January 30: Crazy FBI stuff, Fed mysteries, Freedom Caucus sorta-clarity, and drone attack fallout
by Joe Noser, Research Associate
Hello fellow Fortune's Pathers,
I have had quite the weekend. Most of my Friday night was spent playing PlayStation – something I haven't done in almost a year – and Saturday I tried a new recipe and watched my Missouri Tigers pick up their fourth win against a ranked opponent (we're going dancing, baby!). I'm really turning over new leaves here in 2023.
Last week
No new classified documents were found in the unauthorized possession of President Biden.
This qualifies as good news for the president and his administration, although the damage has already been done. There was, however, news that another former executive branch member and 2024 presidential hopeful had improperly stored classified documents. That person is Mike Pence. The former vice president – who famously avoids eating with women who are not his wife – is not as careful with classified documents. One of his lawyers discovered classified documents in his Indiana home two weeks ago.
If you are cleaning out your garage this week and stumble across some classified documents, I strongly suggest you report them. After all, since both Democratic and Republican politicians are careless with classified material, you have unprecedented political cover to admit the same! For its part, the National Archives is reportedly considering asking all living ex-presidents and vice presidents to check their offices and homes again for classified material, those poor guys.
Ollie ollie oxen free! Come out, come out wherever you are, classified documents!
Ukraine is going to get those tanks after all.
After much huffing-and-puffing, the U.S. announced it's sending 31 M1-Abrams tanks to Ukraine, pushing Germany to allow Leopard II tanks to be sent to the front after all. The Leopard II's will have a far more immediate battlefield impact, but the intimidation factor with the Abrams cannot be overstated. It's a ferocious, battle-tested weapons system, and it's another sign that the Biden administration can navigate any roadblocks its coalition faces in getting Ukraine the aid it requests. As fighting is expected to further intensify in the spring, the help couldn't come at a better time.
We know the purpose of a tank is to kill people, but they look so cool!
We got even better economic news than expected.
Core CPI's increase came in at the expected .3%, and Q4 Real GDP growth was at 2.9%, an improvement on the 2.8% projection. The big news, though, was pending home sales: they were projected to be -1.0%, but actually came in at +2.5%. The numbers have some analysts thinking a soft landing – aka, either no recession brought on by the interest rate increases or a very mild one – is possible. More on that below.
This Week
The Charles McGonigal/FBI corruption story will only get more insane.
The FBI may be facing a Robert Hanssen-level scandal that has the potential to have huge ramifications for one of the biggest counterintelligence stories of the 2010s: Russian interference in the 2016 election. So let's break it down.
McGonigal was arrested last Saturday for accepting payments from former Algerian intelligence while he was employed by the FBI and, after his retirement, for conspiring to help Russian oligarch Oleg Deripaska – known as "Putin's industrialist" – circumvent U.S. sanctions. McGonigal isn't just any former FBI employee. He worked as the Special Agent in Charge of the Counterintelligence Division in the New York field office, an especially prestigious job considering the myriad of counterintelligence challenges the city presents to the Bureau. During his tenure, the N.Y. office helped D.C., or headquarters, with its investigative work into Russian connections to the Trump campaign – codenamed "Crossfire Hurricane." In fact, McGonigal reportedly was one of the first people to tip off the FBI that George Papadopolous, a low-level Trump campaign official, had been running his mouth about the Russians having "dirt" on Hillary Clinton.
In his role in NY, McGonigal was also responsible for overseeing and carrying out investigations into, among others, Russian oligarchs like Derpipaska. According to the DOJ release about his indictment, McGonigal knew that Deripaska was to be sanctioned by the U.S. for his involvement in malign Russian government activities toward the U.S. and Ukraine even before those sanctions were publicized in 2018. And while he joined the office in early Oct. 2016, there's some speculation that he could have been one of the anonymous law enforcement sources the New York Times quoted in its much-maligned Oct. 31, 2016, story: "Investigating Donald Trump, FBI sees no clear link to Russia."
McGonigal hasn't been charged with any violations of the Espionage Act, so there's no indication that he revealed counterintelligence sources or methods to foreign adversaries. But when someone with his access to knowledge is credibly accused of taking payments from foreign governments and nationals tied to, among others, Putin, it's worth following. If such an indictment comes, look out.
Jerome Powell will not indicate when he expects to slow down interest rate increases.
Powell is holding his monthly news conference Wednesday, and after last week's good economic news, market analysts are hotly anticipating what he'll say about the Fed's long term strategy around interest rates. Don't expect anything specific. Powell has used a certain level of "strategic ambiguity" with regards to raising rates so that the Fed can maintain maximum flexibility. With a debt ceiling crisis potentially looming, I see no reason why he will stray from that course now. I expect a .25 base point raise – the lowest in almost a year – with no guarantees from Powell that the Fed will stop raising rates anytime soon. Speaking of the debt ceiling...
We'll get marginal clarity about the Freedom Caucus' demands.
Biden and House Speaker Kevin McCarthy are set to meet Wednesday in the first of what will likely be many rounds of negotiations around the debt ceiling. Last week, Mitch McConnell said any deal will have to be worked out between the House and the White House, so expect the president and the speaker to be the two big players in this fight.
So far, the House Freedom Caucus has been characteristically mum about making actual policy demands for raising the debt ceiling. The only indication so far has come from Rep. Byron Donalds (R-FL), who said last week that he wants all of the clean energy money removed from the Inflation Reduction Act (he called it money to the "Green New Deal" in this interview). He also wants re-evaluations on the $1.7 trillion omnibus bill Congress passed before Christmas to fund the government through the fiscal year.
While some in Donalds' caucus have jumped on the idea of cutting Medicare/Medicaid and Social Security, many House Republicans are trying to back away from that rather politically-radioactive viewpoint. McCarthy, therefore, faces a difficult challenge: getting his whole caucus to agree on a compromise that cuts spending from just the right places while avoiding a self-induced economic meltdown brought on by an unprecedented default. And he'll have to contend with a White House that has no interest in seeing its signature climate bill gutted. So, we'll see what kind of demands McCarthy makes from the White House lawn Wednesday afternoon. Remember, pal, you wanted this!
Quick side note on how McCarthy is doing so far: He created a subcommittee to investigate the origins of COVID-19, something that has bipartisan support. Seems like good politics, right? Except he also put Marjorie Taylor-Greene on the committee, who compared mask mandates to the Holocaust and is famously not a serious person. You could say McCarthy is doing a standup job of walking his own tightrope so far.
Kevin McCarthy takes a stroll between his inter-party factions.
Expect some fallout from Saturday night's drone attack in Iran
Israel's new far-right government carried out drone strikes in Iran on Saturday night, targeting a munitions factory next to a compound owned by Iran's Space Research Center. Iran claimed it intercepted the quadcopter drones (they're not Predators and were likely launched closer to the site by a cell of some kind) and called the attack "cowardly."
This is, er, not good. Israel's new government is facing some pressure at homeand has ratcheted up its provocative tendencies in the West Bank – a Palestinian man was shot and killed Saturday night following an Israeli military raid that killed 10 on Thursday, all as Israeli settlers have been attacking Palestinians and their properties. Now, it appears Bibi Netanyahu's new government is doing the same in Iran. My take: this is a classic example of an embattled politician attempting to create a "rally around the flag" effect.
The U.S. is attempting to defuse tensions, as Secretary of State Blinken is set to arrive in Israel on Monday to discuss the ongoing issues in the region. But I don't see things calming down anytime soon. Iran will follow its MO and strike back sooner rather than later. Expect a joint Israeli/U.S. base in Syria to get hit with a drone attack, potentially as soon as this week.
Good news from last week
DaMar Hamlin stuck it to the conspiracy-theory types who think he's not actually alive and posted this beautiful video thanking the many people who saved his life. We're incredibly lucky he's alive.
What I read/recommend from last week
Here's more on the McGonigal story, with some quotes from some FBI-types who are concerned to say the least.
The DOJ sued to disband Google last week. Seriously. Antitrust is back, baby!
The U.S. is working to shore up its relationships in Africa. Here's the latest on that effort.
Correction from last week
The scary Russian ultra-nationalist group I wrote about last week is the Russian Imperial Movement, not the Russian Imperial Front. I regret the error. (Here's another update on that story).
I hope you all have a good week. Joy cometh in the morning.
All the best,
Joe