Oil analyst Phil Flynn says Oil’s Road Back to $40 Signals Economic and Job Snap Back.
The road back to $40-a-barrel oil was fraught with fear and uncertainty, but eclipsing that benchmark indicates the beginning of a strong recovery from the economic shutdown. The global economy crashed to a screeching halt as the coronavirus shut down the world, causing global oil demand to crater like never before.
Overthinking or Underthinking Oil?
I am not sure which Flynn did, but I am sure it’s at least one of them.
No Jobs Recovery
There was no jobs recovery. Continuing Unemployment Claims Tell a Bleak Story.
For 7 consecutive weeks, continued unemployment claims have topped the 20 million mark.
Historical Perspective
Continuing claims only topped the 5 million mark in the depths of the Great Recession.
Retail Sales
On June 16, I reported Retail Sales Surge Most on Record But Number is Misleading.
- Retail sales surged a greater than expected 17.7% in May but the numbers are still well below the pre-pandemic levels.
- Despite the surge, sales numbers are back to levels seen in late 2015 and early 2016.
People got money and spent it, but they also skipped mortgage payments and credit card payments.
What happens when the checks run out?
Manufacturing Tells the Same Story as Claims
The Fed’s Industrial Production and Capacity Utilization puts a big negative spotlight on the emerging V-shaped recovery thesis.
The Myth of the V-Shaped Recovery in One Chart
For discussion, please see The Myth of the V-Shaped Recovery in One Chart.
Housing Starts
Comparisons
- In January of 1959 there were 1,657,000 housing starts.
- In May of 2020 housing starts rebounded to 974,000.
- The number of housing starts in May 2020 were 41.8% below the level in January 1959.
- The recessions in 1960, 1970, and 1980 had better numbers.
For details and more charts, please see Housing Recovery Not Much to Crow About.
What’s Really Happening?
- Fed’s New Facility Will Buy Junk Bonds With 7-1 Leverage
- ZeroHedge reports Hedge Funds Go “All In” As Net Leverage Hits 99%
Biggest Speculative Bubble in History
The Fed has unleashed the biggest speculative bubble in history. There no true price discovery on stocks, junk bonds, or oil.
In regards to that latter, some 20 million people of work and not driving to jobs they do not have. Still more working from home.
Industrial production and air traffic represent two more non-recovery oil usages.
US Oil Production
US Oil Production March-June 2020
Data from EIA, US Energy Information.
Why is the Price of Oil Up?
- Speculation is Up
- Production is Down
US oil production has fallen for 13 weeks since the peak on March 13.
Production has declined from 13,100 thousands of barrels per day to 10,500 thousands of barrels per day.
That is a decline of 19.8%.
The price of oil can stay high as long as production does not exceed storage capacity.
Overthinking or Underthinking?
How about overthinking the recovery and underthinking production.
Mish
China isnt getting wealthier. Wealth is actually limited in China to the top 1% and communist party. Wuhan is one of the poorest places in the world. The reason covid started there is because people are too poor so they have to smuggle in the animal trade and eat things one couldn’t imagine.
The Harvard paper was from 2016. Long before Trump was even thought of as a legitimate candidate. It isnt Chinas fault. It is simply reality that the middle class in the first world has been sold out to the developing world. The Harvard paper was written by a Croatian immigrant.
“What does that signal?”
It signals that a new fresh set of BS lies is on the way to justify another shut down, which will not be tolerated this time, now that more people know the death rate is 0.0003% and Gates and Fauci have very suspicious connections and motives that must be investigated.
https://www.armstrongeconomics.com/world-news/civil-unrest/the-great-reset-the-final-battle-against-marxists/
Another take
All equity/bond/commodities “markets” are now nothing more than a Central Bank parlor trick.
The “price signals” they are displaying are meaningless. Actually, a lot worse than meaningless, because they are deliberately manipulated to reflect what is in fact the OPPOSITE of reality.
My bold prediction – Five years from now, there will be no Federal Reserve.
The Fed has lost control already, by achieving its goal: stock certificates are now tulip bulbs, with prices completely disconnected from underlying capital and “profitability.” It won’t be long, perhaps after the next mass hysteria blow-off top, until prices drop so severely that it will be obvious the Fed has zero power to keep prices up, only to disconnect and turn the “economy” into a casino. In the chaos that will make Spring 2020 seem calm, the way that gov controls money and the economy will change drastically (seeing as the gig since at least 1980 is up) and for the worse, but the herds will rather be crying and gnashing their teeth about invisible racism or invisible ecological apocalypse or whatever the madness of the moment will be.
The current rapid increase in the amount of funds flowing into Chinese debt, indicates people, even some of the beneficiaries of the past 50 years’ looting party, are getting scared of what may happen to the US’ ability to repay if decoupling increases.
People elsewhere need Chinese stuff. As long as American empty promises can easily and quickly be traded for Chinese stuff; American empty promises, which are plentiful, remain a pragmatic store of value. But once those are no longer so reliably tradeable into useful stuff, empty promises really don’t have much use, hence value, anymore.
This is a Fed induced reflation. Like the stock market. Pension funds love oil companies that pay dividends. The reflation story is all about saving pension funds.
It’s about “saving” (which is, as always, simple newspeak for robbing the competent and productive and handing the loot to the incompetent idle and connected) all the theft rackets. The pension funds being just one of them.
There simply isn’t enough productive work to keep 200M people employed (subtracting those under 16). Productive employment isn’t even valued by the system fairly anymore, if it ever was. about 20% of employed people produce 100% of the GDP. To put it another way, there is no way for large population nation states around the world to keep up this charade other than through central bank intervention. India, China, United States and others can forget about it. Technology, automation and robots are going to ruin what we use to think of as a normal existence. So what’s the solution for keeping 200M productive and 4 Billion productive around the world ? The world simply can’t support this many people through the current system. Automation and scale has obviated the need for this many people needing to be employed.
There not being enough productive work in the late Soviet Union, in no way implies there is not enough productive work to do in this world in absolute terms.
Of course, the more thoroughly anyone attempting to do productive work gets crassly robbed and looted, in order to fund lavish lifestyles for The Fed’s favored, negative-value-add welfare queens, the more expensive doing productive work becomes. Hence, the less of it is affordable. Until all that is left is standing around leaning on a shovel, Soviet style; while “making money off my home” while cheering for the junta to rob children to starvation, in order to fund the childish illusion that “my home” is magically “going up” all by itself…
This is the rub. Of course there is productive work to do. Just not enough to need 7B people. Machines are going rise over the next decade like never before mainly because of sheer compute power that automates people’s lives out of existence. The Fed is trying to paper over the old system but even they realize that this is simply a migration to a new monetary system and way of living.
Improving technology results in more of the stuff required to sustain life, being created for any amount of work effort. Tractors don’t magically result in less food being produced for the same effort as before. Powertools don’t result in less housing being produced for the same number of construction worker hours. So, since less effort is required for the same amount of output, that output is now less costly to produce per unit. Hence, in any competitive market, will be bid down, and hence get cheaper.
At the same time, improving technology results in each worker being able to create more value for any given amount of labor than before. A truck driver can deliver an awful lot more transportation value per hour, than some dude stuck hand carrying a container’s worth of stuff from New York to LA. Which again, in a free labor market, cannot but result in the truck driver’s service being valued higher, hence being bid up higher, than that of a poor hand carrier.
Resolving to: Improving technology, results in stuff people need getting cheaper. AND the earnings they can command rising.
How on earth can that, even remotely, compute to improving technology resulting in “not enough work” tomorrow, for the same number of people for whom there was enough work yesterday?
Even if you prefer empirical observation to theory: The number of “jobs” have been rising since the dawn of humanity. And they have always risen the fastest, in those places and at those times when technology has improved the fastest. There are plenty more “jobs” today, than there were back in the days of hand-carrying water from some river six hours away.
It’s not as if Moses descended from Sinai with some fixed number of “jobs” to be, for all eternity, distributed between men, oxen and machines. Such that killing off of farm animals, and blowing up tractors, roads and waterpipes, somehow make “jobs” for people more plentiful.
Instead, the limitation on number of “jobs,” is the amount of stuff which can, at current levels of technology, capital and natural resources, be produced efficiently enough to support the last marginal worker. As technology improves, and the capital stock increases, natural resources are turned into the necessities of life more efficiently. Resulting in more of those necessities being produced, hence a the improved ability to sustain greater numbers of people. Who can then devote freed up hours, to do work which they didn’t have the time for, and which hence didn’t exist, back when 6 hours of people’s day went into just schlepping water back to ones house.
You are missing the point. We are entering a period of accelerated innovation where computers will replace humans because they can adapt and learn on their own. You are talking about some past where innovation was slow and people had time to adapt. The problem for governments started in the last 10-20 years. It will now only accelerate employment shock which leads to demand shock. Most of what I’m speaking of isn’t just to live. The underlying question is what it will take to keep people working productively. So I do expect governments will have to continue paying more people to survive for a long long time under the current system.
“We are entering a period of accelerated innovation where computers will replace humans because they can adapt and learn on their own”
No we aren’t.
Instead we have, already, entered a period where the pliant and well indoctrinated are gullible enough to believe 50s era flying cars and teleportation nonsense just because some moron trying to sell them something say so. Making them convenient suckers for the Fed welfare queens selling them the usual cocktail of empty promises. None of it works, and none of it will work. These “machines” can’t beat a simple captcha on a web site. Grass, as in the stuff which grows on your lawn, does better than that (it’s actually quite clever).
“Replacing” humans is nothing but yet another story of pure, utter nonsense, being sold gullible morons by half literate hucksters backed up by a totalitarian state’s money printer. No different from the similarly braindead “ownership society” story of the 80s and onward: That people would somehow end up with lots of “savings” for retirement by handing a significant share of their income to the same rank idiot Fed welfare queens “on Wall Street” doing the current selling, so that they could burn it by the billions on hookers, blow granite kitchen counters and pretensions they somehow “earned it” “by being smart.”
And just as noone in America currently have ANY savings, neither will anyone sold the latest nonsense ever have ANY machine able to “replace humans.”
As for “accelerated innovation”, that’s yet another pile of utter nonsense. So fundamental a two year old ought to see right through it.
Perhaps THE most fundamental property of economics, is diminishing returns. You NEVER get “accelerated” returns from doing ever more of the same. Initial gains are always impressive, then they slow down.
Technological progress is slow as molasses today, compared to any earlier time since the industrial revolution. 100 years ago, people went from huts without running water and riding horses, to plumbed housing, skyscrapers, cars, airplanes, telephones, recorded music. And from Newtonian mechanics in a fixed universe to relativity, quantum physics, Big Bang and who knows what. Someone born in the late 1800s and living a long life, was born on a mud floor next to a sheep, and died after being flown in a helicopter to get diagnosed by way of MRI. After living a life of flying supersonic on a Concord to Europe and walking on the moon… While some guy born a hundred years goes from a shitty house to a shittier one, somewhat made up for by having a cellphone instead of a payphone….
The pace of innovation today, isn’t even in the same general zip code. Stuff is improving, yes, but not nearly at anything resembling that earlier rate of societal transformation.
And that’s not just happenstance. It’s fundamental: Low hanging fruit gets picked first. Hence you can pick lots and lots of it quickly. Then over time, you are stuck working harder and harder for each additional fruit hanging further and further up the tree.
See the studies I posted. I also have a Harvard paper that shows globalization has produced a net loss in jobs in developed economies since China joined the WTO. These are inconvenient facts. Automation is replacing jobs that were done by people who cant keep up with the rate of change. Many jobs that will disappear this time will never come back.
The Harvard paper is written by people who believe, or at least pretend to in order to keep befitting from the paper mills publishing their drivel, that wealth can be created by a shack as it sits there decaying in the weather. When you reach that level of clear and obvious delusion, you have no choice but to try to pin the blame for the loss of wealth observed by those who have to work in order to create the wealth necessary to keep the debasement theft driven “ownership society” delusion alive, on something else than you own utter lack of comprehension of anything whatsoever.
And, since there, lo and behold, happens to be be more than one thing going on in the world at the same time, as in: Both China getting wealthier AND the West doubling down on crass financialization theft simultaneouely: If you are dumb and uncritical enough, then, yes, hey! It looks like China was getting richer, at the same time people who got robbed barren to make Trump rich was getting poorer. It must be those darned Chinamen’s fault!
It means the perpetrators of the Great Reset need to double down. Expect more Covid fraud to justify another lockdown. These nutjobs will never stop. https://www.armstrongeconomics.com/world-news/civil-unrest/the-great-reset-the-final-battle-against-marxists/
Why so U.S. centric
Good point
Global demand is in the shitter
Even China not fully recovered
“The Fed has unleashed the biggest speculative bubble in history. There no true price discovery on stocks, junk bonds, or oil.”
…
End of story.
Next
We should note a lot of shale shutins have recently announced at least partial restarts. I.e. Continental Resources a major turnaround.
I have driven to work every day since the shelter at home order here in the bay area. The traffic is easily back up to 60% to 70% of normal. So the demand use side is increasing.
It’s not signaling anything. It just means that some people made a fortune on the way down, and again on the way up, and it probably wasn’t one of us.
Supply and demand simply are not what is dictating this market with supply GROSSLY out of equilibrium to demand, what the higher price is signalling is that the sheer tsunami of money is a dollar devaluation and prices for everything are going higher, inflation!
Oil is tougher to fake long term. The idiot army may play around a bit with money The Fed stole for them, but at the end of the day, or month, someone has to take physical delivery of the stuff. Hence have to arrange logistics etc.
All of which, as opposed to “investing” stolen funds in it, and “trading” it for more stolen funds; does require at least some minimal levels of literacy, numeracy and competence at at least something. Making it very different from, and way too complimecated compared to, the makework which is all the usual child-brains-on-Fed-welfare cluttering up the “financial center” ghettos of the dystopian world, are capable of comprehending.
oil production down 30%
Mish, 30% from WHERE? From the peak of Q3 or 4 2019? Or, from the Covid negative price collapse? And what difference do PRODUCTION numbers make when there is a record amount of oil in storage, so much so that nearly every single tanker is full to the brim and floating around as mobile storage tank farms? Production has to go down when there is no market for it and no place to put it. They could maintain production I suppose and just pump it onto the ground next to the wells. When production collapses in the face of a pandemic where demand falls by more than 50% it is pretty easy to get production back up by 30%, but, that does not mean they are going to sell it for $40. That increased production is going to hit a filled to the brim Cushing Oklahoma tank farm with no room for it. And in 6 weeks they have to shut refineries down for the switch to winter blends. And there is no room in storage for that either. They are going to have to freaking give away gasoline to make room for it. I actually expect to see Trump or the EPA suspend the air pollution rules re blended fuels and gasohol this year simply because if they don’t we will have fuel shortages and huge price increases simply because there is no place to store it all.
You are a grown up Mish, you know that the only two factors at work here are the vast dollar devaluation and the speculators that think the Fed is going to rescue any and all markets including commodities. What they do not know is the Fed is going to rescue bonds, equities, mortgage backed securities and house prices even if Jay Powell has to go out to Chevy Chase and start buying homes on his lunch break. But NOT commodities. He is going to allow them to float, collapse even as a buffer against higher prices his devaluation will bring us. The others are fairly well fixed assets, no so commodities.
EDIT: Wrote this then went to the store for a few things, thought I might like to get some salmon. It was $9.99 a couple weeks ago and I rarely buy it at that price, then last week it was $13.99 and would never pay that much. Today they have in the first of the season wild caught chinook salmon but goddamn, $27.99 per pound, that is more than a dollar seventy four PER OUNCE!
I could maybe afford an ounce or two. So I looked at meat in the beef and pork section. I left the store with some salsa and a powerball ticket, because the only way I could swallow food that costs that much is if I hit the lottery and money loses all meaning. $7 per pound for pork chops? $3.35 per chop? I could see other shoppers were having or trying to cover up their own sticker shock, picking things up and then noticing how high the price was, so sniffing it and putting it back as if something was wrong with it. Yeah, something is wrong with it, it costs twice as much as this time last year! Every single day seems more like the movie Soylent Green.
Meat prices will eventually recover, but will take awhile to do so. Meat packing plants in particular were hit hard by Covid19, as it spreads easily in the cold, dry air inside packing plants. Virtually every meat packing plant in the country had a major outbreak, and many were closed for awhile.
Down 30% from March – and what was the price in March?
$30 or so