Good morning. Here’s your Daily SITREP for Wednesday, 18 October 2023.
- READ TIME: 6 Minutes, 43 Seconds
- Inside the Beltway
- (1) Biden Summit in Jordan Canceled After Hospital Explosion
- (2) House GOP to Try Again After Failed Speaker Vote
- (3) Senate GOP to Block Israel Amb. Nom. Over Iran Ties
- Domestic INTSUM
- (4) WSJ Survey: Recession Skirted, Lower Rates in 2024
- (5) Illegal Immigrants Get Easier Path to Credit
- (6) U.S. Megabanks Post Blowout Earnings
- (7) California to Attempt Oil Industry Profit Cap
- Global SITREP
- (8) State Department Releases Travel Advisory for Lebanon
- (9) Putin in Beijing While Lavrov to North Korea
- (10) Public Furor Erupts Over Netanyahu Intelligence Failure
INSIDE THE BELTWAY
- (1) BIDEN SUMMIT IN JORDAN CANCELED AFTER HOSPITAL EXPLOSION: A diplomatic meeting between President Joe Biden, Jordanian King Abdullah II, Egyptian President el-Sisi, and Palestinian Authority President Abbas in Jordan was canceled after the parking lot of the Al-Ahli Hospital in Gaza was hit with a rocket. According to Palestinian media, hundreds were killed. However, other media reports say the number is likely in the dozens. Israel and Hamas are blaming each other for what was likely an errant Hamas rocket.
- President Biden is scheduled to arrive in Israel today, where he is expected to push Israel to exercise restraint in the coming Gaza offensive.
- The White House is preparing a $100 billion request for additional funding that will include money for Ukraine, Israel, Taiwan, and U.S. border security.
- Why It Matters: Regional actors are aligning themselves against the U.S. and Israel, and Biden’s attempt to pressure Israel on its coming offensive may be too late to stop a wider regional conflict. Media coverage, which reported that hundreds died at the Al-Ahli hospital, spurred demonstrators across the Muslim world to riot in front of U.S. embassies, and may be the casus belli for actors in the region to open new fronts against Israel. – R.C.
- (2) HOUSE GOP TO TRY AGAIN AFTER FAILED SPEAKER VOTE: House Judiciary Chair Jim Jordan (R-OH) fell short of the 217 votes needed to secure the Speakership during the first ballot yesterday. The House is scheduled to vote again today.
- A group of 20 Republicans including the “Cardinals” – the heads of the Appropriations subcommittees who control government spending and have clashed with Jordan in the past – voted against Jordan on the first ballot.
- Why It Matters: Jordan will likely promise “the Cardinals” that he will push through an emergency military aid package the White House is preparing in order to garner their votes. Jordan’s Speaker campaign could end if he loses the vote today. – R.C.
- (3) SENATE GOP TO BLOCK ISRAEL AMB. NOM. OVER IRAN TIES: Senator Tom Cotton (R-AR) said he will lead an effort to block the appointment of Biden nominee Jack Lew for Ambassador to Israel.
- According to a 2018 Senate report, Lew, as Treasury Secretary during the Obama administration, granted a license to and encouraged U.S. banks to convert $5.7 billion in U.S. banks to Iranian assets.
- Why It Matters: Cotton will likely use the parliamentary process other Senate Republicans have used to hold up appointments, like Senator Tommy Tuberville (R-AL), calling for a recorded vote instead of allowing unanimous consent. – R.C.
- (4) WSJ SURVEY: RECESSION SKIRTED, LOWER RATES IN 2024: The Wall Street Journal conducted its quarterly survey of business and academic economists that covered recession, interest rates, economic growth, and inflation forecasts.
- Economists lowered their average probability of a recession in the next year from 54% in July to 48% in October – the first time that recession probabilities have been below 50% since last year.
- About half of economists expect that the Federal Reserve will start cutting interest rates in the second quarter of next year.
- Why It Matters: Most predictions by economists surveyed in this Wall Street Journal poll have been off base, but a core group has been consistently correct. The most accurate economist, Allen Sinai of Decision Economics, is forecasting that by June 2024, the yield on the 10-year Treasury and interest rates will both be higher than today. Sinai predicts that inflation will still be over 3%, and there’s a 30% chance of a recession by October 2024. – H.B.
- (5) ILLEGAL IMMIGRANTS GET EASIER PATH TO CREDIT: The Biden administration has warned U.S. banks and financial institutions that it’s against the law to reject loan and credit card applications for illegal immigrants solely based on their immigration status.
- “Fair access to credit is crucially important for building wealth and strengthening household financial stability,” Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra said in a statement. “The CFPB will not allow companies to use immigration status as an excuse for illegal discrimination.”
- The Department of Justice and CFPB argue that the Equal Credit Opportunity Act (ECOA) protects credit applicants from discrimination based not just on race, religion, sexual orientation, and national origin but also on immigration status.
- Why It Matters: The Biden administration is transferring decisions from bank loan officers and credit analysts to federal bureaucrats. Banks will be under pressure to approve illegal immigrants with subprime or no credit history, which will lead to higher customer default rates and even more financial stress on regional banks. – H.B.
- (6) U.S. MEGABANKS POST BLOWOUT EARNINGS: JPMorgan, Bank of America, Citigroup, and Wells Fargo beat Wall Street’s revenue and earnings expectations in Q3.
- JPMorgan CEO Jamie Dimon said that his bank was “over-earning” on net interest income – the measure of how much banks earn from lending – and other bank CEOs confirmed that their banks have benefited from higher interest rates.
- “While the economy has continued to be resilient, we are seeing the impact of the slowing economy with loan balances declining,” said Wells Fargo CEO Charlie Scharf.
- “The global macro backdrop remains a story of desynchronization. In the U.S., recent data implies a soft-landing [slower growth without a recession], but history would suggest otherwise, and we are seeing some cracks in the lower [credit score] consumer,” according to Citigroup CEO Jane Fraser.
- Why It Matters: Higher interest rates this year have damaged regional banks, but U.S. megabanks are thriving, as we’ve forecasted. Regional banks still face another potential round of failures, which could consolidate banks and roll up prized assets into the U.S. megabanks. – H.B.
- (7) CALIFORNIA TO ATTEMPT OIL INDUSTRY PROFIT CAP: The California Energy Commission’s Division of Petroleum Market Oversight is set to take its first official action today under a California law that Governor Gavin Newsom said is intended to prevent “price gouging” by oil companies.
- The Division of Petroleum Market Oversight gathered oil transaction data over the summer, and Newsom urged the new division to take action in a September letter after he said the division reported an “unusual transaction.”
- Why It Matters: In 2022, California was the seventh-largest producer of crude oil in the United States, and the Golden State ranked third in oil refining capacity. This action by the California Energy Commission will follow the path of all other government price control policies, resulting in less oil production and higher energy prices for Californians and other Americans. – H.B.
- (8) STATE DEPARTMENT RELEASES TRAVEL ADVISORY FOR LEBANON: On Wednesday, the U.S. State Department warned Americans not to travel to Lebanon and said it will evacuate family members of US government personnel and some non-emergency personnel “due to the unpredictable security situation.”
- The drawdown of U.S. Embassy personnel is likely a reaction to yesterday’s large protests over the destruction of a hospital in Gaza initially blamed on Israel but later determined to have been caused by an errant rocket fired by the terrorist group Palestinian Islamic Jihad.
- Why It Matters: The increasing unrest in the Middle East signals that the region is headed for a major conflict between Israel and Iran and its proxy militias. It is unlikely that diplomatic efforts by the U.S. to calm tensions will affect the march to war, as both sides have divergent interests and objectives. Expect the possibility that U.S. Embassies will also draw down personnel or close in Syria and Iraq in the coming weeks or months. – M.M.
- (9) PUTIN IN BEIJING WHILE LAVROV TO NORTH KOREA: Russian President Vladimir Putin visited Chinese President Xi Jinping yesterday to strengthen their “no-limits” alliance while Russian Foreign Minister Sergei Lavrov makes a trip to North Korea today.
- Putin praised Xi for China’s Belt and Road Initiative and pitched global investment in the Northern Sea Route, which could deepen trade between East and West.
- Russia has increased cooperation with North Korea and is receiving significant ammunition and weapons supplies from North Korea’s stocks of Soviet-era munitions.
- Why It Matters: Russia is tightening its alliance with China, North Korea, and Iran as a new anti-Western axis. The U.S.-proxy war against Russia in Ukraine is essentially stalled, and a wider regional conflict in the Middle East will likely distract the U.S. from its former prominent role in supplying Kiev with money and munitions. This will likely put Russia in an advantageous position ahead of the winter fighting season. The increasingly close ties between nations in the anti-Western axis could create threads between regional conflicts, which increase the likelihood of a World War III scenario. – M.M.
- (10) PUBLIC FUROR ERUPTS OVER NETANYAHU INTELLIGENCE FAILURE: Israeli Prime Minister Benjamin Netanyahu and his cabinet ministers are facing anger and disillusionment from Israelis who accuse them of dropping the country’s guard against arch-enemy terror group Hamas.
- Top-selling daily news outlet Yedioth Ahronoth has equated the intelligence failure that allowed Hamas to kill over 1400 Israeli citizens to the intelligence failures leading up to the 1973 Yom Kippur War.
- A recent Israeli opinion poll showed that 66% of respondents wanted Netanyahu out and that an election held today would result in Netanyahu’s Likud Party losing a third of its seats in the Knesset.
- Why It Matters: It is unlikely that Netanyahu will survive the aftermath of the Hamas raid into Israel. Although the political opposition has solidified behind his leadership in its declaration of war against Hamas, Netanyahu will likely be forced out of office once the war subsides. The danger at this point for Israel is if the U.S. attempts to sow dissent in the Israeli voting public in an effort to get a new government installed in Jerusalem – one that is more amenable to halting military operations against Hamas in Gaza. – M.M.
— 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
The greatest risk is not preparing for the future, but the next greatest risk is preparing for the wrong things.
Join the Forward Observer Intelligence team as they discuss the latest threats and early warning indicators concerning agriculture and the food supply, oil and energy, the power grid, economics and finance, the supply chain, and geostrategic shocks.
Get our Early Warning report every Friday here: https://forwardobserver.com/subscribe