Skyrocketing prices for some technology company shares

The U.S. equity markets have been hitting all-time highs despite an ongoing war on Iran and relentlessly-increasing prices for gasoline, diesel, and other oil-derivative products like fertilizers.  The rise seems to be driven almost entirely by huge increases in the share prices of AI-related companies (producers of the technology and of the materials necessary for the "build-out" of the process) - justified in the minds of investors by the potential for enormous gains in productivity and profits at some time in the future.  The financing of these investments and the issuing of new shares to finance growth has sucked money out of other investments.  These developments are alluded to in a recent statement by the CEO if Sun Microsystems, reproduced here in a post from Facebook several months ago:

For old-timers like me, the numbers look crazy.  I'm old enough to remember the Black Monday stock market crash of 1987, when the DJIA fell over 20% in one day.   I was an investor back then, and I've told people I "slept like a baby" through it (i.e. "woke up every hour and cried").

This ongoing and totally unjustified war by the U.S. and Israel on Iran is having widespread rippling effects through the world economy; the U.S. has been relatively spared but is unlikely to escape unscathed.  Full disclosure:  I established bearing options positions on the S&P index yesterday.  Further disclosure: I tend to be a "perma-bear" predicting market falls that typically don't occur.

Related:  AI investment is crowding everything else out.

The cost of water

Yesterday, The Guardian reported on rising costs for drinking water in the U.S.:

US households are paying 62% more for drinking water than they did a decade ago – outpacing inflation, grocery prices and household incomes, according to a new study.

Food & Water Watch, a Washington DC-based non-profit, analyzed 2025 billing data from the 500 largest community water systems in the US, which together serve about 155 million people, or 45% of the country’s population. The analysis compared current rates with data from a similar Food & Water Watch survey conducted in 2015. The study does not include wastewater or storm water charges, which are often billed separately from drinking water service.

In 2025, the average household using 60,000 gallons of water paid $531 for drinking water service, according to the study. However, costs varied widely, with annual bills ranging from $133 at the cheapest system to $1,416 at the most expensive.

I've been keeping careful financial records since moving into this house 26 years ago, so I looked up our numbers.  In 2015 our house used 60,000 gallons of water at a cost of $158 (excluding stormwater and sewer as per above study).  In 2025 our usage dropped to 41,000 gallons (in part because we have mostly stopped watering the lawn and gardens) at a cost of $177.

Adjusting those costs for usage, in 2015 we were paying $2.60 per thousand gallons of water.  For 2025 the cost was $4.31 per thousand gallons.  That's an increase of about 70% in ten years.  Some of that increased cost may have resulted from the community replacing lead-containing distribution pipes in the circuits.  Presumably the rest results from their costs for salaries, maintenance, water treatment, and other infrastruture upgrades.  

The Guardian article has informed commentary on the reasons for the national increase, noting "corporate water abuses" (in years prior to datacenters), federal disinvestment, and climate change, and expecially the "major disparity between publicly owned and for-profit water systems."

Corporate-owned utilities charged the average household $823 a year, compared with $494 for publicly owned systems – a difference of $329, or 67%. Corporate systems accounted for just 11% of the 500 systems the study analyzed but represented 44% of the 25 most expensive systems. The study added that 70% of the top 10 were owned by for-profit corporations.

I'm not angry about our increase; I'm delighted that fresh clean (good-tasting) water is available at the turn of a tap.  I wonder if any readers here have similar long-term data.

Tobacco quotas and modern farming

Herewith some passages from "Less is Enough" - an excerpt in Harper's Magazine from the foreword to an upcoming republication of Wendell Berry's The Unsettling of America: Culture and Agriculture.

"...by the work of my father and other good men to preserve the Burley Tobacco Growers Cooperative Association. For about sixty-four years, by a combination of price supports and production controls, that association preserved the lives and livelihoods of small farmers. To limit the production of a product to demand, or to a demand knowingly estimated, is a simple matter. The automobile industry can do it. So can a child. Excessive brain power is not required to “figure it out.” And so it seems odd and even strange that my province and its provinciality produced the only sound agricultural economy that I have known.

Only in agriculture, so far as I know, is this obvious truth ignored, or even overturned on the recommendation of highest authority. In the Seventies, the secretary of agriculture, Earl L. Butz, who supposed that foreign demand would grow without limit, advised American farmers to plow “fencerow to fencerow.” More recently, other experts have advised American farmers to go all out growing soybeans, supposing they will be needed by the Chinese or somebody. Only in agriculture is the rule to produce as much as possible, this silliness to be redeemed if not by the market then by the government. I don’t think this can be dignified or excused by calling it “economics” or “capitalism.” It comes from ignorance or indifference. And it rests on the assumption that farmers deserve their low status because they are in general stupid and their work requires no learning or intelligence. This is the one-crop-by-prescription agriculture invented by the experts and of course recommended by them...

As the experts were seeing it in 1974, the purpose of farming was not the production of the healthiest food at the lowest cost to the land and the people. The purpose was the consumption of agri-industrial products: chemicals, seeds, and machines. The only recognized value was accounted by money...

But in 1974, we had as now, no viable concept of enough. To have some is to need more, and after that, more and more. To have more and more than you need is now a form of common sense, and so we have developed a sort of vogue of billionaires, when the model of citizenship is set by such people as Elon Musk and Donald Trump. To be successful now is to achieve the satisfaction of one’s greed, which of course is enlarged by every additional prospect of satisfaction.

Such was the state of things in 1974, and the state of things is much worse in 2026. We foresee no practical enactment of the concept of enough, but rather submit to the absolute determinism of progress: progress undirected and inevitable. Progress forbids us to stop when we are satisfied. We must go on, adopting the changes of technology, whatever the cost may be to ourselves and our children.

Well said, and I agree 100%.

This essay resonated with me because I used to live in Kentucky (home turf for Berry), and like Berry I had a tobacco allotment.  My first gainful employment as an adult was at the V.A. Medical Center and the University of Kentucky in Lexington.  After a few years of frugal apartment living, I purchased my first home (in that era an $85,000 mortgage got me a nice home with about 10 acres of land in a semi-rural area half an hour from work).  

My land had a history of being a tobacco farm; the photo embedded at the top of this post is a view of my "garage", which was an old tobacco barn.  For those interested, the long drainpipe collected water from the tin roof, which was then directed to an underground cistern to provide my drinking/bathing water.  The drainpipe ends at a bucket on top of the boards covering the cistern, and the bucket had I think some sand to act as a "filter", but every year when the leaves fell onto the barn roof and gutter, various insect larvae would wind up coming out of the faucets in my home.

But back to the tobacco.  Whoever owns the farm owns an "allotment" that allows (but does not require) you to grow X number of pounds of tobacco.  I was working 70-hour weeks, so I did what other farm-squatters did - I drove down to the courthouse once each spring, surveyed the bulletin board and found an offer from someone to sell them my tobacco allotment so they could grow the product.  I don't know how many pounds I was allowed, but the average amount I received each year was about $200.

I don't know if that system still exists in Kentucky or elsewhere, but as Wendell Berry indicates, it was created to control production, because farmers early on realized that overproduction beyond demand just lowers unit costs to the end-user rather than raising farm income.

It is probably no longer possible to live in a "controlled economy," but the principle emphasized by Berry - satisfaction with "enough" - can be applied to a more comprehensive view of lifestyle and life goals.

Interesting interview on Bloomberg this morning

Lots of interesting stuff presented during the Bloomberg pre-market "Surveillance" progeram this moning.  Jonathan Ferro commented on the above set of numbers, showing changes year-to-date for three crucial indicators.  Brent crude has risen 80% this year, and the yield on the 10-year treasuries has increased by 85 basis points.   So there has been an energy shock and an interest rate shock, but despite those factors, the broad market measured by the S&P 500 is up double digits.  Some discussion thereafter by Lisa Abramowicz and Annmarie Hordern re how the markets have been resilient because of demonstrably increased profits and the expectations of future growth based on potential contributions of artificial intelligence, into which segment of the market vast quantities of capital have been pouring.  None of this is "new" today but it is startling to see it combined into one graphic.

Even more interesting IMHO was a prolonged interview with Stephen Schork, a a former floor trader on the New York Mercantile Exchange and the editor of an oil market newsletter.  His commentary runs from the 17:30 mark to the 24:00 mark of the program this morning.  I'll try to have the video embed start with his comments; if it doesn't, you can mouse to that point or click this link.

It seems to me that financial markets around the world are still considering the Trump/Netanyahu "not exactly a war" situation to be a temporary matter that will resolve soon.  My crystal ball does not suggest the same.  Strategic petroleum reserves around the world have been depleted severely by the lack of timely shipments from the gulf for most of this year.  China is already resuming purchases of crude after being out of the market during the higher prices.  And now the Houthis are creating massive problems for Saudi Arabia, impairing the east-west pipeline and blocking transport east from the Red Sea, to the extent that I think the Saudis are now telling European countries that they cannot guarantee to provide oil - just when the colder weather starts to hit Europe.

This is a massive clusterfuck, and it's not getting better anytime soon.  

Bravo to Mark Carney

I'll add some commentary later, but for now this will suffice:

This from the New York Times:

The morning after he pulled negotiators from trade talks in Washington and set off a new round of American tariffs, Prime Minister Mark Carney called the U.S. proposal “a bad deal” and said Canada was “at war” with the United States...

In a muscular [and bilingual], 22-minute speech that let Canadians — and Americans — know exactly where he stands, Mr. Carney said that Canada was under attack by President Trump’s punishing tariffs.

“You’re at war when you’re attacked, and we got attacked,” Mr. Carney said.

But unlike his electrifying speech at Davos that spoke of a rupture in the world order, Mr. Carney explicitly named the United States as an aggressor and a threat to Canada and the global economy.

“We’ve recognized from the start that America has changed,” he said in an address to Canadians on Saturday. “We recognize that sometimes, its signature is written in pencil.”Among other things, Mr. Carney said that American negotiators pushed to roll back Canada’s efforts to promote Canadian and French language content in online streaming services, subsidies for industries like publishing and film production and even mandatory labeling in French, an official language in Canada, as well as English on packaging...  [note that Carney's speech was bilingual, alternating between English and French]

As he did on Friday night, Mr. Carney suggested on Saturday that Canada would now double down on its strategy of disengaging from the U.S. economy, expanding trade with other countries and diversifying Canada’s economy.

“Last spring, I warned that America is trying to break us so that they can own us and I promised: ‘That will never, ever happen,’” Mr. Carney said. “We are keeping that promise. Canada is becoming stronger and less dependent on America.”

There will be lots more analysis and commentary available tomorrow, and especially Monday when the financial markets start responding... 

This from the I Fucking Love Australia Facebook thread:

Twelve hours after telling his negotiators to come home, Mark Carney stood up in Ottawa and did something no one in Washington saw coming, because none of the bastards own a library card.

He quoted a sixty-year-old slogan. Seven polite little words: "We are masters in our own home."  Sounds like a tea towel, right? Mate, that phrase is dynamite with a bilingual fuse. It's the battle cry Quebec used in 1962, right before it seized the fucking power stations. And the bloke who just aimed it at Washington owns the grid half of America's northern border runs on, two-thirds of America's imported crude, the uranium, and the fertiliser.

Trump thinks he's in a trade war. He's actually standing in a house where the other bloke holds every lever, and on Saturday the other bloke smiled and mentioned it. In two languages. With the pulse of a man ordering a flat white.

The full breakdown is live: the hidden threat in the speech nobody clocked, the energy numbers that should terrify the White House, the Doug Ford playbook that started it all, and the question Canberra's too gutless to answer.

King Carney doesn't forecast the weather anymore. He makes it.

And this from the same source slightly earlier:

At two minutes to midnight, Mark Carney looked at the most powerful man on Earth, checked his watch, and told his negotiators to get on the plane. Fuck this wanker, we're going home.

And half the world's press still thinks he stormed out. He didn't storm anywhere, mate. The bloke ran two central banks through two catastrophes, and he's just done the coldest piece of arithmetic in modern trade history: the midterms are TEN WEEKS away, Trump's approval is circling the drain, and every deal signed with that man is worth the paper, the frame, and fuck-all else. Ask CUSMA. He tariffed his own trophy deal over BOURBON SHELF PLACEMENT.

So Carney walked, matched him dollar for bloody dollar, and left the demolition to American voters. Why sign anything with a bloke whose signature depreciates faster than a secondhand jet ski?

The full evisceration is live now: the Depression-era law he dug out of the shed, the whiskey ultimatum you won't believe is real, and why an empty calendar is the most aggressive document in world politics right now.

King Carney reads the clock. And the clock says November.

I wasn't going to post this one on the blog because I thought it was too crude, but tonight I'm mad as hell.

This is what is keeping crude oil and gas/diesel prices from skyrocketing - Updated

When Trump and Netanyahu started this war, much of the attention in the business world was focused on the price of crude oil (Brent, WTI) and the derivative products (gasoline, diesel, fertilizer, plastics).  When the Strait was closed and then reopened via the MOU, prices fluctuated accordingly, but what has been of most interest to me is that the market prices of those materials have not continued to rise as much as might be expected.

Everyone who tracks the news knows that the U.S. and other countries are tapping their "strategic petroleum reserves" stored underground (some small countries don't have such and are suffering disproportionately).  

The second group of factors that mitigated price rises was increased use of alternative energy, restrictions on energy usage, increased production in non-Gulf nations etc.

But from near the beginning, I heard analysts on Bloomberg say that China was modifying its policy on oil.  China apparently has immense reserves of stored oil, but were still net oil importers (see chart above for 2016-2026).  After the war started, they have markedly decreased their importation of oil, apparently using some of their reserves and altering domestic policies toward conservation.

Why?  In part, it's basic economic good sense when the Brent price goes from 50 to 90 to cut purchases.  But this is a super-smart country with well-thought-out international policies.  They also have a sort of alliance with Iran, which I believe was one of their sources for imported oil in recent years.   By cutting their daily imports from 12 million to 7 million they buffer the world's loss of I think 5 million a day that was passing Hormuz.

Is it in their best interest (remembering that they think years/decades in advance, not election cycles) to keep the oil price rise modest so as not to harm the economies of the world they export to?  Or do they want to keep the price down because a huge price rise might cause the U.S. to stop the war and they would rather the war go on longer so the U.S. depletes its own reserves and the continuation of the war leads to more and more destruction of the U.S. military capabilities?  I suspect the latter, because I think there is way more erosion of U.S. capabilites in the Gulf than Washington has (or will) admit.

Also note that Iran wants to charge fees for transit of Hormuz and that those fees would be paid in Chinese yuan, not U.S. dollars.  (a relevant WSJ article is behind a paywall)  This was is weakening the U.S. military capabilities, depleting strategic petroleum reserves, ruining the U.S. diplomatic status around the world, and causing unhappiness and political dissent within the U.S.  China has a lot of control over how this will unfold.  Stay tuned.

Image via Axios.

Addendum August 8: The Atlantic (online) has posted a detailed discussion of this topic, basically confirming what I speculated above.  Herewith some brief excerpts:

Before the war, China, by far the world’s largest oil importer, was buying more barrels than the entire European continent and almost twice as much as the second-largest importer, the United States. Then, weeks after the conflict broke out, the country abruptly slashed its oil purchases, eventually cutting them by half compared with prewar levels. That appears to be why global prices have risen so much less than experts predicted. The shift also poses mysteries of its own. No one outside China knows how exactly the country has managed to meet its energy needs while forgoing imports, nor why its leaders chose this course. And no one knows how long the situation can last...

The amount of oil that China stopped buying, about 5 million barrels a day, represented about a quarter of what was lost when the strait closed and is equivalent to the entirety of imports to India, the world’s third-largest importer. This significant and unexpected drop in Chinese demand freed up those barrels to go elsewhere, preventing the kind of shortage that might have led to truly catastrophic prices...

A more realistic possibility is that China has been tapping into its immense oil reserves, which it has spent years accumulating in the case of a crisis. But the giant outdoor tanks where China keeps much of its known oil reserves have remained full since the war began. This fact has given rise to yet another theory: On top of its known reserves, perhaps China has been stashing oil, as well as refined diesel and gasoline, in secret facilities, which it is now using to keep its economy running. “I sometimes feel like I should put on a tinfoil hat when I start talking about this,” Johnston said. “We have almost no evidence of it. And yet, it’s really the only explanation that makes any sense.”...

Whatever China’s exact motivations, the country has demonstrated yet another source of power it can wield on the global stage. As long as the Iran war continues, China’s leverage over oil prices gives it the ability to inflict immense pain on American consumers, and really the entire world, at a moment’s notice. Even if China doesn’t choose to do so, the fact that it can might be enough to give the country even more sway over international affairs. “For the last 50-plus years, whenever there was an oil shock, the first thing the U.S. president did was call Riyadh to try to persuade the Saudis to help out,” Jason Bordoff, the founding director of Columbia’s Center on Global Energy Policy, told me. “Maybe the place everyone needs to call now is Beijing. That’s a very powerful position to be in.”

I have said (or implied) in my writings for TYWKIWDBI that if the last century was an "American century" of global power, the next one will be a Chinese one, based both on "soft power" (exemplified above) and now I believe also in terms of military power.  

Addendum:  More data on August 17 -

Add "crack spread" to your economic vocabulary

I found the "recent work" that Jonathan Ferro is referring to in his introduction to Jeffrey Currie.  Couldn't find a text version to summarize, but here's a longwatch video interview that has extensive details about the matters being discussed:

The essence of the interview is a question about why the price of oil (as reflected by Brent crude and WTI (West Texas Intermediate) has remained (relatively) stable despite the ongoing conflict in the Gulf.  Those prices went way up when the "hot war" started, then moderated back down when the "memorandum of understanding" was executed, and now they are heading back up in a gradual fashion.

I have not previously been aware of Jeffrey Currie, but his reply (starting at the 1:15 mark of the second video) is exactly what I've been thinking - so I assume he is a brilliant genius.  His Wikipedia page indicates that he is a highly-respected economist at the University of Chicago.  Listen to as much of that interview as you have time for.  I heard the same arguments presented live to Jonathan Ferro this morning on Bloomber's Surveillance program in the pre-market and I was blown away by the insights.

For the TLDR and TLDW crowd, I'll add some more nuggets.  First the definition of "crack spread":

Crack spread is a term used on the oil industry and futures trading for the differential between the price of crude oil and petroleum products extracted from it. The spread approximates the profit margin that an oil refinery can expect to make by "cracking" the long-chain hydrocarbons of crude oil into useful shorter-chain petroleum products.

And before I move on, one note.  Any juvenile salacious comments about "crack spread" will be instantly vaporized on review.  The comment section here is for serious discussions of the world economy.

Here is an inadequate quick summary for those without the patience to watch the videos.  The news media and the general public focus on the "price of oil," but nobody actually uses crude oil.  People use gasoline, farmers and truckers and businesses use diesel, everyone uses plastic - but those are all products, not creude material.  The only entities that use crude oil are refiners, who are now working at maximum capacity and unable to ramp up further production.  The demand for these end products persists [unless demand destruction occurs - a separate issue], so right now the price for the products is huge.  His rough example is that while Brent oil is USD70/bbl, the price for the products averages USD140/bbl - that "crack spread" is the highest he has seen in 30 years.   Meanwhile, Ukraine has been hammering Russian oil reserves and Russia's refining capacity and the earthquake in Venezuela took out part of their refining capacity.  Crude oil prices dropped when the "memorandum of understanding" was signed because a flood of tankers left the Strait of Hormuz, but without a continuing flow the price is edging back up and there is currently no reason for that to change.  When this conflict started, the U.S. and other countries started to harvest their strategic petroleum reserves, which are now getting low (some other countries have exhausted theirs or have never had petroleum reserves in storage).  If the U.S. continues to empty its strategic petroleum reserve to cover up the shortages of crude exiting the gulf, the potential scenario is catastrophic.

The long video also includes some discussion about how China (allied with Iran) also has control of much of the worlds critical metals, plus they are leading the world in energy storage (batteries) and in wind and nuclear technologies.  IMHO the future belongs to China, which staffs their administration with scientists.

Addendum:  Markets are now opening in Asia...

Addendum:  A nice chart of transits through the Strait of Hormuz, showing the initial "hot war," the MOU period, and the resurgence of hostilities.  I'll see if I can find an updated chart of strategic petroleum reserves.

Addendum:  New data for August 14, 2026 -

Another week, another record high (Aug 21).  No reason to expect it to change any time soon:

Some observations re SpaceX

"By Friday, however, the macro narratives were entirely overshadowed by the excitement of the SpaceX IPO. It’s an IPO that will go down in history for a remarkable combination of reasons—from its sheer scale ($75 billion, almost three times the previous largest IPO) and the $1.8 trillion valuation (which places it immediately, on day one, as the seventh-most-valuable US company), to challenging the traditional playbook on investor allocation, price discovery, and fast-tracked index inclusion. It has also triggered an unprecedented wave of wealth creation, from Elon Musk’s new trillionaire status to some 4,400 millionaires minted among the firm’s current and former employees. All this for a company that generates no profits, is highly valued, and carries enormous key-person risk."

Excerpted from the weekly substack email from Mohamed A. El-Erian (boldface added).

The price of eggs

I've been doing my own grocery shopping for the past 58 years.  I open the egg carton to peek inside and check the bottom for wet spots.  And I'm aware of the pricing.  Yesterday on a weekly visit I was somewhat startled by the low price, so I searched for a chart.  Found this one at a Federal Reserve website:

The gap in the curve several months ago reflects the absence of data that occurred during the government slowdown/shutdown, but the trend is clear.

The fallling price was a somewhat startling revelation since my focus (and most consumers' focus) has been on rising prices for gasoline, diesel, jet fuel, fertilizer etc etc since we started the war, and the anticipated roll-on effect on other commodities and goods.  I had frankly forgotten about the reason for the spike upward in egg prices in recent years, which is explained here.

Lots of other interesting data available at that Federal Reserve website for those interested.

Addendum July 2026 (found on Facebook): two dozen eggs for $1 (not photoshopped or AI)

U.S. Consumer Sentiment Index

Offered without comment from me.

U.S. treasuries being dumped

China has also publicly announced that they are lightening their reserves of U.S. treasuries.  

Here is a table of foreign holders of U.S. treasuries (latest data are from before we started the war).  The consequences of such shifts are complex and may be country-specific.  It's a bit over my head, so interested readers will need to do some searching or offer suggestions in the Comments.

The author of that Facebook post is a world-renowned economist and the former President of Queens College, Cambridge.

Addendum:  Here's an article about what happens if other countries stop buying U.S. debt.  I haven't read it yet.  It was written a year ago, so probably in response to tariff matters, but the principles outlined may be valid.

The economic cost of the Iran war

The embed is a screencap because I don't know how to embed the live graphic.  So by the time you read this the numbers are way out of date.  Go to this link to see the live numbers changing:

Energy Cost Tracker

Note that this does not include the cost of the military equipment being expended or destroyed (or replaced).  This is important, so please share the link freely.

A tip of the blogging cap to reader Kyle, who included the energy cost tracker link in a comment.

Increasing upward pressure on oil prices

As reported by CNBC (Consumer News and Business Channel):

Oil prices rose Friday as President Donald Trump is likely to turn his attention back to the stalemated conflict with Iran after leaving a summit in China with President Xi Jinping.

International benchmark Brent crude futures for July gained more than 3% to close at $109.26 a barrel. U.S. West Texas Intermediate futures for June advanced more than 4% to settle at $105.42 per barrel.

Trump told Fox News that he is losing patience with Iran. “I am not going to be much more patient. They should make a deal,” the president said in an interview that aired Thursday evening.

Trump is talking tough, but there is nothing he can do.  I can confidently report from frequent views of broadcasts on Al Jazeera that the current Iranian leadership do not intend to bow to pressure, including military pressure.  They are under an economic strain because of prior sanctions and the current situation, but are willing to outlast Trump from what they consider a position of strength.  If Trump increases hostilities, Iran has enough weaponry still available to wreak havoc on U.S. military bases and on Gulf Coast allies of the U.S. (several of whom have already denied the U.S. continuing access to their airbases for maneuvers).  If Trump does nothing, the Strait remains closed or subject to limited passage by ships paying tolls to Iran.  Many countries with absent fuel reserves are already instituting restrictive measures on their citizenry.  The price of oil is going to continue to increase.  Trump's idea of rescinding the U.S. tax on gasoline is a drop in the bucket and will not materially sustain the U.S. economy. The only logical response to the current crisis would be for Trump to "declare victory" and withdraw.

Those who want to "play" the situation financially and don't want to trade commodity futures directly might consider JETS on the NASDAQ.  That is the symbol for an exchange-traded fund that holds shares of major U.S. airlines (top holdings are DAL, AAL, UAL, and LUV.  Put options are available.

Chart from Trading Economics.

Addendum:  The Economist has an insightful article about why world oil prices have not increased more than they have (optimism by traders of an imminent Gulf settlement, tapping of strategic reserves, and some demand destruction).  

Debunking the myth of American exceptionalism

Late last night I was browsing the Al Jazeera English channel, looking for early clues as to whether to expect any change in the adamant position the Iranian leadership has taken (short answer: no), when I encountered this video.  This is a longwatch (25 minutes) interview with Richard Wolff, who is emeritus professor of economics at UMass, and was a schoolmate of mine back in the 1960s (tho I never met him).  Wolff is a self-described Marxian economist, which is evident in his views on American capitalism.  

This video is a thorough takedown of claims of the United States as a world-leading empire.  The language is harsh, but the content is supported by relevant facts.  

Time to start thinking about global oil reserves - updated

I'm embedding a graphic I found in a May 2 Facebook post by Christian Decle (who apparently is a "digital creator.")  It's a slightly blurry probable screencap of a report from J.P. Morgan written by Natasha Kaneva last week.  I tried to track the original and found her on various J.P. Morgan web pages, but haven't seen the original report, which may have been distributed privately to clients.  

I've added two annotations of my own.  The first is a red arrow noting the point in the graph where the global oil inventory changes from current to projected future, extrapolated on the downward slope for the last couple months, and assuming the global drawdown stays unchanged at 5.5 million barrels per day (second annotation, circled).  I inserted the arrow because the color change from purple to green is subtle, and I wanted to note that the curent level is not critical - it is about the same as ten-year averages - but the steepness of the recent fall reflects an unprecedented severity of disruption and will quickly become critical if it continues.

This topic has been discussed repeatedly on the Bloomberg business televaion channel by hosts interviewing various specialists in business and economics.  Everyone wants to know what is going to happen, and there are a lot of assumptions that need to be made.

The author of the Facebook post concludes by saying "The UK has a fuel reserve buffer — measured in days."  I have no idea whether that is true.

But it is true that after Trump made the yet-unproven claim that the U.S. was escorting ships through the Strait of Hormuz, Iran did launch some drone or missile attacks on the U.A.E., which damaged a refinery and threatens the U.A.E.'s route of bypassing the Strait via a pipeline to the Indian Ocean.  Brent crude is now back at highs, and no resolution is in sight.  

Addendum:  This update posted yesterday in the Financial Times:

Global oil reserves plunged at a record pace in April, as the conflict in the Middle East strains supplies and raises the risk of a further sharp jump in prices ahead of the summer travel season.

Stockpiles of crude fell by nearly 200mn barrels, or 6.6mn barrels a day, estimated S&P Global Energy, even as higher prices triggered a collapse in demand of about 5mn b/d, the sharpest ever fall outside of the Covid-19 pandemic. 

“This is massive, it is far above the usual range,” said Jim Burkhard, head of crude research at S&P, adding that in a normal month, global stocks fluctuate by between a few hundred thousand and a million barrels. “An inevitable market reckoning is coming,” he said...

Despite average pump prices nearing $4.50 a gallon, US drivers have yet to significantly curb consumption, according to Morgan Stanley. The bank estimates that one in every 11 barrels of oil is used by American motorists and forecasts that US inventories could fall below 200mn barrels by the end of August, the equivalent of roughly one week of demand...

He said a sharp drop in US stockpiles could be the trigger for wider alarm. “The worst of the crisis is ahead of us,” he said.

Note the drawdown of reserves is not decreasing, even despite some demand destruction.  This morning American equity market futures are trending up, based on anticipated rising earnings from the controversial AI sector and on the assertion from Trump that there are hopes for "a deal", when what he wants is total surrender by Iran of their nuclear material and their sovereignty, and what they want is retention of the enriched uranium plus control of the Strait plus reparations for damages incurred to date.  A "compromise" between those two viewpoints is an utter fantasy.  I have to add the mandatory "IMHO", so do your own research.

Addendum:  Here is an updated (May 9) detailed discussion of world oil reserves.

"Demand destruction" looms

I don't know if this term will work its way from the business/economic community to the general press, but it is a useful term.  Here's the Wiki:

In economics, demand destruction refers to a permanent or sustained decline in the demand for a certain good in response to persistent high prices or limited supply. Because of persistent high prices, consumers may decide that it is not worth purchasing as much of that good, or seek out alternatives as substitutes.

I've heard that phrase expressed in interviews on the Bloomberg channel and on Al Jazeera, but today I encountered the phrase in a Facebook post by Mohamed El-Erian:

I will reiterate my previously-expressed belief that the U.S. equity markets are trading at unsustainably high levels based on irrational expectations of a quick resolution to the current Gulf conflict (based on part on Trump's totally irrational claims of such), combined with positive economic news from the small sector of AI-related companies that are overweighted in equity indexes.  The American consumer is hurting and is cutting back on spending; the fact that inflation is stable or rising indicates that companies are passing on their costs to consumers, not that consumers are buying more (as El-Erian notes).  IMHO this is a good time to cash in on paper gains in stocks or to write covered calls when such are available.

Addendum:  Here is a 6-month graph of an index representing the 500 largest companies in the U.S., with the onset of the war indicated by the red arrow:

The Dow Jones Industrial Average has a similar shape.  The S&P has overshot the war onset number because this is its composition:

The U.S. "economy" is increasingly being viewed as one based on information technology, and while artificial intelligence may hold enormous potential for increasing profitability of corporations through increaed efficiecy (and lower payrolls...), the underlying "boots on the ground" economy of agriculture and industry is suffering.  Even if the war ends tomorrow morning, oil prices are going to remain high for a prolonged period.

Just my opinion.  Do not make your investment decisions based on the rantings of an old English major with job skills in the biosciences.  Consult your investment advisors and read widely.

Addendum:  An Australian writing the I Fucking Love Australia substack puts the situation more bluntly:

Oxford Economics has it modelled. Oil at $150 plus for four months, global inflation back at 7.7 per cent close to the 2022 peak, world GDP growth slowing to 1.4 per cent for the year. Australian recession sharpest since the early nineties. None of this is fringe analysis. This is the orthodox economic forecasting houses now openly publishing recession scenarios with a straight face.

And the equity markets are still being held up by the AI fever dream. A handful of US tech billionaires playing a hyper-financialised game of chicken on multi-trillion dollar valuations underwritten by an artificial intelligence investment bubble that still has not delivered the productivity gains it promised, and is openly built on the premise of replacing every working person on the planet. When the energy shock fully filters through into demand destruction, into corporate earnings, into job losses across logistics, transport, agriculture and manufacturing, the unwind will not be gentle. Your super fund’s overweight position in Nasdaq tech is going to find out the same way it did in 2008.

The convergence is the real fucking story. Energy shock plus inflation shock plus AI bubble plus a US president actively breaking the global trade system with tariffs plus a global central banking response that has run out of room. We are looking at conditions that could make 2008 look like a kindergarten scuffle. It is not impossible to talk seriously now about Great Depression two point oh. The brokers laughing that off three months ago are now on speed dial to their compliance departments.

An existential threat to Pacific island micronations

Yesterday TYWKIWDBI received a comment from reader Jim, who was addressing points relevant to the recent post about international mail disruptions.   His focus was on the island nation of Niue, and his point was that mail disruption is only one aspect of a huge threat to Pacific island nations resulting from large increases in the costs of fuel oil.

Amongst the pacific islands, there are big ones with multiple options (standouts are Fiji/Nadi, Tonga/Nuku’alofa, Solomon Islands/Honiara, Samoa/Faleolo, New Caledonia/Noumea, and of course Hawaii being of least concern), then there are the littler ones with maybe one or two airline choices like the Marianas, Marshall Islands, Cook Islands, Palau, Kiribati (which isn’t tiny by population, but was never well-covered logistically), Micronesia, etc…. 

 

Then you have the tiny ones that were almost always “too hard basket” jobs. Some were harder than others, occasionally I could get a rate to/from one of these, but I would sometimes have to offer to get a client service to/from a location nearish their target, then advise them to contact charter services to meet up with where I could get them. Examples were Pitcairn (sea only), Nauru, Rapanui/Easter Island, Niue, Tokelau and Tuvalu, and possibly some others I’m forgetting. 

 

If the Middle East nonsense is to continue for a long time, I fear for the food security of many of the inhabitants of the islands, especially those of Kiribati and Nauru, which IIRC, have absolutely nowhere near the ability to feed their local populations without regular food imports. Niue may be in less immediate danger of food insecurity simply by virtue of having much lower population density. If things deteriorate, I foresee humanitarian relief missions to the islands being undertaken by AU+NZ (and perhaps Chile for Rapanui), and (the cynic in me compels me to add) almost certainly China, who for some time have been trying to curry favour amongst the pacific nations, most notably the Solomons of late.

 

This is perhaps pessimistic of me, but if the situation continues to deteriorate, we may see large scale de-population of some of the less food-secure and economically vulnerable pacific islands, especially those more vulnerable to sea level rises, for whom the writing is somewhat on the wall already. A geopolitical shove added to the already keenly-felt climate-change push might be enough to convince many to head for higher ground, both literally and figuratively.

(boldface added by me for those who speed-read TYWKIWDBI).  I totally agree that China is likely to step in.  As the U.S. loses its credibility around the world, China is able and willing to step in to be the new world leader.

Here's that link from the Center for Strategic and International Studies, if the one in the embed isn't clickable.

Addendum:  See the informed observations by Jim in the Comments section below.

Potential effects of the Trump/Netanyahu war on Iran on world economics

An extended (8-minute) discussion of current economic and market conditions by Mohamed El-Erian.  He makes note of the little-appreciated "side effect" of inflation, which is demand destruction.

The interview was conducted by and posted by Faux News, so I have no control over the freeze-frame image in the embed - but this was the most extended and most current interview I have seen with El-Erian, so I didn't want to pass it up.

Grim forecasts for the U.S. economy

The embed is a screencap from Facebook several days ago, but I've seen a similar forecast during a live discussion on Bloomberg TV.  The next Consumer Price Index report is scheduled for this coming Friday, April 10, before the markets open.  This will cover the month of March and thus will be the first one to reflect rising oil prices from the U.S./Israel war on Iran.

The second embed is also from before this weekend.  The Federal Reserve is in an impossibly terrible position if the anticipated "stagflation" occurs.  The investment community has been counting on a decrease in federal funds rates, arguing over one vs. two cuts in the year ahead.  More recently they have expected no rate cuts.  Now the possibility of a rate increase looms.  

Before we started this war, nobody would have imagined the Fed increasing rates.  It's probably not priced into the market now, but even the possibility of a rise in the future will have major reverberations on equity prices and bond yields.

International mail disruptions

From the USPS website.  None of these are surprising, but it's interesting to note that they are advising people not even to try sending mail now.  Imagine how this is rippling through the business communities involved.