Editorial…

The Importance of Developing New Nuclear Bomb Cores in the United States: Why?

In today's fast-changing world, the United States must prioritize the development of new nuclear bomb cores; this decision may be attributed to the ongoing arms race between the two countries. Russia's development of new strategic nuclear weapons, such as a hypersonic nuclear-armed glider and an air-launched ballistic missile, has raised concerns about potential threats to U.S. national security.

The Trump administration's decision to withdraw from the 1987 Intermediate-Range Nuclear Forces treaty with Russia, citing Russian violations, has exacerbated these concerns. With the withdrawal, concerns have been raised about the potential reintroduction of nuclear-armed mid-range ballistic and cruise missiles as competition intensifies. Due to this, the United States is intensifying its production of nuclear bomb cores to ensure its capability to deter potential threats.

Each year, the National Nuclear Security Administration (NNSA) plans to produce 80 plutonium pits. Nuclear pits are composed of fissile material and neutron reflectors or tamper-proof bonds. Previously, some weapons used pits made from uranium-235 alone or in combination with plutonium.

These pits will be produced at the Mixed-Oxide Fuel Fabrication Facility in North Carolina, which will be modified to produce at least 50 pits a year. A minimum of 30 pits will also be produced by Los Alamos National Laboratory in New Mexico by 2030.

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In the Lab Oppenheimer Built, the U.S. Is Building Nuclear Bomb Cores Again

At the New Employee Training (NET) facility of the Los Alamos National Laboratory (LANL), empty waste drums are set up for a “Container Handling for Waste Operators” training session.

TIME BY W.J. HENNIGAN/LOS ALAMOS, N.M., JULY 24, 2023

China’s Foreign Minister Replaced After Unexplained Absence

Qin Gang is removed months after Xi Jinping promoted him to head the Foreign Ministry

TWP By Chun Han Wong,  July 25, 2023 

Indonesia's big gas projects to proceed after global majors sell stakes

Reuters By Fransiska Nangoy and Bernadette Christina

Stock Market Shrugs Off Recession Signals as Rally Builds

S&P 500 is trading near its highest level since April 2022 as hopes grow for a soft landing

WSJ By Karen Langley, July 25, 2023 

Putin appeared paralyzed and unable to act in first hours of rebellion

^TWP By Catherine Belton, Shane Harris and Greg Miller, July 25, 2023 

In the Lab Oppenheimer Built, the U.S. Is Building Nuclear Bomb Cores Again

At the New Employee Training (NET) facility of the Los Alamos National Laboratory (LANL), empty waste drums are set up for a “Container Handling for Waste Operators” training session.

TIME BY W.J. HENNIGAN/LOS ALAMOS, N.M., JULY 24, 2023

Something unusual is happening inside the plutonium facility at Los Alamos National Laboratory in New Mexico. PF-4, as it is known to top government officials, is the heart of America’s nuclear complex, a lab where scientists and engineers study and experiment on highly radioactive materials in tight secrecy. Recently, employees have discovered yellow plastic tents encasing equipment and rendering it inaccessible. At Los Alamos, where even the cleaning crews and firefighters require high-level security clearances, you might think the tents are designed to restrict access to the latest wonder weapon or scientific breakthrough. The truth is more mundane—and more telling. “It’s part of our expansion plans,” Matthew Johnson, a senior lab manager, tells me during a rare tour of the fortified building. “All the old stuff is coming out.”

PF-4 is being transformed from an experimental laboratory that focuses mostly on research into a facility that mass-produces plutonium “pits,” the grapefruit-sized cores inside every nuclear bomb in America’s arsenal. Los Alamos— the lab synonymous with the dark art of nuclear-weapon development—hasn’t produced a certified pit in over a decade and has never had to produce more than 10 in a single year. But in 2018, Congress passed a law mandating that PF-4 produce 30 pits a year by 2026. Around $5 billion has already been spent to overhaul the cramped, aging facilities. The Biden Administration has pumped $4.6 billion into Los Alamos this fiscal year alone—a 130% budget increase over what the lab received just five years ago. Truckloads of new work stations, lathes, and furnaces are set for installation. Coast-to-coast recruiting efforts are underway to increase the lab’s workforce, which is already at a record 17,273.

Not long ago, such ambitions would have been unthinkable. Following the Soviet Union’s collapse in 1991, the U.S. stopped designing, building, and testing new nuclear warheads. Stockpiles were slashed, labs’ budgets cut, and a highly skilled workforce allowed to dwindle. But after a three-decade break from manufacturing nuclear weapons, the U.S. is getting back into the game. Another arms race may be upon us, triggered by China’s growing ambitions and escalating hostilities with Russia, the world’s other nuclear superpower. Since President Biden took office, both nations have wielded their arsenals to threaten adversaries and coerce neighbors. The last remaining nuclear-arms treaty, known as New START, is set to expire in 2026, raising fears about a new era of unchecked expansion. All nine nuclear powers are scrambling to modernize their arsenals and build new weapons.

The effort to restart America’s nuclear-weapons manufacturing program in response represents the biggest test since the Manhattan Project. A wide range of arms-control experts and nuclear watchdogs, as well as a handful of lawmakers, are frantically sounding the alarms, warning of the existential risks of the course that leaders in both parties have taken. Critics say the U.S. is repeating the mistakes of the Cold War by funneling billions of taxpayer dollars into weapons that will hopefully never be used and haven’t been tested in more than a generation. They worry about the potential environmental disasters. Washington is reacting to geopolitical concerns without considering the consequences of restarting our own bomb-making factories, says Greg Mello, executive director at the Los Alamos Study Group, an Albuquerque-based watchdog organization.

“We’re rushing into a new arms race with our eyes wide shut,” Mello says, “forgetting everything that went wrong before.”

At PF-4, they are well past such debates. Lab managers are busy unsealing and combing through decades-old archives to extract the technical and engineering expertise for plutonium pits that has been all but lost in the U.S. To get a sense of how the headlong rush is unfolding, and the risks that come with it, I accompanied Johnson, a tall, balding metallurgist who’s spent 21 years at the lab, as he led a small group of reporters on a rare trip inside the center of PF-4. It took more than a year to receive government approval for the visit to the facility. All plutonium operations are required to pause if outsiders are on the floor. But with a brief work-stoppage in place, we were given a day pass in late June to slip behind the tiers of barbed-wire fences, code-accessed security doors, and legions of armed guards to catch a glimpse of America’s new nuclear age.

Before stepping onto the PF-4 operations floor, we pulled on thick lab coats, cotton shoe-coverings, protective goggles, and personal radiation-detection badges. It’s a windowless, low-slung facility, with a long gray hallway dividing a series of rooms purpose-built for plutonium production. Identity confirmation is required at each door, even though every employee at PF-4 has a Q-level security clearance from the Energy Department, the highest a civilian can hold.

Weapons-grade plutonium has a radioactive half-life of 24,000 years. The level of radioactivity in these rooms, called “hot areas,” is constantly monitored. When you walk into a new chamber, you’re met with the unnerving clicks of a Geiger counter reverberating inside. The personal-safety protocols underline the stakes. One member of our tour had a notebook quarantined after it mistakenly dropped to the floor. Before leaving a room, we had our hands and feet individually checked for contamination. We also were required to take two full body-scans, stepping into different floor-to-ceiling radiation-detection machines, before we left the facility.

Inside each production room, workers stand under bright fluorescent lights by a series of linked stainless-steel work stations called gloveboxes. They place their hands into specialized rubber gloves and peer through leaded-glass windows as they shape the plutonium. An accidental slip of the hand could result in catastrophe. There’s virtually no safe level of human exposure to plutonium if it’s inhaled. Even the smallest speck—a one-thousandth of a gram, hidden to the human eye—could kill. “We have to account for every flake,” Johnson says. The lab has an elaborate air circulation system; the rooms are at a lower pressure than the outside hallways. Each glovebox has a slight vacuum, designed to ensure that if there is a breach, the particles are contained inside the sealed box.

The U.S. no longer manufactures new plutonium, so workers at PF-4 take old pits from retired warheads sent from the Pantex plant in the Texas panhandle, which assembles, disassembles, and stores parts for America’s nuclear arsenal. The pits are recycled through a process that purifies them of radioactive elements, which accumulate over time. To do this, plutonium winds its way from glovebox to glovebox through an overhead trolley system snaking through the complex. Dumbwaiters move it up and down from the trolley. The plutonium is melted, machined, welded, and inspected. Mastering these skills can take up to four years of training and mentorship, Johnson says. Each worker must undergo routine mental and physical health checks throughout the year to ensure they can handle weapon components.

Up to 1,000 employees work inside PF-4 on a given day, but less than 10 can perform the final step of the assembly, which involves welding pieces of cast plutonium together to form a pit. The task must be done by hand, inside a large walk-in glovebox. Workers wear respirators and several layers of personal protective equipment. The pit then undergoes an inspection process: it’s leak-checked and radiographed, like a medical CT scan, to ensure it meets specifications. If it passes, it’s stamped with a small diamond and sent back to Texas, where it will stay until it’s plugged into a new W87-1 warhead, which is still under development, expected to be completed sometime within the next decade.

The W87-1 will be the first 100% newly manufactured nuclear warhead in the U.S. stockpile since the end of the Cold War. Its pit will be encased in plastic explosives designed to detonate with impeccable timing, compressing it, in just a fraction of a second, from the size of a grapefruit into the size of a golf ball. Fission from this first stage of the process spits out neutrons, triggering an atomic chain reaction that generates a massive release of energy—an explosion. The subsequent radiation, pressure, and energy then fuses two types of heavy hydrogen, tritium and deuterium, to form helium. Additional neutrons fire from this process, creating a fission-fusion feedback loop that happens so quickly it appears instantaneous. It culminates with a fireball that reaches into the millions of degrees, followed by a blast that can level buildings for miles around.

Los Alamos has developed 11 nuclear pits this year…

Los Alamos has made 11 development pits so far this year, but none of them are destined for warheads. The first proof-of-concept weaponized pit is slated for completion at the end of 2024, says Robert Webster, Los Alamos’ deputy director for weapons. Webster says he’s confident his team can reach 30 pits per year by 2030. “It could be sooner,” he says, adding that the most important thing is that it’s done right.

“We’re still cleaning up the legacy mess that we made by working the way we did.”

Others are skeptical. The Government Accountability Office (GAO) reported in January that it’s highly unlikely PF-4 will be able to meet its congressional mandate of building 30 pits annually on the prescribed timetable. Another larger facility, the Savannah River Site in South Carolina, which has never produced a single pit, has been tasked with producing 50 per year by 2030. The challenges of building new facilities and re-configuring existing ones with cutting-edge equipment are compounded by the extreme dangers of radioactive plutonium and waste disposal. All this may result in the federal government spending up to $24 billion before Los Alamos and Savannah River can reach their combined target of 80 pits per year, the report says. And rushing has its risks.

The environmental hazards of producing plutonium pits are well-established. The last time the U.S. made pits on a mass scale was in 1989, at the Rocky Flats site in Colorado. Production at the plant, which churned out about 1,000 pits per year, was shut down following a raid by the FBI and Environmental Protection Agency that discovered serious environmental violations. There was enough radioactive waste on the premises to cover a football field to a depth of 20 ft. Some 62 pounds of plutonium were found caked inside the plant’s air ducts.

Plutonium poses grave danger to anyone who doesn’t have proper protective equipment, and the total human toll of the work performed at Rocky Flats is unknown. Judy Padilla, 76, worked 22 years at Rocky Flats, most of them handling plutonium in gloveboxes. Padilla says she’s horrified that another generation will be manufacturing pits. She developed a host of medical issues that began during her time at the plant, including a tumor that required a mastectomy of her right breast. Her husband Charles, who also worked at the plant, died in 2014 after battling kidney cancer.

Padilla, who attributes both cases to radiation and chemical exposure at Rocky Flats, received $125,000 from the government after Charles died. The Energy Employees Occupational Illness Compensation Program Act, passed at the end of the Clinton Administration, provides funding to former nuclear employees on an individual basis, but Padilla says it’s littered with loopholes that are better designed to deny claimants than help them.

“My advice to younger people doing this work is: Be careful,” she says. “I thought my government would back me up if I got sick and take care of me. That never happened. It sounds really bitter. But yeah, I’m bitter. I consider myself a walking time-bomb.”

The safety record of Los Alamos has always been intensely scrutinized, particularly in the post-Cold War years. “Is There Really a Cowboy Culture of Arrogance at Los Alamos?” ran a Dec. 2004 headline in the trade publication Physics Today. The question followed a series of high-profile lapses at the lab, including a trove of missing classified documents and an incident in which an intern suffered an eye injury from a laser. The biggest blunder arguably came in 2011, when technicians took a photograph of eight ingots of plutonium lined up side-by-side on a work table to impress their bosses. It may have looked cool to them, but putting radioactive rods in close proximity risked triggering a chain reaction that could have produced a fatal burst of radiation, known as Cherenkov radiation, capable of killing anyone in the room. Plutonium pit production ended the following year, and hasn’t restarted until now.

In 2018, Triad National Security was named as the new contractor to run the lab for the U.S. Energy Department. The company has stated that safety is a core pillar of its operations, including pit production. But workers’ missteps continue to be cited by the the Defense Nuclear Facilities Safety Board, which provides independent federal oversight. Jill Hruby, head of the National Nuclear Security Administration, the Energy Department agency that oversees nuclear weapons, wrote a letter in May to Triad for a formal explanation on four “nuclear safety events” that took place between February and July 2021. The incidents included two separate floods, a glovebox breach, and an instance in which an unsafe amount of fissionable material was placed in a dropbox. An investigation attached to the letter noted a “significant lack of attention or carelessness” for worker and public safety.

Mistakes like these only heighten skepticism about how Los Alamos can possibly mass-produce plutonium pits on the appointed schedule without risking the health of its workers and surrounding community. Lab officials recognize that the project will generate unprecedented levels of hazardous waste. The most radioactive waste Los Alamos produces, called transuranic waste, primarily involves contaminated gloves, tools, equipment, and other debris that are typically stuffed into 55-gallon drums stored on site until they can be hauled to an underground facility in southeastern New Mexico. The lab projected the number of drums to spike to 2,000 this year, double the tally of just three years ago, according to a 2021 report delivered to Congress.

“It’s difficult to comprehend the level of contamination, the diversion of amounts of money into something that, in my view, will not improve national security,” says Jay Coghlan, executive director of Nuclear Watch New Mexico, a Santa Fe-based watchdog.

The dangers, of course, stretch far beyond New Mexico. Dread of nuclear annihilation hung over the globe throughout the Cold War. That fear is practically inscribed by history in the creosote-dotted hills around Los Alamos, the birthplace of The Bomb. Located atop a secluded mesa between the Jemez and Sangre de Cristo mountains, its transformation from a high desert outpost into a boomtown began in 1943, when more than 8,000 scientists, soldiers, and other personnel arrived to work for the Manhattan Project’s secret “Site Y” laboratory, under the direction of the theoretical physicist J. Robert Oppenheimer.

The picturesque setting for Oppenheimer’s pursuit of an atomic bomb contributed to the sense of insularity. Outsiders were not welcome. The people who worked and lived at Los Alamos were bound by secrecy and, with few exceptions, unable to leave. To this day, the people on this isolated plateau say they’re “on the hill,” which by default means that everyone else in the world is “off” it. But the ingrained seclusion of Los Alamos isn’t just semantic and geographic. It’s hard to find anyone in the community of 13,000 who doesn’t either work at the lab or have a neighbor, friend, or family member who does. It is a company town where even the street names gesture to its controversial past: Oppenheimer Drive, Trinity Drive, Manhattan Loop.

The lab developed the first atom bombs dropped on Hiroshima and Nagasaki, which killed and maimed hundreds of thousands of Japanese in 1945. Those were crude, comparatively simple devices that produced explosive yields measured in kilotons, or thousands of tons of TNT. In the arms race that ensued over the following decades, weapons designers at Los Alamos came up with ever more lightweight and destructive weapons—some so small that they allowed for a dozen city-busting warheads to fit inside a single ballistic missile’s nose cone. Today’s staged-thermonuclear devices produce explosive yields measured in megatons, or millions of tons of TNT—weapons far more lethal than Oppenheimer’s original. When the U.S. began pursuing such bombs, Oppenheimer discouraged it, calling them a “weapon of genocide.”

Oppenheimer envisioned the A-bomb program as a one-off for a narrow mission. Instead, nuclear bomb-making became a full-fledged American industry. Los Alamos was just one facet of a nationwide nuclear-industrial complex, cranking out weapons components for an arsenal that the U.S. wielded to deter the Soviet Union’s aggression by threatening “massive retaliation” and “mutually assured destruction.” In 1967, around the height of the Cold War, the U.S. nuclear stockpile reached 31,255.

After the dissolution of the Soviet Union, however, nuclear weapons-production stalled. The number of U.S. sites involved in making warheads was cut in half. President George H.W. Bush declared a self-imposed nuclear-weapons testing moratorium in 1992. The number of warheads in the U.S. stockpile was continually reduced through a series of arms-control treaties with Moscow. Today the nuclear stockpile stands at an estimated 5,244 warheads—an 83% reduction from its Cold War peak.

The reduction brought challenges: if the U.S. could no longer build or design the next world-altering bomb, what could government officials do to retain the expertise of scientists? And how would the ensure the integrity of the arsenal without being able to test the products? Nuclear bombs contain more than 4,000 parts, and most of those parts are now more than 30 years old. Ask yourself: If you left a 1993 Ford Mustang in the barn—a temperature-controlled vault of a barn, but a barn nonetheless—would you feel 100% certain that everything would work properly when you turned the ignition? Oh, and don’t forget that your life may depend on it.

The answer the Energy Department came up with was to harness computer simulations and experiments to evaluate the reliability—and extend the life spans of—America’s nuclear weapons. The most vexing dilemma was assessing plutonium, an element only discovered 80 years ago. To find out how it ages, Los Alamos ran experiments in the early 2000s that found plutonium pits changed over the years in ways that could impact weapons’ performance. But the studies couldn’t provide specifics on when exactly plutonium aged out. At first, scientists concluded the pits should last for 100 years or more. But in 2019, after Congress began pushing for more pits, JASON, the long-time independent scientific advisory group to the U.S. government, urged the Energy Department to reestablish large-scale pit production “as expeditiously as possible to mitigate against potential risks posed by (plutonium) aging on the stockpile.”

The day before my tour of PF-4, I visited the modernistic three-story Municipal Building in Los Alamos to see how the small town was preparing for the coming influx of scientists, technicians, engineers, security guards and support staff. “We’re building as fast as we can,” says Paul Andrus, the community-development director. Roads are being widened. Expansion plans are underway for Atomic City mass transit. Wooden skeletons of condos and housing developments are in the process of getting built in any area they’ll fit.

But finding suitable spots for new construction is a challenge. In addition to the 40-acre lab, Los Alamos is hemmed in by canyons and abuts Bandelier National Monument. The lack of housing is concerning not only because of the incoming workers, but also the teachers, doctors, and other professionals who will be needed alongside them. “We’re just out of space,” says Denise Derkacs, a former lab employee who now serves on the county council. “We would love to help support the lab more, but we just have no more land to build on.” This lack of available space has forced Los Alamos to forge closer ties with communities off the hill. The lab leased two buildings in Santa Fe, located more than 30 miles to the southeast, where it moved hundreds of employees not involved in classified work. The transition, which began in 2021, marked the first time in a half century that the lab had a presence in the city.

China’s Foreign Minister Replaced After Unexplained Absence

Qin Gang is removed months after Xi Jinping promoted him to head the Foreign Ministry

TWP By Chun Han Wong,  July 25, 2023 

SINGAPORE—China replaced Foreign Minister Qin Gang, whose mysterious disappearance from the public stage weeks ago sent a wave of uncertainty through the country’s political system.

China hasn’t explained the disappearance of Qin, originally handpicked for the job by Chinese leader Xi Jinping, except to cite vague health issues. At a hastily convened session on Tuesday, the Chinese legislature’s standing committee decided that Wang Yi, the former foreign minister and currently China’s top diplomat, would retake his old post.

The lawmakers didn’t provide a reason for their decision to remove the 57-year-old Qin, who became foreign minister in December. His absence from major diplomatic engagements since late June had fueled speculation inside and outside China about what happened to him and cast a global spotlight on the country’s black-box political system.

China’s Foreign Ministry previously cited health reasons for Qin’s absence from a regional diplomatic meeting in Indonesia this month.

Wang, a 69-year-old member of the Communist Party’s elite 24-member Politburo, previously served as foreign minister from early 2013 until December last year. He became China’s top diplomat when he joined the Politburo in October as its leading foreign-affairs specialist.

State media reports didn’t mention any change to Wang’s existing party roles, suggesting he would occupy both his Politburo and Foreign Ministry positions concurrently—an arrangement that had typically taken place during a transition period between officeholders.

Tuesday’s session of the National People’s Congress standing committee was arranged just a day in advance, an unusually short notice, and outside the typical two-month cycle for regular standing committee sessions. The decision to convene the session came on the same day as a meeting of the Communist Party’s Politburo—spurring speculation that lawmakers would confirm personnel changes that Xi and other party leaders approved Monday.

State media readouts from Tuesday’s legislative session didn’t mention any change to Qin’s role as state councilor, a senior government rank in China’s cabinet. It wasn’t clear if Qin would retain his seat on the party’s Central Committee, of which he became a full member in October.

Cooperate with objective and ethical thinking…

Indonesia's big gas projects to proceed after global majors sell stakes

Reuters By Fransiska Nangoy and Bernadette Christina

TANGERANG, Indonesia, July 25 (Reuters) - Shell (SHEL.L) and Chevron's (CVX.N) agreements to sell stakes in major Indonesian gas projects to Pertamina, Petronas and Eni (ENI.MI) will unleash development at the fields, enabling the country to boost its flagging output, the buyers said.

Indonesia has seen declining oil and gas production in recent years due to depleting reserves, and as major new projects face delays due to oil majors' exits.

After signing a deal on Tuesday to buy a 20% stake in the Masela gas block from Shell, Nicke Widyawati, CEO of Indonesian state energy firm Pertamina, told reporters at the Indonesia Petroleum Association conference that a final investment decision on the project would be made in 2026.

Shell had been looking to sell its 35% interest in the project since 2019. Under the agreement signed on Tuesday, Malaysia's Petronas will buy Shell's other 15% stake.

"Our participation underscores the commitment in supporting Indonesia's production target to achieve one million barrels of oil per day and 12 billion standard cubic feet per day of gas by 2030," Petronas group CEO Tan Sri Tengku Muhammad Taufik said.

Abadi LNG, led by Japan's Inpex Corp (1605.T), will use gas from the Masela block to produce 9.5 million metric tons per year of LNG at its peak, which will be shipped from the proposed terminal for domestic industries and overseas customers.

Dwi Soetjipto, the CEO of Indonesian upstream regulator SKK Migas, told Reuters at the same conference that an FID on the project could be reached as early as end-2024.

FAST TRACK

Eni also signed a deal on Tuesday to take over Chevron's stake in the IDD gas project. It said the acquisition will allow it to fast-track development of the resource, in which it was already a partner along with Pertamina and China's Sinopec (600028.SS).

The IDD project involves the Bangka, Gendalo and Gehem gas fields, and its development will integrate the nearby Jangkrik and North Ganal blocks operated by Eni in the Kutai basin.

It will also leverage the Jangkrik infrastructure and the existing Bontang LNG facility, in which Eni holds a stake, Eni said. Chevron confirmed the sale and said it continues to invest in Indonesia.

SKK Migas also said on Tuesday that three to five potential investors from the Middle East and Asia have started assessing the Tuna natural gas project in a possible sale of Russian firm Zarubezhneft's stake.

British firm Harbour Energy (HBR.L) is currently partnering with Zarubezhneft on the gas field, but Zarubezhneft plans to pull out of the project due to a lack of progress following sanctions on Russian companies.

The Tuna field is expected to reach peak production of 115 million standard cubic feet per day in 2027. Gas from the field will be exported to Vietnam from 2026.

Indonesia still has "huge potential" from natural gas resources, its Energy Minister Arifin Tasrif told the conference earlier, and would exploit gas as a bridge fuel in its transition to greener forms of energy.

Big producers have in recent years promoted gas, which has lower emissions than coal when burned, as a transition fuel to smooth out intermittent supply from renewables. The move has been fiercely resisted by environmentalists.

Reporting by Fransiska Nangoy, Bernadette Christina Munthe; Writing by Florence Tan and Emily Chow; Editing by Muralikumar Anantharaman, Christian Schmollinger and Kim Coghill

Corp (1605.T), will use gas from the Masela block to produce 9.5 million metric tons per year of LNG at its peak, which will be shipped from the proposed terminal for domestic industries and overseas customers.

Seaboard: pioneers in power generation in the country…

…“More than 32 years ago, back in January 1990, Seaboard began operations as the first independent power producer (IPP) in the Dominican Republic. They became pioneers in the electricity market by way of the commercial operations of Estrella del Norte, a 40MW floating power generation plant and the first of three built for Seaboard by Wärtsilä.

Stock Market Shrugs Off Recession Signals as Rally Builds

S&P 500 is trading near its highest level since April 2022 as hopes grow for a soft landing

WSJ By Karen Langley, July 25, 2023 

After a rally this year, the S&P 500 has climbed about 27% from its recent bottom. PHOTO: BRENDAN MCDERMID/REUTERS

Stocks have floated higher as Wall Street dials back its recession forecasts. Some investors aren’t ready to call the all-clear.

They point to worrying economic signals, lofty equity valuations and the possibility that the Federal Reserve continues raising interest rates or keeps them elevated longer than the market anticipates. The S&P 500, meanwhile, has advanced 19% this year even as analysts expect 2023 corporate earnings to barely inch up.

“There’s not a lot of leeway for bad news right now in equities,” said Mike Mullaney, director of global markets research at Boston Partners.

Investors are all but certain that the central bank will raise interest rates by a quarter percentage point Wednesday. Their focus is on the future: any sign of whether Fed officials expect to lift rates higher from there.

Not long ago, brutally hot inflation and the Fed’s plans to fight it made the prognosis for markets and the economy appear bleak. 

Since the early 1950s, every episode of significant U.S. disinflation, each of which was driven at least partly by Fed tightening, has been accompanied by recession, according to Deutsche Bank research. That has been bad news for stocks: In recessions since the late 1940s, the S&P 500 has fallen a median of 24%, according to the bank’s research. 

Last year the stock market seemed to be signaling such a contraction, with the S&P 500 sliding 25% from its high in January 2022 to its low in October. 

Index performance

Many investors expected more of the same at the start of 2023. Instead, stocks roared higher out of the gate. The S&P 500 emerged last month from its longest bear market since the 1940s and has now climbed 27% from its bottom. It is hovering near its highest levels since April 2022.

Inflation has cooled and the economy keeps motoring along. The jobs market remains robust, with the unemployment rate hitting a 53-year low earlier this year before ticking up just slightly. Americans have been spending more at retail businesses. Economists are raising estimates for gross domestic product in the second and third quarters.

The Federal Reserve is central to the U.S. economy today, but its power has been built over decades. Its decisions can lower inflation or spark a recession. WSJ explains how the Fed was formed and the role it plays in the country. Photo Illustration: Annie Zhao

“There’s an actual chance here the Fed could stick the landing,” said Dryden Pence, chief investment officer at Pence Capital Management.

Still, there are reasons for concern. The Conference Board said last week that its leading economic index fell for a 15th consecutive month, signaling slowing economic activity ahead. That is the index’s longest streak of declines since a span from the spring of 2007 through early 2009. The U.S. economy fell into a recession in December 2007 and didn’t exit until June 2009. 

The bond market is flashing another warning sign. Normally, longer-term U.S. Treasurys carry higher yields than shorter-term ones, paying investors for the risk that interest rates rise or inflation accelerates. When the longer-term yields are lower, it often suggests that investors think the Fed will need to cut rates to resuscitate the economy. 

The yield on the benchmark 10-year U.S. Treasury note has been lower than that of the 2-year Treasury for more than a year, the longest streak since a span ending in 1980, according to Dow Jones Market Data.  

There have also been glimpses of weakening in the market for bank loans. Loan officers at U.S. banks told the Federal Reserve earlier this year that they had tightened lending standards for households and businesses and also seen lower demand from borrowers. Tighter lending conditions can weigh on economic growth as firms pull back on investment and hiring and consumers have less money at their disposal.

Hans Olsen, chief investment officer at Fiduciary Trust, said he finds the stock market’s rally perplexing given the warning signs from various economic indicators. His firm sold U.S. stocks in April and is holding more cash than usual to protect against a market downturn, he said.  

“When you looked at that data set, you went, hold on here, this kind of looks like a classic slowdown in an economy that eventually slides into some form of contraction,” Olsen said.

Such concerns come as the stock market is boasting rich valuations relative to history. The S&P 500 traded late last week at 19.6 times its projected earnings over the next 12 months, up from 16.8 at the end of last year and above a 10-year average of 17.7, according to FactSet. 

Although there is no rule that valuations can’t stay elevated, or climb even higher, some investors worry that the high price tag makes the market more vulnerable to a pullback. 

And while inflation has cooled notably, easing in June to its slowest pace in more than two years, it remains well above the Fed’s 2% target. Central bank officials may not be satisfied without lifting rates again later this year or keeping them high for an extended period. And that could have unpredictable consequences.

“Everyone’s sort of come to peace with a higher fed-funds rate,” said Katie Nixon, chief investment officer at Northern Trust Wealth Management. “I don’t think we’ve quite come to grips with what the implications of staying at that level for a prolonged period of time might mean for the economy and certainly for the markets.”

Putin appeared paralyzed and unable to act in first hours of rebellion

TWP By Catherine Belton, Shane Harris and Greg Miller, July 25, 2023 

LONDON — When Yevgeniy Prigozhin, the head of the Wagner mercenary group, launched his attempted mutiny on the morning of June 24, Vladimir Putin was paralyzed and unable to act decisively, according to Ukrainian and other security officials in Europe. No orders were issued for most of the day, the officials said.

The Russian president had been warned by the Russian security services at least two or three days ahead of time that Prigozhin was preparing a possible rebellion, according to intelligence assessments shared with The Washington Post. Steps were taken to boost security at several strategic facilities, including the Kremlin, where staffing in the presidential guard was increased and more weapons were handed out, but otherwise no actions were taken, these officials said.

“Putin had time to take the decision to liquidate [the rebellion] and arrest the organizers” said one of the European security officials, who, like others, spoke on the condition of anonymity to discuss sensitive intelligence. “Then when it began to happen, there was paralysis on all levels … There was absolute dismay and confusion. For a long time, they did not know how to react.”

This account of the standoff, corroborated by officials in Western governments, provides the most detailed look at the paralysis and disarray inside the Kremlin during the first hours of the severest challenge to Putin’s 23-year presidency. It is consistent with public comments by CIA Director William J. Burns last week that for much of the 36 hours of the mutiny Russian security services, the military and decision-makers “appeared to be adrift.”

It also appears to expose Putin’s fear of directly countering a renegade warlord who’d developed support within Russia’s security establishment over a decade. Prigozhin had become an integral part of the Kremlin global operations by running troll farms disseminating disinformation in the United States and paramilitary operations in the Middle East and Africa, before officially taking a vanguard position in Russia’s war against Ukraine.

Kremlin spokesman Dmitry Peskov told The Post that the intelligence assessments were “nonsense” and shared “by people who have zero information.”

The longtime symbiosis of the two men, who first met in St. Petersburg in the early 1990s, has exposed the weaknesses of Putin’s crony system of management, where rival clans are pitted against each other, and which has been stretched to breaking point by the war.

Who is Yevgeniy Prigozhin, Wagner chief who stirred a crisis in Russia?

The lack of orders from the Kremlin’s top command left local officials to decide for themselves how to act, according to the European security officials, when Prigozhin’s Wagner troops stunned the world by entering the southern Russian city of Rostov in the early hours of June 24, seizing control of the Russian military’s main command center there, and then moved into the city of Voronezh, before heading further north toward Moscow.

Without any clear orders, local military and security chiefs took the decision not to try to stop the heavily armed Wagner troops, the security officials said.

Wagner mercenary chief Yevgeniy Prigozhin leaves the headquarters of the Southern Military District amid the group's pullout from the city of Rostov, Russia, on June 24. (Alexander Ermochenko/Reuters)

Many on the local level could not believe the Wagner rebellion could be happening without some degree of agreement with the Kremlin, the security officials said — despite Putin’s emergency televised address to the nation on the morning of the mutiny in which he vowed tough action to stop the rebels, and despite a warrant issued for Prigozhin’s arrest for “incitement to insurrection” on the eve of his march to Moscow.

“The local authorities did not receive any commands from the leadership,” said a senior Ukrainian security official. “From our point of view this is the biggest sign of the unhealthy situation inside Russia. The authoritarian system is formed in such a way that without a very clear command from the leadership, people don’t do anything. When the leadership is in turmoil and disarray, it the same situation at the local level and even worse.”

The intelligence information helps explain what’s been seen as the biggest debacle of Putin’s rule — how Prigozhin’s armed band of fighters, demanding the ouster of Russian Defense Minister Sergei Shoigu and armed forces chief of staff Valery Gerasimov, were able to proceed to within 120 miles of Moscow without facing resistance, before eventually agreeing to turn around after a deal was brokered with the help of Alexander Lukashenko, the Belarusian president.

The disarray in the Kremlin also reflects a deepening divide inside Russia’s security and military establishment over the conduct of the war in Ukraine, with many including in the upper reaches of the security services and military supporting Prigozhin’s drive to oust Russia’s top military leadership, the European security officials said.

“Some supported Prigozhin and the idea that the leadership needs to be cleaned up, that the fish is rotting from the head,” one of these officials said.

One senior NATO official said some senior figures in Moscow appeared ready to rally behind Prigozhin had he succeeded in achieving his demands. “There seem to have been important people in the power structures … who seem to have even been sort of waiting for this, as if his attempt had been more successful, they would also” have joined the plot, this official said.

Prigozhin’s increasingly vitriolic tirades blaming corruption and mismanagement by the Russian military command for battlefield setbacks and high casualties in the war against Ukraine had resonated with many sectors of Russian society. Many in the rank and file of the Russian army also wanted Prigozhin to succeed in forcing change at the top of the Russian military, believing that then “it would become easier for them to fight,” this official said.

But others in the security establishment were horrified at the mutiny attempt, and at the Kremlin’s toothless reaction, convinced it was leading Russia toward a period of deep turmoil, officials said.

“There was disarray. You could argue about the depth of it, but there really was lack of agreement,” said a senior member of Russian diplomatic circles. “We heard all these statements. They were not always consistent … For some time, they did not know how to react,” he said. Putin had vowed to crush the rebellion on the morning the rebellion began but by the time he finally emerged in public more than 48 hours later, he said all steps had been taken on his “direct order” to avoid major bloodshed.

Members of the Russian elite said the division over the conduct of the war and its handling by the Russian military leadership, will continue, despite a public relations drive by the Kremlin to demonstrate Putin is in control and the start of a campaign to purge the ranks of the Russian military of critics and Prigozhin’s supporters among Russian ultranationalists.

On Friday Igor Girkin, a controversial former Russian commander in Ukraine who has been vocal in denouncing the Russian military leadership, was arrested. Several high-ranking generals perceived to be close to Prigozhin, including Gen. Sergei Surovikin, who was often praised by the Wagner leader, have disappeared from public view.

The lack of direction from the Kremlin during the crisis has left Putin significantly weakened, according to his critics. “Putin showed himself to be a person who is not able to make serious, important and quick decisions in critical situations. He just hid,” said Gennady Gudkov, a former colonel in the Russian security services who is now an opposition politician in exile. “This was not understood by most of the Russian population. But it was very well understood by Putin’s elite. He is no longer the guarantor of their security and the preservation of the system.”

“Russia is a country of mafia rules. And Putin made an unforgivable mistake,” said a senior Moscow financier with ties to the Russian intelligence services. “He lost his reputation as the toughest man in town.”

Ukraine is now the most mined country. It will take decades to make safe.

The conflict between Prigozhin and the Russian military leadership had been building up for months, and the possibility of conflict increased sharply when the Russian Defense Ministry decreed June 10 that Wagner fighters had to sign contracts with the ministry from July 1, essentially ending Prigozhin’s control of the mercenary group — and the billions of dollars in government contracts attached to it.

When the security service warnings appeared that Prigozhin could be mounting some kind of rebellion, some in the security establishment believed the preparations could be no more than a bluff to increase pressure and gain more leverage to secure his control of Wagner, one of the European security officials said.

To some degree, if Prigozhin’s mutiny was an attempt to gain leverage, it worked. Putin was apparently forced into compromise with the renegade leader, allowing him to travel around Russia for days after the mutiny, because Prigozhin’s work for the Kremlin was too deeply intertwined with the interests of Putin’s state, according to several of the security officials, and Vladimir Osechkin, an exiled human rights activist who has interviewed several former Wagner fighters. Instead of prosecuting Prigozhin for leading the armed insurrection, Putin agreed to drop the charges. In exchange, Prigozhin halted the march on Moscow, withdrew his men from key military installations and agreed to decamp to Belarus, keeping at least part of Wagner intact.

Russia has deployed private mercenary groups as a shadow arm of the state to protect Kremlin interests, “where the state is without strength or cannot officially act,” according to a report drawn up for a Russian parliamentary roundtable on legalizing the private paramilitary organizations in 2015. The report was obtained by the Dossier Center, an investigative group founded by Mikhail Khodorkovsky, the exiled Putin opponent, and shared with The Post.

“Private paramilitary groups can become effective instruments of state foreign policy,” the report states. “The presence of private military groups in the planet’s ‘hot spots’ will increase Russia’s sphere of influence, win new allies for the country and allow the obtaining of additional interesting intelligence and diplomatic information which ultimately will increase Russia’s weight globally.”

The intertwining of Wagner with the interests of Russian intelligence, with its upper ranks staffed with former members of Russian military intelligence, and its leading role in operations in Syria, Libya and across Africa, where it gained access to extensive mining rights, has meant it was impossible for Putin to swiftly bring the curtain down on Prigozhin’s operations, Osechkin said. Prigozhin “worked for more than 20 years for Putin’s team. He did a lot for their interests in a whole series of countries. He has a huge amount of information” about them, Osechkin said.

“They created a monster for themselves,” one of the European security officials said.