It's Politics As Usual, or How to Manipulate Weak Minds

As I am biding my time, awaiting this week's EIA Crude and Products report... I thought I would delve into my current frustrations.

Namely, the failure of the fourth estate… or the press, media et al. I blame them for getting Trump elected in the first place. So eager were they to boost ratings, they went right along with the Trump Phenomena early in the race. I am not just referring to that right wing network. It was “must see TV”.

No doubt they were sure Trump could not win a presidency and therefore… pushed him over other republican candidates.

Unfortunately for all, they managed to subvert the 2016 election, in my opinion. It was not the Russians or anyone else. The fourth estate handed that election to Trump. To distance themselves from any blame, they went on the attack, and it was furious. 

I have no quibble with any of that, but they destroyed what little credibility that remained. By 2020, it was clear that truth, like Elvis… had left the building.

The issue I have, is their great fear of a Trump or Trump-like person (Republican) might win in 2024, they have completely lost any civic responsibility… when it comes to a sitting president.

We should not blame Biden for the current inflation…

So... who do I blame? But wait... inflation is everywhere, so don't blame Biden.

Fair enough to blame their inflation on Putin's invasion of Ukraine, but what about the preceding year in the United States?

I have frequently mentioned this...

Take credit for vaccines, $1,400 checks to everyone and then ignore what might happen to supply chains under this new found wealth. But blame it on Supply Chain, logistics, ports, etc. Just don't blame Biden.

• The supply chain is snarled and causing inflation... don't blame Biden. (What really caused the ports to be congested in the first place)?
• This inflation is transitory... don't blame Biden. 
• It's Putin's invasion of Ukraine that is causing inflation... don't blame Biden. (For the past 3 months, but what about the previous 12 months)?
• It's the greedy oil industry, running up prices... don't blame Biden. (Take the energy component out of the CPI and the inflation rate would still be at a 40 year high.)

So great, I won't blame Biden... but who should I blame?

Even A Broken Clock is Right Twice a Day!!

In this digital age, there will be many that do not understand a reference from way back in the age of analog clocks. But on to the meat of the matter, or where’s the beef?

After months of American citizens complaining about inflation, certain politicians have determined it is a problem and are focused upon the problem. We should also understand the “rest” of the world is also experiencing inflation.

Except there was rarely a peep, until the “rest” of the world caught up with the U.S.A.

Here is a nice graph with annual inflation rates since August 2021. (Click on Picture for larger view).

Eurostat is the source for the EU, France, Germany, as well as the harmonized inflation rate of the U.S. Oddly the U.S. is not in the EU and is tracked, yet U.K. no longer appears anywhere. Someone is taking Brexit very seriously, imo. The U.K. is represented by its own Office of National Statistics, which has both HCIP and CPI. Then Canada data is taken from Statistics Canada. (I estimated the Eurostat numbers for the U.S. at 9.1%, but put 8.8% on this chart/graph to be safe on the low side).

Here is a chart as well...

There does seem to be inflation in these countries, but they are just now joining the inflation party, we have been experiencing for several months. As they say… numbers don’t lie, but politicians do. In this case, our politicians may not be lying, but have put off telling the truth until it could be spun as impacting a lot of countries. 

Clearly, we can see the impact of the natural gas pricing in the EU and UK, as well as the impact of the Ukraine invasion, for all including Canada. The U.S. can certainly join in the chorus blaming Putin, but what about the earlier periods, when both the EU and the UK were experiencing less inflation than the United States?

Why wasn’t inflation an issue then? Did our politicians need to wait for someone else to blame and then proclaim it's not my fault, everyone is having high inflation?

Hey, it will probably work... given the short attention span of most Americans. 

Let's Talk Energy, or Lack Thereof!

 

It seems everyone is fixated on the high price of gasoline. I have no idea what was expected, when everyone was shouting "hell yeah", stopping imports of Ruskie oil is a small price to pay. 

As I have stated earlier... this seems to fit the definition of "virtue signaling". A lot of chatter, without really meaning it.

As Europe tries to wean themselves off Russian Crude... someone get to make it up. Since the start of the Ukraine invasion, our exports of Crude and Petroleum products has exceeded our imports by an average of 1 million barrels per day. The U.S. based inventories across the spectrum is still below levels seen over the past 5 years in late May.

Do not expect the above to slow any time soon and be mindful of the upside potential in prices. As I had mentioned previously... we are soon entering Hurricane and Tropical Storm season for the Atlantic. With over 50% of our refining capacity along the Gulf Coast... anything more than a slight breeze could really inflate prices at the pump. 

Now for Natural Gas... the prices of natural gas have not hit an all time high in the U.S. but there is clearly upward pressure here, while LNG exports are affecting and easing the prices of natural gas in Europe. Fortunately for us, there is limited infrastructure for processing LNG for export, LNG container ships and offloading facilities in Europe. But there are big bucks to be made, so expect the limitations to fade in the next few years.

In any case, the Natural Gas market will weigh heavily on the inflation readings going forward. It does impact a wide variety of industries. 

NATO and the Western Alliance

 

Where to start? I really don't know and at times this might seem like a rant, so bear with me. 

We are being told that the NATO alliance has never been stronger but is that true. There is a lot of posturing in favor of NATO, but what are the real opinions of Europeans, Canadians, and Americans.

In 2019, PEW research published the results of their survey titled "NATO Seen Favorably Across Member States," with the subheading of "Many in member countries express reservations about fulfilling Article 5’s collective defense obligations."

Maybe I am misinterpreting the results, but it would seem that much of the public is opposed to their own military engaging on behalf of another member. I suspect this is due to the one- and only-time article V was invoked. It becomes difficult to determine the thought processes of those giving their opinions.

At that time, I would have suspected they meant if the U.S. was again attacked, but recent events suggest if any NATO member was attacked. The PEW Research addressed this in 2019 with the question... 

The expectation is for the U.S. to carry the load. This idea is firmly planted, in my opinion. Certainly, polls taken today might suggest something else, but is the respondent simply saying what is a safe answer?

The problem with all of this, is the U.S. might be able to do the heavy lifting, but at what cost and who bears the brunt of the criticism for any collateral damage. Collateral damage would include such things as economic turmoil, due to energy supply curtailment. Pause and think about that.

I have no doubt that European Citizens would blame the U.S. as it seems to be their historical go to when anything bad happens ... and unfortunately sometimes it is correct (rarely taking responsibility for their own mistakes). It would likely lead to the collapse of NATO. There would likely be a hue and cry over what the U.S. had wrought and lead the Americans to turn very negative towards NATO... to the point of opting out. Not that far away, in my humble opinion. A great many Americans are already questioning NATO's value.

Therefore, the U.S. must walk a razor thin line between supporting Ukraine and avoiding Russia cutting off energy supplies. 

Like a lot of folks, I originally thought Russia just wanted Ukraine, but I suspect the main objective is dissolution of NATO and severing U.S. ties with Europe. 

I realize this might seem far-fetched, but given the attitudes of various countries, towards the United States, ...it moves the needle towards that real possibility.

Unfortunately, there is a much bigger picture at play... which would be the Western Alliance, which in this case would also include some countries in the Pacific. In that regard, I am referring to a way of life we have become accustomed to.

Indecisive action is leaving the door open to further divisions and giving the enemies to our way of life, an opening to seize upon.

No, this was not a positive and uplifting blog article. I am old and won't likely see the end of all this, but I have children and grandchildren for which I worry. 

Confusing Statements, Ideas and downright lies!!!

Where to start? I just read someone claiming to be an geopolitical expert... state that Russia is landlocked and this was one of the reasons for Russia seeking control of Ukraine. GEE OH!! Get a map for pete's sake. Or possibly St. Petersburg's sake as it is a saltwater port from May through December (not frozen in). I will lightly mention Murmansk, which is ice free year round and lies above the arctic circle.

Then we have the Sea of Azov, where Mariupol is located. To transit the Sea of Azov into the Black Sea means passing through the Kerch Strait, which is controlled on both sides by Russia. Once into the Black sea, passage through the Bosporus and  Dardanelles is needed. WOW!!

A lot of virtue signaling. A lot of countries are welcoming Ukrainians with open arms and little to no paperwork. This is really a grand thing, but most of the refugees are women and children. Are we simply ignoring they may wish to sometime return to Ukraine? Or are we simply ignoring the horrible truth of the men's survival rate and likelihood of a destroyed Ukraine for generations to come?

I am not even venturing into the racial aspects, which should also be questioned. Apparently there are estimates of some 26 million refugees worldwide, yet... never mind. 

I keep hearing how cutting off Russian oil and natural gas would bring Putin to his knees. Apparently the inconvenience that might cause some European countries is to great a cost to bear... even when factoring in Ukrainian lives.

I've been reading reports of the China lockdown being so severe... that farmers plowing their fields are being arrested for not staying in lockdown. Then there are reports that nearly 400 million are in lockdown. Let's hope the number is way south of that, as the global economic disruption would be HUGE! 

It's been a long time since I bothered with forex, but there is something weird going on. Maybe it was always this way and I have forgotten. 

I may edit this with some more information, as I see fit.

End of the Month... So February 2022 Inflation Numbers and Other Stuff.

 

With the PCE index report this morning, we can wrap up all the February inflation numbers. Granted, some slight improvement was seen in some areas, but still double digit increases on the upstream models seem to suggest more inflation to the consumer.

There does seem to be some potential for deceleration in core inflation, as decreased purchasing power is becoming more widespread. Inventories of retail and wholesale have increase ahead of inflation. Normally this could be seen as wonderful news, but it is hard to keep a straight face over lingering claims of supply chain shortages and increases in inventories, in my opinion. 

We all know that supply v demand is the determinant of pricing. If demand goes up and supply can't keep up... prices increase. Demand falls and supply increases... prices decrease. The past year saw demand pumped up with various stimulus checks and which contributed to "supply chain" issues. The benefit of that additional money is waning as retail sales minus inflation are flat to lower. Even more so with energy and food pulled from the equation.

As stated, core items might fall in the coming months, but what about energy and food?

Energy is struggling to supply to meet the demand. Regardless of any Strategic Petroleum Reserve activity... the demand will need to decrease for price relief. Going into the summer driving season, I am not so sure that will take place before August. Besides, that 1-million-barrel daily release will likely be exported, which may have impact on global prices, which may in turn trickle down to the US Consumer... eventually. We must remember the previous release announced last fall has not yet been completed. The 30 Million barrel release announced in March has not started, so just how quick will this happen?

Maybe in time for the midterms, but then you have the other headline issue...

Food, which accounts for about 14% of the Average American expense, compared to 8% for energy (>4% for Gasoline). Food is the one item that rarely sees a decline in demand and usually an increase as the global population is still growing. It really is all about supply and weather impacts of the past couple of years has NOT been conducive to slowing food price inflation. Throw in the Ukraine invasion and this is not an area that will likely seen any leveling off unless we get a good global weather pattern for crops and peace breaks out quick in war torn areas. 

Food is likely to be the issue for the next couple of years. A case could be made that Russia invaded Ukraine to control its large agriculture industry, to which it could use as influence amongst its friends, etc. Whatever the reason, it has clearly backfired, and the global community will become increasingly unsettled over food insecurity.

We will likely see the CPI in the mid 8% range in March's report and higher the following month. Much will be made about the high price of gasoline, but the food component is the real long-term story.

Forget the Oscars, as inflation is about to give us all a slap in the face. 

Breakdown of CPI DATA and Real Earnings, February 2022

The BLS Report from February, 

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.8 percent in February on a seasonally adjusted basis after rising 0.6 percent in January, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 7.9 percent before seasonal adjustment.

From Last Month... The forecast for February numbers, due out in March are 7.59%~7.9%. So it was on the upper end. Remember this is inflation for the month of February.

With this release comes a variety of other numbers...

I am at a 5.9% annual rate...

This rise was largely attributable to food at home, which on the BLS report, outpaced the overall inflation rate at 8.6%

The forecast for March is a bit blurry, due to energy prices, but the expectations would be 8.2% ~ 9.1%. I would unhappily lean towards the 8.7% range, just based on the rapid rise of gasoline during this month, although it may be peaking as I type. I would expect the upward trend in food prices to continue. 

Of course it is all speculation, as we are not at mid month, but I feel it is safe to say that prices will not recede.

On to the earnings report...

This was a disappointment, with an -11¢ per hour decline. Maybe weekly earnings improved...

NO. For the 3rd straight month real weekly earnings declined. Remember all the data thus far is for February.

Going forward, we must remember the 8.0% number, as that rate of inflation is largely without the impact of the Russia-Ukraine war. The impact of the war on energy and food costs is yet to come. We must also remember that weather impacts food costs and with spring around the corner and the thought of summer vacations on the horizon... energy costs will likely rise as inventories of petroleum products are at or below the 5 year range. 

Earlier I mentioned the expectations of inflation rates for our current month, due out in the 2nd week of April. Going forward into April potential expectations, the inflation rate for a month to month increase is staggering (think June 2008 or 9-2005's Katrina or 1-1990 Gulf War) as well as the double digit year to year (Oct-1981). 

I suspect the economy will begin to cool at about this time and the longer range inflation forecasts indicate as much. Tuesday will bring the PPI report out and some indication of pricing going forward might be seen. It will be followed the next day with retail sales, which should be interesting. A lot of revisions, etc. last month under the guise of "usual annual" stuff, so it will be interesting to see the spin on that report.

Buckle up, the peak is still a ways off, imo.

MY MUDDLED THOUGHTS AND ATTEMPTS TO MAKE SENSE OF IT ALL

Normally I write about Inflation and "business" outlook, etc. Recent events have muddled my thoughts and it is hard to make sense of what might happen... so here goes, while acknowledging recent events potential impact.

Inflation 

The BLS CPI report is slated for release on March 10th. THIS REPORT IS FOR FEBRUARY, so would have limited impact from the invasion. The range is 7.6% ~ 7.9%, with the upper end more likely. Pre Invasion expectations for March CPI, being released in April... to be even higher. 

It is those expectations that are going to be heavily impacted by the Ukraine Invasion.

Food

The potential disruption of basic food commodities, have driven multiple items to either all time highs or nearing those all time highs. Wheat, Corn, Barley, Canola, Rice, etc. etc. 

Grains are going up, so what about meats? There is a mixed message compared to a couple of months back, with the likelihood of staying flat. However, while chicken prices are moderating, there are worries about bird flu, etc. 

The CPI has food as about 14% of the average household expense. It should come as no surprise that the above average income households spend less that 14% and below average income households, will spend more that 14%. 

It is about 50/50 of that 14% going to food away from home and food at home. I have no data as to how that breaks out for above and below average income households, so will refrain from positing a guess. I would think the food index will rise month to month and add onto the inflation pressures. 

Energy

While energy makes up only about 8% of the CPI index compared to food's 14%, guess which will get all the media attention! That most of the current significant rises are in the past few days, the March 10th report is considering just the month of February.

I have no doubt the national average for gasoline will reach all time highs and possibly reach $4.5 @ gallon. The previous was in July, 2008 at either $4.11 or $4.17, depending on data source. This level, with everything else staying flat, would push March inflation to 8.5% y/y. For reference, this is in the range of  Jan48 ~ Aug48 preceding a recession; Feb51 ~ Jun 51 Korean War; Dec73 ~ Aug75 Oil embargo resulting in recession and Oct78 ~ Dec81, which straddled two recessions and the Iran Revolution.

I guess I am saying that nothing gets Americans more antsy... than the price of gasoline. Not even...

Ukraine

Certainly I am concerned about the innocent lives being taken and the disruptions to others. It is not lost on me that not a lot will be done, other than taking in refugees, etc. I recall reading where it has become popular in Ukrainian circles to wonder how many more buildings are left in the west, to be lit up with Ukrainian colors. Apparently, they realize this is about the extent of their support. Is that what is called "virtue signaling?"

Here in the USA on social media, it seems the discussion is about all the things we should've, could've or would've done to prevent this. I am not sure how this could have been avoided, short of keeping the U.S.S.R. intact. A right that wasn't ours to make. 

Sure, we might have rejected those former members of the Warsaw Pact from joining NATO, but why? And why did they ask to join NATO? I don't recall NATO countries sending in tanks and overrunning those countries and forcing them to join NATO.

Sadly, we can now see the answer to these questions. Horrifying as it might seem, Russia will eventually pound Ukraine into submission. Then some rebel enclave (Russian) in Moldavia will need to have Russian "peacekeepers", so who will be next?

A couple of other questions might be... Is Putin really that strong? Or are we just that weak? Frankly, the lack of resolve by western countries can be pinned on a very divided public. It should also be pointed out that while a large number of countries voted to condemn the invasion and a very few rejected the U.N. condemnation... the abstentions were by countries with nearly 1/2 of the global population. We in the west need to toughen up or the future will be grim, imo.

Putin

It is not uncommon for idiots such as myself to make stupid statements. To have national leaders uttering such statements is borderline insane. 

Uttering that someone in Putin's inner circle should take him out, is something idiots like me would say. I would suspect that Putin's inner circle are not nice people and have their own vested interests, which might include assuming Putin's leadership position at some point... once their own vested interests are in place and could safely assume that role. In other words, someone that is whispering in Putin's ear and Putin considers as being faithful to him. Possibly even a more sinister version of Putin.

I am reminded of Fidel Castro. Fidel Castro came to power by ousting Fulgencio Batista, a person which was reviled by the US. Castro was treated with open arms, appearing on American Television as some kind of conquering hero... until he quickly lost that mantle and became the most hated by the same groups. It did not take long and led to assassination attempts, severing of diplomatic ties, The Bay of Pigs and finally leading to the Cuban Missile Crisis.

Be damn careful of what you wish.

Summation

I suspect the Ukraine invasion will shortly be displaced on American television as inflation and economic worries become more prominent. As for inflation, the polls seem to indicate that 50% of the American public blames Biden and 25% blame Putin. Which may explain the Administration's reluctance to sever Russian Imports and the Republicans are keen on doing just that. Politics is always in play.

I frequent various European news editions and this will likely be the same, and they have a much bigger dependence on Russia's energy. 

How we got in this shape can and should be discussed, but afterwards we must acknowledge... WE ARE IN THIS SHAPE! What are we DO about it and not just talk about it?

Near End of the Month, So January 2022 Inflation Numbers and Other Stuff.

 

ALL the inflation numbers are in and they are pointing upward, with the exception of PPI, which was flat. But the leading indicators of PPI are still in double digits. 

Quite a bit of chatter regarding energy prices and how they will ramp up inflation. There is no denying that, but every single number that excludes food and energy is up as well. Don't be misled by headlines screaming energy costs are going to cause double digit inflation. 

We might very well see double digit inflation, but if everything stays flat and energy were to drive up the overall inflation... then crude would need to be in the $180 @ bbl. We will be in recession, well before that occurs. Energy is a part of inflation, but not the entire story. Attempting to backward blame inflation on solely energy and current geo-politics, is to ignore the inflation prior to these events.

Those inflation factors are still prevalent and really no let up going forward the next couple of months. Previously the inflation was anticipated to peak in February (numbers due out in March), but those energy related and geo-political issues might edge up succeeding months. We were in the May/June timeframe of any year over year relief... which is prior to certain current events.

There is talk of the FED backing off rate hikes but maybe a bit premature. Granted the FED is looking for any excuse to avoid lifting rates, but they are behind the curve, so will raise rates, to make room for lowering them later on. 

As for Ukraine... they are not a member of the EU or of NATO, but a member of the UN. 30+ years ago, Iraq invaded Kuwait, which was also a member of the UN. A coalition was quickly and rapidly formed to kick Iraq out. Kuwait had oil, Ukraine not so much. 

Not sure how this thing will turn out, but it will soon become old news and everyone will move on. That is the sad state of things. There will be a period of media pictures and videos of bombs exploding, missiles being launched, but then this will become boring and no longer a driver of news ratings. 

Not unlike Covid, which still has a high death rate, but somehow is cured... at least to the extent it does not make more than a ripple in the news. Everyone is racing to get back to normal, which means accepting certain unpleasant facts. 

Currently the forecast for February CPI numbers (Due out in March 10th) stands in the range of 7.63% to 7.9%. 7.62% was the annual rate in February 1982. January 1982 was 8.39%.