World Economic and Financial Analysis

[Nilgiri]

Had a long conversation with @trishna_amrta on lot of the current economic headwinds in the world going on.

We figured we would bring the discussion to a thread to air it all out more with any interested participants.

The thread will be pinned and also kept on topic as much as possible (curb derailment or trolling etc that sometimes inevitably arises).

 

[Nilgiri]

Some relevant context (in the discussion) to kick things off (regd Commodity and Energy Inflation)

By Nilgiri:

WH admin have failed in their message to their public.... (that its all putin war fault w.r.t inflation now)...the public largely know better what the prices were already like.

The major things going on with the commodity inflation and inflation in general (in the US + Canada) during 2021 and ongoing was:


A) massive unemployment insurance + welfare spending there (for covid crisis) that made the labour market very distorted as the pandemic receded. i.e there was less propensity to be in active returning workforce.

Many people just wanted to stay on UI benefits as long as possible (US govt, esp democrats did not sunset these appropriately at the federal and state level).

Even a 10% dip in labour availability for crucial logistics jobs (train, trucking, aviation , shipping , ports etc etc) can be extremely detrimental to the price of the products handled/available for market supply.

Not to mention even when a labour market stabilises downroad to a similar availability.....there is little room to expand to do larger supply expansions to get the (now current) price level back to what it was before. Basically the increase in price level is baked in etc (given these chokepoints in agro like finite land etc)....compared to other sectors where you can easily increase to some oversupply if you want to get the price back down by say a political objective/subsidy etc.

There are also inertias + cascading effects involved in all of this too (things compound in the timeline and have larger coefficients of intersection on each other....like higher oil+gas price makes certain input products for fertilizers more expensive along with its transport cost etc).


B) The larger inertia effect happening on traditional energy sector (accelerated by covid dip to negative oil price for a small while at the peak crash).

Energy companies (in North America, Europe etc) increasingly find it unattractive to keep investing in oil + gas fields and technology there....regarding new fields especially.

This is further exacerbated by those new fields (mostly shale oil) being dominated by small operation companies that have much lower operating margins compared to big oil companies (which catch 22 are not interested for various lobby reasons in shale etc...along with nature of how shale fracture deposits look like that make smaller companies much more competitive there).

The subsidies moved to green technology, the narrative in media etc, the discourse flak oil (and even gas) get now (from people that live in ivory towers that understand very little about technology, reality and engineering in the kind of time it takes to switch....but they just want it overnight anyway)....

..all of that means oil and energy prices actually have very little to do with Russia (since it is just shifting supply to other countries, who will shift their demand from others)....and these prices are structurally bottlenecked in the supply side you can say.

That is bad for (industries and consumers) inelastic base input product like energy.... as these prices will remain high and not see enough or sustained supply side expansion like seen in decades before (when green tech was not so dominant issue like it is now...and oil companies would supply side expand after a price spike eventually).


This has a big impact by cross-coefficient of its (energy) importance to transporting agro (and its inputs) and making various input products for it directly as well....adding to the problems of (A).


C) Is the general systemic deficit spending already by US govt et al. That is extremely inflationary and debt-based in general. This takes its effects on commodity prices just like other sectors too (i.e pushes up demand way more than supply chokepoints can handle given latter needs investment and low inflation environment generally...and now have to compete for debt with their own govt*).

*This shows up in interest rate increase punishing them (as they need to generally borrow money to do any investment), everyone that is not the govt does not have that institutional backing + own printing press to lean upon. They exist downstream of the waves being made.

 

[Nilgiri]

WH admin completely messed up energy supply in their rush to signal on "green new deal" etc.

Consider what was said here and all the legislation they enacted to helm in oil and gas industry (which would affect their future investment)

6.00 minute mark:

More:

and finally:

....and now they complain about "unexpected" reluctance and slowness of oil companies (esp in local shale) as the economy opened up ( and is price pushed by debt deficit spending on top):

Report about what the Biden WH was 'shocked to learn' about oil production speaks disastrous volumes

twitchy.com

 

[Nilgiri]

From trishna amrta:

Anyway, if you notice The Fed Chair Powell 2 days testimony to US Congress in 22 - 23 June, the whole Dems entourage were bombarding Powell with political rhetoric of the so-called Climate Change, Minority Inclusiveness, corporate greed etc and attempt to press Powell to acknowledge those as the primary root cause of inflation.

Personally, I strongly concur with Powell on the root cause of the current US inflation is on supply side (energy & labour) of which The Fed is ill-equipped to deal with (because it's not in their mandate). And yet for 2 straight days the Dems keep hitting Powell with their rhetoric to force him to acknowledge them (of which he doesn't, thank goodness)

Currently, the Euro Zone and UK are also suffering from the same inflation, thus their decision for increasing rate. Albeit, their root cause is narrower, which is in the energy supply. Even German has already in talk with Indonesia to supply them with fuel grade coal, and with Australia to supplying them with high-grade coal. If it came through, it will be unprecedented for both Indonesia & Australia to supplying coals to the other side of the globe

 

[trishna_amrta]

Had a long conversation with @trishna_amrta on lot of the current economic headwinds in the world going on.

We figured we would bring the discussion to a thread to air it all out more with any interested participants.

The thread will be pinned and also kept on topic as much as possible (curb derailment or trolling etc that sometimes inevitably arises).

First and foremost, Thank You for setting this thread up.
I'm going to add few things in the next few days with the usual technical chart and fundamental analysis