By Peter Tchir of Academy Securities

TGFF

Thank goodness for Friday. Or maybe I should just thank Bostic because his comments on Thursday seemed to turn the markets around.

The view (presented in last week’s Surprise, Surprise and Acceptance Stage of Rate Hike Grief) that the market was getting tired of pricing in higher yields and dragging stocks down got off to an okay start, but it became pretty shaky in the middle of the week.

The 10-year Treasury ended last week at 3.95% (it got as low as 3.89% before grinding steadily higher to 4.09% on Thursday). But TGFF because it recovered and closed basically unchanged on the week. Not a win as a bond bull, but I’ll take it.

The S&P 500 followed a rate dependent path and things got a little hairy on Thursday when the S&P dipped below the 200 DMA (around 3,940). Ultimately Bostic seemed to help (along with too much bearishness). I believe that too many people were betting on more rate hikes and that caused yields to go higher (which in turn dragged stocks lower).

As we head into this week:

• I need to do a summary of Academy’s Second Annual Geopolitical Summit West. It was very well attended and the main conversation was driven by a combination of 4 Generals and an Admiral from our Geopolitical Intelligence Group. These individuals brought a wide variety of experience and expertise to the table. Russia, China, chips, commodities, and AI all took center stage. World War v3.1 is a good piece if you haven’t read it already and the February Around the World is also germane to these discussions.
• It is “Jobs Week”. Not as entertaining as “Shark Week”, but at least we get to do it 12 times a year. Even some Fed speakers seem to be questioning whether the jobs data has been overstated. So, I’m looking for some weaker data, which should help bonds and stocks.
• Rate hikes. The terminal rate is up to 5.44%. There is chatter that the Fed could raise rates 50 bps at the next meeting. The market is pricing in 1.25 hikes at the meeting, so I am leaning towards 25 bps, but I am giving 50 bps a chance. That seems like a reasonable assessment to me. Fed fund futures are pricing in only a small chance of any cuts this year. The year-end rate is 5.3% versus a terminal rate of 5.44%. That seems fair because our view has been that the Fed was serious about staying “higher for longer” all along. We’ve disagreed on the pace of hikes, but have not been looking for cuts as early as the market expects. From here, a lot seems to have been priced into the bond market (and theoretically the equity market), which should help bonds and stocks this week.
• Stocks versus bonds. The 10-year finished unchanged, but stocks finished up 2%-3% (S&P vs Nasdaq). That is decent outperformance. From a technical standpoint, not only did the S&P 500 recover to the 200 DMA, but it is also back above the 50 DMA. I suspect that a lot of shorts got added because the market was sliding and exhibiting some technical weakness and that probably leaves us with a decent short base (which is susceptible to further squeezes). Stock performance last week should help stocks into this week.
• Credit is looking strong! CDX IG (investment grade CDS index) tightened from 77 to 71 and never went much above 77, even with stocks swooning. CDX IG tends to be more correlated with stocks than other measures of credit quality. It’s a “macro fan favorite” to trade SPX vs CDX and many of the CDX market making algos are linked to the S&P 500. All that “jargon” just means that as we dig deeper, it is even more impressive how well CDX did compared to how it seemed on the surface. Even the Bloomberg Corporate Bonds spread went from 123 to 120 (peaking at 125). That occurred even with decent new issue activity. LQD, a longer-dated IG ETF which tracks bond markets in real-time better than the indices, went from a spread of 159 to 152 (though it did get to 166 at Wednesday’s close). It is important, at least to me, that it is trading at a premium to NAV because that typically indicates that there is more strength to come. Corporate credit was very strong and is poised to do very well on any slowing of the calendar! You could argue that this is part of a trend of re-allocating money out of stocks and into bonds, but I’m going with the “credit markets often lead the way” story and they are pointing to more potential strength for equities.
• Temperance is good. This clearly has nothing to do with our Summit. It is, however, a reflection that any sign of cost controls out of tech is being rewarded with higher stock prices. This will hurt the economy and ultimately stocks (I don’t think the lows are in), but for now I expect more announcements since they are relatively easy to make (especially given how well the stocks respond).
• 0DTE. Some people are addicted to the MOSO function on Bloomberg. Others laughed (or questioned my sanity) for writing A Day in the Life of a 0DTE Option. Many people followed our more serious writing on the topic in Is 4,000 More than a Number and Zero Dark Thirty. That being said, I’m convinced that 0DTE is changing our market structure in ways that are difficult to assess and it can dramatically amplify moves.

Bottom Line

I see no reason to change last week’s bottom line (accept for adding more on credit).

Bonds can do well with the 10-year having a 3.7% target.

Risk assets can do well with a 4,200 target for the S&P 500 and CDX IG heading towards 60 (the semi-annual roll should be another factor that helps push spreads tighter). If the new issue calendar remains robust, credit could lag for a bit. However, if there are any signs of issuance slowing, the rally should be strong.

Despite the Summit starting on a day where San Diego was having worse weather than Chicago (the hail/30 mph winds made it an “experience”), the San Diego weather came through in the end!

Good luck this week and jobs are going to be interesting. I’m more worried that the jobs data could be bad (downward revisions, etc.) than I am that the data will be too strong, though both of those extremes would hurt my position on risk assets.

Maybe this Friday will give another reason to proclaim “Thank Goodness for Friday (TGFF)”!

Dr. Anthony Fauci – who offshored banned gain-of-function research to make bat coronaviruses more transmissible to humans – has been accused by Congressional investigators of having ‘prompted’ the fabrication of a paper by a cadre of scientists aimed at disproving the Covid-19 lab-leak theory.

On February 1, 2020, Fauci and his boss, NIH Director Dr. Francis Collins, and at least eleven other scientists participated in a conference call during which several of them warned that COVID-19 may have leaked from a lab in Wuhan, China – may have been intentionally genetically manipulated.

Three days after the call, four participants from the call (Scripps Research virologist Kristian Andersen, University of Sydney virologist Edward Holmes, Tulane School of Medicine virologist Robert Garry, University of Edinburgh virologist Andrew Rambaut and Columbia University virologist Ian Lipkin) seemingly discarded their concerns over a lab-leak, and drafted “The Proximal Origin of SARS-CoV-2,” which they sent to Fauci and Collins.

Also heavily involved (yet not credited) was Dr. Jeremy Farrar, the current Chief Scientist at the World Health Organization.

As a related aside – the Washington Examiner revealed last week that two authors of “Proximal Origin” who initially expressed concerns over a lab-leak and then changed their tune (Anderson and Garry), received millions in NIH grants under Fauci.

Now, according to the House Select Subcommittee on the Coronavirus Pandemic, Fauci ‘prompted’ the creation of the paper;

“New evidence released by the Select Subcommittee today suggests that Dr. Fauci “prompted” the drafting of a publication that would “disprove” the lab leak theory, the authors of this paper skewed available evidence to achieve that goal, and Dr. Jeremy Farrar went uncredited despite significant involvement.”

More:

So, for those following the bouncing ball…

The US was doing risky gain-of-function research on US soil until 2014, when the Obama administration banned it. Four months before the ban, Dr. Fauci offshored it to Wuhan, China through New York nonprofit, EcoHealth Alliance.

After Sars-CoV-2 broke out down the street from the Wuhan Institute of Virology, Fauci engaged in a massive campaign to deny the possibility of a lab-leak from the lab he funded, and instead pin the blame on a yet-to-be discovered zoonotic intermediary species.

And if you’d like to dig even deeper, this is perhaps the best, most comprehensive summary of the “proximal origin” timeline.

Read the entire letter below:

Further reading:

• Fauci In 2012: Gain-Of-Function Research ‘Worth Risk Of Lab Accident Sparking Pandemic’

• Fauci-Funded EcoHealth Refuses To Give Wuhan Documents To Congress

• ‘EcoHealth Alliance’ Orchestrated Key Scientists’ Statement On “Natural Origin” Of SARS-CoV-2

• Video Of Live Bats In Wuhan Lab Reveals Daszak Lied In Now-Deleted Tweet

• “Sadly, It Starts With Two Lies”: Peter Daszak’s Latest Wuhan Screed Shredded

By Tony Pasquariello,Goldman head of hedge fund coverage

Coming out of a week that brought a somewhat uninspiring data set, yet interesting price action … and, headed into a very important week (payrolls, Powell and the BOJ) … What follows from here reflects the themes that come up in client conversations.

My view in one line: rates should keep chopping higher, volatility is to be owned, and don’t get carried away on non-dollar trades.

1. While not breaking news, and at the risk of serious over-reduction, I’d describe the core macro backdrop in 2023 as follows: US inflation has been stickier-than-expected; US growth has been stronger-than-expected.  To be clear, I’d stop short of describing the domestic economy as “running hot,” but the broad trend of the hard data would argue the US is generally chugging along (here I’d point you towards the recent jump in our US economic surprise index).  Taken together, this invites an obvious question on whether peak rates are, once again, still in front of us — it’s not a reach to say it, but my bet is they still are, particularly in the belly and back end.  

2. The macro ecosystem I just described is NOT necessarily what many people expected as we came into the new year.  Remember, the consensus view centered around a messy first half, and there was plenty of recession talk as recently as early January. On one hand, it feels like that tactical opportunity set of higher front end rates, a stronger dollar and a rip in NDX wasn’t broadly captured (and, if one made money in January, they likely gave it back in February, or vice-versa). On the other hand, there are plenty of folks still seemingly content in adding to lower-risk carry strategies … 6-month T-bills are kicking off 5% yields right now (which now exceeds the carry on a 60/40 portfolio) and US 2-year notes are trading at levels not seen since 2007.  For further reading: link.  

3. I received a lot of pushback last week on my comment that I think the back end of the US rates curve is vulnerable.  Here’s what I was trying to articulate (I should have just quoted Dominic Wilson directly): higher US rates along the curve is the direction of travel for now.  Why? The longer we live with a 5-handle on the terminal rate … and the US economy maintains broad momentum … the more evidence we have that the equilibrium rate is higher … so, the more likely it is the market contemplates seriously a 6-handle on the terminal rate … and therefore the harder it is to believe the Fed’s ~ 2.50% assumption for the neutral rate (which, one could argue, has anchored much of the curve).  related reading: link.

4. Following from there, here’s one exceedingly simple way to frame things,. starting from the perspective that I have seen a Fed Funds rate north of 6% in my (Gen-X) career:

• headline CPI, May 2000 :: 3.2%
• target Fed Funds rate, May 2000 :: 6.5%
• headline CPI, Feb 2023 :: 6.4%
• target Fed Funds rate, Feb 2023 :: 4.5%

5. Now, are there 444,000 distinctions between the global economy of today versus back then?  Yes.  So, one should only go so far with these compare-and-contrasts.  Nonetheless, from the cheap seats, it simply feels to me like parts of the market — and this Fed — are still too anchored to the post-GFC world.  Perhaps that’s not surprising, given that anyone who lived through the aftermath of 2008 has the experience hardwired into their DNA, but my point is this: shouldn’t we be increasingly open-minded to the argument that the post-GFC years were more an exception than a lasting new normal? 

6. In that spirit, again I find the Jason Furman content on Twitter to be, if nothing else, cause for contemplation: “the economy is very overheated … we have made little if any progress on inflation … there is little if any reason to expect a large slowdown going forward … a wide range of measures of ‘underlying’ inflation are telling the same story … supply chains unfreezing were supposed to bring down inflation, they didn’t … 6% inflation is much more likely than 2%.”   I come out somewhere in-between his angle (link) our forecasts (link), with the ongoing intuition that inflation won’t magically disappear when the labor market is this tight. Related, I also admit that I’m surprised that breakevens took so long to get going again.

7. A few additional takes on things from an informal exchange I had with Dominic Wilson in GIR:

• i. I think Furman is overdoing it. 
• ii. I think the big near-term risk here is if the Fed opens up 50s. If they don’t, I suspect markets can manage it.  If they do, we aren’t priced for it.  That’s overly reductive, but I think that’s the basic risk here.
• iii. Near-term volatility pricing in lots of places looks too low given the event risk.  In under 3 weeks we get payrolls, US CPI, Powell, BOJ, ECB, Fed, BoE, China activity data and their Two Sessions policy meetings.  That data set could set us on potentially very different paths, but vol overall isn’t particularly high given this event risk in many places (Chinese equities; EUR; major DM indices) and there are pockets of vol (Topix with an 11-handle) that are low even on a long history. Options look cheap.

8. A few additional takes on the week from an informal exchange I had with Mike Cahill in GIR:

• i. The market pricing of 31 bps for the March FOMC (that will settle at 25 or 50 bps) is not a stable equilibrium.  Rather than quiet markets in a quiet week, it’s been jumpy markets clinging to every little piece of news (e.g. I haven’t seen Fed Funds respond to a durable goods report in a while).
• ii. The global coordination is a clear difference between now and most of 2022, when US exceptionalism ruled the day and Europe and China were mired down with wars of their own. That makes things a lot trickier in FX land, but it probably all pushes in the same direction for rates.  
• iii. Markets spent February mostly reversing the trends and narratives in January, so we’re close to unchanged since mid-Dec / early-Jan on a number of major asset classes.  But, one key thing hasn’t changed — as of now, the Fed is still locked into the 2-3 x 25 bps hikes pace that it established at the start of February.  Maybe they will say that things are still broadly on track, but that deserves a mention if you’re making a list of things that haven’t yet corrected for January’s exuberance.
• iv. As it relates to point #3 up top on the neutral Fed Funds rate: so we’ve had (potentially) two distinct cycles: a too-low reading from 2012-2019 (the funds rate is low but the economy is weak — the neutral must be low) and a much higher reading now (we’ve hiked a lot but the economy hasn’t slowed — neutral must be high). Maybe the real answer though is that the economy, especially post-2008 housing crash, isn’t all that responsive to the funds rate.

9. I still believe this is our most important, if distinct house view: “there appears to be some confusion about the phrase ‘long and variable lags,’ which actually referred to the time until the peak impact on the level of GDP, not the peak impact on the growth rate of GDP.  all prominent macroeconomic models that we are aware of agree with our FCI growth impulse model that the peak drag on GDP growth is frontloaded.  these points explain why our estimate of the drag on GDP growth from the tightening in financial conditions last year peaked in 2022H2 and fades fairly quickly in 2023.”  see exhibit 3, link.

10. Switching gears a bit: I’m normally of the view that geopolitics are exceptionally difficult variables to consistently trade, and after the initial shock and shakeout, markets usually surprise in their ability to find coping mechanisms and become inured to the nightly news. That said, it feels to me like geopolitical tension is rising significantly right now — with growing risk of miscalculation — to an extent that seems greater than what I encounter in client dialogue.  I further admit I’m not totally sure what to do with this, particularly given my bias on interest rates, but it underscores Dominic’s take on the attractiveness of vol.

11. Perhaps relevant to that last point: Europe has been the fastest horse in the global equity race this year, and it really hasn’t been close.  Alongside ongoing structural issues, the formal start of ECB QT and higher-than-expected inflation that’s lengthening the string of 50 bps rate hikes (we added another this week) I can easily see a scenario where a return of geopolitical worries knocks the momentum off course.  so, even as someone who respects the local draw of cheap relative valuation and a cyclical-heavy index, count me as skeptical that SX5E can hold this pace for the rest of the year. 

12. As noted previously, the month of January saw record hedge fund buying of Chinese equities (this via GS PB data, link). Price action since then — across the entire China complex, including credit and commodities — was disappointing (until this week’s PMI boom, anyway). Looking forward, the big flow-of-funds question is this: What will strategic real money do with the Chinese equity market?  I’m inclined to believe they will be reticent to commit until the shareholder challenges of 2021 are long past us, which makes me worry about lasting and significant sponsorship (this may explain poor price action following decent earnings).  

13. A non-sequitur: our industry devotes too much ink to the activity of the CTA community.  While admitting that I’m guilty of referencing this crowd, remember this level set: CTAs comprise about 8% of total hedge fund assets … in S&P futures, about 6% of total open interest … and — at peak activity — around 4% of daily volume (thanks to Paul Leyzerovich for the data).  I’m not saying that CTAs don’t matter — they do, and their footprint can be epically important at occasional market inflection points — I’m simply saying they get outsized attention relative to other market actors and fundamental forces.    

14. In the context of higher interest rates, this note is a high quality check-down of some clear trends that are taking shape beneath the equity hood – for example, cyclical industrials and inflation winners/losers are doing what they should: link.    

15. Finally, the annual Berkshire Hathaway letter is worth the quick read: link.  I reckon there’s a bit of wisdom in here:

thus began our journey to 2023, a bumpy road involving a combination of continuous savings by our owners (that is, by their retaining earnings), the power of compounding, our avoidance of major mistakes and — most important of all — the American Tailwind … our satisfactory results have been the product of about a dozen truly good decisions — that would be about one every five years — and a sometimes-forgotten advantage that favors long-term investors. 

More in the full note available to pro subs.

Defense Distributed’s Case in US District Court, VanDerStrok v. Garland was just granted a preliminary injunction. The lawsuit is challenging the scope of ATF’s ability to change the definition of firearms.

According to court documents, ATF did not analyze their “Frame or Receiver Rule,” also known as Biden’s Ghost Gun Rule, under the Supreme Court’s NYSRPA v. Bruen decision.

For those unaware, the Bruen decision completely changed the legal landscape of firearms law in the US by requiring statutes regulating firearms to be rooted in the text, history, and tradition of the Second Amendment.

The Judge in the case concurred with the statement and granted Defense Distributed a preliminary injunction. The case now heads to the 5th Circuit, where ATF will have to defend its position.

The 5th Circuit has recently ruled against the ATF in similar cases, including Cargill v. Garland. In that case, a panel of judges decided that ATF did not have the power to determine bump stocks were in fact machine guns contrary to ATF’s 2019 Bump Stock rule. That rule effectively banned bump stock devices by classifying them as machine guns.

The decision in VanDerStok v. Garland could have major effects on the self-manufacturing of firearms and the ATF’s rulemaking and regulatory abilities as ATF has rewritten the federal statute to enforce their rulemaking. According to the court filings, the plaintiffs argue that only congress can rewrite federal statue to make law, not regulatory agencies like ATF.

Defense Distributed had this to say:

“This is not just a blow to ATF, who pushed a new definition of ‘firearm’ at their peril. It is also a defeat for Giffords, who were the agents of this illegal attempt to expand the Gun Control Act through the APA process. Their lobbying and regulatory laundry has now spectacularly backfired.”

Defense Distributed has a history of victory against the Federal Government. In 2018, they won their case Defense Distributed v. US Dept. of State, effectively creating the current legal landscape with 3D-printed firearms and their respective CAD files shared online.

Gun rights activists should watch this case as it goes through the courts.

Authored by Matt McGregor via The Epoch Times (emphasis ours),

JACKSON, Miss.—The group of physicians, vaccine-injured people, and whistleblowers speaking at the Mississippi Capitol building on Monday and Tuesday weren’t asking state officials to cease all COVID-19 vaccinations and to convene a grand jury to investigate its rollout in the state.

They were demanding it.

“Stop the shots” was the refrain of those who had treated COVID patients over the last three years and those injured by the vaccine.

On Monday and Tuesday, the medical freedom organization MS Against Mandates (MAM) held the Mississippi Medical Freedom Conference in Jackson, Mississippi, which included over a dozen physicians, several whistleblowers, six physician-confirmed vaccine-injured patients, and two parents whose sons died after receiving the vaccines.

Dr. John Witcher is the co-founder and former president of MAM. He stepped back from the leadership position to focus on his run for Mississippi governor in the 2023 gubernatorial election.

MAM orchestrated the event that gave a voice to many who are being silenced in media and the medical community, such as Dr. Peter McCullough, a practicing internist and cardiologist in Dallas who is also the national medical adviser for MAM.

McCullough told The Epoch Times that the purpose of the three-and-a-half-hour roundtable—chaired by Republican state Rep. Randy Boyd—was primarily to educate Mississippi officials about safety concerns regarding the vaccine.

“The state must pull these products off the market,” McCullough said. “There can be no more administration of the COVID-19 vaccines in the state of Mississippi.”

McCullough, author of “The Courage to Face COVID-19: Preventing Hospitalization and Death While Battling the Bio-Pharmaceutical Complex,” said the essential problem with the vaccines is the safety concern for the large number of people who have taken them without informed consent about adverse events.

“The CDC now says 92 percent of Americans have taken at least one shot and that 79 percent have taken two shots,” McCullough said. “If there are safety concerns, that’s a problem because the denominator is so big.”

Because of those large numbers, any rare side effect isn’t rare from a safety perspective and, as was heard in the testimonies, there are concerns that the state officials haven’t kept track of the full number of the injuries and has even undercounted them, McCullough said.

In Mississippi, which represents under 1 percent of the U.S. population, McCullough estimated that there are several hundred people who have been injured by the vaccines and that some have died from the vaccines.

“That’s several hundred too many, and it didn’t need to happen,” McCullough said. “None of this needed to happen.”

Community Standard of Care

Physicians like Witcher and others on the panel have reported that their state health officials have only recited federal talking points instead of allowing them to cultivate what McCullough called their own “community standard-of-care,” which McCullough said is intended to evolve over time.

“The community standard of care always comes from the doctors who are treating the patients,” McCullough said. “Under no circumstances does it come from federal or state agencies, pharmaceutical companies, or even from hospitals or hospital systems. It comes from the doctors in the field who are learning how to treat their patients based on the medical literature, clinical judgment, and the differences in the community.”

This is why McCullough said each state needs its own doctor-in-charge, like in Florida, where Surgeon General Joseph Ladapo has refuted federal guidelines handed down by the Centers for Disease Control and Prevention (CDC) and Dr. Anthony Fauci when he was director of the National Institute of Allergy and Infectious Diseases.

“We’re seeing how valuable it is for a state to have its own independent thinker who is not biased, influenced by the pharmaceutical industry, or influenced by any state or federal public health agency,” McCullough said.

A doctor-in-charge in Mississippi would have acted as the representative for state officials to hear the testimonies given in the state Capitol on Monday, McCullough said.

“The state of Mississippi needs an independent thinker who can attend medical panels like this, take them under consideration, and provide advising to the attorney general,” McCullough said. “In this case, it would be to get the vaccines off the market.”

If Witcher were to become governor, he said he would create a position for a state surgeon general, and McCullough said he would “entertain the appointment as a doctor and a public figure.”

Noticeably, the Capitol chamber where the roundtable convened was absent of lawmakers—aside from Boyd—which McCullough said wasn’t surprising, as he’s seen it “over and over again.”

“The fear among legislators on both the state and federal levels is extraordinary,” McCullough said. “This is the biggest thing that’s happened to our country over the last three years in modern history and you’d think they’d be interested to hear from doctors who traveled from far distances and who have vast experience in this. It’s not for my benefit. It’s for their benefit, and it’s extremely disappointing that they found something else that they thought was a higher priority.”

Read more here…

The 2023 National People’s Congress started today (March 5th; our preview is here). Outgoing Premier Li Keqiang delivered the Government Work Report (GWR) (his last), which outlined key economic targets for this year. Here are the highlights:

• Policymakers aim to achieve “around 5%” GDP growth target in 2023, the lowest in history and less ambitious than the “above 5%” or “5%-5.5%” discussed by most investors (for more see “China’s 5% GDP Target Signals Crackdowns Are Not Over“).

• Over the last several months China had shown signs of a healthy rebound, with economists polled by Bloomberg raising their forecasts, seeing a 5.3% expansion this year, versus 4.8% in early January. Even top officials were reportedly surprised by the economy’s resilience.
• Fiscal targets (both the 3% official on-budget deficit ratio and the RMB 3.8 trillion local government special bond issuance quota) also appeared slightly more conservative vs expectations. This set of economic targets is consistent with expectations that the broad cyclical policy stance would normalize this year from the very expansionary stance in 2022, although the pace could be gradual and likely hinges on the progress of consumption recovery.

Economic targets are more important than policy tone in today’s GWR because this year is the year for the reshuffling of government leaders. The official targets likely reflected new leaders’ expectations on the economy. The press conference to be held by new government leaders on 13 March may convey more forward-looking policy clues.

Below we drill down into the key highlights from the Two Sessions, courtesy of Goldman’s Maggie Wei and Hui Shan.

1. The GDP growth target is “around 5%” this year, lower than the “around 5.5%” target in 2022, in line with Goldman’s  expectation but slightly less ambitious than the “above 5%” or “5%-5.5%” discussed by some investors. This target implies in practice that any GDP growth rate above 4.5% is probably acceptable. Considering the low base of growth (real GDP growth only at 3% yoy in 2022), the growth target this year is not challenging. For its part, Goldman continues to expect 5.5% GDP growth in 2023 on the back of a rebound in household consumption after reopening. The fact that policymakers missed the “around 5.5%” growth target in 2022 might be one consideration behind the relatively unambitious growth target this year. Consistent with the statement following the Central Economic Work Conference, the GWR further added that policymakers aimed to achieve both quality and quantity improvement of the economy this year. The CPI inflation target (more like a ceiling in practice) is set at “around 3%” for 2023, and Goldman does not think it would be challenging as the bank expects only a moderate increase in CPI inflation this year after reopening.

2. The official on-budget fiscal deficit target in 2022 will be 3.0% of GDP, higher than 2.8% in 2022. Local government special bond full year quota is Rmb 3.8 trillion, higher than 3.65 trillion in 2022. The augmented fiscal deficit indicator is a more comprehensive gauge of the broad fiscal policy stance as policymakers have other quasi-fiscal tools to support the economy. Goldman expects the augmented fiscal deficit ratio to narrow by 1.5pp this year, from 12.4% of GDP last year, as the pressures on policymakers to achieve the growth target this year would be smaller than last year, and growth drivers are set to shift from government-led investment last year to private consumption this year.

3. The government set the new urban job creation target to be “around 12 million”, and surveyed unemployment rate target to be “around 5.5%”, in comparison with “more than 11mn” new urban job creation and “below 5.5%” surveyed unemployment rate in 2022. These targets are usually not binding and have been pretty easy to achieve – in 2022, despite the 3% headline GDP growth and a very weak services sector (which tended to be more labor intensive than the industrial sector), new urban job creation was 12mn and urban survey unemployment rate was 5.5% as of 2022 year-end, largely in line with government’s targets.

4. The statement around property policy followed recent policy communications – the GWR restated policymakers would help new urban residents and younger generations with their property purchases and also focus on reining in property-related risks. However, the conservative broad policy stance “housing is for living in, not for speculation” was deleted in the “2023 policy suggestions” section of the GWR, and only mentioned as “past achievements” in the report. This might imply more property easing to come, though one should watch whether the new government leaders mention this conservative stance later on March 13th, when they hold press conferences after the conclusion of the Two Sessions.

5. The monetary policy tone in the report is the same as the Q4 2022 PBOC monetary policy report. The GWR reiterated to maintain M2/TSF growth roughly in line with nominal GDP growth and enhance monetary policy’s support to the real economy. In a recent PBOC press conference, when asked whether PBOC would cut interest rates or RRR further, PBOC governor Yi Gang commented that real interest rates were at appropriate levels while lowering RRR to provide long-term liquidity “is still an effective policy tool“, which has left the door open for further RRR cuts when needed, but implied an interest rate cut would be less likely. Goldman forecasts unchanged RRR and policy interest rates this year, given the unambitious growth target and the likelihood of strong growth rebound after reopening.

6. Energy intensity: the GWR this year does not set a specific target but stated that energy intensity should continue to decline. In a separate report by the NDRC, policymakers aimed to “reduce energy intensity by 2pp this year and in practice, try to achieve better results“. The lack of a numeric target in the GWR implies policymakers might want to avoid a situation like late 2021 when production was suspended with power shortages in light of the strict energy intensity reduction target as the economy rebounded.

7. As this year is the year for the reshuffling of government leaders, this year’s work report focused more on reviewing past achievements (around 80% of the full length of the report), vs in previous years when the premier usually spent 40% of the full length of the report reviewing the past year but around 60% of the report on policy outlook for the new year.

Economic targets are more important than policy tone of the report as these targets were likely discussed and decided by the new party leaders after the 20th Party Congress. Upcoming key things to watch in the next few days include the fiscal budget report, discussions on the Party and government institutional reforms, and appointment of the new government leaders and new government leaders’ press conference.

While Southern California’s major mountain towns have been largely plowed following last week’s powerful winter storm, residents of smaller mountain communities, particularly those living in the outskirts, have gone into survival mode.

“The only way I could describe this is like if we had an avalanche fall over the San Bernardino Mountains and we’re just stuck,” Lake Arrowhead resident Pablo Tello told KABC.

Roads remain impassible as people make the cold trek in search of needed supplies.

Gordon walked a mile to and from his home looking for food.

Crestline’s only grocery store, Goodwin & Sons Market, was destroyed after its roof collapsed under the weight of snow. -KABC

A life and death situation is unfolding in #SanBernardinoMountains after this week’s powerful #winterstorm. This is #Crestline, #California on March 4. #abc7eyewitness #cawx #weather #californiablizzard pic.twitter.com/H4xPJ4O54a

— David González (@abc7DavidGonz) March 4, 2023

Local Facebook groups are full of people concerned about their neighbors and discussing the situation.

“It’s so much snow, there’s nowhere to put it,” Crestline, CA resident James Gordon told KABC. “I’ve been up on this mountain my whole life from Big Bear to here in Crestline, and this is the worst storm I’ve seen in 30 some odd years I’ve been up here.”

“We only stay stocked up for maybe three or four days, and the grocery store is just down the street, so we’re like it’s not a big deal, but then when the grocery store collapsed and all these trees are snapping and we’re in and out of power it’s real hard right now,” he added.

According to Fox11 Los Angeles, some California mountain residents could be snowed in for another week.

“We’ve said we could push it out as far as two weeks but because of the state’s efforts and the equipment that’s coming in behind us we’re hoping to drop that down to a week,” said San Bernardino County Sheriff Shannon Dicus in a press conference.

“The enormity of this event is hard to comprehend,” said state Assemblyman Tom Lackey. “You know, we’re thinking, ‘We’re in Southern California,’ but yet we have had an inundation that has really, really generated a severe amount of anxiety, frustration and difficulty, especially to the victims and those who are actually trapped in their own home.”

Shelah Riggs said the street she lives on in Crestline hasn’t seen a snowplow in eight days, leaving people in about 80 homes along the roadway with nowhere to go. Typically, a plow comes every day or two when it snows, she said. -FoxLA

“We are covered with five or six feet (1.5 or 1.8 meters); nobody can get out of their driveways at all,” said Riggs in a telephone interview, adding that the county’s response has been “horrible” and that “people are really angry.”

San Bernardino is one of 13 counties for which a state of emergency was declared due to the impacts of severe weather.

In Mono City, a small community on the eastern edge of the Sierra Nevada near Yosemite National Park, some residents have been snowed in without power for a week, the Mono County Sheriff’s Office posted Friday on Facebook. In the northern part of the state, mountain communities grappling with the conditions have smaller populations and are more accustomed to significant snowfall. -FoxLA

“I’m getting more upset by the day,” said Devine Horvath of Crestline, who said it took she and her son 30 minutes to walk down the street to check on a neighbor – a trek that normally takes just minutes.

According to CA DOT official Jim Rogers, crews working 24-hour shifts have removed more than 2.6 million cubic yards of snow from state highways.

That said, officials also described a host of problems reopening smaller roads – which include buried vehicles and downed power lines. Residents have been urged to try and mark the locations of buried cars.

“We are going house to house, and we’re literally using shovels to shovel out driveways to make sure that people have access to their cars,” said county fire chief Dan Munsey. “As the roads are plowed, you still have a 10-foot (3-meter) berm of snow that you need to make it over.”

Authored by Jonathan Turley,

The Washington Post is now admitting that President Joe Biden’s college loan forgiveness plan is unconstitutional, but it insists that the “the court shouldn’t stop him.”

The reason is standing and the Post is now apparently a standing hawk forced to accept a half trillion dollar give-away to maintain a narrow view of case or controversies under Article III.

The Post previously ran opinion pieces saying that Biden clearly has this authority, but this is an opinion piece from the editors themselves on the subject.

The Post now admits with some of us that Biden “overreached” in his use of the HEROES Act to allow him to unilaterally cancel roughly 500 billion dollars in loan debts. Executive “overreach” is a common reference to exceeding the authority afforded by Article II. The Post describes the action as “bad” and without congressional approval. Of course, giving away half a trillion dollars without congressional approval was the type of unilateral action that the Framers sought to prevent in giving Congress the power of the pursue. In other words, it is not just “bad.” It is unconstitutional.

President Biden is using a law designed to help service members and their families deal with debt accrued in fighting for this country.

The terms of the Higher Education Relief Opportunities for Students (HEROES) Act of 2003 allows the secretary of education “to waive or modify … financial assistance program requirements … affected by a war, other military operation, or national emergency.” Biden had promised to wipe out tuition debt in the campaign and simply hijacked the Act for that unintended purpose. Putting that aside, the Act ties such relief to an inability to cover such costs due to the war or emergency.

The Biden plan would use the law to benefit individuals without such a showing, including many of the 40 million beneficiaries who are relatively wealthy and could pay off the loans.

Various professors including Dalié Jiménez, a law professor at the University of California, Irvine, filed an amicus brief in support of the Administration and claimed that the HEROES Act “is as clear as sunlight” in authorizing the department’s action.

The Office of Legal Counsel, considered the ultimate authority on legal interpretations in the Executive Branch, looked at this issue during the Trump administration. Its memo concluded that “the Secretary does not have statutory authority to provide blanket or mass cancellation, compromise, discharge, or forgiveness of student loan principal balances, and/or to materially modify the repayment amounts or terms thereof, whether due to the COVID-19 pandemic or for any other reason.”

The Biden Office of Legal Counsel issued a new opinion concluding the opposite, due to the ongoing pandemic — a curious argument, since the Biden administration was just in court arguing that the pandemic was effectively over, in order to allow undocumented individuals to enter the country. Citing the Centers for Disease Control and Prevention, the administration sought to stop the enforcement of Title 42, which allowed the government to turn away migrants at the border.

Now, the Post appears to reject the Biden OLC opinion and calls the policy not only unconstitutional “overreach” but “a regressive and expensive mistake.”

It insists, however, that this unconstitutional, regressive and expensive overreach should stand.

I should admit that I have been described as a “standing dove” due to my more liberal view of standing requirements under Article III. I successfully argued in favor of standing for the House of Representatives as a single house and previously argued (unsuccessfully) on behalf of individual Democratic and Republican members seeking “members standing.” I view narrow standing rules as often inimical to the protection of core structural guarantees of the Constitution.

This case is precisely why I have long favored broader standing rules. This is a clearly unconstitutional action by the President that is being defended largely on the basis of, in my view, an unnecessarily narrow view of standing imposed by the courts.

I recently spoke at the University of Maryland with George Mason law professor Ilya Somin, who argues that the claims of Missouri satisfy standing.

At issue is the right of the state to argue the interests of the the Missouri Higher Education Loan Authority (MOHELA) – that services student loans. While MOHELA is an independent agency and is not a party to the lawsuit, Somin argues that detractors confuse this case with prior cases raising individual constitutional injuries: “Unlike individual rights claims, which – on this theory – can only be asserted by people who have suffered specific rights violations, structural claims can be raised by anyone, because structural restrictions on government power provide generalized protection for all Americans.” He believes that standing can be based on existing precedent.

There is a legitimate issue over standing under current case law. It ultimately turns on one’s views on the proper scope of the standing doctrine in raising these structural constitutional concerns. However, the Post, which has previously shown a tendency toward broad interpretations of constitutional provisions, may be premature in citing standing (albeit reluctantly) as a shield for this clearly unconstitutional overreach by President Biden.

Hungarian Prime Minister Viktor Orbán has said in a fresh interview with Swiss weekly Weltwoche that his country’s leadership is “strong enough to keep the war away from our country” while also stressing that Washington has become prime the decision-maker over the conflict in Ukraine.

He further addressed the proxy war nature of the conflict in saying, “There are some who want to force Hungary into the war, and they are not picky about the means with which to achieve that goal.”

“Ukraine is our neighbor where Hungarians live as well,” he continued. “They are being conscripted and are dying by the hundreds on the front.” The Hungarian government has long protested this practice and presented its complaints to Kiev.

“Europe has retired from the debate,” Orban complained of EU countries being dragged into confrontation with Moscow by Washington. “In the decisions adopted in Brussels, I recognize American interests more frequently than European ones.”

“In a war that is taking place in Europe the Americans have the final word,” he stressed in the interview.

Most recently, Hungary has shown its unwillingness to go along with the rest of NATO by delaying a vote on ratifying Sweden and Finland’s accession bids.

According to a Thursday Associated Press report, “The delay, which pushes the vote back by two weeks to the parliamentary session beginning March 20, comes as Hungary remains the only NATO member country besides Turkey that hasn’t yet approved the two Nordic countries’ bids to join the Western military alliance.” The report indicates: 

Hungary’s populist prime minister, Viktor Orban, has said that he is personally in favor of the two countries joining NATO, but alleges that the governments in Stockholm and Helsinki have “spread blatant lies” about Hungary which have raised questions among lawmakers in his party on whether to approve the bids.

.@PM_ViktorOrban in interview with @Weltwoche‘s @KoeppelRoger: “Hungary’s political leadership is strong enough to keep our country away from war” despite pressure to join the conflict. 1/7 pic.twitter.com/0UDNDf4PgR

— Zoltan Kovacs (@zoltanspox) March 2, 2023

“It’s not right for them to ask us to take them on board while they’re spreading blatant lies about Hungary, about the rule of law in Hungary, about our democracy and about life here,” Orban complained. “(How) can anyone want to be our ally in a military system while they’re shamelessly spreading lies about Hungary? So let’s stop for a friendly word and ask them how this can be.” But even if Budapest were ready and willing to give its approval, Turkey’s ongoing resistance has been even fiercer, and thus Sweden and Finland are unlikely to enter the alliance anytime soon.

Orban also recently broke ranks with other European leaders regarding China’s 10-point peace plan for resolving the Ukraine war. He was a lone Western voice in expressing approval. “We also consider China’s peace plan important and support it,” the Hungarian leader said before parliament last Monday. He also reiterated Hungary’s position that it will not be supplying weapons to Kiev.

Authored by Charles Hugh Smith via OfTwoMinds blog,

My projections are: less high-quality work gets done; less work of any quality gets done; those carrying most of the weight burn out and quit and everyone wonders why the quality of goods and services is sinking to new lows.

Since we only keep track of what we measure, whatever isn’t easily quantifiable isn’t even on the radar screen. While we measure the number and type of jobs and the percentage of the populace who are employed, etc., the less quantifiable characteristics of work and jobs are not widely recognized, discussed or understood.

One such difficult-to-quantify element is how demanding jobs are today compared to the same work a generation or two ago. Take the “burger-flipping” fast-food jobs that are so often dismissed as low-skill work. What few outside the fast-food industry seem to realize is how demanding “burger-flipping” work is now. It is a high-pressure “factory” optimized for production of fast-food meals with the minimum staff.

It is not easy work. Many people can’t keep up the pace and perform all that is demanded.

The same can be said for many other jobs that are assumed to be low-skill and therefore “easy.” In the relentless drive to reduce costs, staffing is trimmed, experienced workers let go and replaced with trainees, and more work is piled on those still on staff.

This is equally true of high-skilled jobs: staffing is reduced, open positions remain open for months or years, the work experience and knowledge of those retiring isn’t matched by the often poorly trained replacement workers.

Managers who once had an admin assistant are now their own admin. The work that was once divvied up among three jobs now falls on one worker.

The obsessive drive to increase profits by reducing labor costs has been the norm for the past 20 years. Globalization is one dynamic pushing ceaseless cost-cutting, and so is the ever-higher costs of labor overhead, with employee healthcare being the primary source of staggering increases in the cost of employees. Note the employees don’t see this cost; they see their take-home pay stagnating but not the soaring costs of healthcare insurance paid by their employer.

This raises another rarely quantified element in jobs/work: the precipitous decline of security. Employers offer laid-off employees contract positions that pay $10 more per hour but offer no healthcare, retirement, disability insurance, etc., all of which cost the employer $15/hour. The employer cuts total costs of labor and offloads all the accounting and management of healthcare, retirement funds, paying estimated taxes for income, Social Security and Medicare, etc. on the newly minted contract worker, many of whom are ill-prepared for these extra burdens of self-employment.

It’s not just that wages have stagnated and job security has dropped away; the workload has increased, often dramatically. Yes, there are still Big Tech jobs that appear to be inessential to the operation of the enterprise, but these are being slashed by the tens of thousands. But as a general rule, the workload has increased while job security and the means to get the job done have both declined precipitously.

This erosion has been so gradual that few seem aware of the dramatic changes in the nature of work/employment over the past 40 years.

Equally consequential declines have occurred in the capacity of the workforce to do difficult, demanding jobs. As the general health of the populace has declined, fewer people have the physical stamina and strength to do the physical work. (Try lifting a hotel mattress to change the sheets. Careful, your back may blow out.)

Others lack the requisite social skills (the demands for these skills have also increased) or intellectual capacity or proper training or the will to sustain demanding work.

Two generations ago, there were still undemanding jobs for people who for whatever reason are unable to do demanding work, or who choose not to. Today, most jobs are demanding.

You see the problem. A workforce with diminishing capacity / will to do demanding work and an employer class that has relentlessly increased demands on the workforce while eroding security.

Many assume whatever work people struggle to do or no longer want to do will be performed by automation/robots. Despite the advances in automation, this assumption may not play out as seamlessly as proponents believe. If jobs could have been done by robots for less money, they would already have been automated. It isn’t quite as easy as it might look from the outside.

My projections based on the above are: less high-quality work gets done; less work of any quality gets done; those carrying most of the weight burn out and quit and everyone wonders why the quality of goods and services is sinking to new lows.

New Podcast: Turmoil Ahead As We Enter The New Era Of ‘Scarcity’ (53 min)

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