A variation on the title of this post was coined by strategist James Carville as a missive to campaign workers leading up to Bill Clinton's successful 1992 presidential campaign against incumbent George H. W. Bush. I've written about the subject many times over the years. Is it only about the economy? Or is there more? I would postulate that it is the economy and much more.
Tomorrow Donald J. Trump will be sworn-in as America's 47th President. Who, in the lead-up to the festivities, would tell you that he alone can fix our country's hellscape of lawlessness, disorder, economic collapse, inflation, energy dependence, mobocracy, crisis and chaos.
Perhaps you share that view. Not me; I would submit that by any rational measure of the condition of the United State of America the president-elect will be taking over a country in rather decent condition. Let's take a walk thru the relevant numbers.
Contrary to what the president-elect will tell you drug overdose deaths are down and the manufacturing sector has created more jobs than at any time in the last decade and a half. Although some prices remain stubbornly high; inflation is down significantly. Inasmuch as federal largess under both Trump and Biden contributed to the expansion of the money supply Trump now shoulders the burden to reduce the cost of my groceries. Fair is fair.
December delivered an overall blowout jobs report and wages are up and continuing to rise, all the while unemployment is at levels before the COVID shitshow hit the fan. Domestic energy production of crude oil and natural gas are at record levels and we are now the global leader in production and export of crude oil. Meanwhile, a gallon of regular unleaded, around here anyway, will set you back less than $2.50. We are awash in an embarrassment of energy and production.
Nevertheless, it goes beyond the economy. Illegal immigration is belatedly, but at long last down and we've found ourselves with the lowest violent crime rates in fifty years. No American military forces are in a hot war elsewhere in the world and Trump's go-to Gold Standard for how he's doing - the stock market has set a new record for the past two years. Finally, Americans have shown signs of coming around to actually recognizing and accepting the reality that conditions on the ground are pretty darn good.
I'll bet you a steak dinner that in reasonably short order President Trump will take credit for the strong economy he is about to inherit. That's because as I gaze across my landscape I don't see a hellscape; I see prosperity and the best economy on the planet. If you think I'm making this up out of thin air; fight me.
Do not get the impression I am diminishing the reality that not each and every single last American, shares the same upwardly economic prosperity and living conditions. Poor people and economically disadvantaged families are real. Nor am I blind to politics. It is certainly in Trump's self-interests to paint as bleak a landscape a possible for his base. Nothing new under the sun there.
As Trump assumes office there are no shortage of challenges ahead. Russia, China and Iran are failing states. Russian and North Korean military personnel allegedly execute Korean wounded to erase evidence of North Korean involvement in the war against Ukraine. Ugh.
Here at home, domestic terrorism has, again, reared its head. There is funding the budget and passage of a reconciliation bill, the DOGE, the debt ceiling, tax policy, Social Security and Medicare. Will there be a comprehensive immigration policy? 99 cent a dozen eggs?
Placing a higher value on action I try to tune-out the talk. Consequently, I'm looking forward to detailed policy to materialize. You know, policies which will improve your and my prosperity and general lot in life. And maybe make the world a safer place.
Donald Trump has been dealt a solidly good hand and I'm looking forward to being witness to how he plays it.
Bring it on.....
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.
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....
We have more liquid gold under our feet than any other country by far. We are a nation that has the opportunity to make an absolute fortune with its energy.
- Donald Trump
Not true. This lie is easily disputed.
If you visit the Energy Information Administration, at 44 billion barrels of proven oil reserves we rank 10th. Venezuela, Saudi Arabia, Iran, Canada and Iraq rank (in that order) in the top five.
As a recovering financial advisor I happen to follow this sector closely and in a shameless plug for the blog encourage you to search for posts in the subject of energy markets. Go to the Labels on the left margin of the homepage and click on Energy Markets. Or use the search tool in the upper left corner for subject matter.
Cheers!
Are you better-off today than you were four years ago?
This photo is making the rounds on social media as evidence that gasoline prices were cheaper during the Trump administration four years ago.
While Trump didn't cause the pandemic, in my personal view his mishandling of the government response to the pandemic certainly contributed to a sharp, short-lived recession and likely contributed to his reelection loss in November of that year.
To be clear, I think presidents get too much blame for bad economies and take too much credit for strong economies. Truthfully, it is a heavy lift for a president to move something as complex as the US economy. For the record, supply/demand markets determine gasoline prices. Not presidents. If you believe otherwise I've got a bridge to sell you.
I am better-off today than four years ago.
Peace.
A milestone was reached a couple of weeks ago.
The US has surpassed the production rate of 113 million barrels per day (BPD) of crude oil, setting a record for the highest production level of any country. Moreover, in the near-term this trend is expected to continue.
Yup, you read that correctly. For the moment, we produce more crude than any other nation on the planet.
Sure, the Saudis could open the taps and turn this all on its head; but that is unlikely to happen as global oil prices continue to afford the House of Saud plenty of profits.
At risk of straying into Social Identity Theory (BIRG) how does it feel to be Number One?
As a consequence we export a barrel of crude oil too. (Pun intended).
US crude oil exports established a record in 2023, averaging 4.1 million barrels BPD, breaking the previous record set in 2022. In the waning days of the Obama administration the previous ban on most crude oil exports was lifted and with the exception of a hiccup in 2021, the export of crude from the US to the rest of the world has increased every year.
It is important to note that government does not drill for oil or gas. Business does. Technology advances in fracking and horizontal drilling have vastly increased productivity thus enabling businesses in the oil patch to bring more wells on-line all the while maintaining production of existing wells. Furthermore, most of our domestic production is light, sweet crude; which happens to be a favorite of export markets.
Where does our export oil go? Since Russia's unprovoked invasion of Ukraine most of it winds-up in Europe. China was in second place last year with imports doubling those of 2022. Export sanctions have forced Russia to sell their oil on the world market at a significant discount. Consequently, US exports to India have fallen by about half as India increased their imports of lower cost Russian crude.
You're probably wondering with all of the record-setting domestic production why hasn't the price of a gallon of gas fallen to $1.50? The short answer is that oil is a fungible commodity, traded globally and in dollars. Fungible items are basically interchangeable (you cannot tell one county's oil from the other just by looking at it). Other commodities, shares of stock, options and dollar bills are all examples of fungible goods.
Because oil is traded globally it is priced according to worldwide supply and demand. If oil producing nations want to drive the price up; they reduce the supply. In the unlikely event they want to bring the price down; they increase supply.
You're probably thinking; "why don't we keep it all to ourselves and have cheap gas and diesel to ourselves?" The answer is oil does not belong to the government. We live in a capitalist economy and anybody crazy enough to do that would drive the oil companies out of business turning trillions of dollars of businesses into pumpkins and mice.
That's what Venezuela did. And we know how that ended.
You're welcome....
Sources: EIA and Petroleum Supply Monthly
Judging from the individuals posting, sharing or re-posting this image; the implication is if only the Former Guy was at the helm retail fuel prices would be at these levels.
Ahem.
These were at those levels four years ago as a consequence of being in the throes of a COVID recession. Our country's GDP was cratering. The major market indices were at levels half where they are today. Unemployment was soaring and small business bankruptcies reaching levels unseen since the Great Depression.
I happen to believe that presidents get too much blame for bad economies and
take too much credit for strong economies. Truthfully, it is a heavy
lift for a president to move something as complex as the US economy. Nevertheless, if you believe in market economics and do not indulge yourself in magical wishful thinking it's rather simple.
No traveling + minimal demand + increased supply = low prices
I'll remember that in November.
And be careful what you ask for. You might just get it.....
By any traditional measures our economy is firing on all eight cylinders. Unemployment is at a fifty year low, wages (adjusted for inflation) are higher than they were before the pandemic, job satisfaction is up and last month the Federal Reserve left interest rates unchanged and signaled that with inflation subsiding we may see three rate cuts in 2024. It looks like there is little if any chance of a recession, with an economic soft landing instead.
So why is public opinion on the economy not reflecting all of this wonderful news?
Conventional wisdom would suggest that people are grumpy about the economy even with the economic winds at their backs.
The best guess is that consumer sentiment over the economy has soured mostly as a consequence of high prices. While inflation has slowed prices have not come down significantly. We've seen a wee bit of a drop yet all you have to do is look at the tape total following a trip to the grocery store and it all makes perfect sense. I also think there is some psychology in play as a consequence of social media trolls and garden-variety confirmation bias. There is an election looming after all.
Consider this. Only a couple short years ago, when inflation reared its ugly head and prices began to spike, consumer sentiment plunged in the opposite direction. In 2022 the mood of the people, as measured by the University of Michigan Surveys of Consumers, was as bad as it could possibly be. The Consumer Sentiment Index set a record fifty year low! That is a big deal.
Ordinarily, a strong economy bodes well for an incumbent president. In this case consumers may be recovering from the sentiment hangover. If economic grumpiness is the new normal this does not bode well for Biden's reelection prospects.
Maybe as we've embraced post-pandemic life our world has fundamentally changed somehow. Maybe it is the cumulative impact of many things - supply chain interruptions, labor shortages leading to hiring disruptions, longer waits for a contractor, higher mortgage rates, increased cost of diesel, fertilizer, used cars, new cars, real estate and construction has put large numbers of people into a mind-numbing economic funk? I cannot put my finger on it.
Nevertheless, gasoline prices have come down considerably ($2.34 Friday at the new Kwik Trip in Sturgeon Bay), the stock and bond markets have out-performed, my real estate taxes are affordable and have barely increased, interest rates are forecast to fall, the prospects of a recession seem to have been a mirage, my personal consumer confidence is strong and for everyone else is likely improving every month since hitting rock bottom. The previously worrisome Consumer Sentiment Index is steadily rising. The economy is strong. I have no major grievances. If Joe Biden is reelected not much will change for me. If Donald Trump is elected it is highly likely I'll continue to prosper and have beaucoup blog material. Besides, any president's immediate influence on an economy as large as ours is overstated.
So, we'll have to see how 2024 unfolds. For this blogger the glass is half-full.
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.....
Greetings!
I bring you glad tidings of supply-demand economics and an admonition to steer clear of magical, wishful thinking and disinformation found in the Face Book cesspool of lazy economic thought.
Consider the cost of a gallon of petrol nowadays – $4.64 at the Shell station in Sturgeon Bay yesterday. That's come down a bit lately, yet remains almost a couple of bucks higher than what it was a year ago. Filling your tank is even costlier in some parts of the country (be grateful you do not live in LA County).
On Face Book it is frequently implied that our presidents establish the price of gasoline. I wonder - is there a big switch in the White House basement bunker that POTUS flips to peg the price at the pump? We all know that isn't true. Here at least.
It was true in a place we call Venezuela. This country happens to be a major oil-producing nation and the government subsidized the price of gasoline (and a lot of other things) to curry favor with the populace. But I think we all know how that socialist worker paradise turned-out. Sadly, a nation awash in oil and the entire shebang collapsed. The lesson is to be careful what you ask for. But I digress.
I understand that economics is sometimes hard to wrap your mind-around. Back when I had a day job as a wealth manager and trusted financial advisor I made a very good living making complicated economic and financial subject matter understandable for the average person. Here’s a simple explanation to keep the facts straight.
One final thought. There is a silver lining here if you look for it. Plenty of our countrymen work in the oil patch. A couple of years ago petroleum engineers and refinery workers were being furloughed in record numbers. Today domestic producers have recovered and are humming-along trying to keep-up with demand. That’s a good thing and a contributor to a healthy economy. And for us retirees who belong to the investor class - energy and related shares are rocking the nest egg.
I don't want to minimize the reality that energy executives are loath to increase production (supply) while they are reaping record profits. Their duty is to shareholders and employees first. Markets drive pricing. That's how business works in a capitalist economy.
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......
I am witness from time-to-time of individuals who state a belief that the Former Guy made us energy independent, and now under the Current Guy we have somehow immediately lost that energy independence.
To be clear, presidents cannot and do not decree energy prices, production, dependence or independence. Global markets and supply demand forces are responsible for this. That said, I know that most of you reading this want easy answers to complex subjects. I get it. And the easy answer is to point to the Current Guy's hostility to the oil and gas industry and say: See. It’s all his fault! The actual answer is more complicated. Allow me the opportunity to explain.
First, a few words about what constitutes energy independence – something that most individuals see only through the lens of oil and natural gas. A more accurate view would be to account for all of our domestic energy production; oil, natural gas and coal and renewables. Then subtract our net energy consumption. If you only consider oil and natural gas those sources represent only 68% of our energy consumption. Thus, if you observe our net exports going positive the conclusion is energy independence. If our net exports go negative the conclusion is dependence.
The truth of the matter is because oil is a fungible global commodity we import oil from other countries each and every day in the natural order of the oil business. That reality is not going to go away. All that matters is if we import a million barrels of oil and export a million barrels of finished product our independence is basically unaffected.
It is a fact that in 2019 the net imports for both crude oil and finished products flipped from positive to negative. By that measure alone, we became energy independent insofar as oil consumption is measured. The Former Guy was president when this happened for the first time in October 2019.
Second, if you look at the chart (above) the trend towards independence began under the Former Former Guy. Alas, the policies of the two prior presidents bear no responsibility for that trend. Neither of them get credit. Hydraulic fracking is responsible for this.
Nevertheless, it was under the Former Former Guy that legislation was passed into law allowing producers to sell crude oil for export. Heretofore, only refined products like gasoline and diesel could be exported. Opening-up the markets for domestic producers extended the fracking boom benefiting front line producers and not just refiners.
Lastly, it is a fact that the Current Guy has embraced policy that could negatively impact domestic oil supplies in the future. However, the surge in pricing that we are witness-to today is largely a consequence of a COVID-induced drop in production (supply) that began in the spring of 2020 long before the Former Guy left office. The 2020 drop in production was 5%. That happens to be a drop of more than three million barrels per day. It has not yet recovered. And while consumption (demand) during the pandemic recession initially declined by 3% our energy independence began to shrink.
So, the short answer is that we maintained a margin of energy independence (albeit smaller) going into 2021. And since then demand has fully recovered and we now find ourselves with this: Smaller Supply + Increased Demand = Higher Prices.
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