Review of EIA Weekly Report for 6-2-2022

Yes, gasoline prices continue to rise, as inventories are below seasonal 5 year averages... as are distillates and crude.

Refineries are working at normal or above, with gasoline and distillate consumption down and crude consumption up. Yet the prices for gasoline and diesel are going up... oh yes exports.

There is really no global slowdown in demand, although U.S. usage indicates some demand destruction. Those that import a lot of energy are trying to build up inventories, unless you know what were to happen. On the other hand, the U.S. can absorb some of that excess demand, depending on how much the consumer can handle in price increases. Yes, I do believe $5 national average on gasoline is just around the corner... as in just days.

Beginning in March, the U.S. began exporting more than importing and the exports have been large enough to state the U.S. is a net exporter since Mid October of 2021. Wrap your head around that fact.

Now for LNG... We are exporting at capacity and adding processing capacity. This is impacting Natural Gas prices in the U.S., as well as prices in Europe.

As can be seen, the UK v Dutch pricing has diverged, due to UK capacity for processing LNG back to gas. UK appears to be capping off inventories and shipping excess to mainland Europe.

In the U.S., we can expect natural gas prices to rise, as further processing capacity for LNG is brought on line. None of this bodes well for U.S. inflation, but everything else is going up, so why not. 

As for good news, the anticipated soon to be named T.S. Alex, appears to be barely a T.S. and will impact southern Florida. Maybe not good news for southern Florida, but stays away from the very sensitive gulf coast refineries. I hope that lasts, as it would be a game changer, in my opinion... and not a good one.

I really do wish there was some good news for the consumer. Just remember, this is all transitory [sarc].

CPAP and BiPAP

Courtesy of CPAP.com

So, I have been using a BiPAP for over 14 years and while not an expert, I have a basic understanding of why I am using one. 

It's about the oxygen and lack thereof, which was diagnosed as possible cause of Mitral Valve deterioration. Taking the sleep test indicated my oxygen levels were dangerously low during sleep. No amount of checking with a pulse oximeter would reveal this, unless it was recording while sleeping. Because it would give good readings while awake.

However, I did experience grogginess, fell asleep quite easily, and had difficulty keeping my mind focused. I even had the swimmy headed thing going on. 

It was quite a chore to adapt to wearing a mask and I tried several. I would lie awake for hours and worried about loss of sleep. Granted I would eventually grow too tired to stay awake and drift off. 

The changes were gradual, and it took me a few months to grasp what was taking place. My need to frequently get up in the middle of the night to urinate... subsided. My daytime grogginess cleared up rather quickly. That swimmy headed thing was gone, and I became more focused. Oh yes, I stopped those middle of the night trips. That was explained to me in a way I will not repeat here. 

Apparently even my tiny brain requires oxygen, and it wasn't getting it. Before being diagnosed, I thought I was experiencing the early signs of dementia. Turns out I was wrong, although I may be in that stage now. Not an expert in that area, but I do wonder if this may be an undiagnosed leading cause of Dementia or Alzheimer's.

In any case, don't be too quick to downplay the idea of sleep apnea. Don't be too quick to trash the mask after only a half-hearted try. The heart also needs oxygen, as well as various other organs. Your brain knows I am right... if it is properly oxygenated.

I can only state my journey with Apnea. 

A Cautionary Tale About Believing Everything You Read!

Very recently, I ran across an article posted to one of those social media sites I frequent.

I will not link to the article, but the gist was the average retirement income for those over 65 had fallen from $56,632 in 2019, to  $46,360 in 2020. The source for that data was the Census Bureau.

As the drop was so large, I decided to investigate further, rather than accept the analysis of a financial planner. 

It was a case of mixing apples and oranges, as the 2019 number was for the age group 65~74, while the 2020 number included everyone over 65.

I visited the Census Bureau website and downloaded the 2019 and 2020 data. Here is a snapshot of each...

2019...

2020...

Of course all this is 2019 with pre-Covid and 2020 with Covid. There is a drop in each category.

Overall, the picture looked like this for 2019...

And here is 2020...

I could go on about how the economy was still struggling to fully recover in 2020, as it had not met GDP output for end of 2019... in either real terms or nominal.

Not real sure why the apples to oranges comparison came about, but it serves to point out the need to carefully parse the underlying data... prior to jumping to conclusions and certainly before publishing as fact. 

End of the Month... April 2022 PCE, 2nd est. GDP, and Other Stuff.

 

The final results for April data is now in and it looks like a mixed bag. Sure the headline numbers are indicating deceleration of inflation, but there are still problem areas. The most important being my price index, which is increasing. I have highlighted some areas of acceleration of inflation. 

Remember that energy was flat for April and has risen in May, which comes out next month. The deceleration of inflation in overall CPI indicates a potential repeat of the April headline number. The core, which is without food and energy, indicates some moderation. We'll just have to wait. 

The Personal Income and Outlays for April came out and it isn't stellar in my opinion. Personal consumption expenditures were up 0.7% for the inflation adjusted month to month. The disposable personal income was flat on the inflation adjusted month to month. Credit cards anyone?

Somehow the concept of driving 120 mph on an ice covered road comes to mind, with a slight decrease in overall speed. Then the FED is slightly tapping the brakes. What could go wrong?

In other news, the 2nd release of the 1st Quarter GDP indicated a bit less than the Advance. I have read some comments about a potential negative 2nd quarter as meaning we are in a recession. WRONG! It is just a symptom. 2020 saw two quarters and no recession, as discussed by the gurus of such stuff. After debating most of 2008, it was finally decided that December of 2007, was the start of the great recession. The first back to back negative quarters were 3rd and 4th Quarter of 2008. So clearly more information than GDP numbers are a factor.

As for the 2nd quarter GDP, which will not be released until end of July... there is ample reason to believe it will not be negative. The trade numbers were a major hit to the 1st quarter GDP. The dollar has strengthened, which should reduce the deficit numbers, the inventory builds should be increasing, which is a plus for GDP, although troubling. The trade deficit should also be waning, due to a potential China slowdown.

So a positive number for GDP 2nd Quarter is in the offing... but that does not mean the economy is doing peachy keen. That expected positive inventory gain, could be a sign of demand destruction. With energy prices taking a bite out of disposable income, consumers will likely dial back in other areas.

So the outlook is a mixed bag in my opinion. A mixed bag is better than all negative, so there is some room for optimism. 

Have a good holiday!!

Continuing a Time Honored Tradition... An Old Person Rant!

 

I am old and therefore expected to rant like an old person... so here goes.

The world is changing and not in a good way. Familiar with this mantra? It is the fall back for most of us older folks, yet ignores the same thing being said by seniors back when we were "young."

I recall my Father ranting about today's youth and the downfall of America's values. My Grandfather was also in the vicinity and recalled how he thought the same thing a generation earlier. My Grandfather was born in 1888 and my father in 1911. My grandfather probably looked around circa 1930 and was justifiably concerned about the way things were going. My father probably looked around in the late 60s and was of the same frame of thought.

I didn't have a lot to complain about in the 90s, when my kids were exiting their teenage years. But lo and behold, there is plenty to rant about now. The problem I have is which group to blame. My grandchildren, my children, or I. 

This probably falls on me, just like it fell on previous generations of the past. WE set in motion what is the reality of today. 

Unfortunately, there is not a lot my generation can do at this point and will need to rely on the younger generations. Whether they rise to the challenge or ignore it, as done by previous generations, is up to them. They are creating the world they wish to live in, which might not be my first choice. 

In summary, I need to step back and stop complaining about how the world is going to hell in a hand basket. It is my world that is doing that... not theirs.

However, the realization of that does not prohibit me from whining and complaining. That is about all I have left... so just roll your eyes, shake your head, and give me some space. Afterall, this will be you a generation from now. 😊

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. 

Thar's Gold in Them Thar Hills!!

Photo from Bank of England

(Another one from the old dustbin, trotted out due to rumors of Russia adopting the Gold Standard).

Gold is a subject that strikes me as something confusing. I get it was a valuable medium of exchange in days of yore, but I am unable to understand the fascination that certain "gold bugs" currently have with the precious metal. Again, I am not an expert on much of anything.

I wonder about some of the claims about a so-called gold standard, such as...

A gold standard controls inflation. It does not. Like anything else, if the gold supply increases, the likelihood of price increases occurs. When it decreases, it reverses that process. One should look no further than two periods in global history.

When the Spaniards found large amount of gold in the new world, the supply of gold became such that prices increased. When those prices increased to the point of outstripping the cost of mining gold, the supply dwindled, and the prices began to fall. From the early 1700s to early 1800s, the average inflation was thought to be around 1%. That sounds really good and a great argument for a gold standard, but the various decades of that period show large bouts of inflation, followed by large bouts of deflation.

We can even look at our nation's history (U.S.) and see a similar pattern when discussing some type of precious metal standard. There were also serious bouts of inflation/deflation. Demand of goods seems to be the main determinant of the price, not some fixation on gold/silver.

When we talk about the importance of a "gold" standard, what are we advocating. We were on the "gold" standard when the Great Depression hit and previous recessions/depressions.

Are we talking about having each dollar of currency, 100% backed by gold? We have about $1.7T in currency and coin in circulation, so that 261,498,926.241 troy ounces of gold held by the U.S. government, indicates the gold should be about $6,500, compared to the current price of $1,287.30 per troy ounce.

Clearly, we would need to remove about $1.37T currency and coin from the system. Of course, we live in a fractional reserve system, as nearly every other country on earth, so the M1, which is the most liquid form of assets would also need to be reduced by $2.9T and the M2 by about $11.6 trillion. We are talking MASSIVE DEFLATION throughout the economy.

As for the days of the gold standard, such as the period leading up to the great depression, the gold standard required that 60% of the money supply be backed by gold. Not sure if that was M1 or M2 or even currency and coins. In any case, it would create a real problem if depositors ran to the bank with coins and currency... demanding gold and/or silver in exchange. Oh wait... it did.

One area where the gold standard could be considered beneficial, would be in foreign trade. If we had transferred gold to balance our trade deficits, the resultant inflation, would have rebalanced the trade. Of course, we would be paying a lot more for things made in the USA, instead of saving money by buying foreign products.

It is a fun exercise to talk about a gold standard but be very wary of such a thing happening. It may not be quite the pie in the sky, that is being promoted by those "gold bugs".

Of course, if I had a lot of gold and wanted to make a profit by selling... I might attempt to use any manner of tactics to inflate that price. Eventually, one of those tactics might work.

P.S. The U.S. does have a gold standard, and it is something around $42 1/3. Don't try to use that number to avoid the taxman. It's been tried and failed. Of course, you could convert those ounces of gold to that dollar figure, but it is not a very wise investment, imo.