Pages

Saturday, April 2, 2022

Reason #1 Why I Love To Blog -- Input From The Readers -- April 2, 2022

It continues.

A few weeks, in a sidebar discussion with a reader concerned about inflation, I suggested the fastest way to cut costs is to quit eating out ... the reader agreed, citing examples ... now tonight, over at twitter:

My wife and I have cut back significantly. From three or four times / week before the pandemic, to three or four times during the entire two years during the lock down (perhaps some hyperbole, but not much), we've gotten used to not eating out. We will walk to nearby restaurants occasionally now, but I won't drive to our favorite Japanese restaurant any more. 

Sophia's favorite restaurant it Panda Express. Perhaps once a week on the way home from school or TutorTime, Sophia asks if we can stop at Panda Express. I seldom refuse her request, but I never get anything for me. We order something for her -- she always gets white rice and orange chicken. It's not advertised on the overhead menu board, but Panda Express does offer a "children's bowl." 

I was surprised how expensive her "children's bowl" was this past week: $6.81. They do offer a fairly large helping in the "children's bowl," but one would expect a children's portion to run about $3.50, or $4.00 at most. If the "children's bowl" is $6.81 (before tax) I hate to think what small, medium, or large adult portion might be.

By the way, at the link to the tweet above, I agree 1,000% with the individual who did not appreciate the way he/she was treated at restaurants during the lock down. The reader felt like they were visiting an inmate at a prison. I still have a "strange" feeling when going to a restaurant.

Reason #1 Why I Love To Blog -- Input From The Readers -- April 2, 2022

Wow, talk about perfect timing. 

The other day I posted this, asking (perhaps rhetorically) what the heck is going on?

My hunch: Saudi Arabia not a bit happy with President Biden's decision to flood the USA with SPR oil.

Link here. Foreign Exchange Reserves.


During the last three months, the price of oil has surged, and Saudi production has maintained. Is anyone asking why Saudi's foreign reserve assets are falling, and not by a little? I assume gold is not included in these assets.

I posited two possible explanations:

  • with uncertainty for the ruble, and concern about yuan / dollar jawboning, perhaps Saudi is replacing some cash with gold in its vaults? Or,
  • Saudi has a lot more expenses for something not being talked about; upgrading military defense against Yemeni rebels?

A reader suggested something else: 

Saudi Arabia may be stockpiling huge amounts of grain. And spending a lot of money doing it.

That may explain it.

Look at this from twitter this evening:


Saudi has a huge, huge problem with civil unrest. It has lived through Arab Spring. The reader may be correct. Saudi is front-loading, at great expense, huge grain stockpiles. 

It makes me wonder if the Biden administration is thinking this through? What US farmers are going to need is a lot of moral support, a lot of diesel, and a lot of fertilizer.

Reason #1 Why I Love To Blog -- Input From The Readers -- April 2, 2022

Wow, talk about perfect timing. 

Just the other day from a reader: newer wind turbines destined to fail sooner. The reader wrote:

I admire their use of the term renewable energy. 
The lifespan of the new, high output windmills is drastically lower than ones built just a few generations ago. The dynamic loads are nearly impossible to deal with so the generators and blades are prone to failure at an alarming rate. 
If only they had a time machine to suspend us until the actual renewable energy replacement system is fully built and as reliable as the system we have. I believe they have met their demise and are just playing out the last act. 
We the people and our economy can’t cover the expense of the renewable energy transformation at the current rate, let alone one that would actually replace the current system. We have met the intersection of the climate dogma verses reality.

Now, over at twitter this evening

The Biden Surge Changes Everything -- So Many Metrics To Follow -- April 2, 2022

The Biden Surge -- everything changes. 

It will be absolutely fascinating to follow this metric (as well as all the others):

SPR: The Graph -- April 2, 2022

The Biden Surge is tracked here.

We'll see this graph a lot over the next six months. 

I don't think it means a lot.

But we're going to see it anyway.

This is just the national SPR. Wiki entry here.

This does not include what's in commercial storage such as Cushing (around 450 million bbls of crude oil). 

This does not include the amount of gasoline sloshing around in 300 million registered vehicles in the United States, which might work out to 200 million bbls of gasoline (using 42 gallons / bbl). 

The only thing that I get out of this graphic is that it will never be filled again in my investing lifetime. From CommodityContent.

The renewable energy folks, of course, will argue we will never need that much oil again.

Since 2015, Congress has been selling the oil in the reserve to fund the deficit, in unpublicized sales. The U.S. Department of Energy has run at least seven sales since 2017, selling 132 million barrels, or about 18.2% of what had been in the reserve.

I assume RBN Energy will visit and re-visit the SPR issue many times over the next six months. Their first installment was April 1, 2022, a day after the announcement.  

I'll be looking for the current definition of "strategic" as its being used for this emergency reserve.

The SPR Release -- Not-Ready-For-Prime-Time -- April 2, 2022

The Biden Surge is tracked here

This was in my queue for posting. I was going to get to it eventually but others have sent it to me, some with comments, some without. 

So, I'll post it now, and then post a "not-ready-for-prime-time" post and update it as we go along.

I told the most recent reader who sent me the link:

  • I have that article from "Common Sense" in the queue for posting.
  • Everybody will have opinions on the release.
  • I will make my opinions known on the blog.
  • I think this will be absolutely fascinating.
  • Like everything else in life it's political, and it's money, and it's power.
  • Depending on where on stands (or where one sits) determines how one will see this.
So, here goes.

Again, remember, it's a "not-ready-for-prime-time" post so it is subject to heavy editing in the future, with potential for lots of flip-flopping, and with typographical and content errors that may or may not be corrected later. 
 
So, let's do the bottom line first. 
If I were to write all the pros and all the cons on a long yellow legal pad, the "pros" would outweigh the "cons."

Like many issues involving this administration, it seems counterintuitive.

As noted above, everything in life is related to politics, power, and money.

PART 1: The Average American.
 
The average American cannot handle $5.00 gasoline. Five-dollar gasoline is not good for the US economy. I'm surprised so many folks seem not to realize this.

PART II: Politics
 
The more I read with regard to the release, the more it appears the Biden administration is in a state of panic.
  • sanctions will last longer than expected;
  • sanctions will result in consequences much more severe than anticipated;
  • the myth of spare capacity in the Mideast has been exposed;
  • global economy coming out of Covid;
  • US driving season will begin in less than two months;
  • midterms in six months;
PART III: The Purpose of the SPR

It's not what folks think.
 
PART IV: Unintended Consequences
 
Most analysts, it appears, feel this will only "kick the can down the road."
 
In fact, with associated "punitive actions on Big Oil," it is likely crude oil will actually become more expensive in 2023.

The energy transition is dead. The SPR release did not lead to that. The SPR release simply "revealed" it to those who could not see.
 
PART V: Nietzsche
 
What does not kill me, makes me stronger. 

US shale. 

PART VI: Circling Back
 
Will the price of gasoline be a factor in the midterm elections? After all, this is what this is all about.

March Madness Today -- Even Though It's April -- April 2, 2022

Basketball, mens, today, late afternoon, evening.

  • Villanova (2) vs Kansas (1) at 5:09 p.m. Saturday, today
  • UNC (8) vs Duke (2) at 7:49 p.m. Saturday, today

Basketball, womens, yesterday:

  • South Carolina Gamecocks (1) 72 - Louisville Cardinals (1) 59 (not even a "game")
  • Connecticut Huskies (2) 63 - Stanford Cardinals (1) 58 (what a huge upset; wow!)
  • SUNDAY night, 7:00 p.m.: UConn Huskies vs SC Gamecocks (wow)

NASCAR:

  • junior varsity, today, 12:30 p.m. FS1
  • varsity, tomorrow, 2:30 pm. FOX
  • Bubba Wallace will be watching; first of four suspended races
  • a reader corrected me: Bubba is racing. It’s his crew chief, two crew members suspended, not Bubba
  • well, that’s good.

If You're Not Following The "Energy Chaser," You're Not A Bakkeneer -- April 2, 2022

Link here.

North Dakota's hydrogen hub is among entities with its name in an $8 billion hat, seeking federal grant funds for regional hydrogen hubs. You may recall that hydrogen hubs were on the Department of Energy's list of "moonshot" ideas in the early days of the Biden Administration. Now the department has money to put toward that goal, and it has blown the starting whistle for those grants.

Over at National Law Review, March 17, 2022 -- like only two weeks ago -- this is how you apply for free money -- or "almost" free money -- from the US DOE. 

If folks recall, North Dakota has one of the leading reputations for getting free money from the US government. Among everything else, I do believe North Dakota is #1 -- based on per capita spending -- for federal money for drone R&D. Now, it's time to be #1 -- again, based on per capita spending -- on hydrogen hubs. 

The deadlines have already passed; hopefully "we" were ahead of the game. Here's how it worked:

The Department of Energy (DOE) has begun the process of establishing “Hydrogen Hubs” that are funded in the Infrastructure Investment and Jobs Act, aka the “infrastructure package.” 
The infrastructure package provides $8 billion for hydrogen hubs, plus an additional $1 billion for hydrogen electrolysis research, development, deployment and commercial applications. Another $500 million was appropriated in the infrastructure package for a Clean Hydrogen Manufacturing, Recycling, Research, Development and Demonstration Program. 
All of this funding is to be distributed over the next five years
The Hydrogen Hub Program. Through the Regional Hydrogen Hub Program DOE will choose a minimum of four locations in the U.S. to locate hydrogen hubs — networks of clean hydrogen producers, potential clean hydrogen consumers, and connective infrastructure located in close proximity. 
The law calls for diverse energy sources for hydrogen production at the hubs, requiring, to the maximum extent practicable, that one hub produce hydrogen from fossil fuels; one from renewables; and one from nuclear energy
H2 Matchmaker. To help hydrogen players connect with others and create “hubs”, DOE has stood up the “H2 Matchmaker” tool, an interactive map which includes various hydrogen producers, infrastructure companies, consumers, and other stakeholders, along with their contact information. 
You can find the H2 Matchmaker map here, where you will also find the H2 Matchmaker Self-Identification Form. You can use the H2 Matchmaker Self-Identification form to submit your own information for the H2 Matchmaker Map.

Saturday Morning -- April 2, 2022

That Chinese Boeing 737 crash? US investigators are now just arriving in China to assist with the "voice" black box. Form limited information I get -- the same information you get -- it all points to deliberate, pilot.

Flight radar 24: this is my go-to site when I need flight information, or am just curious. LOL. 

But wow, others are catching up when it comes to commercial flights. A family member is flying American Airlines today, and AA is now providing more real-time flight information than ever, and it's a breeze to find. Simply type in "AAXXXX" (XXXX = flight number) and everything -- including a map -- pops up immediately. Source.

Cell phones and brain cancer: among 776,000 women in the UK, using the cell phone for 10+ years resulted in a slightly lower brain tumor risk. Source, probably the best scientist-writer on twitter. If you have time for only one scientist, this is the scientist I recommend. For everything. The incidence of right-sided and left-sided tumors was similar in mobile phone users, even though mobile phone use tends to be considerably greater on the right than on the left.

Dividends: I knew it was good; I didn't know it was this good. Source.

  • SCHD has been the best ETF for income investors over the past decade providing both competitive dividend yields and strong price appreciation. Here's an update.
  • Bottom line: hold, don't sell.
  • Lots and lots of comments: great opportunity for a bit of "education."

Russian oil: will it sell? Are there buyers? Are there ports? Are there tankers? I remember the arguments back and forth whether Russia will be able to sell its oil under the current sanctions. One reader wrote that once the oil tankers get out of the Black Sea there will be plenty of buyers. Perhaps. Now this:

  • Marine fuel sellers have stopped serving vessels flying the Russian flag at major European hubs including Spain and Malta.
  • obviously not a big deal; they will take down their flags; replace them with the Ruritania flag
But there's even more, source or go direct to S&P:
  • bunker markets avoid Russia as supply tightens across the Black Sea
  • Russian-origin fuel avoided in the face of reputational risk
  • Russian companies face problems securing credit
  • bunkering operations move away from Russia

The more I read, the more I get the feeling with regard to the Biden Surge / SPR release:
the Biden administration is in a huge panic;

  • taking two to three million bopd off the market "just like that" is not going to be easy to replace, no matter what anyone says;
  • it may, in fact, get far more worse than anyone expects: the problems are compounding -- at some point, the rigs quit working
  • if Russia's oil sector rough necks are as good as the Russian Army, Putin is in deep doo-doo;

Price to re-fuel your Lear jet:

  • filling up a wide body 777-300ER will potentially cost ~ $112,600 more at JFK than it does at ORD as jet prices scream higher in PADD1; source;
  • Delta is probably feeling pretty good right now; hub: Atlanta, GA

Will Smith: Bill Maher got it wrong or at least missed an important component regarding the standing ovation Will Smith got after his "acceptance speech." 

Come, Monday morning:

  • Decisions, decisions: 
    • DVN: P/E = 14; yield = 6.61%;   
    • NVDA: P/E = 71; yield = 0.06%; 
    • APA: P/E = 16; yield = 1.2%;   
    • F: P/E = 3.74; yield = 2.4%

Backwardation or contango:

The Auto Page -- As In Automobile -- April 2, 2022

Three words one doesn't like to see in the same sentence: auto sales plunge

Source.

US auto sales plunge in 1Q22 for GM, Toyota, Honda. 

Putting best spin on it that they can: GM sees headwinds easing. Would you expect them to say things are gonna get worse? LOL. 

It is interesting: we do need a new car. My first choice: Honda. My wife's first choice: something else. 

We stopped by the Honda dealership -- within walking distance of our apartment complex -- twice during the month of March. Both times: nothing available. I mean, literally, nothing available. This has to be killing the local dealerships. On top of that, they have to pay top dollar for used cars as trade-ins. 
We weren't even given the option of paying money down to reserve something, anything. One would think they would change the business model to adapt to reality.

But I digress. How was the first quarter for automobile manufacturers? Well, I would say it was Will Smith playing the role of semiconductor manufacturers and Chris Rock playing the role of automobile manufacturers.

If folks recall, of all the manufacturers, Ford was hit the hardest the earliest when a fire destroyed the facility of their lone chip manufacturer. Seldom reported. Eager to get that story behind them.

Industry wide, the annualized pace of new auto sales in March will reach 12.7 million vehicles , J.D. Power and LMC Automotive estimated. That would be down by more than 1 million units vs. February and down by more than 5 million vs. March 2021.

I don't know the history, but a decline of 5 million seems like a lot. Okay, here it is: "....will reach 12.7 million, a decline of more than 5 million..." 12.7+5 = 17.7. 5 / 17.7 = a decline of almost 30% annualized. 

Bloomberg: Toyota bests GM again in latest US auto sales update.

  • carmakers post sales drop in first three months on chip dearth
  • demand for hybrids helps Toyota stay ahead of rival GM
  • CNBC one month ago:
    • Wall Street praises Ford's EV plans but questions its sales and profit margin targets
    • analysts question whether Ford can achieve a 10% operating profit margin by 2026, while increasing global EV production to 2 million units by that timeframe
    • one called it "an aspirational / stretch goal"; another called it "ambitious." They were tactful not to call it "dreaming."

Two thoughts:

  • where's the urgency for investors, no FOMO: looking to achieve a 10% operating profit margin five years from now?
  • global sales of only 2 million EVs -- that doesn't seem like enough EV penetration to save the earth from global warming;

I'm re-thinking the urgency to accumulate shares in automotive manufacturers.

By make, compared to one year ago, same quarter:

  • Toyota: down 15%
  • GM: down 24%
  • F: down 17% (but early indications are that 2Q22 will be even worse); says F-150 Lightning on track; deliveries are set to begin in spring (spring = March 22 - June 21?)
  • Stellantis: down 13%
  • Honda: down 27% (as noted above, literally nothing available on their dealers' lots)

It may be interesting to compare winners and losers based on sales decline year/year, but it's hard to see any winners at all. 

I assume spring, the second quarter, is the best quarter for sales. I don't know, but I'm sure a lot of folks will be watching.

************************************
Background


Re-posting from yesterday:

Autos:

  • it looks like I was a bit too optimistic;
    • I suggested a few weeks ago that there would be a glut of new cars reaching dealers this summer; now, not so sure:
    • reported yesterday, GM and Ford to stop production of sedans for one week, due to chip shortage;
    • now, add Stellantis: will shut down its Belvidere, IL, midsize SUV plant, and its Detroit, MI, full-size SUV plant next week for one week; source;
    • Ford Mustang production also temporarily halted due to chip shortage -- that was back in January, 2022; source;
    • now, today, Ford to halt Mustang production at Michigan due to chip shortage; source;
    • the key word is "significantly" -- Ford Mustang Mach-E sales down significantly in February, 2022; source; note the source for this story; volume dropped by almost half year-over-year; margins already very, slim on EVs; will get worse
    • note the spin they try to put on this story

Ford Mustang Mach-E Ford Mustang Mach-E sales in February amounted to 2,001, which is surprisingly 46.5% less than in February 2021. 
We hoped that the Mach-E would improve as the demand is high, but the company is clearly struggling on the production side. 
We heard that in February production was halted due to a lack of semiconductors, which means that the situation will not likely improve significantly in the near future
Nonetheless, the Ford Mustang Mach-E was responsible for 1.6% of the total Ford sales volume in the US.

  • Nonetheless.
  • None.
  • Less.
Before this is over, we'll all be driving pickup trucks
  • I don't know about you, but "in the near future" suggests at a minimum, 18 months;
  • and then, this, chariots on fire; it's not just Teslas any more: Ford recalls 737,000 US vehicles over software and fire-risk issues; source;
  • I continue to accumulate shares in Ford, but there is obviously no hurry. no FOMO;
  • by the way, making things worse for automobiles manufacturers and consumers: President Biden reinstated the huge CAFE requirements for US car companies; these mandates will significantly increase the cost of cars people want, and increase the costs of cars people don't want even more.

Update, April 16, 2022:

  • I've sold all my share in Ford (F) and doubt I will be investing in Ford again any time soon.

Saudi Foreign Exchange Reserves; OPEC Basket Pricing; Commentary -- April 2, 2022

The top two graphs were released overnight.

My hunch: Saudi Arabia not a bit happy with President Biden's decision to flood the USA with SPR oil.

Link here. Foreign Exchange Reserves.


During the last three months, the price of oil has surged, and Saudi production has maintained. Is anyone asking why Saudi's foreign reserve assets are falling, and not by a little? I assume gold is not included in these assets.

Four thoughts come to mind immediately:

  • with uncertainty for the ruble, and concern about yuan / dollar jawboning, perhaps Saudi is replacing some cash with gold in its vaults? Or,
  • Saudi has a lot more expenses for something not being talked about; upgrading military defense against Yemeni rebels?
  • are we back to discussing the "break-even" price for Saudi Arabia
  • remember 2014 - 2016 when Saudi opened the taps to try to crush US shale; didn't work; now the Biden administration does the same. It's pretty funny: opening the taps won't spur production, and that's ultimately what is needed according to many sources, including the Biden administration.

OPEC pricing:

The Biden Surge decision cannot be making Saudi too happy. My hunch is that the Biden administration made the announcement without a last minute telephone call to Saudi to give them advance warning. The Saudis had just announced they were going to raise prices for Asian delivery. Look how quickly the OPEC basket price dropped between March 24, 2022, and March 31, 2022.