Portfolio Return as of 05/27/22:
2020: 25.65%
2021: 29.15%
YTD: 8.65%

Tuesday, May 31, 2022

World Bank: Green Energy to be Disruptive to Mineral Markets

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 because clean energy technologies need more materials than fossil-fuel-based electricity generation technologies. Greater ambition on climate change goals (1.50C–20C or below), as outlined by the Paris Agreement, requires installing more of these technologies and will therefore lead to a larger material footprint.

Moving to a “carbon free” energy future, according to the Foreign Policy article “requires massive amounts of energy, not to mention the extraction of minerals and metals at great environmental and social costs.”

Here are the estimates, of how much minerals would be needed:
  • 34 million metric tons of copper
  • 40 million tons of lead
  • 50 million tons of zinc
  • 162 million tons of aluminum
  • 4.8 billion tons of iron
The World Bank report “Minerals for Climate Action: The Mineral Intensity of the Clean Energy Transition” also finds that even though clean energy technologies will require more minerals, the carbon footprint of their production—from extraction to end use—will account for only 6% of the greenhouse gas emissions generated by fossil fuel technologies. 

The report underscores the important role that recycling and reuse of minerals will play in meeting increasing mineral demand. It also notes that even if we scale up recycling rates for minerals like copper and aluminum by 100%, recycling and reuse would still not be enough to meet the demand for renewable energy technologies and energy storage.

However, the reports points out that the current supply of some minerals would need to be consumed (for example, 87 percent of aluminum) to meet demand for green energy, such as solar panels. 

How this will affect world markets is yet to be seen, but can only be disruptive and inflationary, to say the least. 

Saturday, May 28, 2022

An emboldened Fed

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 after July will depend upon the trajectory of inflation and progress toward correcting the supply/demand imbalances in the labor market," BlackRock fixed income strategist Bob Miller said.

There are already signs that the U.S. economy is weakening. Of the last 19 major economic indicators, 13 have missed economists' expectations, Nomura noted. The question is whether that will bring about a Fed pause, which stock bulls are hoping for, or will it stiffen the central bank's resolve.

If there are signs of falling inflation and improved labor market imbalances "the Fed gains some breathing room and can shift policy adjustments to 25 bps increments, while still pursuing something in the estimated range of neutral," Miller said.

Pantheon Macro economist Ian Shepherdson says the door is still open to a smaller hike in July given the minutes show policymakers "appear utterly oblivious ... to the rollover in housing demand, which has been evident in the mortgage applications data since the turn of the year." That will change in the June minutes, he added.

But Nomura strategist Charlie McElligott says those hoping for a Fed pause will likely be disappointed, noting Fed chief Powell's willingness to endure "some pain" in getting price stability.

"I think that if anything, the Fed is seeing the results of their (financial conditions index) tightening campaign through these broad measures 'slowing' and could actually become incrementally 'emboldened' to keep PUSHING on their hiking path until they see the 'whites of the eyes' of sustainably lower inflation as opposed to the notion of 'pausing and hoping' for the inflation data to move lower - a view that is increasing held by some in the market," he said.

Tuesday, May 24, 2022

Earth To Powell, Come In Chairman Powell

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 decades.”

This is a non sequitur because the reason the Fed hasn’t had big rate hikes “for several decades,” Jay, is because we haven’t had to combat eight percent inflation for three decades.

Powell’s lame steps to bring down inflation reminds us of a favorite old joke. What did the snail say when he climbed on the back of the tortoise?


The Law of Supply and Demand: Housing Sales Fall

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 average basis, the median single-family home price is still at a record high.

The total inventory of new single-family homes for sale jumped 8.3 percent to 444,000 in April, putting the months’ supply (inventory times 12 divided by the annual selling rate) at 9.0, up 30.4 percent from April and 91.5 percent above the year-ago level. 

The months’ supply is at a very high level by historical comparison and is approaching peaks associated with prior recessions. The plunge in sales, high months’ supply, and surge in mortgage rates should weigh on median home prices in coming months and quarters. However, the median time on the market for a new home remained very low in April, coming in at 2.8 months versus 3.9 in March.

Monday, May 23, 2022

Beware The Impending Natural Gas Crisis

(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 Observer warns that the price may double or triple in the months ahead. 

Why? Because the overseas price of natural gas is closer to $30 per MMBtu – versus less than $8 here. To arbitrage, this price differential, American and Canadian energy companies are expected to increase exports of liquefied natural gas – which would mean lower prices abroad and higher energy prices here. Grant reports that a big spike in the domestic natural gas prices could be “the next black swan event” and the soaring energy costs could trigger a recession.

Aren’t you thrilled that Energy Secretary Jennifer Granholm is on the job to prevent this calamity from happening?

Saturday, May 21, 2022

Price controls again? Some people never learn

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 done yet. She is now pressuring the administration to file criminal charges against baby formula companies. “I think there might be a need for indictment,” Pelosi said when asked about her plans to combat the formula shortage. No one mentioned that even her own Appropriations Committee chair admits the baby formula shortage was primarily caused by the FDA’s months-long failure to investigate poor sanitary procedures at an Abbott plant in South Dakota.

These price control measures will make supply chain problems worse and cause prices to rise even faster.

Speaker of the House insultingly tears up Trump's speech during his State of the Union. She is one of the most disgraceful and corrupt people to "serve" in the U.S. Congress. 

Thursday, May 12, 2022

US Producer Prices Surge 11 Percent on Higher Food Costs

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 inflation at an earlier stage of production and can sometimes signal where consumer prices are headed. It also feeds into the Federal Reserve's preferred measure of inflation, the personal consumption expenditures price index.

Thursday's figures came just a day after the government released consumer price data for April, which showed that inflation leapt 8.3% last month from a year ago. That increase is down slightly from the four-decade high in March of 8.5%. On a monthly basis, inflation rose 0.3% in April from March, the smallest increase in eight months.

Still, there were plenty of signs in the consumer price report that inflation will remain stubbornly high, likely for the rest of this year and into 2023. Rents rose faster as many apartment buildings have lifted monthly payments for new tenants. Prices for airline tickets jumped by the most on records dating to 1963. And food prices continued to rise sharply.

Sources: AP and NewsMax

Wednesday, May 11, 2022

Inflation slows slightly, mortgage applications up

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 adjusted for inflation. The high price of oil is the main factor. A barrel of U.S. benchmark crude sold for around $104 early Wednesday morning. Gas had fallen to about $4.10 a gallon in April, after reaching $4.32 in March.

Beyond the financial strain for households, inflation is posing a serious political problem for President Joe Biden and congressional Democrats in the midterm election season, with Republicans arguing that Biden’s $1.9 trillion financial support package last March overheated the economy by flooding it with stimulus checks, enhanced unemployment aid and child tax credit payments.

In other news, the MBA Mortgage Application Index rose 2.0% last week, following the prior week's increase of 2.5%. The second-straight weekly increase came as a 2.0% drop in the Refinance Index was more than offset by 4.5% gain in the Purchase Index. The average 30-year mortgage rate resumed its jump, rising 17 basis points (bps) to 5.53%, up 242 bps versus a year ago.

Monday, May 9, 2022

ICYMI: Recent Headlines

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 Atlas stated the simple fact that immunity is higher than those with antibodies, whereupon Dr. Fauci criticizes him without contradicting what was actually said. Stating a simple scientific fact is not ‘extraordinarily inappropriate.’ What is going on?

Fed’s interest rate history: A look at the fed funds rate from the 1980s to the present
Interest rates are on the rise, but they’re still historically cheap. That’s partially because the federal funds rate — a key borrowing benchmark set by the Federal Reserve — has remained below its historic average for the past 16 years. In fact, the Fed’s key rate spent nine of those years at the rock-bottom level of 0 percent, first from 2008 through 2015, and then from March 2020 to March 2022.

Biden Administration Sneaks Unlawful Immigration Benefits Into Ukraine Aid Request
President Joe Biden recently sent an emergency supplemental funding request to Congress for $33 billion in aid to Ukraine. However, the administration used the opportunity to sneak in unlawful immigration benefits for hundreds of thousands of Ukrainian, Afghan, and Russian immigrants—paid for by the American people and at the expense of lawful applicants who have been waiting years to properly immigrate to the U.S.

Wednesday, May 4, 2022

Is there a housing bubble?

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 securities, and Congress passing out hundreds of billions for taxpayer funded rental assistance. 

It’s all helium pumped into a balloon that could soon pop.

Sunday, May 1, 2022

The GDP contraction was due to inflation

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.

Thursday, April 28, 2022

Economy shrinks for first time in two years

The U.S. economy shrank last quarter for the first time since the pandemic recession struck two years ago, contracting at a 1.4% annual rate, but consumers and businesses kept spending in a sign of underlying resilience.

The negative growth rate missed even the subdued Dow Jones estimate of a 1% gain for the quarter. GDP measures the output of goods and services in the U.S. for the three-month period.

Despite the disappointing number, markets paid little attention to the report, with stocks and bond yields both mostly higher. Some of the GDP decline came from factors likely to reverse later in the year, raising hopes that the U.S. can avoid a recession.

The steady spending suggested that the economy could keep expanding this year even though the Federal Reserve plans to raise rates aggressively to fight the inflation surge. The first quarter's growth was hampered mainly by a slower restocking of goods in stores and warehouses and by a sharp drop in exports.

The Commerce Department's estimate Thursday of the first quarter's gross domestic product — the nation's total output of goods and services — fell far below the 6.9% annual growth in the fourth quarter of 2021. And for 2021 as a whole, the economy grew 5.7%, the highest calendar-year expansion since 1984.

The economy is facing pressures that have heightened worries about its fundamental health and raised concerns about a possible recession. Inflation is squeezing households as gas and food prices spike, borrowing costs mount and the global economy is rattled by Russia's invasion of Ukraine and China's COVID lockdowns.

A deceleration in private inventory investment weighed on growth after helping propel GDP in the back half of 2021. Other restraints came from exports and government spending across state, federal and local governments, as well as rising imports.

“This is noise; not signal. The economy is not falling into recession,” wrote Ian Shepherdson, chief economist at Pantheon Macroeconomics. “Net trade has been hammered by a surge in imports, especially of consumer goods, as wholesalers and retailers have sought to rebuild inventory. This cannot persist much longer, and imports in due course will drop outright, and net trade will boost GDP growth in Q2 and/or Q3.”

While recession expectations on Wall Street remain low, there’s further trouble ahead for the economy: In an effort to combat burgeoning price increases, the Federal Reserve plans to enact a series of rate hikes aimed at slowing growth further.

Sources: Associated Press, CNBC

Wednesday, April 27, 2022

Biden Floats $1 Trillion Bailout of Student Loans

 This plan would actually benefit the wealthy more than the poor. 

It might be the biggest giveaway in American history and goes much further than anything Bernie Sanders or Elizabeth Warren have proposed. Biden now wants to cancel more than $1 trillion dollars in student loans – he's already let college graduates delay repayments for years.

This plan makes suckers out of the millions of Americans who have felt honor bound to pay off their debts. Even more lavishly subsidizing higher education will only push tuition even higher and making the next round of student debt even higher. But who would ever pay off a student loan after this blanket forgiveness program.

Who would benefit? The most recent Federal Reserve Survey of Consumer Finances found that only 22% of families had student loan debt and "student debt has consistently been disproportionately held by higher-income families."

Canceling all student loans is supported by 19% of voters according to the latest poll – but times are getting desperate at the White House, and a trillion dollars can buy a lot of votes from the dead beat crowd.  

Of course, 43% of Democrats strongly support extending the student loan payment pause, while only 12% of Republicans do. 

The Path to Destruction


Wednesday, April 13, 2022

California Crazy and BLM Racket

This Headline from the Los Angeles Times was eye catching. 

Proposed bill would shorten California workweek to 32 hours.

Here’s what you need to know:

“The bill, AB 2932, would change the definition of a workweek from 40 hours to 32 hours for companies with more than 500 employees.”

Companies would be prohibited from cutting the pay of workers – so effectively every worker covered by the law would be getting a 20% mandatory pay raise.

France and many other Western European nations tried this in the 1980s and it led to the deindustrialization of these countries, before they abandoned the ruinous experiment.

I wonder if the geniuses in Sacramento who are plowing this bill forward have any idea where the money will come from so that workers can be paid more to produce less. It’s a very good way to move all manufacturing out of California. Some employers will simply try to raise prices to make up for the higher labor costs, which will only make inflation worse.

Brilliant. And Governor Gavin Newsom may just be dumb enough to sign the bill into law if it gets to his desk.

Media Finally Discovers Black Lives Matter A Racket

It’s taken two years, but media reporters have finally woken up to the corrupt money-raising racket that goes by the name of Black Lives Matter.

Stephen Crockett of the HuffPost, has written an eye-opening essay called “The Business of Black Death.”

He points out that in 2020, Black Lives Matter took in $90 million with precious little evidence of where the money went.

New York Magazine reports the group took $6 million of donations secretly buy a 6,500 square foot mansion in Los Angeles. Black Lives Matter co-founder Patrisse Cullors, a self-avowed Marxist, purchased four homes for some $3.2 million. Right on cue, Cullors responded by saying it was both “sexist” and “racist,” to challenge how the money has been spent. These shysters are very adept at deflecting criticism.

The late Darren Seals, a fierce opponent of police brutality in Ferguson, Mo., complained for years that BLM was “just collecting checks” and that none of the programs have for “the youth or funerals or other programs…We are back at square one, back where we started. No justice, no nothing.”

Thursday, April 7, 2022

State-Local Tax Burdens 2022


  • In calendar year 2022, state-local tax burdens are estimated at 11.2 percent of national product.
  • Taxpayers remit taxes to both their home state and to other states, and about 20 percent of state tax revenue comes from nonresidents. Our tax burdens analysis accounts for this tax exporting.
  • New Yorkers faced the highest burden, with 15.9 percent of net product in the state going to state and local taxes. Connecticut (15.4 percent) and Hawaii (14.9 percent) followed close behind.
  • On the other end of the spectrum, Alaska (4.6 percent), Wyoming (7.5 percent), and Tennessee (7.6 percent) had the lowest burdens.
  • Tax burdens rose across the country as pandemic-era economic changes caused taxable income, activities, and property values to rise faster than net national product. Tax burdens in 2020, 2021, and 2022 are all higher than in any other year since 1978.
  • State-local tax burdens are often very close to one another and slight changes in taxes or income can translate to seemingly dramatic shifts in rank. For example, Oklahoma (10th) and Ohio (24th) only differ in burden by just over one percentage point. However, while burdens are clustered in the center of the distribution, states at the top and bottom can have substantially different burden percentages.

How to Buy Happiness


Wednesday, April 6, 2022

Mortgage Rates at 10-year High

The MBA Mortgage Application Index declined 6.3% last week, following the prior week's decrease of 6.8%.

The fourth-straight weekly downturn came as a 9.9% drop in the Refinance Index was met with a 3.4% fall for the Purchase Index. The average 30-year mortgage rate extended its climb, rising 10 bps to 4.90%, and is up 154 basis points (bps) versus a year ago. Some sources, such as Mortgage News Daily, reported the 30-year fixed at 5.08%.

In afternoon action, the Federal Reserve released the minutes from the Federal Open Market Committee's (FOMC) March monetary policy meeting, at which the central bank initiated its rate hike campaign. 

The report showed that Members discussed and "generally agreed" to reduce the holdings on its balance sheet by a maximum of $95 billion—$60 billion in Treasuries and $35 billion in mortgage-backed securities—phased over three months, and likely starting in May. The move would double the rate of its last effort. 

In addition, the Committee discussed the pace at which future rate hikes should occur, with the minutes noting that, "Many participants noted that one or more 50 basis point increases in the target range could be appropriate at future meetings, particularly if inflation pressures remained elevated." 

The report showed that the uncertainty surrounding the war in Ukraine deterred some from going with such a move in March. The report comes in the wake of some Fedspeak this week, where Fed governor and vice chair nominee Lael Brainard suggested yesterday a rapid pace of balance sheet reduction as soon as the May meeting, and further hawkish remarks from Philadelphia Fed President Patrick Harker today.

Treasuries finished mixed with yields sitting near three-year highs and the yield curve steepening after noticeably flattening. The yield curve spread has garnered heavy attention, with some portions of the curve inverting to foster talk of the potential for a recession on the horizon. The recent steepening of the curve brought a portion—the spread between 2-year and 10-year yields—out of inversion territory this week.

The yield on the 2-year note declined 2 bps to 2.48%, while the yield on the 10-year note rose 6 bps to 2.61%, and the 30-year bond rate advanced 5 bps to 2.62%.

Does Money Make You Mean?


Saturday, April 2, 2022

ICYMI: New Restrictions on Water in the Bathroom

Remember the good old days when liberals demanded: “Keep the government out of the bedroom!” Well now they want the government in the bedroom, the bathroom, the kitchen, your outdoor pool…

Biden just rescinded a popular 2020 Trump order that increased how much water you can use in the shower. Capping the flow from a shower head to 2.5 gallons per minute doesn’t save much water, it simply makes you stand longer under the water as it drips and drips and drips. (It reminds us of those obnoxious low flush toilets the feds mandated to save the planet, but they didn’t because you had to flush twice.)

Now Biden is pushing a spate of additional energy conservation measures restricting the power that can flow to power air conditioning units, gas-fire places and electric pool heaters.

Sounds like Uncle Sam is turning into Big Brother.


Friday, April 1, 2022

Biden's Budget a Massive Expansion of the State

Massive spending increases for various bureaucracies is the most offensive part of Biden’s new budget.

These huge budgetary increases (well above the rate of inflation, unlike what’s happening to incomes for American families) were not the most economically harmful feature of Biden’s plan.

That dubious honor belongs to either his massive expansion of the welfare state or his big tax increases.

The Wall Street Journal editorialized a couple of days ago about what the president is proposing.

A President’s budget is a declaration of priorities, so it’s worth underscoring that President Biden’s new budget for fiscal 2023 proposes $2.5 trillion in tax increases over 10 years. His priority is taking money from the private economy and giving it to politicians to spend. …Raising the top income-tax rate to 39.6% from 37% would raise $187 billion. Raising capital-gains taxes, including taxing gains like ordinary income for taxpayers earning more than $1 million would snatch $174 billion. Raising the top corporate tax rate to 28% from 21%—a tax on workers and shareholders—would raise $1.3 trillion. Fossil fuels are hit up for $45 billion. We could go on… Let’s hope none of these tax-increases pass, but the Democratic appetite for your money really is insatiable.

That’s a damning indictment.

But the WSJ actually understates the problems with Biden’s tax agenda.

That’s because the White House also is being dishonest, as explained by Alex Brill of the American Enterprise Institute.

The budget proposes $2.5 trillion in net tax hikes, almost entirely from businesses and high-income households, and touts policies that would “reduce deficits by more than $1 trillion” over the next decade. But a short note in the preamble to the Treasury Department’s report on the budget reveals a sleight of hand: “The revenue proposals are estimated relative to a baseline that incorporates all revenue provisions of Title XIII of H.R. 5376 (as passed by the House of Representatives on November 19, 2021), except Sec. 137601.”In other words, the budget pretends that the failed effort to enact President Biden’s Build Back Better Act was a success and considers new budget proposals in addition to those policies. But you won’t find the price of the Build Back Better (BBB) Act (including its roughly $1 trillion in net tax hikes) in the budget tables.

Thursday, March 31, 2022

More Bad Policy Proposals from Biden Administration

1. Biden Budget Would Raise Income Tax Rates to Highest in the Developed World

Sensible message, not so sound policy: President Biden’s budget came out this week with a sensible message about the need for stronger economic growth and sound fiscal policy.

Unfortunately, the actual policies laid out in the budget would reduce economic growth and create unsound fiscal policy, with no real evidence provided to support claims to the contrary.

Not good to be number one: The budget proposes several new tax increases on high-income individuals and businesses, which in combination with the Build Back Better Act would give the U.S. the highest top tax rates on individual and corporate income in the developed world.

Several questions also remain about the OECD global tax deal’s prospects, implementation, and effectiveness, which could affect the administration's tax plans for U.S. multinational companies doing business abroad.

On the spending side: The budget proposes increased spending for several public infrastructure programs. Our analysis, like that of the Congressional Budget Office, indicates public infrastructure programs paid for with higher income taxes results in reduced economic growth.

A better path forward: Our federal policy experts suggest that policymakers consider the tax policies we recommend in our recent Growth and Opportunity report—policies that boost private sector incentives to work, save, and invest.

2. Proposed Minimum Tax on Billionaire Capital Gains Takes Tax Code in Wrong Direction

Biden's budget: President Biden's FY 2023 budget includes a new tax proposal that would require wealthy households to remit taxes on unrealized capital gains from assets such as stocks, bonds, or privately held companies.

Not in line with international norms: Biden's never-been-tried before approach goes in the opposite direction of international norms. In fact, most OECD countries tax capital gains when they are realized and at lower rates than the U.S., and tax capital income overall at lower average tax rates.

Invest in America? The proposal would place foreign savers at a relative advantage as they would not face the minimum tax. A higher effective tax rate on capital gains could also discourage angel investing, entrepreneurship, and risk-taking.

Costly, complex, and unstable: Biden’s proposal would be administratively costly without serving as a stable source of permanent funding. Lawmakers have much better options, such as progressive consumption taxes, to raise revenue from top earners.

3. Are Tax Rebates a Good Way to Provide Relief from Rising Prices?

Good intentions, not so good policy: Policymakers understandably want to use whatever tools they have at their disposal to address rising consumer costs, but tax rebates, gas tax holidays, and other temporary tax expedients have the potential to add to existing inflationary pressures while doing relatively little to help those in need.

Inflation and inefficiencies: It isn’t unreasonable for policymakers to prefer these policies to unnecessary one-time government spending, or—worse—to use one-time revenue gains for long-term spending increases. Such policies can have their place, but their ordinary inefficiencies are magnified in a high inflation environment.

What should lawmakers do instead? States should evaluate whether they have the capacity for actual tax reform, not just one-time relief. Most states project sustained revenue growth that could fund real reform or rate reductions. Long-term tax relief also puts more money in taxpayers’ pockets, of course, but with a very different incentive structure.

Bad Economics; Bad Energy Policy

(Updated at 2:13 PM CDT) The Biden Administration, and Democrats in general it looks like, just don't understand good governmental policy or basic economics. The Federal Reserve is no better, and may yet push us into a recession, at the least. 

The Biden administration plans to release around 180M barrels of oil from the Strategic Petroleum Reserve, in what be the largest release from stockpile since it was created in 1975. WTI crude futures tumbled 6.7% to $100.53 on the news, The coming SPR decision would likely see 1M barrels released daily over the course of six months, but analysts are still debating the benefits and whether it would put a dent in the inflationary forces seen in the current environment.

"Stocks of strategic oil have a limit and flows of commercial oil do not. Flows that stop are a bigger problem than strategic stocks can solve over time," said Kevin Book, energy policy analyst at ClearView Energy Partners. "Historically, SPR releases have temporarily sent oil prices lower and are then followed by higher prices as the market prices in insufficient supply," added Josh Young, chief investment officer at Bison Interests. "It is likely that oil prices rise after an initial temporary pullback, and that the SPR may have to be refilled at even higher prices."

According to data from AAA, the national average for a gallon of gas currently stands at $4.23 per gallon, down a penny from a week earlier, but up from $2.87 one year ago. OPEC+ is also scheduled to meet today, but is expected to stick to plans of boosting production by another 400K barrels a day in May despite U.S. pressure to pump more, while the IEA has called an emergency ministerial meeting for Friday to discuss oil supply and coordinate a global release by other countries.

Washington has released oil from the SPR roughly two dozen times, but most of them have been on a small scale (around 1M barrels) and in the wake of local disasters or emergencies. Over the past six months, however, the Biden administration has coordinated two mega releases of 30M and 50M barrels, while the latest 180M would be a third. Prior to these, big drawdowns from the SPR were a rare event, only coming after supply disruptions during the Libyan civil war in 2011 and Hurricane Katrina in 2005. The SPR currently holds 568.3M barrels of oil, its lowest level since May 2002.

Wednesday, March 30, 2022

Biden Budget Typical for a Democrat: An Orgy of Spending and Taxes

President Joe Biden’s budget proposal, which the president released today, calls for the federal government to collect a record $4,638,000,000,000 ($4.6 Trillion) in taxes in fiscal 2023.

At the same time that the federal government is collecting those record taxes, according to Biden’s proposal, it would also spend $5,792,000,000,000 ($5.8 Trillion) —resulting in a fiscal 2023 deficit of $1,154,000,000,000 ($1.2 Trillion).

According to Table S-4 in Biden’s budget proposal, the federal government will run a cumulative deficit of $14,421,000,000,000 ($14.4 Trillion) in the ten years from fiscal 2023 to fiscal 2032.

The $1,154,000,000,000 ($1.2 Trillion) deficit the Biden budget proposes running in fiscal 2023 is the smallest federal deficit it anticipates in any of the next ten years.

In fiscal 2021, according to Table S-4 in Biden’s budget proposal, the federal deficit was $2,775,000,000,000 $2.8 Trillion).

In fiscal 2022, the Biden budget proposal estimates it will drop to $1,415,000,000,000 ($1.4 Trillion).

In a section headlined “Building a Better America,” the Biden budget credits President Biden for living up to what it calls his “commitment to fiscal responsibility.”

“The Budget also delivers on the President’s commitment to fiscal responsibility,” it says.

It's a typical budget: Unsustainable spending, recessionary taxation, radical policy priorities, loaded with earmarks and gimmicks, and was 59 days late, as required by law. 

Any who has studied economic history should know that more spending and more taxation will not create prosperity. Look at what Britain did during the 1930s. Their economy had a very different outcome than the United States. 

Gas Tax Holidays: Good Idea?

States around the U.S. are resorting to a gas tax holiday to lessen the impact of rising oil prices due to the foreign policy decisions levied by the west. Here are a few examples:
  • Maryland stepped up to suspend the gas tax for 30 days; net savings per gallon will be 36.1 cents
  • Georgia did the same until May 31, saving 29.1 cents a gallon
  • From April 1–June 30, Connecticut is reducing state gas tax by 25 cents a gallon
Many more states may follow.

And California, of course, has no desire to be outdone by any other state. Its governor is planning on an $11 billion package, not all of which is gasoline. $9 billion of the package will come in the form of sending $400 debit cards to registered vehicle owners.

While the move may save drivers around 30 cents per gallon at the pump, economic and policy experts warn that it is only a stop-gap solution.

"They may not lower [gas] consumption and they might increase it," Patrick De Haan, the head of petroleum analysis at gas price app GasBuddy, told ABC News of the tax holidays. "I would love to pay less at the pump too, but this is a Band-Aid solution."

The national average price for a gallon of regular gasoline is $4.24 as of March 25, according to AAA. Some states, particularly those on the West Coast, are seeing average prices of over $5 a gallon, AAA's data shows.

Last month, the national average price was $3.57 a gallon and a year ago, it was $2.87, according to the association.

Saturday, March 26, 2022

Consumer Confidence at Recessionary Levels

The final March results from the University of Michigan Surveys of Consumers show overall consumer sentiment fell again, hitting the lowest level since August 2011.

The composite consumer sentiment decreased to 59.4 in March, down from 62.8 in February, a drop of 5.4 percent. The index is now down 41.6 points from the February 2020 peak.

The current economic conditions index fell to 67.2 from 68.2 in February. That is a 1-point decrease for the month and leaves the index with a 47.6-point drop since February 2020.

According to the report, “Consumer Sentiment remained largely unchanged in late March at the same diminished level recorded at mid month. Inflation has been the primary cause of rising pessimism, with an expected year-ahead inflation rate at 5.4%, the highest since November 1981. Inflation was mentioned throughout the survey, whether the questions referred to personal finances, prospects for the economy, or assessments of buying conditions.”

One positive note in the survey was continued favorable views of the labor market. According to the report, “The sole area of the economy about which consumers were still optimistic was the strong job market. Consumers anticipated in March that during the year ahead it was more likely that the unemployment rate would post further declines than increases (30% versus 24%).”

The substantial declines in consumer sentiment reflect the impact of higher consumer prices. The surge in prices for many consumer goods and services is largely a function of shortages of materials, a tight labor market, and logistical issues that prevent supply from meeting demand, and has been compounded by surging energy prices as a result of the Russian invasion of Ukraine.

Furthermore, the newly initiated Fed tightening cycle raises the risk of a policy mistake and adds to the extreme level of risk and uncertainty to the overall economic outlook.

Sources: Seeking Alpha, Schwab

Get Lucky and Become a Deadbeat

 A client called one afternoon and said, “I need $50,000 out of my IRA account.”

“Uh, ok. Why?” I responded.

“To pay off my credit cards. The interest is killing me.”

“Yeah, I get that. Why are your credit card debts so high?”

“Well, I just don’t make enough money to pay for the things I need.”

“Ever thought about getting another job or moving to a less expensive house?”

“Nah, I like my job and house.”

I fulfilled her request and a year later it repeated. Eventually, her nest egg was, well like Humpty Dumpty.

Not exactly sure what she did after that. She never calls. I kind of feel lonely.

Now, my wife and I use credit cards. She has a wallet full of them. Different ones for major companies we buy from. They give us discounts or we build points.

But every month we pay off the balances. No carryover and no interest. Just convenience and rewards.

The credit card companies have a name for people like us: “deadbeats”. No kidding.

My wife was talking with a credit card service person recently who asked her, “How much do you owe on your card?”

My wife responded, “Nothing.”

“Wow, you’re so lucky.”

If you’re not so “lucky” perhaps it’s time to re-evaluate your values and become a “deadbeat” too.

Six Steps to Financial Freedom

Wednesday, March 23, 2022

A Look at the Housing Market

Has the housing market reached its limits?

When you imagine a $2 million house, it’s probably big and fancy.

Well, here’s what that kind of money gets you in a “middle class” suburb in the San Francisco Bay Area:

The house is just what it looks like: An ordinary 3-bedroom home. And it sold for $2.23 million in December 2021. This is the sort of astronomical price that has investors wondering if housing prices will crash like they did in 2007/2008.

We are certainly hearing echoes of the housing bubble. In the five years before the housing crash, US homes prices soared 60%, according to the S&P/Case-Schiller Home Price Index. In the past five years, housing prices have soared 51%.

The key difference is: This time there is no concrete catalyst to push housing prices lower.

The MBA Mortgage Application Index declined 8.1% last week, following the prior week's decrease of 1.2%. The downward move came as a 14.4% drop in the Refinance Index was accompanied by a 1.5% fall for the Purchase Index. The average 30-year mortgage rate extended its climb, jumping 23 basis points (bps) to 4.50%, and is up 114 bps versus a year ago.

In other housing news, new home sales fell 2.0% month-over-month (m/m) in February to an annual rate of 772,000 units, shy of the Bloomberg consensus forecast calling for a rate of 810,000 units, and below January's downwardly-revised 788,000-unit level. 

The median home price rose 10.7% y/y to $400,600. New home inventory rose to 6.3 months from January's level of a 6.1-months supply at the current sales pace. 

Sales jumped m/m in the Northeast, and were higher in the Midwest, while lower in the South and West. Sales in all regions were lower y/y, except for the Northeast which gained ground. 

New home sales are based on contract signings, offering a timelier read on housing activity compared to the larger contributor of existing home sales, which are based on closings.

A Record 8% of U.S. Homes Are Worth At Least $1 Million

That’s nearly double the pre-pandemic share. The biggest jump was in Anaheim, where 55% of homes were worth $1 million or more in February, up from 27% two years earlier. As expensive homes take up a larger chunk of the housing market, many Americans are getting priced out.

Nationwide, a record 8.2% of U.S. homes (6 million) were valued at $1 million or more in February. That’s up from 4.8% (3.5 million) two years earlier, just before the coronavirus was declared a pandemic. The Bay Area led the way, with nearly nine out of 10 properties in both San Francisco and San Jose falling into the $1 million-plus category. Meanwhile, the biggest increase was in Anaheim, CA, where the share of homes worth at least $1 million nearly doubled to 55%.

The number of Austin homes valued at more than $1 million tripled since before the pandemic — more than any other Texas city and a new record for the metro area.

State of play: The share of homes worth at least $1 million in the Austin metro sat at 3.9% in February 2020. That number has only grown, reaching 12.3% last month, per a new report from Redfin, the discount real estate brokerage.

It's a trend playing out across the country, with the percentage of U.S. homes valued at $1 million or more reaching a record high — a trend led by the Bay Area.

Seven of the top 10 cities with $1M+ homes are in California — led by San Francisco, where the percentage of properties worth that amount was a whopping 88.7% in February.

Why it matters: While rapidly appreciating home values are a windfall for those who own them, they also mean that more Americans are priced out of the market.

Incomes are rising, but not as quickly as home prices — leaving many people stuck as renters.

Zoom out: That's deeply felt in Austin, which saw the second-highest increase over two years among non-California cities. Seattle was the only other non-California city to top Austin, with a 21% increase since February 2020.
  • Dallas' share of $1M+ homes grew by 2.1 percentage points, reaching 4.4% last month.
  • Houston saw a 1.3 percentage point increase, hitting 2.7% last month.
  • And 1.5% of homes in San Antonio are more than $1 million, a 0.9 percentage point change.
The big picture: Low mortgage rates and pandemic trends like remote work have helped pour gasoline on the hot housing market, where real estate agents and buyers alike complain about the historically low inventory of homes for sale.

"During the four weeks ending Feb. 27, the number of homes for sale plummeted 50% from two years earlier to an all-time low of 456,000," Redfin says.

"That helped fuel a 33% rise in the median U.S. home-sale price, which hit a record high of $363,975," the company adds.

Details: Here's a selection of metro areas and their percentage of homes worth more than $1 million:
  • Albuquerque: 25%.
  • Boston: 18.1%.
  • Austin: 12.3%.
  • Washington, D.C.: 10.9%.
  • Denver: 9.7%.
  • Phoenix: 7.8%.

This analysis uses the Redfin Housing Value Index—a model that incorporates the Redfin Estimate, public records and MLS data to estimate the current and historical value of more than 85 million properties in the U.S. The figures in this report represent February 2022, unless otherwise noted. See the end of this report for a detailed methodology.

Tuesday, March 22, 2022

ICYMI: Bond Yields Rush Higher

A bond selloff (lower prices means higher yields) is deepening after Monday's (March 21) comments from Jerome Powell, which said the Fed is prepared to act even more aggressively to tackle inflation.

The yield on the 10-year Treasury has soared 20 basis points to 2.32% since the remarks, leading to the worst month for the asset class since 2016. Meanwhile, the 2-year Treasury yield broke above 2%, jumping almost 24 bps over the past 24 hours to reach 2.19%, as the yield curve hurtles towards an inversion (or one of the best indicators of a coming recession). Stocks are hanging in there despite the latest comments - closing in positive territory yesterday - while futures linked to the major averages are up another 0.4% Tuesday morning.

Quote: "If we determine that we need to tighten beyond common measures of neutral (i.e. an interest rate that neither hinders nor fuels economic growth) and into a more restrictive stance, we will do that," Jerome Powell announced during a speech at the National Association for Business Economics. He even went as far to say that the central bank is prepared to raise interest rates by 50 basis points at the next policy meeting. 

Consumer prices took a turn for the worse in February as CPI growth rose by 7.9%, representing the largest 12-month increase since January 1982.

What happened to transitory? "In my view, an important part of the explanation is that forecasters widely underestimated the severity and persistence of supply-side frictions, which, when combined with strong demand, especially for durable goods, produced surprisingly high inflation," Powell declared at the conference. However, he's somewhat optimistic that central bankers will be able to engineer a so-called soft landing, in which the rate is raised high enough to keep the economy from overheating but not so much that it triggers a recession. "While some have argued that history stacks the odds against achieving" this, there are three episodes - in 1965, 1984, and 1994 - where the Fed "significantly" raised rates without a downturn. "I hasten to add that no one expects that bringing about a soft landing will be straightforward in the current context - very little is straightforward in the current context."

Analyst commentary: "Investors are taking Powell's transparency as a step further to say 'he's just preparing us for the worst,' whereas, the bond market is saying, 'no, no, he's telling you he's going to do at least seven [rate hikes], and you aren't listening,'" said Shannon Saccocia, chief investment officer at Boston Private. "For the long term, 2.3% on the 10-year is not such a high figure at all," added Linda Duessel, senior equity strategist at Federated Hermes. "What spooks the market is when you have very quick moves, such as what we're having now." 

Conclusion: If you haven't been, now is the time to watch your basket like a hawk, being prepared to take action if necessary. 

Sunday, March 20, 2022

Biden's Claim Over Gas Prices is Not Reality

Biden's chart is wrong. The second chart shows price of gasoline futures, April contracts. The third chart shows price of oil, WTI, April contracts. There is always a time-lag between what is paid at the well-head or by the refinery.  Individual retailers set gas prices based on what they expect their future fuel deliveries to cost. But they have no clue right now due to all of the global uncertainty. Oil prices have plunged this past week in part because the United Arab Emirates said it would urge OPEC to pump more. But the cartel might not. 

Another thing that the graph tweeted by Bloomberg's Blas shows is that the national average for gas did not jump as high as the cost of oil. In fact, it shows that oil and gas companies would have been generating less profit as oil prices spiked.

Another inconvenient truth for Biden's attempt to make boogeymen out of oil and gas companies? "The vast majority of the nation’s 150,000 gas retailers are mom-and-pop operations" and "fewer than 5% are owned by refiners." For those individual retailers, "profit margins are only about 10 to 15 cents a gallon even when prices shoot up," meaning "small businesses aren’t padding their profits. They’re trying to hedge against big losses if oil prices spike."

Does Biden or his administration care that the narrative they are currently pushing is based on activists' claims rather than reality? Probably not. As he's shown repeatedly during his first 14 or so months in office, he'll divide Americans and direct their anger at straw men in order to save his own hide. Those tactics, as polling consistently shows, are not playing to Biden's advantage.

Price of Gas -- Futures Market
Price of Gasoline, Wholesale

Price of Oil
Price of Oil

Sunday, March 13, 2022

Disney: No Longer a Good Investment and No Longer Kid Friendly

Florida has passed a “Parental Rights in Education bill” - and the Disney corporation, which of course has Disney World in Orlando, is livid. The left has, all too predictably, nicknamed the bill the “Don’t Say Gay” legislation.

Disney, mind you, is the company that focuses on turning out entertainment for kids. And the Florida law is designed to protect kids from kindergarten through third grade from classroom instruction on “sexual orientation” or “gender identity.”

Democrats and the Left are demanding that children between the ages of 5 and 8 receive indoctrination - ah, that would be “classroom instruction” - on, yes, sex and, transgenderism. This at an age when most normal children have zero inkling about sex of any kind. And if they do, parents want to make sure it is they themselves who are teaching their own kids about the birds and the bees.

But in the day and age of woke corporations, even Uncle Walt has become Uncle Woke. As noted here at CNBC: “CEO Bob Chapek said he will meet with Florida Gov. Ron DeSantis and Disney will donate $5 million to organizations, including the Human Rights Campaign, that work to protect LGTBQ+ rights.”

But not woke enough, understand, to stop doing business with China, the very same China that has generated this headline over at Human Rights Watch.

The Disney corporation is demanding Florida’s children between the ages of 5 and 8 be instructed on transgenderism and sex at the very same time they are stone cold silent about doing business with a Chinese government that is engaging in the “forced separation of children” and “separating Uyghur and other Turkic Muslim children from their families.” The company is giving money to leftist supporters of woke sex doctrine organizations. But Disney is silent not only on doing business with the country busily separating children from their parents, but on making a donation to a group like Uyghur Projects Foundation, which is actively trying to help the Uyghurs and their children.

To add fuel to the fire, Pixar employees have taken to social media to complain that Disney has cut "overt scenes of gay affection" from its productions. Pixar staff have alleged: “Nearly every moment of overtly gay affection is cut at Disney’s behest, regardless of when there is protest from both the creative teams and executive leadership at Pixar.”

Pixar’s response went on to list some demands on Disney.

“We are calling on Disney leadership to immediately withdraw all financial support from the legislators behind the ‘Don’t Say Gay’ bill, to fully denounce this legislation publicly, and to make amends for their financial involvement,” the Pixar rebuttal reads. “While signing on to donate to the [LGBTQ+ civil rights group] HRC [Human Rights Campaign] is a step in the correct direction, the shareholder meeting on Wednesday made it clear that this is not enough.”

The employees urged that Disney “take a decisive public stand” against this and similar legislation.

Florida Governor Ron DeSantis said: "And when you have companies that have made a fortune off being family-friendly and catering to families and young kids, they should understand that parents of young kids do not want this injected into their kids’ kindergarten classroom,” he warned. “They do not want their first-graders to go and be told that they can choose an opposite gender."

Amazingly, Disney CEO Bob Chapek dug an even deeper hole for Disney by issuing a statement apologizing to Disney’s LGBTQ+ employees for not opposing the Parental Rights bill earlier. Incredibly, in his statement Chapek said: “It is clear that this is not just an issue about a bill in Florida, but instead yet another challenge to basic human rights.”

Note: there was not a single word of apology from Chapek to the Uyghur Muslims and their children. Nor did the offended Disney employees apologize for accepting money from the oppressors of the Uyghur Muslims and their children.

Disney and its employees are ostentatiously standing up for indoctrinating young Florida children on sex over the objection of their parents - but falling silent on doing business with a Chinese government that goes out of its way to separate children from parents. Because it makes them a buck.

Disney stock is down 35% in the last 12 months. 

Friday, March 11, 2022

Inflation remains at high levels; 50% windfall tax proposed on oil

With inflation running at percent 8 percent annually, according to CPI numbers released March 10, and energy prices at nearly all-time highs, some in Congress want to impose a windfall profits tax on crude oil. 

The Consumer Price Index (CPI) rose 0.8% month-over-month (m/m) in February, in line with the Bloomberg consensus estimate, and up from January's unrevised 0.6% gain. The core rate, which strips out food and energy, increased 0.5% m/m, matching forecasts, and slightly below January's unadjusted 0.6% rise. 

Compared to last year, prices were 7.9% higher for the headline rate—again the fastest pace since 1982—in line with estimates and an acceleration from the prior month's unrevised 7.5% rise. The core rate was up 6.4% y/y, matching projections, and rising from January's unrevised 6.0% rise.

Initial jobless claims came in at a level of 227,000 for the week ended March 5, versus estimates calling for 217,000, and above the prior week's upwardly-revised 216,000 level. The four-week moving average rose by 500 to 231,250, and continuing claims for the week ended February 26 increased by 25,000 to 1,494,000, versus estimates of 1,450,000. The four-week moving average of continuing claims fell by 31,250 to 1,506,500.

In other news, Mr. Ro Khanna, a Democrat from California, introduced a bill Thursday to tax the windfall profits of large oil companies at a 50% rate. Tax proceeds would be returned to consumers earning less than $75k/y through direct payments. The bill, as written, could create challenges and opportunities across the energy value chain.

The tax would apply to those companies producing or importing more than 300kb/d. The rate of 50% applies to barrels produced in or imported to the US. Importantly, the windfall tax is a "top line" tax, calculated as the difference between the average price of Brent oil from 2015-2019 and the current price.

The tax would reduce profits for the large integrated companies like Exxon and Chevron, but also most of the large-cap shale names like Pioneer, Devon, Marathon and Conoco. The proposal could reverse a trend towards consolidation in the industry, as smaller assets would become less valuable once integrated into a larger operation.

The US imports ~6mb/d of mostly heavy oil for the production of diesel and jet fuel, while exporting excess light oil grades from the shale patch. Refineries profit from the narrow difference between the price of products like gasoline and the price of crude oil. In Q4, Valero, for example, earned $4.71 per barrel processed. Applying a top-line tax at multiples of profits, would create havoc with financial results and refinery operations.

The reason oil markets were oversupplied and prices were low from 2015 to 2019 is because US oil companies spent all their income (and then some) to invest in the oil patch and grow production. The bill hopes to provide consumers with $120 per year in stimulus. If levying a windfall tax reduces industry's willingness to invest, consumers around the world could bear the consequences of sustained high oil prices. (Sources: Schwab, Seeking Alpha)


World Bank: Green Energy to be Disruptive to Mineral Markets

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. (U...