Thursday, June 30, 2022

The Latest Atlanta Fed GDP Now Estimate of Q2 GDP is Negative 1.0%

And remember, as we've been saying for years, the GDP Now model tends to run "hot" versus the first BEA GDP estimate. It also ran hot vs the New York Fed's no-longer-published Nowcast with the two tending to bracket the first pass estimate released in the first month of the new quarter.

As an example the final GDP Now estimate for the first quarter of 2022 was positive:

Latest estimate: 0.4 percent — April 27, 2022

The final GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2022 is 0.4 percent on April 27, unchanged from April 26 after rounding. After this morning's Advance Economic Indicators report from the US Census Bureau, an increase in the nowcast of first-quarter real gross private domestic investment growth was offset by a decrease in the nowcast of first-quarter real net exports.

While the third estimate/final revision of Q1 GDP from the BEA reported yesterday, came in at -1.6%.

From the Federal Reserve Bank of Atlanta, June 30:

....Latest estimate: -1.0 percent — June 30, 2022

The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2022 is -1.0 percent on June 30, down from 0.3 percent on June 27. After recent releases from the US Bureau of Economic Analysis and the US Census Bureau, the nowcasts of second-quarter real personal consumption expenditures growth and real gross private domestic investment growth decreased from 2.7 percent and -8.1 percent, respectively, to 1.7 percent and -13.2 percent, respectively, while the nowcast of the contribution of the change in real net exports to second-quarter GDP growth increased from -0.11 percentage points to 0.35 percentage points.

The next GDPNow update is Friday, July 1. Please see the "Release Dates" tab below for a list of upcoming releases.


"Supreme Court curbs EPA climate authority"

The headline is a bit of a mischaracterization. The Court ruled the EPA did not have the authority it claimed to have, a different situation from reining in an existing authority, and that the EPA could not simply adopt the Affordable Clean Energy rule, that the agency had exceeded its mandate under the Clean Air Act with the proposal  and that if Congress wanted the outcome of the Rule under CAA it would have to legislate same rather than have the administrative state simply write rules.

However, as the Washington Post quoted a proponent of the EPA's action:

Richard Lazarus, a Harvard environmental law professor, said in a statement that by insisting that an agency “can promulgate an important and significant climate rule only by showing ‘clear congressional authorization’ at a time when the Court knows that Congress is effectively dysfunctional, the Court threatens to upend the national government’s ability to safeguard the public health and welfare at the very moment when the United States, and all nations, are facing our greatest environmental challenge of all: climate change.”

It is not the Court's place to solve the problem of Congress being dysfunctional.

From Energy & Environment News' Greenwire, June 30: 

The Supreme Court ruled today that EPA is prohibited from broadly regulating greenhouse gas emissions from power plants.

The 6-3 ruling in West Virginia v. EPA, the most significant climate case in a decade, delivers a blow to President Joe Biden’s efforts to tackle planet-warming emissions and make electricity generation carbon-free by 2035.

A coalition of Republican-led states and coal companies, led by West Virginia Attorney General Patrick Morrisey, had petitioned the justices to reverse a decision by the U.S. Court of Appeals for the District of Columbia Circuit that struck down the narrowly tailored Trump-era Affordable Clean Energy rule, which gutted the Obama administration’s more expansive Clean Power Plan....


We'll have more after the Holiday.

In the meantime here is the EPA's Affordable Clean Energy Rule page.

Farm Bureau: "Cost of July 4th Cookout 17% Higher Compared to Year Ago"

This is nuts-and-bolts inflation tracking.

From The American Farm Bureau, June 27:

U.S. consumers will pay $69.68 for their favorite Independence Day cookout foods, including cheeseburgers, pork chops, chicken breasts, homemade potato salad, strawberries and ice cream, based on a new American Farm Bureau Federation marketbasket survey.

The average cost of a summer cookout for 10 people is $69.68, which breaks down to less than $7 per person. The overall cost for the cookout is up 17% or about $10 from last year, a result of ongoing supply chain disruptions, inflation and the war in Ukraine.

Farmers are feeling the price-point pain too, like the people they grow food for, according to AFBF Chief Economist Roger Cryan.

“Despite higher food prices, the supply chain disruptions and inflation have made farm supplies more expensive; like consumers, farmers are price-takers not price-makers,” Cryan said. He added, “Bottom line, in many cases the higher prices farmers are being paid aren’t covering the increase in their farm expenses. The cost of fuel is up and fertilizer prices have tripled.”

Cryan also pointed to the cascading effects of the war in Ukraine, as that country’s contributions to global food security are cut off, Russian and Belarusian fertilizer exports are constrained, and some other countries pull back exports to protect their domestic supplies.

The marketbasket survey shows the largest year-to-year price increase was for ground beef.

Survey results showed the retail price for 2 pounds of ground beef at $11.12, up 36% from last year. Meanwhile, the Agriculture Department’s Producer Price Index indicates that compared to a year ago, farm-level cattle prices are up 17.5%, but wholesale beef prices are down 14%. This serves to highlight the differences between farm-level, wholesale and retail beef prices and how the events of the last few years have had significant impacts on the beef production and cattle pricing cycles, making them all hard to predict....


So much for this I guess:

EVs Are Becoming More Expensive, Not Less (plus Ford won't let you buy at lease-end)

Two from The Truth About Cars, June 27:

A few years ago, the industry narrative was that all-electric vehicles would reach financial parity with their combustion-driven counterparts in 2025. The assumption was that this would gradually occur by way of ramping up battery production and leveraging economies of scale. However, reality had a different take, as the world is now confronting record-setting prices across the board. Manufacturer and dealer hikes have resulted in the average invoice of EVs rising to $54,000 — roughly 10 grand higher than the typical transaction price of gasoline-powered vehicles, according to J.D. Power.
With economic pressures spiking the value of all automobiles, hardly anything is leaving the lot for less than it could have been had for in 2020. But the increases seen on all-electric models are actually outpacing the models we’ve been told they’re supposed to replace....


As noted in the outro from last Saturday's "Lithium Deep Dive": 

....Higher prices + higher interest rates for folks who don't buy for cash, or lease, means the dream of mass-market electric vehicles is receding toward the horizon, which also means the economies of scale in traditionally powered vehicles won't be matched in EV's for a few more years at minimum meaning we see headlines such as this at on June 23:...

Also at The Truth About Cars, June 27: 

Buyout Begone: Ford Says You Can Never Own Leased EVs

Ford Motor Co. will be suspending end-of-lease buyout options for customers driving all-electric vehicles, provided they took possession of the model after June 15, 2022. Those who nabbed their Mach-E beforehand will still have the option of purchasing the automobile once their lease ends. However, there are some states that won’t be abiding by the updated rules until the end of the year, not that it matters when customers are almost guaranteed to have to wait at least that long on a reserved vehicle.

The change, made earlier in the month, cruised under our radar until a reader asked for our take over the weekend. Ford could be wanting to capitalize on exceptionally high used vehicle prices, ensuring that more vehicles make it back into rotation. The broader industry has likewise been talking about abandoning traditional ownership to transition the auto market into being more service-oriented where manufacturers ultimately retain ownership of all relevant assets. But it may not be that simple as this being another step in the business sector’s larger plan to maximize profitability by discouraging private vehicle ownership....


Headline PCE Inflation at 0.6% For Month of May; Year-over-Year Up 6.3% UNCH vs. last month

But the monthly comparison (April up 0.2%; May up 0.6%) accelerated and real Disposable Income declined.

From the Bureau of Economic Analysis, June 30:

Personal Income and Outlays, May 2022

Personal income increased $113.4 billion (0.5 percent) in May, according to the Bureau of Economic Analysis (tables 3 and 5). Disposable personal income (DPI) increased $96.5 billion (0.5 percent) and personal consumption expenditures (PCE) increased $32.7 billion (0.2 percent).

Real DPI decreased 0.1 percent in May and Real PCE decreased 0.4 percent; goods decreased 1.6 percent and services increased 0.3 percent (tables 5 and 7). The PCE price index increased 0.6 percent. Excluding food and energy, the PCE price index increased 0.3 percent (table 9).

Jan. Feb. Mar. Apr. May
Percent change from preceding month
Personal income:  
     Current dollars 0.0 0.6 0.6 0.5 0.5
Disposable personal income:  
     Current dollars -1.3  0.6 0.6 0.5 0.5
     Chained (2012) dollars -1.8  0.1 -0.4  0.2 -0.1 
Personal consumption expenditures (PCE):  
     Current dollars 1.9 0.6 1.2 0.6 0.2
     Chained (2012) dollars 1.3 0.0 0.3 0.3 -0.4 
Price indexes:  
     PCE 0.5 0.5 0.9 0.2 0.6
     PCE, excluding food and energy 0.5 0.3 0.3 0.3 0.3
Price indexes: Percent change from month one year ago
     PCE 6.0 6.3 6.6 6.3 6.3
     PCE, excluding food and energy 5.1 5.3 5.2 4.9 4.7

The increase in personal income in May primarily reflected increases in compensation and proprietors' income that were partly offset by a decrease in government social benefits (table 3). Within compensation, the increase reflected increases in both private and government wages and salaries. The increase in proprietors' income was led by nonfarm income. The decrease in government social benefits primarily reflected a decrease in “other” benefits that was partly offset by increases in Medicaid and Medicare. Within “other” benefits, the decrease primarily reflected a decline in transfers to nonprofit health care providers through the Provider Relief Fund.

The $32.7 billion increase in current-dollar PCE in May reflected an increase of $76.2 billion in spending for services that was partly offset by a decrease of $43.5 billion in spending for goods (table 3). Within services, increases in housing and utilities (led by housing), "other" services (led by international travel), and health care (led by hospitals) were the largest contributors. Within goods, a decrease in spending on motor vehicles and parts (led by new motor vehicles) was partly offset by an increase in gasoline and other energy goods (led by motor vehicle fuels). Detailed information on monthly PCE spending can be found on Table 2.3.5U.


And more to come.


"Funeral industry struggle to hold rates as inflation soars"

From, June 25:

The funeral industry is set for a shake-up as crematory operators and casket companies anticipate higher prices by the end of the year.

With the cost of everything on the rise as inflation pummels the US, the funeral industry, like all others, is encountering higher costs.

Data indicates the industry is trying to absorb some of the financial pain its customers are facing at a time when they need it most, Fox Business reports.

But insiders warn funeral homes may not be able to continue holding down rates much longer.

While the latest consumer price index from the US Labour Department shows inflation rose 8.6 per cent annually in May, the cost of funeral services only went up 2.7 per cent.

Compare that to the agency’s report from 2017 showing that the price of funerals had risen nearly twice the rate of inflation for all consumer items over the three decades prior....


Meanwhile, at Funeral Director Daily, March 22:

Can you make inflation work for you

Possibly related from very early in the Covid era (January 27, 2020):
"Can the American casket monopoly be disrupted?" (HI; MATW)

Why? Oh no reason, certainly not a ghoulish search for second-order effects and third-derivative pandemic trades....
...One thing that always used to amuse was the fact that Hillenbrand was a major manufacturer of stretchers/gurneys and hospital beds, in addition to Batesville Casket.
They pretty much had your horizontality needs covered, from the time the ambulance pulled up until the hearse departed.
They split the businesses in 2008, Hillenbrand got the box biz, Hill-Rom (HRC) the beds. 

"'Off the charts' chemical shortages hit U.S. farms"

From Reuters, June 27:

U.S. farmers have cut back on using common weedkillers, hunted for substitutes to popular fungicides and changed planting plans over persistent shortages of agricultural chemicals that threaten to trim harvests.

Spraying smaller volumes of herbicides and turning to less-effective fungicides increase the risk for weeds and diseases to dent crop production at a time when global grain supplies are already tight because the Ukraine war is reducing the country's exports.

Interviews with more than a dozen chemical dealers, manufacturers, farmers and weed specialists showed shortages disrupted U.S. growers' production strategies and raised their costs.

Shawn Inman, owner of distributor Spinner Ag Incorporated in Zionsville, Indiana, said supplies are the tightest in his 24-year career.

"This is off the charts," Inman said. "Everything was delayed, delayed, delayed."

Shortages further reduce options for farmers battling weeds that developed resistance to glyphosate, the key ingredient in the commonly used Roundup herbicide, after decades of overuse in the United Sates. read more

Prices for glyphosate and glufosinate, another widely used herbicide sold under the brand Liberty, jumped more than 50% from last year, dealers said, padding profit at companies like Bayer AG (BAYGn.DE), BASF SE (BASFn.DE) and Corteva Inc (CTVA.N).

The U.S. Agriculture Department said it heard from farmers and food companies concerned about whether agribusinesses are hiking prices for goods like chemicals, seeds and fertilizer to boost profit, not simply because of supply and demand factors. The agency has launched an inquiry into competition in the sector, and some watchdog groups said it is moving too slowly....


Capital Markets: "Stocks Hit as Central Banks Brandish Anti-Inflation Efforts"

From Marc Chandler at Bannockburn Global Forex:

Overview: Central banks are committed to combatting inflation even as the economies weaken. This is taking a toll on investor sentiment and is dragging down equities. Outside of China, where the PMI confirms a recovery, and India, where most large bourses in the region were off 1-2%. Europe’s Stoxx 600 snapped a three-day rally yesterday with a 0.65% decline. Near midday, its loss today is approaching 2%. US futures are 1.5%-2.0% lower. Bond yields are falling. The US 10-year is around 3.05%, off 20 bp between yesterday and today. European bond benchmark yields are 4-9 bp lower. The US dollar is mixed, with the yen, Antipodeans, and sterling edging higher, while the Swiss franc, and Scandi are off 0.2%-0.3%, even the Swedish krona, where the central bank delivered a 50 bp hike. A few Asian currencies, including the Chinese yuan, are showing some resilience among emerging market currencies. The Russian rouble is off nearly 4% and the Hungarian forint and Polish zloty are off 0.5%-1.0% to lead the emerging market complex lower.

Gold is bleeding lower and near $1812 is at its lowest level since mid-month. August WTI reversed lower yesterday and is slightly lower today ahead of the OPEC+ decision to ostensibly allow more output but capacity constraints limit the actual output. US natgas is steady while the European benchmark is rising for the third consecutive session. It is up nearly 5% after yesterday’s 6.4% gain. A surplus of Chinese steel is said to be weighing on iron ore prices. It is off 3.25% today after falling 1.25% yesterday. September copper is ending a three-day rally (~1%) and is giving it all back today with a 1.35% pullback. September wheat is soft after slipping 0.65% yesterday....


"Top Russian legislators question Norwegian sovereignty over Svalbard"

I'm not entirely sure what the Russian play is here. It might be as straightforward as securing access to the Atlantic for Russia's Arctic-based submarines:

....Military speaking, Svalbard is of great strategical importance, located between the Barents-, Greenland-, and Norwegian Seas. The one controlling Svalbard is also likely to control the important gateway from the shallow Barents Sea to the deeper North Atlantic.

For Russia’s Northern Fleet, the so-called Bear Island Gap between mainland Norway and the archipelago’s southernmost island is key to conducting sea denial operations in and over the maritime areas further south, potentially threatening NATO’s transatlantic sea lines of communication.....

Russian Bastion Defence in relation to Norway and the Bear and GIUK Gaps. 
Source: Mikkola / RAND Europe report 
Hmmmm, I see that Alistair MacLean wrote both Ice Station Zebra which takes place on the Arctic drift ice and Bear Island which takes place on a boat off the coast of the island, thus forming a vector with the location of the cable break.

Or it might be a hankerin' for yummy crustaceans: 

Or, with the European return to coal against the backdrop of EU disunity, it might be a desire to restart the Norwegian coal mines and get the European Coal and Steel Community (originally France, Germany, Benelux) up and running again, this time with Russian membership and possible observer status for Norway.

With the Russians, who knows? More after the jump.

From The Barents Observer, June 29:

Norway is violating the Svalbard Treaty from 1920, says Deputy Speaker in the Russian Federation Council Konstantin Kosachev following the Nordic country's unwillingness to facilitate transportation of Russian goods to the archipelago.

The Norwegian decision not to allow the transportation of food supplies destined Svalbard through its border-crossing point at Storskog has triggered anger in downtown Moscow.

The Russians could have shipped the goods from Murmansk to the archipelago themselves, but instead insist that the delivery is made by Norwegian ships from the port of Tromsø.

Two containers with 7 tons of supplies were first sent from Murmansk towards Storskog where they were halted. Like other European nations, Norway has closed its seaports and land border for Russian cargo traffic under the EU’s 5th package of sanctions.

According to Konstantin Kosachev, Norwegian authorities are now deliberately trying to prevent Russian coal miners in Svalbard from getting food supplies. “It is immoral in its essence, and it violates human rights and the principles of humanism,” the legislator writes on his Telegram channel....


Possibly also of interest:

July 2019 Escape From Norway
What dark secret compelled her to run?

February 2020 "Moscow Plays Hard Ball in the High North

January 2021 "Norway eyeing deep-sea metal mining future instead of oil"

November 2021 Forget Taiwan, Kashmir, Ukraine and Iran, The Real Geopolitical Hotspot Is Svalbard

December 2021 Geopolitics: "Moscow aims to enhance presence in Svalbard as part of hybrid-strategy, expert warns"

January 2022 "Svalbard Minute by Minute"
Can you feel the excitement?

February 2022   Skulduggery: "'Human activity' behind Svalbard cable disruption"

And many, many more.

And from (the world's northernmost newspaper): 

Random weirdness for the week of March 29, 2022: Yet another UFO visits Svalbard, where people and NFTs are fleeing toward the sun to be saved from pillagers

Wednesday, June 29, 2022

"Tech-stock-alypse now: founders, workers, and investors on the global startup collapse"

From Rest of World, June 27:

Funding is drying up, and layoffs are skyrocketing: “There was no notice. There was an email in the morning and then a town hall.”

In mid-2021, Miguel, a 26-year-old living in Mexico City, had been working as a delivery driver for Uber Eats and DiDi when a friend told him that the Colombian grocery startup Merqueo was hiring. Just a few months before, in April, Merqueo had launched 10-minute delivery in Mexico and announced it would be investing $60 million in the country. The job promised stable hours and benefits — something Miguel had never had before with a delivery platform. He started work in January.

In early June, Miguel — who asked to use a pseudonym to speak candidly about his experience — and other Merqueo delivery drivers were invited to a video call with an executive. They were told that the company would be exiting Mexico and that they would be out of a job that week. 

“I thought they were growing this year … it was all a little weird and very sudden,” Miguel told Rest of World. “Now I have to worry about bringing food home.”

Merqueo did not respond to a request from Rest of World for comment. 

Miguel is one of tens of thousands of tech company workers around the world, from delivery drivers to software engineers, who have been laid off as the industry adjusts to an increasingly difficult operating environment. According to the project, which tracks retrenchments at tech companies, almost 100,000 startup employees across the world have lost their jobs since the beginning of March 2022.

The causes of the global layoffs are rooted in the broader economic environment. Inflation has put pressure on consumers, reducing demand for tech services and products. A rout in technology stocks since the start of the year has wiped more than a trillion dollars off the valuations of tech giants and billions off the balance sheets of major investors, such as the Japanese mega-fund owner SoftBank Group, reducing their ability and appetite for supporting loss-making startups. Rest of World interviewed investors, founders, and analysts across Asia and Latin America, to understand how this is impacting workers on the ground. While some see opportunities in the chaos engulfing the industry, most expect 2022 to be a brutal year for emerging market tech, as companies cut their expansion plans and reduce headcounts.

“Everyone should be laying people off,” Shu Nyatta, a venture capitalist and former managing partner of SoftBank’s Latin America Fund, told Rest of World, “for the simple reason that everyone should be extending their runway as much as possible without fundamentally hurting their business.”

For the past half decade, massive global investors, including SoftBank and Tiger Global, have opened their wallets to emerging market tech, helping to create regional giants, such as the Argentinian personal finance app Ualá, the Indian payments platform Paytm, and Indonesian super app GoTo. In 2021, venture funding to Asia hit $165 billion — 50% more than in 2020, according to data from Crunchbase, the research site. Funding to Latin America rose 300%, to $19.6 billion....


Miscellaneous thoughts, possibly related:

The introduction to "Europe Invests in Latin America": 

"Emerging market speculation tends to appear at a juncture in the economic cycle when 
declining yields on domestic bonds combine with an excess of capital to make 
foreign investments particularly attractive."
-Edward Chancellor
Chapter 4, Fool's Gold: The Emerging Markets of the 1820's
The 1890 collapse of Barings:

And a memento mori for whenever I start to feel superior to anyone or anything:

Early Humans in Peru More Advanced Than We Thought, Had Reached Sony Walkman/Friendster Stage of Development


"Hubris is one of the great renewable resources"
—P. J. O'Rourke

"Restart or remain shuttered—Why rationalized US refineries will not come to the rescue"

From IHS Markit (S&P Global), June 24:

Despite President Biden's call on US refiners and the federal government to pull out all the stops to rescue US citizens from the high cost of gasoline, the US refining complex is currently running at full capacity and has few options to increase fuel production in the near term.

  • Since June 2019, 1.482 MMb/d of refining capacity has been rationalized in the United States and Canada. Approximately 590,000 b/d was damaged in storms or refinery incidents and is not eligible for quick restart. Another 237,000 b/d was shut to convert to renewable diesel production. Approximately 375,000 b/d may be eligible for recommissioning but likely will remain shut. The cost of recommissioning could be significant, and the timing of the recommissioning is likely too late within the current window of opportunity.
  • General market sentiment, our medium-term outlook included, is that the current high-margin environment will be fleeting. Recouping recommissioning costs will be difficult unless these strong margins are sustained beyond 2023. Refiners are unlikely to invest hundreds of millions of dollars in recommissioning costs for only one or two years of strong returns....


"A review of Oceans of Grain: How American Wheat Remade the World" (from Ukraine to Kansas)

From The Milken Institute Review:

You cannot not know history,” said the American architect Philip Johnson. (Though he did successfully conceal his years as a young fascist demagogue in the 1930s, but never mind.)

The challenge of understanding Ukraine’s evolution is the sheer number and variety of nations and peoples who have played parts in its history — not only Ukrainian speakers but Crimean Tatars, Cossacks, Turks, Poles, Jews, Greeks (as owners of grain ships) and, of course, Russians. The condescending name for Ukraine, Little Russia, almost disappeared a century ago as the cultures differentiated, yet Vladimir Putin has shown how persistent and pernicious the idea has been of Ukrainians as junior siblings of the so-called Great Russians.

One of the best scholarly corrections of the record has Ukraine nowhere in its title, yet it is as enlightening about the history of that nation as it is about the development of the United States grain empire that is its main theme. It reveals that, in important ways, the U.S. and Ukraine have been swept along in intersecting currents of history. 

Looking Way Back
In Oceans of Grain, Scott Reynolds Nelson shows how the territory of present-day Ukraine has been strategically essential since the days of ancient Greece, when shipping magnates called aristoi controlled the routes that brought grain from the northern ports of the Black Sea to the city-states of Greece that had outgrown their own agricultural hinterlands. The aristoi ships, which could carry a remarkable ten thousand sacks of grain, plied their trade into the 4th century and were largest seagoing vessels ever built until introduction of Spanish galleons in the 16th century.

The Black Sea grain trade remained a lifeline for European nutrition for a very long time. And Byzantium (the city also called Constantinople in honor of the emperor who established it as a new capital) effectively controlled that trade in the centuries it dominated the Eastern Roman Empire by controlling shipping through the Dardanelles Strait, the only outlet from the Black Sea to the Mediterranean. This power was, of course, inherited by the Ottoman Turks when they conquered the city in 1453.

Elsewhere in Europe, rulers remained acutely aware of the importance of a reliable grain supply to retention of power. Indeed, food riots contributed to the fall of Constantinople to the Turks. Hunger protests preceded the fall not only of Louis XVI of France but the Ottoman Sultan Selim III, although, to be sure, the causes were complex.

Britain, aware of its vulnerability, sought grain from its Irish colony to feed England’s growing cities beginning in the 17th century. Protestant landowners extracted grain from the Catholic peasants, who were left to subsist on potatoes (more calories, less nutrition per acre) from their small remaining plots. 

Meanwhile in the Black Sea region, generations of Russian tsars nourished the fantasy of building an empire stretching from the Baltic to the Dardanelles, with Constantinople to be renamed Tsargrad (a name ominously adopted by a militantly pro-Putin Russian media group). Ivan the Great’s marriage to a niece of the last ruler of the Byzantine empire in 1472 founded a claim to succession of the Eastern Empire. It is also the origin of the Byzantine double-headed eagle so visible in Putin-era iconography. A century later, Russia’s rulers were chipping away at the Polish empire, which controlled the rich soils of what is now southeastern Ukraine. Though it’s not clear who to root for here: Poland had enserfed the Ukrainian-speaking peasants who farmed this land....


The Bread We Eat Is Junk Food: Blame the Wheat

A deep dive into some areas we don't really understand. First off, the paleolithic transition to agriculture and then the results of selective breeding.
It gets complicated fast.... 

"Amber Waves: The Extraordinary Biography of Wheat"

If a couple oversized bets don't pan out, yours truly has been informed we will be pivoting to cooking tips.

"Peak Inflation Is Hollow: It Provides No Context To Reduction in Speed or Duration of Cycle"

The author, Joe Carson is the former Chief Economist & Director of Global Economic Research at Alliance Bernstein. Prior to that he was Chief Economist at Chemical Bank and at Dean Witter, firms he left in such rough shape they were forced to merge with JPM and MS respectively. (Just Kidding Mr. C.)

From his personal website, The Carson Report, June 7:

Peak inflation is not a meaningful statistic. In some ways, it is similar to peak growth or peak earnings. Indeed, it provides no context to the reduction in speed or the duration of the cycle. It is hollow. The Fed made a mistake in thinking that the spike in inflation was supply-side driven and, therefore, temporary. It would be equally wrong to conclude that peak inflation signals a quick end to the inflation cycle.

There is a lot of talk of peak inflation as it somehow creates the impression that with inflation coming off its highs, the Federal Reserve has less need to tighten. Yet, peak inflation implies inherent linearity to inflation, which is not the case. Inflation cycles are non-linear. To be sure, inflation cycles rotate, move up and down, and broaden over time.

The thinking behind peak inflation is similar to the supply-side driven view of the current inflation cycle. Supply-driven inflation, according to some, is temporary as it will fall on its own accord once the unique factors disappear or dissipate in intensity. Yet, the error in that analysis is that it overlooks or ignores the spreading effect of inflation. In other words, as certain costs rise, it forces different prices up over time.

For example, in the 1970s, supply shocks (food and energy) played a massive role in starting the inflation cycle. After that, however, the inflation process spread, and for more than a year, inflation measures without food and energy costs were rising faster than those that included them.

A similar script is starting to play out today. For example, consumer price inflation has accelerated by 400 basis points in the past twelve months. Unique factors, such as energy +30%, used cars +23%, and food +9%, accounted for a lot of the spike. Yet, prices other than food, energy, shelter, and used cars accelerated by 330 basis points, rising 5.8%, the most significant acceleration and fastest increase in this broad price index in over 40 years....


The man doesn't pull any punches.

Also at The Carson Report this month:

Dueling Computers: Models Say Germany Runs Out of Gas This Heating Season Or It Doesn't

Two via Professor Lionel Hirth:



"Rents nationwide 'increase at record-level rates'"

This is part of what we were alluding to in the earlier discussion of tomorrow's PCE report, more after the jump. 
From Yahoo Finance, June 28:

It's time to pull out Jimmy McMillan's slogan for his 2010 New York mayoral run: “The rent is too damn high.” But today, the slogan applies across the country as renters feel the squeeze.

The median monthly rent in May hit $1,849, a 26.6% increase since 2019 before the pandemic, according to’s Monthly Rental Report.

“Single-family rents continue to increase at record-level rates,” Molly Boesel, principal economist at CoreLogic, said in a statement regarding its Single-Family Rent Index (SFRI) report. “In April, rent growth provided upward pressure on inflation, which rose at rates not seen in nearly 40 years. We expect single-family rent growth to continue to increase at a rapid pace throughout 2022.”

During the pandemic, rent moratoriums and rent assistance programs helped renters who were laid off stay in their apartments. With the expiration of those programs, rent affordability is becoming a crisis with rising inflation.

Where you live will determine the amount of your rent hike. In Miami, rent increases are averaging 40.8% with Orlando seeing increases of 25.8% and Phoenix 17.8%....


These "record-level" increases are not being captured in the CPI inflation reports.

The May CPI report released on June 10 had overall headline inflation at a 42-year high of 8.6% but only had shelter price inflation at 5.5% and Owner's Equivalent Rent at 5.1%.

See Table 2 of the June 10 release , detailed expenditure categories for the gory details.

This wouldn't be so important if we were talking about audio equipment weighted at 0.072% of consumer expenditures, that category could triple in price and it wouldn't matter in the total number. On the other hand shelter's relative importance weighting is 32.437%, the largest single category weighting so when the CPI doesn't reflect the weekly reality of the higher-frequency reports the entire CPI is underestimated. And from the looks of it you should add 4 - 5% to the headline number to get a truer picture of what people are actually spending.

Finally, the argument that people are substituting down to lower price items i.e. beans for beef, doesn't hold much water when you are talking shelter, heating, electricity, gasoline etc.

Sending Oil To Europe: Total U.S. Oil Exports Could Hit A Record 3.3 Million Barrels Per Day This Quarter (Europe Gets 42%)

From Reuters, June 27:

U.S. Gulf Coast crude oil exports to touch record high this quarter

Exports of crude oil from the U.S. Gulf Coast could hit a record 3.3 million barrels per day (bpd) this quarter, analysts said on Monday, as Europe chases U.S. crude to offset sanctioned Russian oil.

U.S. exports have risen in the last three months, helped by Washington's decision to release 180 million barrels of oil from the nation's Strategic Petroleum Reserve, which have flooded the domestic market.

Exports to Europe are expected to average about 1.4 million (bpd) this quarter, about 30% higher than the year-ago quarter, while export to Asia is set to drop to under 1 million bpd, according to energy data firm Kpler....


WTI $113.12 up $1.36; Brent $119.48 up $1.50

Ahead of Tomorrow's Personal Consumption Expenditures Inflation Report, A Reminder

The PCE, the measure the Federal Reserve Board says it watches most closely, what with its under-weighting of shelter costs—half that of the CPI, which itself is distorted lower by using Owner's Equivalent Rent—and all, first crossed the Fed's 2% line in March 2021.

The Fed could have acted on its balance sheet and on interest rates at that time.

Giving them the benefit of the doubt, that they wanted to be sure a rising trend was in place, they could have acted after the April release.

Ditto for a desire to target 2% as an average, meaning running hotter than 2% to bring the trailing average up. By May 2021 with the PCE printing at almost double the Fed's stated target there was no reason to delay tapping on the brakes, beginning the interest rate hiking cycle and announcing the start of Quantitative Tightening - perhaps not going into run-off mode but balancing new purchases of treasury's and Agency MBS's with maturing paper. 

They didn't.

And for some reason the Fed thought it more important to delay action than it was to appear credible; what with the "transitory" talk and all. And the Fed kept delaying, and kept on spouting non-sense for a year after they should have taken action.

Again, for emphasis, the Fed knowingly decided to look like stupid liars rather than honestly explain what they were up to. The question is: Why would they do that?

All I can surmise is that it must be something really, really big to let CPI inflation get to 8.6% while talking stupid shit all the way up.

From Trading Economics (also on blogroll at right) the monthly YoY PCE prints:

"EY Auditors Cheated on Ethics Exams and Tried to Cover It Up, Will Pay a Record Fine for Naughtiness"

Cheating on the ETHICS portion of the CPA and Continuing Ed tests?

From Going Concern:

Well this is bad.

The SEC has fined EY a record $100 million after an investigation revealed auditors at EY were cheating on ethics exams (open book ethics exams we presume) and CPE; worse than cheating alone, they actively tried to cover it up and hide the cheating from the SEC.

From the SEC news release:
The Securities and Exchange Commission today charged Ernst & Young LLP (EY) for cheating by its audit professionals on exams required to obtain and maintain Certified Public Accountant (CPA) licenses, and for withholding evidence of this misconduct from the SEC’s Enforcement Division during the Division’s investigation of the matter. EY admits the facts underlying the SEC’s charges and agrees to pay a $100 million penalty and undertake extensive remedial measures to fix the firm’s ethical issues.

“This action involves breaches of trust by gatekeepers within the gatekeeper entrusted to audit many of our Nation’s public companies. It’s simply outrageous that the very professionals responsible for catching cheating by clients cheated on ethics exams of all things,” said Gurbir S. Grewal, Director of the SEC’s Enforcement Division....

 ....MUCH MORE, it gets worse

Also at Going Concern:

Would Whoever Is Leaving Accounting Textbooks in the Little Free Library Please Stop Immediately?

If interested Wharton's Francine McKenna also weighs in (on EY, not the Little Free Library), with a series of tweets that touch on the gov/private sector revolving door aspect of the accountants and the lawyers and the regulators.

"Reuters Institute 2022 Digital News Report is out - a lot of useful data."

From The Reuters Institute and Oxford University, June 2022:

Digital News Report 2022

This year's report reveals new insights about digital news consumption based on a YouGov survey of over 93,000 online news consumers in 46 markets covering half of the world's population.

The report documents ways in which the connection between journalism and the public may be fraying, including a fall in trust following last year’s positive bump, a declining interest in news and a rise in news avoidance. It also looks at audience polarisation and explores how young people access news.....


HT to and headline from: Andrey Mir 

Capital Markets: "Spanish Inflation Shocks"

From Marc to Market:

Overview: The sharp sell-off in US equities yesterday, led by tech, is weighing on today’s activity. Most of the large Asia Pacific markets excluding Japan and India lost more than 1% today. The three-day rally in Europe’s Stoxx 600 is being snapped today. US futures are posting small losses. The US 10-year yield is little changed around 3.17%, while European benchmarks are narrowly mixed, with the periphery doing better than the core. The dollar is enjoying a firmer bias against most of the major currencies but the Swiss franc and Norwegian krone. The Antipodeans and yen are the poorest performers today. Among emerging market currencies, outside of the Russian rouble, a couple central European currencies and the Chinese yuan are showing a little resilience in the face of the firmer greenback.

Gold is trading at a two-week low near $1812. The month’s low was closer to $1805. August WTI is moving in the opposite direction and above $112.00 is at its best level since the big outside down day on June 17. US natgas is 3% higher and is up more than 8% this week. Europe’s natgas benchmark is up almost 5% today. It rose 5.7% last week. Iron ore pulled back less than 1% today after advancing by more than 8.5% in the past two sessions. Copper is off fractionally after edging higher for the past two sessions. September wheat is threatening to post its first back-to-back gain since the middle of last month....


Tuesday, June 28, 2022

"China is building a yuan currency reserve to compete with the dollar and prop up other economies facing volatility"

The American policymakers had to be aware of the huge wake-up call they would be issuing to the world with their sanctions on the Russian central bank foreign exchange reserves, so the question becomes: "Why did they do it?"

From Business Insider June 27:

  • The People's Bank of China announced it's developing a yuan reserve with five other nations.
  • Five nations including Hong Kong and Singapore will contribute 15 billion yuan, about $2.2 billion.
  • In May, China's foreign-exchange reserves, the world's largest, grew for the first time in 2022.

The People's Bank of China is building a yuan reserve with five other nations in collaboration with the Bank for International Settlements.

China is teaming up with Indonesia, Malaysia, Hong Kong, Singapore, and Chile, with each contributing 15 billion yuan, about $2.2 billion, to the Renminbi Liquidity Arrangement, China's central bank said in a statement Saturday.

"When in need of liquidity, participating central banks would not only be able to draw down on their contributions, but would also gain access to additional funding through a collateralised liquidity window," the bank said.

According to the report, the funds will be stored with the Bank for International Settlements....


Flashback: "Energy squeeze will trigger social unrest, Blackstone's Schwarzman says"

From Bloomberg via Canada's Financial Post, October 26, 2021:

His comments were echoed by Larry Fink, who said there's a high probability of oil soon reaching US$100 a barrel 

Blackstone Inc. co-founder Stephen Schwarzman said the world is facing energy shortages so severe they could cause social unrest.
“We’re going to end up with a real shortage of energy,” he said at a conference in Saudi Arabia. “And when you have a shortage it’s just going to cost more and it’s probably going to cost a lot more. And when that happens you’re going to get very unhappy people around the world, in the emerging markets in particular.”
His comments were echoed by Larry Fink, who said there’s a high probability of oil soon reaching US$100 a barrel, especially with many governments and investors pushing back against investments in fossil fuels.
“Inflation, we are in a new regime,” said Fink, chairman of BlackRock Inc, the world’s biggest asset manager. “There are many structural reasons for that. Short term policy related to environmentalism, in terms of restricting supply of hydrocarbons, has created energy inflation and we are going to be living with that for some time.”....


WTI, $110.35; Brent $116.71.

More On President Macron's Big Reveal To President Biden

From the Twitter feed of Michael Shellenberger who has been taking the U.S. government and the Biden administration to task for actions related to energy shortfalls:


"Biden top aide interrupts as Macron spills bad news about oil crisis"


"Biden top aide interrupts as Macron spills bad news about oil crisis"

From the New York Post, June 27:

President Biden’s national security adviser Jake Sullivan on Monday stepped in to interrupt French President Emmanuel Macron as he broke bad news to Biden — with journalists feet away — about attempts to get Arab nations to produce more oil to lower record gas prices.

“Careful. Maybe we should just step inside … because of the cameras,” Sullivan said, motioning to journalists covering the G-7 summit in Germany.

It’s unclear if Sullivan was concerned about any particular nugget of news leaking to journalists, but some of Macron’s words were clearly audible.

“I had a call with MBZ,” Macron told Biden, referring to the leader of the United Arab Emirates, Sheikh Mohammed bin Zayed al-Nahyan. “He told me two things. One, I’m at a maximum, maximum [production capacity] — what he claims… Second, according to MBZ, the Saudis can increase a little bit, by 150 [thousands barrels per day] or a little bit more, but they don’t have huge capacities at least before six months’ time.”....


"Is the Perfect Storm Brewing for Railroad and Port Logistic Failures?"

From Mary Kennedy at DTN Progressive Farmer, June 27:

Rail and port workers in the U.S. and Canada are in the midst of contract negotiations, and a failure to come to an agreement could be a disaster for West Coast ports and railroads. Currently, there are three major transportation-related groups in contract talks with one already declaring a strike.

On June 18, after rejecting the latest contract offer from Canadian National (CN), the International Brotherhood of Electrical Workers (IBEW) went on strike. The IBEW workers involved consist of approximately 750 signal and communication employees in Canada and walked off the job to fight for better wages and benefits.

CN announced in a news release on June 20 that normal rail operations would continue safely, as it had implemented its operational contingency plan. The plan allows the company to maintain a normal level of safe rail operations across Canada and serve its customers for as long as required if the strike continues.

CN Executive Vice President and Chief Operating Officer Rob Reilly sent a letter to all employees represented by the Union to inform them of CN's latest offer. "We have been in negotiations with the Union since October 2021," Reilly said. "CN has approached this round of bargaining with the objective of improving wages, benefits and work rules, and ensuring the safety of our employees. We have met or exceeded every one of the Union's demands in an effort to reach an agreement prior to the strike deadline. Unfortunately, we did not reach an agreement and the Union has exercised its legal right to strike." Here is a link to that letter:

CN said that it is disappointed with the current situation but remains committed to finding a resolution, and it continues to encourage the IBEW to end its strike through an agreement or through binding arbitration.


U.S. rail worker unions recently said "no" to railroad contract proposals after three weeks of mediation following more than two years of "fruitless negotiations" with Class 1 railroads. Enter the National Mediation Board (NMB), who put forth a proffer of arbitration to move the dispute to the final steps of the Railway Labor Act.

As of June 16, the first deadline passed for unions to accept the proffer, and then, on June 18, the parties entered into a 30-day "cooling off" period where the status quo is maintained. This is the first of three 30-day windows aimed at finding an agreement....



Monday, June 27, 2022

"Inflation is forcing Americans to change their diets: ‘We make vegetable soup’"

Ha! Davos by other means.*

Peasant, one way or another, you will eat lower on the protein pyramid. However, just this once, you may sniff my ribeye.

From MarketWatch, June 23/25, 2022:

The rise in the cost of living has prompted people to cut down on meat, and eat out less

Inflation is changing how and what people eat.

More than half of consumers say they have changed their eating and drinking habits to manage the rising cost of living, according to a new survey by global intelligence company Morning Consult.

Cutting back on trips to restaurants and bars is the most common change, accounting for roughly eight in 10 people. Some 72% of people who said they have changed their shopping habits reported they had cut down on their meat purchases, Morning Consult said.

Among those who reported changing their eating habits, nearly half said they were buying more pre-packaged or frozen food to mitigate the higher costs, and over half reported they had stopped buying organic produce. 

Consumers will usually cut their restaurant spending in response to high inflation, but as financial pressures deepen, they change their supermarket habits too, said Darren Seifer, food and beverage industry analyst with The NPD Group.

U.S. inflation hit a 40-year high in May, with prices increasing 8.6% compared to a year ago, according to the latest consumer price index. Shoppers who paid 2021 prices would have gotten 43% fewer eggs than the same time a year ago, and 15% fewer oranges, according to the Bureau of Labor Statistics.

In tough economic times, consumers start cutting back — switching to store brands or generic products that are cheaper than big-name brands, buying smaller sizes, and buying chicken instead of beef, Seifer said. He said they also utilize coupons and deals more. 

Analysts said that lower-income consumers are the ones most likely to trade down for cheaper products because they spend more of their budgets on food and energy and feel the impacts of rising costs for those items. At the same time, rising prices have also taken a toll on middle-income consumers, as the big-box retailers where they’re likely to shop have increased prices....

*The intro is a riff on a false quote. What Clauswitz actually wrote was that war is a continuation of policy (politics) “with other means” (mit anderen Mitteln) not "by" other means.

 Re: the message of the story, Michael's Minions were on top of it three months ago: 

Helpful Inflation Hints From Bloomberg For People Who Make Less Than $300K

From B.O.:

Unfortunately, as the billionaire a16z co-founder brought to our attention in "Update To Bloomberg's Handy Inflation Hints From Marc Andreessen", the price of lentils had more than doubled in the year preceding the Bloomberg tweet.

"US Says G7 Closing In On Russian Oil Price Caps"—Today's Word Is Oligopsony

I don't really understand how the G7 thinks this will work, oil is almost as fungible as money and will go where it's wanted. In some ways it is analogous to the situation on December 7, 2021, 2 1/2 months before Russia invaded:

Former Swedish Prime Minister Bildt: "It’s time to let Russia know once and for all that Ukraine is off limits"

That was the headline on his December 6 Washington Post OpEd.

The question, of course, is how are you going to enforce it?

From Barron's, June 27: 

ADDS White House official quotes

The United States said Monday that the G7 is closing in on a plan to force a lower price for Russian oil in what would be a major escalation of the campaign to punish the Kremlin for its invasion of Ukraine.

"There is also consensus emerging... that the price cap is a serious method to achieve that outcome," President Joe Biden's national security advisor, Jake Sullivan, told reporters at the G7 summit in Germany.

A senior US official described talks within the G7 -- Britain, Canada, France, Germany, Italy, Japan and the United States -- as advancing.

"We're still in final discussions with other G7 counterparts working to finalise this, but we're very close to a place where G7 leaders will have decided to urgently direct relevant ministers to develop mechanisms to set a global price cap for Russian oil," the official said, speaking on condition of anonymity.

The goal of the plan is to starve the Kremlin of its "main source of cash and force down the price of Russian oil."

While the West has already imposed multiple layers of sanctions on Russia in response to Putin's order to invade Ukraine in February, the targeting of the oil industry represents the highest economic stakes so far.

The idea is that consumer countries would effectively set a low price for Russian oil, while Moscow, needing the revenue, would have no choice but to accept.

There are major questions, however, about unity among consumer countries and whether Russia really would cave in or instead might retaliate by cutting energy supplies to Europe.

Energy exports are Russia's biggest revenue earner, while Western countries are among those most heavily dependent on imported oil and gas.

According to Sullivan, the main obstacle to the idea is not so much willingness to go ahead but sorting out the immensely complex logistical and technical aspects....


The second part of the headline riffs off a 2007 post (here at Climateer Investing We Recycle!):

Today's Word is Monopsony: mə-ˈnäp-sə-nē. And, What are Chavez and OPEC up to?

Hugo Chavez is a blowhard who happens to be the dictator of an OPEC member with a lot of oil. Perhaps it's time to explore the ramifications of today's word. From Wikipedia:
UPDATE below

In economics, a monopsony (from Ancient Greek μόνος (monos) "single" + ὀψωνία (opsōnia) "purchase") is a market form with only one buyer, called "monopsonist," facing many sellers. It is an instance of imperfect competition, symmetrical to the case of a monopoly, in which there is only one seller facing many buyers. The term "monopsony" was first introduced by Joan Robinson[1] (1933). The term "monopsony power", in a manner similar to "monopoly power" is used by economists as a short hand reference to buyers who face an upwardly sloping supply curve but that are not the only buyer; better, but more cumbersome terms may be oligopsony or monopsonistic competition. A monopsonist may be at the same time a monopolist....MORE

Fed: "Hiking Beyond When Something Breaks"

From Steven Kelly's Without Warning substack, June 21:

Credit market interventions aren't just for dovish times

The pithy consensus of the Fed’s current strategy is that it’s raising rates “until something breaks.” It’s so ubiquitous that I’m actually not sure where the phrase began this cycle. But even Richmond Fed President Tom Barkin adopted it (sort of) today:

I think the spirit is, you want to get back to where you want to go as fast as you can without breaking anything.

However, this leaves open an important question: What if something breaks while inflation is still well above the Fed’s target? It’s currently running over six percentage points above target. Liquidity is fragile across financial markets in the face of policy tightening — an assessment traders and the Fed agree on. So, imagine something broke in the coming weeks? Commodities markets went even more haywire, exchanges came under pressure, a high profile default led to wariness across the board, or some other type of event.

In many ways this mirrors the zero lower bound problem. When rates are well above zero, financial stresses can be largely managed by a cut to the policy rate — leaving markets to sort it out (and benefitting some free riders). This can also lead to problematic views of the so-called “Fed put.” We often hear that monetary policy is a “blunt tool” in regards to its inflation/labor market tradeoff. But that’s also the case in its financial markets/real economy tradeoff. Preventing something from “breaking” via the policy rate may mean easier monetary policy that is inconsistent with the real economy macro picture. This may, say, goose the housing market or some such other interest-sensitive free-rider.

The idea of hiking until something breaks assumes that “something breaking” will tell the Fed it’s met its goals. But that’s not obviously the case. For instance, an exchange or corner of the credit markets could “break” without impacting inflation six points’ worth. And the Fed may have a strong wish to keep that given market intact and avoid any long-term damage — but also still need to make significant progress on its inflation goals.

Market Intervention Need Not Be Dovish
The Fed should be clear that it instead will use its full suite of tools as necessary to facilitate its restoration of price stability.

[The discount window is still at a 0 bps spread to the upper bound of the fed funds rate; reducing this spread to zero was one of the first actions of the Fed in response to the pandemic. It sat at 50 bps pre-pandemic.]....


Here are Steven Kelly's twitter and and academic home:

You are no doubt familiar with the members of the program's advisory board.

Fed Balance Sheet: Not Seeing The Reduction In Fannie/Freddie Mortgage-Backed Securities

These are the first line items of Table 1 from last Thursday's "Factors Affecting Reserve Balances" (H.4.1):

1. Factors Affecting Reserve Balances of Depository Institutions

Millions of dollars

Reserve Bank credit, related items, and
reserve balances of depository institutions at
Federal Reserve Banks

Averages of daily figures

Jun 22, 2022

Week ended
Jun 22, 2022

Change from week ended

Jun 15, 2022

Jun 23, 2021

Reserve Bank credit


+    7,976

+  849,802


Securities held outright1


+    6,742

+  986,522


U.S. Treasury securities


-    7,300

+  605,085







Notes and bonds, nominal2


-    7,951

+  533,223


Notes and bonds, inflation-indexed2



+   35,422


Inflation compensation3


+      652

+   36,440


Federal agency debt securities2





Mortgage-backed securities4


+   14,042

+  381,437


Unamortized premiums on securities held outright5


-      816

-   16,707


Unamortized discounts on securities held outright5


-      497

-   11,141


Repurchase agreements6






The MBS's are not marked to market so changes in market pricing do not affect the carrying value. Rather as footnote 4 makes clear:

4.Guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae. The current face value shown is the remaining principal balance of the securities.

We haven't done a CUSIP by CUSIP analysis so may be missing something, but did wait this long into the month of June to allow for any settlement issues the Fed's transactions might encounter. 

We wanted to flag this ahead of this week's release to see what that comparison reveals.