Pump And Dump

On the evening of January 17 president-elect Trump and his family started selling a block chain crypto meme token featuring an image of him lifted from the July assassination attempt.  

Disclosed mere days before his second inauguration this venture is the latest in a long line of hustles to monetize his followers and enrich his family.  It is yet another sign that the Trumps will take every opportunity in his second term to push the edge of the self-dealing envelope. 
The Trump meme coin is his latest and likely most successful yet.  

You're likely wondering why the President is laughing all the way to the bank.

photo credit - Al Jazeera

That's because if you borrowed against your 401K, mortgaged your home, cashed-in all your frumpy, dumpy, boring stocks, bonds and mutual funds and purchased as many Trump meme coins as you could get your hands-on there's a possibility you made a killing.  As well, there is a possibility your got your ass kicked.  Further evidence that PT Barnum was prescient.  

Only moments following the president-elect posting on his social media account that his family had issued a crypto currency named $Trump a trade was placed.  In the amount of $1,096,109, from a crypto wallet with a unique identification code beginning with 6QSc2Cx, someone acquired a boatload of the Trump tokens - 5,971,750 to be exact - at the opening price of 18 cents apiece.  This launched a run up in the price of $Trump that would swell to $75 a token.

With a balance of only 25 tokens remaining this anonymous trader pocketed as much a $109 million according to an analysis performed for The New York Times.

The front-end profits for the unidentified early traders, including possibly some from China, was at the expense of the much larger number of schmucks late to the game who lost more than $2 billion following the crash of the token's price. 

While trading in the meme coin space is relatively new - what is described in the preceding paragraph is as old as the hills.  In the vernacular of the stock-trading world this is known as Pump and Dump - with early traders pumping-up the price and them dumping their positions as less sophisticated individuals get in late to the game.  Illegal in a regulated market this scam is all to common in the unregulated crypto world. 

It is one thing for the Trump family to profit from crypto trading; it is also worth noting that the President holds executive sway over the relevant federal regulatory world.  Rolling-back victim protections and enforcement is one thing; leaving the fox to guard the hen house is altogether another.  

Coincidentally, only ten days ago The Lever reported that the Trump administration issued a blanket ethics waiver to venture capitalist David Sacks, now the president's special advisor for artificial intelligence and crypto, clearing him to work on regulatory issues directly related to his financial holdings.  The waiver comes a month after President Trump fired the Senate-confirmed director of the Office of Government Ethics - the independent agency responsible for enforcing federal ethics laws. 

'I am granting you a waiver...of any conflict of interest regarding particular matters of general applicability concerning the digital asset industry' - reads the March 5 memo from White House Counsel David Warrington.

The creation of a financial instrument facilitating the transfer of money to the president's family in connection with his office interests me.  The Trump meme coin is ideally suited as a mechanism for, hypothetically-speaking, special interests or a foreign government to influence the President and his family.  

The fact that his office's regulatory actions may now shield or insulate him from both scrutiny and consequences interests me even more.

How about you?

A Risky Bet

What they have to do is build their car plants, frankly, and other things, in the United States, in which case they will have no tariffs. 

- Donald Trump

President Trump has said that there is a simple way to avoid his tariffs - move everything back to the US.  His thinking is that this will single-handedly restore the manufacturing sector and create jobs. 

Where to start?  Visit a modern automobile assembly plant and you won't find a worker hefting and bolting a left rear wheel on a car with an impact wrench.  Robots outnumber workers and the remaining jobs require a higher skill set and oftentimes a two year degree from a community college. 

Domestic manufacturing reached its apex in 1979 at 19.6 million jobs.  In the following couple of decades 2 million jobs were lost to automation.  With China's entry into the global trading system another 6 million manufacturing jobs were displaced from 1998 thru 2010.  Today, according to the Bureau of Labor Statistics only 8 percent of America's work force sees the inside of a factory.

Complicating this picture are tax policies that Increase the cost of raw materials such as steel and aluminum.  And with an economy running at full employment we do not yet have a comprehensive immigration policy.  Machines, software advances, and AI technology will continue to revolutionize manufacturing efficiencies.  Wage support and employee benefits have been on the decline for decades - largely a consequence of a decline in union membership.

In his first term Trump tariffs on cheap Chinese goods made limited progress with a surge of 411,000 jobs before the COVID shitshow.  Biden used a mix of subsidies and tax incentives surging manufacturing jobs to a peak of 12.9 million in 2023, only 110,000 above Trump's peak.

Reversing four decades of industrial policy overnight is a heavy lift - corporate America has seen global integration as the most efficient mechanism for producing what the American consumer wants. 

Are CEOs ready to change their business model?  Lower wage overseas labor has left domestic companies with extra cash; that has gone to shareholders in the form of dividends and the repurchase of shares - boosting share prices.

Trump's tariffs would amount to one percent of US gross domestic product (GDP); amounting to the largest tax increase ever.  Imagine the impact on household finances and the ripple effect on the economy.  No doubt tariffs are a mechanism to make it costlier to do business beyond our shores; nevertheless, it is a very blunt instrument and exceedingly difficult to reverse decades  of complex assembly and supply chains between the US and our largest trading partners.

It costs $ billions and takes years to construct and populate any substantive manufacturing facility.  It takes years to recoup those investments.  Tariffs and presidents are much too transient for business to make that kind of risky bet.  Stable long-term policy-making hasn't been the realm of American politics.

Meanwhile the markets are sending a clear signal they don't like the uncertainty.  It will be interesting to watch this play out..... 

The Grift

Last Friday evening president-elect Trump and his family started selling a block chain crypto meme token featuring an image of him lifted from the July assassination attempt.  

Added to a long line of steaks, burgers, foot long wieners, chocolate, water, ice, beer, vitamins, wine, vodka, board games, video games, more than a half-dozen books, hats, mugs, key chains, travel booking, energy drinks, office furniture, women and menswear, flags, bar ware, life size cardboard cutouts, watches, perfumes, colognes, sneakers, bibles, digital trading cards and unsigned guitars. 

The Trump meme coin is his latest merch push and really raises the bar.

Disclosed mere days before his second inauguration this venture is the latest in a long line of hustles to monetize his followers and enrich his family.  It is yet another sign that the Trumps will take every opportunity in his second term to push the edge of the self-dealing envelope.

The $Trump token is being sold thru CIC Digital LLC an affiliate of the Trump Organization pitching the slogan: Join the Trump community!  This is history in the making!

Accompanied by multiple disclaimers disavowing anything to do with any political campaign, political office or government agency the website says that the Trump meme tokens are for entertainment purposes only, are not intended to be seen as an investment opportunity, investment contract, or security of any type. They are expected to function as an expression of support for and engagement with the ideals and beliefs embodied by the symbol $TRUMP.  In a pitch promoting the meme token, Trump told his supporters to; Have Fun!

Eric Trump had this to say; I am extremely proud of what we continue to accomplish in crypto.  $Trump is currently the hottest digital meme on earth.  This is just the beginning.

Trump tokens are not currency, they are not backed by anything tangible, they have no intrinsic value.  Unlike Bitcoin and Ethereum Tesla won't accept them for the purchase of a vehicle and cartels and crime syndicates won't take them in trade either.  Commonly, these coin tokens have been created as a joke inspired by internet memes and animal cartoons.  Next to worthless, they're  traded as a hobby.  In this instance, 80% of the coin tokens are controlled by the Trump organization while 20% have been offered for sale to the public.  You tell me who is The House and who is The Mark?

Attracted by the lure of easy wealth by means of a  pyramid scheme,  Trump business opportunity, trading of these meme coins on cryptocurrency markets began on Saturday immediately driving up the value of Trump tokens.  

Not surprisingly, the creation of a financial instrument facilitating the transfer money to the president's family in connection with his office has ethics lawyers pulling their hair out.  

It's also caught the attention of the crypto world with some in the crypto industry criticizing the token.  Nick Tomaino, crypto venture capitalist and former executive at Coinbase, wrote on social media; Trump owning 80% and timing launch hours before inauguration is predatory and many will likely get hurt by it.

Just between you and me I think the Trump meme coin could also be a mechanism for special interests and foreign governments to engage in influence peddling with the in-coming president.  But I digress.  

I'd be willing to bet that a few of you reading this post would tell me to my face I'm full of beans and simply meddling in another wildly successful Trump business enterprise.  I disagree about the matter of meddling as I happen to place a high value on free will.  A fool and his money are soon parted after all.

A challenge to my detractors:  If you embrace the veracity of this opportunity you might consider mortgaging your home or cashing-in all your frumpy, dumpy, boring stocks, bonds and mutual funds and purchase as many Trump meme coins as you can get your hands-on.  

What's that you say?  

You want to sit it out?

I thought so.

Inflation By Any Other Name

This subject has come-up here from time-to-time and I have tried my darnedest to remain circumspect, intellectually honest, good-humored and resist any snarky impulses to poke fun of individuals who seemingly believe that presidents posses cryptic powers to turn inflation on, and off, like a switch.  When it comes to lazy economic thinking the struggle is real.  Thankfully, understanding inflation is not rocket science.  If you have a basic grasp of the interplay between excess liquidity (M2) and demand economics it is not very complicated.  But I digress.

Inflation figured significantly in both the run-up and results of last month's presidential election.  In his interview with Kristen Welker several weeks ago president-elect Trump said: I won on two things; I won on the border and I won on groceries.  And at the RNC convention of last summer Trump declared he would:  End the devastating inflation crisis immediately.  Trump took credit for low inflation in his first term of office; he might take the blame for price inflation in his second term.  Time will tell.

As an old guy I am mildly bemused at the notion that younger voters have no institutional memory of inflation, soaring energy costs and the accompanying astronomical interest rates, of the late 1970s and early 1980s.  By those hardcore economic standards today's historically low inflation, low energy costs and interest rates are the modern equivalent of lotus eating.  Nevertheless, the president-elect has promised to bring inflation down and if he doesn't the voters might become restive. He's certainly got his work cut out for him as there's not much a chief executive can do to immediately influence forces at play in an economy as large and complex as ours. 

Complicating this already challenging task is the potential interplay of tariffs and immigration policies. Consider this.

Tariffs are a tax.  If I own an import-export business and import an item subject to a tariff or duty I have to pay the US Treasury the tax due upon receipt.  The country of origin does not pay the tax - the importer does.  To cover the tax I'll mark-up the price of the imported item when it lands with a distributor.  As a consumer purchases the item from a retailer it is that buyer who ultimately pays the mark-up.  Consequently, tariffs can contribute to inflation as the price of retail goods rise. Trump's challenge is the use of tariffs as a negotiating tactic or to surgically target specific imported goods.  It's a high wire balancing act.  

Almost two million undocumented workers are integrated into our food supply chain.  Another 30% of construction workers are immigrant labor - documented or not.  Immigrant labor is a significant contributor to what we pay for everything from fruits and vegetables at the grocery to a replacement roof.

My hope is that the Trump administration finesses this stuff.  Get too aggressive on immigration and tariffs and prices could rise.  Fail at one or the other and you tread at your own peril with an economy-stalling bout of deflation.  If only there was a magic switch in the White House bunker.

Trump naturally supports the sweeping reform of government regulation.  Furthermore, efforts to re-shore manufacturing to our hemisphere implies efficiencies, retraining a labor force and other productivity gains.  This shrinks inflation pressures but takes time to trickle down in a network economy.  Because 70% of our economy is driven by consumer spending these gains would be modest at best.  

Last, but not least, there is: drill, baby, drill.  Trump has promised to increase domestic energy production by lifting environmental restrictions and fast-tracking permitting.  It isn't clear to me precisely how this will dramatically reduce inflation and shrink the price of my groceries; nor has the former president elaborated.

Transportation costs already benefit from lower energy pricing because domestic energy production has been at record levels for years.  Several weeks ago I filled-up the Honda with regular unleaded and paid less than $2.50 a gallon.  Prices fell further over the busy Christmas Holiday travel season.  Go figure.

I own shares of energy and related companies and in a world where CEOs answer to shareholders; further retail price reductions will be challenged by sustaining record profitability, dividends and share prices.   Besides, oil is a fungible commodity, traded in dollars.  Accordingly, global markets play an outsized role in pricing.  My sense is that lower energy costs are largely baked-into the cake so we'll have to see how this plays-out.  What I know for sure is government doesn't drill for oil and gas.  (Like I said, the struggle is real.)

In closing, inflation is relatively easy to explain; it is far more difficult to bend to your political will.  It is possible that the in-coming president is beginning to wrestle with boastful promises made during his campaign.  As I said to a pal several months ago:  I'm looking forward to detailed policy which will improve my prosperity and general lot in life.

Meanwhile, all of our major appliances have been replaced, a new water heater installed, a new car for me, new car for Jill and a contract for a replacement metal roof on the house in 2025.  If tariffs materialize I think we may have dodged the major impact of any Trump tax increases.  Only time will tell....

Edit To Add:

Got home around noon following an overnight road trip and topped-off the tank of the Missus' new Honda.  Local pricing for regular unleaded:  $2.479....

Nativity Story

The Bible story of the virgin birth is at the center of much of the holiday cheer this time of year. The book of Luke tells us that Mary and Joseph traveled to Bethlehem because Caesar Augustus decreed a census should be taken. Mary gave birth after arriving in Bethlehem and placed baby Jesus in a manger because there was no room for them in the inn.       

Some people think Mary and Joseph were mistreated by a greedy innkeeper, who only cared about profits and decided the couple was not worth his normal accommodations. This version of the story (narrative) has been repeated many times in plays, skits, and sermons. It fits an anti-capitalist mentality that paints business owners as greedy, or even evil.         

It persists even though the Bible records no complaints and there was apparently no charge for the stable. It may be the stable was the only place available. Bethlehem was over-crowded with people forced to return to their ancestral home for a census – ordered by the Romans – for the purpose of levying taxes. If there was a problem, it was due to unintended consequences of government policy. In this narrative, the government caused the problem.          

The innkeeper was generous to a fault – a hero even. He was over-booked, but he charitably offered his stable, a facility he built with unknowing foresight. The innkeeper was willing and able to offer this facility even as government officials, who ordered and administered the census, slept in their own beds with little care for the well-being of those who had to travel regardless of their difficult life circumstances.         

 If you must find "evil" in either of these narratives, remember that evil is ultimately perpetrated by individuals, not the institutions in which they operate. And this is why it's important to favor economic and political systems that limit the use and abuse of power over others. In the story of baby Jesus, a government law that requires innkeepers to always have extra rooms, or to take in anyone who asks, would "fix" the problem.    

But these laws would also have unintended consequences. Fewer investors would back hotels because the cost of the regulations would reduce returns on investment. A hotel big enough to handle the rare census would be way too big in normal times. Even a bed and breakfast would face the potential of being sued. There would be fewer hotel rooms, prices would rise, and innkeepers would once again be called greedy. And if history is our guide, government would chastise them for price-gouging and then try to regulate prices.

This does not mean free markets are perfect or create utopia; they aren't and they don't. But businesses can't force you to buy a service or product. You have a choice – even if it's not exactly what you want. And good business people try to make you happy in creative and industrious ways.         

Government doesn't always care. In fact, if you happen to live in North Korea or Cuba, and are not happy about the way things are going, you can't leave. And just in case you try, armed guards will help you think things through.         

This is why the Framers of the US Constitution made sure there were "checks and balances" in our system of government. These checks and balances don't always lead to good outcomes; we can think of many times when some wanted to ignore these safeguards. But, over time, the checks and balances help prevent the kinds of despotism we've seen develop elsewhere.         

Neither free market capitalism, nor the checks and balances of the Constitution are the equivalent of having a true Savior. But they should give us all hope that the future will be brighter than many seem to think.

Credit - First Trust Advisors

 

 

Storm The Bastille

On December 4, Brian Thompson, CEO of UnitedHealthcare, was shot and killed outside the entrance to the New York Hilton Midtown in Manhattan, NYC.  He was in town to attend an annual investors meeting for UnitedHealth Group, the parent company of UnitedHealthcare.

Authorities believe the attack was not a random act and are investigating it as an assassination.  The shooting occurred early in the morning and the suspect, described as a white man, fled the scene. As of the publication of this post the perp has not been apprehended.

No arrest.

No interrogation.   

No motive.

Plenty of speculation to go around.

It is unclear what motivated the incident or whether it was tied to Mr. Thompson's work in the insurance industry.  The police have yet to identify the shooter who is still on the loose.

Nevertheless, social media has exploded with an avalanche of vitriol, and glee over the murder of the insurance executive.  Sure, I get it.  People have had negative experiences with health insurance companies at some of the most difficult times of their lives.  But in the absence of the facts and circumstances of this killing has anyone considered taking a moment to take a breath and not get over their skis? 

I tried on a Face Book group to counsel restraint and got hammered.  I was slammed for not embracing the notion that a man responsible for millions of deaths of people for money got his comeuppance.  

UnitedHealthcare denied 32% more claims last year than any other insurer, it's not hard to figure out.

Posting a photo of Albert Bouria, CEO of Pfizer, from Prophetic Memetics someone else suggested that he just thought someone else might might be curious.  

Anybody else, beside me, consider that a passive aggressive threat instead of your garden variety internet troll?

It is interesting to me the instances of individuals who have flippantly shared that their grievances (large or small, real or perceived) are justifiably resolved at the point of a gun.

It is a chilling observation to note that killing someone for a slight, a political difference or an insurance dispute is justified. 

Regrettably, this is what can happen when there are no appropriate channels for people to make meaningful change to a malign system.  The Supreme Court has allowed unlimited money in our politics and politicians are voting with their corporate overlords, including health insurance companies.  

My sense is that government is broken and simply does not work very well for the average American.  As a consequence they despair.

If this shooter becomes a folk hero it will be appalling; but not surprising.  I have shared many times that capitalism is messy business.  Perhaps we've arrived at a Storm the Bastille moment where the murder of both oligarchs or a neighbor with an offending bumper sticker becomes normalized.

I sure hope not....

Blueberry Kingdom

 

 

Growing-up as a kid blueberries were a seasonal treat. And my recollection is that most of them came from Michigan.

Nowadays, blueberries are available virtually year-round. And they come from South America; mostly Peru.

Carlos Gereda was the spark that lit Peru's blueberry boom of the past decade. He asked a simple question: "Can blueberries grow in Peru?"

In 2006, he brought 14 varieties from Chile to see which ones adapted well to the Peruvian climate. He narrowed it down to four and, in 2009, founded Inka's Berries. The company's service consisted of assisting the development of plantations that adhered to the growing standards Carlos had conceived. The blueberry revolution ensued.

As a consequence of Peru's coastal location along with a wide selection of growing elevations blueberries can be grown all year long. Peru is now the the world's second largest supplier of blueberries.

Fill 'er-up!

Found in my pocket there is this from a recent fill-up in Lake Geneva.

$2.649 a gallon for regular unleaded.

Further evidence that government does not build pipelines.

Government does not drill for oil.

Presidents do not set the price of a gallon of gasoline.

Business and markets make this happen.  Capitalism.

Should've waited.  Six cents cheaper at the BP eleven miles down the road.

Raising a toast to capital markets and a robust economy.....

 

Nativity Story

The Bible story of the virgin birth is at the center of much of the holiday cheer this time of year. The book of Luke tells us that Mary and Joseph traveled to Bethlehem because Caesar Augustus decreed a census should be taken. Mary gave birth after arriving in Bethlehem and placed baby Jesus in a manger because there was no room for them in the inn.       

Some people think Mary and Joseph were mistreated by a greedy innkeeper, who only cared about profits and decided the couple was not worth his normal accommodations. This version of the story (narrative) has been repeated many times in plays, skits, and sermons. It fits an anti-capitalist mentality that paints business owners as greedy, or even evil.         

It persists even though the Bible records no complaints and there was apparently no charge for the stable. It may be the stable was the only place available. Bethlehem was over-crowded with people forced to return to their ancestral home for a census – ordered by the Romans – for the purpose of levying taxes. If there was a problem, it was due to unintended consequences of government policy. In this narrative, the government caused the problem.          

The innkeeper was generous to a fault – a hero even. He was over-booked, but he charitably offered his stable, a facility he built with unknowing foresight. The innkeeper was willing and able to offer this facility even as government officials, who ordered and administered the census, slept in their own beds with little care for the well-being of those who had to travel regardless of their difficult life circumstances.         

If you must find "evil" in either of these narratives, remember that evil is ultimately perpetrated by individuals, not the institutions in which they operate. And this is why it's important to favor economic and political systems that limit the use and abuse of power over others. In the story of baby Jesus, a government law that requires innkeepers to always have extra rooms, or to take in anyone who asks, would "fix" the problem.         

But these laws would also have unintended consequences. Fewer investors would back hotels because the cost of the regulations would reduce returns on investment. A hotel big enough to handle the rare census would be way too big in normal times. Even a bed and breakfast would face the potential of being sued. There would be fewer hotel rooms, prices would rise, and innkeepers would once again be called greedy. And if history is our guide, government would chastise them for price-gouging and then try to regulate prices.

This does not mean free markets are perfect or create utopia; they aren't and they don't. But businesses can't force you to buy a service or product. You have a choice – even if it's not exactly what you want. And good business people try to make you happy in creative and industrious ways.         

Government doesn't always care. In fact, if you happen to live in North Korea or Cuba, and are not happy about the way things are going, you can't leave. And just in case you try, armed guards will help you think things through.         

This is why the Framers of the US Constitution made sure there were "checks and balances" in our system of government. These checks and balances don't always lead to good outcomes; we can think of many times when some wanted to ignore these safeguards. But, over time, the checks and balances help prevent the kinds of despotism we've seen develop elsewhere.         

Neither free market capitalism, nor the checks and balances of the Constitution are the equivalent of having a true Savior. But they should give us all hope that the future will be brighter than many seem to think.

Credit - First Trust Advisors

 

Big Ticket Fast Food

Yesterday I published some of musings centering-upon the inexplicable dichotomy of spending behavior and the economic outlook of American consumers.  A puzzling difference in perception versus reality.  Today I'll take one more swing at the subject and how erroneous information plays a role.

A year ago some dude visited a McDonald's in the town of Post Falls, Idaho and ordered a specialty double quarter pounder, large fries and a large soft drink.  The heart attack in a paper bag set him back $16.10.  Naturally, the millennial posted the receipt on TicTok. 

Inasmuch as millennials obtain much of their news and valuable information on TicTok the video went viral.  Following a brief hiatus the video has returned from the grave following the release of a quarterly revenue report by McDonald's.  Naturally the tabloids, conservative media sites and social media in general are peddling a narrative of inflation spreading like a raging wildfire including the myth that a Big Mac now costs almost $20.  This fast food price debacle is all a consequence of Biden's hamfisted mismanagement of the economy.  Yes, it is his damn fault.

I'm smart enough to know that the Idaho dude's Highly Caloric Happy Meal was a limited edition double quarter pounder "smokey" BLT novelty item with large fries and a large Sprite.  $16 just so happens to be the price of admission.  

This is a Big Mac

A modicum of searching reveals that the national average price of a Big Mac is $5.58; up from $4.89 or 69 cents since Biden arrived at the drive thru.  That's an increase of about 10 percent, a completely different menu item and nowhere close to $16.  The most expensive Big Mac can be found in Switzerland.  But I digress.

McDonald's is a vast multinational business that constitutes the largest fast food restaurant chain on the planet.  They serve more than 69 million customers every day in more than 100 countries from more than 40,275 outlets.  Employing 1.7 million McDonald's is the second largest employer in the United States.  Only Walmart employs more people.

I happen to believe that they have the pricing and marketing of burgers figured-out better than anyone.  For the love of God and all that is holy, the president of the United States does not set the price of a Big Mac any more than a gallon of gasoline.  Sheesh.

In closing I wish to share three relevant observations: 

• TicTok is a waste of valuable bandwidth.  It allows Communist Red China to spy on you and steal your data.  Use it at your own peril.
  

• McDonald's reported a third quarter revenue increase of 14%.  As a result, its net income soared by 17 percent to $2.3 billion.  That is called capitalism, folks.  And largely explains why I am a shareholder. 

• If you rely on the social media cesspool for your economic data you may be a moron.

Nativity Story

The Bible story of the virgin birth is at the center of much of the holiday cheer this time of year. The book of Luke tells us that Mary and Joseph traveled to Bethlehem because Caesar Augustus decreed a census should be taken. Mary gave birth after arriving in Bethlehem and placed baby Jesus in a manger because there was no room for them in the inn.       

Some people think Mary and Joseph were mistreated by a greedy innkeeper, who only cared about profits and decided the couple was not worth his normal accommodations. This version of the story (narrative) has been repeated many times in plays, skits, and sermons. It fits an anti-capitalist mentality that paints business owners as greedy, or even evil.         

It persists even though the Bible records no complaints and there was apparently no charge for the stable. It may be the stable was the only place available. Bethlehem was over-crowded with people forced to return to their ancestral home for a census – ordered by the Romans – for the purpose of levying taxes. If there was a problem, it was due to unintended consequences of government policy. In this narrative, the government caused the problem.          

The innkeeper was generous to a fault – a hero even. He was over-booked, but he charitably offered his stable, a facility he built with unknowing foresight. The innkeeper was willing and able to offer this facility even as government officials, who ordered and administered the census, slept in their own beds with little care for the well-being of those who had to travel regardless of their difficult life circumstances.         

 If you must find "evil" in either of these narratives, remember that evil is ultimately perpetrated by individuals, not the institutions in which they operate. And this is why it's important to favor economic and political systems that limit the use and abuse of power over others. In the story of baby Jesus, a government law that requires innkeepers to always have extra rooms, or to take in anyone who asks, would "fix" the problem.    

But these laws would also have unintended consequences. Fewer investors would back hotels because the cost of the regulations would reduce returns on investment. A hotel big enough to handle the rare census would be way too big in normal times. Even a bed and breakfast would face the potential of being sued. There would be fewer hotel rooms, prices would rise, and innkeepers would once again be called greedy. And if history is our guide, government would chastise them for price-gouging and then try to regulate prices.

This does not mean free markets are perfect or create utopia; they aren't and they don't. But businesses can't force you to buy a service or product. You have a choice – even if it's not exactly what you want. And good business people try to make you happy in creative and industrious ways.         

Government doesn't always care. In fact, if you happen to live in North Korea or Cuba, and are not happy about the way things are going, you can't leave. And just in case you try, armed guards will help you think things through.         

This is why the Framers of the US Constitution made sure there were "checks and balances" in our system of government. These checks and balances don't always lead to good outcomes; we can think of many times when some wanted to ignore these safeguards. But, over time, the checks and balances help prevent the kinds of despotism we've seen develop elsewhere.         

Neither free market capitalism, nor the checks and balances of the Constitution are the equivalent of having a true Savior. But they should give us all hope that the future will be brighter than many seem to think.

Credit - First Trust Advisors

 

Trump Gas

A curious thing happened on the way to the gas pump recently.  A friend of mine messaged me this:

Still missing my Trump gas!  I'm sure Biden gas gets better mileage. 

This is not the first time my pal has voiced this lamentation and fondness for low-price Trump Gas.  Between you and me I think he's twisting my tail.  Giving me a friendly poke and trying to get a rise out of me.  I'm not a Biden guy.  And I was never a Trumper so I'm not gonna take the bait.  But I understand my buddy's sentiment.  We went on a marathon road trip a couple of months ago.  In this order, lodging and gas were the principle expenditures.  We burn only non-ethanol premium grade gasoline in all of our small engines and a trip to town to refill four gas cans set me back $80.  Heck.  Even I like Trump Gas.  But I digress.  

As a recovering financial guy I am both bemused and chagrined from time-to-time by magical wishful economic thinking that seems to find a home on social media; particularly as it relates to the subject of rising gasoline prices. I have FB friends, a minority of which, believe that If only Donald Trump were in the White House a gallon of gasoline would set you back $2.25, give or take.  I'm not making this up.  It is like an article of faith.

If we go back only a few years the price of crude oil and gasoline tanked in early spring of 2020 as the impact of the pandemic laid waste to the global economy AND PEOPLE STOPPED TRAVELING.  Before the Covid crisis 100 million barrels of oil each day fueled global commerce.  As demand fell off of a cliff that dropped by more than 35 percent. Price followed.

Leading up to this was the Saudi-Russian crude oil price war that began a month earlier on March 6, 2020.  Without knowing it in the moment the decision of these OPEC members to blow the lid-off production levels couldn't have come at a worse time.  It was ominously prescient as a novel virus from Wuhan Province had already quietly infiltrated the world population.

Meanwhile, never one to shrink from taking credit where he didn't earn it, Donald Trump had been boasting that he was giving all Americans a tax break with lower oil prices.  In fairness, this is what Trump does.  Cheap Trump Gas = more money in your pocket!  No disagreement from me but sometimes you need to beware of getting ahead of your skis.

For the energy sector all of the elements for a perfect storm were now in place.

In April 2020 the oversupply of oil led to an unprecedented collapse of oil prices forcing the contract futures price for West Texas Intermediate crude (WTI) to plummet from $18 a barrel to around -$37 a barrel.  

Yes, minus $37.  Prices went negative for a brief period of time.

As the coronavirus recession took hold the oil markets imploded from the Saudi-Russian surge on the supply side and the bottom falling-out of the demand side.  American oil companies were furloughing petroleum engineers at a record pace and thousands of additional jobs were being eliminated.  Facing the worse economic downturn in more than a generation even wells were abandoned.  

While consumers were enjoying savings at the pump with Trump Gas - oil patch states like Texas, North Dakota, New Mexico, Oklahoma, Colorado and Alaska  were staring down a calamity of ginormous job losses along with associated tax revenues.  Faced with a re-election campaign, a teetering economy and a perfectly nasty collapse of the domestic oil industry President Trump made the decision to enter the fray and pull his bacon out of the fire with some sort of deal. 

Trump's deal was for OPEC to scale-back their production that year.  This afforded domestic oil producers some welcome breathing space preventing a wholesale collapse of the industry. 

Here we are today. 

It seems like forever (to me at least) since the shit hit the fan.  A pandemic, a deep self-inflicted recession, bad decisions, an election, vaccines, a recovery, hindsight and a population's desire for a return to normalcy while learning to coexist with viral variants.  Not so surprisingly, US crude production has largely returned to pre-pandemic levels.  We remain a net exporter of crude oil to the world.  What has not changed is OPEC production.    

You don't have to take my word for any of this as there is a terrific summary here at Fortune .com that lays it all out for you. 

Donald Trump's deal got OPEC to slash production.  And for the present, that deal remains in place insofar as OPEC production of crude.  A recovering world economy has brought demand back to pre-Covid levels.  And as a consequence of rising demand; absent a growth in supply, prices have risen.  That is what happens in supply demand markets.  OPEC members are reaping record profits.  Can you blame them?

The war in Ukraine has rattled the world oil market causing global prices for crude to soar further complicating and compounding the situation.

I can appreciate consumer frustrations over soaring energy prices and the desire for simple explanations.  If you are a die-hard Trumper Biden is responsible for this.  Inexplicably, he did it deliberately.  The reality is more nuanced.   

Increased Demand + Restricted Supply = Increased Prices 

Some of you aren't going to like reading this but OPEC continues to hold-up their end of the  Trump-negotiated deal. 

There's probably a wee bit of price gouging going-on.  You read it here first you say?  Ha Ha.  It happens.  Although you'd be hard-pressed to locate an oil company executive willing to admit to it.  Domestic energy producers and refiners are reaping record profits.  Can you blame them?  

Given the market conditions in the spring of 2020 my advice would have been to buy on the dip and in particular to increase positions in struggling energy sector shares.  But what do I know?  I'm just a recovering financial guy.

In current news, on Thursday of last week, following furious lobbying on the part of the administration, the group of oil-producing states known as OPEC+ (13 countries that are members of the Organization of the Petroleum Exporting Countries plus 10 non-OPEC countries) agreed to boost production by 648,000 barrels a day beginning in July and again in August.  This may seem like a big deal but I'm here to tell you it's lip service.  I could be wrong but I don't believe it will have any meaningful impact on the retail price of gasoline.

During the election campaign Candidate Biden vowed to turn Saudi Arabia into a "pariah state" as a consequence of the grisly murder of Jamal Khashoggi.  Of course, this was long before rising fuel prices became a contributing factor to soaring inflation and Democratic chances in the midterm elections.

The Saudis are not our friends; nevertheless, President Biden will be paying Mohammed bin Salman a call to smooth things-over.  I wonder if anyone is going to say "pariah" out loud.

In conclusion, we can debate government policy and the impact it has on energy markets all day long.  Everything in the paragraphs above covers a period only slightly longer than a couple of years.  That is very short term in the economic world thereby amplifying the roller coaster effect.  In the financial world I learned that most consumers focus only on the roller coaster ride and sometimes you have to talk them off the ledge.  For the more thoughtful of my readers we need to bridge the over-simplified notion of magic Trump Gas.  A more impactful debate might be the veracity of government intervention in the markets, how loose monetary policy is a primary contributor to inflation, shutdowns, bailouts, handouts, politicizing public health, stimulus and other crazy-ass meddling.  That could take all month long.

Stay-tuned......

Nativity Story

The Bible story of the virgin birth is at the center of much of the holiday cheer this time of year. The book of Luke tells us that Mary and Joseph traveled to Bethlehem because Caesar Augustus decreed a census should be taken. Mary gave birth after arriving in Bethlehem and placed baby Jesus in a manger because there was no room for them in the inn.       

Some people think Mary and Joseph were mistreated by a greedy innkeeper, who only cared about profits and decided the couple was not worth his normal accommodations. This version of the story (narrative) has been repeated many times in plays, skits, and sermons. It fits an anti-capitalist mentality that paints business owners as greedy, or even evil.         

It persists even though the Bible records no complaints and there was apparently no charge for the stable. It may be the stable was the only place available. Bethlehem was over-crowded with people forced to return to their ancestral home for a census – ordered by the Romans – for the purpose of levying taxes. If there was a problem, it was due to unintended consequences of government policy. In this narrative, the government caused the problem.          

The innkeeper was generous to a fault – a hero even. He was over-booked, but he charitably offered his stable, a facility he built with unknowing foresight. The innkeeper was willing and able to offer this facility even as government officials, who ordered and administered the census, slept in their own beds with little care for the well-being of those who had to travel regardless of their difficult life circumstances.         

If you must find "evil" in either of these narratives, remember that evil is ultimately perpetrated by individuals, not the institutions in which they operate. And this is why it's important to favor economic and political systems that limit the use and abuse of power over others. In the story of baby Jesus, a government law that requires innkeepers to always have extra rooms, or to take in anyone who asks, would "fix" the problem.         

But these laws would also have unintended consequences. Fewer investors would back hotels because the cost of the regulations would reduce returns on investment. A hotel big enough to handle the rare census would be way too big in normal times. Even a bed and breakfast would face the potential of being sued. There would be fewer hotel rooms, prices would rise, and innkeepers would once again be called greedy. And if history is our guide, government would chastise them for price-gouging and then try to regulate prices.

This does not mean free markets are perfect or create utopia; they aren't and they don't. But businesses can't force you to buy a service or product. You have a choice – even if it's not exactly what you want. And good business people try to make you happy in creative and industrious ways.         

Government doesn't always care. In fact, if you happen to live in North Korea or Cuba, and are not happy about the way things are going, you can't leave. And just in case you try, armed guards will help you think things through.         

This is why the Framers of the US Constitution made sure there were "checks and balances" in our system of government. These checks and balances don't always lead to good outcomes; we can think of many times when some wanted to ignore these safeguards. But, over time, the checks and balances help prevent the kinds of despotism we've seen develop elsewhere.         

Neither free market capitalism, nor the checks and balances of the Constitution are the equivalent of having a true Savior. But they should give us all hope that the future will be brighter than many seem to think.

Credit - First Trust Advisors

Don't Mess With Texas

There is a saying that everything is bigger in Texas. I guess weather events and the power grid are included in this aphorism. 

In case you’ve missed the news there is a really big energy crisis in Texas which happens to be a consequence of a really big cold snap. The stretch of cold snap now has extended to three consecutive days of energy outages. 

Natural gas distribution has slowed to a crawl.  The grid is down and plagued with rolling blackouts.

The extended power outages have led to unheated homes, apartments and offices, frozen and burst pipes (flooding), closed gas stations (no electricity to run the pumps), boil advisories (if you have running water), inoperable handheld devices (no power to recharge them) and an abundance of Texas-sized finger pointing and blame-shifting. 

Let me begin by pointing out that 90 percent of Texas’s power needs (more than 25 million customers) are served by the Electric Reliability Council (ERCOT) an independent and largely unregulated energy grid. 

Governor Greg Abbott (R) has aimed his ire at frozen wind turbines. Former Texas Governor Rick Perry has also falsely blamed frozen wind turbines for the mass outages adding: Texans would be without electricity for longer than three days to keep the federal government out of their business. 

So what’s Texas’s business problem? 

The main problem is frigid temperatures and frozen natural gas pipelines that stalled ERCOT’s natural gas production and distribution, which is responsible for the majority of Texas’s power supply.  Wind and other renewable energy resources are hardly insignificant yet contribute less than 10 percent of the state’s overall mix of power generation. 

Unremarkably, here in the frozen tundra, we get natural gas to heat houses and generate electricity through pipelines carrying natural gas from Texas. Our end of the pipeline doesn't freeze - even at 30 below zero. Our wind and solar generation work just fine at 30 below.

As remarkable as it is that Texas supplies the world with talented engineering minds this is an engineering problem. Really bad engineering - pure and simple.  Engineers don't design things to simply work - they design things to not fail. Texas’s ERCOT was negligent in the design and construction standards of their gas pipelines, power plants and energy distribution system. Texas standards are lower than those applied in other states and countries because Texans chaff over the notion of being regulated. Texas made a calculated choice to avoid federal regulation and a requirement that the grid be effectively winterized. The ERCOT equipment that failed in Texas is working just fine in predictably colder northern latitudes everywhere else in the world where it has been winterized. 

The Texas privatization system discouraged redundancy in critical systems.  And as a consequence they have no one to blame but themselves. Blaming wind or solar energy is a lame distraction. 

As evidence of this reality consider the fact that all the neighboring states are suffering identical and even colder weather than Texas yet their power grid is fully-functional. And as much as they’d like to lend a friendly neighborly hand to help Texas out of its predicament they cannot. Texas does not allow their power lines to cross the state line.  Go figure.  

So what about the other 10 percent of Texans not dependent-upon ERCOT?  Ironically, these Texans belong to well-managed Rural Electric Co-Ops. They haven’t suffered any service interruptions, blackouts or water issues. 

Don't mess with Texas.

 

Nativity Story

The Bible story of the virgin birth is at the center of much of the holiday cheer this time of year. The book of Luke tells us that Mary and Joseph traveled to Bethlehem because Caesar Augustus decreed a census should be taken. Mary gave birth after arriving in Bethlehem and placed baby Jesus in a manger because there was no room for them in the inn.       

Some people think Mary and Joseph were mistreated by a greedy innkeeper, who only cared about profits and decided the couple was not worth his normal accommodations. This version of the story (narrative) has been repeated many times in plays, skits, and sermons. It fits an anti-capitalist mentality that paints business owners as greedy, or even evil.         

It persists even though the Bible records no complaints and there was apparently no charge for the stable. It may be the stable was the only place available. Bethlehem was over-crowded with people forced to return to their ancestral home for a census – ordered by the Romans – for the purpose of levying taxes. If there was a problem, it was due to unintended consequences of government policy. In this narrative, the government caused the problem.          

The innkeeper was generous to a fault – a hero even. He was over-booked, but he charitably offered his stable, a facility he built with unknowing foresight. The innkeeper was willing and able to offer this facility even as government officials, who ordered and administered the census, slept in their own beds with little care for the well-being of those who had to travel regardless of their difficult life circumstances.         

If you must find "evil" in either of these narratives, remember that evil is ultimately perpetrated by individuals, not the institutions in which they operate. And this is why it's important to favor economic and political systems that limit the use and abuse of power over others. In the story of baby Jesus, a government law that requires innkeepers to always have extra rooms, or to take in anyone who asks, would "fix" the problem.         

But these laws would also have unintended consequences. Fewer investors would back hotels because the cost of the regulations would reduce returns on investment. A hotel big enough to handle the rare census would be way too big in normal times. Even a bed and breakfast would face the potential of being sued. There would be fewer hotel rooms, prices would rise, and innkeepers would once again be called greedy. And if history is our guide, government would chastise them for price-gouging and then try to regulate prices.

This does not mean free markets are perfect or create utopia; they aren't and they don't. But businesses can't force you to buy a service or product. You have a choice – even if it's not exactly what you want. And good business people try to make you happy in creative and industrious ways.         

Government doesn't always care. In fact, if you happen to live in North Korea or Cuba, and are not happy about the way things are going, you can't leave. And just in case you try, armed guards will help you think things through.         

This is why the Framers of the US Constitution made sure there were "checks and balances" in our system of government. These checks and balances don't always lead to good outcomes; we can think of many times when some wanted to ignore these safeguards. But, over time, the checks and balances help prevent the kinds of despotism we've seen develop elsewhere.         

Neither free market capitalism, nor the checks and balances of the Constitution are the equivalent of having a true Savior. But they should give us all hope that the future will be brighter than many seem to think.

Credit - First Trust Advisors

Interesting Factoids

The other day I took the opportunity to get caught-up with my reading of back issues of National Geographic.  The April edition featured a split- image report with both and optimistic and pessimistic report of the future of planet earth.  If you can get your hands on that issue it's a thought-provoking read.  I learned some things too.

The state of Texas produces one-fourth of all of the wind-powered electricity in the United States – the most of any state. If Texas were a country it would rank fifth globally in renewable power generation. Texas is also a leader of the profit-driven commercialization of renewable power. 

Texas farmers can lease a footprint on their land for either a set rental per turbine or for a small percentage of gross annual revenue from power generation. This provides an additional revenue stream to agribusiness with little or no impact on traditional grazing or farming practices. Royalty payments for a lease can range upwards of $5,000 a year for each turbine. 

Jobs development is impressive too with more than 24,000 new jobs created in the renewable energy sector - without pirating jobs from the fossil fuel industry.

Wind power is so cheap that ExxonMobil has contracted to purchase most of a single farm’s 338-megawatt output in order to power more fracking for oil and gas.

Who knew?

Easy Peasy Pizza

This is a really nifty and easy-to-use pizza dough that I found in the dairy case at the Pick 'n Save in Sturgeon Bay.  I make every effort to keep one of these in the fridge when the opportunity arises to throw a pizza pie on the oven pizza stone.  

In any event I was looking at the labeling closely and noticed this:

Austria?  And sometimes it says Hungary.  How the heck does someone make pizza dough on the other side of the globe and sell it here?  That's amazing.  And as I found out quite the success story for a family business.  

From the web I learned this:

In 1987, European baker Johann Wewalka started selling his family’s traditional pastries in a small bakery outside of Vienna, Austria. Business was good, and word traveled quickly about his delicious baked items. At the request of some of his loyal customers, Johann would occasionally give out scraps of leftover dough, enabling them to bake their own pastries at home. It didn't take long before a line of patrons began forming outside the bakery at the end of each workday, all asking for his fresh dough scraps.
Voila! The demand for fresh dough was born. Following a considerable amount of work to ensure a refrigerated product could meet his high bakery standards, Mr. Wewalka introduced his line of packaged dough in 1994.
Today, Wewalka is one of the leading fresh dough producers in the world. The company provides products to more than 30 countries across Europe and Asia, and is now geared up and ready to meet the baking demands of America.

It's a remarkable testament to entrepreneurship and multinational business.

Who knew?  I'm going to pick-up some of the pie dough and give it a test drive.

You can learn more here - including store locations near you.....