🇨🇳🎈This isn't China's First Spy Balloon Rodeo
Happy Wednesday all,
We have a fun video coming out for you this week on YouTube (not out yet), but it’s about 5 Money Mistakes that Billionaire’s / the Ultra Wealthy do not make, with interview clips and evidence! I think it is pretty eye-opening, so look out for that video tomorrow or Friday.
A lot of interesting stories in today’s newsletter - with coverage of Google’s new A.I. named Bard and everything you need to know about the Chinese spy balloon that was just shot down.
Enjoy this week’s Hump Days!
- Humphrey, Rickie & Tim
Tweet of the Week
The Weekly Brief
Google Announces Bard A.I. in Response to ChatGPT (CNBC)
Google announced an artificial intelligence chatbot technology called Bard on Monday that the company will begin rolling out in the next few weeks. Bard is direct competition to ChatGPT, the A.I. services created by OpenAI. Google’s chatbot is powered by the company’s large language model LaMDA (Language Model for Dialogue Application), which made headlines back in June when a Google engineer claimed the A.I. was sentient.
Why Does it Matter?
This is supposed to be Google's big swing back aimed towards OpenAI/Microsoft's ChatGPT. However, Google just had their A.I. event today and the results of the live demonstration were underwhelming and not a match for the new features that Microsoft demoed ealier this week. Google stock is down ~8% on the news.
January Jobs Report Crushes Estimates, Unemployment Rate Hit 53-Year Low (CNBC)
Nonfarm payrolls increased by 517,000 in January, starting off 2023 on a strong note, posting the biggest gain since July 2022. The 517k jobs crushed the Dow Jones estimate of 187,000 as well as December’s gain of 260,000. The unemployment rate fell to 3.4%, marking the lowest jobless level since May 1969. The surge in job creation comes despite the Fed’s efforts to slow the economy. Markets dropped following the report.
Why Does it Matter?
This is a really interesting report. It's a bit like a double-edged sword in that people that still wanted to work were able to find it back in January despite all the other rumbling in the economy, but a slowing labor market was part of the design behind the Fed's larger efforts to slow down the economy from record inflation. That is why we saw the market fall. What this could possibly mean is that the Fed gets even more aggressive with interest rates if the inflation report over the next few months comes back hotter than expected.
U.S. Trade Gap Widens in December; Deficit Highest on Record in 2022 (Reuters)
The U.S. trade deficit grew in December as imports rebounded and exports dropped amid cooling demand and declining oil prices. The trade deficit increased by 10.5% to $67.4B. Stocks on Wall St. were trading lower, in part because of this news, and the dollar rose against a basket of currencies. Increased imports of consumer goods and a decline in exports of industrial supplies were significant contributors to the growing deficit.
Why Does it Matter?
The widening deficit in December reversed half of November's sharp contraction. The deficit is expected to increase again in January meaning that trade is likely not going to provide support to the economy this quarter after having contributed to GDP growth the last three quarters.
You’ll Find This Interesting
Super Bowl LVII between the Philadelphia Eagles and the Kansas City Chiefs will be the first NFL championship contested in a legal betting state. The contest on Sunday is expected to draw an enormous amount of money in wagers, per an American Gaming Association survey.
A record 50.4M Americans plan to bet an estimated $16B total on the big game, marking a 61% and 110% increase from 2022, respectively.
Hump Days Scoop
The U.S. military shot down the suspected Chinese spy balloon off the coast of South Carolina after it flew over sensitive military sites across North America. Let’s fill you in on what you need to know.
Why was a Chinese spy balloon flying over the continental U.S.?
Chinese authorities said that the suspected spy balloon was in fact a civilian airship intended for scientific research such as meteorology. However, the Chinese government is not always forthright about its foreign affairs. John Blaxland, professor of international security at the Australian National University, believes that being caught was likely the intended outcome for two reasons.
To embarrass the U.S., while capturing some intelligence along the way.
Make the U.S. aware of the fact that China has been keeping up with its technology and replicating it.
Given how closely U.S. airspace is watched, it is hard to believe that China genuinely thought they would go undetected in this fashion.
Did the spy balloon reveal any sensitive information to China?
Here is a map of the recorded balloon sightings and the military bases it likely could have flown over.
U.S. military officials concluded that the technology on the balloon did not give the Chinese significant intelligence beyond what it could already obtain from satellites, which poses the question “Why didn’t they just use satellite information?” This takes us back to the previous two possible motivations for why China elected to use a spy balloon.
What was China’s response to the U.S. shooting it down?
Chinese officials lodged a formal complaint with the U.S. Embassy insisting that the U.S. used indiscriminate force against the civilian airship that was about to leave American airspace. China said shooting down the balloon was an obvious overreaction and it seriously violated the spirit of international law and international practice.
China then said it would “resolutely safeguard the legitimate rights and interests of Chinese companies, resolutely safeguard China’s interests and dignity and reserve the right to make further necessary responses.”
Is there a history of China flying these spy balloons over other countries?
Balloons thought/known to be Chinese have been spotted from Latin America to Japan. Japanese officials told reporters that a flying object similar to the one shot down had been spotted at least twice over northern Japan since 2020.
Not only have there been documented Chinese spy balloons flying over other countries but at least three suspected Chinese spy balloons flew over the U.S. undetected during the Donald Trump presidency, defense officials have said.
What does this mean for U.S.-China relations moving forward?
This is the latest escalation in U.S.-China tensions, coming at a time when it seemed as though tensions were cooling following President Biden’s recent meeting with his Chinese counterpart Xi Jinping in Bali.
U.S. Secretary of State Anthony Blinken postponed his trip on Friday, stating that he did not want the balloon to dominate his meetings with Chinese officials. Blinken was set to meet with China’s Minister of Foreign Affairs and possibly President Xi over the span of his two-day visit - the first visit in nearly six years. The meeting was originally set by Biden and Xi at the G-20 in Bali in a bilateral attempt to improve relations between the two superpowers.
What We’ve Been Reading
Markets
Why Ukraine Hasn’t Been a Boon to U.S. Defense Companies (WSJ)
How to Solve High Battery Prices and Other Electric-Car Quandaries (Bloomberg)
Fed’s Waller Says Rates May Need to Be Higher for Longer Than Some Expect (Bloomberg)
Economy
US Consumers Hit A Brick Wall: December Credit Growth Craters As Interest Rates Soar (ZeroHedge)
Wall Street Veteran Explains Why He’s Still All-In on U.S. Housing (Bloomberg)
Government
Five big takeaways from President Biden’s 2023 State of the Union Address (The Hill)
TikTok’s Secret Sauce Poses Challenge for U.S. Oversight, Researchers Say (WSJ)
Primetime Fight Over Social Security and Medicare Energizes Debt Debate (WSJ)
World
Iran’s Deadly Street Protests Are Replaced by Quiet Acts of Rebellion (WSJ)
Natural Gas Shortages Hit China as Temperatures Plunge (NYT)
How the West Can Win the Geoeconomics Revolution (Bloomberg)
The Last Generation: Why China’s Youth Are Deciding Against Having Children (Asia Society)
Chart of the Week
The US federal government collected $5T in revenue in the fiscal year 2022, with over half of that coming from individual income taxes. Despite this, the government spent even more, resulting in a $1.4T deficit and adding to the already high national debt of $31.4T.
The US government must borrow to make up the difference and pay interest on this debt, which amounted to nearly $480B last year, close to the annual GDP of countries like Ireland, Norway, and Nigeria.