Reviewing the Bidding

Thoughts and Theses

Market Charts

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No additions to this section this week.

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• In the early 1990s, I predicted a severe crisis in the US in the early 2000s - see My Journey for details of how those thoughts were developed, and a description of my predictions, essentially all of which have held up well. That crisis would result in a resetting of the country's financial system and financial institutions and therefore would profoundly affect all parts of the culture and all institutions, including government and military. 

• The crisis would be precipitated by debt, deficits, entitlements and demographics.

• The purpose of this web site is to Contemplate Out Loud about ways in which current events are reinforcing or contradicting my predictions. And to create a continual update of thoughts for the future.

• The Fed, Congress and the Executive Branch have now made that crisis inevitable and of a much higher order of magnitude than I anticipated.

• The crisis should be played out over the remainder of this decade. There will be a new world with a new financial system and a new culture under construction at the end of the crisis.

• The Fed has three alternative paths: inflation, austerity and default. For now, they have chosen inflation.

• We are deep into a multi-year end game and to the point at which things will generally become worse, faster, although nothing will move in a straight line.

• The Fed will likely continue on its current path until something breaks.

• When the Fed signals the end of raising interest rates, we will likely enter a new era of currency devaluation and yield curve control.

• Biden is significantly contributing to underinvestment in fossil fuels that will result in a multi-year energy crisis. He is attempting to cross the green energy chasm in two steps. We will get to the point where even leftists will treasure every drop of oil and every lump of coal. I discuss this critically important issue, perhaps the most important issue we face today, in The Energy Crisis.

• Biden made a major strategic error by confiscating Russian currency reserves.

• The last stimulus payment, and arguably the one before that, were major errors, contributing significantly to inflation, shortages and the increase in asset prices.

• Inflation is peaking - for now - and it will remain at a high level. In the long run, because of debt levels, there is no practical alternative to continued, elevated inflations - which will probably rise and fall in waves. Stagflation is my bet for the foreseeable future.

• There will be deflationary / disinflationary crosscurrents including demographics (retirement of Boomers, declining birth rates), and debt rationalizing and blowing up of debt, worldwide. Temporarily, we will have the interesting phenomenon of too much retail inventory as a result of overordering during supply chain issues and a slowing economy. Inflation is necessary; deflation /disinflation is the wild card.

• The economy is weakening - recession is probable, and there is definite slowing down at a fairly rapid pace. Actually, there is a good possibility that a recession has already begun. However, recessionary pressures may recede for a quarter or so.

• Housing is weakening.

• Ukraine is losing the war. It is not clear what Russia's next moves are.  See Ukraine.

• Russia may be winning the financial / energy war. Energy is so fundamentally important, and Russia has so much of it, while the US is burdened by extraordinary levels of debt, that Russia holds the better hand. The West's counter to that better hand is sanctions. Very high stakes poker. See Ukraine.

• Europe will have very serious energy challenges this winter and may have to reach accommodations with Russia.

• Food disruptions over at least the next year, primarily as a result of the Ukraine war, will be significant.

• Given the failure of US / Iran negotiations and rumors that Iran is very close to having an atomic bomb, what is Israel's next move?​

• (7/15/22) The US dollar may have peaked, at least for now. We should be heading into a new financial regime.

• I outline my thoughts about how the next few years will unfold here.

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Beth tells me, enough with the analysis, already. People want to know how you feel. I am not so sure about that, but if you are interested, I emote here.

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Access Past Issues

The Second Coming

Thoughts From

the Archives

Can Kicking End Game

Ukraine

Accumulated Quotations

MMT

What is Inflation?

UFOs

Roe v Wade

Global Warming

Sahil Bloom's Truths

My Obsession With Energy

Winter is Coming

Classification Confusion

More Coming

August 5, 2022

In this context, the market’s recession/no-recession soul-searching is ridiculous: if the inward shift of supply curves across multiple fronts (labor, goods, and commodities) is the main driver of today’s inflation; if demand needs to be curbed significantly to slow inflation; and if a substantial reduction of aggregate demand means an “L”-shaped path for the economy, why is it so bloody hard to see that we need a recession to curb inflation? Instead of the question of “whether”, why don’t we think about the “depth” of the recession needed to curb inflation? - Zoltan Pozar

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And, does the Fed have the cajones to go there? - Kit Webster

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Unintended Consequences

Markets

(Graphs updated)

Probably one more high in the dollar.

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While the dollar has reached my price expectations and a top may be in, tops always need to be confirmed because one, final high occurs fairly often.

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And, while I am not certain this is one of those yet-to-come final highs, it is looking like it.

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Crude is so bearish, it is scary. Which makes me think I have something wrong.

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There are those who say bitcoin has begun its next leg up. I'm in the agnostic camp.

Always Remember

Monetary moves take 6-18 months to affect the economy. The Fed's first rate increase was March 15.

So, Is Three Quarters a Recession?

US economic conditions worsened markedly in July.... overall fall in output was the largest recorded since the global financial crisis and signals a strong likelihood that economy will contract for a third consecutive quarter - PMI

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DUCK

The Midterms

I am venturing into territory where I have no edge. However, I would like to speculate a second about the midterm elections.

Of course, there are 3 months left before the election, which is an eternity in dog years. And, the China thing is looking particularly dicey. But, let's take a snapshot right now and see what it shows.

First, theoretically, the Republicans are a lock to take the House and could take the Senate.

Well, the first generalization about elections is that they always become tighter, the closer you get.

And, the Democrats have had everything going against them. That trend has probably bottomed, although Biden's instincts are just terrible.

The overturning of Roe v Wade was a gift to the Democrats. Ignore the actual issue of abortion, it gave them a theme - an issue that resonates - in the midst of unrelenting bad news. Let's all get stirred up about abortion and the dastardly Supreme Court.

That can help turnout - and it moved Republican women in Kansas on the issue.

Inflation is not going away, but it should stop increasing for a while. Oil prices look weak in the short term, so gasoline prices should be going in the "right" direction for Democrats.

And Republicans just can't stop shooting themselves in the foot.

In general, things should get better for the Democrats.

The big challenge is that, IMO, the economy is slipping rapidly. If unemployment is going up at election time, that will not help, and would be the primary factor sending the Senate to the Republicans.

And, I want to come back to China. This Pelosi trip could have unintended consequences without end. That snowball is now rolling down the hill and it looks like a big snowball. (If I were being blunt, I would say it was a stupid, f-ing idea, but I need to retain perspective.)

Finally, I want to reiterate that Biden will probably continue to undermine the whole thing.

So, right now, what do I think?

Republicans take the House by a narrow margin and Democrats "keep" the Senate.

Watch China and unemployment.

Stay tuned. This will be great soap opera.

And it is an eternity until the election.

Conspiracy Theory

This wiping of cell phones of armed forces command and Secret Service agents indicates that some serious stuff was either going down or threatened on January 6.

I wonder if we will ever know.

War, Food and Energy

A Ukrainian grain shipment—the first since Russia’s invasion began—left the port city of Odessa Monday bound for Tripoli, Lebanon under a deal brokered by the United Nations and Turkey to ease a global food shortage. The agreement should allow the 18 million metric tons of grain that have been trapped in Ukraine since the invasion to be shipped to buyers in the Middle East and Africa.  A drop in the bucket, but at least it is a drop.

The EU and the UK have slowed efforts to have Russia shut off from the most important maritime insurance market amid concerns that a full insurance ban would limit global oil supply and push oil prices even higher

After enduring weeks of increasingly intense protests, strikes, and highway blockades that led to fuel and other product shortages, the Panamanian government last week announced it will exert control over the prices of 72 food items, and this week agreed to impose price caps on 150 medicines.

Unintended consequences - Indian imports of Russian commodities increased sharply in July. Russia became India’s top fertilizer supplier, while oil imports reached a record 1 million barrels per day. Imports of Russian coal and sunflower oil also grew, with Russia now India’s third largest coal supplier and 10th largest source of imports overall. India expects last month’s introduction of a new rupee settlement mechanism to help further boost its bilateral trade with Russia.

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Stocks of diesel, heating oil and other distillate fuel oils fell by more than 2 million barrels to 109 million barrels last week, according to data from the U.S. Energy Information Administration (EIA).
 
Distillate inventories have declined in 66 of the last 109 weeks by a total of 65 million barrels since the start of July 2020 (“Weekly petroleum status report”, EIA, Aug. 3).
 
The drawdown has more than offset the 45 million barrels accumulated in the second quarter of 2020 when consumption was hit by the first wave of the coronavirus and widespread lockdowns.
 
Stocks are now in only the 8th percentile for all weeks since 2000, down from the 68th percentile at this point last year and a record at the end of July 2020.
 
Inventories are more than 21 million barrels below the corresponding point in 2008, when prices were just coming off a record high, and at the lowest level for the time of year since 1996.

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The 31st OPEC and non-OPEC Ministerial Meeting was held via videoconference on 3 August 2022.

The Meeting noted the dynamic and rapidly evolving oil market fundamentals necessitating continuous assessment of market conditions.

The Meeting noted that the severely limited availability of excess capacity necessitates utilizing it with great caution in response to severe supply disruptions.

The Meeting noted that chronic under-investment in the oil sector has reduced excess capacities along the value chain (upstream-midstream-downstream).

The Meeting highlighted with particular concern that insufficient investment into the upstream sector will impact the availability of adequate supply in a timely manner to meet growing demand beyond 2023 from non-participating non-OPEC of-producing countries. some OPEC Member Countries and participating non-OPEC oil-producing countries

It noted that preliminary data for OECD commercial oil stocks level stand at 2.712 mb in June 2022, which was 163 mb lower than the same time last year, and 236 mb below the 2015- 2019 average, and that emergency oil stocks have reached their lowest levels in more than 30 years.

The Meeting also noted that Declaration of Cooperation conformity averaged 130% since May 2020 supported by voluntary contributions of some Participating Counties.

Emphasizing the value and importance of maintaining consensus as essential to the cohesion of OPEC - participating nor-OPEC oil-producing countries, in view of the latest oil market fundamentals, the Participating Countries decided to:

1. Reaffirm the decision of the 10th OPEC and non-OPEC Ministerial Meeting on 12th April 2020 and further endorses in subsequent meetings including the 19th OPEC and non- OPEC Ministerial Meet ng on the 18 July 2021.

2. Adjust upward the production level for OPEC and non-OPEC Participating Countries by 0.1 md/d for the month of September 2022. 

3. Reiterate the critical importance of adhering to full conformity and to the compensation mechanism. Compensation plans should be submitted in accordance with the statement of the 15th OPEC and non-OPEC Ministerial Meeting.

4. Hold the 32nd OPEC and non-OPEC Ministerial Meeting on 5 September 2022.

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Guide to Reading

The Spanish government has decreed that all shops, department stores, cinemas, hotels and public buildings cannot have air conditioning set below 27 degrees Celsius (just below 81 degrees Fahrenheit) in the summer, heating above 19 degrees in the winter (66 degrees Fahrenheit).

If any article contains the words Nazi, traumatized or fascist, just move along.

Not Funny

Increasingly Orwellian

In response to a press question citing Biden's pledge to not build one inch of wall, his press secretary said, "We are not building walls, we are cleaning up the mess made by the prior administration."

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The realities of immigration are outrunning Biden's platform and he has to find a way to square that circle.

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I don't care that much, except that I am focusing so much on the criticality of effective leadership, that this kind of twisting and misrepresenting is totally counter to what we need.

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But the week started with Biden's decision to redefine the word, recession.

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Now, that's hard-core Orwell.

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The whole concept of recession is squishy. While the classic definition of a recession is two consecutive quarters of negative real growth, which we have had, basically, we are in a recession when the NBER says we are.

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And they have said nothing.

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And, this weird economy with too much money sloshing around is creating mixed signals.

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I have said I think we are in a recession. I just look around at the data and it seems like it.

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But that is not the point of this article.

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The point is that the Biden administration seems to be taking spin to extreme lengths, even for politicians.

I'm Shocked

The Wharton School at the University of Pennsylvania has found that the Inflation Reduction Act would actually have no impact on inflation.

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There are other problems, but one of the most interesting is that any electronic vehicle eligible for a tax credit must have 40% (increasing to 80% over time) of that vehicle's batteries extracted or refined from countries that have free trade agreements with the US. Battery materials tend to come from hostile places, so the tax credit may not be as valuable as it appears.

The Irony is Strong With This One

Some brewers in the Boston area say they are running low on carbon dioxide, the ingredient that makes beer and soft drinks fizzy

We're Number 5!

This Was Easy to Anticipate - But Not LA County First

Los Angeles County is a community of immigrants from each corner of the world. And while our County-government workforce reflects the community it represents, there is room for improvement. This motion seeks to make clear that the County, as one of the largest employers in the region, strives to be an inclusive and diverse workforce, and is committed to not excluding nor allowing citizenship to be a barrier to employment.

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Interesting to see what happens in a recession, when "they" have "our" jobs.

News You Can Use

Under a new law, Germans will be able to change their gender and first name without having to undergo any surgery once a year, every year if required.

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Earth as Seen Through Saturn's Rings

I Live in Constant Fear of The Knock on the Door

(Babylon Bee)