Good morning. Here’s your Daily Situational Awareness for Thursday, 03 August 2023.
- READ TIME: 5 Minutes, 38 Seconds
- Inside the Beltway
- (1) Trump to Appear in D.C. Court Today on January 6th Charges
- (2) White House: Ratings Drop Due to “Republican Extremism”
- (3) Republicans Tell EPA to Withdraw Clean Power Plan 2.0
- Domestic INTSUM
- (4) Higher Deposit Rates, Higher Bank Risks
- (5) Siegel: Stocks to New Highs, 30% Recession Chances
- (6) Navy Solution for Retention to Hurt Recruitment
- Russia-NATO SITREP
- (7) Poland: Wagner’s Move Will Destabilize Eastern Europe
- (8) Russia: BRICS Currency “Hardly Feasible” For Now
- China & Indo-Pacific SITREP
- (9) Superconductor Breakthrough
INSIDE THE BELTWAY
- (1) TRUMP TO APPEAR IN D.C. COURT TODAY ON JANUARY 6TH CHARGES: Former President Donald Trump is scheduled to appear this afternoon for a hearing at the Washington D.C. E. Barrett Prettyman Federal Courthouse, where he will be processed and arraigned.
- In a joint statement, Senate Majority Leader Chuck Schumer (D-NY) and House Minority Leader Hakeem Jeffries (D-NY) said, “No one, including the President, is above the law,” and the legal process should move forward without “outside interference.”
- Why It Matters: There are likely to be demonstrators, and while low, there is a chance that violence could break out if both pro-Trump and anti-Trump demonstrators show. U.S. District Judge Tanya Chutkan is assigned to this indictment, and she is known for passing down harsh sentences on January 6th defendants, often harsher than the prosecution recommends. – R.C.
- (2) WHITE HOUSE: RATINGS DROP DUE TO “REPUBLICAN EXTREMISM”: White House Press Secretary Karinne Jean-Pierre said “extremism” from Republican officials, including undermining governance and democracy, is a “continued threat” to the U.S. economy after Fitch downgraded the United States’ credit rating.
- House Budget Committee Chair Jody Arrington (R-TX) said Fitch downgrading the U.S. credit rating was a “wake-up call” for the U.S. to “get our fiscal house in order before it’s too late.”
- Why It Matters: Partisan divisions are deepening, and the Biden administration is actively working to accelerate it by blaming Republicans for Fitch’s decision more than two years into Biden’s term. This messaging and the continuing criminal and civil suits piling up against former President Trump and individuals who worked for the Trump administration are setting up 2024 to be a very contentious election that could see violence. – R.C.
- (3) REPUBLICANS TELL EPA TO WITHDRAW CLEAN POWER PLAN 2.0: 39 Republican Senators led by Senate Majority Leader Mitch McConnell (R-KY) sent a letter to Environmental Protection Agency (EPA) Administrator Michael Regan requesting the EPA withdraw their proposed Clean Power Plan 2.0 rule set to take effect at the end of the year.
- The Senators said the EPA is overstepping the legal authority of Congress in the Clean Air Act, and Clean Power 2.0 runs counter to the SCOTUS decision West Virginia v. EPA.
- Why It Matters: The Clean Power Plan 2.0 will cripple the U.S. grid. Fossil fuel power plant operators are already planning to shut down plants that will be affected by the new emissions rules. This may be the first sign of Republican resistance to a Biden administration policy that will make the U.S. grid more fragile than it already is. The Biden administration thinking behind the Clean Power Plan 2.0 is likely that they expect the industry to adopt green energy technology out of necessity to keep the grid stable. – R.C.
- (4) HIGHER DEPOSIT RATES, HIGHER BANK RISKS: After depositors fled small and midsized banks earlier this year, these banks relied on brokered deposits – a type of bank funding from a third-party deposit broker.
- In the first quarter, banks collectively had $1.03 trillion in brokered deposits – the highest total in two years.
- Brokered deposits can help banks improve their balance sheets, but these deposits carry interest rates of 5% – over 10X the average interest rate payout on savings accounts.
- Why It Matters: Higher deposit rates will squeeze banks’ profits, and this could push banks to take on riskier loans. We expect interest rates to continue climbing, meaning that smaller banks will take greater risks to compensate for their higher funding costs. Defaults on these riskier loans could spark another round of banking failures and a financial crisis. – H.B.
- (5) SIEGEL: STOCKS TO NEW HIGHS, 30% RECESSION CHANCES: Jeremy Siegel, a finance professor at the University of Pennsylvania’s Wharton School of Business, has a rosy outlook for markets and the economy.
- Siegel noted that he’s positive due to: The latest Gross Domestic Product estimate (+2.4% growth), a fourth consecutive month of rising home prices, a growing money supply, improving jobless claims, and stable consumer sentiment.
- Why It Matters: While we agree with Siegel that a recession isn’t ahead this year, regarding the stock market, Siegel may be right for the wrong reason. A loss of institutional confidence in governments, rather than underlying U.S. economic strength, should increase global demand for U.S. mega-cap companies. – H.B.
- (6) NAVY SOLUTION FOR RETENTION TO HURT RECRUITMENT: Effective 01 July 2024, the Navy will no longer require a rating or professional military knowledge test to advance to E-4. After 30 months as an E-3, the sailors will automatically advance to the NCO ranks.
- The total time in service to reach E-4 is after a typical four-year enlistment but can be accelerated at their Commanding Officer’s discretion.
- Sailors who signed up for two years of additional obligatory service in exchange for auto-advancement will still be required to serve their six-year enlistment.
- “Historically slow-advancing rates” will be given additional quotas ahead of the implementation.
- Why It Matters: While everyone was focused on recruiting, a retention issue has been simmering. Automatic advancement nine months after their reenlistment is being used to entice Sailors to reenlist. The CO’s option to accelerate advancement gives individual commands the ability to bribe Sailors to reenlist. Additionally, this will have significant second-order effects on competency in the NCO ranks, bottlenecked advancement to E-5, and stunted recruitment to technical rates which depended on automatic advancement to E-4. All second-order effects reduce the readiness and morale of the service, which will further reduce public opinion of the military. – J.V.
- (7) POLAND: WAGNER’S MOVE WILL DESTABILIZE EASTERN EUROPE: Polish Prime Minister Mateusz Morawiecki said that Wagner’s deployment to Belarus is intended to destabilize NATO’s eastern flank and that NATO needs “to be aware that the number of provocations will rise.”
- An unknown number of Wagner’s 4,000 troops in Belarus have started training with the Belarusian military, according to Morawiecki. Poland moved 1,000 troops to its border in response.
- Lithuanian President Gitanas Nauseda said that NATO needs to prepare for contingencies “if this situation becomes even more complicated, including the closure of the border with Belarus.”
- Why It Matters: Wagner fighters retain significant combat experience, which is being shared with the Belarusian military. This move could be intended as a check against further Polish involvement in Ukraine, as Polish officials are reportedly considering sending troops. – M.S.
- (8) RUSSIA: BRICS CURRENCY “HARDLY FEASIBLE” FOR NOW: Kremlin Spokesman Dmitry Peskov said that while BRICS countries continue to consider introducing a common BRICS currency, it “can hardly be implemented in the near time.”
- Why It Matters: The BRICS countries, if they continue to develop a common currency, will face a number of challenges, including building sizeable capital and credit markets, ensuring stability and transparency, and providing liquidity for international transactions. It’s unlikely to be a “dollar killer” anytime soon. – M.S.
China & Indo-Pacific SITREP
- (9) SUPERCONDUCTOR BREAKTHROUGH: In July, South Korean researchers published two papers on a lead-based superconductor material called “LK-99,” and this week, a team from China claims that they’ve replicated the material.
- Unlike other superconductors that require a low operating temperature and high pressure, LK-99 operates at room temperature and standard atmospheric pressure.
- A Jefferies Financial Group analyst said that if LK-99 can deliver on its promise and we can mass produce it, the superconductor could disrupt several industries – computer chips, rail transport, and medical imaging, among others.
- Why It Matters: Currently, there’s no timeline for advancing LK-99 from the lab to markets. If the material can revolutionize computers and electronics, it could kick off a new tech race. Also, on a broader level, while it’s easy to focus on the world’s many negative developments, we should also remember that researchers are constantly advancing technology that benefits humanity. – H.B.
Low Intensity Conflict SITREP (Next 48 hours)
- Greenwich Village, NY – Far-left activists are planning a memorial rally at Stonewall. Activists demand protestors prepare to “make some noise.” Rally is planned for Thursday, 03 August, at 1900 EDT. The rally will be at Stonewall Inn, Greenwich Village, NY.
— END REPORT
M.S. indicates analyst commentary from Mike Shelby
M.M. indicates analyst commentary from Max Morton
J.V. indicates analyst commentary from Jared Vaughn
R.C. indicates analyst commentary from Robert Cook
H.B. indicates analyst commentary from Harrison Burge