Saudações de florianópolis, Brasil:home of 42 praias (beaches), endless Summers, and some of the happiest people on Earth. Brazil is home to about 212 million people and it has the 12th largest GDP in the world, right behind Russia and just ahead of the Australian Penal Colony. I am so thankful that I was able to experience such a wonderful culture and try so many amazing dishes while times are relatively good here. The October, 2020 Presidential election seems to be an important one where Former President, Lula da Silva will run against current President, Jair Bolsonaro. Enough about Brazil let´s discuss energy and inflation.
I Don´t Think Inflation is Transitory
The jokers running the Federal Reserve keep telling us that they are shooting to average 2% inflation per year. They say it is OK if we have 8% one year, as long as we can average 2% over several years. Their true mandate is to protect the currency and have 0% inflation. Slight deflation is natural and preferable for working people as technology increases productivity and brings the costs of goods and services down over time. They talk like 2% is a well thought-out number that God handed them as the key to prosperity. In reality, they made it up. I believe they are trying to inflate away the national debt rather than be honest and default on it. Unfortunately inflation is a tax that nobody got to vote for and it by far hits the poorest and most vulnerable the hardest. I keep seeing entry level jobs paying $15 to $20 an hour. On the surface, the pay looks good, but in reality wage bumps can´t keeping up with our money-printer-extraordinaire, Jerome Powell.
Soaring Cost of Food Is Forcing Families to Scrimp at the Dinner Table: Bloomberg Businessweek
According to Bloomberg, food prices were up 31% from July of 2020 to July of 2021! The article shares the plights of families in Nigeria, India, and Brazil. It is heartbreaking what this kind of inflation does to the world´s poor. When people can´t feed their families you get revolutions, like the Arab Spring that took down al-Qadhafi´s government in 2011. It is not just food that is soaring: median home prices in the US are up 20% year over year. I feel bad for the housing prospects of the Millennials and Generation Z.
New Home Prices in US hit another record high in August, up 20% over the last year.
Median prices, last 10 yrs…
Aug 2021: $391k
Aug ’20: $326k
Aug ’19: $327k
Aug ’18: $321k
Aug ’17: $314k
Aug ’16: $299k
Aug ’15: $293k
Aug ’14: $292k
Aug ’13: $255k
Aug ’12: $253k
Aug ’11: $220k pic.twitter.com/z4WSRYzCVp
— Charlie Bilello (@charliebilello) September 24, 2021
According to the Bureau of Labor Statistics, the CPI Urban is up 5.3% year over year. As I explained in ¨Cooked Books,¨ CPI has been engineered to under-report inflation since the Boskin Commission changed the formula to screw Social Security recipients out of cost of living adjustments. Newsflash–the people running governments don´t care about you or your health. John Williams, of Shadowstats.com, still calculates inflation based on the old 1980 methodology. As you can see below, the less monkeyed with inflation number is 13%.
When I look at this tweet from Charlie Bielo, 13% seems a lot more reasonable to me than 5.3%.
Commodity prices over the last year…
Heating Oil: +101%
WTI Crude: +84%
Natural Gas: +81%
Brent Crude +79%
— Charlie Bilello (@charliebilello) September 23, 2021
The people who think inflation is transitory all seem to say that we had our big 5% print and once chip factories, labor issues, and shipping bottlenecks are resolved we will go back to a more normal 1-3% annual inflation. What I don´t hear them say is that the huge 31% increase in cost of food etc. is going to be erased. The transitory camp is saying the rate of inflation is going to slow moving forward, but I haven´t heard anybody say the huge bump in the cost of everything is going to deflate back to 2019 prices. Maybe inflation runs less hot, but we are all, in my opinion, stuck with a good 13-30% permanent increase in the cost of things we need to live. Paper currencies have taken a permanent hit and it is going to take many years for the small business owner in Brazil and the mother in Namibia to see their wages rise 31% so they can feed their families. My tour guide told me yesterday that her family can no longer afford to buy beef.
Winter is Coming
It is not even October and you can already see the train wreck about to take place in Europe. Europe pushed hard to build windmills and solar farms and they don´t have enough base load capacity from nuclear, coal, and natural gas. While everyone was pushing to be carbon neutral, they neglected investing in fossil fuels. Since the clean energy isn´t sufficiently built out, they could literally run out of gas this winter and this will force power plants to shut down causing untold deaths. One of the obvious mistakes is the Dutch government is only allowing the Groningen gas field to produce 3.9 billion cubic meters of natural gas when they were capable of producing 54 billion cubic meters in 2013. They are planning to shut the whole field down in 2022 due to concerns of earthquakes. My prediction is that when it drastically cuts into their quality of life, there won´t be many people attending the Greta Thunberg rallies.
The UK has smartly brought a coal plant back online to prepare for the coming winter disaster. Energy is the very base of our economy and high standard of living. The insane natural gas prices in the UK forced CF Industries to shut down making 45% of the country´s C02 production. This has serious ramifications for food production, nuclear energy, soda, beer, hospitals, and food production industries. The crisis is so bad that the UK government is subsidizing the nat gas price to keep CF´s factories running. High nat gas prices have forced Austria´s Borealis AG to reduce their production of ammonia. Spot prices of ammonia in Western Europe have gone from $225 per ton to $700 per ton in the last month! How are farmers going to afford fertilizer next Spring? What is that going to do to food prices in 2022? A shortage of BP truck drivers has caused a massive hoarding situation in the UK and this article shows lines down the block to buy gas and diesel on September, 25. The E.U. can only pray the bureaucrats can get the gas flowing through Gazprom´s newly completed Nord Stream 2 pipeline. Mr. Putin is now the most powerful person in Europe. Trying to go green too fast and not investing in hydrocarbons is about to hurt a lot of people.
Too Green = Black https://t.co/POZsgBF58G
— 𝐏𝐢𝐧𝐞𝐜𝐨𝐧𝐞 𝐌𝐚𝐜𝐫𝐨 (@pineconemacro) September 25, 2021
Far too many people and institutions have focused on investing in ESG (Environmental, Social, Governance) stocks and hardly anyone has been investing in coal, natural gas, and oil. It appears that higher prices will be the only way to fix the current high prices. The commodity stocks are at an extreme in valuation compared to rest of the US market.
Most important chart right now. Forget the noise and volatility. Those who make the switch to commodities and commodity related stocks will massively out perform over the next decade. pic.twitter.com/DMmQZ0ad13
— Kevin Bambrough (@BambroughKevin) September 22, 2021
The energy crisis is not contained just to Europe. While we don´t have their crisis. It is reasonable to expect US energy costs to rise as well.
$XOP $OXY US Crude supplies are at their lowest since October 2018 – Very tight market looking for $75 and $80 WTI – S&P Oil & Gas Exploration & Production ETF $XOP can easily hit $100 by year-end. Up 50% YTD remains a hated sector 🛢️ (chart via Bloomberg) pic.twitter.com/rxwJYVqj6t
— Vince Stanzione (@Vince_Stanzione) September 23, 2021
On September, 19, there was a record 61 container ships waiting to enter the Los Angeles and Long Beach ports. The port authorities are working to man their operations 24/7 to deal with the backlog and temper sky high shipping costs.
I doubt this gets better by Christmas. Everyone I know is telling me how hard it is to find a refrigerator, furniture, or a lawn mower part. Expect shortages to get worse before they get better. No matter how bad things are,idiots in the government can always make them worse.
Prepare for Further Disruptions
The capricious rule changes, Communist China-style lock downs, and bailouts are the butterfly wings that have created the hurricane of inflation and supply chain issues. I highly doubt that prices and the availability of the things you need get better anytime soon. If the plan to force workers to get vaccinated or get tested weekly actually goes through, expect chaos as 20-40% of people could opt out of working for large companies.
I spent some time this weekend brainstorming all of the things I might need in the next couple of years. My list is going to be different than your´s, but here are some of the things I came up with:
food-the pantry and freezers are going to be packed
healthcare- I am going to go to the dentist and doctor now-It seems like everyday I see a story about a shortage of hospital workers.
Vitamins-these tend to have a long shelf-life and there is nothing wrong with pre-buying next year´s supply
paper goods-these last forever and we have the space to store them and I doubt prices drop
Christmas shopping-don´t expect everything you want to buy to be available in December
fertilizer-I am going to buy several year´s supply of fertilizer
car-I am going to take our cars in and ask the repairman if there is anything that might need
replacing soon. I want our vehicles in top shape and don´t want to be without transportation over a dumb part. I am going to load up on air filters and wind shield wipers
lawn equipment parts- I will buy an extra lawn mower blade, air filters, and ready mix for 2 stroke engines
WIFI 6e router-These should be future proof for a long time and the prices are finally reasonable
clothes- I am pretty good here, but I could use another jacket and pair of basketball shoes when my current ones run out
dogs-I am going to load up on dog food and poop bags
Big Berkey Water Filters-these don´t go bad and don´t take up much space
fishing and hunting gear- I am going to analyze my equipment and make sure I have enough greases cleaners, lures, etc.
HVAC air filters-what a no-brainer
home repairs-Kim and I are going to talk about future repairs that might make sense to push forward at today´s potentially lower prices. One example is that we have an HVAC system that still works like a champ from 1998. We have been waiting for it to break. If it goes out next Summer, how long might we be sweating if there are supply chain issues?
If energy prices could rise a lot in the US, like they have in Europe, it might be a good idea for you to get a home energy audit to see what you can do to use less energy. If I were you, I would also lock in a longer term electric rate if you live in an area that allows you to switch providers. The 1-3 month plans could be penny-wise and pound foolish.
I hope my list has given you some ideas as to what you might want to do to protect your family. If there are no shortages and only a 4% increase in prices, at least I saved 4% on the price of the stuff I bought. That is certainly better than what my bank account pays.