Category Archives: Government

Inflation

There is much noise that the Fed will raise interest rates to combat “inflation.”

Over the last year to the end of February, wages are up 2.8% (nominal). The price of oil, as a metric for energy prices, is up 32%.

Guess what is driving “inflation.”

The Saudis are still pumping as hard as they can, but justifying it on the grounds that they are storing the above-quota output, not selling it internationally. It seems to me that a tank in Saudi and a tank in Oklahoma are pretty much fungible, except that we at least think we know how much is in the Oklahoma tanks.

The bottom line is that global inventories of oil are continuing to expand to new records, more or less on a daily basis. The EIA is forecasting that US shale is set to expand production by 109k barrels from March to April, rising from 4.853mmbpd to 4.962mmbpd, and offsetting OPEC’s entire February production cut.

At some point we are going to see a reaction and that will be the end of “inflation.” For a while, anyway.

Your Bubble Goes Here

From Bill Hester of John Hussman’s staff.

Unsentimental

The Atlanta Fed GDPNow forecast for Q1 GDP now stands at 1.2% annualized growth. This despite outrageously bullish sentiment everywhere you look.

1937, anyone?

Pension Tsunami Sighted

NY Teamsters Pension Fund becomes first to run out of money.

Oh, and after the close the API announced that crude and product inventories continue to set new records. Not to worry, speculative buying continues. GLWT.

 

Socialism Is Good For You

If you need to lose weight, that is. Due to lack of food supply, Venezuelans have lost an average of 19lbs. over the last year. This despite having the largest proven oil reserves in the world.

Awash In Oil

Given the record level of oil inventories, it is amazing to me that the crude price is being sustained in the low $50s. This price is encouraging the shale producers to keep pumping, having sold forward their product into the futures market.

Now it seems that gasoline shipments are being diverted from New York as there is nowhere to put the stuff. Demand is down and everyone is carefully avoiding the obvious explanation – there is a recession underway.

Which rather surprises me – I would have thought that Trump’s Goldman advisers would want him to take the recession now, while there is still room to blame it (justly) on Obama, rather than further postpone and aggravate the inevitable outcome.

I don’t think the stock market will head lower until oil does. But it seems that Treasuries may be starting to reject the “Trumpflation” scenario.

DROP kills

The Dallas Police and Fire Pension System is mired in political conflict and facing insolvency, due to a combination of poor investment decisions and generous DROP plans. Just like the ones in California that have not yet hit the wall.

California Government Pay

In case you were feeling that government employees in California were underpaid, here’s BART janitor Liang Zhao Zhang pulling down a mere $271,243 for 2015 (and a total of $705,000 in pay and benefits during the four years from 2012 to 2015.).

Check out some of his colleagues here.

Greece Again

Greece is back in the news. As a pretty much unbiased observer, a few points:

  • The IMF is right. Greece cannot pay its debts. Debt repayments come from surplus, profits in a sense. They’re not there, and they’re not coming.
  • Greece is a zombie. It needs a fresh start desperately, for humanitarian reasons if nothing else.
  • Apparently, there is no provision in the rules for a Eurozone member to go bankrupt. Therefore, the Eurozone rules need to be changed. It is foolish to believe that bad things don’t happen.
  • Germany has profited hugely from the Eurozone – on paper – but a lot of those profits are yet to be collected because they are in the form of unpaid debts.
  • Germany is, understandably, reluctant to write off any of those debts for fear that the whole racket will come apart, so it insists on the “nuclear option” of Grexit. As the French would say “Pour encourager les autres.”
  • Draghi is unwilling to take a leadership role in resolving the situation, because he knows that if Greece is given a less painful solution, then Italy is next in line. And Germany will be on the short end of the stick.
  • It is likely that nothing good will happen until Merkel and Schäuble are gone. The good news is that, because of the immigrant crisis, their departure from the scene is no longer unthinkable.

Manipulation

Yesterday, the API reported a huge build in crude oil inventories. This morning, the EIA confirmed it. After a couple of minutes hesitation, the algos took over and marched crude up – and turned the Nasdaq and S&P green at the same time. As they have consistently as inventories have built.

MAnipulation has become completely obvious and shameless as the SEC’s so-called supervision turns a blind eye – could it be, perhaps? so that the SEC folks can discreetly become “compliance officers” with no work and large paychecks when they leave.