Global Macro Monitor

#CKStrong

Source: Financial Times

#CKStrong

This chart illustrates how many gallons of gas – the national average of all grades and formulations – the average hourly earnings of production and nonsupervisory employees can purchase. We believe it’s imperative to give context to and normalize data.

Gallons per Average Hourly Earnings (AHE)

Our estimate for March is that the average wage of production and nonsupervisory workers, as measured by the BLS’ Average Hourly Earnings (AHE), can purchase 6.4 gallons, which is up from the low of 4.4 gallons in July 2008, and significantly lower than the high of 13.8 gallons in February 1999.  

Political Blowback

Think of the political implications of these data. 

In the 1998 midterms, for example, the Democrats accomplished a relatively rare feat of gaining House seats while they held the White House, even during President Clinton’s impeachment.

The high gas price relative to wages in July 2008 during #43’s presidency presaged the sound defeat of the Republican Pary in the 2008 general election. 

Not saying gas prices are the only factor that determine election outcomes, but it is a factor.  Moreover, the gas price appears to have an outsized impact on consumer psychology. 

Everything Bubbles

We forgot what an “everything bubble” the economy was before the Great Financial Crisis (GFC). However, the current “everything bubble” is more steely, driven by central bank base money rather than leverage in the housing market. All-cash purchases have replaced the mid-aughts wild and crazy exotic subprime mortgages.  

Moreover, the amount of private equity and investor money pouring into the housing sector has, among other factors, created a shortage of single-family homes,

Might the fact that corporate investors snapped up 15 percent of U.S. homes for sale in the first quarter of this year have something to do with it? The Wall Street Journal reported in April that an investment firm won a bidding war to purchase an entire neighborhood worth of single-family homes in Conroe, Texas—part of a cycle of stories drumming up panic over Wall Street’s increasing stake in residential real estate. Then came the backlash, as cool-headed analysts reassured us that big investors like BlackRock remain insignificant players in the housing market compared with regular old American families. – Slate

We conclude then and have been consistent in our belief that this “everything bubble” will end not with the popping of a credit bubble, such as the GFC, causing a  deflationary impulse.  But, a crisis brought on by inflation — it may be a political crisis or the major central banks panicking and overshooting in their efforts to normalize monetary policy as they lose control of inflation.  It may be a Black Swan. 

Nobody knows with any decent level of certainty. 

Stay tuned.

#CKStrong

QOTD:  Quote of the Day

So, to the people who were in power today who are making those national security calls, I don’t care if you’re a Republican or a Democrat or an Independent or anything else, we should wish them the best. Because they have got a challenge the magnitude of which we have not seen since World War II.

…I think he’s done. The Putin era is over. The only thing we need to now understand is the level of damage he’s going to do as he goes. And I think that could be substantial. – Jon Huntsman

Jon Huntsman served as governor of Utah (2005–09) and as U.S. ambassador to China (2009–11) and to Russia  (2017–19). He ran for the Republican presidential nomination in 2012. 

#CKStrong

We dedicate this one to CK, who sparked our interest.

The following chart illustrates the”real” oil price — the average monthly cash price of West Texas Intermediate Crude deflated by the Consumer Price Index. Indexed so that January 2000 = 100. 

At the Tuesday closing price, the real price of crude was 36 percent below its peak in June 2008, when speculation was rampant as it is today.

In other words, real crude oil prices would have to increase 56 percent from the Tuesday close to top its 2008 peak.  Surprised?

It behooves the regulators to increase the margin requirements on commodity futures, especially wheat, which, if it continues to march higher, will most certainly cause global food riots.

We Tweeted this out yesterday in response to reports that the Russians were warning of $300 per barrel crude prices.  

#CKStrong

QOTD:  Quote of the Day

Today, the average gas price in America hit an all-time record high of over four dollars per gallon.

OKAY, that stings, but a clean conscience [burden sharing with Ukraine] is worth a buck or two…I am willing to pay $4 a gallon. Hell, I’ll pay $15 a gallon ‘cuz I drive a Tesla. – Stephan Colbert (2:40 minutes in)

Providing Relief To Low-Income Households

Carol K., who is very empathetic, posits that some of the overdone stimuli should go to help the low-income households who have been disportionally hurt by the sharp increase in energy and food costs.

How about President Biden setting aside some of the oil-rich land held by the BLM for sale or lease to fund that relief program?  Please, God, no more monetizing deficit spending lest we will be looking at a 25 percent inflation next year.  

It’s Not About Us

When I catch myself complaining about the recent spike in gas and food prices, I think of this baby. Heart 

#CKStrong

First, semiconductors, and now metal prices.

Electrification Of The Transporation Sector

By the way, battery metals – cobalt, lithium and nickel – play a big role in EV production. Have you seen the price of nickel in the past week?

The London Metal Exchange (LME) was forced to halt nickel trading and cancel trades after prices doubled on Tuesday to more than $100,000 per tonne in a surge of sources blamed on short-covering by one of the world’s top producers. — Reuters

Copper

However, the role to be played by copper on the way to a green economy should not be underestimated.  Not just in EV production but also intrinsic in the various elements of the EV infrastructure.  Is there enough copper in the world to make the transition?

I will try and talk my 18-year old into majoring in material sciences.  Watch that space – material science.

Here’s to hoping Venezuela doesn’t invade Chile and Peru.

e-Bicycles

I just might get me an e-Bike to motor around Cambridge and greater Boston.

#CKStrong

QsOTD: Quotes of the Day

Hold those emails until reading this post’s title in the correct context. Also, maybe reconsider your criticisms as you see your leaders jumping in bed with strange bedfellows.

#CKStrong

Somehow Morgan Housel’s prescient January 5th blog post popped up on my screen the other night.

It happened after a day of listening to analysts speculate about Vladimir Putin’s mental health,

The efforts come as longtime Putin-watchers have publicly speculated that his behavior has become increasingly erratic and irrational. Since he launched Russia’s invasion of Ukraine last Wednesday, senior US officials have asked intelligence agencies to gather any new information they can on how the Russian leader is faring and how his mindset has been impacted by the unexpectedly unified and tough response from European neighbors and allies around the world. – CNN

Battle Of The Bulge

Here’s the excerpt from Morgan’s post that floored us, 

Historian Will Durant once said, “logic is an invention of man and may be ignored by the universe.” And it often is, which can drive you mad if you expect the world to work in rational ways. A common cause of everything from divisive arguments to bad forecasting is that it can be hard to distinguish what’s happening from what you think should be happening.

…[a] short war story to show you want I mean.

The Battle of the Bulge was one of the deadliest American military battles in history. Nineteen thousand American soldiers were killed, another 70,000 missing or wounded, in just over a month as Nazi Germany made an ill-fated last push against the Allies.

Part of the reason it was so bloody is that Americans were surprised. And part of the reason they were surprised is that in the rational minds of American generals, it made no sense for Germany to attack.

The Germans didn’t have enough troops to win a counterattack, and the few that were left were often children under age 18 with no combat experience. They didn’t have enough fuel. They were running out of food. The terrain of the Ardenne Forest in Belgium stacked the odds against them. The weather was atrocious.

The Allies knew all of this. They reasoned that any rational German commander would not launch a counterattack. So the American lines were left fairly thin and ill-supplied.

And then, boom. The Germans attacked anyway.

What the American generals overlooked was how unhinged Hitler had become. He wasn’t rational. He was living in his own world, detached from reality and reason. When his generals asked where they should get fuel to complete the attack, Hitler said they could just steal it from the Americans. Reality didn’t matter.

Historian Stephen Ambrose notes that Eisenhower and General Omar Bradley got all the war-planning reasoning and logic right in late 1944, except for one detail – how irrational Hitler had become. But that mattered more than anything. – Morgan Housel, Jan 5th

More Dangerous Than October 1962?

I had a debate with a Polish friend the other night if the current crisis is more dangerous than the October 1962 Cuban Missile.  My position was it is infinitely more dangerous if Putin is not rational.  The short-term stakes are existential and the future of the world depends on assessing the mental health of one man.

I suspect it’s why the administration is slow walking  it’s response and, what seems, a “too careful” policy to address the atrocities being committed against the Ukrainians. Eventually, the West will have to call  Putin’s nuclear bluff, if, we hope and pray, it is a bluff. 

#CKStrong

As promised, Part Deux of our deeper dive into Friday’s payrolls report with the Top 50 industries with the fastest and slowest wage growth as measured by the BLS’ Average Hourly Earnings (AHE) data miners

Have a look and make your inferences.

Wages Down In February 

It’s generally not wise to infer anything from monthly data as there is so much noise and so many revisions to come.   

Nevertheless, in February, wage growth was negative for almost all industries across the board, which will raise many suspicions that the BLS Chef was working overtime with the data. Not sayin’, just thinkin’. 

There was positive wage growth in some industries, led by textile and product mills, up 0.9 percent, and transportation and warehousing, coming in a close second with 0.7 percent wage growth in February. Apparel and financial activities led to the downside at -3.3 and -1.8 percent, respectively.

Barber & Hairdressers Rocking The Casbah

Another thing that stands out to me, personally, with the rank data — Feb ’21 to Jan ’22 growth rate — is the wage growth in barbershops and beauty salons, the second-highest over the 11 months. 

Many will conclude it is most likely a measurement illusion as barber shops and salons were bouncing back from being shuttered for a few months at the beginning of the pandemic. Not in my experience, however.

The price I pay for a haircut is now is up 40 percent from what I paid before the pandemic, $25 to $35. It never included a shampoo and the place is not exactly a Foofoo salon.

Supply Chain Issues? Not!

O Lordy, she must have one helluva supply chain problem. Wondering if her scissors are stuck in one of those containers ships off the SoCal coast?

She deserves the raise, however,  a dreamer who has raised three wonderful boys and just opened her own shop. God bless our immigrants, always the entrepreneur.     

Missing Data

Note that all the industries in the tables are missing the February data as it takes more time to gather the more granular the sector, and is especially true for the wage data.  AHE for most sub-industries are delayed at least a month from the headline NFP release.