Just my observations: Following the usual boom and bust cycle, we should expect the next two years to be a recession, which will lead to a significant number of people going to the polls to elect the next president, which regardless of who it is, will likely see a rebound of the economy in 2025.
I think its probably fair to say a good economy is outside of a presidents control. But presidents have plenty of tools to make an economy worse at their disposal.
For example shutting down domestic energy production, thus causing energy prices to increase, which will cause other prices to increase. This inarguably happened. We can discuss whether its good in the long run for environmental reasons. But no one in good faith can argue this administration didnt deliberately choose to shut off oil production to help push green policies and encourage people to get electric cars.
Funny thing though is the price of gas is baked into almost every product in the country.....
"shutting down domestic energy production" which "inarguably happened"
If oil companies slowed down their drilling, easily accounted for by decreased demand caused by a massive recession. The President had nothing to do with it.
You're just going to ignore all the ways the President has opposed the oil industry? The President's actions have repeatedly signaled that investing in oil right now is betting against the US government:
Jan 2021: Keystone XL pipeline halted as Biden revokes permit
A new lease on undeveloped land takes several years to reach production, so decisions made on leasing new lands now will have an effect only a few years from now.
Beyond the impact of any specific policy, these decisions lead to the very obvious conclusion that oil faces significant political headwinds during the Biden administration and is therefore a bad investment right now.
It's fair to argue that this is right decision for the future of humanity, but not to claim that these policies have no effect on short term energy prices.
Long term, I think the country (and the world) are still divided (though HN clearly leans hard against oil). The future for oil could go either way, depending on the results of future elections.
I think people already knew that oil faces political headwinds because of global warming--which fewer and fewer people deny is happening, because they can see it for themselves..
Besides, from what I've read, Biden's executive action pause on new leases was overturned in court by June 2021. Figure 1 of this page (https://www.citizen.org/article/bidens-oil-letdown/) doesn't seem to indicate any real slow down in new oil leases [if someone has a more neutral source, I'd be happy to see it]. In any case, only about a quarter of US oil production is on federal land.
In your expert commodity pricing opinion/method, how much do you ascribe pricing deltas to each of:
1. General inflationary forces
2. Disruptions in the euro market due to Russia/Ukraine
3. Global output / pricing forces
4. Biden’s future/sentiment based policy positions
But does it explain it though? Ramping up production because prices are currently high can be a losing strategy, since the price of gas is volatile, and ramping up production is slow, and expensive.
There are a lot of Democrat partisans here who upvote any pro-Biden nonsense, however poorly supported, and downvote any con-Biden facts, however well sourced.
Advancing their cause matters more to them than seeking truth.
And if you zoom out further, you'll see that crude oil rig count dipped precipitously starting around 2015. In fact the trend is very similar between when Trump started his Presidency, and when Biden his, and yet the narrative that gets told about why this happened has everything to do with politics and political stereotypes, and very little with reality.
And why did oil companies slow down oil drilling? Did they have an epiphany that drilling for oil is bad and they should stop? If they had drilled for oil they'd be making bank right now.
An active oil well produces oil every day, whether you want it or not. When demand abruptly dropped, crude started piling up at storage facilities, leading the price of oil to drop below $0[1]. Cutting production is a rational market response when wholesale prices are negative.
So one of the very first acts of Biden admin wasn't shutting down an oil pipeline and alienating the oil industry?
If Trump gets elected in 2024 and shuts down say AWS, and someone says he's "Shutting down the tech industry", Im sure you will pedantically argue that too right?
Biden announced policies related to new drilling starts but none of that impacts pricing or output to the degree you’re suggesting it does. There was no “shutting off” of production for sure so consider this a serious argumentative point?
I've always been of the view that oil and coal were too valuable, too energy-dense a finite resource, to waste, but should be kept in reserve for if/when we really need that kind of energy density. On a local scale: I'd rather use solar on my rooftop, but don't mind having a diesel generator when the power goes out.
Other uses for oil and coal besides. Coking coal for steel production, oil for plastics, etc.
The President can also darkly threaten to take away the independence of the the Federal Reserve if they don't keep rates low to assist in their re-election. Such things normally don't happen, but there's no physical barrier to prevent it. [1]
The President nominates the Federal Reserve Board with the consent of the Senate. But apparently the law on whether governors can be demoted by the President is unclear and may have to be resolved in Court. Apparently our last President asked his advisors for opinions on doing exactly this (surprise) [1], and like many things in our political system the answer turned out to be something more like "this would be a violation of norms" rather than "it is clearly illegal". So a sufficiently motivated President could do quite a bit to make an uncooperative Fed's life difficult, particularly if they enjoyed a sympathetic Congress and Supreme Court. The potential chaos alone makes threats much more credible.
U.S. refining capacity is running at 100%. You can add as much oil to the supply as you want - we can't refine it. Several refining facilities have been retired over the past 10 years as they've hit and-of-life. No one is interested in building new refineries because it's capital-intensive and requires a 50-60 year lifetime to achieve desired income. Many European countries have banned the sale of ICE vehicles by 2035, so why would you invest in more refining capacity in 2022? Not only that, but if you make the capital investment to increase refining capacity the result will be lowering the price of your product. That new refinery will never pay for itself, let alone be profitable.
Why the dramatic rise in gas prices? Two-fold - refineries were end-of-lifed during the pandemic, which reduces supply, and then the lockdowns were lifted when the Covid vaccines became widely distributed, which had the result of increasing demand. Reduced supply + increased demand = higher prices. Throw in the Ukrainian War which has introduced uncertainties in the global oil market and so you have raw material costs increasing as well.
That seems pretty disingenuous to me, TBH. Article to your linked article it's not an issue of the refinery's owner wanted to increase capacity and the White House said no. It's an issue of a refinery already experiencing environmental issues wanted to expand and weren't addressing the existing outstanding issues. Also, I find it curious the refinery in question is located in the U.S. Virgin Islands. I could be completely wrong but I would guess that refinery is producing refined products for export and not serving the U.S. domestic market.
In another vein, it's interesting too that U.S. gasoline exports to Mexico and Latin America have risen to record levels. It's almost as if we're not a Socialist country and we can't tell those companies to supply that gas to the domestic market to help drive prices down.
Hubris. This is not what happened in the slightest.
Oil is traded on a global market, the little impact domestic production has on the price of oil is due to its contribution to global supplies.
The only domestic industry that has an impact on local capacity is refining.
Here is what happened: the fracking boom that began in the early/mid 2010s led to an oil glut as OPEC kept production high in order to drive out domestic US producers from the market (the shale producers had a higher cost structure and needed +$60 oil to break even). This strategy worked even before Covid, and once Covid hit, oil traded negative for a short period.
During 2021 oil inventories slowly drew down. Yet, given the experience of the latter half of the previous decade, US producers have been understandably hesitant to invest. Obviously the Biden administration did not disabuse them of this notion, but the effect of their actions is consistently overstated. Shale companies had been failing since before Biden even declared his run for president.
The war in Ukraine was then a precipitation even for oil prices to spike, but the biggest impact on gas prices has less to do with oil production challenges (though that was impacted) and more to do with refining.
Crack spreads (the difference in profit between refining a barrel of oil into gasoline vs other distillates) hit record highs this year. The value of refining diesel and jet fuel was higher than refining gasoline, when it is usually the reverse. This can be pretty clearly traced to, on the one had, a rapid rebound in air travel, and on the other, shifted supply chains from Europe where diesel is the primary fuel for passenger vehicles (though I’ll admit that the latter is more speculative on my part).
I think this admin is incompetent at communication and created the narrative you just expressed.
The lockdown and implosion in demand created massive swings in demand and inventory. Crude oil production is a secondary driver, the primary driver of gas prices is end product (ie gasoline and diesel) inventory.
There isn’t a ton a competitive pressure to invest billions in capital to activate refineries when your margins are so high and competitive forces are weak.
That is not necessarily true. Presidential administrations can affect the economy through fiscal spending. The Biden administration started their administration with $1.9 trillion in stimulus, on the heels of about $3 trillion in stimulus spending. Their $1.9 stimulus was poorly targeted and risked exacerbating inflation, a few federal reserve banks and many economics said this at the time. Gosh, imagine if the administration got their $4-6 trillion dollar build back better program passed. Obviously there are a lot of factors at play and a lot of this is up for debate.
My local community spent $10 million dollars of federal covid stimulus money on a park/tourist attraction that is less than 1 acre in size. That is just one example of the frivolous items governments all over the country have spent this money on. There isn't a lot of auditing or reporting going on about this. This is all inflationary.
The bureaucracy in general is in bad shape and slow to change. It would take the commitment of multiple administrations to get it where it needs to be, especially in areas like digitization and procurement reform
We could argue who is to blame for higher gas/oil prices until the cows come home, however I ask the questions; years from now will we look back at this as the defining moment we realized we needed to hasten our move away from carbon based energy sources and renew investment in nuclear energy again to facilitate that move?
I think gas/oil prices going up like this needed to happen.
I don't think it really matters much in the long term. Either way it was obvious to the industry that electric cars were coming. High gas prices are making them a little more in demand, but it takes years to design an electric car. Any EV with announced availability before around 2025 was already in development before gas prices went up. High prices might push some schedules up a few months, and I'm sure everyone is scrambling to see if they can make a few more than planned, but in the end most are running a plan made years ago.
2025 is a number I made up for discussion. I have no doubt you can find places where it is wrong for some specific car, but I think it is close enough for discussion.
Essay by Jeffrey Frankel, Harpel Professor at Harvard’s Kennedy School of Government, and formerly a member of the White House Council of Economic Advisers:
The "textbook definition" may be two consecutive quarters of negative GDP growth, but it's worth noting that NBER does not use that formula and instead looks at a variety of factors when determining periods of recession.
Normally I dislike these kinds of quippy follow-up comments, but I think they're pretty prescient in this context. I'm tired of obviously bad things being presented with an 'and that's a good thing!' suffix.
Bernanke on the Great Depression: "Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again."
As late as July 2008, "Our economy has got very strong long-term fundamentals, solid fundamental. And you know, your policy-makers here, regulators, we're very vigilant." -Treasury Secretary Henry Paulson
This was 2 months after Citigroup, Merrill Lynch and RBS had a combined total 83 Billion loss/writedown.
Of course 2 months later, he and the Fed Reserve Board Chairman purpose a $700 Billion plan to stabilize the economy.
So, either they are lying through their teeth or asleep at the wheel.
*There is a better graphic that was on Reddit/Internet at the time that showed all the denials but I can't find it now.
I'm not sure why anyone is looking to the Fed, of all organizations, to telegraph a recession.
Out of all the possible announcements they could make, even if they were 100% certain the economy is headed for a downturn, the absolute worst would be "We expect a recession in the next 6 months."
Part of the Fed's job is to keep the economy balanced, and a huge part of that job is messaging and weighing the likely effect of the message vs the desired effect the Fed wants.
So they're not in the business of lying... but they're also not in the business of loudly trumpeting pessimism from the rooftops.
I think it is entirely accurate right now though that we aren't yet in a recession.
Interest rates are still low, the yield curve is only flirting with inversion and there hasn't been any negative employment numbers.
Which means that it is accurate to state that if we're going to hit a severe recession/depression (and I think the Fed is 100% telegraphing that they're going to cause one in order to depress wages) then the worst is still to come.
It is being a little bit too cynical to just wave this off as entirely propaganda to cover over the economic conditions.
And you missed all the talk of a "soft landing" followed by a "v-shaped recovery".
IOW: we've had 2 quarters of negative GDP growth and we're not even in a recession yet, so buckle up...
I believe when the entire global economy is wholly dependent on a single resource (oil) and that resource experiences even the slightest disturbance, whatever you believe is the cause of it, the most likely outcome is a global recession.
Do periods of war, disease, and famine typically get noted by wether there is a recession? In many cases I suspect it would be assumed that there is one. Or does the increased spending from government’s combating crises usually gloss over the recession?
By the Sahm rule (https://en.wikipedia.org/wiki/Sahm_Rule) we are not in a recession. Another way to look at it is that this would be the first recession ever to occur with unemployment rates are as low as they are.
Become upside down on those buys for the next decade? I never understood the popularity of this blanket pablum, other than to sound edgy in a noise of bad news. You don't buy everything that dips every time it dips. Some companies will not survive long enough to bounce back.
You also have the inflation eating away at theoretical, eventual, gains.
They don't, but it's probably a decent estimate. This could also mark the fall of the USA, the entire world economy, and life as we know it on the planet. But I'd like to think that enough people are incentivized to not have any of that happen that it's a better bet to buy some stocks when they're low.
If the broad indices are down in the long term, then we are in an economic/society collapse scenario where small optimizations in investing strategy becomes completely meaningless.
They don’t. But the typical response when you point this out is something like “if it doesn’t, then we have much bigger problems to worry about”, and then the conversation stops there. Nobody has a plan for this, or even seems to consider it, just like the “fact” that real estate could never go down (proven wrong in the last recession).
That’s the point where joining a prepper group becomes the correct response, or at least a good hedge.
We are hiking interest rates, investments into businesses are harder to achieve with VC staying aside, and consumer sentiment is falling daily.
Look, sometimes when people are fearful there is a reason. Don't jump into a pool filled with razorblades because everyone is outside the pool pointing and screaming.
I personally think we are in for a ride that will remind people that stocks are, in fact, risk assets. In both theme parks and finance, know the ride you are getting on.
It’s interesting what happens when you look at an individual’s valuation through the lens of DCF as a function of interest rates.
As an individual, your net present value diminishes as interest rates fall, and increases as they rise relative to a hypothetical growth stock. As is the case with any other productive asset.
In order to fight inflation with higher rates, the fed may need to get interest rates high enough that people stop simply demanding more money from their employers, and start saving.
Wage is just one cost of doing business. Increasing wages to a certain percentage raises prices by a lower percentage. If you lower profits it can even be price-neutral.
Your statement is true - unfortunately so is this: If you lower profits even more, or even lose money selling your goods, it may even lower prices for consumers.
Public businesses have a fiduciary duty to return profits to shareholders and purposefully lowering profits without a long term roi from that decision may actually be illegal.
Again - I am not saying these facts should fill anyone with glee, but we live in the real world and its important to at least see how historically these have played out.
Lowering profits to more effectively compete is not illegal. If you're saying that the company does not feel competitive pressure at all then that may in fact be illegal depending on the current courts interpretation of anti-monopoly laws.
What do you mean an individual's valuation? What pattern of cash flows are you using? How is this any different than taking integrals of different time periods for a flat annual $100 CF?
I'll be greedy when others are in abject despair. Or in other words, I'm waiting on the sidelines for a while longer. Call me a doomer, but I believe the economic turbulence we are experiencing right now is just the beginning of a far more significant downturn.
The major central banks of the world, The Federal Reserve, The European Central Bank, and the Bank of Japan all face the seemingly impossible task of trying to control inflation while simultaneously dealing with supply shortages and the downstream effects of sanctions against Russia.
Because the US, EU, and Japan all have significant amounts of debt, the kind of interest rate hikes necessary to address the inflation would cripple their ability to borrow and service debt at the levels necessary to support their current level of deficit spending. So that will either lead to austerity, or pressure on the banks to keep interest rates lower than needed out of sheer necessity. Doing that would keep the governments solvent, but would allow inflation to run wild. I don't think the war is going to end anytime soon, so the odds of commodities going back to normal seems unlikely. Cynically, given the choice between default and having us plebeians lose value due to inflation and recession, our leaders will pick the latter. They won't choose to destroy their own government.
To be clear, I don't think this is an economic apocalypse. I just foresee the most significant downturn of my lifetime on the horizon because we seem to be in a perfect storm of problems with solutions that are mutually exclusive.
thank you for elaborating! Everything you say makes sense, and is hard to argue against. I guess i just disagree somewhat in the magnitude of these factors, im a bit more optimistic. I think its hard to imagine a bigger-than-2008 size collapse at present - i think demand destruction / recession will slow things down enough to avoid that kind of fall.
> The major central banks of the world, The Federal Reserve, The European Central Bank, and the Bank of Japan all face the seemingly impossible task of trying to control inflation while simultaneously dealing with supply shortages and the downstream effects of sanctions against Russia.
Some of them might, because they have different mandates, but while all of them are going to be concerned with inflation, much of the rest of that is the responsibility of the entities responsible for fiscal, not monetary, policy; the whole purpose of having central banks is separating monetary policy from general government policy (most of which is still about the economy.)
How early are we in the cycle? Nobody knows. One could point to the huge dip when Covid hit as the start of it, so two years isn’t long enough to wait? You’d have to be Nostradamus to know anything at this point.
This is why DCA is the recommended strategy, as you never know when to go all in.
I can't tell if you're being sarcastic or not, but this advice comes from a period of 100 years of more or less constant global economic growth.
This advice only holds if you maintain that such growth can be maintained in perpetuity.
As we start to see more and more constraints on energy and resources globally, and realize that we're living in a world funded by debt we might not be able to pay, it's a fairly reasonable position that infinite growth is in fact not possible on a finite planet.
The assumption that everything will always eventually go up is a pretty bold one and worth taking with a grain of salt.
That isn't true. The advice to buy is based on a belief in a high probability that, for the next 20-50 years, depending on your retirement horizon, a broadly diversified portfolio of highly liquid asset classes will appreciate relative to whatever legal tender currency you'd otherwise hold.
Infinite growth in perpetuity is not required at all.
As far as I know, if this proved to not be true, it would represent the first time ever since publicly-tradeable equity shares in private companies were invented. You're effectively saying you think the remainder of the 21st century will be worse for the industrialized west than all recent history, including a period of two world wars, the Spanish Flu epidemic, and the Great Depression all happening back to back to back to back. That is a fairly extraordinary claim that doesn't seem to be helped much by the fact that Earth will at some point hit a carrying capacity, which has always been true.
Jobless Claims is the metric, the indicator is positive because the number of jobless claims has been going down (as opposed to rising which you'd expect in a recession).
Can someone explain to non-Americans what the "Atlanta Fed" is? Fed is short for Federal Reserve, which sounds like it's not something that has local branches creating their own definitions. But apparently they do, so how does that work? How are they linked?
In keeping with the American commitment to federalism, the Federal Reserve system is comprised of regional member banks spread across the country. Rather than paraphrasing a Wikipedia entry, I'll just link it.[1]
A Federal Reserve Bank is a regional bank of the Federal Reserve System, the central banking system of the United States. There are twelve in total, one for each of the twelve Federal Reserve Districts that were created by the Federal Reserve Act of 1913.[1] The banks are jointly responsible for implementing the monetary policy set forth by the Federal Open Market Committee...
The Federal Reserve is a semigovernmental entity that manages the US's monetary policy. It has a board of governors, appointed by the president, and 12 "districts," each of which has a bank associated with it.
Each Federal Reserve bank, in turn, has historically had some kind of monetary policy or financial specialty: most are chartered to advance monetary policy within the district they belong to, and many have special additional responsibilities (such as the NY Fed's storage of the US Treasury's gold reserves).
The TL;DR is that they're independent banking entities within the Federal Reserve system, which was designed to provide uniform central banking to the entire United States.
The Federal Reserve has a board of seven governors, and twelve regional banks (one in Atlanta). Along with that board, the president of the New York regional bank, and four others on a rotating basis, form the body that votes to set policy.
One of the specialties of the Federal Reserve Bank of Altanta is monitoring the economy, which may be why they're the ones to make this announcement. They have research tools and apps (GDPNow, EconomyNow) for viewing some statistics, forecasts, and model data about the economy.
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[ 5.3 ms ] story [ 188 ms ] threadThey would be even higher if president wasn’t draining the strategic oil reserves.
Without a change in approach the reserve will empty out. Leading to drastically higher prices and no buffer for world events.
I think its probably fair to say a good economy is outside of a presidents control. But presidents have plenty of tools to make an economy worse at their disposal.
For example shutting down domestic energy production, thus causing energy prices to increase, which will cause other prices to increase. This inarguably happened. We can discuss whether its good in the long run for environmental reasons. But no one in good faith can argue this administration didnt deliberately choose to shut off oil production to help push green policies and encourage people to get electric cars.
Funny thing though is the price of gas is baked into almost every product in the country.....
If oil companies slowed down their drilling, easily accounted for by decreased demand caused by a massive recession. The President had nothing to do with it.
https://rigcount.bakerhughes.com/
https://tradingeconomics.com/united-states/crude-oil-rigs
You're just going to ignore all the ways the President has opposed the oil industry? The President's actions have repeatedly signaled that investing in oil right now is betting against the US government:
Jan 2021: Keystone XL pipeline halted as Biden revokes permit
https://abcnews.go.com/International/wireStory/work-keystone...
Jan 2021: Biden suspends oil and gas leasing in slew of executive actions on climate change
https://www.cnbc.com/2021/01/27/biden-suspends-oil-and-gas-d...
Mar 2021: The Biden EPA Withdraws a Key Permit for an Oil Refinery on St. Croix
https://insideclimatenews.org/news/25032021/biden-epa-limetr...
Aug 2021: Biden signs order aiming for half of new vehicles to be electric by 2030 [reducing future demand for oil]
https://www.nbcnews.com/politics/politics-news/biden-sign-or...
Oct 2021: Drillers Would Face First-Time Methane Fee Under Biden Deal
https://www.bloomberg.com/news/articles/2021-10-28/biden-dea...
Oct 2021: Biden bill targets fossil fuel firms in hopes of raising more than $100 billion in taxes
https://www.washingtonpost.com/climate-environment/2021/10/2...
Nov 2021: Biden asks FTC to investigate oil and gas companies
https://www.politico.com/news/2021/11/17/biden-ftc-investiga...
Feb 2022: Biden administration freezes new oil and gas drilling leases [again]
https://www.cnn.com/2022/02/21/us/biden-climate-social-cost-...
Jun 2022: Biden Administration Considers A Windfall Tax On Oil And Gas Profits
https://finance.yahoo.com/news/biden-administration-consider...
It's fair to argue that this is right decision for the future of humanity, but not to claim that these policies have no effect on short term energy prices.
Long term, I think the country (and the world) are still divided (though HN clearly leans hard against oil). The future for oil could go either way, depending on the results of future elections.
Besides, from what I've read, Biden's executive action pause on new leases was overturned in court by June 2021. Figure 1 of this page (https://www.citizen.org/article/bidens-oil-letdown/) doesn't seem to indicate any real slow down in new oil leases [if someone has a more neutral source, I'd be happy to see it]. In any case, only about a quarter of US oil production is on federal land.
1. General inflationary forces 2. Disruptions in the euro market due to Russia/Ukraine 3. Global output / pricing forces 4. Biden’s future/sentiment based policy positions
From April 2021-22, US oil production increased by just 400K barrels per day, compared to 1.4M from April 2017-18 and 1.6M from April 2018-19.
And prices were lower back then.
There are a lot of Democrat partisans here who upvote any pro-Biden nonsense, however poorly supported, and downvote any con-Biden facts, however well sourced.
Advancing their cause matters more to them than seeking truth.
Oil production under Trump grew much faster than under Biden.
Apart from recovering from a one month crater immediately after Biden took office (Feb 2021), oil production has barely increased at all under Biden.
Whereas it increased by over 10% per year during Trump's first two years.
https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=m...
Because there was a global, unprecedented reduction in demand?
>If they had drilled for oil they'd be making bank right now.
Yeah, and if I could see the future, I'd win the lottery also. What purpose does this sentence serve to you, genuinely curious.
1 - https://www.reuters.com/article/us-global-oil-crash-explaine...
If Trump gets elected in 2024 and shuts down say AWS, and someone says he's "Shutting down the tech industry", Im sure you will pedantically argue that too right?
Factor two is ESG initiatives starving the sector of financing/investors.
Factor three is other shareholders demanding cash returns after seeing tons of capex get burned the last go around.
Factor 4 is the industry turned off during Covid (didn’t get a bailout like airlines) and now has to ramp back up.
Don’t ask me to weight these but like the argument around what caused inflation it’s not one thing, but several working in concert.
Biden announced policies related to new drilling starts but none of that impacts pricing or output to the degree you’re suggesting it does. There was no “shutting off” of production for sure so consider this a serious argumentative point?
https://www.eenews.net/articles/how-the-courts-have-shaped-b...
Only about a quarter of US oil production is on federal land anyway...
Can’t even imagine what the wait time is on a brand new well.
Other uses for oil and coal besides. Coking coal for steel production, oil for plastics, etc.
[1] https://www.reuters.com/article/us-usa-fed-trump-tweets/trum...
The president doesn’t have the power to just make things up as they go and I’m 99.8% sure the Fed isn’t under the control of the executive branch.
[1] https://archive.ph/y1uEv/again?url=https://www.bloomberg.com...
Why the dramatic rise in gas prices? Two-fold - refineries were end-of-lifed during the pandemic, which reduces supply, and then the lockdowns were lifted when the Covid vaccines became widely distributed, which had the result of increasing demand. Reduced supply + increased demand = higher prices. Throw in the Ukrainian War which has introduced uncertainties in the global oil market and so you have raw material costs increasing as well.
But they are interested in expanding existing refineries and have been blocked by the White House.
https://www.reuters.com/article/us-usa-refinery-pollution/bi...
In another vein, it's interesting too that U.S. gasoline exports to Mexico and Latin America have risen to record levels. It's almost as if we're not a Socialist country and we can't tell those companies to supply that gas to the domestic market to help drive prices down.
Hubris. This is not what happened in the slightest.
Oil is traded on a global market, the little impact domestic production has on the price of oil is due to its contribution to global supplies.
The only domestic industry that has an impact on local capacity is refining.
Here is what happened: the fracking boom that began in the early/mid 2010s led to an oil glut as OPEC kept production high in order to drive out domestic US producers from the market (the shale producers had a higher cost structure and needed +$60 oil to break even). This strategy worked even before Covid, and once Covid hit, oil traded negative for a short period.
During 2021 oil inventories slowly drew down. Yet, given the experience of the latter half of the previous decade, US producers have been understandably hesitant to invest. Obviously the Biden administration did not disabuse them of this notion, but the effect of their actions is consistently overstated. Shale companies had been failing since before Biden even declared his run for president.
The war in Ukraine was then a precipitation even for oil prices to spike, but the biggest impact on gas prices has less to do with oil production challenges (though that was impacted) and more to do with refining.
Crack spreads (the difference in profit between refining a barrel of oil into gasoline vs other distillates) hit record highs this year. The value of refining diesel and jet fuel was higher than refining gasoline, when it is usually the reverse. This can be pretty clearly traced to, on the one had, a rapid rebound in air travel, and on the other, shifted supply chains from Europe where diesel is the primary fuel for passenger vehicles (though I’ll admit that the latter is more speculative on my part).
The lockdown and implosion in demand created massive swings in demand and inventory. Crude oil production is a secondary driver, the primary driver of gas prices is end product (ie gasoline and diesel) inventory.
There isn’t a ton a competitive pressure to invest billions in capital to activate refineries when your margins are so high and competitive forces are weak.
My local community spent $10 million dollars of federal covid stimulus money on a park/tourist attraction that is less than 1 acre in size. That is just one example of the frivolous items governments all over the country have spent this money on. There isn't a lot of auditing or reporting going on about this. This is all inflationary.
Will oil friendly / hostile policies be adopted / continued?
Will tax burden go up or down?
Will regulatory burdens be increased or lowered?
Look at these and related topics to see what direction economy will go in.
President has control on some of these. Congress on others.
I think gas/oil prices going up like this needed to happen.
2025 is a number I made up for discussion. I have no doubt you can find places where it is wrong for some specific car, but I think it is close enough for discussion.
Maybe. But you can do the same thing with taxes on gas and not induce a famine in the process.
Famine? if there is it's not because of some local u.s. oil policy. Have you seen what's happening in the wider world?
https://econbrowser.com/archives/2022/07/guest-contribution-...
Economics professor Menzie Chen on the uncertainty of Atlanta Fed's GDP Now forecast tool:
https://econbrowser.com/archives/2022/07/another-quarter-of-...
https://www.nber.org/research/business-cycle-dating
https://www.nber.org/business-cycle-dating-procedure-frequen...
In chronological order of what I expect the White House, Treasury, and Fed to say:
By most definitions we are not in a recession.
Our exports agree we are not in a recession.
We are in a recession by most definitions, but it is mild and transitory.
We are in a recession, but it is mild and transitory.
We are in a recession but it is transitory.
We are in a recession, but not a depression.
By most definitions we are not in a depression . . . and so on.
https://www.cnbc.com/2022/07/15/millennials-are-to-blame-for...
https://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021...
[0]https://www.google.com/url?sa=t&source=web&rct=j&url=https:/...
As late as July 2008, "Our economy has got very strong long-term fundamentals, solid fundamental. And you know, your policy-makers here, regulators, we're very vigilant." -Treasury Secretary Henry Paulson
This was 2 months after Citigroup, Merrill Lynch and RBS had a combined total 83 Billion loss/writedown.
Of course 2 months later, he and the Fed Reserve Board Chairman purpose a $700 Billion plan to stabilize the economy.
So, either they are lying through their teeth or asleep at the wheel.
*There is a better graphic that was on Reddit/Internet at the time that showed all the denials but I can't find it now.
Out of all the possible announcements they could make, even if they were 100% certain the economy is headed for a downturn, the absolute worst would be "We expect a recession in the next 6 months."
Part of the Fed's job is to keep the economy balanced, and a huge part of that job is messaging and weighing the likely effect of the message vs the desired effect the Fed wants.
So they're not in the business of lying... but they're also not in the business of loudly trumpeting pessimism from the rooftops.
Interest rates are still low, the yield curve is only flirting with inversion and there hasn't been any negative employment numbers.
Which means that it is accurate to state that if we're going to hit a severe recession/depression (and I think the Fed is 100% telegraphing that they're going to cause one in order to depress wages) then the worst is still to come.
It is being a little bit too cynical to just wave this off as entirely propaganda to cover over the economic conditions.
And you missed all the talk of a "soft landing" followed by a "v-shaped recovery".
IOW: we've had 2 quarters of negative GDP growth and we're not even in a recession yet, so buckle up...
Buy buy buy!!
You also have the inflation eating away at theoretical, eventual, gains.
How do you know?
They continued being a highly-developed country throughout that period, with nothing that can be described as a "society collapse scenario".
That’s the point where joining a prepper group becomes the correct response, or at least a good hedge.
Look, sometimes when people are fearful there is a reason. Don't jump into a pool filled with razorblades because everyone is outside the pool pointing and screaming.
I personally think we are in for a ride that will remind people that stocks are, in fact, risk assets. In both theme parks and finance, know the ride you are getting on.
As an individual, your net present value diminishes as interest rates fall, and increases as they rise relative to a hypothetical growth stock. As is the case with any other productive asset.
In order to fight inflation with higher rates, the fed may need to get interest rates high enough that people stop simply demanding more money from their employers, and start saving.
"Things cost more" -> "Employees demand more money" -> "Businesses have to pay them more money." -> "Businesses raise prices" -> "Things cost more" -> repeat.
The only way (besides war) that this cycle is broken is with a deep hitting recession where people are just happy they have jobs forget the raises.
Treating wage price dynamics as a zero-sum game does not seem like the correct approach
In all of history, when an economy has hit a wage-price spiral the only things that break this is war or a deep recession.
Public businesses have a fiduciary duty to return profits to shareholders and purposefully lowering profits without a long term roi from that decision may actually be illegal.
Again - I am not saying these facts should fill anyone with glee, but we live in the real world and its important to at least see how historically these have played out.
Because the US, EU, and Japan all have significant amounts of debt, the kind of interest rate hikes necessary to address the inflation would cripple their ability to borrow and service debt at the levels necessary to support their current level of deficit spending. So that will either lead to austerity, or pressure on the banks to keep interest rates lower than needed out of sheer necessity. Doing that would keep the governments solvent, but would allow inflation to run wild. I don't think the war is going to end anytime soon, so the odds of commodities going back to normal seems unlikely. Cynically, given the choice between default and having us plebeians lose value due to inflation and recession, our leaders will pick the latter. They won't choose to destroy their own government.
To be clear, I don't think this is an economic apocalypse. I just foresee the most significant downturn of my lifetime on the horizon because we seem to be in a perfect storm of problems with solutions that are mutually exclusive.
Some of them might, because they have different mandates, but while all of them are going to be concerned with inflation, much of the rest of that is the responsibility of the entities responsible for fiscal, not monetary, policy; the whole purpose of having central banks is separating monetary policy from general government policy (most of which is still about the economy.)
Don't bet the farm this early in the cycle.
This is why DCA is the recommended strategy, as you never know when to go all in.
This advice only holds if you maintain that such growth can be maintained in perpetuity.
As we start to see more and more constraints on energy and resources globally, and realize that we're living in a world funded by debt we might not be able to pay, it's a fairly reasonable position that infinite growth is in fact not possible on a finite planet.
The assumption that everything will always eventually go up is a pretty bold one and worth taking with a grain of salt.
Infinite growth in perpetuity is not required at all.
As far as I know, if this proved to not be true, it would represent the first time ever since publicly-tradeable equity shares in private companies were invented. You're effectively saying you think the remainder of the 21st century will be worse for the industrialized west than all recent history, including a period of two world wars, the Spanish Flu epidemic, and the Great Depression all happening back to back to back to back. That is a fairly extraordinary claim that doesn't seem to be helped much by the fact that Earth will at some point hit a carrying capacity, which has always been true.
Yes, that is exactly what I am saying. And there is ample evidence for this, despite HNs general refusal/inability to process this.
So maybe consider DCA'ing in. That way, if you happen to miss the bottom ('trying to catch a falling knife') you don't get burned so badly.
While it seems we're trending towards a recession, according to them we're not there yet.
But everything is OK.
[1] https://en.wikipedia.org/wiki/Federal_Reserve_Bank
The fed is not technically part of the federal government. There are the twelve privately chartered banks and a Board of Governors. Hope this helps!!
[0] https://www.federalreserve.gov/aboutthefed/structure-federal...
https://en.wikipedia.org/wiki/Federal_Reserve_Bank
Each Federal Reserve bank, in turn, has historically had some kind of monetary policy or financial specialty: most are chartered to advance monetary policy within the district they belong to, and many have special additional responsibilities (such as the NY Fed's storage of the US Treasury's gold reserves).
The TL;DR is that they're independent banking entities within the Federal Reserve system, which was designed to provide uniform central banking to the entire United States.
https://www.atlantafed.org/cqer/research/gdpnow
https://www.atlantafed.org/apps/economynow.aspx
- Tech hiring is slowed, or frozen
- Some employers are laying off
- Frivolous spending seems reduced, everywhere
It's got the hallmarks of a recession.