end of the year.

Ukraine needs 200,000 155mm shells per month, the document says.  Moscow is on track to get almost twice that amount, according to Estonian estimates, with about a million shells coming from North Korea.

--A Ukrainian military spy official said on Tuesday that Russia was showing no willingness to return the bodies of dozens of Ukrainian prisoners of war Moscow says died in a military plane crash in Belgorod region last week.

Kyiv has said Moscow has provided no evidence to support its assertion that 65 captured Ukrainian soldiers were aboard the Russian military transport plane, which crashed near the border with Ukraine.  Moscow says the plane was shot down by Ukraine on its way to a prisoner swap; Ukraine has neither confirmed nor denied that its forces shot it down.

“It’s a statement from Russia that our prisoners were there, and so far we can analyze only their words.  Now there is no readiness to transfer the bodies from the other side,” Andriy Yusov, the spokesperson, was quoted as saying.

Kremlin spokesman Dmitry Peskov said last Friday he had no information on what would happen to the remains or whether they would be handed to Ukraine.

We also haven’t heard about any investigation into what was revealed on the two black boxes that were said to be recovered.

Ukraine’s human rights commissioner told Reuters last week that an unofficial list of Ukrainian POW casualties circulated in Russian media after the crash included soldiers who had already returned in a previous swap.

--But then Wednesday, the Russian Defense Ministry said in a statement it had completed an exchange deal with Ukraine under which each side got 195 soldiers back.  It said its own soldiers would be flown to Moscow to receive medical and psychological treatment

President Zelensky said a total of 207 Ukrainian POWs had come back after the prisoner swap deal.

--The Ukrainian military claimed on Wednesday to have struck a military air base in Russian-occupied Crimea, while Moscow said it had thwarted the attack by shooting down missiles, but some debris had hit a military installation.

In a post on Telegram, Ukraine’s Air Force commander Mykola Oleshchuk thanked the military for conducting the operation, hitting Belbek airfield on the southwestern tip of the Crimean Peninsula near Russia’s main naval base at Sevastopol.

According to the Russian Defense Ministry, Moscow thwarted an attack on Crimea and shot down 20 Ukrainian missiles – 17 over the Black Sea and three more over the peninsula.

--Ukraine also says it sank another Russian ship Wednesday night in the Black Sea, according to the Defense Intelligence Directorate, which published an alleged video of the attack revealing “six direct hits by naval drones” that struck “the hull of the ship,” a missile corvette, which then “rolled astern and sank.”

--Boris Nadezhdin, a center-right Russian politician who has described the country’s invasion of Ukraine as a “fatal mistake,” submitted a bid to run in Russia’s presidential election on March 17.  He has also criticized the country’s repression of LGBTQ+ activism.

Nadezhdin says he has passed 200,000 signatures of support – twice the threshold required to run. 

While Vladimir Putin will win, the political machine needs a few fringe candidates to make it appear as if the election is fair, which is why they are likely to allow Nadezhdin to run, despite his platform.

If this is the case, however, it has given potentially millions of Russians an anti-war alternative.  That said, the vote will of course be manipulated regardless.

--Washington Post:

“Still smarting from last year’s failed counteroffensive in Ukraine, the Biden administration is putting together a new strategy that will de-emphasize winning back territory and focus instead on helping Ukraine fend off new Russian advances while moving toward a long-term goal of strengthening its fighting force and economy.

“The emerging plan is a sharp change from last year, when the U.S. and allied militaries rushed training and sophisticated equipment to Kyiv in hopes that it could quickly push back Russian forces occupying eastern and southern Ukraine. That effort foundered, largely on Russia’s heavily fortified minefields and front-line trenches.

“ ‘It’s pretty clear that it will be difficult for them to try to mount the same kind of major push on all fronts that they tried to do last year,’ a senior administration official said….

“Zelensky insists that Ukraine remains on the offensive.  Plans for 2024 are ‘not just defense,’ he said in a recent video address.  ‘We want our country to retain the initiative, not the enemy.’

“But U.S. policymakers who have met recently with him in private say Zelensky has doubts about how ambitious to be in the coming year without clarity about U.S. aid.”

--Jonah Goldberg / Los Angeles Times…on Donald Trump and his false allegations against NATO….

“On Saturday, former President Trump ranted against the North Atlantic Treaty Organization at a rally in Las Vegas.

“ ‘We’re paying for NATO, and we don’t get so much out of it,’ he lied.  ‘And you know, I hate to tell you this about NATO: If we ever needed their help – let’s say we were attacked – I don’t believe they’d be there.  I don’t believe. I know the people.  I know them. …I don’t believe they’d be there.’

“Trump has long talked about NATO as if it’s some sort of obsolete club where everyone is supposed to pay dues into a common kitty, but the U.S. has been left picking up everyone’s tab. That’s now how it works.  NATO’s standalone budget is about $3.5 billion, of which we pay 16%, roughly $560 million.  A new aircraft carrier costs about 20 times that.  All other ‘NATO spending’ takes the form of domestic defense expenditures by individual member states. When he was president, Trump was right to pressure other countries to spend more, but now that they are spending more, he doesn’t care or credit the change.

“Trump’s calumnies against NATO are offered to bolster his distortions about supporting Ukraine. In his telling, both are examples of how the United States gets ripped off by its alliances and foreign engagements. He claimed we’ve spent ‘$200 billion-plus’ on Ukraine, while the Europeans ‘are in for $20 billion.’

“This, too, is false.  According to the Ukraine Support Tracker, the European Union has contributed more to Ukraine than the United States.  We’ve committed not $200 billion-plus but about $75 billion, about half of that in military assistance.  The EU total is roughly 77 billion euros, or $83 billion.  In terms of share of gross domestic product, the U.S. ranks 30th for Ukraine support, just behind Ireland and Malta….

“While it’s always useful to point out Trump’s thumbless grasp of the facts, none of this is exactly new information for people who actually care about the facts. The problem is how little facts seem to matter these days.

“Prior to Russia’s lawless invasion of Ukraine, the argument that NATO was obsolete had some superficial plausibility.  But now that Russia has repeatedly signaled that it has aims beyond Ukraine, toward NATO members, those weak arguments have evaporated.  Certainly, our allies believe the threat is very real….

“NATO, and our alliances generally, make America stronger. They allow us to project power globally at a fraction of the cost of doing so in other ways.  For those who disagree, it’s worth considering why the case against NATO made by the former president has to rest on so many lies.  If the facts were on Trump’s side, he’d offer some.”

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Wall Street and the Economy

The Federal Reserve’s monetary policy committee (FOMC) held its benchmark funds rate unchanged at 5.25% to 5.50% on Wednesday, its fourth consecutive pause, saying that inflation continues to be “elevated” despite easing over the last year.  [The last hike was in July.]

“In considering any adjustments to the target range for the federal funds rate, the committee will carefully assess incoming data, the evolving outlook, and the balance of risks,” the FOMC said in its statement.  Dropping a previous reference to “additional policy firming” and adding a reference to rate decreases, the FOMC said, “The committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%.”

The committee said that recent indicators show that economic activity has been expanding at a “solid” rate.  “Job gains have moderated since early last year but remain strong, and the unemployment rate has remained low,” the FOMC said.

Chair Jerome Powell then had his press conference and he pushed back strongly on the idea that the central bank could cut rates in the spring, as many investors have been expecting, and he said, “We are not declaring victory,” when it comes to talk of a “soft landing.”

“I don’t think it’s likely the committee will reach a level of confidence by the time of the March meeting,” to lower rates, “but that’s to be seen,” Powell said, adding that a March cut is not the base case for policy makers.

And this is the bottom line.  We have two CPI reports prior to the next FOMC meeting, March 19-20, and two jobs’ reports, including Friday’s, and a PCE (personal consumption expenditures) release.  So the Fed will have a lot to chew on, let alone what are likely to be a number of new developments on the geopolitical front.  But it’s definitely not going to be enough by then, March 20, for the Fed to move.  Now could they telegraph a cut at the May confab in March? Of course.  That’s how they like to operate.

But all together now, boys and girls, it will all be about the data.

Speaking of which, today’s jobs report for January was explosive, and ‘book it,’ as a result there is now officially no way Chair Powell and his band of merry pranksters are cutting rates in March.

The U.S. economy added 353,000 jobs when consensus was at 180,000 (170K-185K, depending on your source).  The unemployment rate was unchanged at 3.7%.  And December was revised upwards from 216,000 to 333,000.

Just as importantly for the Fed, average hourly earnings surged 0.6%, 4.5% year-over-year, also well above expectations.

Frankly, President Biden can be forgiven for crowing about this one, even if it prevents a needed rate cut for many Americans.

On the other economic data from the week, the Chicago PMI on manufacturing for January was a weaker-than-expected 46.0 (50 the dividing line between growth and contraction), but then the national ISM figure on same was 49.1, while below 50, ahead of forecasts and the best reading since Oct. 2022, though it does mark 15 consecutive months below 50.

December construction spending was higher than expected, 0.9%, and December factory orders were lower than forecast, 0.2%.

The Case-Shiller home price index for November was up 0.1% month-over-month for the 20-city index, and up 5.4% year-over-year.

The Atlanta Fed’s very early GDPNow barometer for first quarter growth is 4.2%.

Freddie Mac’s 30-year fixed-rate mortgage fell to 6.63%.

The International Monetary Fund revised its 2024 global growth outlook up to 3.1%, up two-tenths from its October forecast, and said it expected unchanged growth of 3.2% in 2025.

U.S. growth was upgraded to 2.1% for this year from 1.5%.  The euro area was downgraded to just 0.9% and 1.7% in 2025, with Germany at 0.5% in 2024.

China is expected to grow by 4.6% in 2024, up four-tenths from October, and 4.1% in 2025. [Beijing won’t be happy with these numbers.]

Separately, the House accomplished something unusual on Wednesday in passing with broad, bipartisan support a roughly $79 billion tax cut package that would enhance the child tax credit for millions of lower-income families and boost three tax breaks for business, a combination that gives lawmakers on both sides of the aisle major policy wins.

Prospects for the measure becoming law are uncertain with the Senate still having to take it up, but the legislation passed by a vote of 357-70.

House Republicans were anxious to restore full, immediate deductions that businesses can take for the purchase of new equipment and machinery, and for domestic research and development expenses.  They argue such investments grow the economy and incentivize American companies to keep their manufacturing facilities and operations in the U.S.

Democrats focused on boosting the child tax credit.  The tax credit is $2,000 per child, but not all of that is refundable.  The bill would incrementally raise the amount of the credit available as a refund from $1,800 for 2023 tax returns to $2,000 for 2025 returns.

Europe and Asia

We had the January PMI manufacturing readings for the eurozone, courtesy of S&P Global and Hamburg Commercial Bank, and for the EA 20 it was 46.6, a 10-month high, obviously still contraction territory, though up solidly from December’s 44.4.

Germany 45.5 (11-month high)
France 43.1
Italy 48.5
Spain 49.2
Netherlands 48.9
Ireland 49.5
Greece 54.7 (21-month high)

UK 47.0 (below 50 eighteen straight months)

Next week the service sector numbers, and I’ll have commentary at that time.

A flash estimate on euro area inflation in January is down to 2.8%, according to Eurostat.  Ex-food and energy the figure is 3.6%, down from 5.0% in October, and 7.1% a year ago.

Headline inflation….

Germany 3.1%, France 3.4%, Italy 0.9%, Spain 3.5%.

A flash reading on fourth quarter GDP for the euro area was stable, unchanged, vs. the third quarter, when GDP declined 0.1% over Q2.  Compared to a year ago, GDP in the EA20 rose a whopping 0.1%. [Eurostat]

And the eurozone unemployment rate for December was 6.4%, stable compared with November and down from 6.7% a year earlier. [Eurostat]

Germany 3.1%, France 7.3%, Italy 7.2%, Spain 11.7%.

Britain: The Bank of England, like the Federal Reserve and, last week, the European Central Bank, kept its main interest rate at a near 16-year high as inflation remains too high for comfort.  In a statement Thursday, the BOE noted that though inflation has fallen sharply from over 11%, it still has a way to go.

In December, inflation in Britain unexpectedly rose to 4%, an increase that tempered market expectations that the central bank would cut borrowing costs as soon as May. 

BOE Governor Andrew Bailey said that the fall in inflation means he is now asking how long should rates stay at their current level, rather than how restrictive do rates need to be.

“For me, the key question has moved from: how restrictive do we need to be? to, how long do we need to maintain this position for?’” he told a press conference.

Turning to Asia…China’s National Bureau of Statistics reported that the manufacturing PMI for January was 49.2, with non-manufacturing (services) at 50.7.  Caixin’s private manufacturing reading was 50.8, all three basically in line with expectations.

Separately, a Hong Kong court on Monday ordered the liquidation of property company China Evergrande Group, a move that sent ripples through China’s crumbling financial markets as policymakers scramble to contain the deepening crisis.

Evergrande, the world’s most indebted developer with more than $300 billion of total liabilities, sent China’s property sector into a tailspin when it defaulted on its debt in 2021.

Hong Kong judge Linda Chan said “enough is enough” after Evergrande had failed to offer efficient communications or resolutions over more than 18 months.

But now…how to liquidate Evergrande’s assets, when it is uncertain how far Hong Kong’s courts can reach into China.  Plus the industry lacks liquidity and confidence.

Meanwhile, global investors have pulled billions of dollars from mainland China in part due to concerns over an uneven playing field for foreign capital.  Sadly, I know about this firsthand.

Japan’s manufacturing PMI for January was 48.0.  December industrial production fell 0.7% year-over-year, while retail sales were up 2.1% Y/Y vs. 5.4% prior.  The December unemployment rate was 2.4%.

South Korea’s manufacturing PMI for January was 51.2, up from 49.9 in December and indicative of an improvement in the health of the sector for the first time since June 2022.

Separately, South Korea’s exports rose for a fourth month in January, as a rebound in sales to China and the biggest surge in chip shipments in six years provided a boost to the trade-reliant economy at the start of 2024. 

Exports shipped by Asia’s fourth-largest economy rose 18.0% year-on-year to $54.69 billion in January, compared with a rise of 5.0% in December, and ahead of analyst expectations of 17.8%.

China-bound shipments gained 16.1%, snapping a 19-month streak of declines.  Exports to the U.S. rose 26.9%, extending gains to a sixth straight month, while those to the European Union climbed 5.2%.

Taiwan’s manufacturing PMI for January was 48.8, up from 47.1, but the 20th consecutive month of contraction.  At least the pace of decline was weaker.

Street Bytes

--Aside from the Fed and the employment report, this week was about the earnings reports for five tech behemoths, Alphabet, Microsoft, Apple, Amazon and Meta, which collectively account for nearly 25% of the S&P 500, giving them an outsized influence on the performance of the index.  [Tesla and Nvidia are the others in the “Magnificent Seven.”]

I get into the individual company stories below, but one of them, Meta, added roughly $200 billion to its market capitalization today, the biggest single-session market value addition.

Overall, stocks rose yet another week, 13 in 14 now, with both the Dow Jones and S&P 500 gaining 1.4% to close at new record highs, 38654 on the former, 4958 on the latter.  Nasdaq rose 1.1%.

Zero economic news that can significantly move the markets next week, but we’ll see what happens in the Middle East.

--U.S. Treasury Yields

6-mo. 5.24%  2-yr. 4.37%  10-yr. 4.02%  30-yr. 4.22%

Bonds rallied Monday after the U.S. Treasury reduced its estimate for federal borrowing for the current quarter, a move unexpected by many dealers, helping stoke rallies in both stocks and bonds later in the day when the Treasury said it now estimates $760 billion in net borrowing for January through March, down from a previous prediction of $816 billion released in late October.

As strategist Peter Boockvar noted: “Because of the enormous debts and deficits being accumulated,” Treasury announcements have become market-moving events.

But even after Chair Powell knocked down thoughts of a March cut in the funds rate, the yield Thursday on the 10-year hit 3.86%, after closing last Friday at 4.15%.  But then with the strong jobs report, the yield surged back above 4.00% and closed at 4.02%.  The 2-year went from 4.36% to 4.20%, back to 4.37%.  Just another crazy week in the bond pits.

--Saudi Aramco said it would abandon plans to increase its daily oil production following an order from the kingdom’s energy minister. Instead of ramping up to 13m barrels a day, production will be maintained at 12 million.  The oil giant did not provide a reason for the change.

The price of crude cratered $6 this week, $72.14, on West Texas Intermediate, but this was before the new U.S. air strikes on Iraq and Syria.

--On the Big Oil earnings reports of the week…

Shell Plc kept up the pace of its share buybacks after a strong performance from its gas traders offset the impact of lower commodity prices in the fourth quarter.

The London-based energy giant benefited from “exceptional” trading opportunities on the global gas market and higher volumes of liquefied natural gas thanks to the end of maintenance works at its Prelude facility in Australia.

The company will repurchase $3.5 billion of shares this quarter, matching the level of the preceding three months.

Shell’s adjusted net income for the three months ended Dec. 31 was $7.31 billion, the company said in a statement on Thursday.  That was down from $9.81 billion for the same period in 2022 but beat the average analyst estimate of $6.14 billion.

--Today, Exxon Mobil posted a better-than-expected $36 billion profit for 2023, lifted by fuels trading and higher oil and gas production.  Profits from oil majors have been down in 2023 by about a third from record levels in 2022, pressured as oil and gas prices retreated after spiking when Russia invaded Ukraine.

Exxon CEO Darren Woods said the industry “saw energy prices and refining margins start to normalize in 2023.”  Exxon’s earnings in the latest quarter still beat estimates and Woods signaled optimism about the coming year.  Exxon boosted capital spending in the most recent quarter by 4% from a year ago, and full-year capital expenditures in 2023 were $26.32 billion.

Exxon, Woods said, “opportunistically accelerated drilling activity” in its two core oil production areas, the U.S. Permian Basin and Guyana, and kick-started lithium production to supply electric vehicle batteries.

Exxon expects to close its acquisition of Pioneer Natural Resources in the second quarter, which will dramatically increase investments in the U.S.

Ex-items, annual income fell 35% to $38.57 billion.  For the fourth quarter, Exxon reported a profit that beat estimates by 27 cents at $2.48 per share, or $9.96 billion, compared to $14.04 billion, or $3.40 per share, from a year earlier.  

Revenue of $84.34 billion missed the Street’s view of $85.2 billion and was down 11.6% from last year’s $95.4 billion.  XOM shares rose a little today.

Chevron beat analysts’ earnings estimates and increased dividends on higher oil and gas production, after a year of sharply lower profits on missteps and charges.  The company’s adjusted earnings of $3.45 beat consensus by 24 cents.  The second largest U.S. oil producer reported a sharply lower, $21.3 billion profit for 2023 as earnings from oil production and refining fuels tumbled.  The company has suffered from delayed expansion programs and higher costs in its O&G production business.

Despite the nearly 40% fall in annual profit, Chevron said it would increase its dividend by 8%.  It returned a record $26.3 billion last year to shareholders via dividends and buybacks.

Oil and gas production rose on shale gains and acquisitions. In the Permian Basin, the top U.S. shale field, volumes rose 10%, but lower prices, foreign currency hits and one-time charges offset the volume gains.

Fourth-quarter earnings fell 18% from a year earlier to $6.45 billion, ex-charges/writedowns.

Adjusted full-year earnings were $24.69 billion, or $13.13 per share, down from $36.54 billion, or $18.83 per share, in the prior year.

Revenue for the quarter of $47.18 billion was down 16.5% from a year ago, and shy of analysts’ expectations.

Chevron has offered to buy Hess Corp. for $53 billion to get a foothold in Guyana’s lucrative offshore fields.

The shares rose nearly 3% today.

--Microsoft beat Wall Street estimates for fiscal second-quarter revenue on Tuesday, as new artificial-intelligence features helped attract customers to its cloud and software services.

The company, in collaboration with ChatGPT creator OpenAI, has pushed chatbots into its core products such as the Office software and Bing search engine over the past year, attracting business customers eager to try the tech industry’s next breakthrough.  Investor buzz over AI helped Microsoft’s shares rise by 57% in 2023.  Its cloud-computing business – already the second-biggest behind that of Amazon.com – grew by nearly a third in the most recent quarter.

“We’ve moved from talking about AI to applying AI at scale,” said CEO Satya Nadella in a statement.  “By infusing AI across every layer of our tech stack, we’re winning new customers and helping drive new benefits and productivity gains across every sector.”

Investors are watching Microsoft’s Azure and Office revenues to see what kind of sales flow comes from the tens of billions of dollars the company plans to pour into data centers this year to deliver generative AI.

Total revenue grew 18% to $62 billion in the quarter ending Dec. 31, compared with consensus of $61.1 billion. Adjusted profit of $2.93 per share beat the Street’s average of $2.78.  Revenue at Microsoft’s Intelligence Cloud unit, which houses the Azure cloud computing platform, grew 20% to $25.9 billion.  Sales of Azure, which Microsoft does not give a specific dollar figure, grew 30% - its best growth rate in four quarters.

The company’s capital expenditures grew by $300 million from the previous quarter to $11.5 billion, putting the company on track to spend more than $46 billion this fiscal year, which Microsoft’s Brett Iversen said is “a sign of the customer demand that we’re seeing.”

The shares fell a little on the news because the results didn’t ‘beat’ enough to satisfy already lofty valuations.

--Alphabet shares fell 6% after disappointing Wall Street on Tuesday as holiday advertising sales came in below expectations, overshadowing the company’s efforts in AI and the cloud.

Ad revenue came in at $65.5 billion in the fourth quarter with analysts at $66.1 billion.  But it had posted $59.0 billion a year earlier.  Alphabet has faced tough competition for ad budgets from other online platforms such as Facebook, Instagram, TikTok and Amazon.

Google, inventor of foundational technology for today’s AI boom, also faces tough competition from ChatGPT creator OpenAI and its financial backer Microsoft.  And while Google’s cloud revenue growth slightly topped the Street, boosted by interest in AI, Microsoft’s Azure grew faster.

Google is bringing a powerful suite of models called Gemini to its ChatGPT rival Bard.  It struck a deal to invest up to $2 billion in high-profile AI startup Anthropic as it courts customers from larger cloud rivals Microsoft and Amazon, and it is putting Gemini into advertisers’ hands, so their dollars keep flowing to Google’s search business.

The U.S. has started probing AI investments including Alphabet’s, and Google is gearing up to appeal a major antitrust case it lost, so the company, like others in the tech space, has been cutting some jobs.

Overall revenue for the quarter ended Dec. 31 stood at $86.3 billion, compared with estimates of $85.3 billion.

Alphabet said Google Cloud revenue in the latest quarter was $9.2 billion, while analysts were expecting $8.9 billion.  That marked a re-acceleration of cloud revenue growth from the previous quarter to 25.7% but was slower than the 32% growth in the year ago quarter.

--So then after Thursday’s market close, we had the other three in the Big Five report….

And Meta Platforms (Facebook) knocked it out of the park, announcing its first ever dividend ahead of Facebook’s 20th anniversary, while reporting revenue that beat expectations as a result of robust ad and device sales in the holiday shopping period.  Shares soared a stupendous 20%, extending a long recovery in which Meta hit record highs in recent weeks for the first time in over two years.

The company said the dividend would be 50 cents per share.  It also announced it had authorized an additional $50 billion in share repurchases.

“We’ve made a lot of progress on our vision for advancing AI and the metaverse,” Meta CEO Mark Zuckerberg said in a statement.  Revenue rose 25% to $40.1 billion for the quarter ended Dec. 31.  Analysts were expecting revenue of $39.2 billion.  Meta forecast first quarter revenue of $34.5 billion to $37 billion, above Street expectations of $33.8 billion.  It said it expects full-year 2024 total expenses to be unchanged at $94 billion to $99bn.

Shares of Meta, which also owns Instagram and WhatsApp, have been steadily climbing back from a 2022 meltdown, aided by a rebound in user growth and digital ad sales.  It also has shed more than 21,000 employees since late 2022.

Facebook’s daily-active-user base reached 2.11 billion, up from 2.09 billion in the third quarter.

Meta reported 3.19 billion daily active people on average across its family of apps, up from 3.14bn in the prior quarter.

--Amazon.com saw its shares surge 8% as it beat fourth-quarter expectations on robust growth in its cloud business and online spending during the critical holiday shopping season.  The company forecasts current quarter revenue of $138 billion to $143.5 billion, with the Street at $142bn.

Amazon Web Services (AWS), the world’s largest cloud services provider, posted revenue of $24.2 billion in the fourth quarter, largely in line with consensus.  AWS CEO Andy Jassy in a statement touted the unit’s “continued long-term focus on customers and feature delivery,” citing efforts to incorporate generative AI into many of its services.  The new features “are starting to be reflected in our overall results,” he said.

Amazon’s fourth-quarter sales rose 14% to $170 billion, beating estimates of $166.2 billion.  Adjusted profit of $1 per share also beat consensus of 80 cents.

--Apple reported China sales that missed Wall Street targets, overshadowing overall sales and profit that beat analysts’ targets, powered by iPhone growth.

Apple shares fell sharply on Friday’s open, down nearly 4%, before recovering to finish essentially unchanged.

The 2% rise in overall fiscal first-quarter sales for the company ended four straight quarters of sales declines on the strength of its iPhone 15 lineup, which includes devices capable of capturing three-dimensional video for the Vision Pro headset that was released this week.

Apple’s total installed base of devices hit 2.2 billion, up from 2 billion a year ago.  “We did feel good about the plus 6% (revenue growth) for iPhone,” Apple CEO Tim Cook told reporters.  “We had particularly strong double-digit growth on iPhone in emerging markets outside of China.”  He added: “China is the most competitive smartphone market in the world, and that hasn’t changed.”

Cook said iPhone sales in mainland China were down “mid-single digits” in the quarter, when accounting for currency exchange rates, although the company’s installed base of iPhones in China is at an all-time high.

For its fiscal first quarter ended Dec. 30, Apple reported sales of $119.58 billion and profit of $2.18 per share, above estimates of $117.91 billion and $2.10 per share.  Sales of iPhones hit $69.7 billion, growing 6% to also beat consensus.

All decent, it’s just that you can’t ignore the China results.  The company said sales in China were $20.82 billion, missing analyst estimates of $23.53 billion badly, and down 13% without adjusting for currency.

The biggest growth area for Apple was its services business, which includes the Apple TV+ service as well as music, iCloud storage and the App Store, which rose 11% to $23.12 billion in sales.  The App Store faces a challenge in Europe, where a new law takes effect in March that will allow developers to skip paying commissions to Apple and place alternative app stores on the iPhone.

First-quarter Mac sales were up slightly to $7.78 billion, while sales of iPads were down 25% to $7.02 billion.  Apple’s wearable segment fell 11% to $11.95 billion.  Several Apple Watch models have been at the center of a legal dispute with medical device maker Masimo and were briefly pulled from shelves before Apple removed various features to comply with legal rulings.

Apple has said it is researching generative AI but has instead focused on its Vision Pro headset ($3,499), which analysts do not expect to bring meaningful revenue for several years.

--Chipmaker Advanced Micro Devices forecast first-quarter revenue below Wall Street estimates on Tuesday but projected strong sales for its artificial intelligence processors.  As companies look to develop and operate their own generative AI applications, enterprise budgets are being funneled into processors used in AI servers.

Large and small businesses are looking for alternatives to the advanced AI chips produced by Nvidia, which commands roughly 80% market share.  AMD has one of the few viable alternative products in the market.  AMD’s fourth-quarter data center segment revenue, which includes its AI server chips, grew 38% from a year ago to $2.3 billion.

But shares of the Santa Clara, California-based company fell over 4% at the open on Wednesday, even as AMD forecast $3.5 billion worth of AI chip sales in 2024, above its prior forecast of $2 billion, and reported overall fourth-quarter revenue of $6.17 billion, slightly ahead of estimates.

The problem was the company forecast revenue of $5.4 billion for the current quarter, and the Street is at $5.73 billion.

AMD’s fourth-quarter PC chip segment revenue surged 62% to $1.5 billion.  Post-pandemic sales of PC chips slumped as consumers have not upgraded their machines.  But the market is slowly returning to its pre-pandemic dynamics, analysts say. In 2024, worldwide PC shipments are set to grow about 5%, according to data firm Canalys.

--JetBlue Airways Corp. on Tuesday reported a loss of $104 million in its fourth quarter.  On a per-share basis, the company said it had an adjusted loss of 19 cents, beating consensus of -28 cents.

The airline posted revenue of $2.33 billion in the period, also surpassing expectations.  For the year the company reported a loss of $310 million, or 93 cents per share, with revenue of $9.62 billion.

But the airline also expects first-quarter revenue to fall between 9% and 5%, while non-fuel costs are expected to jump by as much as 11% in the March quarter from a year ago and by a mid-to-high single digit percentage during the year, adding it was “carefully” evaluating deeper cuts to the costs it can control.

On the issue of the merger with Spirit Airlines, JetBlue said it had filed for an expedited appeal to a court ruling that blocked their $3.8 billion combination.

--United Airlines has approached Airbus about buying more A321neo jets to fill a potential void left by the delayed Boeing 737 MAX 10, in a trade-off likely to ease deadlock over a long-delayed separate order for larger A350s, industry sources said.

Untied CEO Scott Kirby flew to Toulouse recently to sound out the planemaker on a potential quid-pro-quo deal after Alaska Air’s mid-air emergency on one of its 737 MAX 9 aircraft raised new doubts over certification of the already delayed MAX 10,  The talks are at an early stage and there is no guarantee of a deal, but it is the latest negative development for Boeing and its widening crises (plural) as it seeks to reassure the public and regulators about production quality and safety while preventing existing key orders from unraveling.

It was last week that Kirby, in an interview with CNBC, said the MAX 9’s partial grounding represented “the straw that broke the camel’s back” following certification delays to the MAX 10.

Kirby said last week that while United hasn’t canceled any of the 277 MAX 10 jets on order, it has removed them from internal plans.  The problem is, as I also wrote the other day, Airbus is heavily sold out.

At the same time, Ryanair said it backed the MAX 10 and would take any deliveries abandoned by U.S. carriers.

--Boeing said in posting its fourth-quarter earnings report that it has “much to prove” to regain the confidence of regulators and customers after the 737 MAX incident, CEO Dave Calhoun adding that the planemaker will “go slow” as it faces a “serious challenge.”

As expected, Calhoun did not offer a financial or delivery forecast for 2024, stating that the company must focus on delivering quality airplanes.

“We will not rush the system and we will take our time to do it right,” Calhoun said in a letter to employees, while voicing confidence in Boeing’s recovery from the current crisis.

Boeing said on Wednesday that 737 aircraft were being produced at a previously outlined rate of 38 per month, a level that it plans to maintain after the Federal Aviation Administration barred the company from lifting production, while increasing its oversight.

The 787 production rate was at five per month, Boeing said, adding that it had also resumed 777X production during the fourth quarter.

Calhoun also pointed to an announcement by Boeing earlier in January that it would add further quality inspections for the 737 MAX and deploy a team to supplier Spirit AeroSystems, which makes and installs the plug door involved in the Alaska Airlines incident.

For Q4, Boeing reported an adjusted per-share loss of 47 cents, compared with an adjusted loss of $1.75 per share a year ago.  Revenue rose 10% to $22 billion.  Boeing did not provide an update to its 2025-26 cash flow and MAX production forecast amid lingering doubts on whether the planemaker will be able to achieve those targets after the FAA’s unprecedented decision.  During its investor day in November 2022, Boeing projected 737 production of 50 per month in 2025-26.

Lastly, for now, in an interview with the Los Angeles Times on Wednesday, a one-time senior Boeing manager Ed Pierson bluntly said, “I would absolutely not fly a MAX airplane.  I’ve worked in the factory where they were built, and I saw the pressure employees were under to rush the planes out the door.”

Joe Jacobsen, a former Boeing engineer who has worked at the FAA, said it was “premature” for airlines, including Alaska Air, to have resumed flying the jets.

“I would tell my family to avoid the MAX,” Jacobsen told the Times, claiming that his time at the company made him realize that profits were prioritized over quality control.

--TSA checkpoint numbers vs. 2023

2/1…107 percent of 2023 levels
1/31…112
1/30…105
1/29…107
1/28…105
1/27…107
1/26…107
1/25…106

--General Motors on Tuesday reported lower pre-tax profit for the fourth quarter but gave investors an upbeat outlook for 2024 and signaled more capital could be returned to shareholders, so the shares surged over 5%.

“Consensus is growing that the U.S. economy, the job market and auto sales will continue to be resilient,” CEO Mary Barra told investors in a letter.  In contrast, Tesla CEO Elon Musk cautioned last week that the world’s most valuable automaker expected a year of slow growth.

GM is pinning its hopes on strong demand for its internal-combustion trucks and SUVs in North America, cost-cutting and increasing sales of its new generation of electric vehicles after 2023 deliveries fell short of earlier plans.

GM expects overall EV sales will rise this year to 10% of the U.S. market from 7% in 2023.  GM CFO Paul Jacobson said in a call with reporters that the automaker expects its electric vehicle operations will begin returning variable profit by the second half of the year.

Barra, in her letter, highlighted GM’s moves to return cash to shareholders through a $10 billion share buyback and a 33% dividend increase.

GM forecast adjusted pre-tax profits in a range of $12 billion to $14 billion this year, compared to $12.4 billion reported for 2023.  It forecast earnings of $8.50 to $9.50 a share compared to $7.68 in 2023.  The share buyback adds $1.45 a share to the 2024 forecast, the company said.

For the fourth quarter, GM reported net income rose 5.2% to $2.1 billion on revenues of $43 billion.  Adjusted pre-tax profit fell by 54% to $1.8 billion, reflecting last fall’s UAW strikes, higher costs at Cruise (the robo-taxi unit) and a $1.1 billion writedown related to EV battery cells held in inventory.

Cruise halted operations after one of its self-driving cars dragged a woman down a San Francisco street.

--United Parcel Service shares cratered 5% after the company announced fourth-quarter earnings, with UPS forecasting annual revenue below the Street’s estimates, as the world’s biggest package delivery firm faces sluggish domestic and international commerce demand.

The company expects full-year 2024 revenue to be in the range of $92.0 billion to $94.5 billion, below consensus of $95.57 billion.

Waning ecommerce demand has pressured the company and blunted the gains from efforts to win back the 1.5 million-packages-a-day of volume diverted to rivals including the non-unionized FedEx during last year’s labor contract talks.

The company reported fourth-quarter revenue of $24.9 billion, down from $27 billion a year earlier.  Adjusted profit fell to $2.47 per share, from $3.62.  Just awful numbers.

And then UPS said it would cut 12,000 jobs and explore strategic options for Coyote, its truckload freight brokerage business.

--The first human patient has received an implant from brain-chip startup Neuralink on Sunday and is recovering well, the company’s founder Elon Musk said.

“Initial results show promising neuron spike detection,” Musk said in a post on X on Monday.

Spikes are activity by neurons, which the National Institute of Health describes as cells that use electrical and chemical signals to send information around the brain and to the body.

The U.S. Food and Drug Administration had given the company clearance last year to conduct its first trial to test its implant on humans, a critical milestone in the startup’s ambitions to help patients overcome paralysis and a host of neurological conditions.

--Meanwhile, a Delaware judge on Tuesday ruled that Elon Musk’s record-breaking $56 billion Tesla pay package could be tossed, calling the compensation “an unfathomable sum” that was not fair to shareholders, according to a court filing. Shares in Tesla fell less than 2% at the open on Wednesday.

The ruling swept away the largest pay package in corporate America. The judge found it was negotiated by directors who seemed beholden to their headline-making CEO and the promise of allowing him to share in the company’s enormous growth.

“Swept up by the rhetoric of ‘all upside,’ or perhaps starry eyed by Musk’s superstar appeal, the board never asked the $55.8 billion question: Was the plan even necessary for Tesla to retain Musk and achieve its goals?” wrote Kathaleen McCormick of Delaware’s Court of Chancery.

“Never incorporate your company in the state of Delaware,” Musk said in a post on X.

The ruling can be appealed to Delaware’s Supreme Court.

Musk then started a poll asking if Tesla should now incorporate in Texas, and more than 87% of the over 1.1 million votes cast were in favor of the shift, so Tesla is going to hold a shareholder vote to transfer its state incorporation to the Lone Star State.

Lastly, Friday, Tesla announced it was recalling 2.2 million vehicles, or nearly all of its EVs in the United States, due to incorrect font sizes on warning lights, which increases the risk of a crash, the National Highway Traffic Safety Administration said today.

“Warning lights with a smaller font size can make critical safety information on the instrument panel difficult to read, increasing the risk of a crash,” the NHTSA said.  Tesla began releasing an over-the-air software update on Jan. 23, free of charge, to fix the issue, the regulator said.

--Europe’s most valuable company, Novo Nordisk, published bumper annual results on Wednesday.  The Danish drugmaker stunned investors with a 36% increase in sales in 2023, to $33.7 billion, driven by Ozempic and Wegovy, its blockbuster medicines that treat diabetes and obesity respectively.  Investment bank Jefferies predicts that annual demand for weight-loss drugs could hit $150bn by 2030.

But insurers in America, its largest market, have been slow to cover Wegovy, which costs around $1,300 per month.  And last November, regulators approved Zepbound, an alternative drug from Eli Lilly.  More competition could be on the way, with as many as 90 candidates for weight-loss drugs in various stages of development, according to Stat, an online health publication.

Novo Nordisk also said it expects U.S. regulators to decide by June on an expanded label indication for its anti-obesity Wegovy to include the heart benefits identified in a late-stage study called SELECT.  The company also expects Chinese and European Union regulators to decide on an expanded label in the second half of the year.

--The Wall Street Journal reported Friday that Intel is delaying the construction timetable for its $20 billion chip-manufacturing project in Ohio amid market challenges and the slow rollout of U.S. government grant money to grow the domestic industry.

The original timeline had chip-making starting next year, but now the facility won’t be finished until late 2026, chip-making after that.

“Managing large-scale projects especially in our industry often involves adapting to changing timelines,” an Intel spokesman told the paper.  “Our decisions are based on business conditions, market dynamics and being responsible stewards of capital.”

There are currently 800 people working at the site northeast of Columbus, but eventually the company expects the project to create 7,000 construction jobs.

The first two chip factories are part of a complex in which Intel has said it could invest up to $100 billion.

--Starbucks on Tuesday reported record revenue in its fiscal first quarter, but the results fell short of Wall Street’s expectations as customer spending slowed in some key markets.

The coffee giant said its revenue rose 8% to $9.43 billion for the October-December period, shy of the $9.6bn analysts had forecast.

Same-store sales also fell short, rising 5%, when a 7% increase was forecast by the Street.

In the U.S., same-store sales rose the same 5% in the quarter. Customer transactions increased 1% and consumers spent more per order.  But in China, Starbucks’ second-largest market, results were mixed, with transactions up 21% but average spending per order fell 9%.

Starbucks said its net income rose 20% to just over $1 billion, or 90 cents per share, with analysts at 93 cents.

The company continues to face labor issues, and boycotts over the Israel-Hamas war.

But the stock initially rallied Wednesday (before falling back), because the results weren’t as bad as some feared given sales trends in November and December.

--U.S. lawmakers chewed out executives from Meta, X, Snap, Discord and TikTok over the companies’ child safety record on Wednesday, marking the first time Congress brought in the executives to discuss online child safety as part of a broader legislative effort.

Congress has been under growing pressure to pass the Kids Online Safety Act, which would create legal requirements for tech companies to keep children safe from content that promotes violence, sexual exploitation, substance abuse and eating disorders.  At the Senate hearing, Meta CEO Mark Zuckerberg turned and faced an audience filled with activists to apologize.

--Chipotle Mexican Grill is planning to hire 19,000 new full and part-time employees for its so-called “burrito season” that runs from March to May.  Last burrito season, it looked to hire 15,000 new staff members. The company has been hiring aggressively over the past year or two as it pursues a long-term goal of operating 7,000 restaurants in North America.  As of September, it had more than 3,300 stores.

The company is also rolling out new benefits aimed at appealing to its Gen-Z labor pool, which accounts for nearly 75% of its restaurant employees.  And, no surprise, Chipotle frequently ranks within the top five restaurant brands favored by Gen Z, according to a Piper Sandler survey.

--I wrote about Netflix and its new relationship with the WWE and its parent company, TKO Group, last week and then hours after posting, Vince McMahon, the long-time chairman and former CEO of World Wrestling Entertainment, resigned from his position at both the WWE and TKO, one day after a former employee accused him of sexual assault and trafficking in a federal lawsuit.

McMahon denied the allegations and looked forward to clearing his name.

--Carnival said on Tuesday that its annual earnings would take a hit as the cruise operator re-routes ships that were due to transit the Red Sea.

“Given recent developments and in close consultation with global security experts and government authorities, the company has made the decision to re-route itineraries for 12 ships across seven brands, which were scheduled to transit the Red Sea through May 2024,” Carnival said in a statement.

That would be exciting…watching Houthi cruise missiles get intercepted by the U.S. Navy.  It would also cause you (at least me) to drink rather heavily until we got out of the place.

--The world’s largest cruise ship set sail from Miami, Florida, on its maiden voyage.  The 1,197-foot Icon of the Seas has 20 decks and can house a maximum of 7,600 passengers.  It is owned by Royal Caribbean Group.

The vessel is on a seven-day island-hopping voyage in the Caribbean.

The ship, which was built in Turku, Finland, has seven swimming pools and six water slides.  It cost $2 billion to build and also has more than 40 restaurants, bars and lounges.

If everyone flushes their toilet at the same time….

Separately, Royal Caribbean projected 2024 profit above Wall Street expectations after robust demand for cruise vacations and steeper ticket prices helped it beat fourth-quarter earnings estimates on Thursday.

With travelers opting for cruises instead of more expensive land-based vacation options, operators are experiencing record levels of bookings compared to pre-pandemic levels, giving them enough room to mark up ticket prices.

“2023 was an exceptional year, propelled by unmatched demand for our brands from new and loyal guests,” said CEO Jason Liberty, adding 2024 was poised to be “another robust year.”

Fourth-quarter revenue rose nearly 28% to $3.33 billion, slightly below consensus.  Occupancy also increased year-over-year, though remained below 2019 levels. 

The Celebrity and Silversea Cruises operator carried over 7.6 million passengers in 2023, a nearly 17% increase from pre-pandemic levels.  The company also forecast 2024 adjust profit between $9.50 and $9.70 per share, above estimates of $9.19 per share.

Foreign Affairs, Part II

Iran: As alluded to above, a drone attack early Sunday killed three U.S. service members at an American base in northeastern Jordan, near the Syrian border (the Iraqi border six miles away as well), an installation known as Tower 22.  Over the next few days the number injured rose to 40, many being treated for possible traumatic brain injury, some of them flown to Germany for treatment.

The base began as a Jordanian outpost watching the border, then saw an increased U.S. presence after American forces entered Syria in late 2015. The small installation includes U.S. engineering, aviation, logistics and security troops, with about 350 U.S. Army and Air Force personnel deployed.

“While we’re still gathering facts of this attack, we know it was carried out by radical Iran-backed militant groups operating in Syria and Iraq,” said President Biden in a statement.

Iran on Monday denied it was behind the Jordan strike.

Republicans have laid blame on Biden for doing too little to deter Iranian militias, which have no carried out over 165 attacks on U.S. troops in the region since the start of the Israel-Hamas war.

Sen. Roger Wicker (Miss.) demanded that the Pentagon strike “directly against Iranian targets and its leadership.”

Sen. Tom Cotton (Ark.) went further and said Sunday, “The only answer to these attacks must be devastating military retaliation against Iran’s terrorist forces, both in Iran and across the Middle East.  Anything less will confirm Joe Biden as a coward unworthy of being commander-in-chief.”

“Hit Iran now.  Hit them hard,” said Sen. Lindsey Graham (S.C.)  “The Biden administration can take out all the Iranian proxies they like, but it will not deter Iranian aggression.”  Graham added, “I am calling on the Biden administration to strike targets of significance inside Iran, not only as reprisal for the killing of our forces, but as deterrence against future aggression.”

The U.S. on Wednesday attributed the drone attack that killed three service members to the Islamic Resistance in Iraq, an umbrella group of Iran-backed militias.

The attribution comes as Iran threatened the same day to “decisively respond” to any U.S. attack on the Islamic Republic after the U.S. said it holds Tehran responsible. 

National Security Council spokesman John Kirby said Wednesday the U.S. believes the attack was planned, resourced and facilitated by the Islamic Resistance in Iraq, an umbrella group including Kataib Hezbollah.  He said President Biden “believes that it is important to respond in an appropriate way.”

Kirby said Biden was continuing to weigh retaliation options to the attack but said “the first thing you see won’t be the last thing,” adding it “won’t be a one-off.”

The leader of Kataib Hezbollah said it was halting attacks on U.S. bases and troops, calling the move temporary and warning against “hostile American action.”

President Biden said Tuesday that he had decided on the U.S. response.  Biden told reporters that on the issue of Iran’s involvement, “They’re supplying the weapons to the people who did it. I don’t think we need a wider war in the Middle East.  That’s not what I’m looking for.”

As for the attack itself, U.S. officials, who were not authorized to comment and insisted on anonymity, said preliminary accounts have an enemy drone that may have been confused with an American drone returning to the U.S. installation.

The officials said that as the enemy drone was flying in at a low altitude, a U.S. drone was returning to the base.  As a result, there was no effort to shoot down the enemy drone.

Editorial / Wall Street Journal

“The irony of Mr. Biden’s strategy – avoid escalation with Iran above all else – is that he’ll now have to strike back harder than if he had responded with devastating force the first time U.S. forces were hit, and every time since.

“That probably includes hitting Iranian military or commercial assets.  There are certainly risks of escalation from doing so.  But Iran and its proxies are already escalating, and they have no incentive to stop unless they know their own forces are at risk.  Here’s one idea: Put the Iranian spy ship that has been prowling the Red Sea on the ocean floor.

“The alternative is a growing American body count.  Iran’s clients in Yemen are continuing to fire at U.S. warships in the Red Sea while holding a vital shipping lane hostage.  U.S. destroyers have managed to intercept Houthi volleys in a testament to American weapons technology and military professionalism. But eventually a drone or missile could elude U.S. defenses and sink a U.S. warship….

“Mr. Biden has spent months fretting about a broader regional war without confronting the reality that the U.S. is already in one.  The result is that U.S. deterrence has collapsed in the region, and Americans are dying.  Mr. Biden’s repeated displays of weakness are inviting more attacks.  In the 1970s, Iran helped to ruin Jimmy Carter’s Presidency by seizing hostages.  Mr. Biden should worry that it will also take down his Presidency if he won’t respond with enough force that the mullahs get the message.”

---

The U.S. Department of Treasury announced Monday that Iranian agents recruited Hells Angels members to assassinate Iranian refugees living inside the U.S., the revelation part of a new round of sanctions.  That recruitment occurred three years ago and involved at least two members of the motorcycle gang, both of whom are Canadian citizens; their targets based in Maryland.  Those gang members are already serving time in Canada for separate offenses.

The central planner, according to Treasury, is Iran-based narcotics trafficker Naji Ibrahim Sharifi-Zindashti, 49, who “operates at the behest of Iran’s Ministry of Intelligence and Security.”  His network has been linked to murders in several countries, including the UAE, Canada and Turkey, U.S. officials said.

Lastly, a cruise missile launched from Yemen on Tuesday came within one mile of the USS Gravely, whose crew shot it down with the ship’s Phalanx Close-In Weapons Systems, which is essentially an automatic machine gun and “one of the final defensive lines the ship has to shoot down an incoming missile,” CNN reported.

“If I’m not mistaken, this is the first time that a [U.S. Navy] warship has ever had to use its last-ditch Phalanx weapon system to defend itself from an inbound anti-ship cruise missile,” said former U.S. Navy submariner Tom Shugart of the Center for a New American Security.

Tom Karako of the Center for Strategic and International Studies told CNN:  The U.S. Navy “can’t afford to sit here and play catch indefinitely.”

China: FBI Director Christopher Wray warned on Wednesday that China was ramping up an extensive hacking operation geared at taking down the U.S. power grid, oil pipelines and water systems in the event of a conflict over Taiwan.

Wray, appearing before a House subcommittee on China, offered an alarming assessment of the Chinese Communist Party’s efforts.  Its intent is to sow confusion, sap the United States’ will to fight and hamper the American military from deploying resources if the dispute over Taiwan escalates into a war, he added.

The operation, conducted jointly by the Department of Justice and the FBI, weeded out malicious Chinese software from a network or “botnet” of hundreds of compromised U.S. routers, both agencies said in a statement.

The operation involved taking down hundreds of U.S.-based small office or home office routers that were part of the botnet and had been hijacked by China’s state-sponsored hackers, according to Sean Newell, deputy chief of the Justice Department’s National Security Division, during a media briefing.

Most of the infected routers were made by the technology firms Cisco and Netgear and were “end-of-life” or older-generation devices that were not being updated with the latest security measures, officials said.

The U.S. and its key allies disclosed the Chinese campaign, dubbed Volt Typhoon, in May 2023 when analysts at Microsoft found it had targeted everything from U.S. telecommunication networks to transportation hubs.

Some analysts say the potential crisis could be a Chinese invasion of Taiwan, in which China could use its infiltration into U.S. networks as part of Volt Typhoon to its advantage.

A spokesperson at China’s embassy in Washington called Wednesday’s allegations “irresponsible criticism.”

“The Chinese government has been categorical in opposing hacking attacks and the abuse of information technology,” the spokesperson said, alleging in turn that the United States was involved in hacking and “eavesdropping more than other countries.”

Wray testified: “China’s hackers are positioning on American infrastructure in preparation to wreak havoc and cause real-world harm to American citizens and communities, if or when China decides the time has come to strike,” said Wray, who pressed the committee to increase funding for the bureau.

The director had one startling stat.  If the FBI devoted every single one of its cyber division team to just one nation, China, the U.S. would be outnumbered by over “50 to 1,” that is just how many people are working at the behest of the CCP to take us down.

Meanwhile, Hong Kong’s leader mapped out the details of a public consultation on a domestic national security law on Tuesday.  CEO John Lee Ka-chiu and his team of Beijing suck-ups released a consultation paper on which residents have a month to offer their views, with much of it covering five major activities endangering national security, such as treason, insurrection, theft of state secrets and sabotage.

Just another effort to make it easier to arrest those who don’t agree with what Beijing wants.

North Korea: Pyongyang fired multiple unidentified cruise missiles on Tuesday into the sea off its west coast, South Korea’s military said, marking the third time the North has tested cruise missiles in less than a week.

The second time was Sunday, which state media called a newly developed submarine-launched cruise missile, accelerating its navy’s nuclear armament.  Kim Jong Un supervised Sunday’s test, the missile called “Pulhwasal-3-31.”

Analysts say these cruise missiles are just as dangerous as North Korea’s ballistic missiles.

And then today, Friday, Pyongyang fired more cruise missiles into the sea, as Kim called for his military to step up war preparations and toured a shipyard.

Meanwhile, China and North Korea have vowed to “strengthen strategic communication at all levels” amid the renewed tensions on the peninsula.

Kim Inae, a spokesperson for South Korea’s Unification Ministry, said of North Korea’s recent pronouncements and provocations:

“By making military threats routine, North Korea is trying to create a sense of insecurity among South Korean people to undermine trust in their government and to attract international attention to build an atmosphere in which its demands must be accepted to resolve the crisis on the Korean Peninsula.”

Pakistan: Imran Khan, Pakistan’s former prime minister, was sentenced to 10 years in prison for leaking state secrets.  Khan was found guilty of sharing the contents of a secret diplomatic cable after allegedly waving the document at a political rally. The former cricketer is already in jail on charges of corruption, barring him from taking part in Pakistan’s upcoming election. Khan denies all charges, calling them politically motivated.

And then the next day, Khan and his wife Bushra were jailed for an additional 14 years in a graft case where the two were accused of retaining and selling state gifts when he was in power.

Meanwhile, a separatist militant attack in Pakistan’s restive southwestern Balochistan region late on Monday left at least 15 people dead, the Pakistani military said. The Baloch Liberation Army, the most prominent separatist group in the province, claimed responsibility. 

The BLA aims to achieve independence for mountainous and mineral-rich Balochistan, Pakistan’s largest province by territory but the smallest in terms of population, which has seen a decades-long insurgency.

Balochistan borders Afghanistan to the north, Iran to the West and has a long coastline on the Arabian Sea.  It has Pakistan’s largest natural gas field and is believed to hold many more undiscovered reserves. It is also rich in precious metals, including gold.  And, this is key, it is a vital location in China’s huge multi-billion China Pakistan Economic Corridor, part of President Xi’s massive Belt and Road initiative.

And Wednesday, a national assembly candidate in next week’s election was shot and killed in a tribal district along the Afghan border, amid fears of an uptick in militant violence around the parliamentary vote.  Rehan Zaib Khan, an independent candidate who had claimed to be supported by Imran Khan’s party, and four aides were shot in Bajur district.  Zaib’s aides were in critical condition.

As for next week’s vote, Feb. 8, the Muslim-majority country of 241 million is about to elect a civilian parliament for the third time in a row, which would be a first for a state where no prime minister has ever finished their term.

Turkey: The Biden administration formally informed Congress of its intention to proceed with the $23 billion sale of 40 F-16 fighter jets to Turkey (as well as modernization kits for 79 existing Turkish F-16s), taking a major step toward completing a long-delayed process that tested ties with Ankara.

The move came a day after Turkey fully completed ratification of the NATO membership of Sweden, a move that became directly linked to the jet sales.

The administration simultaneously advanced the sale of 20 F-35 stealth fighter jets to fellow NATO ally Greece, an $8.6 billion deal that Washington approved as it tries to strike a balance between two alliance members with a history of tense relations.

Germany: Support for the Alternative for Germany (AfD) dropped below 20% for the first time since July 1, according to a poll published Tuesday, after nationwide protests against the German far-right party over the past three weeks.  But it was just a 1% drop in the Forsa survey, and AfD is still second behind the main opposition conservatives with 32%, while Chancellor Olaf Scholz’s center-left Social Democrats polled third at 15%, which is awful historically.

The countrywide protests against the AfD have been gaining momentum in the wake of a news report that two senior party members had joined a meeting discussing plans for the mass deportation of citizens of foreign origin.  The AfD has denied that the proposal represented party policy (it basically does, these guys are not good).  Following the report, German companies and their CEOs also stepped up warnings about the threat of right-wing extremism to Europe’s largest economy.

“All of us as a society, but also the economy and we as companies, must stand up for our values and take up responsibility,” Hildegard Mueller, president of the German auto association VDA, said in her opening address to the association’s annual conference on Tuesday.  “They also scare off international skilled workers and investors,” she added, saying the popularity of such a party would damage Germany’s reputation as an export nation.

The AfD, founded 11 years ago, placed first in recent polls in all three eastern German states holding elections this year.

Random Musings

--Presidential approval ratings….

Gallup: 41% approve of President Biden’s job performance, 54% disapprove; 35% of independents approve (Jan. 2-22).

Rasmussen: 45% approve, 54% disapprove (Feb. 2).  Unchanged again.

A new Associated Press-NORC Center for Public Affairs Research has Biden’s approval rating at 38%, and his approval rating on handling the economy is just 35%, which is the percentage of U.S. adults who call the national economy good, an uptick from 30% who said so late last year and up from 24% a year ago.

--A Monmouth University/Washington Post Poll of South Carolina Republican primary voters has Donald Trump ahead of Nikki Haley, 58% to 32%. That’s a big gap to overcome.

Fully 3 in 5 in the Palmetto State say the GOP should keep Trump on the ticket if he wins the nomination but is convicted of a crime related to the 2020 election.

--A Quinnipiac University Poll of potential hypothetical matchups come November has President Biden leading Trump 50% to 44% among registered voters.  The same December 20, 2023 poll had Biden at 47%, Trump 46%.

In a five-person hypothetical 2024 general election that includes independent and Green Party candidates, Biden receives 39%, Trump 37%, Robert F. Kennedy Jr. 14%, Cornel West 3%, and Jill Stein 2%.

But in a hypothetical general election matchup between Biden and Nikki Haley, Haley receives 47% to Biden’s 42%.  In the five-party matchup, however, Biden leads Haley, 36% to 29%, with RFK Jr. at 21%.

Biden’s overall job approval rating in the Quinnipiac survey is 41%, which is his highest since June 2023.

--Gerard Baker / Wall Street Journal

“Meatball Ron has done it. Lyin’ Ted did it years ago.  Little Marco too.  Maybe Birdbrain will prove to have more cojones than that growing parade of men who once asked us to believe they were leaders but turned out to be sycophants.

“They’ve all endured ritual humiliation at the hands of their master and then bowed and scraped for some small scrap of recognition from him. Some do it grudgingly at first, qualifiedly, until they realize that only complete obeisance will do for Donald Trump. These days they know the safest form of submission is unconditional. The former president will brook nothing but abject fealty, so just get straight to your knees and kiss the ring.

“Say this for Tim Scott: At least he understands it’s all-in or nothing at all.  There can not have been few sadder displays of human abasement than Mr. Scott’s performance last week.  The South Carolina senator rightly likes to make much of his family’s ascent from sharecropper to Congress in a couple of generations.  I couldn’t help but wonder what his grandfather would have made of his stepping awkwardly forward at Mr. Trump’s New Hampshire primary victory party to say the reason he endorsed the former president rather than the South Carolina governor who appointed him to his seat was that ‘I just love you.’

“The saddest thing is that we all know this Faustian bargain is no such thing.  At least Dr. Faustus got 24 years of magic and mischief for his soul. These guys get what?  A year or two of not being insulted by the master?  A brief respite from the venom of Trump cult members before they get discarded along with everyone else?

“Ask Mike Pence how it works out. Who can forget that cabinet meeting in 2017 when the vice president led the minions in unmanning themselves as they submitted their tribute to the leader?  Less than four years later, the president he lionized was expressing solidarity with the mob baying for Mr. Pence’s blood….

“You can believe in the importance of party loyalty; you can even believe that Trumpian populism is the right course for the party and the country.  You can’t be a democratic Republican and believe that this course requires the purging of all alternatives, the rededication of the party to its purification through loyalty to one man….

“The ultimate irony is that in the end, through their self-degradation, the enablers of this purge prove themselves in at least one critical way far worse than the man who makes them do it.  They demonstrate that they are what he and large numbers of voters have long suspected them to be – desperate hacks who put their own advancement ahead of any other principle or consideration in life.”

For the record, Mr. Baker posted this at 12:55 pm ET on Monday.  I blasted Sen. Scott last Friday.   

--Dan Balz / Washington Post

“Trump has come out of the first two nominating contests in a strong position and is perturbed that Haley won’t bow out, as all of his male challengers have.  But as a quasi-incumbent, that was the expected outcome. Though he won a majority of the vote in both states, more than 40 percent of voters said they preferred someone else.  Haley sees this as good reason to fight on….

“The presidential election will be decided in part by suburban voters in half a dozen states.  Haley can speak to and for suburban Republicans and independents, especially women, whom Trump would need in a general election.

“But what will she do with this opportunity? That’s the big question.  Does she go all in by attacking Trump? She has hesitated to do so, delivering glancing blows but not robust or sustained criticism. Does she continue to focus on Trump’s obvious weaknesses: his bluster and his grievance-laden message as inadequate to win a general election? Does she take her comments in North Charleston and turn them into a broader brief?

“Various considerations will come into play. Money obviously is one. She lost one prominent donor after New Hampshire but also raised a quick million dollars.  At what point might the spigot turn off?  Her future is another. She’s said she has no interest in being Trump’s vice president, though anyone in her position would say that. She also has said she has no interest in a third-party campaign.

“She is, she says, a loyal Republican.  But what does she see as her future within the Republican Party, particularly if Trump loses and the party then rebuilds, either in his image or as a post-Trump party that will bear little resemblance to the pre-Trump GOP?  However she plays it in the coming weeks will have consequences.

“These are not easy questions to answer. Will Haley carry on in the vein of her recent criticism or revert to the more cautious and careful candidate of previous months?  Trump gave Haley an opening.  How far she takes it is up to her.”

--Donors backing Donald Trump raised a combined $188 million last year, with $65 million in cash at the end of the year ahead of the early primary states.  But some of the same super PACs spent nearly $48 million on Trump’s legal expenses, according to the latest figures made public Wednesday by the Federal Election Committee.

--John Bolton / Wall Street Journal

“When I became President Trump’s national security adviser in 2018, I assumed the gravity of his responsibilities would discipline even him. I was wrong.  His erratic approach to governance and his dangerous ideas gravely threaten American security.  Republican primary voters should take note.

“Mr. Trump’s only consistent focus is on himself. He invariably equated good personal relations with foreign leaders to good relations between countries.  Personal relations are important, but the notion that they sway Vladimir Putin, Xi Jinping and their ilk is perilously wrong.

“Mr. Trump’s most dangerous legacy is the spread of the isolationist virus in the Republican Party.  The Democrats long ago adopted an incoherent melding of isolationism with indiscriminate multilateralism.  If isolationism becomes the dominant view among Republicans, America is in deep trouble.

“The most immediate crisis involves Ukraine.  Barack Obama’s limp-wristed response to Moscow’s 2014 aggression contributed substantially to Mr. Putin’s 2022 attack.  But Mr. Trump’s conduct was also a factor. He accused Ukraine of colluding with Democrats against him in 2016 and demanded answers.  No answers were forthcoming, since none existed. President Biden’s aide to Ukraine has been piecemeal and nonstrategic, but it is almost inevitable that a second-term Trump policy on Ukraine would favor Moscow.

“Mr. Trump’s assertions that he was ‘tougher’ on Russia than earlier presidents are inaccurate.  His administration imposed major sanctions, but they were urged by advisers and carried out only after he protested vigorously.  His assertions that Mr. Putin would never have invaded Ukraine had he been re-elected are wishful thinking.  Mr. Putin’s flattery pleases Mr. Trump. When Mr. Putin welcomed Mr. Trump’s talk last year of ending the Ukraine war, Mr. Trump gushed: ‘I like that he said that.  Because that means what I’m saying is right.’  Mr. Putin knows his mark and would relish a second Trump term.

“An even greater danger is that Mr. Trump will act on his desire to withdraw from the North Atlantic Treaty Organization.  He came perilously close in 2018….

“Mr. Trump is unlikely to thwart the Beijing-Moscow axis.  While he did draw attention to China’s growing threat, his limited conceptual reach led to simple-minded formulas (trade surpluses good, deficits bad).  His tough talk allowed others to emphasize greater Chinese misdeeds, including massive theft of Western intellectual property, mercantilist trade policies, manipulation of the World Trade Organization, and ‘debt diplomacy,’ which puts unwary countries in hock to Beijing.  These are all real threats, but whether Mr. Trump is capable of countering them is highly doubtful.

“Ultimately, Beijing’s obduracy and Mr. Trump’s impulse for personal publicity precluded whatever slim chances existed to eliminate China’s economic abuses.  In a second term, Mr. Trump would likely continue seeking ‘the deal of the century’ with China, while his protectionism, in addition to being bad economic policy, would make it harder to stand up to Beijing….

“The near-term risks of China manufacturing a crisis over Taiwan would rise dramatically.  Mr. Xi is watching Ukraine and may be emboldened by Western failure there.  A physical invasion is unlikely, but China’s navy could blockade the island and perhaps seize Taiwanese islands near the mainland. The loss of Taiwan’s independence, which would soon follow a U.S. failure to resist Beijing’s blockade, could persuade countries near China to appease Beijing by declaring neutrality.

“Taiwan’s fall would encourage Beijing to finalize its asserted annexation of almost all the South China Sea.  Littoral states like Vietnam and the Philippines would cease resistance.  Commerce with Japan and South Korea, especially of Middle Eastern oil, would be subjected to Chinese control, and Beijing would have nearly unfettered access to the Indian Ocean, endangering India.

“And imagine Mr. Trump’s euphoria at resuming contact with North Korea’s Kim Jong Un, about whom he famously boasted that ‘we fell in love.’  Mr. Trump almost gave away the store to Pyongyang, and he could try again.  A reckless nuclear deal would alienate Japan and South Korea, extend China’s influence, and strengthen the Beijing-Moscow axis….

“Mr. Trump negotiated the catastrophic withdrawal deal with the Taliban, which Mr. Biden further bungled.  The overlap between Messrs. Trump’s and Biden’s views on Afghanistan demonstrate the absence of any Trump national-security philosophy….

“A second Trump term would bring erratic policy and uncertain leadership, which the China-Russia axis would be only too eager to exploit.”

--Defense Secretary Lloyd Austin took questions from reporters for the first time since Dec. 20, admitting he mishandled communication around his treatment for prostate cancer and said he’d apologized to President Biden.

Austin said that he “did not handle this right” but emphasized that at no point was there a break down in the military chain of command.

Austin added that he “never directed anyone to keep my January hospitalization from the White House.”

There are a number of internal and congressional reviews of the matter being conducted.

--Oklahoma Republican Sen. James Lankford faced blowback from within his party for his leading role in crafting a bipartisan border security package.

“This bill focuses on getting us to zero illegal crossings a day. There’s no amnesty. It increases the number of Border Patrol agents, increases asylum officers, it increases detention beds so we can quickly detain and then deport individuals,” Lankford said on “Fox News Sunday.”

“It focuses on additional deportation flights out. It changes our asylum process so that people get a fast asylum screening at a higher standard and then get returned back to their home country,” Lankford added.

Lankford called out his colleagues for bowing to political pressure, noting that four months ago Republicans refused to grant funding for Ukraine, Israel and the southern border until there were policy changes.

“So we actually locked arms together and said we’re not going to give you money for this. We want a change in law,” Lankford said.  “When we’re finally going to the end, they’re like, ‘Oh, just kidding.  I actually don’t want a change in law because it’s a presidential election year.’  We all have an oath to the Constitution and we have a commitment to say we’re going to do whatever we can to be able to secure the border.”

On Saturday, the Oklahoma GOP committee passed a resolution condemning Lankford for his work with Democrats on the border security bill.  Pathetic. 

Lankford noted that, in the last four months, there have only been seven days where there were fewer than 5,000 unauthorized border crossings a day, and that the bill was intended to close down the border so that “no one gets in” if there was a rush of crossings.

“This is not about letting 5,000 people in a day. This is the most misunderstood section of this proposal,” Lankford said Sunday on Fox. “This is not someone standing at the border with a little clicker saying, ‘I’m going to let one more in.  We’re at 4,999’ and then it has to stop. It is a shutdown of the border and everyone actually gets turned around.” [Amy B. Wang / Washington Post]

Last month 249,785 illegal crossings were recorded along the U.S.-Mexico border, the highest monthly total ever, and Biden officials acknowledge the majority of the migrants were released into the United States with pending claims for protection.

--House Republicans voted early Wednesday to advance an impeachment case against Homeland Security Secretary Alejandro Mayorkas to the full chamber, moving one step closer to impeaching the first Cabinet member in almost 150 years.

In an 18-15 vote along party lines, members of the House Homeland Security Committee advanced two articles of impeachment against Mayorkas, accusing him of “willful and systemic refusal to comply with the law” and breach of the public trust.  Democrats have asserted that Republicans have no constitutional basis to impeach Mayorkas, and noted GOP lawmakers have struggled in two recent hearings to detail clear evidence of high crimes and misdemeanors.

Editorial / Wall Street Journal

“Impeaching Mr. Mayorkas won’t have any effect on policy, or even on the politics of border security.  Most voters don’t know who Mr. Mayorkas is.  Even if the House passes the articles, on a largely partisan vote, there is no chance the Democratic Senate will convict him.  Impeaching Mr. Mayorkas would be the political equivalent of a no-confidence vote.  This would continue Congress’ recent trend of defining impeachment down.

“Grandstanding is easier than governing, and Republicans have to decide whether to accomplish anything other than impeaching Democrats.  Mr. Mayorkas is an easy political target, but impeaching him accomplishes nothing beyond political symbolism.

“A better idea is to strike a deal with Mr. Biden on serious border-security reforms that would restrict his discretion on parole, rewrite the asylum standard, and give the executive other tools to control the border.  If Messrs. Mayorkas and Biden refuse to use them, the GOP will have an election issue.  And the tools will be there for the next President to use.”

--Former Republican presidential candidate Vivek Ramaswamy, musing on social media about the Taylor Swift-Travis Kelce romance on Monday: “I wonder who’s going to win the Super Bowl next month.  And I wonder it there’s a major presidential endorsement coming from an artificially culturally propped-up couple this fall.”

What an amazing jerk, ditto all those espousing conspiracy theories around the couple.

--The U.S. embassy in the Bahamas has released a security warning and travel advisory that the island nation is currently unsafe for tourists amidst 18 murders – “primarily” motivated by gang violence – in January alone.

Safety concerns have reached a point of severity where U.S. officials say people shouldn’t even try to “physically resist” being robbed.

“Murders have occurred at all hours including in broad daylight on the streets,” the embassy wrote in a release, also recommending the use of “extreme caution” on the eastern side of the capital city of Nassau.

The embassy says that Americans should be especially vigilant at nighttime and “keep a low profile” always.

The State Department then issued a stark travel warning for Jamaica, which has been rocked by 65 murders in January.

The U.S. embassy in Jamaica upgraded their travel advisory to a Level 3: “reconsider travel,” which is just one level short of the most severe that warns Americans against travel altogether.

The crimes have become so pervasive that tourists aren’t even safe in the shelter of their resorts, the embassy said.

“Violent crimes, such as home invasions, armed robberies, sexual assaults, and homicides, are common.  Sexual assaults occur frequently, including at all-inclusive resorts,” the warning stated.

“Local police often do not respond effectively to serious criminal incidents.”

--Anchorage, Alaska, doesn’t normally get a huge amount of snow in the wintertime, at least compared to what you might think it gets.  The all-time record is 134 inches.

But the city has picked up 100 inches earlier than at any other time in its history, so it seems a certainty it is going to set a new mark.  The problem is that roofs on commercial buildings are collapsing around Anchorage and officials are urging residents to somehow get the snow off their own roofs.

--Bob C. in San Diego (Marine, long-time commercial airline pilot, and high school classmate) updated me on the recent historic flooding in San Diego. According to local media, “Thousands of miles of underground pipes are 50 to 75 years past their lifespan.”

“The city says 6 of its 15 stormwater pump stations were overwhelmed during the storm.  They were still out of service two days later.”

Well, you’ve seen much of California has been hit with further storms, the biggest coming this weekend.  Los Angeles could receive up to 8-10 inches before things wind-up Monday or Tuesday.   They can’t handle that.

But that means lots of snow in the mountains, which is good, the state running behind normal this season after last year’s humongous snowfall that replenished the reservoirs.

--I was born in Plainfield, N.J., about 15 minutes from Summit, and last Friday, a firefighter was killed there fighting a home blaze. Very tragic.  RIP, 32-year-old Marques Hudson.  A hero.

---

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

The three U.S. service members killed in Jordan were identified as Georgia residents Sgt. William Rivers, 46, of Carrollton, Spc. Brianna Moffett, 23, of Savannah, and Spc. Kennedy Sanders, 24, of Waycross, all from the same military unit in Georgia, based out of Fort Moore.

Fort Moore, formerly Fort Benning, was renamed after Lt. Col. Harold “Hal” Moore, who led U.S. forces at the Battle of Ia Drang in 1965, the first major battle of the Vietnam War.  Moore later co-authored, with U.S. News & World Report reporter Joseph Galloway, one of the best books on war, “We Were Soldiers Once…and Young,” that describes the battle, and as many of you know was later made into a terrific movie, “We Were Soldiers,” with Mel Gibson as Moore.  Lt. Col. Moore and his wife are buried on the base.

He was the first of his West Point class, 1945, to be promoted to brigadier general, major general, and lieutenant general.

I had a bracelet made after reading the book with the inscription “Lt. John Geoghegan, 11-15-65,” the day he died fighting heroically at Ia Drang.  I then went to pay tribute and find Lt. Geoghegan’s name on the Vietnam Memorial in Washington.  It’s one of the many reasons why I end my columns as I do.

Pray for Ukraine, Israel and the innocent in Gaza.

God bless America.

---

Gold $2054
Oil $72.14

Regular Gas: $3.15; Diesel: $3.93 [$3.49 / $4.67 yr. ago]

Returns for the week 1/29-2/2

Dow Jones  +1.4%  [38654]
S&P 500  +1.4% [4958]
S&P MidCap  +0.1%
Russell 2000  -0.8%
Nasdaq  +1.1%  [15628]

Returns for the period 1/1/24-2/2/24

Dow Jones  +2.6%
S&P 500  +4.0%
S&P MidCap  -0.5%
Russell 2000  -3.2%
Nasdaq  +4.1%

Bulls 58.0
Bears 16.9

Hang in there.

Brian Trumbore

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