As you all well know by now, I believe in common sense. I believe in K.I.S.S. . I believe that the more complicated a situation it is, the more you want to stay away from it.
This goes for life in general but it specifically goes for business. I believe that people get themselves in some things they just can’t figure out how to get out of. The financial crisis of 2008 was a perfect example. Without Michael Lewis doing the research and putting it all in layman’s terms, we probably still would not know what happened. A few months ago I called on Mr. Lewis to rescue us again because things just did not make complete sense. He hasn’t heeded my call and we are just getting more and more bogged down with things that just don’t add up.
We have an administration that has blown at least six or seven chances at getting things right as far as Covid, The Economy, The Border and now the Ukraine invasion I don’t put the blame totally on the Biden administration for that one but the others, absolutely.
We all suffer from this major disease that we have no cure for, Hindsightedness. It’s debilitating at times and always frustrating and that is what the country is suffering with now.
How could we have prevented the invasion? Why didn’t we send more arms to Ukraine months ago? Why didn’t we preempt this invasion with any number of military, diplomatic and economic maneuvers? Fact is, I don’t believe Putin would have given a crap either way. No matter what we would have done short of having boots on the ground, in country, would have stopped Vlad the Impaler. He saw weakness and disarray among the allies and he struck. Should we have been more prepared, absolutely, but that is my Hindsightedness talking.
This invasion has roiled markets of every sort and this is where common sense gets thrown out the window. 10% of the Worlds oil comes from Russia. Not a small piece of the pie but certainly not game changing either. Yet, the way the oil markets are trading and the pricing of oil futures is off the charts. This move is truly unprecedented and for the life of me I can’t wrap my head around this rise in oil prices.
In simplistic terms, you remove 10% of any commodity supply abruptly, prices will tend to rise roughly 20% (10% because the reduction in supply, 10% speculation). Those prices will readjust to around 10% higher than before the removal. It’s a fact. Over time, other suppliers will fill that void and the supply will return to what economic conditions warrant. Simple economics.
That is not what is happening now. Markets are reacting to a scenario that has little to do with facts and has more to do with a growing hysteria that, (even if the West totally cuts off Russian oil) we may be looking at some sort of limited multinational war and the possibility of some nuclear component coming into play. That is one of the fears driving the oil market right now. Yet, with all of that underlying hysteria around, equity markets are not treading that same path.
Stock markets around the World continue to take a wait and see attitude. Yes, US equities have been weaker but considering the spike in oil prices, you would think there would be a much more dramatic move downward. That may still come but the fact remains that equity prices tend to price the future and they have been pretty accurate over the decades pricing that future. So its stand to reason that equity markets are telling you the economy will be softer but the expectation is for limited damage due to the Russian invasion of Ukraine.
How all this plays out is anyones guess and I will be the first one to tell you, I have no clue. What I do believe is that Vladimir Putin has made several mistakes, a few on the battlefield but more in the Macro Picture. The most obvious one is the broadcasting to the World what kind of megalomaniac he truly is. People thought it but now they know for sure. This will not bode well for him in the future on any level and I am not sure he sees that or actually cares. Every leader of every country wants to go down in history as a “Great Leader”, Putin will not. What little respect he had around the World was lost and now he will end up being isolated with only the small group of generals and oligarchs that he meets with and no one else. The damage he has caused could potentially last for decades and the fact that this might only be the beginning should give even those generals and oligarchs pause. They are not stupid men and they have to know that they hitched their horses to the worst example of leadership the world has seen since the 40’s.
I still stand by my assertion that the only way to end this is from the inside and I believe it will be his own people that will see that.
In the meantime, the World is feeling the overblown effects of what some assume will be this wholesale implosion of the oil supply chain and again, I don’t see it, especially in the US.
We produce 90% of the oil this country needs. We get oil from Canada, Mexico and Russia. So, doing my high school math here, we import roughly 550,000 barrels of oil a day from Russia. We are still importing that oil. So tell me, with no disruption in our supply and our demand is relatively constant, how does oil in the US go up by 40% in three weeks?
The assumption of something that has not happened yet? Ok. I don’t buy it but ok. Now lets say Biden grows a pair and cuts off imports, the “experts” are saying oil could rise another 15-20%. Huh? Why? We already have the reduced supply priced into oil. I still don’t get it.
There are also something that I would like to know but not one person has even mentioned it.
We import 550,000 barrels a day of oil from Russia. Those are contracted I am sure so let’s say at $100 a barrel. That is 55 million dollars a day that is going to Russia. But wait a minute, aren’t all the banks cut off from the West. Isn’t the Russian central bank cut off from doing business with the US. Where is this money going and how is it getting there. Simple question.
Finally, riddle me this Batman. When any number of hurricanes hit the Gulf of Mexico and production is shut down what kind of price rise do we see normally? Ah, the quick answer is that this production is only lost for a week at most and refineries will be out a week or so as well so the price rise is minor and usually falls back to pre hurricane levels. Ok, but the Gulf produces around 1.5 million barrels of oil a day and losing that for a length of time (Like after Katrina) did nothing to the price of oil in the US. Why is Russian production having such severe impacts across the globe?
Excellent questions, excellent column. Possibly one day we can go from hindsight to Foresight.
Maybe you can get a job at Fox