White House Approves Transfer To Israel Of More Bombs & Jets Worth Billions

 The Biden White House has approved of sending billions of dollars worth of new military equipment and ammo to Israel, The Washington Post has revealed, even amid public criticism from US officials over Prime Minister Netanyahu's intent to soon send ground troops into Rafah, which is expected to result in humanitarian disaster in the refugee-packed southern city.

This package is to include 25 F-35 fighter jets, sources told the Post, and additionally the highly controversial 2,000-pound bombs which have been known to kill indiscriminately in Gaza when deployed by the Israeli air force.

"The new arms packages include more than 1,800 MK84 2,000-pound bombs and 500 MK82 500-pound bombs, according to Pentagon and State Department officials familiar with the matter," the report indicates.

"The 2,000-pound bombs have been linked to previous mass-casualty events throughout Israel’s military campaign in Gaza," WaPo continues. "These officials, like some others, spoke to The Washington Post on the condition of anonymity because recent authorizations have not been disclosed publicly."

The 2,000 pound bombs have been flagged by human rights monitors as behind much of the soaring Palestinian casualties, given they can demolish entire city blocks and produce craters over 40 feet wide.

The weaponry was approved as part of a prior authorization, but it highlights that for all the current US-Israel tensions due to the soaring civilian death toll in the Gaza campaign, Biden is certainly no closer to attaching 'conditions' on Israel when it comes to deployment of US-supplied weapons.

A State Department official has explained that "fulfilling an authorization from one notification to Congress can result in dozens of individual Foreign Military Sales cases across the decades-long life-cycle of the congressional notification."

"As a matter of practicality, major procurements, like Israel’s F-35 program for example, are often broken out into several cases over many years," the official added.

A New York Times investigation in December concluded that Israel has been using 2,000 pound bombs supplied by the US on Gaza neighborhoods on a routine basis. The Pentagon has said it almost never uses these types of weapons in densely populated urban areas anymore because of the likelihood of large-scale civilian casualties.

The Times report further said that 2,000 pound bombs had been dropped on Gaza and even inside declared 'safe zones' in the south, some hundreds of times.

https://www.zerohedge.com/geopolitical/white-house-approves-transfer-israel-more-bombs-jets-worth-billions

"US Economy Is Inverted": How Flood Of Illegal Immigration Delays Official US Recession

 By Dhaval Joshi, Chief Strategist at BCA Research

Summary

• The US economy is highly unusually ‘inverted’. The constraint on the economy is not labor demand, it is labor supply.

• Hence, the US economy has highly unusually entered a labor demand recession without entering a GDP recession.

• Nevertheless, for the stock market, a labour demand recession implies a profits headwind, because it is only when profits come under pressure that labour demand goes into recession.

• Against this, wage disinflation would allow long-duration bond yields to fall, which would provide a countervailing valuation tailwind.

The pandemic might seem like a distant memory, but for the US economy the pandemic’s legacy is still the big story. For the first time in at least fifty years, US labor supply is running well below labor demand. The big story is that the US economy is ‘inverted.’

Therefore, we must analyze the post-pandemic inverted economy very differently to the pre-pandemic economy. Normally, labor demand – being less than labor supply – is the constraint on economic output and thereby drives the cycle. But in an inverted economy, labor supply – being less than labor demand – is the constraint on output and thereby drives the cycle.

Before the pandemic, all downswings caused labor demand to fall well below labour supply. In the subsequent upswings, labor demand gradually caught up with supply…until the next downswing caused a fresh slump in labor demand. And the cycle repeated. Importantly though, all pre-pandemic cycles were driven by the demand side.

Then came the pandemic, and the longstanding pattern inverted. Labor supply suffered the more protracted slump, from which it has gradually caught up with labor demand. Meaning that in the last couple of years, the cycle is being driven not by what is happening to labor demand,  but by what is happening to labor supply.

Interest rate hikes work by choking demand, which is exactly what has happened recently. US labor demand is tipping into recession. Jobs plus job openings today are less than they were a year ago. Whenever this happened pre-pandemic, the economy tipped into recession too. But for the first time in at least fifty years, the economy is entering a labor demand recession without entering a GDP recession.

This is because in an inverted economy the constraint on the economy is not labor demand, it is labor supply. Despite weaking
labor demand, labor supply has played catch up to demand and thereby driven economic growth.

As labor supply has caught up with labor demand, it has narrowed the gap between demand and supply. This has created the perfect macro backdrop of robust economic growth with wage disinflation, a Goldilocks setup for financial assets. The pressing question for the coming 6-12 months is, what happens next to labor supply, labor demand, and their interplay?

Why The US Economy Inverted

But first, let’s tackle the obvious question. Why is US labor supply running well below labor demand?

There are two reasons: after the pandemic, prime aged (25-54) workers left the labor force; and older aged (55+) workers retired early, generating millions of so-called ‘excess retirements.’

The economically inactive make no contribution to labor supply. Yet they still consume the goods and services that generate labor demand. This they do by using savings or, in the case of early retirees, by tapping into their retirement assets and income early. Thereby, the plunge in prime-aged labor participation combined with excess retirements caused labor supply to fall well below labor demand.

Subsequently, the plunge in prime-aged labour participation has fully reversed, causing labor supply to recover strongly. But the excess retirements have not reversed and are unlikely to reverse

This means that the strong recovery in labor supply is now exhausted, with labor supply still several million people below labor demand. The economy is still inverted.

US Labour Demand Is Already In Recession, But GDP May Dodge The Bullet

To repeat, US labor demand has already tipped into recession. But in the inverted economy – where labor supply is the constraint on output – labor supply is driving the GDP cycle.

It follows that a GDP recession would require one of two things:

• Labor supply must outright contract. However, with the recent surge in illegal migration – most of which does eventually get counted in the survey-calculated labor supply – a sustained contraction in labor supply seems unlikely. Of course, this could change under a new Trump administration, or...

• Labor demand must contract so sharply – by about 3.5 million jobs – that the economy would ‘un-invert’. Once un-inverted, contracting labor demand would once again drive GDP into recession, as in all pre-pandemic cycles.

But if labor demand contracts more gently – as now – then the US economy could experience a sustained labor demand recession without a GDP recession, making it difficult for the National Bureau of Economic Research (NBER) to designate it an official recession.

This ‘halfway house’ in which GDP is not in recession, but labor demand is in recession and gently ‘catching down’ with labor supply is a distinct possibility – because it is the least painful way for the Federal Reserve to steer wage inflation back down to the 3 percent rate that is needed for price inflation to stabilise at 2 percent (Chart 5 and Chart 6).

Yet though the economy could dodge the ‘NBER official recession’ bullet, a labor demand recession combined with stagnant per capita real incomes would very much feel like a recession.

For the stock market, a labor demand recession implies lower profits because it is only when profits come under pressure that labor demand goes into recession. Against this, wage disinflation would allow long-duration bond yields to fall, which would provide some countervailing support to stock valuations. In combination this would imply the stock market was rangebound while high-quality bonds rallied.

But there is another factor to consider. The euphoric pricing of anything AI-related is a separate and independent risk to the stock market. Absent this risk the macro backdrop would imply a neutral allocation to stocks versus cash. But this additional risk ratchets down my 6-12-month allocation to mildly underweight.

For those who can time this, go underweight stocks when the ‘Joshi rule’ is triggered. Or, when the rally reaches a  collapsed complexity that presages an imminent reversal.

https://www.zerohedge.com/markets/us-economy-inverted-how-flood-illegal-immigration-delaying-official-us-recession

US Oil Suppliers Muscling Into OPEC+ Markets All Over the World

 

• India, major buyer of illicit oil, pivots to US crude
• US has become top crude exporter since Ukraine war began

One major beneficiary of sanctions on Russian and Venezuelan oil? US suppliers who’ve muscled their way into markets once dominated by OPEC and its allies.

US oil exports have set five new monthly records since Western nations began imposing sanctions on Russia in 2022. And with trade restrictions on Venezuela set to renew in April, American barrels are beginning to displace sanctioned crude in India, one of the biggest buyers of illicit oil.

https://www.bloomberg.com/news/articles/2024-03-31/american-oil-is-muscling-into-opec-markets-all-over-the-world

Magnificent 7 are no longer the only stocks driving S&P 500 to record highs

 More stocks joined in the rally during the first quarter, helping to compensate for some weakness in Big Tech. This suggests the rally will continue, analysts say.

More individual stocks pitched in to help drive the S&P 500 index to record highs during the first quarter, rebutting skeptics' concerns that the market's gains were too narrow to endure.

Data provided to MarketWatch by Carson Group's Ryan Detrick showed the number of S&P 500 stocks trading at 52-week highs recently peaked at 118, the highest in three years, and a clear sign that market breadth has continued to improve.

Also, more index members are entering long-term uptrends, as the percentage trading north of their 200-day moving average topped 83% on Thursday, the highest since August 2021, according to Dow Jones Market Data.

Magnificent 7's influence wanes

Just because more stocks are contributing to the rally doesn't mean investors are giving up on Big Tech though. Data show megacap technology stocks have continued to contribute mightily to the index's advance this year, even if their influence has waned since 2023.

Taken together, the Magnificent Seven were responsible for 37% of the S&P 500's 10.2% first-quarter gain, according to data from Howard Silverblatt, senior index analyst at S&P Global Indices. That is less than in 2023, when the seven stocks drove roughly two-thirds of the index's advance, according to Dow Jones Market Data.

But if one strips out shares of Apple Inc., Tesla Inc. and Alphabet Inc., the contribution of the remaining four members of the group swells to 47%, according to data from Silverblatt. The longtime analyst dubbed these "the Gang of Four" - Nvidia Corp. (NVDA), Microsoft Corp. (MSFT), Meta Platforms Inc. (META) and Amazon.com Inc. (AMZN)

Apple Inc. (AAPL) and Tesla Inc. (TSLA) have each declined by double digits since the start of the year, while Alphabet Inc.'s Class A and Class C shares have trailed the S&P 500.

As a group, the Magnificent Seven appeared to stall in March, as they underperformed the S&P 500 by the most since December. The group rose just 1.6% on a market-cap-weighted basis, compared with the 3.1% advance for the index, according to Dow Jones Market Data.

"The Magnificent Seven are falling apart, with Apple and Tesla clearly suffering, but the growth is encompassing more stocks," said Alex Kuptsikevich, senior market analyst at FxPro, in a note.

It wasn't just Apple and Tesla weighing on the group's performance last month: Amazon and Meta also lagged the S&P 500.

But even without as much help from Big Tech, the S&P 500 still managed to log its 22nd record closing high of 2024 on Thursday, the final trading day of the month and quarter, according to FactSet data.

Cyclical sectors are picking up the slack

While Big Tech is slowing, cyclical sectors like industrials, financials and energy stocks are picking up the slack.

These three sectors, along with information technology and communications services, outperformed the S&P 500 during the first quarter. That's up from just three sectors outperforming the index in 2023.

Expanding market leadership is exactly what Carson Group's Detrick had hoped to see this year following the S&P 500's 24.2% advance in 2023.

"The lifeblood of a bull market is rotation. Clearly, we've seen rotation out of some of the highflying tech names and into some of the cyclicals," Detrick said during an interview with MarketWatch.

And the fact that so many cyclical sectors - which tend to outperform when the economy is chugging along - have recently risen into record territory bodes well for the rally, said Bret Kenwell, a U.S. equity strategist at eToro.

Financials, industrials, materials, three sectors typically classified as cyclicals, have all notched records in 2024, as have healthcare stocks, which are typically classified as defensive. Information technology stocks are also trading in record territory.

"It's never bearish to see industrials and financials at new highs," Kenwell said.

Analysts eye small- and midcap stocks next

As the Federal Reserve moves closer to cutting interest rates, some portfolio managers expect mid- and small-caps, which were some of the biggest beneficiaries of the "everything rally" in November and December, could soon retake the lead.

For its part, the S&P Mid Cap 400 index MID has already come close. The index closed at 3,046.36 on Friday, a record high, according to FactSet data. Its 9.5% since the start of the year is nearly on par with the S&P 500.

But small-caps have continued to lag. The Russell 2000, an index of small-cap names, is still trading 12% below its record close from November 2021, according to FactSet data. The Russell 2000 RUT finished March at 2,124, a 3.2% gain for the month, bringing its year-to-date advance to 4.8%.

"Small-caps will need the Fed cutting interest rates decisively," said Barbara Reinhard, chief investment officer of Voya Investment Management's multiasset strategies and solutions platform.

The next marquee event for markets is due this coming Friday with the release of the March nonfarm payrolls report from the Labor Department. Economists polled by The Wall Street Journal expect 200,000 jobs to have been created, compared with 275,000 last month.

The Dow Jones Industrial Average DJIA rose by 810.99 points, or 2.1%, in March to finish at 39,807 on day Thursday, setting its 17th record high of 2024. The S&P 500 gained 158.08 points, or 3.1%, to 5,254.35, its 22nd record high, according to FactSet data. The Nasdaq Composite COMP gained 287.54 points, or 1.8%, to 16,379.

https://www.morningstar.com/news/marketwatch/20240331164/the-magnificent-7-are-no-longer-the-only-stocks-driving-sp-500-to-record-highs

Rick Scott: Israel has to ‘go into Rafah to destroy Hamas’

 GOP Sen. Rick Scott (Fla.) on Sunday argued it is imperative that Israel goes into Rafah to “destroy” Palestinian militant group Hamas, despite warnings from the Biden administration against the move.

“Number one, they [Israel] need American support; they have to go into Rafah to destroy Hamas,” Scott said during an interview on “Fox News Sunday.”

The Florida Republican is coming off of the heels of a trip to Israel, where he met with Israeli Prime Minister Benjamin Netanyahu and other government officials.

President Biden and other administration officials have repeatedly expressed concerns with  Israel’s plans for Rafah, a city in Gaza that shares a border with Egypt. Millions of people seeking refuge are being housed in the region after being evacuated from other parts of the enclave since the start of the war in early October.

Israeli leaders have asserted they plan to move forward with an invasion of the southern Gaza city. Earlier this month, Netanyahu said there is no “alternative” to the invasion, which he argued is necessary to wipe out Hamas.

“They [Israel] need American support, but they’re going to go into Rafah to get rid of Hamas whether the U.S. supports them or not,” Scott said.

The war between Israel and Hamas has raged on for more than five months since the militant group’s surprise assault on Israel that left 1,200 people dead. About 240 others were taken hostage in Hamas’s surprise assault, about 100 of which were returned during a week-long cease-fire late last year.

Israel has embarked on a military campaign to destroy Hamas, a U.S.-designated terrorist organization that has ruled the Gaza Strip since 2007. The bombardment of Gaza has killed over 32,700 people since early October, The Associated Press reported.

The rising death toll and wide-scale damage to Gaza has prompted growing concerns from some lawmakers, especially Democrats, about Israel’s wartime action and plans.

Scott on Sunday argued Democrats and the Biden administration need to ramp up support for Israel.

“I think the Biden administration, Democrats need to change their tune. They vote against Israel aid,” Scott said. “I mean, this is disgusting…what the Biden administration is doing. Support Israel, they’ve got to kill Hamas, they’ll never get their country back.”

https://thehill.com/homenews/senate/4566123-gop-senator-says-israel-has-to-go-into-rafah-to-destroy-hamas/

ISIS-K attack in Moscow draws fears of plots in US, Europe

 The deadly ISIS-K attack on a Moscow concert hall last week is raising concerns that plots by the terrorist group, once restricted to Afghanistan, could be carried out in the United States and Europe — and sooner than thought. 

Islamic State Khorasan, or ISIS-K, the Central Asian offshoot of the terror group the Islamic State, claimed responsibility for killing at least 143 people and injuring more than 100 others when four gunmen burst into the Crocus City Hall theater in Moscow just ahead of a concert on March 23. 

The high-profile attack, the deadliest on Russia in two decades, is all the more jarring given the group’s limited ability to carry out attacks beyond the Middle East just a few years ago. Experts warn that the speed with which ISIS-K has been able to broaden its scope in its attacks should be taken seriously. 

“I hesitate to say, ‘Oh, this is an imminent threat to the U.S. homeland,’ but the fact that [ISIS-K] has been able to evolve from this group that has generally been limited to Afghanistan and the neighborhood, and now it’s being linked to all of these plots far beyond Afghanistan, including in Europe, I think that’s quite concerning,” said Michael Kugelman of the Washington, D.C.-based Wilson Center. 

Established in 2014, ISIS-K seeks to create a Muslim caliphate across Afghanistan, Pakistan, Tajikistan, Turkmenistan, and Uzbekistan. The group, known for its extreme brutality, was formed by a group of disgruntled Taliban militants from Afghanistan and Pakistan that eventually began to recruit more broadly from Central Asia. 

The group took a hit when the Islamic State lost its caliphate in Iraq and Syria in 2017 after a brutal battle in Mosul, Iraq, fought by U.S., Iraqi, and Kurdish forces. They were further diminished by NATO Airstrikes in 2018. 

Still, ISIS offshoots have continued to spread across the globe in areas left unchecked, according to Kabir Taneja with the leading Indian think tank, the Observer Research Foundation.  

ISIS “has continued to thrive in other parts of the world, regions that perhaps most people don’t care about too much,” Taneja said. This may have made “the threat seem less, lax, or impotent,” but ISIS’s “aligned groups in Afghanistan, the African Sahel, Mozambique, and even continuing in Syria, have been slowly gnawing their way into prominence in these parts of the world.” 

Kugelman said ISIS-K is likely the most active and potent of any Islamic State regional affiliate currently.  

ISIS-K has focused most of its attacks on Afghanistan, notably the August 2021 bombing outside the Abbey Gate at Hamid Karzai International Airport in Kabul during the U.S. evacuation from Afghanistan. The bombing – which killed at least 183 people, including 170 Afghan civilians and 13 U.S. service members – “sort of woke the world up to the threat that the group posed,” Kugelman said. 

Other notable attacks include a suicide bombing outside the Russian embassy in Kabul in September 2022 and dual suicide bombings on Jan. 3 in Kerman, Iran, that killed nearly 100 people at a ceremony for the anniversary of the death of Qassem Soleimani, former head of the elite Quds Force within Iran’s Islamic Revolutionary Guard Corps. 

The United States firmly sees the group as an ongoing threat, with U.S. Central Command leader Gen. Michael Kurilla warning lawmakers last March that ISIS-K was rapidly building up its ability to conduct “external operations” in Europe and Asia.  

Attacks within the United States were not as likely, he said, but predicted that ISIS-K would be able to hit U.S. and Western interests outside Afghanistan “in as little as six months and with little to no warning.” 

And in September 2023, the Department of Homeland Security released its annual threat assessment, which said the U.S. was at “high risk” for a terror attack, pointing to ISIS-K as a likely perpetrator.  

Europe has also been on high alert after the Moscow attack, with Italy and France raising their security levels in the wake of the shootings.  

Making matters more tense, ISIS spokesperson Abu Huthaifa al-Ansar on Thursday called on followers to target “crusaders,” particularly in Europe and the United States. The propaganda was released on the 10th anniversary of when ISIS first announced its caliphate in Iraq and Syria. 

U.S. officials, meanwhile, say they remain vigilant against the evolving threat posed by including ISIS-K and other terrorist groups. 

“The Department of Defense has not taken its eye off of ISIS,” Pentagon press secretary Maj. Gen. Pat Ryder told reporters Thursday. 

But that vigilance is hampered by Washington’s diminished ability to develop intelligence against ISIS-K and other extremist groups in Afghanistan due to the U.S. withdrawal from the country in 2021.  

“When the United States left Afghanistan more than two years ago, the writing was clearly on the wall that ISIS-K was a significant threat, and that the threat was going to grow greater in the U.S. absence,” said the Atlantic Council’s Amb. Nathan Sales, a former coordinator for counterterrorism at the State Department.  

He added: “I think we’re in a very difficult position right now in terms of our ability to collect actionable intelligence on the group, let alone take action . . . .We simply don’t have the assets in Afghanistan that are necessary to collect and take action and that’s a very frightening situation to be in at a time when ISIS-K is developing the capabilities to go along with the intent to hit their enemies.” 

That thinking has been seized on by Sen. Marco Rubio (R-Fla.), who last week connected the Moscow attack to U.S.-Mexico border policy, saying on ABC’s “This Week” that it was “common sense” a for-profit human smuggling group with reported links to ISIS will “most certainly use [their network] to move operatives” into the country. 

“I’m not claiming there’s an imminent threat to the U.S., but I am saying that border situation and the existence of that network is a threat to the United States,” said Rubio, the vice chair of the Senate Intelligence Committee. 

Sales said that while the porous southern border is a real concern, it’s not the only worry.  

“We also have to be worried about terrorists entering the country through other means, whether because they were able to obtain a visa at some consulate overseas or whether they were able to exploit a vulnerability in the visa waiver program and travel from abroad without going through a visa scrutiny,” he said. “There’s a number of pathways that terrorists could take to carry out operations here in the homeland.” 

https://thehill.com/policy/defense/4566052-isis-k-attack-moscow-draws-plot-fears-us-europe/

China Increasingly Relies on Nonproductive Investment for Growth

 China’s reliance on nonproductive debt for growth has been obvious for years. But let’s go over why that is so.

Embedded in the Way China Works

Erosion of Role of Bankruptcy Is Critical for Growth

This happens in the US too, but not the same degree or in the same ways.

For example, the Fed recently papered over US treasury note losses of banks by swapping them for dollars at par. But the Fed has not lifted a finger on commercial real estate losses.

The amusing thing is how many people believe the yuan or a BRICS-based currency (call it a BRICK) will replace the dollar as the world’s reserve currency when it meets zero conditions necessary.

What Would it Take for the “Brick” to Succeed?

1. The Brick would need to float freely. The yuan doesn’t.
2. A functioning Brick-based bond market.
3. A significant desire by individuals to trade in Bricks and accept Bricks rather than local currencies or the dollar.
4. Willingness of China to stop export mercantilism.
5. Trust

China meets none of the conditions. For discussion, please see What Would it Take for a BRIC-Based Currency to Succeed?

Meanwhile, China has an imploding property bubble, capital controls. a yuan that does not float, and is overly dependent on insolvent and corrupt State Owned Enterprises (SOEs) for growth. And China’s demographics are horrible.

Instead of supporting consumption, it has again turned to exports for growth. That strategy is not good for either China or the US. But here we are.

https://mishtalk.com/economics/china-increasingly-relies-on-nonproductive-investment-for-growth/