Watching porn on websites in the new year now requires residents of Louisiana to submit their driver’s license or a government-issued ID for age verification purposes, according to Mashable. 

On Sunday, residents had to verify they were over 18 before accessing adult websites like Pornhub. To do this, they could submit government-issued IDs or public or private records, such as employment or education documents. The bill is known as Act 440 and was introduced by Republican state legislator Laurie Schlegel in February and then signed into law by Gov. John Bel Edwards in June.

Websites with one-third of pornographic material or more will be required to provide a gate and ask users to verify their age.

“Pornography is destroying our children and they’re getting unlimited access to it on the internet and so if the pornography companies aren’t going to be responsible, I thought we need to go ahead and hold them accountable,” Schlegel told New Orleans-based FOX8Live. 

Pornographic websites will ensure age verification for all users in Louisiana. Schlegel said there would be legal consequences for websites that fail to follow the new law. This move is to hold porno companies accountable for corrupting the youth. 

“Someone could sue on behalf of their child; they can sue if children are getting access to pornography. So, it would be up to the user to sue the company for not verifying age first,” continued Schlegel.

She was adamant that overconsumption of porn is linked to depression, erectile dysfunction, lack of motivation, and fatigue. She also said this new law is to protect the youth. 

Twitter user Public Defendering recorded the new process. 

Hello from the surveillance state of Louisiana. People in Louisiana have to use their drivers license to go to pornhub. This is truly wild. Under his eye. https://t.co/uji6Jo3Tde pic.twitter.com/pVKEeVcCGw

— Public Defendering (@fodderyfodder) January 2, 2023

Authored by Jill McLaughlin via The Epoch Times,

Snowpack levels in California’s mountains were at the highest level in 40 years Jan. 3 but time will tell whether the latest storms will help deliver enough water to the state to end a three-year drought streak, state water officials reported.

California’s snowpack was measured at 174 percent of the historical average for the year Tuesday, boosted by recent storms that drenched the state during the holidays and brought snow to the mountains.

The state could see even more rain and snow this week and into the weekend, bringing much-needed water supplies.

“While we see a terrific snowpack – and that in and of itself may be an opportunity to breathe a sigh of relief – we are by no means out of the woods when it comes to drought,” said Karla Nemeth, director of the California Department of Water Resources.

The state could still face another year of drought this year as water reservoirs remain well below capacity.

State water officials took the year’s first official measurements of snow and water content in Phillips, a town east of Sacramento in the central Sierra Mountains, finding levels well above average for this time of year.

The snowpack in Phillips is 177 percent of the average. It was measured at 55.5 inches, which was enough to store 17.5 inches of water, according to Sean de Guzman, manager of the department’s snow surveys and water supply forecasting unit.

Last week’s series of storms caused flooding and damage but were warmer. Freezing elevations were around 7,000 feet, and the mountain snowpack statewide rose from 157 percent on average to 174 percent.

“We’ll take any kind of [precipitation] we can get, if it’s rainfall or snow at this point, just because we are in such a severe drought,” de Guzman said.

This week’s expected storm system should be colder and produce more snowpack. Significant flooding from local rivers and creeks throughout the state should continue for the next several days, along with strong winds, officials said.

The good news was enough for officials to breathe a sigh of relief but the situation could still take a turn as the year continues. A similar scenario unfolded last year when officials measured decent snowpack at the beginning of the year only to have the driest period on record from January to March.

California has received above-average rainfall so far this water year, which began Oct. 1, according to state climatologist Mike Anderson.

“Things are looking pretty good,” Anderson said during a press conference Tuesday.

“Certainly a lot better than we have been in past years. But there are still a few pockets where conditions aren’t quite back up to average.”

The “triple dip La Niña” weather phenomenon that returned to California and delivered for the third consecutive year in 2022 is beginning to fade, according to the World Meteorological Organization.

The weather pattern brings large-scale cooling of the ocean surface temperatures in the central and eastern Pacific Ocean, along with changes in the tropical atmospheric circulation, namely winds, pressure, and rainfall. It usually has the opposite impact on weather and climate as El Niño, which brings more rainfall, according to the organization.

California is moving into more neutral weather conditions and could see El Niño conditions return in the fall, Anderson said.

“We’ll have to keep an eye on that, but we are in transition,” Anderson said.

The state is about a third of its way through its wettest season, the state’s drought manager Jeanine Jones said.

“We hope that we’ll continue going forward with good water supply conditions,” Jones said.

State water supplies are still overcoming a deficit from the recent drought and groundwater supplies have declined. It will take some time and more water to recover that storage, which is why officials can’t say that the drought is over, she said.

California’s largest surface water source is the Colorado River and supplies looked good in that watershed, Jones said.

However, the state’s reservoir system is looking at record-low storage levels. The state will continue to assess water supplies and should know by March how much water will be available to supply the state’s water projects, Jones added.

Even though the state has seen above-average rain and now this season, the reservoirs are still below average. Lake Oroville, south of Redding in northern California, is only about 35 percent of capacity, and Lake Shasta, the state’s largest reservoir, was at 34 percent capacity, said de Guzman, of the California Department of Water Resources.

The past three years have been the driest years since 1986 in California. State officials have severely limited water deliveries to farmers and Gov. Gavin Newsom has urged residents and businesses to conserve water.

Roughly a third of California’s water supply comes from melting snow in the Northern California mountains. About three-fourths of California’s rain and snow come from the watersheds north of Sacramento. But about 80 percent of the state’s water demand comes from Southern California, where most of the people live.

The state expects water shortages heading into 2023, forcing some urban water providers to plan for further restrictions on outdoor water use, according to a report issued in December by the Department of Water Resources (pdf).

As Exxon and Chevron focus more on shareholder returns and less on speculative spending, they are both reining in investments in large international oil projects and focusing more on investing in the Americas.

Chevron says it’ll use 70% of its capital allocation for production on oil fields in the U.S., Argentina and Canada, while Exxon says they will allocate a similar portion of their budget to places like the Permian Basin, Brazil and LNG projects, The Wall Street Journal reported this week. Both companies are moving out of places like Asia, West Africa, Russia and parts of Latin America, the report says. 

Ben Cahill, a senior fellow at the Center for Strategic and International Studies, a Washington think tank, told The Wall Street Journal: “The cases of them going to new countries are few and far between. It’s a natural consequence of investors demanding higher returns. Companies are being more selective.”

It marks the end of an era where oil companies would search globally for oil to add to their booked reserves. Exxon has already sold or proposed to sell assets in Chad, Cameroon, Egypt, Iraq and Nigeria, the report says. They mark the largest sales for the company since 2018 and come as part of an overall plant to try and offload at least $15 billion in assets.

Exxon’s production is down about 18% since its peak in 2011, while Chevron’s international output has fallen by 3% since last year. Chevron has moved out of areas like Azerbaijan, Denmark, the United Kingdom and Brazil, the report says, though it does maintain assets in Venezuela still. 

Neal Dingmann, an analyst at Truist Securities, added: “You have investors leaning on you harder than they have in the past. It’s going to be critical that they prune their other [noncore] businesses.”

Exxon’s 5 year plan calls for up to $25 billion in spending each year through 2027 to try and boost production by 500,000 barrels a day. It also plans on trimming $9 billion in costs by the end of this year. Chevron is also ramping up spending 25% to $14 billion this year – a figure that is still well below its pre-pandemic budget. 

But Kevin Holt, a portfolio manager at investment firm Invesco Ltd., thinks that institutions are not convinced oil companies won’t run into spending problems again: “They don’t think the industry will stick to capital discipline. It’s going to take a little more time.” 

The industry is also focusing on moving to low carbon methods of business. Tatiana Mitrova, research fellow at Columbia University’s Center on Global Energy Policy, concluded, telling WSJ: “The majors are quite well positioned to develop the new technologies like hydrogen, carbon capture and other new things that will help the industry decarbonize.”

Authored by Tom Ozimek via The Epoch Times,

Arizona has started to dismantle its makeshift border wall made of shipping containers that was championed by former Gov. Doug Ducey but faced opposition from newly minted Gov. Katie Hobbs and was the target of a Biden administration lawsuit.

Footage taken on Jan. 3 showed construction machinery removing a line of shipping containers placed along the U.S.–Mexico border in Yuma, Arizona, which coincided with the day Hobbs was sworn in as governor.

Ducey, who in mid-December agreed to dismantle the wall for which he had once been an ardent advocate, ordered disassembly of the makeshift barrier as one of his final acts in office.

He said earlier that the container wall was always meant to be a temporary construction intended to help stem the tide of illegal border crossings until a permanent solution could be found.

Illegal immigration has soared under President Joe Biden’s watch, with unauthorized crossings topping 2.76 million in fiscal year 2022, according to Customs and Border Protection data.

That figure broke the previous record by over 1 million and was more than twice the highest level notched during the tenure of former President Donald Trump, who made stemming illegal immigration a key part of his platform with his signature slogan “Build the Wall.”

Hobbs, who on Tuesday became the first Democrat governor in Arizona in 16 years, had been critical of Republican Ducey’s border wall, labeling it as ineffective political grandstanding.

“It’s a political stunt. It’s a visual barrier that is not actually providing an effective barrier to entry, and I think a waste of taxpayer dollars,” she told Arizona radio station KJZZ in a recent interview.

“The containers aren’t working. There’s many pictures of people climbing over them,” Hobbs added.

The new Arizona Democratic Gov. Katie Hobbs takes the oath of office in a ceremony at the state Capitol in Phoenix, on Jan. 2, 2023. (Ross D. Franklin, Pool/AP Photo)

While Arizona has begun dismantling its makeshift border barrier, a similar one is going up in nearby Texas, whose Republican governor has, like Ducey, been frustrated by the surge in illegal crossings.

In a bid to bolster border security, Texas Gov. Greg Abbott has called in the National Guard to run razor wire barriers in high-traffic areas and recently said shipping containers were being used to plug more holes.

U.S. military stop people from crossing into El Paso, Texas, seen from Ciudad Juarez, Mexico, on Dec. 20, 2022. (Christian Chavez/AP Photo)

‘Arizona Has Had Enough’

Ducey, an outspoken critic of Biden’s border policies that he has blamed for the surge in illegal immigration, in August issued an order to plug gaps in the U.S.–Mexico border wall near Yuma, which has become one of the busiest corridors for unauthorized crossings in the country.

“Arizona has had enough,” Ducey said in a press release at the time.

“We can’t wait any longer. The Biden administration’s lack of urgency on border security is a dereliction of duty. For the last two years, Arizona has made every attempt to work with Washington to address the crisis on our border,” Ducey added.

Work crews subsequently erected hundreds of double-stacked shipping containers, in some cases topped by razor wire.

Yuma County Sheriff’s Office deputies have said that the containers have helped prevent illegal immigrants from crossing into the United States.

“Our deputies have noticed traffic is slowing down,” one of them told KYMA-TV.

But the makeshift border wall prompted first a warning from the Biden administration and then a lawsuit.

Shipping containers that will be used to fill a 1,000-foot gap in the border wall with Mexico near Yuma, Ariz., on Aug. 12, 2022. (Arizona Governor’s Office via AP)

Lawsuit

The Biden administration warned Arizona officials in October that Ducey’s actions broke the law.

Later, Arizona was hit with a lawsuit for allegedly placing the containers on federal lands without permission, with the U.S. Department of Justice filing a complaint (pdf) on Dec. 14.

The lawsuit alleged that Ducey’s border wall shipping containers “damage federal lands, threaten public safety, and impede the ability of federal agencies and officials, including law enforcement personnel, to perform their official duties.”

Ducey’s office has repeatedly said the barrier was supposed to be temporary and would be taken down once the federal government acted to bolster border security in the area.

The Department of Homeland Security (DHS) announced in July that it had authorized the filling of gaps in the border wall near Yuma, prompting Ducey spokesman C.J. Karamargin to say that “from our perspective, the shipping container mission is a success.”

“Not only have we plugged gaps in the border barrier, but we got the federal government to do their job,” he said, referring to the DHS decision to fill gaps in the border wall.

Contractors begin stacking shipping containers in border fence gaps near Yuma, Ariz., on Aug. 12, 2022. (Courtesy of Arizona Governor’s office)

Agreement to Dismantle

On Dec. 21, 2022, Arizona state and federal authorities reached an agreement to remove the makeshift barrier.

Court documents filed in the U.S. District Court for the District of Arizona (pdf) show Ducey’s administration agreed to dismantle the containers and remove the equipment, materials, and vehicles used to install them by Jan. 4.

Ducey previously insisted he had the right to defend the state of Arizona and protect its citizens, with his office describing the number of illegal crossings as “ominous” and threatening to overwhelm border communities.

Environmentalists denounced the makeshift wall as harmful to local wildlife.

The work of placing up to 3,000 containers at a cost of about $95 million was about a third complete.

Republicans have long accused the Democrats of advocating for an open-borders policy, though the Biden administration has repeatedly denied this claim.

Fiscal year 2023 is on track to break last year’s record of illegal crossings, with both October and November setting records in their respective months for the number of illegal alien encounters.

China and the United Arab Emirates have called for a UN Security Council meeting at a moment tensions in Jerusalem are poised to explode, given growing Palestinian outrage in response to Israel’s new far-right National Security Minister Itamar Ben-Gvir having entered the al-Aqsa Mosque compound this week in a hugely controversial move. 

Jewish firebrand leader Ben-Gvir was just sworn in to his post last week as part of PM Netanyahu’s governing coalition, widely seen as the most far-right in Israel’s history, and his first act as national security chief came Tuesday with the highly provocative visit to the Jerusalem mosque, revered by Muslims across the globe as the third holiest site in Islam, only after Mecca and Medina.

“Unprecedented provocation.”

Israel’s new national security minister Itamar Ben-Gvir has entered the Al Aqsa Mosque complex in occupied East Jerusalem amid warnings of unrest

Read more: https://t.co/HaDwlpHpCd pic.twitter.com/BD22QxL5CE

— TRT World (@trtworld) January 3, 2023

A UN council to address the issue and ongoing tensions is expected to convene Thursday, UN sources told Reuters. Arab countries including Egypt, Jordan, Saudi Arabia and UAE were quick to condemn the move, and also Turkey issued a denunciation. 

Palestinian Prime Minister Mohammad Shtayyeh had charged that Ben-Gvir’s trip under tight Israeli police protection of a bid to turn the shrine “into a Jewish temple.” Additionally, Palestinian Authority leaders issued a statement saying it was “an unprecedented provocation.”

Apart from the spectacle of a hardline settler expansionist politician entering a Muslim sacred site, the issue is so symbolic and sensitive given precisely that the Israeli far-right has long pushed for government annexation over the whole of Temple Mount, on top of which Aqsa Mosque sits. 

This is why AFP and other outlets quickly acknowledged Ben-Gvir’s actions “could spark a war.”

Palestinian and international leaders are urging calm as a response or “next step” is being hotly debated, while Hamas has already said Israel has crossed a “red line” – and reportedly fired off at least one rocket since Tuesday.

As for the US, its statement was much more muted, but suggests tensions between the Biden administration and Israel nonetheless. “We’re deeply concerned by any unilateral actions that have the potential to exacerbate tensions precisely because we want to see the opposite happen,” State Dept spokesman Ned Price said. “The United States stands firmly for the preservation of the historic status quo with respect to the holy sites in Jerusalem.”

Amid the uproar, newly sworn-in Prime Minister Netanyahu later issued a statement seeking to clarify that his government would not try to change the status quo governing religious sites in Jerusalem. This also given any Israeli move to take over the Aqsa compound would without doubt spark a third Palestinian Intifada.

Authored by James Rickards via DailyReckoning.com,

Is there a financial calamity worse than a severe recession in early 2023? Unfortunately, the answer is “yes” and it’s coming quickly.

That greater calamity is a global liquidity crisis. Before considering the dynamics of a global liquidity crisis, it’s critical to distinguish between a liquidity crisis and a recession. A recession is part of the business cycle.

It’s characterized by higher unemployment, declining GDP growth, inventory liquidation, business failures, reduced discretionary spending by consumers, reduced business investment, higher savings rates (for those still employed), larger loan losses, and declining asset prices in stocks and real estate.

The length and depth of a recession can vary widely. And although recessions have certain common characteristics, they also have diverse causes. Sometimes the Federal Reserve blunders in monetary policy and holds interest rates too high for too long (that seems to be happening now).

Sometimes an external supply shock occurs which causes a recessionary reaction. This happened after the Arab Oil Embargo of 1973, which caused a severe recession from November 1973 to March 1975. Recessions can also arise when asset bubbles pop such as the stock market crash in 1929 or the bursting of a real estate bubble caused by the Savings & Loan crisis in 1990.

Whatever the cause, the course of a recession is somewhat standard. Eventually asset prices bottom, those with cash go shopping for bargains in stocks, inventory liquidations end, and consumers resume some discretionary spending. These tentative steps eventually lead to a recovery and new expansion often with help from fiscal policy.

Global financial crises are entirely different. They emerge suddenly and unexpectedly to most market participants, although there are always warning signs for those who know where to look. They usually become known to the public and regulators through the failure of a major institution, which could be a bank, hedge fund, money market fund or commodity trader.

While the initial failure makes headlines, the greater danger lies ahead in the form of contagion. Capital markets are densely connected. Banks lend to hedge funds. Hedge funds speculate in markets for stocks, bonds, currencies and commodities both directly and in derivative form.

Money market funds buy government debt. Banks guarantee some instruments held by those funds. Primary dealers (big banks) underwrite government debt issues but finance those activities in repo markets where the purchased securities are pledged for more cash to buy more securities in long chains of rehypothecated collateral.

You get the point. The linkages go on and on.

The Federal Reserve has printed $6 trillion as part of its monetary base (M0). But the total notional value of the derivatives of all banks in the world is estimated at $1 quadrillion. For those unfamiliar, $1 quadrillion = $1,000 trillion. This means the total value of derivatives is 167 times all of the money printed by the Fed.

And the Fed money supply is itself leveraged on a small sliver of only $60 billion of capital. So, the Fed’s balance sheet is leveraged 100-to-1, and the derivatives market is leveraged 167-to-1 to the Fed money supply, which means the derivatives market is leveraged 16,700-to-1 in terms of Fed capital.

Nervous yet?

Experts say, so what? These numbers are not new and have been even more stretched at certain times in the past. Simply because the financial system is highly leveraged and densely connected does not mean it’s ready to collapse. That’s true. Still, it does mean the system could collapse catastrophically and unexpectedly at any time. All it takes to collapse the system is a shock failure leading quickly to panic.

Margin calls are issued on losing position and immediate payment is demanded. Overnight repos are not rolled over. Overnight deposits are not renewed, and repayment is required. Everyone wants his money back at once. Assets are dumped to meet repayment obligations, which causes collapses in stock and bond markets, which causes even more losses and liquidations among banks and traders.

Suddenly all eyes are on the Fed for easy money and on Congress for bailouts, guarantees and more spending. We’ve seen this pattern in 1994 (Mexico Tequila Crisis), 1998 (RussiaLTCM crisis), and 2008 (Lehman Brothers-AIG crisis).

Note that two of those three most recent financial crises were not accompanied by a recession. There was no recession in 1994 and none in 1998. Only the 2008 global financial crisis happened to coincide with a severe recession.

The point is that recessions and financial crises are both bad, but they are different and do not always come together. When they do, as in 2008, stocks can easily decline 50% or more. We may be looking at such a situation today. This brings us to the key question:

If financial markets are almost always highly leveraged but financial crises occur once every eight years on average, what signs can investors look for that indicate a crisis is coming and conditions are not just business as usual for financial markets?

One of the most powerful warning signs is an inverted yield curve. This signal was last seen in 2007 just ahead of the 2008 financial crisis. A normal yield curve slopes upward from left to right reflecting higher interest rates at longer maturities. That makes sense.

If I lend you money for ten years, I want a higher interest rate than if I lend it for two years to compensate me for added risks from the longer maturity such as inflation, policy changes, default, and more.

When a yield curve is inverted, that means that longer maturities have lower interest rates. That happens, but it’s rare. It means that market participants are expecting economic adversity in the form of recession or liquidity risk. They want to lock in long-term yields even if they’re lower than short-term yields because they expect yields will be even lower in the future.

In a nutshell, investors see trouble ahead.

Other ominous signs include sharp declines in the dollar-denominated reserve positions in U.S. Treasury securities of China, Japan, India and other major economies. Naïve observers take this as a sign that those countries are trying to “dump dollars” and dislike the role of the dollar as the leading global reserve currency.

In reality, the opposite is true. They’re desperately short of dollars and are selling Treasuries as a way to get cash to prop up their own banking systems.

These are some of the many signs pointing to a global liquidity crisis. As we’ve learned in the past, these liquidity crises seem to emerge overnight, but that’s not true. They actually take a year or more to develop until they hit a critical stage at which point, they burst into the headlines.

The 1998 Russia-LTCM crisis started in June 1997 in Thailand. The 2008 Lehman Brothers crisis started in the spring of 2007 with reported mortgage losses by HSBC. The warning signs are always there in advance. Most observers either don’t know what the signs are or are simply not looking.

Well, I am looking and what I see is a rare convergence of a severe recession and a liquidity crisis at the same time as happened in 2008.

It’s coming.

Since the last FOMC statement on Dec 14th – when The Fed hiked by 50bps and gushed hawkishly – gold has outperformed while long-duration stocks have been the biggest loser with the dollar flat and crypto and bonds lower…

Source: Bloomberg

The market’s expectations for the trajectory of Fed rate moves has shifted significantly hawkishly since the last FOMC statement…

Source: Bloomberg

Most notably, financial conditions have notably tightened post-FOMC as Powell had wanted, after dovishly decoupling from The Fed’s policy actions…

Source: Bloomberg

And we suspect Powell will not want the Minutes to stall that trend.

So what did The Minutes say?

The headline from today’s minutes is that it is clear that Fed officials were not pleased by the surge in stocks (easing in financial conditions) ahead of the meeting, warning against an “unwarranted” easing in financial conditions:

“Participants noted that, because monetary policy worked importantly through financial markets, an unwarranted easing in financial conditions, especially if driven by a misperception by the public of the Committee’s reaction function, would complicate the Committee’s effort to restore price stability.”

Additionally, It’s also interesting how there are “many” Fed officials saying that there was a need to balance two-sided risks.

This suggests there is a growing split at The Fed.

Additional highlights include:

Slowing rate hikes is not pivoting:

“Participants reaffirmed their strong commitment to returning inflation to the Committee’s 2 percent objective. A number of participants emphasized that it would be important to clearly communicate that a slowing in the pace of rate increases was not an indication of any weakening of the Committee’s resolve to achieve its price-stability goal or a judgment that inflation was already on a persistent downward path.”

On disconnect between market and FOMC:

“Several participants commented that the medians of participants’ assessments for the appropriate path of the federal funds rate in the Summary of Economic Projections, which tracked notably above market-based measures of policy rate expectations, underscored the Committee’s strong commitment to returning inflation to its 2 percent goal”

“Few” signs of a wage-price spiral

“Participants noted that, in the latest inflation data, the pace of increase for prices of core services excluding shelter—which represents the largest component of core PCE price inflation—was high. They also remarked that this component of inflation has tended to be closely linked to nominal wage growth and therefore would likely remain persistently elevated if the labor market remained very tight. Consequently, while there were few signs of adverse wage-price dynamics at present, they assessed that bringing down this component of inflation to mandate-consistent levels would require some softening in the growth of labor demand to bring the labor market back into better balance.”

On preserving “flexilbility and optionality”

“In light of the heightened uncertainty regarding the outlooks for both inflation and real economic activity, most participants emphasized the need to retain flexibility and optionality when moving policy to a more restrictive stance. Participants generally noted that the Committee’s future decisions regarding policy would continue to be informed by the incoming data and their implications for the outlook for economic activity and inflation, and that the Committee would continue to make decisions meeting by meeting.”

FOMC inflation forecasts:

“Core goods inflation was anticipated to slow further, housing services inflation was expected to peak in 2023 and then move down, while core non-housing services inflation was forecast to move down as wage growth eased.”

But, risks are skewed to the upside for inflation but downside for growth

“With inflation still elevated, the staff continued to view the risks to the inflation projection as skewed to the upside. “

“Moreover, the sluggish growth in real private domestic spending expected over the next year, a subdued global economic outlook, and persistently tight financial conditions were seen as tilting the risks to the downside around the baseline projection for real economic activity, and the staff still viewed the possibility of a recession sometime over the next year as a plausible alternative to the baseline”

On financial stability issues surrounding QT:

“Staff indicated that they would continue to monitor money market conditions closely as balance sheet reduction proceeds.”

The Fed kowtows to Democratic Party talking points on corporate greed:

“Some participants also noted that, by some measures, firms’ markups were still elevated and that a continued subdued expansion in aggregate demand would likely be needed to reduce remaining upward pressure on inflation.”

Additionally, The Fed is starting to discuss the coming jump in minority unemployement

“A number of participants commented that as the labor market moved into better balance, the unemployment rate for some demographic groups — particularly African Americans and Hispanics — would likely increase by more than the national average.”

“The other risk was that the lagged cumulative effect of policy tightening could end up being more restrictive than is necessary to bring down inflation to 2 percent and lead to an unnecessary reduction in economic activity, potentially placing the largest burdens on the most vulnerable groups of the population.”

Overall, these Minutes were the most hawkish since May 2022…

Bloomberg Economics’ Anna Wong summarized as follows:

“Minutes reveal that Fed staff are cautious about interpreting recent data as showing a definitive decline in inflation. For example, they note that the falling inflation compensation implied by TIPS is due to a decline in risk premiums rather than inflation expectations.

“Staff point to job-openings data moving down in October. However, JOLTS data for November (released today) showed an upward revision to October’s job openings, and the vacancy-to-unemployed ratio actually edged back up in November.

“Staff sound more alarmed about nominal wage growth than in previous FOMC minutes, hinting that the underlying pace might be running at 5%.”

Read the full FOMC Minutes below:

Having correctly called for a slump in stocks, a normalization of ‘meetings’ post-COVID, and a resurgence in the nuclear alternative for power generation in 2022, Byron R. Wien, Vice Chairman together with Joe Zidle, Chief Investment Strategist in the Private Wealth Solutions group at Blackstone, today issued their list of the Ten Surprises of 2023.

This is the 38th year Byron has given his views on a number of economic, financial market and political surprises for the coming year. Byron defines a “surprise” as an event that the average investor would only assign a one out of three chance of taking place but which Byron believes is “probable,” having a better than 50% likelihood of happening. Byron started the tradition in 1986 when he was the Chief U.S. Investment Strategist at Morgan Stanley. Byron joined Blackstone in September 2009 as a senior advisor to both the firm and its clients in analyzing economic, political, market and social trends. In 2018, Joe Zidle joined Byron Wien in the development of the Ten Surprises.

Byron and Joe’s Ten Surprises of 2023 are as follows:

1. Multiple candidates on both sides of the aisle organize campaigns to secure their party’s presidential nomination. There are new headliner names on the respective tickets for 2024.

2. The Federal Reserve remains in a tug-of-war with inflation, so it puts the word “pivot” on the shelf alongside the word “transitory.” The fed funds rate moves above the Personal Consumption Expenditures price index and real interest rates turn positive, a rare phenomenon relative to the last decade.

3. While the Fed is successful in dampening inflation, it over-stays its time in restrictive territory. Margins are squeezed in a mild recession.

4. Despite Fed tightening, the market reaches a bottom by mid-year and begins a recovery comparable to 2009.

5. Every significant correction in the market has in the past been accompanied by a financial “accident.” Cryptocurrencies had a major correction and that proved not to be a systemic event. This time, Modern Monetary Theory is fully discredited because deficits have proven to be inflationary.

6. The Fed remains more hawkish than other central banks, and the US dollar stays strong against major currency pairs, including the yen and euro. This creates a generational opportunity for dollar-based investors to invest in Japanese and European assets.

7. China edges toward its growth objective of 5.5% and works aggressively to re-establish strong trade relationships with the West, with positive implications for real assets and commodities.

8. The US becomes not only the largest producer of oil, but also the friendliest supplier. The price of oil drops primarily as a result of a global recession, but also because of increased hydraulic fracking and greater production from the Middle East and Venezuela. The price of West Texas Intermediate crude touches $50 this year, but there’s a $100 tick out there sometime beyond 2023 as the world recovers.

9. The bombardment, destruction and casualties in Ukraine continue for the first half of 2023. In the second half, the combination of suffering and cost on both sides necessitates a ceasefire and negotiations on a territorial split begin.

10. In spite of the reluctance of advertisers to continue to support the site and the skepticism of creditors about the quality of the firm’s debt, Elon Musk gets Twitter back on the path to recovery by the end of the year.

The “Also Rans” of 2023

Every year there are always a few Surprises that do not make the Ten, because we either do not think they are as relevant as those on the basic list or we are not comfortable with the idea that they are “probable.”

• Because of medical breakthroughs across the board, many people decide on a cryogenic burial, expecting to be defrosted when a cure for the disease that caused their demise is discovered. Funeral homes across the country advertise that “It’s Nice to Be On Ice.”

• A technology breakthrough in reducing the carbon emissions of coal-fired plants takes the edge off the climate / global warming scare. This lowers the political pressure on emerging markets to make a rapid transition to renewable energy sources.

• India begins to compete seriously to win/retain the manufacturing base that started looking for a new home after becoming increasingly uneasy with the uncertainty that has continuously surrounded US–China policies. The country initiates a campaign to attract global multinationals, focusing on its young population, relatively low income and growing consumer market, and prioritizing policies that incentivize investment in the auto, energy, pharma and tech sectors. Apple and Samsung are a proof of concept after successfully producing their respective flagship phones for global markets.

China’s semiconductor industry has suffered a major blow as investments to compete with the US have been paused, as economic turmoil grips the world’s second-largest economy. 

Last month, Reuters reported China was set to roll out a 1 trillion yuan ($143 billion) support package for its semiconductor industry following the Biden administration export controls on the sale of cutting-edge semiconductor chips and advanced equipment needed for domestic semiconductor manufacturing. The plan was to boost domestic chip production that would one day be superior to the US. 

Now Bloomberg reported top Chinese policymakers are discussing ways to pivot away from massive subsidies for the chip industry “that has so far borne little fruit and encouraged both graft and American sanctions.” 

Some policymakers are exploring alternatives to the investment-led approach, such as lowering the cost of semiconductor materials. 

The pivot would mark a dramatic shift in Beijing’s approach to supercharging an industry to challenge American dominance while safeguarding Chinese economic and military competitiveness. It suggests that Beijing’s zero Covid policy, even though it’s ending, has amplified economic turmoil that is beginning to impact spending in critical industries. 

“It’s unclear what other chip policies Beijing is considering, or whether it will ultimately decide to ditch the capital investment-heavy approach that’s worked so well in propelling its manufacturing sector over the past decades,” Bloomberg noted. 

What’s come under intense scrutiny by Beijing is the billions of dollars it has poured into chipmaking companies, including Semiconductor Manufacturing International Corp. and Yangtze Memory Technologies Co., which has yet to produce technology breakthroughs to put China on the same level as the US. And the Biden administration’s sanctions on China’s chip industry have been another setback.  

A perfect storm of factors might have delivered a significant blow to China’s chipmaking ability that Western countries have been hoping for. Suppose Beijing pivots away from its investment-led approach to support chips. In that case, it will give the US some time to ramp up investments at home to revive its chip industry and become less dependent on Asia — another sign supply chains are being rejiggered. 

By Michael Msika, Bloomberg Markets Live reporter and commentator

It might be very early days, but it seems investors don’t want to start the year being heavily short on European stocks, especially not when it comes to the worst laggards of 2022.

The biggest losing stocks of last year are looking to put their awful performance behind them, starting 2023 in the best way possible. A basket of the 20 biggest stragglers of 2022 is up about 6% this week, more than three times the performance of the Stoxx 600.

“We are seeing strong evidence of the January effect,” says Cowen head of EMEA trading Carl Dooley, noting that the last time European stocks had a similarly poor year — in 2018 — underperformers “rallied hard” in the first month of the next year. This time round, he pointed to Faurecia, HelloFresh, SBB, Kion, Just Eat Takeaway, Zalando, GN Store Nord, Aroundtown and AMS as among those off the list of unloved 2022 names enjoying the brightest start.

There’s another common theme linking some of these stocks: a high quantity of shares out on loan, an indication of short-selling interest. Take Swedish real estate company SBB for example, with almost 23% of the free float available to borrow, according to S&P Global data. It’s up 10% this year, extending a rally since Dec. 20 to about 25%. Elsewhere, Zalando, Ocado, Aroundtown and HelloFresh all have more than 9% of their free float out on loan.

A similar picture of losers turning winners is evident in European sectors. Autos, real estate and retail are among the pace-setting industry groups, after they all severely underperformed in 2022. Banks look like the exception in the top six performing groups so far. Real estate was the second most-shorted sector after food retail by mid-December, according to S&P Global data.

“I think investors should be on really high alert for a short squeeze before we see another leg lower in equities,” says Vanda Research global macro strategist Viraj Patel. “Part of the reason for that is that we’ve got bond markets trading on recession fears, while equity markets are in this pessimistic, bearish sentiment state.”

Patel sees a possibility of a “Goldilocks state environment,” where inflation moves lower and economic activity holds up somewhat. “Could that be the template for the next couple of months? That’s certainly not priced in at the moment,” he said in a Bloomberg Television interview.

The short-covering trend shows up in the futures market too. For example, net futures positioning from asset managers and leveraged funds turned positive on the S&P 500 at the end of December, rising from a multi-year low. Meanwhile, European futures positioning has been relatively stable over the past two weeks, with investors marginally net long Euro Stoxx, while positioning in the FTSE 100 and DAX is moderatey net short and rising, according to Citigroup strategists.

“Investors have returned to their trading desks with some confidence about this new year,” says Pierre Veyret, technical analyst at ActivTrades. “It is, however, still hard to say if the current price action is being driven by real directional motivations from portfolio managers or if it is just a liquidity bull trap, covering some of last year’s short positions.”

Veyret cautions that a combination of high volatility and lower market liquidity is often treated as a dangerous indicator for stock traders.