Will There Really Be a Diesel Shortage?

I'm skeptical about the diesel shortage. There is chart evidence both for and against. The two important charts are below. If you'd like some more discussion, see it here: Clearing the Smoke: Diesel Edition

I'm Shorting the Gap

That's quite the gap that's opened up between XLE and CL. There's a roughly 20 percent peformance gap open. It can go wider, 30 percent wouldn't be impossible, but this type of directional gap where one rises and the other falls is rare. This isn't necessarily going to close then, but the inverse correlation should end. Since XLE looks like a double-top here, I see XLE as offering similar downside potential as CL or USO, but without outperformance potential (for short positions) should the gap close.

Here's how performance went in 2014 and 2018. The latter looks more relevant to me given rising rates and falling stocks as part of the backdrop.

Short Energy However You Like

Exit above the horizontal, but I won't use a hard stop. I will allow for possible chicanery, something like a pop up at the open on Monday that fails. To give my thinking here though, I don't think any such pop is coming.

Look at this Ho

This is gaining in popularity. I don't know what to make of it. I see both a major top and a potential bull flag in the making. What I do know is that higher prices = higher shipping costs = higher inflation.

The End of the Beginning

I'm running my portfolio like a targeted fund. I don't have a name for it, but let's call it Bear 1. I suspect that my "fund" will close this week or the one after and be replaced with Bear 2. Think Elliot Wave for the numbers.

I don't want to go through all the lessons I've learned this year yet, but there are a few relevant to this coming week or two. The most important lessons were simply experience. I didn't start actively trading until around August 2018. As that correction was completing, I realized options were a better strategy. Then I lost a lot of money, with some profit mixed in, in 2019. Then I made a lot in March 2020, but gave much back. I struggled until late 2021 when I starting hitting big wins, such as 20x returns on weekly XLE puts. And I didn't know what was happening and gave most of it back. I did it again in January 2022. I 20x'd my entire main portfolio. And gave it back almost immediately (literally within a couple of days it was halved).

I don't want to get into what's happening now with my portfolio because it jinxes it. I held off on discussing profit many times and literally the one time in each case I did it, that was right when I should have gone to cash. I want to discuss this now, however, because I think another moment is coming up. If I'm 100 percent wrong and the market reverses immediately next week, I need to get out and protect what profit I can salvage. If I'm right and the market starts selling off, I suspect it is days away from a final low. The low should be in before October 21 opex.

There are two ways to deal with my trading errors. One was to decide I'm a degenerate gambler who belongs on WSB and the other is to find a hand that can tap me on the shoulder and say, "We're done here." My frequency of hits and profit told me I was adding value with target selection. I went with the latter option and subscribed to trading service that focuses solely on direction of the major indexes. 

Another thing I learned is I can find high profit targets if I'm on trend, and if I have taken enough time to find them. My other main mistake was to keep trading when I should have stopped and reassessed the market. I was prepared for the rally from June to August, but I wasn't prepared for the rallies before.

Which brings me to the point of this post. Unless you're a daytrader, you should be mentally preparing for the coming rally. I won't say there are no profit opportunities, but if you haven't been trading to this point, then it's too risky to start now. You go into the panic low with the portfolio you have. If everything goes according to plan, sit back and do nothing except wait for the bottom signal.

My one caveat is energy. My opinion and I have money on it, is that the market can't rally unless energy sells off. If you tell me I'm wrong and oil is going back over $100 per barrel next week, then my assumption is the market will panic even worse than I expect because there can be no pivot if oil is already ripping higher. I can be wrong for days and weeks, maybe even months. However, if I'm wrong for months and oil rips towards $150+ as stocks and bonds surge, then I suspect 2023 will go alongside 1929 in the financial history books.

My break with the wider financial community is their assumption that the Federal Reserve is driving rates higher. My hunch is that interest rates are going higher because they must after years of suppression. The Austrian School has the right idea about capital: there's a relatively fixed amount of real capital. (In the short-term. Over the long-term, growing the capital base is what generates wage growth and deflationary trends in prices if not for central banks.) Inflation and interest rate suppression distort price signals, leading to malinvestment. 

I see many smart analysts and investors who know that green policies and Russia sanctions are a disaster, that commodities markets are wrecked and only made worse by green policy, and yet blame the Federal Reserve for raising rates because it doesn't solve the energy crisis. Yet I ask, "Do lower rates solve it?" The Fed's only real mandate is price stability. Kill inflation. If crude oil is going higher for structural reasons, then the Fed must be on high alert for inflation because high energy prices are a very possible catalyst.

The flipside is that if the Fed is wrong on policy and they're the source of trouble, then energy should crash in the coming deflationary wave. Simply, if there's to be a large rally, it should be the inverse of 2022: stocks up, energy down.

Bear 2

If Bear 1's work is do nothing, Bear 2 is find targets. I have some profitable ideas in mind and trying to find more. Figure out how much I want to allocate for possible 0 or 1 DTE daytrades if a crazy reversal V-bottom happens, versus buying calls into January or March (bull moves always seem to take longer than I anticipate).

I expect biotech, as one example, will perform even better than it did this summer.

There are also cyclical signals. I wrote about the won and yuan tumbling this summer. The dollar could have already peaked and it could reverse counter a bottom in stocks, or a major blow-off rally to end this phase could be coming. Either way, it's likely the dollar will soon be topping out for at least a little while.

Where will oil and inflation be next year if the dollar has peaked? How will that affect bond and stock prices? This is very likely a major bear market that has is only completeding phase one.

Russia is Ready for Talks

Ukrinform: Putin claims Russia ready for talks, while “annexed” areas not to be discussed

Russia is ready for peace negotiations with Ukraine but their agenda must not include the “accession” to Russia of the previously captured territories.

This was stated by President Vladimir Putin of the Russian Federation during his Friday speech during the ceremony in the Kremlin where the "agreements" were signed on the so-called "inclusion" into Russia of the territories of Ukraine captured by Russian troops, an Ukrinform correspondent reports.

“We call on the Kyiv regime to immediately stop the war, all hostilities, the war it unleashed back in 2014, and return to the negotiating table. We are ready for this. This has been said more than once. But the choice of the people in Donetsk, Luhansk, Zaporizhia, and Kherson we will not discuss. It has been made, and Russia will not betray it," Putin said.

RT: Russia calls on Kiev to return to negotiations – Putin

Putin has called on Kiev to treat the “free choice” made by the people of the four territories “with respect.”

“That is the only way for peace,” he added.

Bouncing to Collapse

Nord Stream system suffers multiple ‘unprecedented’ leaks as sabotage not ruled out

“Yes, there was actually information yesterday, it came from both Gazprom and the operating company. This is very alarming news, indeed we are talking about some kind of destruction in the pipe, it is not yet clear what kind, in the Danish economic zone,” Peskov told reporters.

“…This is an issue related to the energy security of the whole continent,” Peskov told reporters, commenting on the situation around Nord Stream.

According to the Danish Energy Agency, there are three possible causes of the gas leaks.

1. A shipwreck

2. Construction defect

3. Deliberate act

“It is of course worrying that there are three incidents roughly simultaneously.”

Occam's razor says only one of those, number 3, is likely to produce multiple failures at different points along the pipeline.

Who is responsible? Russia seems the least likely since they built the pipelines. Germany would also seem unlikely, except the current government is already destroying the economy. This is only an escalation of current German policy. The United States is also a potential culprit, as are anti-Russian and anti-German countries such as Poland. Whether regional players are capable or not, I cannot say. Although China hasn't shown itself to be aggressive in geopolitics outside of the South China Sea, if they are playing a realpolitik deep game, setting the United States and Russia against each other could be a goal. There's also ecoterrorists, though this seems beyond their capabilities.

For all the losses in the stock market, investors still seem oblivious to risks. This has all the hallmarks of a bear market given the amount of time and the destruction in smaller speculative companies, but major index declines have aborted at these levels before such as in 1998, 2011 and 2018. That is to say, U.S. large cap indexes have declined on par with corrections and small panics, not a world where bond and currency markets are crashing, Europe's main energy supply has been destroyed and the global economy is tipping into a deep recession.

eugyppius: German Energy Apocalypse Update V

Prices have increased vastly across the economy, and estimates are that up to 60 percent of German households are now committing their entire monthly income to cover the rising cost of living.

It is like the 2020 lockdowns, but it never ends. Consumer spending will collapse and with it will go the rest of the economy.

As the pressure builds and the first closures begin, Germany is entering an economic recession, and there are everyday renewed cracks in the political edifice. Minister President of Saxony Michael Kretschmer (CDU) – no fringe political figure – recently remarked that Germany “cannot do without Russian gas” and acknowledged that EU sanctions are to blame for the shortage, but he stopped short of demanding that Nord Stream 2 be opened; instead, he hopes for a return to Russian gas after the Ukraine war has ended.

Ending sanctions was a good solution until the pipeline was sabotaged. There's no way out for Germany. There is no way out for the world. The NY Federal Reserve Bank's DSGE model showing a mild recession that lasts until 2024 looks like a rosy scenario.

With markets oversold, a bounce seems likely, but with a caveat. Oversold conditions produce crashes and market indicators don't include everything. It's true that markets usually price everything into the market, but there are exceptions. One is when the people are delusional. As I've put it before, either losing a main source of energy isn't a big deal or the European economy will sink into depression. I don't see an alternative. The market is priced for "not a big deal." 

This is a category of risks the Chinese like to call gray rhinos. Take China's bad debt and housing bubble. Everyone knows it's potentially a problem, but it isn't at the moment. I'd add situations such as Germany's energy situation into the mix. Everyone knows about it, but do they understand it? Many "shocks" and "black swans" are gray rhinos that people don't know about or don't understand. If China lets the yuan drop to USDCNY 8, that isn't a black swan. It's not even entirely a gray rhino because it's highly probable if current conditions continue. Yet markets would be "shocked" and "panic" if that happens.

The chart of the S&P 500 has a clear bullish foundation. The June low wasn't taken out. It looks like a potential double bottom. Markets are oversold. Bearish sentiment is widespread. A rally would give bull confidence and bears doubt because, if the market rallies on news that Germany's economy is guaranteed to collapse next year, then what won't it rally on? That will be the thinking.

I don't think this is anything except a relief rally until it gains at least another 1 percent. If it starts running towards 3800, then a more substantial rally could unfold.

All I see from bulls is very short-term oriented thinking, such as the bearish positioning among traders. I don't see them making a strong case for owning stocks here. I do see some talk from the value guys about locking in high treasury yields.

Longer term, the Western public is delusional. Their behavior during the pandemic, their slavish following of all media narratives up to an including the Ukraine war, their inability to distinguish between male and female. It is trivially easy to find social media accounts with a Ukraine emoji complaining about high energy prices and even blaming it on the right-wing, Russia or Trump voters. Smart money knows better, or does it? My suspicion is they do not. My suspicion is that even if they know better, they don't realize how many of their colleagues do not. 

There is a confidence about the world that is wholly unwarranted. The mainstream was shocked by 100 predictable elections in Sweden and Italy. Events I and others have been expecting for the past decade come to pass and many people lose their minds because their concept of the world is divorced from reality. There is a moment of intense shock when one realizes their view of the world is 180 degrees out of step with reality. This shock is going to make its way into the financial markets. If not now, then sometime over the next 12 months. The shock can also come from a continuation of current events. What if the voting public in the USA is already so lost that they vote for more of the same? What if they burn the nation down, and then blame it all on white supremacists? What if the public believes it?

Short-term, I'm waiting for the bounce in stocks to finish. I expect it'll rally another 1 percent or so this morning. That's where I'll be looking to reenter short positions. The past few days saw several rallies. All of them were caused by strong performances from BigTech stocks such as Microsoft, Apple, Amazon and Google. A different mix each day, but always BigTech. It doesn't tell direction, but these stocks are propping up the market. If they give way, the market can plunge.

BTC remains one of the charts that sums up the whole market. It rallied strongly today and hasn't broken it's long-term uptrend. The slope of the line is very steep though, rising from a current $17,800 to around $19,000 by late November.

Frozen Baizuo 2023 Edition

ZH: New England's Power Crisis Set To Return, Regulator Warns

New England's power grid could be several cold snaps away from the start of an energy crisis that reappears whenever temperatures dip because of the state's heavy reliance on natural gas generation, delayed/blocked expansion/upgrades to energy infrastructure, and lack of grid diversification.

Average temperatures across Massachusetts started to slope down in mid-August. Temperatures are between 55-60 degrees Freigheight, indicating the heating season could be just weeks away.

Another serious issue is the controversial US law, the Merchant Marine Act of 1920, more commonly known as the Jones Act. This law helps ensure the US merchant marine fleet remains busy by only allowing US vessels to transport goods from one domestic port to another, barring foreign vessels.

This means New England can't receive LNG shipments from the US Gulf because the US shipbuilders don't build LNG carriers. So LNG facilities in New England have to rely on foreign shipments -- adding to the complexity of the region's issues.

Bizarro Markets Again

The markets are nowhere near pricing in a world where 15% of Europe's GDP goes into energy payments. Think about how the world financial markets behaved in 2000 and 2008 when about 3 percent of GDP was lost. The effects are enormous because that 3 percent isn't spread evenly over the economy. Sectors such as manufacturing can see double-digit declines in sales and profits. Now think about 5 times as much spending being shifted. Think of it this way: imagine the US had to shut the entire healthcare sector. All the hospitals, biotech firms, Band-Aid manufacturers, doctor, nurses and administrators, it's all gone. Or consider federal spending is about 23 percent of US GDP. European consumer spending on non-necessities will fall to near zero.

There is a bullish case here: Europe blinks. The financial markets could easily rally 10 percent on that news. How that shakes out with oil prices and inflation would take time.

The bearish case is they don't blink. I'd wager almost none of this risk is priced in because it's extreme risk. Every multinational consumer company might see sales tumble towards zero if this plays out in the worst way possible. This would cause a Great Depression 2.0 because debt would default or the ECB prints enough such that the currency absorbs the losses. I have no idea where EURUSD could go in that scenario, but 50 cents is probably on the optimistic side.

Elevated Squeeze Risk vs Baizuo Freight Train Headed Off Cliff and h-Patterns Everywhere

Squeeze risk is currently elevated, but the caveat is crashes happen in oversold conditions. You don't want to be opening short positions here unless you have tight stops or are watching closely. That said, intraday reversals such as we saw on Thursday and Friday can reset this equation in a day or less. Short the right rip and one need not cover until the bottom.

On the other side of squeeze risk is the reality of Europe's energy situation. Using the Elliot Wave as a framework, here are the stages of accepting the European energy crisis.

1. Sanctions/Russia cuts supply. Uh oh!

2. Priced in, not that bad.

3. The market doesn't realize how bad winter will be. Euro must devalue XX percent based on printing needs. (We're here now.)

4. Priced in, won't be as bad as expected.

5. Final panic over energy or collapse in currency or panic in stocks, or all three.

The euro made a new 52-week low on Sunday night. The futures chart, along with many assets such as weaker stocks and crypto, has formed the dreaded h-pattern. It's the prelude to a bear squeeze or resumption of selling to a new low. Since I believe this is a bear market, the h-pattern will be more friend than foe to bears from now on.

My view is macro and psychology overwhelm technicals in Wave 3. Bears are already all-in by some measures, but my expectation is commodities will implode and cause panic in the inflation trades.

There's also something very wrong in how the market is pricing Europe's energy crisis in my opinion. Or I'm very wrong and it isn't nearly the crisis everyone is making it out to be. What's the truth? 

Most people still pay attention to major media and the media are 100 percent behind the Baizuo governments of the West. Markets are down, but investors remain sanguine in the face of what is coming because "all is well" propaganda is running 24/7. My hunch is something will break the facade such as a sudden, impossible to ignore drop in economic output or company earnings. European companies are shutting down left and right because power costs are finally filtering through the broader economy. It is akin to a permanent lockdown or a lockdown with no expectation of exit. 

If energy costs are permanently higher, then economic output is permanently lower, and equities must reprice far lower. Even without any of these problems, a major bear market is possible. Add higher energy into the mix and a 60 percent or higher decline (adjusted for inflation) is a conservative target.

Hussman has the projected 12-year return at something more than negative 3.5 percent annualized. That means a portfolio would be down about 35 percent 12 years from now. Stocks don't slide year after year though, they plummet and then climb back. How low would stocks have to go to achieve that return over 12 years? One way it to lose close to 80 percent up front and then recover with a couple of 30 percent and 20 percent annual returns mixed in. History says plunging prices are more likely than not.

RUSSIA INDEFINITELY SUSPENDS NORD STREAM GAS PIPELINE TO EUROPE: FT

Markets are wildly optimistic about how this will shake out. I'm not talking about what people are saying, but what asset prices are saying. This is barely priced into stocks. Or as I like to see it, we're att the starting line of the plunge.

I could see those indexes touching support on nothing else except a bear market similar to the 2000s dotcom bust. Things are far worse though, unprecedented since maybe the Arab Oil Embargo of the 1970s. EZU at $15, retracing all gains since 2008, is a real possibility. A nearly 60 percent drop from here. 

Gasoline Exports Soaring, Imports Crashing, Domestic Demand Down

Bulls are looking for soaring energy prices. One reason is low inventory. If the deficit never fills before the next growth cycle, it will cause a price squeeze. Components of demand tell another story: cratering domestic demand with soaring exports. My hunch is Europe will capitulate to Russia before or after crushing their economy. The knock on global impact of Europe's lights going out will quickly reverse the inventory deficit.

Use Your Imagination

Draw your attention to the green line at $3.30 per pound on copper. This isn't a hard line, but notice how trips below this area have been violent.

Going back to 2017, there is heavy volume around the $3.25 area to the $2.50 area. This should be difficult for the market to slice through. Yet if there is a deflationary event, that's exactly what might happen.

My next target for QQQ is $260, that support line is right there in November 2022. A punch through to suck in the bears and trigger a squeeze might conclude the downside activity for 2022. That's only a 15 percent decline from here. I anticipate heavier selling in energy and commodities, for Apple to break down and for stocks such as Meta that are already near 52-week lows to suffer implosions. What I've mainly done is looked at the 52-week lows and then assumed it'll break by October or November, and purchased the most profitable puts for that scenario.

Expect a lot of chop. I will mostly accumulate short positions on rallies and may do limited trading.

The next phase for the bear is a transition from inflation to deflation, from worries about inflation to worries about recession. My sense is the market is being too cute with recession calls. I see investors who think the market won't go straight down. I think that's wrong. Markets front-run recessions.

There is risk of a major crash or prolonged bear market. It could be that everything going on is overblown, but there are indicators showing a recession as bad as 2008 and 2020 and 2000. My read is that the media has mesmerized the public. What is going on in Western societies is full blown insanity. I don't think people are mentally ill, but the crowd is functionally mentally ill. Transgenderism, green energy and war with Russia are all coming from the same mentally-damaged ideologies and narratives. It will eventually translate into financial markets. Like the severed genitals of a eunuch, Western economies have been "permanently" damaged. They are pretending at being wealthy the same way society pretends a eunuch is a woman. Getting Western economies back on track will require extremely high short-term costs in the form of higher wages, inflation, interest rates, welfare cuts and so on. Not getting back on track requires accepting a permanently lower standard of living. Factor in political risk when the public fully realizes the ruling class has purposefully impoverished the West. At some point, the West will realize what it has done and then good luck finding anyone to buy "stocks" at anywhere near current prices.

Many things can happen between now and the "moment of realization," yet the longer these policies are in force, the more likely this outcome will be. The GOPe is also in the process of blowing the midterm elections with a focus on already fading inflation, which will mean no shift in policy until 2025 at the earliest. Even if the GOP pulled off a Congressional sweep, the GOPe-dominated Senate is as insane as the Democrats on issues such as Taiwan and Ukraine. No one will stop the incineration of Western prosperity.

Japan Stops Being Stupid, Oil Imports from Russia Increase by Infinity

Japan resumes oil purchases from Russia

In June, imports fell to zero as local refiners started to phase out Russian crude amid Ukraine-related sanctions.

While the ministry did not disclose the exact volume, it said July oil imports from Russia were 65.4% lower than the same time last year. The volume of liquefied natural gas (LNG) imports from Russia also decreased by 26.1% compared to July 2021, while coal imports dropped by 40.1%.

Why Are U.S. Gas Prices Falling?

Fang Fang's boyfriend started a #GasPricesAreSoLow hashtag on Twitter and it's going about as well as you might guess.

In case anyone is genuinely wondering why gas prices are falling, prices peaked right about the same time the 4-week moving average of initial unemployment claims bottomed. There's a small window where the clueless will celebrate falling gas prices because they don't realize it hints at a rapid decline in economic activity.

Gasoline demand is where it was in 2021, when the economy was still partially locked down. The drop in demand has helped lift inventory. All good news for gasoline prices. I expect prices will keep falling, but I expect they will start falling even faster because the economy is weaknening, not because of a healthy increase in supply or because foreign policy becomes sane again.

Economic Reclosing? U.S. Gasoline Demand Below 2020-2021 Levels

U.S. Exporting More Gasoline Than During Pandemic

Gasoline Price Change Since End of 2020

Highest to lowest increase: USA, China, UK, Italy, Germany, Mexico, Japan.

Economic Highlights of 1973

Richmond Fed (PDF): FINANCIAL HIGHLIGHTS OF 1973

As the demand for credit rose in the third quarter, the Federal Reserve kept a tight rein on the available supply. M1 growth slowed by nearly two full percentage points over the period, contributing to unusually high short-term interest rate levels. Monetary policy was also directed toward controlling the growth of bank credit through the price mechanism. Although the Fed sought to moderate the pace of economic activity, it did not intend to bring it to a halt and accordingly was careful not to choke off completely the available supply of credit. For example, the suspension of interest rate ceilings on CD’s enabled banks to continue to obtain funds for making loans and investments. Late in the third quarter, when business loan growth at commercial banks slowed, and it was evident that M1 growth for the third quarter would be slower, the Fed was not unwilling to accept a downturn in interest rates and somewhat faster M1 growth over the fourth quarter. This adjustment was consistent with moderate monetary expansion and in no way indicated a retreat from the battle against inflation.

During the fourth quarter, monetary policy was designed to give the Federal Reserve a high degree of flexibility in responding to the effects of the Arab oil embargo over the ensuing months. Because of the large measure of uncertainty associated with the potential impact on the economy of the embargo, the Federal Reserve made no overt attempt either to ease or to tighten policy.

Federal Reserve History: Oil Shock of 1973–74

As Arthur Burns, the chairman of the Federal Reserve at the time, explained in 1974, the “manipulation of oil prices and supplies by the oil-exporting countries came at a most inopportune time for the United States. In the middle of 1973, wholesale prices of industrial commodities were already rising at an annual rate of more than 10 per cent; our industrial plant was operating at virtually full capacity; and many major industrial materials were in extremely short supply” (Burns 1974). In addition to these cost pressures, the U.S. oil industry had a lack of excess production capacity, which meant it was difficult for the industry to bring more oil to market if needed (Alhajji 2005). Thus, when OAPEC cut oil production, prices had to rise because the American oil industry could not respond by increasing supply. Additionally, non-Organization of the Petroleum Exporting Countries (OPEC) oil sources were declining as a percentage of the world oil industry, and OPEC was therefore gaining a larger percentage of the world oil market. These market dynamics, matched with the effect of OPEC nations’ greater participation rights in the industry, allowed OPEC to wield a much larger influence over the price setting mechanism in the oil market since their formation in 1960 (Merrill 2007).

The devaluation of the dollar that was experienced in the early 1970s was also a central factor in the price increases instituted by OAPEC. Since the price of oil was quoted in dollar terms, the falling value of the dollar effectively decreased the revenues that OPEC nations were seeing from their oil. OPEC nations resorted to pricing their oil in terms of gold and not the dollar (Hammes and Willis 2005). Due to the ending of the Bretton Woods agreement, which had pegged gold to a price of $35, the price of gold rose to $455 an ounce by the end of the 1970s. This drastic change in the value of the dollar is an undeniably important factor in the oil price increases of the 1970s.

...Economists have since come to understand that a central bank can influence the extent to which supply shocks affect inflation, but they face a trade-off. Higher oil prices, because of the widespread effect they have on commodities throughout the economy, will tend to generate both inflationary pressures and slower growth. In the short run, these forces tend to have an inverse relationship, meaning when one rises, the other falls and vice versa. Ben Bernanke for example, discussed this in 2004: “How then should monetary policy react? Unfortunately, monetary policy cannot offset the recessionary and inflationary effects of increased oil prices at the same time. If the central bank lowers interest rates in an effort to stimulate growth, it risks adding to inflationary pressure; but if it raises enough to choke off the inflationary effect…it may exacerbate the slowdown in economic growth.” He goes on to explain that the decision to tighten or ease monetary policy ultimately depends on how policymakers balance the risks inherent in pursuing employment and price stability objectives (Bernanke 2004).

Rising oil prices are deflationary and recessionary when the central bank chooses inflation fighting over economic support. What is the Fed choosing here in the summer of 2022?

New York Fed (PDF): Monthly Review, August 1973, Business Situation.

Alternate Fraser link, doesn't open a PDF

The expansion in economic activity has slowed in recent months, but inflationary pressures have remained extremely severe. In view of the persistent buildup in the backlog of unfilled orders, continued pressures on capacity, and rather widespread shortages of materials and skilled labor, much of the slackening in real growth probably reflects supply limitations. While consumer spending for durable goods and new housing moderated in the second quarter from the very high levels experienced earlier this year and in 1972, it is not possible at this time to determine whether a significant easing of consumer demand is under way. In any event, the price freeze may be temporarily boosting consumer expenditures, and further gains in business inventory and capital spending seem likely in the months ahead. During July the unemployment rate dipped to 4.7 percent, the lowest in more than three years, but both employment and the labor force were essentially unchanged from their June levels.

Price behavior remains a source of very serious concern. Over the first half of the year, both the implicit price deflator for gross national product (GNP) and the consumer and wholesale price measures climbed at the fastest rates in more than twenty years. While some improvement in the statistics as a result of the price freeze has already materialized, demand pressures remain excessive. The Phase Four controls program should serve to spread out the rise in prices as the freeze is ended, but inflation will remain a serious problem so long as aggregate demand continues overly strong.

...After skyrocketing over the first six months of the year, wholesale prices in July fell at a 17 percent annual rate, the steepest drop in twenty-five years. The first decline in the wholesale index in almost two years reflected a sharp plunge in the prices of farm products and processed foods and feeds. In turn, a drop in the price of soybeans, which have been subject to export controls, accounted for much of the decline in the agricultural commodities component. However, since the survey of wholesale prices was taken, the prices of many farm goods have climbed again, so that the improvement in the index is likely to be short-lived. The price freeze apparently has had some success in holding wholesale prices of industrial commodities steady; industrial prices rose at just a 0.7 percent annual rate in July.

I suspect oil could be the culprit this July...

New Contrarian Indicator Drops

The Sounding Line: Another Sign of Excess Bearishness?

Good discussion at the link. I still think this is a big bear market and stock are overvalued, but destruction is a process. The potential for a straightline collapse exists if bad decisions keep piling up, but suprise surprise, the EU just declared that natural gas is green: EU parliament backs labelling gas and nuclear investments as 'green'

I take this as a sign that stupidity may be curtailed. Remember, hard times make hard men. All the woke horseshit that would get someone fired from a job, and all the bullshit green virtue signaling goes right out the window when people suddenly realize they like hot water and electricity. Once they realize the whole climate agenda is giant scam cooked up by communists and Wall Street, the whole thing will come crashing down. In any event, nuclear will be a the winner because we need massive power to fuel the economy of the future, and things like solar panels are mainly replacement, not something that will deliver 10x power supply.

Why the Dollar Soars With Oil

The Sounding Line: Where Did Germany’s Trade Surplus Go and Why?

Well, today the data officially confirms that Germany’s [trade balance] turned negative in May for the first time since reunification (1991).

When people talk about the dollar dying, they're talking about the euro. Rising energy will kill the euro. The U.S. consumer and businesses will be hurt, but money that would have gone into buying Chinese imports will instead go to buying oil and gas from Texas, Oklahoma, South Dakota, Pennsylvania...