Fireworks start tomorrow with the first shots are fired in the trade war. The Trump administration has painted itself into a corner and the only way out is a unilateral capitulation on his part.
EM
Forget about. Easy money days are over and the printing presses have been turned off.
A new crisis is brewing and something is about to break. That will be the time to think about getting long. Until then, trade ’em with rentals.
Today’s FOMC minutes release illustrates labor shortages are global in the advanced economies (AE).
Contacts in several Districts reported difficulties finding qualified workers, and, in some cases, firms were coping with labor shortages by increasing salaries and benefits in order to attract or retain workers. Other business contacts facing labor shortages were responding by increasing training for less-qualified workers or by investing in automation. – FOMC minutes
The structural issues, such as aging populations, are finally catching up and overwhelming cyclical factors, which have traditionally been “fixed” by monetary policy, and to some extent, fiscal policy.
Time for some economic overhaul and structural reform. Good luck with that given our economically ignorant pols.
Japan
Nowhere is it more an issue than in Japan. ZIRP (zero interest rate policy) and QE won’t create more babies, at least, we don’t believe so!
Japan is making a big bet on robots to increase productivity in order to offset the perilous effects of a rapidly aging population and shrinking labor force.
Looming US import tariffs on some of the hottest gadgets among younger consumers, from vaporisers to electric scooters and ‘smart home’ devices, threaten to drive up prices
We’ve got some problems as we backslide into tribalism and trust in some of our institutions has diminished, but we will get through this.
The Melting Pot
Spent last night drinking too many beers with an American from Senegal and one from Germany. Both had strong accents. We discussed everything to what it is like to be a black man in America to how the German nation of such well educated and “civilized” people were duped into following Hitler. These are the discussions we need to have as Americans, folks.
The name of Sebastopol first came into use in the late 1850s as a result of a prolonged and lively fistfight in the newly formed town. It was likened to the long British siege of the Russian seaport of Sevastopol during the then-raging Crimean War.
Britain, France, Sardinia, and Turkey fought Russia in this war, one of the first wars to be directly reported by journalists and photographers. The Crimean War was also the origin of improved medical care of the wounded, primarily due to the efforts of Florence Nightingale, who formed a nursing corps to care for wounded British soldiers. Evidently, many Americans in the west sympathized more for the Russian than for the British cause as there were at one time four other Sebastopol’s in California; one in Napa County, renamed Yountville, one each in Tulare, Sacramento, and Nevada counties.
I thought what a great country. Our diversity, global heritage and history binds us together and makes us strong.
Free Trade and 4th of July
Just a side note on why we’re free traders.
There would be less flags flying today without free trade as the costs of American flags would be prohibitively expensive for many American families (see #16)
Forget about the fireworks show tonight if not for trade (see #15)
I don’t feel ripped off by China as I see the Red, White, and Blue waving around our neighborhood and watch the sky flowers ignite in tonight’s sky, even if we added to the bilateral trade deficit with China today.
Comparative advantage. It is the very reason why trade between people, communities, states, and nations exist. I am very happy to buy grapes from Chile at the grocery store during our winter months rather than go without.
Thank goodness for free trade. The majority of us are so much better off with trade even if it is sometimes not perfectly “fair” or “reciprocal.” Don’t get us wrong, we are all for negotiating for better deals for the country, but a trade deal takes two sides to agree.
And let us not forget to take care of the losers of trade.
The U.S. government spends almost 7x the annual TAA budget on just one new ship ($4 billion) from its Zumwalt destroyer class, which, by the way, costs $800,000 per round to fire, and can stunningly hit targets 80 miles away.
Priorities, anyone? Just askin’.
Now for some interesting factoids about this great holiday
Congress made Independence Day an official unpaid holiday for federal employees in 1870. In 1938, Congress changed Independence Day to a paid federal holiday.
Only John Hancock actually signed the Declaration of Independence on July 4, 1776. All the others signed later.
The Declaration of Independence was signed by 56 men from 13 colonies.
The average age of the Signers of the Declaration of Independence was 45. The youngest was Thomas Lynch, Jr (27) of South Carolina. The oldest delegate was Benjamin Franklin (70) of Pennsylvania. The lead author of The Declaration, Thomas Jefferson, was 33.
One out of eight signers of the Declaration of Independence were educated at Harvard (7 total).
The only two signers of the Declaration of Independence who later served as President of the United States were John Adams and Thomas Jefferson.
The stars on the original American flag were in a circle so all the Colonies would appear equal.
The first Independence Day celebration took place in Philadelphia on July 8, 1776. This was also the day that the Declaration of Independence was first read in public after people were summoned by the ringing of the Liberty Bell.
The White House held its first 4th July party in 1801.
President John Adams, Thomas Jefferson and James Monroe all died on the Fourth. Adams and Jefferson (both signed the Declaration) died on the same day within hours of each other in 1826.
Benjamin Franklin proposed the turkey as the national bird but was overruled by John Adams and Thomas Jefferson, who recommended the bald eagle.
In 1776, there were 2.5 million people living in the new nation. Today the population of the U.S.A. is 316 million.
Fifty-nine places in the U.S. contain the word “liberty” in the name. Pennsylvania, with 11, has more of these places than any other state. Of the 59 places nationwide containing “liberty” in the name, four are counties: Liberty County, Ga. (65,471), Liberty County, Fla. (8,276), Liberty County, Mont. (2,392) and Liberty County, Texas (76,571).
The most common patriotic-sounding word used within place names is “union” with 136. Pennsylvania, with 33, has more of these places than any other state. Other words most commonly used in place names are Washington (127), Franklin (118), Jackson (96) and Lincoln (95)
Fireworks are part of the tradition of celebrating this national holiday. The U.S. imported $227.3 million worth of fireworks from China in 2012. U.S. exports of fireworks, by comparison, came to just $11.7 million in 2012, with Israel purchasing more than any other country ($2.5 million).
In 2012, vast majority of imported U.S. flags ($3.6 million) was made in China.
Barbecue is also big on Independence Day. Approximately 150 million hot dogs and 700 million pounds of chicken are consumed on this day.
Every 4th of July the Liberty Bell in Philadelphia is tapped (not actually rung) thirteen times in honor of the original thirteen colonies.
Traditions place the origins of “Yankee Doodle” as a pre-Revolutionary War song originally sung by British military officers to mock the disheveled, disorganized colonial “Yankees” with whom they served in the French and Indian War. It is believed that the tune comes from the nursery rhyme Lucy Locket. One version of the Yankee Doodle lyrics is “generally attributed” to Doctor Richard Shuckburgh,a British Army surgeon. According to one story, Shuckburgh wrote the song after seeing the appearance of Colonial troops under Colonel Thomas Fitch, V, the son of Connecticut Governor Thomas Fitch.[2]
The tune of the National Anthem was originally used by an English drinking song called “to Anacreon in Heaven.” The words have nothing to do with consumption of alcohol but the “melody that Francis Key had in mind when he wrote those words did originate decades earlier as the melody for a song praise of wine.” http://www.colonialmusic.org/Resource/Anacreon.htm
On average a gallon of gas is up $.60 from this time last year
Most of the gas price is derived from crude oil prices
Higher gas prices are regressive and hit Trump’s blue-collar Southern base the hardest
The average American drives 37 miles per day in an auto that gets 22 mpg
If prices are sustained, the average driver will pay $400 per annum in higher gas prices, wiping out most, if not, all of the individual tax cut
Wyoming drivers average 60 miles per day and will pay an additional $700 per year in gas prices
As the price of crude marches toward $80 per bbl, and drags up gas prices, the pols are starting to panic. Midterm elections and high gas prices are a toxic mix.
Surging gas prices could fuel backlash against Trump
The increase in gas prices is felt most heavily by lower-income Americans — especially in the South where people drive the most — who received the smallest share of the tax-cut benefits. So the increase could hit Trump’s blue-collar Southern base the hardest while potentially eroding confidence in the economy and tamping down consumer spending, which accounts for 70 percent of economic output. – Politico, May 25
Witness President Trump’s tweet over the weekend (completely exaggerated., in our opinion, as it would be the end of OPEC) and talk of releasing crude from the Strategic Petroleum Reserve (SPR), which would have almost zero medium-term impact on prices. Note crude oil prices rose today.
Just spoke to King Salman of Saudi Arabia and explained to him that, because of the turmoil & disfunction in Iran and Venezuela, I am asking that Saudi Arabia increase oil production, maybe up to 2,000,000 barrels, to make up the difference…Prices to high! He has agreed!
We thought it is time to roll out our comparative analytics to illustrate how the $.60 increase in gas prices over the past year will affect the average driver if prices are sustained or move higher from here.
First, a little primer on what drives gas prices.
The retail price of gasoline includes four main components:
The cost of crude oil
Refining costs and profits
Distribution and marketing costs and profits
Taxes
Retail pump prices reflect these components and the profits (and sometimes losses) of refiners, marketers, distributors, and retail station owners – EIA
Notice in the graphic about 50 percent of the price of a gallon of gas in 2017 was derived from crude oil. Given the 23 percent rise in the price of crude since the beginning of the year, we suspect the percentage is now between 60-70 percent.
Average American Driver
The Department of Transportation estimates the average American drives 13,474 miles per year, or about 37 miles per day. The average fuel economy for cars and light trucks now stands at about 22 mpg.
Cost Matrix
We constructed the matrix below, which calculates the average annual cost increase of various gas price changes and daily miles driven assuming the national average fuel economy of 22 mpg.
As illustrated the $.60 increase in gas prices since last year, if sustained, will cost the average driver around $400, which wipes out the tax cut for most middle class families with two drivers per household.
Play around with the matrix to calculate the increase in your annual gas bill given your miles driven. You can also make the linear transformation if your mpg differs from 22 mpg with the following:
22/(your average mpg) x Cost
Red States Hit Hardest
We also looked at the states with the highest miles driven per year. Three out five are Red states.
The average driver in Wyoming, for example, is hit with an almost $700 increase in gas bills. We also suspect the state’s fuel economy is less than the national average of 22 mpg. That is real money for the middle class.
Expect America’s withdrawal from the Iran deal, which many believe is driving up prices, to become a major lightening rod and political liability as gas prices move higher into the November midterms.
Stunning we were just talking about a Mexican presidential candidate winning a plurality of less than 30 percent just a few months ago. AMLO will enter office with a powerful mandate. If only we knew for what?
Swans relatively quiet. Mexico and Brazil currencies weaker. RMB still sliding.
Guess where I am going to lunch this week? I will give you the full review.
Also going to try and speak with management about capital and the marginal costs to produce a burger versus using labor. Big implications for the tipping point wage rates of burger flippers.
Money quote from video: 
