#FED's BIG LIE - INSPIRES STICKY #INFLATION AND DEMISE OF #DOLLAR

  HOW DO WE GET OUT OF THIS MESS- LIE

The Fed Is Wrong: Inflation Is Sticky

CHARLES HUGH SMITH

My Bio

Oftwominds.com #7 in CNBC's top alternative financial sites

The Fed's god-like powers will be revealed for what they really are: artifice and illusion.

What does the FED do...

The Fed will be proven catastrophically wrong about inflation for the simple reason that inflation isn't transitory, it's sticky: when prices rise due to real-world scarcities and higher costs, they stay high and then move higher as expectations catch up with reality.

Consider the dynamic of Fed-inflated bubbles raising rents. The house that once sold for $200,000 is sold to a pool of investors for $800,000, and the property taxes, insurance and debt service rise accordingly: even though the house didn't change, thanks to the Fed's bubble, the entire cost structure is higher.

So what happens next? The investors jack the rent up to cover the higher costs. As for refinancing to lower the monthly mortgage payment--that trend has reached the end of the line. As inflation gathers steam, mortgage rates can only go up, not down.

As for getting the county assessment office to lower the valuation on the house--good luck with that. The Ratchet Effect is in full force: assessed values rise easily and decline with great resistance.

So rents stay high even as real estate values decline. Landlords can't drop rents without triggering panic in their lenders, and so they leave units empty and try gimmicks such as "free month rent when you sign a lease," gimmicks which leave the sky-high rent sky-high so lenders look at the numbers and are assured that rents are high enough to cover their mortgage payments and other expenses.

Consider the orchard left to die during the drought. The farmer won't be replanting that orchard--it's simply too risky to assume there will be sufficient water in the future and prices will stay high enough to compensate for the heightened risk. So supply drops as marginal producers drop out and survivors avoid risk by not expanding production. Prices stay high.

Consider deglobalization. Having outsourced essential components, U.S. corporations are at the mercy of factors beyond their control: currency arbitrage, suppliers taking advantage of scarcity, other nations tightening the screws on exports of essentials, and so on.

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Federal Reserve Is Bankrupt

EDITOR'S COMMENTS

What is clear is that as the fires of inflation grow; as fiscal deficits and debt progress at an exponential rate - we are not far from running over the cliff - whereas when crytocurrencies become the global reserve species we are in a deep heap of trouble that will lead to social, political and economic anarchy and collapse. We are far beyond the tipping point.

First Financial Insights

T A McNeil

June 11, 2021

TROUBLE AHEAD? - #Market Sees #Oil Prices Rising To 2008 Meltdown Prices Over $100 Per Barrel

 TROUBLES AHEAD?

Editor's Comments

One of our greatest fears since the 2008 meltdown was to see oil prices return to $100 per barrel or more - as many experts concluded that it was a primary factor behind the financial crisis. Since then it appeared that the supply-demand balance would keep prices well below $60 per barrel; even trading at one point in the negatives. But that expectation now seems fool-hardy and a long-distant memory, as oil prices, along with other industrial and agricultural commodities have soared, and in some cases doubled, in the past 12 months.

Why? There are a number of political, economic, and physical factors causing the shortage of supply but the truth be known we have little faith in the reported oil reserves and the expected Net EROI - meaning that all proven and probable reserves may not be recoverable because the marginal energy cost of recovery faces rapidly diminishing returns. Moreover, OPEC reserve numbers are highly suspect and thought by many to be wildly overstated with Venezuela being the OPEC poster boy in this case.

Let us not forget that when it comes to supply there are the known knowns, known unknowns, and unknown, knowns. But lastly; and most importantly, are the unknown unknowns -and that is what we are facing here - meaning the potential for another meltdown driven by oil prices going to $250 per barrel or more is in the cards. 

And so are the severe social, political, and economic cosequences.  

T A McNeil

June 8, 2021

OIL PRICE.COM INTELLIGENCE REPORT

JUNE 8, 2021

Greetings from London.

In today’s newsletter, we will take a quick look at some of the critical figures and data in the energy markets this week. 

We will then look at some of the key market movers early this week before providing you with the latest analysis of the top news events taking place in the global energy complex over the past few days. We hope you enjoy.

Chart of the Week

-    More than half of Vietnam’s electricity comes from coal. 

-    But renewables are growing quickly, and now make up 5% of the total.

-    Vietnam plans on adding nearly 18 GW of solar over this decade but will need to build out its grid capacity.   

Market Movers

-    Plains All American (NASDAQ: PAA) agreed to sell its natural gas storage assets to Hartree Partners for $850 million.

-    Pembina Pipeline (NYSE: PBA) announced a partnership with the Haisla Nation to develop the $3 billion Cedar LNG project in British Columbia. 

-    KKR's Independence Energy and Contango Oil & Gas (NYSE:MCF) are near a merger deal that could value the new business at $5.5B including debt, Bloomberg reports.

Tuesday, June 8, 2021 

Oil prices held their gains at the start of the week, with Brent at $71 and WTI just below $70 (after briefly touching that threshold on Monday). Analysts see investors pocketing gains at these roughly two-and-a-half-year highs, allowing the rally to take a breather. 

Oil pauses at $70. “For many, the $70 per barrel oil signal may be enough for investors to cash out of the bull cycle early – likely what happened today -- which would stifle the upward price trajectory forecasted by our bullish crude balances,” said Louise Dickson, an analyst at Rystad Energy.

Options bets on $100 oil. Investors are scooping up options bets on crude that pay off if oil prices soar to $100 per barrel.

OPEC lost $1 trillion in the 2015 oil price crash. The members of OPEC lost a collective $1 trillion in foregone revenues during the last crisis in 2015 and 2016. With the Covid-19 crisis hitting the oil industry a lot harder than the 2014-2016 crisis, chances are the losses that OPEC producers suffered last year would be even greater than $1 trillion, but these are still being calculated.

G-7 backs climate disclosures. G-7 nations backed initiatives to force banks and companies to disclose their climate-related risks.

Shell case could affect TotalEnergies. The recent court case in the Netherlands that went against Royal Dutch Shell (NYSE: RDS.A) could be a warning to Total Energies SE (NYSE: TOT), the French oil giant that was known as Total until a rebranding last week. A French court is expected to make a decision on a similar case in September.

Rosneft warns of oil shortage. Rosneft warned that the global push towards energy transition could result in a supply shortage if there is too little upstream development for new oil supplies. “The world risks a severe deficit of oil and gas,” Rosneft CEO Igor Sechin said. “The world consumes oil, but isn’t ready to invest in it.”

Texas passes weatherization bill. The Texas legislature passed a bill that would require electricity providers to weatherize their assets, and it now goes to the Governor for consideration. 

Higher oil prices boost M&A. Higher oil prices offer oil companies and private equity firms the opportunity to sell off U.S. shale assets. In the first five months of 2021, land deals have totaled $6.9 billion, nearly as much as the $7 billion in total deals for all of 2020. 

Fiat announces EV-only transition. Fiat said it would sell only electric vehicles by 2030 and begin a phaseout of the internal combustion engine beginning in 2025.

Canada’s oil consolidation hits white-collar jobs. BNN Bloomberg looks at the loss of jobs among management in Canada’s oil and gas sector as the industry has consolidated in recent years. 

U.S. LNG terminals looking at carbon capture. Under pressure from investors and the Biden administration, several U.S. LNG export facilities are exploring carbon capture. Virginia-based Venture Global LNG said it would implement carbon capture and sequestration at three export terminals in Louisiana. But 60% of a project’s emissions come from upstream and midstream – leaking methane at well sites and in pipelines.

LNG faces headwinds. U.S. LNG exports face multiple headwinds, including surplus supply, rising costs “fickle” demand, and surging Qatari investment, according to a new report.

BP CEO: Strong Oil Demand Growth Is Here To Stay. Global oil demand is set to rebound and remain robust for some time, BP’s chief executive Bernard Looney told Bloomberg News on the sidelines of an economic forum in Russia, reiterating views expressed by most forecasters and analysts. “There is a lot of evidence that suggests that demand will be strong, and the shale seems to be remaining disciplined,” Looney said.

Pipeline regulator tells pipelines to prepare for methane regs. The Pipeline and Hazardous Materials Safety Administration (PHMSA) sent an advisory to oil and gas pipeline operators, telling them to prepare for methane curbs.

Enbridge sees big protests of Line 3. Indigenous communities and environmental activists blockaded sections of the Line 3 pipeline in northern Minnesota. 

Carbon dioxide in the atmosphere hits a record high. The amount of carbon dioxide piling up in Earth’s atmosphere set a record last month, rising to 417 parts per million, the highest in human history.

DOE announces hydrogen “Earthshot.” The Department of Energy launched an “Earthshot” program to cut the costs of hydrogen to $1 per kilogram within a decade.

State Department says Nord Stream 2 “fait accompli.” U.S. Secretary of State Anthony Blinken called the completion of the Nord Stream 2 pipeline from Russia to Germany a “fait accompli” and said the U.S. is now working with Germany to limit how dependent Europe’s energy system will be on Russia after it is finished.

U.S. claws back millions from ransomware. The FBI has seized $2.3 million of the $4.4 million paid to the ransomware attackers of the Colonial Pipeline.

China’s Efforts To Curb Oil Prices Are Futile. Crude oil imports into China dropped by almost 15 percent annually last month. There is speculation that China is tapping its strategic reserve to tamp down on import costs, although it isn’t working.

How oil companies use bankruptcy law to avoid cleanup. Oil and gas companies use the bankruptcy process to shed liabilities. “It's basically bankruptcy for profit.” Here’s how they do it. 

Here are a few other articles in case you missed it:

Buffett And Gates Are Building A Nuclear Plant In Coal Country
Saudi Arabia Says It is No Longer An Oil Producing Country
"We'll See $200 Oil": Russia & OPEC Ministers Blast IEA's Net Zero Plan

That’s all from your midweek intelligence report, we hope you enjoyed it and we´ll be back on Friday, with your latest energy market update, industry intelligence, and special report.

Best regards,

Tom Kool
Editor, Oilprice.com

Remembering the 2008 Meltdown

WARNING : Bleak Economic Future As Volatility Grows And Asset Bubbles Collapse

 

SATURDAY, MAY 29, 2021

Increasingly Chaotic Volatility Ahead--The New Normal Few Think Possible

THE NEW GOLDMAN SACHS?

That the era of stability has ended and a new era of increasingly chaotic volatility has begun is not on anyone's radar as a possibility.

The standard debate about the future of the economy is: which will we get, high inflation or a deflationary collapse of defaults and asset bubbles popping?

The debate goes round and round in widening circles of complexity as analysts delve into every nuance of the debate.

A recent conversation with my friend A.T. raised a third possibility few seem to consider: increasingly chaotic volatility will be the new normal, as wild swings between inflation and deflation will increase in amplitude and ferocity as the system destabilizes.

Increasingly chaotic volatility is a classic sign of a system that has lost equilibrium and is attempting to regain its dynamic stability by going into overdrive.

The amplitude and violence of these fluctuations increase as each attempt to restore stability fails.

This loss of stability is not what people expect. The experience of the past 60 years has been that any hiccup in financial stability--a recession or market crash--is temporary, as the system responds with monetary and fiscal stimulus which quickly restores the system's stability.

That the era of stability has ended and a new era of increasingly chaotic volatility has begun is not on anyone's radar as a possibility.

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There can be little doubt that we have stretched the planet to its capacities and are reaching the various inter-dependent tipping points of ecology, climate, resources, and the population - that all add up to economic chaos and collapse as predicted over 50 years ago in the seminal work Limits To Growth by leading researchers at MIT,

T. A McNeil

CEO FOUNDER

First Financial Insights Inc.

LIMITS TO GROWTH

CHARLES HUGH SMITH

My Bio

Oftwominds.com #7 in CNBC's top alternative financial sites

#Economic Recovery Unlikely After #Covid19

 

Don’t expect the world economy to resume its prior growth pattern after COVID-19

Posted on May 27, 2021 by Gail Tverberg

Most people seem to think that the world economy is going through a temporary disruption, caused by a novel coronavirus. As soon as COVID-19 goes away, they expect the economy will be back to normal. I think that this assessment is overly optimistic. The way I see the situation, the world economy was already having severe growth problems, caused indirectly by resource problems, even before COVID-19 hit.

In a growing world economy, a person might expect that workers would be getting richer, so that they could afford an increasing quantity of goods and services. What we really see is something very different. The number of new automobiles sold was falling in many major countries long before COVID-19 hit, even as population was generally rising. Clearly, something was seriously wrong.

Figure 1. Auto sales for selected countries, based on data of CarSalesBase.com.

As I see the situation, the world has a resource problem. Resources of many kinds, including fresh water, energy products, and minerals of many kinds were becoming more difficult (and expensive) to extract, even before 2020. Substitution might have worked if the problem were only one or two resources, but not with several major resources. Cutting back was the only answer.

Thus, the shutdowns for COVID-19 came at a convenient time, allowing economies that were already doing poorly to shut down. Needless to say, there was no world leader who was willing to explain this hidden issue to the world population. Instead, world leaders used standardized code words such as “we need to move to renewables” or “we need to reduce carbon use by 2050 to prevent climate change.” Unfortunately, the ability to move to alternatives in this time frame is simply an illusion, allowing world leaders to avoid mentioning the serious resource issues that the world economy is really facing.

I expect that within a few months, a new crisis of some sort (perhaps financial) will come along, further reducing resource use. This will happen, whether or not the problem of the novel coronavirus is solved. In this post, I will try to explain the situation.

[1] The world’s economy is a self-organizing system, powered by the laws of physics. It requires a mix of resources, including energy resources, to operate.

The laws of physics require that energy be “dissipated” whenever activities we associate with generating GDP take place. For example, if a person is to drive a truck, he/she will need to eat food for his/her own personal energy. This food is “dissipated” by digestion. If the truck is to transport goods, it will need to burn some type of fuel, such as diesel. This fuel is dissipated by burning. If a computer is to operate, it will need to dissipate electricity. If a room (or a liquid) is to be heated or cooled, some sort of energy dissipation will be required.

The world economy grows in a very orderly manner. It gradually adds population, as more babies are born than people die. All of these people need food and fresh water; they also need some type of housing and clothing to protect them from the elements. Ideally, they need some type of transportation in addition to walking. Businesses are formed to enable access to goods and services that fill these needs. Governments are also formed to provide services used by all and to regulate the system. A financial system is formed to facilitate transactions, among other things.

The world economy cannot slow down and quickly restart. This is especially the case for an economy that had already started slowing, even before the 2020 pandemic. If not enough resources of the right kinds were available to enable true economic growth before the pandemic, it is hard to see how the situation would be very much improved a year later.

One key to understanding how a self-organizing economy works is to understand that the economy is multi-sided. Businesses need to make an adequate profit, to continue in operation. Workers need to earn an adequate wage to raise a family. Customers need affordable prices. Shortages of inexpensive-to-extract resources can lead to many different problems: lack of profitability for producers, or too much wage disparity among workers, or too high prices for customers. Resource shortages can also lead to people with inadequate wages wanting to migrate. They can also lead to empty shelves in stores.

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The Coming Crisis