Archive for February 2022

Russia currently produces 10 million/bbl of oil/day, about 10% of world production, making it the world’s third largest producer and the second largest exporter. Fear of those supplies being disrupted is causing oil prices to gyrate. Roughly speaking, every $10 rise in the price of a barrel of oil temporarily raises inflation by about two-tenths…

The Friday File: In the 1960s, it cost NASA about $6,000/kg to launch a spacecraft into orbit. It cost the Soviets about $8,000 to do the same. Through 2005, no reduction in prices was observed. Since then, however, they have plummeted. The SpaceX Falcon 9 reduced the cost to $2,500/kg, the Falcon Heavy to $1,600/kg,…

While US-Russia trade outside of commodities is trivial, Russia’s Ukraine invasion will slightly boost US inflation as commodity prices in general and energy prices in particular rise on fears of delivery disruptions. This will also result in slightly slower growth as spending elsewhere is reduced to pay for higher priced commodities. If Russian commodities are…

Over the past year, house prices have risen a whopping 18.8%, due largely to Covid-19 and the WFH phenomenon. To wit, over the past 12 months the largest house price gains have been in warm weather cities like Phoenix, Tampa, Miami, Dallas, San Diego, and Las Vegas which all saw Y-o-Y gains exceeding 25%. Conversely,…

Dating back to 2012, the Fed has correctly predicted the fed funds rate, a rate they literally control, 37% of the time, core inflation 29% of the time, unemployment 24%, and Real GDP growth 17%. Moreover, the Fed is consistently biased towards faster growth and higher rates than what comes to pass. Only 7% of…

Generally, buying a commodity today is less costly than agreeing today to buy for future delivery because of storage costs and risk. Sometimes, however, the current commodity price exceeds the cost of buying it today for future delivery. This describes the current global oil market. That is, oil delivered in seven months is $10/bbl cheaper…

The 2-yr Treasury rate is 1.60%, the 10-yr, 2.00%, a difference of just 40bps. Due to high inflation, the Fed is planning to raise short-term rates by at least one percentage point and maybe 1.75 percentage points by 12/31/22. Raising rates this much with just a 40bp spread risks pushing the 2-yr rate above the…

To best understand how inflation is likely to play out, many variables need to be properly forecasted. They are, in no particular order, inflation expectations of workers, bargaining power of workers, productivity growth of workers, pricing power of firms, the credibility of the Fed, and commodity prices with special attention to energy. Good luck predicting…

Since cratering in spring 2020, the US economy has dramatically outperformed the economies of other developed nations. The only exceptions, labor force participation and inflation. While the labor force has recovered or nearly in other wealthy nations, here it’s substantially smaller. Regarding inflation, it’s higher here than elsewhere. The most likely reason, much higher Covid-19…