New Record

Per AAA the average price of diesel topped its 2022 record high this morning, spiking to $5.85 per gallon.  The previous record was $5.816 set in June 2022.

Farmers, truckers and freight companies have been absorbing higher diesel costs since Mr. Trump made a unilateral decision to go to war with Iran in February.

The ballooning price indirectly affects households by putting inflationary pressure on anything Americans buy that's carried by truck, which is just about everything.

While the strangling of the Strait of Hormuz cast the global market into disarray, Ukraine's highly effective drone campaign targeting Russian refineries has further strained worldwide diesel refinery capacity.

Trump has single-handedly set in motion a cascade of destabilizing events that have dangerous consequences for global stability, security and the world's economy.

Trade Policy Trump Style

 

Just about the time you thought we had this wrapped-up, last Friday trade talks with Canada collapsed.

This is fascinating to me inasmuch as just like the decision to go to war with Iran; this administration leaves each and every last decision on all matters of trade and war, including right down to each and every last country, including terms, to the whims of one sole individual. 

Mr. Trump.

And just like Groundhog Day, every day can be a repeat of the prior or maybe something different; all dependent-upon Trump's mercurial personality, his feelings of self-aggrandizement in the moment and generalized impulsiveness.  Some days are predictable, most are tolerable; while the worst ones are like dealing with a whining toddler tossing toys out of his crib.

Mr. Trump's obsessive trade war with Canada is based-upon an imbalance of trade with the United States that is driven entirely by globally-needed oil. They don't like to talk about; but I'll make it simple enough for a layperson to understand.

An interesting factoid is that the US merchandise trade deficit with Canada is essentially an energy story.  In 2024 the US ran a $64 billion goods deficit with Canada, but that deficit disappeared and became a $34 billion US surplus when energy was excluded.  The US also ran a roughly $24 billion surplus specifically in manufactured goods.  Canadian energy exports, namely crude oil, account for the bilateral deficit.

In other words, Canada isn't beating American manufacturers in some broad-based flood of manufactured goods.  Canada supplies the United States with enormous quantities of energy that the US economy needs, while the United States sells Canada more manufactured goods than it buys from Canada.    

That doesn't mean every Trump tariff policy toward Canada is necessarily motivated by the headline trade deficit; Washington has cited border security, fentanyl, autos, steel and other issues.  

In 2025, the United States ran a $46 billion goods deficit with Canada, but it also ran an approximately $85 billion net deficit in energy trade. The implication is that the United States' overall goods deficit with Canada was not the result of a generalized Canadian advantage in manufactured goods; again it was overwhelmingly an energy phenomenon, offset by U.S. surpluses in other categories.

Nevertheless, if the argument is that America is being economically victimized by a one-sided Canadian trading relationship, the numbers don't stack-up.      

This time, and perhaps because the world needs North American oil; and possibly as a consequence of Mr. Trump's ill-advised unilateral war, it looks like Canada has its sights on our looming midterm elections and is digging-in for a protracted standoff with Trump.  I suspect with hopes for a change of venue in their on-again, off-again trade talks with the administration.   Other countries around the world are watching too; following how tit-for-tat retaliation works with Trump's personal negotiation style.  My sense is that Canada is willing to wait this out as post-election the ground may shift enough giving Democrats the upper hand in the House and providing some breathing room and space for normally trade-minded Republicans to find their balls.  Perhaps the Senate is in play too?  Who knows?  Time will tell.

Canada's retaliatory tariffs won't go into effect until after Labor Day and are likely to focus on things like appliances, agricultural equipment, minerals, steel, dairy, pulp and paper.  If Mark Carney were to take a page out of Ontario Premier Doug Ford's playbook, Canada will focus on taking a shot at Trump's base in both key swing states with significant trade ties to Canada (Michigan and other Midwest and Great Lakes states come to mind) along with critical red states such as Texas and Florida.  I can sense Canada's growing outrage and frustration.  After-all, Mr. Trump commenced his second term with demands that Canada become the 51st state.  

Brilliant.  

If Canada's first impression was that Trump is simply a garden variety asshole; I suppose given everything that has transpired since, he's gonna always be an asshole.   

Remember the guy who claimed that the tiny island nation of Madagascar was picking on us?  Yup, Howard Lutnick.  Whispered Palace Intrigue would suggest that the recent deal fell apart when Mr. Lutnick got bent out of shape over his impression that US Trade Representative Jamison Greer's dealmaking strayed onto Lutnick's turf; namely automobiles, steel and aluminum.  Imagine that; infighting among administration supplicants and sycophants.  In the mean time, the relationship with our single largest trade partner on the planet suffers and US consumers pay the price.

I cannot predict where this ends as I no longer have my crystal ball.  That said, and because we're only a couple of months from the mid-terms, I'll go out on a limb and predict Canada imposes more pain on American consumers who are already restless and grumpy about Mr. Trump's sloppy war and haphazard trade policy.  Between now and the election there will be an abundance of overblown reality television drama-style nonsense before we learn how this ends.

Meanwhile, as far as negotiation tactics go, Trump’s tariff threat hurts US automakers and consumers more than anyone else.  If anybody is under the impression that all Canadian auto and parts production will be re-shored in the US in the next four months; they are certifiably delusional.  That is a MAGA fever dream.

In closing there is this.  Further evidence that import taxes (tariffs) are ultimately paid by consumers; Mr. Trump is ostensibly and temporarily lifting them on imported beef.  And if you think temporary antics like this are a substitute for intellectually-solid trade dynamics or that the price of a Whopper is going to go down I have a bridge to sell you.

Such is the result of leaving decision-making on trade entirely in the hands of an impulsive and incurious individual.  Just like like a war in the Middle East that has gone south; you're gonna get sketchy results.... 

 

Brief Economic Briefing

 

Once upon a time you could count on Republicans to stand for lower taxes.  No more.  In case you missed it, last Friday, July 24, President Trump imposed new tariffs of 10% to 12.5% on 60 trading partners covering 99% of U.S. imports.  In a fit of pique, an additional 50% retaliatory tariff singling-out Canada was imposed as well.

Because the cost of these additional trade taxes are paid by consumers, the Yale Budget Lab now estimates that Mr. Trump's tax increase will cost American households an average of $1,100 per year.  That is double what it would have been had the president declined to impose higher taxes replacing the global tariff that expired on Friday.  

Notably, this tax increase wipes-out the $300 - $1,000 increase in average tax refund generated as a result of Trump's Big Beautiful Bill.

Five months into the Iran war the national price of gasoline is around $4 a gallon; so there is that additional household budget item. The Strait of Hormuz remains closed.  The Red Sea's Bab el-Mandeb (Gateway of Tears) is now threatened by the Houthis.  U.S. bases throughout the Gulf States remain vulnerable to attack.  And oil is trading close to $100 a barrel.

Naturally, it should come as no surprise that with the imposition of new and higher tariffs, rising energy costs, Iran war supply chain disruptions; businesses are raising prices.  Which increases the threat of rising inflation pressures. 

In closing this has pushed yields on the 10-year treasury - a major benchmark for setting consumer borrowing costs - above 4.6%.  The bond market looks spooked.  This impacts commercial loans and pushed the 30-year fixed rate mortgage rate to its highest level of the year, a move that could chill the housing market.  Notably, this is higher than where they stood following Mr. Trump's Liberation Day announcement that sent the bond markets into a tailspin. 

Admittedly, updates and briefings are incomplete.  For instance, unemployment for the month of June was 4.2%, ticking down from 4.3% in May.  According to the US Bureau of Labor statistics total unemployed persons stood at roughly 7.09 million, reflecting a stable labor market.  

Watch the Fed today. 

What's The Tab On The War So Far?

The dollar figures are sketchy as the administration has left out the replacement cost of lost aircraft and the rebuilding of damaged bases; but here's a start.  Casualties on our side; 18 dead, 482 wounded and counting.  Deaths among the Gulf States, including Iran, and merchant seamen are estimated to number into the thousands.

 

Excluding aircraft and base losses the war in Iran has officially cost the United States $37.5 billion so far, according to recent testimony by Defense Secretary Pete Hegseth. However, intelligence officials and independent analysts  estimate the total cost exceeds $100 billion.  

 

Supporting the higher estimate consider that earlier this week Defense Secretary Hegseth and General Caine, chairman of the Joint Chiefs of Staff, appeared before the Senate appropriation Committee seeking $70 billion more to cover costs of the conflict and replenish depleted weapons stocks.

Sounds like the tip of an iceberg.  

 

Nevertheless, insofar as nobody can put the toothpaste back in the tube and hardly anybody wants to cut the troops off at the knees during wartime I think we're stuck with paying for a conflict of choice begun by one guy.  An impulsive choice, likely made against the advice of the Vice President, Secretary of State and Chairman of the Joint Chiefs of Staff; but that's a discussion for another day.  

 

What do we have to show for our expenditure of lives and treasure?

 

The Strait of Hormuz remains closed.  The Red Sea's Bab el-Mandeb (Gateway of Tears) is now threatened by the Houthis.  U.S. bases throughout the Gulf States remain vulnerable to attack.  And oil is trading close to $100 a barrel.  Mr. Trump has set in motion a cascade of destabilizing events that have dangerous consequences for global stability, security and the world's economy.   

 

By all outward appearances this has all the elements of an open-ended cluster.  Some have suggested this could develop into another costly and grinding conflict that might persist into the next administration.  Iran is near certain to obtain a nuke.  This is Mr. Trump's Jimmy Carter moment - on steroids.  Time will tell how this plays-out.

 

And not a single MAGA supporter I'm acquainted-with will admit that their guy might have fallen under the thrall of Bibi Netanyahu.

Or just, plain and simply, miscalculated….

 

Why Are Gasoline Prices Still High?

While differences in gasoline prices across states are driven largely by transportation costs and taxes, changes in gasoline prices nationwide are primarily driven by crude oil prices.

Because crude oil is traded in a global market, swings in its price impact every state similarly.  From February to March the average U.S. gasoline price rose from $2.91 to $3.64 per gallon, with crude oil accounting for roughly 76% of the increase.

The retail cost (price at the pump) typically lags changes in crude oil because oil must first be transported (by ship and pipeline), refined, transported (again) and delivered to retailers, who price fuel based largely on wholesale replacement costs rather than the spot price of crude oil.

Consequently, although crude oil price have mostly returned to pre-war levels, gasoline prices remain elevated but slowly drifting lower.

If tensions in the Middle East continue to ease it is reasonable to expect the price at the pump to continue trending downward.

President Trump Pays a Call To The Farm

Yup; the City Slicker from the Borough of Queens blew-in to Wisconsin a couple days ago and maybe got his shoes dirty.  But I doubt it. This was all for show because things have become increasingly uncertain in farmland world.  By and large, farmers continue to support the president.  Why?  Trump gets it.  The truth is not in his actual policies but in his showing-up to address their fears.  How to make farmers think he sees them; the people that live in fly-over country.

For as long as I can recall I have not held any particular fondness for the Communist Red-Chinese government.  They have raised the theft of intellectual property to an art form and have bamboozled the trade negotiators of every administration for just as long; including Trump 1.0 and now Trump 2.0 as well.

If I had a rational discussion with a Trump supporter I would hear a case that the recent troubles felt by family farmers and ranchers are simply short-term nuisances that are necessary to challenge long-standing, unfair trade practices by foreign countries; China in particular.

And I suppose that my interlocutor would likely suggest that it is only "strong medicine," such as an aggressive tariff strategy, followed-on by subsequent renegotiation that would result-in better more structurally-sound and long-term trade deals.  Fair-enough.

Yes, American agriculture is a complex subject; nevertheless, my immediate neighborhood is an almost exclusively agricultural community.  We own a farm and farm policy is of personal interest.  Consequently, and anecdotally, I hear and have some tingly sense that patience may be wearing thin. Hardly for all but certainly for some.

And I am not alone; numerous agricultural economists and trade orgs - who know more about this than I do - would argue that Trump policy-making initiatives have resulted in no small amount of financial strain for American family farms. 

Specifically, the strong medicine and its side effects include: lost export markets, rising input costs, financial instability leading to bankruptcies and dependency upon federal subsidies.  

Let's dissect each.

Mr. Trump has famously expounded-upon his love of tariffs; thusly when your only tool is a hammer every trade issue is treated like a nail.  The extensive use of tariffs - particularly Section 232 of the Trade Expansion Act - has led to retaliatory measures from major trade partners, including China.  This impacts an expansive list of stuff ranging from auto parts to semiconductors.  While most certainly the president and possibly my interlocutor might erroneously persist with the notion that foreigners pay these tariffs and make us wealthy beyond belief; the truth is that import companies pay them and pass the cost on to US businesses and consumers.  Just like a sales tax, tariffs make imported goods costlier.  Another unintended and equally unfortunate outcome is loss of market share.   

For decades China has been the undisputed heavyweight champion when it came to buying American soybeans.  It is a fact that the Chinese used to be the largest buyer of our beans than the rest of the world combined.  From the end of May through November of last year China did not purchase a single American soybean, choosing to do business with other countries instead.  As a result of Trump's import taxes China responded with an imposition of their own duties along with a boycott of American beans.  Sales, along with domestic prices, plunged.  Meanwhile, American agricultural exports to Canada decreased by more than $1 billion largely as a consequence of Canadian boycotts of American products.

Farm economists now point to the acceleration of a structural shift in markets with China permanently diverting its agricultural purchases to competing nations.  Even after a handful of temporary trade truces were reached American farmers today have a significantly reduced share of the global market.

What about input costs?  The president would tell you that tariffs are intended to protect domestic manufacturing.  And while that might be a necessary and useful tool to shield boutique specialty industries; when applied in broad swaths these trade taxes increase the cost of raw materials used to manufacture heavy machinery.

Not surprisingly, manufacturers like Deere are faced with higher production costs due to tariffs on metal, microchips and other component parts which are passed on to farmers in the form of higher prices for Deere tractors, harvesters and combines.  Even Trump knows this as the administration relented and temporarily reduced the offending taxes impacting agricultural equipment from 25% to 15%. 

And then, of course, Donald Trump made a unilateral decision to go to war with Iran resulting in the closure of the Strait of Hormuz.  This set in motion a cascade of destabilizing events that have dangerous consequences for global stability, security and the world's economy.  This has spiked energy costs and disrupted the the global supply of nitrogen and urea.  Some fertilizer prices are up 47% year-over-year.  For us here in the northern hemisphere the manure hit the fan before spring planting.  What were they thinking? 

Putting-on my financial guy hat, I am now witness to a perfect storm of reduced export commodity prices and skyrocketing operational costs conspiring to squeeze profit margins.  

According to the American Farm Bureau Federation, last year, America's crop farmers lost $34.6 billion and farm bankruptcies surged to numbers not seen since 2020.  In farm states like Iowa, Nebraska, South Dakota, Minnesota and Wisconsin there is now a sharp uptick in family farm bankruptcies and foreclosures.

To cushion the gut punch from his unilateral trade war Trump has authored the distribution of billions upon billions of direct aid including a $12 billion market facilitation package and the Farmer Bridge Assistance Program. 

These payments are a lifeline to keep farmers afloat; nevertheless, they smell peculiarly of Soviet-style central economic planning.  Or garden variety welfare; you pick.

From a purely economic perspective none of these subsidies assist the local rural economy.  Almost all of it went to multinational fertilizer and seed syndicates and large corporate landlords.  Moreover, welfare payments distort market economics resulting in an unstable environment where farmers become dependent on federal intervention rather than stable global commerce.  See previous paragraph.

So when I opened with the observation that the president's visit was mostly for show ask yourself if following Mr. Trump's departure did anything change for Wisconsin farmers?

Have lost export markets returned?  Have import duties gone away?  Has the price of fertilizer, diesel or purchased and leased equipment come down?  The Strait of Hormuz might reopen tomorrow; yet because things are so horribly broken any return to normalcy will take a year or more.  That does nothing to stem the immediate rise in bankruptcies and foreclosures for family farms.  

Farmers like to joke about why they don't gamble or place wagers in the prediction markets.  They'll tell you every season already comes with enough business crippling risks to satisfy anybody's passing itch to speculate.  Ham-fisted government policy getting in the way simply exacerbates the risks.  Increasing dependency on the federal dole to mask flawed policy in both trade and war is a failed strategy by any historical measure.

Farming is hard work and unlike an IPO or private equity wealth comes slow and steady.  America's family farms are not experiencing some transitory short-term hardship; they are disappearing.  Bankruptcies were up 55 percent in 2024, 46 percent in 2025 and 70 percent already by May of this year.  It will be interesting to follow how support for the president holds-up amongst farm producers for the remainder of his term.   

Time will tell.... 

Mixed Messages

I've published on this subject previously and reflecting-upon recent gains in the investment markets, a reasonably robust jobs report, the peace process (or lack-there-of) for the Iran war why are the people seemingly down on their economic situation and possibly even a wee bit grumpy?

Consumer sentiment has dropped again.  According to the University of Michigan, the Consumer Sentiment Index fell to 48.2. from 49.8 in April.  The numbers are preliminary and subject to revision; nevertheless, this is the second consecutive all-time low in a data set that has been collected since the late 1970s.

I look at the economic world through the eyes of a recovering financial advisor and while I'm not wearing rose-colored glasses my sense is that excepting for global economic instability and rising energy costs as a consequence of the Iran war, economically-speaking, things are generally OK.  

What gives?  

Seems like the culprit are those nagging exceptions; namely the war, inflation due to energy costs and tariffs along with generalized economic uncertainty; all of which conspire to create bad vibes that bleeds into weakness in the mood of consumers.  This is important as the lion's share of our domestic economy is driven by consumers and their consumption.

According to the survey's director, Joanne Hsu, the drop is; "Owing to a surge in concerns about high prices both for personal finances as well as buying conditions for major purchases."  One-third of respondents mentioned gas prices as the biggest cause for concern; and another one-third cited tariffs. 

Stock indexes held positive in the wake of this news; and the Bureau of Labor Statistics reported that job creation was stronger than expected in April with non farm payrolls rising by a modest 115,000 and unemployment holding steady at 4.3%.  A recession is presently a low-probability event.  Further evidence that things, economically-speaking, are generally OK.  

My sense is the weakness in the Michigan survey numbers reflect public opinion in light of soaring prices for gas and diesel at the start of the summer travel season.  Consequently, there is a political shadow over all of this.  People are pissed-off and tiring of the drama have contracted a case of Trump fatigue.  And I get it; we just purchased airline tickets for a family vacation and with the cost of jet fuel doubling it's not a cheap date.

My preference is for policy that improves your and my prosperity and general lot in life.  Along with making the world a safer place; so, where’re we at?

On one hand the stock market is on an absolute tear, with the NASDAQ up 5% last week and nearly 13% year-to-date.  The proximate causes include a shaky cease-fire with Iran, a 28% surge in S&P corporate profits for the first quarter and some consensus-beating economic reports, like Friday's payroll numbers. 

On the other hand, there is this. 

The Strait remains off-line, inflation is up, Iran holds all of its enriched uranium and President Trump's war has set in motion a cascade of destabilizing events that have all manner of consequences for global stability, security and the world economy.  

Meanwhile there is a billion dollar+ ballroom, a triumphal arch, a glowering visage of Trump on passports and national park passes and a no-bid, resort-blue paint job for the historic Washington Monument Reflecting Pool.  

It's a mixed message for sure.

Good grief.... 

Fast Facts

Baird Maritime photo

 

Global seaborne crude oil shipments have fallen ~16% since the start of the Iran war. We are currently down ~14 million barrels/day out of a total of ~103 total barrels of oil/day used globally. Empty tankers that previously would have picked up oil in the Persian Gulf are now heading to other destinations to pick up oil - including the U.S. These increased exports may potentially go from 4 million barrels/day to 6 million barrels/day. Robbing Peter (U.S. Citizens) to pay Paul (the rest of the World). It takes 22 days to transport oil from Saudi Arabia to Shanghai by sea; versus 52 days to transport oil from Houston to Shanghai by sea. For a Houston-to-China run, we would need to quadruple crew-hours: over twice as many crews to man over twice as many tankers - over twice as long for each voyage. A Houston-to-China run will require more than twice the fuel and twice the wear-and-tear on the ships.

 

We would need over twice as many tankers to transport oil from the U.S. to China. But those tankers do not exist. Oops.

 

I suppose China is going to have to figure this out. But, there again, the Strait of Hormuz is functionally closed anyway; as a consequence of the blockade by both Iran and the United States.

 

At some point in the future (weeks, months, years, whatever), and after a cessation of hostilities, it will take weeks to reposition most all of these ships back to their normal runs. As a follow-up to Sunday's post on the Iran-Trump negotiating situation; it is my opinion that the longer Iran holds out, the greater the international chaos and the stronger Iran's negotiating position becomes. Does Trump's negotiating position become weaker? Dunno for sure; but the polling is getting worse with the passage of time.  

Of course, Iran is aware we have a midterm election coming-up.

Who knew a war in the Middle East could be so complicated?

 

 

 

 

Data: U.S. Energy Information Administration - https://www.eia.gov/

It's The Economy Stupid

A strategist in Bill Clinton's successful 1992 presidential campaign against incumbent George H. W. Bush; the title of this post was coined by James Carville as a missive to campaign workers. 

As we began the second year of Donald Trump's second term in office by traditional measures our economy was in decent shape.  Most forecasts put 2026 GDP growth around 2 - 2.5% with a solid, steady expansion and little risk of recession.  

Interest rates were expected to ease or stabilize while tax and spending policies supporting business and consumers took effect.  

Productivity gains and demand would lead to business - technology in particular - to post record profits.  All while artificial intelligence would boost efficiencies, margins and long term growth potential.  

The labor market was expected to remain near full employment levels with the prospects for American business and consumers looked much brighter following SCOTUS' striking-down of the president's import taxes.

Then President Trump unilaterally decided to go to war with Iran.  He did not ask for, nor receive the approval of Congress.  The president did not take the matter before the American people to make the case for war; although roughly a month later he did did make a formal prime time address to the nation on April Fools Day.  We heard a restatement of already-familiar talking points and were told the war was near completion and wrapping-up along with something about bombing them into the stone age.  With the exception of Israel, the president did not consult with our European allies or other global partners.  

Why is any of this worthy of mention?  The year 2026 had bright prospects  and by the end of February the president set in motion a cascade of destabilizing events that have dangerous consequences for global stability, security and the world's economy.  I think the president has stepped in it this time.

With the exception of Trump's war-loving MAGA base most of America disapproves of the war.   

Consequently, it should come as no great surprise that recent surveys of self-reported well-being have suggested that Americans are feeling discouraged and possibly becoming grumpy.   

Why is this important?  I hate to sound like a broken record but the American economy is not driven by manufacturing; it is a service economy.  With summer approaching the expectation at the beginning of the year was that of consumers spending more on travel and entertainment than last summer.  Accounting for two-thirds of all economic activity, it is consumer spending that fuels the US economy.  With the global disruption of energy supplies and the closure of the Strait of Hormuz all bets are off.

I've blogged on this subject from time-to-time and mentioned the University of Michigan's consumer sentiment survey which came in with preliminary results late last week.

The Consumer Sentiment Index plummeted 11% to a historic low of 47.6.  If these numbers hold by the time complete data is announced at the end of this month this represents the lowest reading in the survey's 74 year history.  In case you're interested, the previous record low of 50 was at the peak of Biden-era inflation.  

I'm not at all surprised.  I may be a retired financial guy but I know that average folks struggle with wrapping their mind around abstract economic data such as Gross Domestic Product (GDP) and Gross National Product (GNP), but everyone understands the gas pump.  Last week national prices for a gallon of regular gasoline hovered around $4.15 with diesel at $5.50; up roughly 39% from before Trump went to war.  Oh boy howdy.

Additionally, according to the US Chamber of Commerce Small Business Index, small business optimism fell for a second consecutive quarter this past week.  Just 28% of small business owners say the economy is in good health; down 10 points from the previous quarter.

Finally, driven by sharp spikes in energy costs, this last week we learned inflation is up Big Time. Raspberries and blueberries and fresh produce in general have risen in price as a consequence of increased transportation costs.  So when I suggest the President Trump has stepped in it; I'm doing so because his unilateral war in Iran may turn out to be a serious-bad unforced error.  While I may grouse about the increased cost of fresh produce the impact of Trump's excursion in Iran is being felt in both myriad and profound ways across the globe.

I don't want to come across as the skunk that showed-up at your garden party but these are three data points that are blinking like glaring red warnings on the instrument panel of the airplane you are piloting over a vast uninhabited rain forest without a landing strip in sight.

While not much of this is life altering to me; that is simply not the case for a many of my countrymen.  Worst-case, people are nervous about making ends meet. Best-case, they're anxious about possibly altering or canceling a summer family vacation.  Between you and me I think the president actually cares.  Less about anyone's hardships; but more about the midterms and polling. 

The missus purchased airline tickets since the war began and both wartime fuel and baggage surcharges were assessed.  So yeah, I'm feeling a wee bit grumpy too.  Hardly at all as a consequence of cost; but mostly because none of this nonsense has so far improved my lot in life and made the world any safer.  For my sake and yours I sure hope Trump fixes this.  

You can learn more about the University of Michigan data here.

The End of Venezuela?

Geopolitical strategist, Peter Zeihan, posted this yesterday morning. 

 

United States forces have captured the president of Venezuela, Nicolas Maduro, in the capital of Caracas.  Peter suggests that this event marks the beginning of the disintegration of what is left of the country... 

 

 

I got all sorta questions.

 

If you watched Telemundo last night - Venezuelans were celebrating.  They appeared ecstatic that Maduro is gone.  How could that possibly mean the beginning of the end?   If Peter believes Venezuela was already a dead state and where civilization is going to disintegrate, then wouldn't this action be a positive one as it provides Venezuelans an opportunity to turn things around?  It might be more like the beginning of Venezuela as a functional state.  

 

The military operation was nothing less than a spectacular tactical success.  Yet, what is the strategy to follow?  Is there a plan, some sort of architecture to manage an orderly transition?​  Or will this be a nation building mission with a vague and nebulous end result?  

 

Venezuela could install opposition leader and Nobel Peace Prize winner Maria Corina Machado; whom Maduro didn't allow to take office and Trump has also dismissed out of hand. 

 

It will be interesting to see where things are in one month, three month and six month intervals. 

 

And ask yourself this.  What gives the United States the authority to attack another country and remove their leadership?  

 

Who is next?

 

Mexico or Greenland? 

 

You Read It Here First

 

Yup, sometimes the king of bad predictions finds a truffle.  I wasn't wrong after-all.

You read it here first

I suppose we'll have to see what comes on Sunday, Monday and thereafter. 

 

They stole our oil, and we'll be selling large amounts of oil to other countries.

- Donald J. Trump  

Price At The Pump

While out running errands today I gassed-up the Missus' Honda and paid a whopping $2.299 per gallon for unleaded regular.  Full disclosure, I used a BP/AMOCO rewards card saving 15 cents a gallon at the pump and also good for all sorta cash back on other purchases like groceries, Fleet Farm, restaurants or Costco stuff.  The card is free and everyone should have an rewards program in their gas fueling protocol to bring the everyday price per gallon even lower.

You're probably thinking, why are prices lower anyway?  It depends who you talk to.  If you speak with an economist the answer is supply.  The world oil market is awash in crude oil and as a consequence the price at the pump has fallen.  If something were to change; either on the supply side or on the demand side it will impact the price for good or bad.  

If you talk to a MAGA idolater it is because the president controls the price at the pump.  Just like magical wishful thinking the president can dial it up or down at will.  I'm not making this up.  I can think of six people I am acquainted-with on a personal basis who believe this like it was an article of faith.  Oh well.

The bottom line is this is a great time to be a consumer and not so much if you operate an oil services company or energy company.  Persistent low prices over extended periods of time create a disincentive to exploration and drilling which catches-up to supply, eventually.  

Learn more about the risks and opportunities here...  

Intentions

Sniff, sniff.  Do you smell what I smell?  

Yup. 

Profits.  

Venezuela is teetering at the brink and there is money to be made.

The first whiff of this has been what's going on for quite some time in the markets with Venezuelan bonds.  Prices of Venezuelan debt securities; including bonds that have been in default since 2017 have doubled in price since the start of the year.  Because they're garbage that's not saying much, yet Wall Street is betting that the Trump administration may be successful in ousting Nicolás Maduro and replacing his government with one likely headed by - drum roll please - opposition leader and Nobel Peace Prize winner Maria Machado.  If successful, this could possibly right the Venezuelan economic ship, lead to debt restructuring and a big payout to bond speculators.

The second whiff is that this is more about oil and little to do with drug smuggling.  All of this business of targeting purported narco terrorist drug running boats like a video game is another Trumpian bright shiny object.  Both a distraction and mechanism to apply pressure on Maduro.  Evidence of this you ask?  First-off, fentanyl is made with precursors from China and having been manufactured in Mexico comes to America by land borders; namely Mexico.  Secondly, cocaine comes from Columbia, Peru and Bolivia as a consequence of coca leaves being grown in Andean nations.  Venezuela has little to do with either fentanyl or cocaine.  And if the Navy interdicted and boarded the boats, summarily executed everyone on board and then sank the boats, bodies and cargo the net result is unchanged.  The hi-tech, standoff nature of these strikes doesn't reduce the horror of the policy.  

It is wrong.

The third whiff is that Donald Trump doesn't want to be bothered by many things including affordability issues for working families and cares little about the drug trade.  Evidence of the latter is his absolute pardon of former Honduran President Juan Orlando Hernández.  You know, the guy tried in an American court and sentenced last year to 45 years in U.S. prison for helping drug traffickers to safely move hundreds of tons of cocaine north through his country to the U.S.  Yes, that guy, the Cocaine Kingpin and wing man to the Sinaloa Cartel's leader Joaquín Guzmán Loera, alias 'El Chapo'.  Consider what my Libertarian survivors at the Cato Institute have to say on the subject.

I'm not particularly fond of conspiracy theories but much of this isn't passing the smell test.  What I know for sure is that Donald Trump has spent a lifetime running various hustles, grifts and scams; and the position of the Office of the President is a once in a lifetime opportunity to enrich himself and his family.  Consequently, a pardon to anyone may result from millions upon tens of millions to hundreds of millions of dollars washed by means of untraceable Trump Meme Coin, bond profits as a result of regime change and future oil revenues as the cherry on top.  

Winning the drug war and building Latin American democracies have nothing to do with it.  Our government has a long and sordid history of failing at both.

To be fair, I also have a sketchy record of predictions; nevertheless, Latin American leaders such as Columbia's President Gustavo Petro suggest that - Oil is at the heart of the matter.  And Venezuela possesses the world's largest proven oil reserves.

Data shows estimates of proven oil reserves for 2025  

Source: Oil & Gas Journal

Moreover, Trump's candidness is usually a clear insight into his intentions.  In September of 2016 nominee Donald Trump said repeatedly the United States should take Iraq's oil as the spoils of war.  

At a 2023 political rally Donald Trump lamented in a speech that his first administration had been close to 'taking over' Venezuela for its oil reserves.  Venezuela. How about we're buying oil from Venezuela?  When I left, Venezuela was ready to collapse.  We would have taken it over.  We would have gotten all that oil.  It would have been right next door.    

Trump's administration has previously used sanctions on the Venezuelan state oil company -  Petróleos de Venezuela - (PDVSA) as a tool to apply pressure, at times revoking or reissuing licenses for U.S. companies like Chevron to operate there.  Naturally, internal political instability, mismanagement, international sanctions along with the built-in inefficiencies of a state-run enterprise in a socialist country has resulted in wide-reaching problems requiring complex arrangements with foreign firms like Chevron to operate joint ventures under restrictions imposed by both Venezuela and the U.S.  

Notably, U.S. refiners are expertly-equipped to process Venezuela's heavy, sour crude and the country's location makes it a strategically valuable resource as with the passage of time our own domestic production will likely level-off.

And because I hold any number of energy producers as a direct shareholder, including Chevron, this tangent has caught my interest.  Besides, if Venezuela cannot someone has to do it. 

The Trump administration has officially framed its actions - including a military build-up that includes moving roughly fifteen percent of our Navy to the Gulf of Mexico - as an effort to stop drug trafficking and illegal migration from Venezuela.  This complex mix of national security concerns are likely superseded by the President's own comments and equally complex economic interests related to Wall Street and Venezuela's oil wealth.  

Seems to me that at first blush MAGA world seems to have embraced and endorsed regime change and the profits that will undoubtedly follow by means of military force; or at a minimum, the threat thereof.  

Who knew?

I'm willing to be wrong about all of this.  Time will tell.....

Break Even

Oil markets are once again gripped by volatility as OPEC+ proceeds with its third production hike in as many months—adding 411,000 barrels per day in July—while prices linger near $65 per barrel.

Here’s an examination of the economics of U.S. shale.

It’s not as simple as Drill Baby Drill.

First-off, government doesn’t drill for oil and gas; energy companies do.

Secondly, government doesn’t set the price of a barrel of oil; world markets do.

And because business has to turn a profit it is important to focus on the price levels needed to keep existing wells running and justify new drilling. 

Is It Only The Economy, Stupid?

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.....