Issue 23
January 8, 2024
FLASH Supreme Court agrees to consider CO Trump ballot ban
FLASH FAA grounds Boeing 737 MAX 9 planes
FLASH US Defense Secretary in hospital ICU for days; White House, Congress not told
1 Xi Jinping undertakes massive corruption purge
2 44% of office real estate loans have negative equity
3 95% of container traffic diverted around Red Sea
4 Congressional leaders strike $1.7 trillion budget deal
5 Ukraine v Russia in 4 charts
see ad astra on x @greg_loving
1 Xi Jinping undertakes massive corruption purge to prepare country for war
Corruption so extensive that China will not be ready for war in next few years: US intelligence
US intelligence indicates that President Xi Jinping’s sweeping military purge came after it emerged that widespread corruption undermined his efforts to modernize the armed forces and raised questions about China’s ability to fight a war, according to people familiar with the assessments. The corruption inside China’s Rocket Force and throughout the nation’s defense industrial base is so extensive that US officials now believe Xi is less likely to contemplate major military action in the coming years than would otherwise have been the case, according to the people, who asked not to be named discussing intelligence.
The US assesses that corruption within the People’s Liberation Army has led to an erosion of confidence in its overall capabilities, particularly when it comes to the Rocket Force, and also set back some of Xi’s top modernization priorities, the people said. The graft probe has ensnared more than a dozen senior defense officials over the past six months, in what may be China’s largest crackdown on the country’s military in modern history.
2 44% of office real estate loans have negative equity, risking over 300 bank failures: new paper
Ed. note: the journal has previously reorted on (morning news, post) that over $117b in commercial real estate loans are due in 2024. Office valuations have been devastated by the rise of remote work, causing some to question the stability of the banking sector.
Using loan-level data we find that after recent declines in property values following higher interest rates and adoption of hybrid working patterns about 14% of all loans and 44% of office loans appear to be in a “negative equity” where their current property values are less than the outstanding loan balances. Additionally, around one-third of all loans and the majority of office loans may encounter substantial cash flow problems and refinancing challenges. A 10% (20%) default rate on CRE loans – a range close to what one saw in the Great Recession on the lower end -- would result in about $80 ($160) billion of additional bank losses.
after more than $2 trillion decline in banks’ asset values following the monetary tightening of 2022, additional 231 (482) banks with aggregate assets of $1 trillion ($1.4 trillion) would have their marked to market value of assets below the face value of all their non-equity liabilities.
Our analysis, reflecting market conditions up to 2023:Q3, reveals that CRE distress can induce anywhere from dozens to over 300 mainly smaller regional banks joining the ranks of banks at risk of solvency runs. These findings carry significant implications for financial regulation, risk supervision, and the transmission of monetary policy.
NBER https://www.nber.org/papers/w31970
3 95% of container traffic that would have gone through the Red Sea diverted around Africa
(see orange dots)
@typesfast
Having to divert around the South African seaboard adds an extra 3,500 nautical miles to a ship’s voyage – up to two more weeks. This will delay the return of empty containers back to China, with a knock-on effect that will be felt around the world.
as a rough benchmark, avoiding the Red Sea would add around US$2 million to a ship’s journey in terms of fuel and other costs. This means for a full round-trip journey between Asia and Europe, each vessel could have an extra US$4 million in costs
4 Democratic and Republican congressional leaders strike $1.7 trillion budget deal
Ed. Note: before the federal government shuts down in 11d on Jan 19, lawmakers have to reach agreements on 3 contested issues: 1) the budget, 2) border policy, and 3) a security aid package for ukraine/taiwan/israel. On Sun, Congressional leaders reached agreement on item 1: budget. There is still much to complete procedurally and substantively before a shutdown is averted.
Congressional leaders have clinched a deal on overall budget totals that could pave the way for a broader government funding compromise in the coming weeks — the pact drew quick criticism from some conservatives. Non-defense budgets would remain roughly flat, amounting to a less than 1 percent decrease compared to current funding. Military programs would see about a 3 percent increase,in line with the deal struck last year between President Biden and then-Speaker Kevin McCarthy. A shutdown remains very possible, with a host of thorny policy issues for congressional leaders to work through in extremely limited time, including conservative demands to attach GOP border reforms to spending legislation and Republican ultimatums holding up Biden’s separate request for more than $100 billion to aid Ukraine, Israel and Taiwan.
Politico https://www.politico.com/news/2024/01/07/congress-spending-deal-shutdown-00134200
5 Ukraine v Russia in 4 charts
WSJ Here’s How the Russian and Ukrainian War Efforts Compare, in 10 Charts
This day in history
1790 President George Washington delivers first State of the Union
Thanks for reading!
Sports
NFL Playoffs set
The Athletic https://theathletic.com/5185018/2024/01/08/nfl-week-18-bills-turnaround-jaguars-collapse/?source=user_shared_article
