Personal Economics 101

The untold story about “green energy” is that it can’t possibly be scaled up to provide anywhere near the energy to replace fossil fuels. (Unless we are headed back to the stone age – which is what some of the “de-growth” advocates favor). A new  World Bank Group report  finds that the production of minerals, such as graphite, lithium and cobalt, could increase by nearly 500% by 2050, to meet the growing demand for clean energy technologies. It estimates that over 3 billion tons of minerals and metals will be needed to deploy wind, solar and geothermal power, as well as energy storage, required for achieving a below 2°C future.  Recently, even some environmentalists are pointing to a the World Bank report showing that moving toward 100% solar, wind, and electric battery energy would be “just as destructive to the planet as fossil fuels.” This was the conclusion of a story in Foreign Policy magazine in 2019, The Limits of Clean Energy . A low-carbon future will be very mineral intensive

The Federal Reserve minutes of the May meeting gave investors a pretty clear roadmap for the summer. The minutes, out Wednesday afternoon, painted a picture of an FOMC strongly focused on inflation, with rate hikes of 50 basis points in the June and July meetings. But some members also indicated that price pressures may not be getting worse. Stocks rally: The market appeared to take the minutes as more dovish than hawkish. Half-point hikes were already priced in for the next couple of meetings and there was no mention of 75-basis-point moves that had become the base case for a few Wall Street banks at the end of April. The S&P 500 (SPY) rose about 1% to finish out the session and S&P futures (SPX) are up again this morning. Treasury yields (SHY) (TBT) (TLT) continued to creep lower Friday. Data dependence: "We think that after the July meeting the Fed is likely to become more 'data dependent' with regard to rate hikes, which essentially means that the policy path a

The wheels are coming off the economy and the stock market has suffered one of its worst two month sell offs in American history, but that’s not the way our esteemed Fed Chairman Jerome Powell sees things. Here are his comments from last week: “The underlying strength of the U.S. economy is really good right now. The U.S. economy is strong, the labor market is extremely strong. It is still at very healthy levels. Retail sales numbers, the economy is strong. Consumer balance sheets are healthy. Businesses are healthy. The banks are well-capitalized. This is a strong economy.” Now isn’t that reassuring? Never mind that the growth rate of this “strong economy” so far this year is less than one percent. But he wasn’t done with his happy talk. When the Fed chief was asked about whether he is behind the curve on raising rates (which he clearly is), Powell had this to say: "By the standards of central bank practices in recent years, we've moved about as fast as we have in several dec

A normal supply and demand curve indicates that as prices increase, demand will moderate or decline, until the curve reaches a new equilibrium. That is what is happening this year in housing.  Sales of new single-family homes plunged in April, declining 16.6 percent to 591,000 at a seasonally-adjusted annual rate from a 709,000 pace in March and just slightly ahead of the 582,000 pace at the bottom of the lockdown recession.  The April drop follows a 10.5 percent decline in March, a 4.7 percent fall in February, and a 1.0 percent drop in January. The four-month run of decreases leaves sales down 26.9 percent from the year-ago level (see chart). Meanwhile, 30-year fixed rate mortgages were 5.3 percent in late May, up sharply from a low of 2.65 percent in January 2021. The median sales price of a new single-family home was $450,600, up from $435,000 in April (not seasonally adjusted). The gain from a year ago is 19.6 percent versus a 21.0 percent 12-month gain in April. On a 12-month ave

(Update 5/24: Since publishing this article (May 23), the price of Natural Gas increased to $8.81 per MMBtu or 8.6% on the NY Mercantile Exchange. The price of oil is $110.57 per barrel.) Since Biden was elected president with his declaration of war against fossil fuel production, the oil price has spiked from $60 a barrel to above $100 a barrel, an increase of about 70%. Gas prices at the pump have surged nationally at a similar pace, from $2.59 a gallon under Trump to about $4.59 a gallon last week.  But don’t fret, because the Biden White House is “doing everything we can to bring gas prices down.” Another energy crisis may be brewing, and that is a result of the surge of natural gas prices. (Don’t forget, natural gas is by far the number one source for electric power generation in America.) Here at home, those prices have climbed from less than $3 per MMBtu in 2020 to $7.40 as of last week. (See chart.) This is close to a 150% increase in price. James Grant from the Interest Rate O

As I've mentioned before these pages, price controls that were last employed on a widespread basis during the 1970s inflation era were eventually discarded by both parties as an abysmal failure. So we shouldn’t be too surprised that House Speaker Nancy Pelosi wants to bring them back. On Thursday, Pelosi pushed through the House her Consumer Fuel Price Gouging Prevention Act – which would allow the president to declare an “energy emergency proclamation” when prices are rising. During the emergency, companies would be barred from charging “unconscionably excessive” prices for gasoline or any other fuels. The Federal Trade Commission and state attorneys general would be empowered to pursue violators. There is no legal definition of price gouging, but apparently, it is the new pornography – the pols know it when they see it. Sadly, only four Democrats – Liz Fletcher of Texas, Jared Golden of Maine, Kathleen Rice of New York, and Stephanie Murphy of Florida – voted no. Pelosi isn’t do

Wholesale prices in the U.S. soared 11% in April from a year earlier, a hefty gain that indicates high inflation will remain a burden for consumers and businesses in the months ahead. The Labor Department said Thursday that its producer price index (PPI) — which measures inflation before it reaches consumers — climbed 0.5% in April from March. That is a slowdown from the previous month, however, when it jumped 1.6%. The cost of groceries in the past 12 months is up 10.8%, the largest 12-month increase since November 1980, The Wall Street Journal reports, citing Labor Department consumer price index (CPI) data. Grocery costs rose 1% in April after increasing by 1.5% in March; they have risen by 1% or more in the past four months. Dairy prices, led by milk, shot up the most in April, by 2.5%. The April year-over-year increase in the April PPI declined from the 11.5% annual gain in March, which was the biggest increase since records began in 2010. The producer price data captures inflatio

Inflation slowed in April after seven months of relentless gains, a tentative sign that price increases may be peaking while still imposing a financial strain on American households. Though it wasn't much, markets responded positively. The Consumer Price Index (CPI) rose 0.3% month-over-month (m/m) in April, above the Bloomberg consensus estimate calling for a 0.2% gain, and compared to March's unrevised 1.2% increase. The core rate, which strips out food and energy, increased 0.6% m/m, topping forecasts of a 0.4% rise and compared to March's unadjusted 0.3% increase.  Compared to last year, prices were 8.3% higher for the headline rate, above estimates of an 8.1% increase but a deceleration from the prior month's unrevised 8.5% rise. The core rate was up 6.2% y/y, north of projections of a 6.0% gain, and down from March's unrevised 6.5% rise.   Nationally, the price of a gallon of regular gas has reached a record $4.40, according to AAA, though that figure isn’t ad

Why Some Rate Quotes Are So Different And Why "Points" Are On The Rise It was yet another tough week for the mortgage market with rates rising to their highest levels since 2009, but how high have they actually risen? Energy up nearly 50% YTD as crude oil climbs to $110 per barrel WTI crude futures ( CL1:COM ) jumped 4.9% for the week to $109.77/bbl, July Brent futures ( CO1:COM ) also added 4.9% to $112.39/bbl, and gasoline futures ( UGA ) in New York settled at a record high $3.76/gal, three weeks before the start of the U.S. summer driving season. Losing the People? Then Change the Rules Court-packing—the attempt to enlarge the size of the Supreme Court for short-term political purposes—used to be a dirty word in the history of American jurisprudence. The Disinformation Governance Machine Right out of 1984. Homeland Security Secretary Alejandro Mayorkas announced on April 27 the creation of the “Disinformation Governance Board.” The Nation's Top Scientists Lied Scott

Is there a housing bubble? U.S. housing affordability fell last month to near the lowest level ever as home prices surge. Mortgage interest rates now exceed 5.2% – up from 3.6% two years ago. And the Fed is raising rates again – as it should – but this too will likely raise mortgage rates. The average mortgage payment is now $1,800 a month. That’s 70% higher than the pre-Covid high. The only other time home payments were this high was in 2007 on the eve of the Great Financial Crisis. As the chart below from Black Knight’s mortgage monitor shows, home prices are up 19.9% over this time a year ago. Yes, that’s very good news for homeowners as their home equity surges, but a killer for home buyers – especially first-time buyers. Loan to income levels are also rising, which makes defaults more likely. Is any of this sounding familiar? All of this has been artificially inflated by years of artificially low rates, Fed policies of purchasing hundreds of billions of dollars of mortgage-backed

We should note that the entire explanation for the lousy GDP number was the 8.5% inflation rate. As the chart below shows, if we still had 2% inflation we had just recently, the economy would have grown in real terms at a brisk pace. But with the current inflation, the economy has to expand by more than 8.5% just to stay even.  While some also noted (or bragged about it) that consumer spending stayed strong in Q1, that was also due to inflation. Consumers just spent more money because everything cost more.