9-17-24: We Barely Dodged World War III (Again) Last Week

by Louis Navellier

September 17, 2024

Plenty of important news happened on September 10, Debate Tuesday, but these events were ignored by the ABC News moderators and Presidential candidates. One was the Congressional Budget Office (CBO) release of the $381 billion of deficit spending by the Biden/Harris administration in August, and $2 trillion for the fiscal year, soon ending – yet there were no questions about how to limit runaway spending.

Another important news event last Tuesday was that Ukraine launched a massive drone strike into the Moscow suburb of Ramensky that hit a high-rise apartment building and killed at least one person. This is the kind of attack – on civilians in Moscow – that Vladimir Putin said could escalate into a major reprisal against NATO nations supplying aggressive weapons to Ukraine. Tass, Russia’s state media, said that fragments of an intercepted drone hit the high-rise apartment building in what looked like a direct hit.

Russian President Vladimir Putin warned NATO that if they lift the restrictions on long range missiles for Ukraine that such action will be considered an “act of war.” During a recent visit to Kyiv, Secretary of State Antony Blinken suggested that the White House was considering lifting restrictions in line with a broader strategic shift among its NATO partners. On Friday, British Prime Minister Keir Starmer came to Washington for talks with President Biden and they are expected to finalize the use of NATO weapons against targets in Russia, so it seems that we are now dangerously close to World War III once again, as Ukraine strives to mount more attacks deeper into Russia with weapons from the U.S. and Western Europe.

Yet all the ABC News team wanted from the former President was a yes/no answer on who should “win.”

DAVID MUIR, ABC News: “Mr. Trump, I want to ask you a very simple question tonight. Do you want Ukraine to win this war?”

FORMER PRESIDENT DONALD TRUMP: “I want the war to stop. I want to save lives that are being uselessly lost – people being killed by the millions.”

On Thursday, The New York Times reported that Russia had captured more land since June 1st and is close to seizing Pokrovsk, a key transportation rail and road hub in Eastern Ukraine. If Russia captures Pokrovsk, Ukrainian troops will be cut off, and more of Eastern Ukraine may be captured by Russia, and it will be embarrassing to the Biden Administration if Russia captures a much larger region of Ukraine.

As Ukraine continues to venture further into Russia, I suspect that NATO is concerned about escalation of that War into Western Europe and is therefore instructing Ukraine to stick to disrupting infrastructure like railways, bridges and energy storage facilities, while avoiding civilian targets, like apartment buildings.

In an attempt to reach a peace agreement, U.S. Secretary of State Antony Blinken and Britain’s Foreign Secretary David Lammy spent the weekend with Ukrainian officials to discuss how best to define “Plan B,” which is how Kyiv can redefine a Ukrainian victory and what aid it will need to achieve that goal.  Several other senior U.S. and European officials have been in Kyiv in the past two weeks. As Russia continues to capture more territory in Ukraine, it appears that Blinken and Lammy are trying to convince Ukraine to realize that they will not be able to recapture all the territory that Russia has seized.

Meanwhile, in an attempt to shore up the ruble, as well cope with domestic war-related inflation, Russia’s central bank on Friday raised its key interest rate 1%, to 19%, so the West has some negotiating leverage, as Russia suffers from inflation, war deaths, trade embargoes and global isolation for their aggression.

Oil Prices Are Falling in a Deflationary World

Due to weak economies around the world, Brent crude oil prices fell below $70 per barrel early last week for the first time since 2021. Even after Louisiana was hit with Hurricane Francine and widespread flooding disrupted many refineries, energy prices didn’t surge. Normally, weak seasonal demand in the fall causes crude oil prices to decline, but if a bigger Hurricane hits Texas or Louisiana, all bets are off.

Bloomberg recently posted an article entitled “China’s Deflationary Spiral Is Now Entering Dangerous New Stage.”  In China, even wages are now falling. Robin Xing, chief China economist at Morgan Stanley, said, “We are definitely in deflation and probably going through the second stage of deflation,” adding that, “Experience from Japan suggests that the longer deflation drags on, the more stimulus China will eventually need to break the debt-deflation challenge.” Bloomberg also reported that China is in the midst of a demographic collapse. In 2023, China’s population shrank by 2.08 million and is expected to experience a similar decline in 2024 due to its “one baby” restriction implemented decades ago.

Europe is also experiencing some soul searching, trying to figure out how to stimulate economic growth, especially in the wake of the euro-zone’s green polices that caused food and energy prices to rise. Former ECB President and Italian Prime Minister, Mario Draghi – once dubbed “Super Mario” – is calling for “radical change” if Europe wants to remain more competitive. Draghi calls for the euro-zone to institute (1) a more aggressive industrial policy and subsidies, (2) changes to the European Union’s competition policy and (3) a reshaping of European capital markets to attract investment. In his conclusion, Draghi said failure to implement his recommended reforms would leave Europe in “an existential crisis.”

I should add that the European Central Bank (ECB) cut key interest rates by 0.25% last Thursday due to weak economic growth and to tame inflation statistics. This is the second ECB key interest rate cut in the past three months. Economists are expecting one to two more 0.25% key interest rate cuts this year. In the wake of the ECB interest rate cut, most European government bond yields declined. Both the Bank of Canada and Bank of England are also expected to cut interest rates again due to their weak economies.

The political fallout is that Pennsylvania is a big energy state and employs approximately 250,000 people in fracking, natural gas extraction and pipelines to LNG terminals, so the Biden Administration’s executive order to ban LNG expansion back in January has put Kamala Harris at a disadvantage there. Although she wisely reversed her anti-fracking stance, the fact that one of Biden’s first actions was to ban fracking on federal land makes her unpopular in energy-rich Western Pennsylvania. I still believe that the candidate that is the most pro-domestic energy, and is sincere and believable, will win the electoral vote.

The Fed is Set to Cut Key Interest Rates Tomorrow

I’m happy to report that the Treasury yield curve officially un-inverted, as short, intermediate and long-term Treasury yields have all declined, so the pressure is mounting on the Fed to cut key interest rates by at least 0.25% (or up to 0.5%) at its Federal Open Market Committee (FOMC) tomorrow, September 18.

At a University of Notre Dame speech, FOMC member Christopher Waller said that it’s important for the Fed to begin cutting interest rates this month amidst rising risks of further weakening in the labor market. Specifically, Waller said that he’s also “open-minded” about the potential for a bigger rate cut and would advocate for one, adding, “The balance of risks has shifted toward the employment side of our dual mandate.” Furthermore, Waller said that the Fed’s “policy needs to adjust accordingly” and concluded by saying that, “The current batch of data no longer requires patience, it requires action.”

In preparation for the FOMC meeting, the Fed’s Beige Book survey revealed that nine of the 12 Fed districts reported flat or declining economic activity in August, adding fuel to the Fed’s interest rate decision on September 18th. Especially alarming is the fact that manufacturing activity dropped in most districts, underlined by the fact the August payroll reported 24,000 fewer manufacturing jobs. Also, most districts reported softer home sales, so the Fed now has all the evidence it needs to cut rates this week.

On the inflation front, the Labor Department reported last Wednesday that the Consumer Price Index (CPI) rose 0.2% in August and 2.5% in the past 12 months. The core CPI, excluding food and energy, rose 0.3% and 3.2% in the past 12 months. This is the largest monthly increase in the core CPI in four months. Much of the increase in the core CPI was attributable to a 0.5% increase in shelter costs (owners’ equivalent rent), so all the evidence of softening home prices is not showing up in the data. In the wake of the CPI report, the Fed is now anticipated to cut key interest rates by only 0.25% on September 18th.

The Labor Department on Thursday announced that the Producer Price Index (PPI) rose 0.2% in August and 1.7% in the past 12 months. The core PPI, excluding food, energy and trade margins, rose 0.3% in August and 3.3% in the past 12 months. Food prices rose 0.1% in August, while energy prices declined by 0.9%. Wholesale service costs rose 0.4% in August, while wholesale good prices declined 0.1%. One reason why the PPI is lower than the CPI is because we continue to import deflation from China.

After the CPI and PPI reports, most economists are anticipating three 0.25% key interest rates cuts this year. However, Bloomberg reported that traders are still expecting a 40% chance of a 0.5% key interest rate cut on September 18. A 0.25% cut is likely, since the FOMC does not want to appear to be panicked.