Boots & Sabers

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Category: Economy

Copper Shortage Could Perpetuate Inflation

Argh

The world is currently facing a global copper shortage, fueled by increasingly challenging supply streams in South America and higher demand pressures.

Copper is a leading pulse check for economic health due to its incorporation in various uses such as electrical equipment and industrial machinery.

 

A copper squeeze could be an indicator that global inflationary pressures will worsen, and subsequently compel central banks to maintain their hawkish stance for longer.

 

“We’re already forecasting major deficits in copper to 2030,” said Wood Mackenzie’s Vice President of Metals and Mining, Robin Griffin. He attributed it largely to ongoing unrest in Peru and higher demand for copper in the energy transition industry.

Rural Housing Reeling From Remote Worker Boom/Bust

Again, the government response to the pandemic will reverberate for decades.

Small and midsize rural communities saw home prices surge during the first two years of the pandemic as workers with the newfound ability to do their jobs from anywhere relocated outside of city centers for more space and easy access to outdoor activities.

 

But that city-to-country migration has shown signs of reversing over the past year. Home buyers have been shopping for places closer to large metro areas, with cities like Washington and Los Angeles seeing population gains again in 2022. The shift comes as a growing number of employers are requiring workers to come back into the office — for the first time since the start of the pandemic, more than half of workers in major metro areas went into the office at least once from Jan. 18 to 25, according to data from the building security firm Kastle Systems.

 

[…]

 

All that should mean some relief for the housing markets in popular rural communities where home prices ballooned over the past two years from a burst of out-of-town buyers, pricing local workers out of the market. But residents and officials in the affected communities say that while the ranks of remote workers have ebbed, they have seen no relief from the massive housing shortages they spurred.

Dorows Eye Gun Range

This makes me like her more. Entreprenurial and firmly rooted in our American rights and heritage.

According to local news reports, Waukesha County Judge Jennifer Dorow, a conservative candidate, and her husband Brian, are developing an indoor gun range that would not only host weddings and other events, but would also serve alcohol. The couple requested a Class B liquor license to sell beer and wine to members and guests in the “clubhouse.” The range would also sell firearms and accessories on-site. The Dorows said in city documents that they devised an “alcohol safety policy” consisting of hand stamps to prevent members from entering the shooting range after drinking and a breathalyzer to be used on “suspicious individuals.”

Biden’s Whale-Killing Machines

What a mess.

State leaders and the Biden administration have homed in on the industry because the power of offshore winds can produce a rare round-the-clock source of greenhouse-gas-free electricity – and one difficult for future administrations to undo once turbines are in the ground. The administration set a goal for 30 gigawatts of new power from offshore wind by 2030. That is about 3 percent of what the country needs to get to 80 percent clean electricity by that time, according to estimates from a team led by University of California at Berkeley researchers.

 

The industry paid more than $5 billion to the federal government for the right to build off the coast as the Biden administration made a large number of leases available last year. Some of the world’s largest energy companies, including BP, Shell, Equinor and Duke Energy, now plan to spend billions more constructing thousands of skyscraper-size turbines off America’s shores that will produce enough juice to power roughly 7 million homes, according to the American Clean Power Association, a renewable-energy trade group.

 

The nation’s first large-scale project began construction off the coast of Massachusetts a little more than a year ago, and surveying vessels are now charting the East Coast for the next wave of construction. That work is happening in the same area where a die-off of humpback whales began seven years ago and where scientists and federal officials are now working to prevent the North Atlantic right whale, one of the world’s most endangered marine mammals, from going extinct.

 

“We have an unprecedented amount of whales dying here at the same time there is this industrial activity taking place on a scale that has never before happened in these waters,” said Cindy Zipf, executive director of Clean Ocean Action, a local nonprofit. “Why is this not being investigated? Why are these companies getting a pass?”

 

Achieving the Biden administration’s target would require the installation of thousands of the machines, which will tower as high as three Statues of Liberty stacked on top of one another when their blades reach for the sky. The blades alone can be the length of a football field.

 

But it has been slow going. There are only seven working offshore wind turbines in the entire United States at the moment. In Europe, there are more than 5,000. China also has thousands.

I doubt that the turbines are really killing whales, but it shows how difficult it is to get anything big done in America nowadays.

Biden Pushes for Less Affordable Housing

It’s like Democrats don’t know how real people think and act.

“In the absence of robust investments in fair and affordable housing, it is clear that additional timely executive action is needed to address the urgent issue of historically high rental costs and housing instability,” the lawmakers wrote. “…We urge your Administration to pursue all possible strategies to end corporate price gouging in the real estate sector.”

 

Specifically, lawmakers had called on the president to direct the FTC to issue new regulations defining excessive rent increases and enforce actions against rent gouging, suggestions that are aggressive than what the administration has so far put forth. The letter also asked to have FHFA put in place rent protection for tenants living in properties financed with government-backed mortgage properties, which is more closely aligned with what the president outlined on Wednesday.

 

In Wednesday’s announcement, the administration also sought to rally state and local governments — as well as the private sector — to protect renters.

 

The Wisconsin Housing and Economic Development Authority and Pennsylvania Housing Finance Agency, for instance, have agreed to cap annual rental increases to 5% per year for federal- or state-subsidized affordable housing.

Do you know what will result in even less affordable housing? The government punishing people who choose to build it and rent to marginal renters. If government is going to cap rents and make it impossible to evict deadbeats, landlords will just stop participating in that part of the market.

Land’s End Embraces Gen X

I’m glad to see them recognize their blunder and return to their core value.

Most retailers are tripping over themselves to stay relevant by courting younger Millennial and Gen Z shoppers. Not Lands’ End.

As it looks to grow its customer base, Lands’ End is bucking the trend by purposely embracing the “forgotten generation,” Gen Xers.

[…]

“There was a strategy at a point in time where we were going to bring in Millennials,” Lands’ End CEO Jerome Griffith, who is retiring at the end of January, said at the ICR conference last week. “It didn’t fly with our customers.”

In a rush to grab the attention of younger consumersthe retailer stumbled and made fashion missteps. Sales tumbled as its core older shoppers were put off by stylish dresses and high-heeled party shoes showing up next to the comfort clothing embraced by moms and dads.

“So we said, you know what, we have this neat generation of customers right behind baby boomers, the Gen Xers. As we go out to look for new consumers, let’s go after them,” he said.

Flights Grounded

The basic functions of government are breaking down.

All US domestic flights have been grounded for several hours because of a glitch with the flight control system.

The Federal Aviation Administration (FAA) says there is a problem with the system that alerts pilots to potential hazards on flight routes.

 

It is working to restore it but says no flights will take off until at least 0900 ET (1400 GMT).

 

In a statement, the FAA said some functions were beginning to come back online, and would give updates later.

It was not immediately clear if the outage would impact international flights.

 

US President Joe Biden has been briefed about the outage, and the White House said there was no evidence of a cyberattack “at this point”.

In a tweet, the White House Press Secretary said the President had called for a “full investigation into the causes”.

The FAA said the problem lies with its Notice to Air Missions System.

Holiday Sales Up 7.6%

This is very close to the rate of inflation. It would seem to indicate that we collectively bought the same amount of stuff as last year but paid the inflated prices for it.

NEW YORK — Holiday sales rose this year as American spending remained resilient during the critical shopping season despite surging prices on everything from food to rent, according to one measure.

 

Holiday sales rose 7.6, a slower pace than the 8.5% increase from a year earlier when shoppers began spending the money they had saved during the early part of the pandemic, according to Mastercard SpendingPulse, which tracks all kinds of payments including cash and debit cards.

 

Mastercard SpendingPulse had expected a 7.1% increase. The data released Monday excludes the automotive industry and is not adjusted for inflation, which has eased somewhat but remains painfully high.

Biden’s Infantile War on Oil

Nothing spurs activity in a capitalist system like promising to tax the crap out of any profits you might make. This is by design. Biden wants the higher energy prices while putting on a show of disapproval for the idiots who believe him.

Biden has been waging a battle with oil companies over the last few months, but he escalated it in November when he called on them to “act beyond their narrow self-interest,” to “invest in America by increasing production and refining capacity” on behalf of “their consumers, their community and their country.”

 

And if they don’t? Biden warns they’re going to face “a higher tax on their excess profits and … higher restrictions.”

 

The president didn’t elaborate on what those restrictions might be, but promised his administration would work with Congress to evaluate all the available options.

 

“It’s time for these companies to stop war profiteering, meet their responsibilities in this country and give the American people a break,” Biden added.

Thousands of Homeowners Underwater

Not too terribly surprising given that the market peaked in most areas earlier this year. If you bought at the top of the market with a very low down payment, you’re likely underwater.

Surging mortgage rates aren’t just raising the cost of purchasing a new home. An alarming number of recent homebuyers have discovered they already owe more on their property than it’s worth, according to a new analysis.

 

Some 250,000 people who took out a mortgage this year to buy a home are now underwater, meaning they owe more on their loan than the home is worth, Black Knight, a mortgage software provider, found. Another million have less than 10% equity.

Giving Up on Work

This is a huge issue.

While the U.S. labor market remains incredibly tight — with the economy adding another 263,000 jobs in November — around 7 million “prime age” men between the ages of 25 and 54 are reportedly sitting it out.

 

[…]

 

The Minneapolis Federal Reserve Bank also found that 25% of prime age Americans aren’t currently working — and while some say they’re looking for jobs, but can’t find any, others are actively choosing not to join the job hunt.

 

[…]

 

The U.S. Chamber of Commerce surveyed Americans who lost their jobs during the pandemic and about a quarter said federal aid incentivized them to not actively look for work, while about half aren’t willing to take jobs that don’t offer the option of remote work. Over a third of younger respondents said they were focusing on learning new skills and prioritizing their personal growth before re-entering the labor force.

 

[…]

 

College-educated women are now participating in the labor force at the same rate they were before the pandemic, while the share of college-educated men working or actively looking for work has lessened.

We need to take a much harder stance on taxpayer support for people who won’t work. They won’t go back to work until they have to. Make them have to. I get it. Sometimes work sucks. But those of us who work should not have to pay for lazy asses to lounge around smoking dope and playing Xbox.

Housing Prices Decline

Given that housing prices have gone up about 40% in just two years, there could be a lot more correction.

This latest Case-Shiller report—which found a 2.2% price decline in U.S. homes since June—means we’ve moved into the second biggest home price correction of the post-World War II era. On paper, it’s tied with the 2.2% drop between May 1990 and April 1991, however, given that the index is a three-month average, we know the October numbers will surpass that mark. That said, it’s still far below the 26% peak-to-trough decline that occurred between 2007 and 2012.

 

How can this 2.2% drop already qualify as the second biggest correction of the post-World War II era? It boils down to the fact that, historically speaking, home prices on a national basis have been fairly sticky. Sellers resist going below market comps unless economics forces their hand.

 

“I think that the religion people had from 1946 to 2008, that housing prices always go up, is dead. My parents believed that it was literally inconceivable for [home] prices to go down,” Glen Kelman recently told Fortune. The ensuing 2008 housing crash broke that “religion” and taught buyers and sellers alike, he said, that home prices can indeed fall. “So folks respond [now] to that [correction] with almost PTSD, and they pull back much more quickly.”

The Sad Demise of Sears

Leadership, or the lack thereof, makes a difference.

It has been a slow, quiet death for an iconic chain, whose groundbreaking catalog and anchor position at many malls nationwide once made Sears both the Amazon (AMZN) and the Walmart of its day.

When Sears and Kmart merged in 2005, they counted 3,500 US stores between them and more than 300,000 employees. But both brands were already in a downward spiral. After the merger the company concentrated on selling off its more attractive real estate and buying back stock in an effort to prop up its declining share price, rather than investing in modernizing stores to make them competitive.

By 2018 the company had filed for bankruptcy. Eddie Lampert, the hedge fund operator who had engineered the disastrous Kmart merger and served as the holding company’s CEO, bought the remains of the business out of bankruptcy in early 2019. He had promised to turn things around after it had shed much of its debt, unprofitable stores and less attractive leases.

The company that emerged from bankruptcy in early 2019 — with the overly optimistic name Transformco — owned 223 Sears and 202 Kmart stores nationwide. But less than four years later, it is barely on life support, as the miniscule brick-and-mortar footprint and lack of shoppers demonstrates.

Return surplus to the taxpayers

Sometimes I feel like I’m spitting into the wind, but I’ll keep trying. My column for the Washington County Daily News is online and in print. Here’s a part:

With the state’s coffers overflowing, every hog is at the trough jostling for position and every politician is eyeing their favorite one to fatten. There will be no shortage of requests, demands, justifications, and admonitions from advocates to spend every dollar of the surplus and more. Instead, the Legislature should give it, and more, back to the beleaguered taxpayers.

 

First, let us dig into the anatomy of the forecasted surplus. According to the 62-page DOA report, the state entered the budget with a $2.52 billion balance, added $1.78 billion to the balance in first fiscal year of the budget, and projects to add an additional $2.276 billion to it by the end of this fiscal year for a total biennial budget surplus of $6.576 billion. This is based on the current economic outlook and current tax policies. The reason for the surplus is relatively straightforward. The state spent every dollar it appropriated (actually, a little more), but it collected far more in taxes than it needed. For example, in FY22 which ended on June 30th of this year, the state collected $534 million more in income taxes than lawmakers said they needed in the budget. It collected $338 million more in sales taxes and $1.05 billion more in corporate taxes than it needed.

 

Why? The primary reason is inflation. While the underlying economy is struggling, the price of everything is going up. Incomes are up, corporate taxable profits are up, the price of consumer goods are up, and taxes are based on percentages of those things. The budget did not make any inflationary assumptions when it was created. Inflation has averaged 7.4% since the beginning of this budget in July of 2021. If the projected surplus is realized, it will be due to the state collecting about 10.6% more in taxes than it budgeted.

 

The assumptions used to forecast the surplus are telling, and troubling. The DOA uses economic projections from a single source — IHS Markit. It is concerning that in such tumultuous economic times that the DOA would rely on a single source. They forecast that the nation will have a mild recession in 2023 with a 0.2% decline in GDP before returning sluggish growth in 2024. It also forecasts that inflation will decline to 3% versus prior year by the end of 2023.

 

I hope they are right because those are relatively optimistic projections compared to many other sources. But it reminds us that a forecast is just an educated guess, and we should not spend money that we do not have.

 

The data also shows that while inflation is also pushing up wages, the buying power of those wages are not keeping up. According to the data in the DOA report, personal income rose by 7.4% in 2021 (inflated by COVID bailouts) and 2.3% in 2022. That compares to annualized inflation of 7.1% in 2021 and 7.75% year-to-date in 2022 according to the Federal Reserve. Every dollar of wage increases is being consumed by inflation and then some. Wisconsinites’ expenses are increasing at a far faster rate than their wages.

 

Under normal circumstances, it is immoral for the government to overtax the people and then use that as an excuse to increase spending. With a suspect economic forecast and the buying power of Wisconsinites being eaten away by inflation, it would be unconscionable for our elected leaders to do anything other than to return the surplus to the people who paid it with a sheepish, “ope.”

Layoffs in Tech Sector Continue

It’s rather a small pullback for Amazon, but on top of a lot of other companies in this sector.

Amazon is planning to lay off approximately 10,000 employees in corporate and technology roles beginning this week, according to a report from The New York Times. Separately, The Wall Street Journal also cited a source saying the company plans to lay off thousands of employees.

 

Shares of Amazon closed down about 2% on Monday.

The cuts would be the largest in the company’s history and would primarily impact Amazon’s devices organization, retail division and human resources, according to the report. The reported layoffs would represent less than 1% of Amazon’s global workforce and 3% of its corporate employees.

U.S. Facing Diesel Shortage

This ripples across the entire supply chain.

The U.S. is facing a diesel crunch just as demand is surging ahead of winter — with only 25 days of supply left, according to the Energy Information Administration.

 

National Economic Council Director Brian Deese told Bloomberg TV that diesel inventories are “unacceptably low” and “all options are on the table” to bolster supply and reduce prices.

 

However, even as the stockpiles are being drained, the Biden administration seems to be left with very few sustainable options for long-term relief.

Economy On a Bad Path

One guy’s opinion. I’m investing in brass and cordite.

In a letter to clients, Elliott said that while investors look for further easing of financial conditions with a Fed pivot, only a severe recession can cut inflation.

 

Elliott, founded by Paul Singer, says the “world is on the path to hyperinflation, which is the direct route to global societal collapse and civil or international strife. It is not baked, but that is the path that we are treading.”

 

“Investors should not assume that they have ‘seen everything’ on account of experiencing the 1973 to 1974 bear market and oil embargo, the 1987 crash, the dot-com crash, or the 2007 to 2008 GFC,” the fund said.

Winning the election is just the start

Here is my full column that ran in the Washington County Daily News last week:

The outcomes of elections are always uncertain and replete with surprises, but it is looking more and more like the Republicans are going to do very well next week. If that should come to pass, I fervently hope that the Republicans govern boldly. Winning elections is the goal of politicians. Leaders act to use the power loaned to them by the voters to solve problems for the betterment of our state and nation, and boy, do we have some real problems.

 

The biggest problem facing our nation right now is inflation. There are many other problems, but runaway inflation kills nations. America is not invulnerable to the whirlwind economic forces that inflation unleashes that have obliterated a hundred nations before us.

 

Simply put, inflation happens when there is too much money in the economy chasing too few goods. Prices naturally rise and our dollar buys less than it did yesterday. According to the U.S. Bureau of Labor Statistics, the core inflation rate was 8.2% in September and has been in that range since last year.

 

The core inflation rate is misleading because it assumes a basket of goods that is not meaningful to everyone. Inflation hits different goods unevenly. In that same September report, it showed that the price of food is up 91.4%, utilities are up 33.1%, and health insurance is up 28.2%. For people who eat and heat, inflation is hitting much harder than 8.2%.

 

The Federal Reserve has been trying to squeeze money out of the economy by increasing interest rates, but Fed actions are blunted in an era when the federal debt is 125% of our nation’s gross domestic product, according to the Congressional Budget Office, and federal government policies are swamping the country with cash. There has been a structural change in our economy where the levers of inflation have shifted to the federal government’s policies and the central bank is relegated to being an interested bystander. Our nation-killing inflation is a policy choice. If we want different results, we will need to make different policy choices. The federal government must dramatically reduce spending to get inflation under control. Reducing federal spending is the surest way to protect Americans’ wealth from the wildfire of inflation.

 

Should Sen. Ron Johnson be reelected, I hope he will use whatever power he has as one of a hundred senators in a bicameral legislature to oppose new spending and pull back existing spending. Lest we become Venezuela or Zimbabwe, getting control of inflation must be our top national priority.

 

At the state level, Wisconsin’s biggest problem is the deplorable state of our government education system. Despite lavish spending averaging over $16,000 per child per year (an increase of 19% in just five years), our kids are learning less than ever. Test scores have plummeted to the point that barely a third of Wisconsin’s kids can read, write, or do math at grade level.

 

Our government education system is not just an embarrassment, it is a generational brutality committed on our own children. We are condemning a generation of Wisconsinites to be less educated, less capable, and more ignorant than we are. We are robbing them of their potential and a lifetime of opportunities. Our state government schools’ failure to provide our kids with even a mediocre education – much less a good education – is a cruelty for which our kids will rightfully condemn us.

 

We are well past a time when tweaks and nudges will fix the problems with our government education infrastructure. It needs substantive systemic changes at all levels.

 

Wisconsin’s Democrats are the party of perpetuating failure. Last weekend, they even held a rally with President Obama at a Milwaukee high school where zero percent of the kids can do math or science at grade level according to the state ASPIRE exam. The only “solution” that Democrats champion for failing government education is to spend more money on doing the same thing. Their policy choices are about perpetuating and funding a solid Democratic voting bloc irrespective of the quality of the education our kids are getting.

 

Should Tim Michels be our next governor, it is imperative that he immediately tackle the task of fixing our government education system with meaningful changes like universal school choice, outcome-oriented funding, and even privatization. It will be hard and will spark the same kind of radical protests that we saw from government school employees when Gov. Scott Walker signed Act 10. Our kids and their futures are worth enduring whatever the entitled defenders of the status quo might do.

 

Elections matter. Good governance matters more. Our nation and state have real problems that need real leadership.

Winning the election is just the start

My column for the Washington County Daily News is online and in print. Here’s a part:

The outcomes of elections are always uncertain and replete with surprises, but it is looking more and more like the Republicans are going to do very well next week. If that should come to pass, I fervently hope that the Republicans govern boldly. Winning elections is the goal of politicians. Leaders act to use the power loaned to them by the voters to solve problems for the betterment of our state and nation, and boy, do we have some real problems.

 

The biggest problem facing our nation right now is inflation. There are many other problems, but runaway inflation kills nations. America is not invulnerable to the whirlwind economic forces that inflation unleashes that have obliterated a hundred nations before us.

 

[…]

 

At the state level, Wisconsin’s biggest problem is the deplorable state of our government education system. Despite lavish spending averaging over $16,000 per child per year (an increase of 19% in just five years), our kids are learning less than ever. Test scores have plummeted to the point that barely a third of Wisconsin’s kids can read, write, or do math at grade level.

 

Our government education system is not just an embarrassment, it is a generational brutality committed on our own children. We are condemning a generation of Wisconsinites to be less educated, less capable, and more ignorant than we are. We are robbing them of their potential and a lifetime of opportunities. Our state government schools’ failure to provide our kids with even a mediocre education – much less a good education – is a cruelty for which our kids will rightfully condemn us.

Housing Sector Faces Sharp Downturn

Ouch.

U.S. homebuilders were a major beneficiary of the Covid economy. Record low interest rates, combined with surging demand from consumers looking for more living space, caused a run on housing unlike most had ever seen before. Home prices surged over 40% in just two years, and homebuilders couldn’t meet the orders fast enough. They even slowed sales just to keep pace. All of that is over.

 

Housing starts for single-family homes dropped nearly 19% year over year in September, according to the U.S. Census. Building permits, which are an indicator of future construction, fell 17%. PulteGroup, one of the nation’s largest homebuilders, reported its cancelation rate jumped from 15% in the second quarter of this year to 24% in the third.

 

The public homebuilders that have reported earnings so far showed surprisingly strong results, but that is because much of it is based on a backlog of homes that went under contract last spring. That was before mortgage rates crossed 6% and then 7%.

 

Now builders are preparing for what’s coming next. Myers said that his company’s balance sheet is incredibly strong right now, thanks to a backlog of homes sold at high prices, but he predicted that the market will be “ugly” by the start of next year.

“It is definitely a hard landing for housing,” he said. “Any hope of a soft landing really evaporated last spring, when it became so clear that our customers who are accustomed to such low mortgage rates just were going to go on strike.”

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