Authored by Andrew Thornebrooke via The Epoch Times (emphasis ours),

A covert overseas police station run by the Chinese regime in New York has been shuttered following a reported raid by the FBI.

“The FBI has confirmed that the ‘overseas police station’ in New York linked to Fuzhou has closed,” a State Department spokesperson said in an email to The Epoch Times.

“We continue to be concerned about PRC [People’s Republic of China] transnational repression efforts around the world and are also coordinating with allies and partners on this issue.”

The closure of the facility in New York’s Chinatown comes just weeks after The New York Times reported that FBI agents raided and searched the building at an undisclosed time last fall.

The facility and more than 100 others like it form a network of covert facilities from which experts believe that the Chinese Communist Party (CCP) is conducting a campaign of transnational repression.

According to two reports published in October 2022 and December 2022 by Safeguard Defenders, a nonprofit organization, the overseas police outposts are used to collect intelligence and even forcibly repatriate Chinese dissidents to the mainland to be imprisoned.

“We are aware of reports regarding alleged PRC ‘overseas police stations,’” the State Department spokesperson said.

“We take this issue very seriously. Establishing so-called overseas police stations without the invitation or approval of the country in which they are operating raises serious issues of respect for the sovereignty of that country.”

The spokesperson referred The Epoch Times to the FBI and Justice Department for further information. The Justice Department didn’t respond to a request for comment by press time, and the FBI declined to comment on the matter.

China’s Communist Regime ‘Violates Sovereignty’

Chinese authorities maintain that the facilities, which operate in 53 nations, assist Chinese immigrants in foreign nations with tasks that would normally be handled by a consulate, such as renewing driver’s licenses and visas.

However, the stations have been linked to the CCP’s United Front Work Department, an agency that works to advance the regime’s interests abroad by spreading propaganda, conducting foreign influence operations, suppressing dissident movements, gathering intelligence, and facilitating the transfer of technology to communist China.

As such, many nations have voiced concern that the facilities are a threat to national security and a violation of sovereignty.

Irish, Canadian, and Dutch officials have called for China to shut down similar police operations in their countries. Likewise, FBI Director Christopher Wray has characterized them as a violation of U.S. sovereignty.

“I’m very concerned about this,” Wray said during a November 2022 hearing of the Senate Homeland Security and Governmental Affairs Committee.

“I have to be careful about discussing our specific investigative work, but to me, it is outrageous to think that the Chinese police would attempt to set up shop—you know, in New York, let’s say—without proper coordination. It violates sovereignty and circumvents standard judicial and law enforcement cooperation processes.”

He refrained at the time from commenting on the legality of the overseas police stations but said they were part of the CCP’s campaign of global transnational repression and linked them to CCP efforts to spy on Americans.

House Judiciary Chairman Jim Jordan (R-OH) has fired off his first subpoenas of the new Congressional session.

The recipients include Attorney General Merrick Garland, FBI Director Christopher Wray and Education Secretary Miguel Cardona, in order to get to the bottom of a controversial memo which the DOJ used to justify activating the FBI Counterterrorism Division to investigate parents voicing their opposition to a variety of topics – primarily mask and vaccine mandates, and teaching critical race theory.

The Garland memo

On October 4 of 2021, AG Merrick Garland issued a memorandum announcing a concentrated effort to target any threats of violence, intimidation, and harassment by parents toward school personnel.

The announcement came came days after the national association of school boards asked the Biden administration to take “extraordinary measures” to prevent alleged threats against school staff that the association said was coming from parents who oppose mask mandates and the teaching of critical race theory.

In late October, however, it was revealed that Garland based the memo on unsupported claims made by the National School Boards Association, which apologized for inflammatory language. Garland maintains that the letter had no bearing on the DOJ’s stance.

The subpoenas ask for all communications between the recipients and the National School Boards Association.

Jordan, who has repeatedly claimed that the memo was used to justify labeling concerned parents as domestic terrorists, told NBC‘s “Meet The Press” recently that “the chilling impact on the First Amendment free speech is what we care about.”

“School board writes a letter on Sept. 29th. Five days later, the Attorney General of the United States issues a memorandum to 101 U.S. attorneys offices around the country saying, ‘Set up this line that they can report on.’ … When have you ever seen the federal government move that fast?” he asked.

Democrats, meanwhile, have accused Jordan of peddling conspiracy theories.

“The conspiracy theories underpinning today’s subpoenas have been debunked with facts time and time again, but Republicans do not want to be bothered by this inconvenient truth. There is no amount of documents that will satisfy the MAGA obsession with conspiracies,” according to Del. Stacey Plaskett (VI), the top Democrat on the Judiciary subcommittee tasked with examining the “weaponization” of the federal government.

A ‘protected disclosure’:

In mid-November, 2021, House Judiciary Committee Republicans sent a letter to Garland after an FBI whistleblower came forward with “a protected disclosure” – claiming that “the FBI’s Counterterrorism Division had been compiling and categorizing threat assessments related to parents, including a document directing FBI personnel to use a specific “threat tag” to track potential investigations.”

“This disclosure provides specific evidence that federal law enforcement operationalized counterterrorism tools at the behest of a left-wing special interest group against concerned parents,” the letter continues.

This is the smoking gun. Attorney General Garland provided zero evidence that parents are engaging in credible threats or acts of violence. And yet, he mobilized the FBI Counterterrorism Division to use counterterrorism tools for investigating, tracking, and tagging parents. pic.twitter.com/PHpVIqvlBw

— Christopher F. Rufo ⚔️ (@realchrisrufo) November 16, 2021

According to a public statement by Grassley regarding the one-page letter: 

“The Department of Justice owes the American people a better answer than just a one-page letter that says nothing about why the FBI’s Counterterrorism Division is involved in local school-board matters. Now more than ever, parents should be their kids’ strongest and best advocates. They have the God-given right to do so. And the Justice Department ought to be doing everything it can to protect that right, not scare them out of exercising that right. Attorney General Garland should withdraw his memo. And he should take Congress’s oversight, and concern for the rights of parents, more seriously.”

Authored by Jack Bradley via The Epoch Times (emphasis ours),

Authorities arrested 368 people and rescued 131 victims involved in human trafficking in a weeklong statewide multi-agency task force, announced Feb. 1.

“We know that the sex trade is a prolific one that exists throughout this state and throughout our nation,” said Los Angeles Police Department (LAPD) Chief Michel Moore . “It’s an ugly scar against this great country that exists too oftentimes in plain sight.”

Operation Reclaim and Rebuild was conducted between Jan. 22 and Jan. 28 in nine counties, including Los Angeles, Orange, and San Bernardino, Moore said at a news conference at the department’s Elysian Park Academy.

Numerous federal, state, and local law enforcement agencies were involved in the effort, including the LAPD, the Los Angeles County Sheriff’s Department, and the Los Angeles County District Attorney’s Office.

The victims’ ages ranged from 13 to 52, including six children, and the average age was the mid-20s, Moore said.

Investigators worked with victim advocacy groups in providing services and resources “to help [victims] escape from this life-threatening environment,” he said.

Investigators responded to various advertisements offering sexual services and went to massage parlors suspected of being involved in trafficking. Among the arrestees were pimps and panderers, along with customers of such services, Moore said.

The victims are being exploited by “threat of death” or coercion, or threats against their family, while some are kidnapped and isolated from their former support to become dependent on the trafficker, according to Moore.

Moore noted that “in the old days,” the victims of human traffickers were often regarded by law enforcement as criminals, but a more modern attitude is to regard them as having been exploited by criminals—many of them having been kidnapped and held against their will.

Authorities stressed that the seven-day task force is only a part of law enforcement agencies’ everyday effort to combat sex trafficking.

Victims are sometimes brought in from other states or countries, said David Cox, COO for ZOE International, a Los Angeles-based nonprofit that helps victims recover once rescued locally and internationally.

Cox said his organization, partnering with a similar Los Angeles-based nonprofit Saving Innocents, has cared for 489 youth victims of sex trafficking this past year, with some as young as 11.

“In our city, kids are being raped 20 to 30 times a day,” he said.

Journey Out, another LA-based nonproft combating human trafficking, cared for 256 adult victims last year, Cox said.

He said sex trade is a violent industry, as some of these victims have been pistol-whipped, jumped out of moving vehicles to escape, chased down and beaten, gone missing, or lost their lives.

“Traffickers are master predators. They’re on the hunt for vulnerable kids and adults,” he said.

City News Service contributed to this report.

Since Russia’s invasion of Ukraine early last year, talk of global recession has dominated the outlook for 2023.

But, as Visual Capitalist’s Dorothy Neufeld notes, high inflation, spurred by rising energy costs, has tested GDP growth. Tightening monetary policy in the U.S., with interest rates jumping from roughly 0% to over 4% in 2022, has historically preceded a downturn about one to two years later.

For European economies, energy prices are critical. The good news is that prices have fallen recently since March highs, but the continent remains on shaky ground.

The above infographic maps GDP growth forecasts by country for the year ahead, based on projections from the International Monetary Fund (IMF) October 2022 Outlook and January 2023 update.

2023 GDP Growth Outlook

The world economy is projected to see just 2.9% GDP growth in 2023, down from 3.2% projected for 2022.

This is a 0.2% increase since the October 2022 Outlook thanks in part to China’s reopening, higher global demand, and slowing inflation projected across certain countries in the year ahead.

With this in mind, we show GDP growth forecasts for 191 jurisdictions given multiple economic headwinds—and a few emerging bright spots in 2023.

*Reflect updated figures from the January 2023 IMF Update.

The U.S. is forecast to see 1.4% GDP growth in 2023, up from 1.0% seen in the last October projection.

Still, signs of economic weakness can be seen in the growing wave of tech layoffs, foreshadowed as a white-collar or ‘Patagonia-vest’ recession. Last year, 88,000 tech jobs were cut and this trend has continued into 2023. Major financial firms have also followed suit. Still, unemployment remains fairly steadfast, at 3.5% as of December 2022. Going forward, concerns remain around inflation and the path of interest rate hikes, though both show signs of slowing.

Across Europe, the average projected GDP growth rate is 0.7% for 2023, a sharp decline from the 2.1% forecast for last year.

Both Germany and Italy are forecast to see slight growth, at 0.1% and 0.6%, respectively. Growth forecasts were revised upwards since the IMF’s October release. However, an ongoing energy crisis exposes the manufacturing sector to vulnerabilities, with potential spillover effects to consumers and businesses, and overall Euro Area growth.

China remains an open question. In 2023, growth is predicted to rise 5.2%, higher than many large economies. While its real estate sector has shown signs of weakness, the recent opening on January 8th, following 1,016 days of zero-Covid policy, could boost demand and economic activity.

A Long Way to Go

The IMF has stated that 2023 will feel like a recession for much of the global economy. But whether it is headed for a recovery or a sharper decline remains unknown.

Today, two factors propping up the global economy are lower-than-expected energy prices and resilient private sector balance sheets. European natural gas prices have sunk to levels seen before the war in Ukraine. During the height of energy shocks, firms showed a notable ability to withstand astronomical energy prices squeezing their finances. They are also sitting on significant cash reserves.

On the other hand, inflation is far from over. To counter this effect, many central banks will have to use measures to rein in prices. This may in turn have a dampening effect on economic growth and financial markets, with unknown consequences.

As economic data continues to be released over the year, there may be a divergence between consumer sentiment and whether things are actually changing in the economy. Where the economy is heading in 2023 will be anyone’s guess.

Authored by Ryan McMaken via The Mises Institute,

Money supply growth fell again in December, falling even further into negative territory after turning negative in November for the first time in twenty-eight years. December’s drop continues a steep downward trend from the unprecedented highs experienced during much of the past two years. During the thirteen months between April 2020 and April 2021, money supply growth in the United States often climbed above 35 percent year over year, well above even the “high” levels experienced from 2009 to 2013. 

Since then, the money supply growth has slowed quickly, and since November, we’ve been seeing the money supply contract for the first time since the 1990s. The last time the year-over-year (YOY) change in the money supply slipped into negative territory was in November 1994. At that time, negative growth continued for fifteen months, finally turning positive again in January 1996. 

During December 2022, YOY growth in the money supply was at –2.4 percent. That’s down from November’s rate of –0.55 percent and down from December 2021’s rate of 6.44 percent. 

The money supply metric used here—the “true,” or Rothbard-Salerno, money supply measure (TMS)—is the metric developed by Murray Rothbard and Joseph Salerno, and is designed to provide a better measure of money supply fluctuations than M2.1

The Mises Institute now offers regular updates on this metric and its growth. This measure of the money supply differs from M2 in that it includes Treasury deposits at the Fed (and excludes short-time deposits and retail money funds).

In recent months, M2 growth rates have followed a similar course to TMS growth rates. In December 2022, the M2 growth rate was –1.3 percent. That’s down from November’s growth rate of –0.01 percent. December’s rate was also well down from December 2021’s rate of 12.5 percent. 

Money supply growth can often be a helpful measure of economic activity and an indicator of coming recessions. During periods of economic boom, money supply tends to grow quickly as commercial banks make more loans. Recessions, on the other hand, tend to be preceded by slowing rates of money supply growth. However, money supply growth tends to begin growing again before the onset of recession. 

Negative money supply growth is not in itself an especially meaningful metric. But the drop into negative territory we’ve seen in recent months does help illustrate just how far and how rapidly money supply growth has fallen in recent months. That is generally a red flag for economic growth and employment.

Money supply growth also appears to be connected to yield-curve inversion—itself a recession indicator. For example, the 3s/10s yield spread often heads toward zero as money supply growth moves in the same direction. This was especially clear from 1999 through 2000, from 2004 to 2006, and during 2018 and 2019, and beginning in 2022. This is not surprising because trends in money supply growth have long appeared to be connected to the shape of the yield curve. As Bob Murphy notes in his book Understanding Money Mechanics, a sustained decline in TMS growth often reflects spikes in short-term yields, which can fuel a flattening or inverting yield curve. 

It’s not especially a mystery why short-term interest rates are headed up fast, and why the money supply is decelerating. Since January 2022, the Fed has raised the target federal funds rate from 0.25 percent up to 4.75 percent. 

This means fewer injections of Fed money into the market through open market operations. Moreover, although it has done very little to sizably reduce the size of its portfolio, the Fed has nonetheless stopped adding to its portfolio through quantitative easing and allowed a small amount (about 5 percent of $8.9 trillion) to roll off. 

It should be emphasized that it is not necessary for money supply growth to turn negative in order to trigger recession, defaults, and other economic disruptions. With recent decades marked by the Greenspan put, financial repression, and other forms of easy money, the Federal Reserve has inflated a number of bubbles and zombie enterprises that now rely on nearly constant infusions of new money to stay afloat. For many of these bubble industries, all that is necessary for a crisis is a slowing in money supply growth, brought on by rising interest rates or a confidence crisis. 

Numerous indicators now point toward recession along with the falling money supply and the inverted yield curve. The Leading Economic Index is in recession territory. Real wages have fallen for twenty-one months. Home builder confidence fell every month of 2022. The Philadelphia Fed’s manufacturing index has been negative since September. Home price growth has been cut in half. The fact that the money supply is actually shrinking serves as just one more indicator that the so-called soft landing promised by the Federal Reserve is unlikely to ever be a reality. 

This week saw the biggest spike in macro surprise data since June 2020 (thanks to a ridiculous outlier payrolls print and a shocking surprise surge in ISM Services)…

Source: Bloomberg

And today’s “good” news sparked an aggressively hawkish response in STIRs with the terminal rate spiking up to 5.00% and rate-cut expectations sliding (after Powell’s dovish inaneness). This move has erased almost all of the easing priced in from the early Jan CPI print..

Source: Bloomberg

And Powell’s pusillanimous press conference sent financial conditions reeling looser…

Source: Bloomberg

No matter what, Powell defied the odds better than this kid!!

7th-grader in North Dakota makes half-court shot to win $10Khttps://t.co/XzUH3faDRd pic.twitter.com/H4mAzKCXAZ

— KTIV News Four (@ktivnews) February 2, 2023

Today was chaotic for the US Majors with Nasdaq lagging (-2%) after GOOGL, AMZN, and AAPL disappointed but BTFDers didn’t care and Payrolls confused the machines…

Stocks soared on the week led by big-tech (Nasdaq +3%), but The Dow ended the week in the red (-0.5)

…which lifted valuations to their highest since April 2022…

Source: Bloomberg

With cyclicals relative to defensives completely decoupling from underlying macro fundamentals…

Source: Bloomberg

And this is Nasdaq Composite’s best start to a year since 1975…

AAPL was a standout after tumbling in the after hours last night, it exploded higher during the day to perfectly run the stops from October before rolling back over…

The massive post-Powell short-squeeze appears to have run out of ammo after 4 straight weeks of gains in the ‘most shorted’ stocks…

Source: Bloomberg

US Treasury yields ended the week higher after exploding higher today after payrolls. The short-end notably underperformed…

Source: Bloomberg

The 2Y Yield exploded 20bps higher today – its biggest daily rise since June 2022, back above 4.30% and back to CPI levels…

Source: Bloomberg

Despite the volatility in bonds this week, the bond market’s “VIX” index (MOVE) tumbled to its lowest since March 2022…

Source: Bloomberg

The dollar roared higher off post-Powell lows…

Source: Bloomberg

Bitcoin ended the week practically unchanged from last Friday, finding support at $22,500 and resistance at $24,000 during the week…

Source: Bloomberg

Crude was clubbed like a baby seal on the week, with Brent back at $80 and WTI tumbling to a $73 handle…

Gold also collapsed this week (post-Powell), tumbling $100 from high to low…

Source: Bloomberg

Finally, on the back of today’s strong labor report, Goldman’s economists reiterated our view that the Fed will raise the Fed funds rate by 25bp in the March and May meetings with no cuts to the rate in 2023. If growth holds up as inflation subsides, there likely will be no reason for the Fed to ease financial conditions. But in a scenario where inflation pulls back but the Fed stays the course, real rates are at risk of rising again, and historically real rates and the S&P 500 12 month forward P/E multiple have been closely negatively correlated…

…a potential headwind for the recent rally, already at extremely over-hyped valuations relative to real-rates.

And if you need a catalyst for the downturn, US equity market cap has significantly decoupled from Fed reserves…

Source: Bloomberg

…this has not ended well in the past.

Authored by Steve Watson via Summit News,

Several Democrats took objection Wednesday to an amendment that would see the Pledge of Allegiance recited before House Judiciary Committee meetings, with one Rep. charging that ‘insurrectionist’ Republicans shouldn’t be able to lead the Pledge.

The amendment was introduced by Representative Matt Gaetz of Florida, who previously called for the Judiciary Committee to open with the pledge two years ago.

As he did then, New York Democratic Representative Jerry Nadler opposed the move, arguing that it is unnecessary.

“I don’t know why we should pledge allegiance twice in the same day to show how patriotic we are,” Nadler said, claiming that committee members already pledge allegiance when they arrive at the building.

Nadler added “I don’t think this is the most important amendment in the world.”

Democrat Rep. Deborah Ross cited a Supreme Court ruling that says officials cannot force citizens to say the pledge.

Other Democrats then used Gaetz’s proposal to further their obsessive ranting about the events of January 6th 2021.

Hank Johnson of Georgia stated “I regret the fact that many members of this committee voted against certifying the election results based on the ‘big lie,’ and they have continued to promote the ‘big lie’ and undermine public confidence in our government.”

Johnson then declared that it is “ironic” that Republicans who “supported the insurrection” now want to force Democrats to pledge allegiance to the flag of the United States.

Rhode Island Democrat David Cicilline also used the moment to dredge up the Capitol incident, claiming that he would support Gaetz’s amendment if it contained a provision that would restrict “anyone who supported insurrection” from leading the pledge.

Gaetz fired back, noting that if Cicilline’s definition of “insurrectionist” is anyone who objected to electors, “then there would be many Democrats on the committee that wouldn’t be eligible to lead the pledge.”

Gaetz tweeted footage of the discussion, asking “Why does patriotism make Democrats so heated?”

Watch:

https://t.co/weCzOyVMZQ

— Rep. Matt Gaetz (@RepMattGaetz) February 1, 2023

.@HouseJudiciary This coming from people who wouldn’t comply w/ Congressional subpoenas, disrespected the rule of law & continue to prop up the Big Lie? Would now insist on the pledge of allegiance to the flag at every hearing? I would just point out this is VERY IRONIC. pic.twitter.com/dYbTebhcsj

— Rep. Hank Johnson (@RepHankJohnson) February 1, 2023

Republican Rep. Jeff Van Drew, a former Democrat who switched parties in 2019, said he was “almost speechless,” that members would object to taking a minute to affirm their allegiance to the country.

“Come on, this can’t be real. I can’t believe we’re having this debate,” Van Drew said.

Would you believe me if I said the first half hour of our @JudiciaryGOP hearing has been wasted because Democrats oppose saying the pledge of allegiance?

— Congressman Jeff Van Drew (@Congressman_JVD) February 1, 2023

Republican Chip Roy of Texas, slammed the Democrats for opposing basic patriotic principles, also citing a recent proposal to condemn socialism, which was opposed by some Democrats.

“And that is the state of your Democratic Party today,” Roy asserted.

🔥 @RepChipRoy Exposes Democrats’ Love Affair with Socialism: “We have a Democrat party that refuses to stand up and say that they oppose socialism.” #Dems #ampFW pic.twitter.com/2JbLn50WyB

— FreedomWorks (@FreedomWorks) February 1, 2023

Here is the entire discussion:

House Judiciary members debate @RepMattGaetz amendment to recite the Pledge of Allegiance before hearings begin. Democrats bring up the topic of Jan. 6th. @RepHankJohnson says, “It’s very ironic.”

The amendment passed. pic.twitter.com/Y09fO0pfDj

— CSPAN (@cspan) February 1, 2023

Cicilline’s amendment was voted down, while Gaetz’s amendment was approved without opposition, with a vote of 39-0.

*  *  *

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Markets got the year off to a stellar start in January, with a positive performance for 34 of the 38 non-currency assets tracked by Deutsche Bank thematic research group. In fact, in terms of the breadth of gains, that’s the strongest start to a year since 2019, with advances across equities, sovereign bonds and credit. The main exception to this pattern has been among energy commodities, but lower oil and gas prices have themselves been good news to consumers who’ve been squeezed by higher energy prices last year.

Elsewhere, As DB’s Henry Allen writes, Chinese assets have continued to perform strongly amidst the economy’s reopening, which has also supported a strong rally amongst industrial metals. Nevertheless, it hasn’t been all good news, with investors remaining nervous about a US recession, as well as the prospect of more persistent inflation.

Below we share some more details from the latest DB January performance review

Month in Review – The high-level macro overview

2023 got off to a positive start in January, with investor risk appetite supported by several good news stories. The most important was the decline in energy prices, particularly in Europe, where natural gas futures continued their decline from late December with a further -24.8% decline in January. That took them down to their lowest levels since September 2021, and means that the outlook for the European economy is much brighter than expected only a few weeks ago, prompting numerous economists to positively revise their forecasts and remove a Euro Area recession from their 2023 projections. This brightening picture has also been reflected in sentiment indicators, with the European Commission’s numbers for Euro Area consumer confidence at an 11-month high in January.

The other positive story for markets in January was the continued reopening of China’s economy. Easing restrictions have made investors more optimistic on China’s economic performance, with the Shanghai Composite up +5.4% in total return terms. And more broadly, industrial metals prices have performed very strongly, with copper (+10.9%) advancing for a third consecutive month, raising concerns that China’s reopening could be inflationary for the global economy.

The brighter macro outlook meant that various assets put in a very strong performance over January. For instance, the S&P 500 (+6.3%) had its best start to a year since 2019, and Europe’s STOXX 600 (+6.8%) had its best start since 2015. Meanwhile for US Treasuries (+2.8%), it’s been their second-best monthly performance since March 2020, back when the Fed slashed rates to zero as the Covid pandemic began. Tech stocks saw a particularly strong performance following an awful 2022, with the FANG+ index of 10 megacap tech stocks up by +18.7%, marking its best month since August 2020.

However, a more negative story over the month has been continued fears about a US recession. These were present from the start of the month, when the ISM readings showed that December was the first month since May 2020 that both the services and manufacturing components were in contractionary territory. Then both the retail sales and industrial production data for December came in beneath expectations. And lastly, the Conference Board’s Leading Index showed a year-on-year decline of -6.0%, which historically has been consistent with either recessions or the recovery from recessions. Other leading indicators such as the yield curve remained deeply inverted too, with the 2s10s closing in inversion territory for a 7th consecutive month.

A final theme over the month was growing speculation that central banks might be nearing an end to their current cycle of rate hikes. That was turbocharged by the weak ISM services index for December at the start of the month, and then the US CPI release for December cemented expectations that the Fed would downshift to a 25bps move at their February meeting. Similar themes were evident elsewhere, with the Bank of Canada formally announcing a pause in their rate hikes for the time being. That said, nervousness about stronger-than-expected inflation was still evident, and the end of the month saw a modest sell-off on the penultimate day amidst fears that the central bank meetings in February could see a continuation of their hawkish stance.

Which assets saw the biggest gains in January?

• Equities: January was a positive month for all the major equity indices, including gains for the S&P 500 (+6.3%), the STOXX 600 (+6.8%), the Nikkei (+4.x%) and the Shanghai Composite (+5.4%). Certain sectors like tech did particularly well, with the NASDAQ up +10.7%. European banks also outperformed, with the STOXX 600 Banks index up +14.1% in its strongest January since data begins in 1987.

• Sovereign Bonds: After an awful 2022 performance, sovereign bonds have had a very strong start to the year, with gains for US Treasuries (+2.8%), Euro Sovereigns (+2.4%) and UK gilts (+2.8%). For US Treasuries, it marks their second-strongest monthly performance since the height of the pandemic in March 2020.

• Credit: All the credit indices we follow were in positive territory over January, although as with sovereign bonds, EUR credit underperformed USD and GBP credit. The biggest gain was for USD fin sub (+4.4%), where the gain was more than double that for EUR fin sen (+2.1%).

• Metals: China’s reopening was a big support for industrial metals in January, with copper up +10.9% in its third consecutive monthly advance. In the meantime, gold advanced a further +5.7%, which brings its gains over the last 3 months to +18.0%, and marks its strongest advance over 3 calendar months since August 2011.

• EM Assets: Emerging markets put in a strong month over January, with the MSCI EM equity index up +7.9% for its strongest start to a year since 2019. Other EM assets also outperformed, with EM bonds up +3.9%, and EM FX up +2.5%.

• Cryptocurrencies: Having struggled in 2022, crypto assets have had a much better start in 2023. Bitcoin was up +38.8% over the month to $22,951, which is its strongest monthly performance since October 2021. The gains were widespread elsewhere, with Ethereum (+31.5%) and Litecoin (+32.9%) seeing significant advances as well.

Which assets saw the biggest losses in January?

• Energy Commodities: Natural gas prices have declined significantly since the start of the year, with European futures (-24.8%) and US futures (-40.0%) seeing big falls over January. Oil prices have also lost ground, with Brent Crude (-1.7%) and WTI (-1.7%) both down slightly.

• US Dollar: The dollar index (-1.4%) fell for a 4th consecutive month for the first time since 2020.

Update (1415ET): 

A suspected Chinese spy balloon flying over the US was spotted in the skies of north Kansas City on Friday afternoon.

We have had several reports across northwest MO of a large balloon visible on the horizon. It is now visible from our office in Pleasant Hill and the KC Metro. We have confirmed that it is not an NWS weather balloon. pic.twitter.com/CKQWOw7God

— NWS Kansas City (@NWSKansasCity) February 3, 2023

The question people are asking: Where is the balloon headed? 

To answer that, Capital Weather Gang said:

“Forward trajectory based on atmospheric steering currents would bring it close to St. Louis tonight & into North Carolina Saturday.” 

A map of the balloon’s trajectory. 

Others say the balloon could take a different path:

Given the sightings of the spy balloon near Kansas City around noon CT, the most likely path it will take this weekend is across the Mississippi Delta and Deep South, reaching the Southeast coast by Sunday evening.

Probably will be drifting across Florida or offshore by Monday. pic.twitter.com/uNtLg7qkMD

— weathertiger.substack.com – WeatherTiger, LLC (@wx_tiger) February 3, 2023

*   *   * 

Update (1012ET): 

Bloomberg confirmed US Secretary of State Antony Blinken would postpone his trip to Beijing amid spy balloon allegations. 

The two-day trip was set to begin on Sunday. Even before Blinken postponed his trip, expectations were low to reset deteriorating Sino-US ties. 

RM @RepGregoryMeeks: The presence of a PRC surveillance balloon in US airspace is an unacceptable violation of our sovereignty & international law.@SecBlinken‘s right to postpone his China trip.

Beijing must begin acting responsibly if it wants to stabilize US-China relations. https://t.co/ZDYzIsjbii

— House Foreign Affairs Committee Dems (@HouseForeign) February 3, 2023

*   *   * 

Update (0932ET):

In response to some US officials accusing China of sending a spy balloon near ICBM fields in Montana, the Chinese foreign ministry said the balloon was for monitoring the ‘weather’ and veered off course and entered into US airspace due to force majeure. 

The ministry “regrets the unintended entry” and said Chinese officials would continue communicating with the US about the balloon. They added the balloon is for meteorological and ‘other scientific research.’ 

Earlier, foreign ministry spokeswoman Mao Ning urged the US to act “calmly and prudently” after some US officials accused China of sending a spy balloon. 

“I want to emphasize that before the facts are clear, any speculation and hype are not conducive to the solution of the problem,” Ning said.

So China states the balloon is for weather purposes only, while some US officials declare it a spy balloon. One thing is certain. The balloon mysteriously ended up near a highly sensitive area in Montana that is home to ICBM fields. 

*   *   * 

US military commanders have advised President Biden against shooting down a Chinese spy balloon flying over the US. 

Reuters said the US military took “custody” of the “high-altitude surveillance balloon” and deployed military aircraft, including stealth fighter jets, to observe it. 

Such balloons operate at an altitude of 15-22 miles, well above commercial air traffic. The balloon’s size is estimated to be equivalent to three buses. 

🚨#BREAKING: More video of the Chinese spy balloon⁰
📌#Montana | #USA

More video is coming out as
The Chinese high altitude surveillance balloon was seen over Billings Montana yesterday.
The size of balloon is three buses wide and has been flying over the Northern U.S. for days pic.twitter.com/4iUVvJQCG8

— R A W S A L E R T S (@rawsalerts) February 2, 2023

A photo of the Chinese spy balloon currently over Montana. The Pentagon’s been tracking the balloon, about the size of three buses, for a few days, but decided against shooting the balloon down, on account of it not posing a military or civilian threat. pic.twitter.com/xLRovjKxbI

— Domenico (@AvatarDomy) February 3, 2023

#BREAKING: A massive spy balloon from China has been surveilling the United States. It is described as the size of three buses and includes a technology
bay – US Media #BreakingNews #usa #Internationalleaks #China pic.twitter.com/x10a1xkdkh

— International Leaks (@Internl_Leaks) February 2, 2023

“The United States government has detected and is tracking a high-altitude surveillance balloon that is over the continental United States right now,” Pentagon spokesperson Brigadier General Patrick Ryder told reporters Thursday. 

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

Right now, the spy balloon appears to be occupying Montana airspace. This alarmed the state’s Republican Senator Steve Daines, who sent an alarming letter to the Department of Defense (DOD). He said the spy balloon is a “concerning event”: because Montana airspace includes “Malmstrom Air Force Base (AFB) and the United State’s intercontinental ballistic missile (ICBM) fields.” 

Looks like three #USAF RC-135s were observing the “Chinese Spy Balloon” over Montana today. These planes are known to track objects the size of a soccer ball from a distance of 300 miles. #ChineseSpyBalloon pic.twitter.com/IGlPetCmUN

— Wilson (@WilsonsWorld) February 3, 2023

Daines wrote that given “the serious nature of the event,” he is “requesting a full security briefing from the administration on this situation.”

“It is vital to establish the flight path of this balloon, any compromised US national security assets, and all telecom or IT infrastructure on the ground within the US that this spy balloon was utilizing,” he continued.

“As you know, Montana plays a vital national security role by housing nuclear missile silos at Malmstrom AFB,” the senator said. 

Separately, Canada’s defense ministry is monitoring a “potential second incident” but declined to give further details. 

News of the spy balloon followed CIA Director William Burns’ speech at a Georgetown University event, where he called China the “biggest geopolitical challenge” facing the West. 

Authored by David Stockman via InternationalMan.com,

There is nothing more substantive than Bernanke’s original finger-in-the-air proposition that the Fed needed a 200 basis point cushion in the inflation rate in order to steer the economy clear of the dreaded 0.0% inflation line, the other side of which allegedly amounted to a black hole of deflationary demise.

But here’s the thing. There is not a shred of historical evidence that the US economy needs a 2.00% inflation guardrail to thrive, or any fixed rate of inflation at all.

For instance, even during the most difficult period of the 20th century—from 1921 to 1946 when the US economy experienced the Roaring Twenties boom, the Great Depression bust and the WWII rebound—there was abundant net economic growth over the period as a whole, accompanied by zero inflation.

In fact, the US economy nearly tripled in size during that quarter-century period. Real GDP expanded at a robust 3.64% per annum rate, and real GDP per capita rose by 2.55% per annum.

By contrast, between the 2007 pre-crisis peak and 2021, real GDP grew at only half that rate (1.72% per annum), while per capita real GDP increased by just 1.04% per year. That was just two-fifths of the rate of annual gain during 1921-1946.

Needless to say, it didn’t take any 2.00% inflationary guard rails to generate the salutary outcomes cited above for 1921-1946. The CPI index shown below posted at 542 in February 2021 and 541 a quarter century later in May 1946.

Purchasing Power of the Dollar, 1921 to 1946

As it had unfolded, there was zero CPI inflation during the Roaring Twenties; a severe deflation during the Great Depression, which merely reversed the war inflation of 1915-1920; and then a return to the 1921 price level during the booming but regimented economy of WWII.

Still, by the spring of 1946 the dollar’s purchasing power was 100% of what it had been in early 1921. It had not taken any net inflation at all to generate a near tripling of the nation’s economic output.

The implication is straightforward. To wit, the Fed doesn’t need a pro-inflation target of 2.00% per annum. Nor does it need any of its other macroeconomic targets for unemployment, jobs growth, actual versus potential GDP or the rest of the Keynesian policy apparatus. All of those variables are the job of the people interacting on the free market, producing whatever outcomes their collective actions happened to generate.

Indeed, macro-economic outcomes are not properly the business of the state at all. The Fed’s job is far more narrow. As originally conceived by its great architect, then Congressman Carter Glass, its mission was to keep the purchasing power of the dollar as good as the gold to which it was to be linked, and the banking system liquid and stable, as driven by the free market of borrowers and lenders.

As we have explained on other occasions, Congressman Glass called this a “bankers’ bank” and the term could not be more diametrically opposed to the central planners’ bank of Greenspan, Bernanke, Yellen, Powell and Brainard.

As Carter Glass saw it, no academician needed to stick his finger in the air and divine an inflation target. Nor did any modeler need to goal-seek his/her equations until they suggested the optimum U-3 unemployment rate relative to an arbitrary inflation target.

The fact is, the free market operating with sound gold-backed money was never inflationary. In that context, interest rates were also not a policy “tool” of the central bank, but the result of a market-clearing balancing of supply and demand.

As Carter Glass had arranged it, the Fed was not allowed to own government debt, nor did it have an activist arm now known as the FOMC empowered to intervene in the money and capital markets by buying and selling debt securities.

To the contrary, its avenue of operation was the discount window at the 12 regional Federal Reserve banks. The latter were authorized to advance funds to member banks, but only at a penalty spread above the free market interest rate, and also only on the basis of sound, self-liquidating collateral in the form of commercial paper that matured within a matter of months.

Given this mechanism, the dynamics of Fed policy were the opposite of today. Under the Glassian arrangement, the Fed’s balance sheet was the passive consequence of free market activity by commercial bankers and main street borrowers, not a mechanism to proactively steer the level of aggregate commerce and business activity.

Accordingly, the Fed’s value added stemmed not from wild-ass guesses about the inflation rate by PhDs like Lael Brainard, but from the grunt work of green-eyeshade accountants. Their job was to verify that bank loan collateral presented for funding at the discount window represented the obligations of sound borrowers, not speculators and high flyers, who would reliably repay under the terms of the underlying bank loan, thereby ensuring that the Fed’s discount loans would be repaid at term, too.

What this meant was that the Fed’s balance sheet was intended to reflect the ebb-and-flow of decentralized commerce and production on main street, not a centralized judgment by 12 people gathered on the banks of the Potomac about whether inflation and unemployment were too high, too low or just right.

That is to say, under the bankers’ bank arrangement the free market put an automatic check on CPI inflation. That’s because unsound speculative loans could not be easily made in the first place, since they were not eligible for discount at the Fed window.

And if demand for even sound loans got too frisky, interest rates would rise sharply, thereby rationing available savings until more of the latter could be generated or demand for the former was curtailed.

*  *  *

The truth is, we’re on the cusp of an economic crisis that could eclipse anything we’ve seen before. And most people won’t be prepared for what’s coming. That’s exactly why bestselling author Doug Casey and his team just released a free report with all the details on how to survive an economic collapse. Click here to download the PDF now.