How Markets Work, and a Truth Bomb

Look, I'm getting sick and tired of hearing the White House spewing forth bovine excrement about how reversing the decision to halt the Keystone XL pipeline - a decision that Joe Biden made unilaterally on his first day in office, with a boastful flourish - wouldn't affect gas prices at the pump for years, because it would take a long time for Keystone XL to become operational and start delivering oil. Such bovine excrement ignores how markets work. So let me explain how they work, and in so doing, illustrate why Joe Biden and Jen Psaki are idiots.

Wait a minute - let's not over-complicate things. Actually, Joe Biden and Jen Psaki are idiots because their mommas each raised an idiot. Alright, that's not fair. Joe Biden is an idiot, but Jen Psaki is actually probably very bright. She just either doesn't have an earthly clue how markets work, or she's a pathological liar. Probably both.

There, now we've got that out of the way. Let's turn to how markets work. If you lean left, you'll want to pay close attention, because you've probably been spreading this bovine excrement, and you need to stop it, because you're wrong, and it makes you look like an idiot, too. And if you don't lean left, please share this with your friends who do, because friends don't let friends look like idiots.

Markets trade on future expectations. Take stocks for example. Stocks don't trade on the underlying companies' past performance. Consider Kumquat, a hypothetical tech company that makes widgets, ubiquitous products that everyone uses. There are even people who love Kumquat's products so much, they're called "Kumquat fanboys" (which is probably a sexist term). They have Kumquat stores where everyone goes to buy those widgets. People line up at the Kumquat store to buy the latest Kumquat widget when it comes out: everybody has to upgrade their Kumquat 10 to a Kumquat 11, etc.

Now, Kumquat's stock doesn't trade on how many widgets Kumquat sold last quarter. No, it trades on how many widgets Kumquat expects to sell next quarter, or next year. Kumquat's CEO will have a call with a bunch of Wall Street analysts, and he'll say the company is going to open X new Kumquat stores, and they're going to release the new Kumquat 12, which will do twice as many cool things as the Kumquat 11 did, and they expect to sell Y units of the Kumquat 12 at ZZZ dollars a unit, while still selling a bunch of units of the Kumquat 11 at a now-discounted price, blah, blah, blah.

It's all based on the future outlook. And based on that outlook, if it's rosier than last quarter's actual performance, Kumquat's stock price will go up. Even though - and this is important - even though Kumquat hasn't opened one of the promised new stores yet, or produced one new unit of the Kumquat 12.

Now, when the actual results come in, if Kumquat's projected earnings are below what they forecast for the quarter - known as an "earnings miss" - the stock might go down. Or, if the earnings are higher than forecast - an "earnings beat" - the price may go up. So it does respond to actual performance. But it's driven by future expectations, first and foremost, and adjusted after the fact based on results versus those expectations. In other words, the results are judged relative to the expectations. It's like beating the point spread vs. winning or losing the game.

Oil isn't a stock, but it trades the same way. If oil traders think something's going to happen that could lead to the future price of oil increasing, they'll bid up oil futures - derivatives contracts for forward delivery of "spot," or physical barrels of, oil. If they think the outlook for oil prices is negative, they'll bid oil futures prices down. Projected supply and demand are the primary factors oil futures traders look at. And spot oil prices, as well as gasoline prices, are influenced by oil futures prices.

Okay. So let's look at what happened to oil prices when Joe Biden was elected President in November 2020. Now, if you lean left, you're crying, "Foul! Joe Biden may have been elected in November 2020, but he didn't take office until January 2021, so he couldn't have influenced oil prices yet, because he wasn't yet in a position to make any decisions!"

To which I say, "Aha!" Because remember? Markets trade on expectations. Now that the election was over and we knew that Joe Biden was going to be President, the outlook for oil became negative. Joe Biden campaigned against domestic fossil fuel production. He said he wanted to put oil producers out of business. He was for the Green New Deal. He promised to kill the Keystone XL pipeline on his first day in office (and he did). So the oil traders said, "Ruh-roh. Domestic supply is going down. Keystone XL - even though it isn't even complete yet - isn't going to deliver the increased supply we expected it to when Donald Trump gave it the green light. Oil prices are going up, because OPEC is going to start gouging us." And they started bidding up the price of oil.

The graph below shows the price of West Texas Intermediate (WTI) crude oil, the benchmark for domestic oil prices, from the day before Biden was elected through March 7, 2022. Note that immediately after the election, oil prices started to rise. The Friday before the election, WTI was $36.97/barrel (bbl). By March 5, 2021 - about six weeks after Joe Biden was inaugurated, and signed the Executive Order killing Keystone XL - WTI was $66.08/bbl, an increase of 79%. By mid-July, crude had more than doubled from the pre-election day level (some of that had to do with normal summer demand). By late October, it was over $85/bbl. This was all before Putin even began amassing troops on the Ukrainian border.

Now, you could note that there was something else going on during this time: recovery from the COVID pandemic. And you'd be right, to some degree. The shutdowns were finally over, including the renewed California and New York shutdowns of December 2020. The vaccines were being rolled out. People were going on vacations again. So there's certainly a demand component involved.

However, the economy re-opened in May 2020 after the initial COVID shutdowns in March of that year. I took driving vacations in the summers of 2020 and 2021, and I went from Kansas City to Taos, New Mexico both years, so that's a pretty good frame of reference: same trip, same route. There was certainly more traffic in 2021 than in 2020. But there was lots of large truck traffic in 2020, and plenty of local traffic. Certainly demand was higher in 2021 than in 2020, but the price increase shown in the graph above could not have resulted from increased demand alone.

Let's look at oil prices in 2020, from the time the economy re-opened until the election, as seen in the graph below. The increase from the re-opening, around the beginning of June, to the peak of summer in late August, was less than $8/bbl - about 22%, but from a starting point of only $35/bbl or so. By the election, the price was back down below $37/bbl, and that was before California and New York shut down again. So even though demand went from virtually nil to a pretty healthy increase, we saw only a modest increase in oil prices. Why? Because the policies of the Administration in office at the time were decidedly friendly toward domestic oil production. From that, we can infer that increased demand due to COVID recovery (and summer travel) might account for a 20-25% increase in prices - admittedly, a crude guesstimate (pun intended). That leaves about a 50%-plus increase in 2021 that's attributable to Joe Biden's anti-fossil fuel policies.

Bottom line? Joe Biden owns the run-up in oil prices from the day he was elected until the day Vladimir Putin began amassing troops on the Ukrainian border. And he owns a piece of it since, because he has stubbornly refused to relent in his assault on domestic oil production. Let's face it: he was proud of those policies. He was bragging about the actions he took, at least until inflation started soaring, and he started getting pummeled in the polls. So why hide behind it now? Why point the finger at Putin now? Look, if this is "Putin's price hike," why are Biden's poll numbers falling further?

Markets trade on expectations. And since Biden was elected, oil prices have risen. They didn't rise under Trump, because oil traders expected oil-friendly policy, and thus that the future trajectory of oil prices would be lower, or at least stable. From Election Day 2020 forward, the expected trajectory has been up, up, up, because the effect of Biden's policies on supply was expected to be down, down, down. Putin's actions have exacerbated that. So has Biden's response (or lack thereof) to it. Going hat-in-hand to Iran, Venezuela, or Saudi Arabia will only drive prices even higher.

So that's why, if Biden announced a reversal of his Keystone XL decision, oil prices - and gas prices, which are based on oil prices - would drop immediately, even though the pipeline wouldn't deliver a drop of oil for about a year. (And no, Jen, you couldn't replace all the gas-powered cars with EVs before then.) Because markets trade on expectations.

A final word. Today, Jen said, in response to a reporter's question, that since Putin began amassing troops on the Ukrainian border in January, the price of a gallon of gas is up $0.75.

Well, what she didn't say is this: from the time Joe Biden was elected until the time Putin began amassing troops on the Ukrainian border, the price of a gallon of gas went up $1.18.

So whose price hike is worse?

An Open Letter to Volodymyr Zelenskyy

Dear President Zelenskyy,

America offers its prayers to you and the Ukrainian people. Regrettably, tragically, heart-breakingly, we can offer you little else.

Because, you see, unlike you, our own President is a coward.

You have seen this. While you stand in proud defiance against the naked aggression of Vladimir Putin, Joe Biden cowers in the face of it. Putin makes the obvious sabre-rattle of placing his nuclear forces on alert, and Joe Biden cancels a long-planned ICBM test, out of deference to what the world has now seen is an adversary far inferior to America's military might.

Biden's reaction should not be a surprise. You, and the rest of the world, watched as Joe Biden surrendered in shame to the Taliban last summer, sacrificing American lives and abandoning Americans and Afghan allies alike behind enemy lines, in spite of solemn promises to the contrary. And would that your brave countrymen had the materiel that we left in the hands of the Taliban!

Putin watched this unfold, too, and it no doubt emboldened him to take the action he is taking today. For this, Joe Biden bears no small responsibility for your current plight.

We Americans would rather pay more to fuel our cars and heat our homes than to continue to buy Russian oil that is tainted with the blood of your people. We realize, after all, how blessed we are to still have our cars and our homes.

But paying more is not even necessary: America's energy resources are abundant, and we have more than enough to not only supply our own needs, but to share with our European allies, thereby cutting off Putin's ability to fund his war machine, and thus completing the decimation of his economy and making him a pariah even among his own people.

However, Joe Biden cares more about appeasing Alexandria Ocasio-Cortez than he cares about the horrors that might be visited upon the women of your country at the hands of Russian soldiers. So he continues to buy blood-tainted and ecologically "dirty" Russian oil rather than producing relatively "clean" oil here at home. And Ms. Ocasio-Cortez isn't intelligent enough to recognize the difference in the environmental impact about which she claims to care so much. (And, no matter what she may say about equality, she doesn't care about the fate of your women, either. She's too busy attending charity galas wearing expensive, donated designer gowns emblazoned with catchy slogans, and - ironically - making profits selling goods labeled with phrases condemning capitalism.)

Unlike you, Mr. President, Joe Biden is a career politician. He has spent his entire life in Washington, D.C., and it has corrupted him to the core. He cares only about his own political calculus, and how it can enrich him and his family. Unfortunately, whether you personally survive this war does not factor into his calculations. You cannot trust him, any more than you can trust Vladimir Putin.

But your survival matters to Americans. It matters because we long for a President like you, one that we can be proud of. One that will stand against aggression. One to whom the sovereignty of his country's borders matters. One who cares about his people, and stands with them. One who is a symbol of his nation, and not a mockery of it.

Unfortunately, Joe Biden can offer you little more than words, and in his present state, he doesn't even do a very good job of that. More than 74 million Americans wish we had a president that could offer you more, and I daresay that, today, a good many more than that have joined their number. Sadly, we can "only" offer our prayers now. But take heart, because prayer is a powerful thing. God is on your side, and that is a force that Vladimir Putin and Joe Biden together cannot overcome.

So we, the American people, will continue to pray. We pray for your continued strength, and for the deliverance of your great nation.

And, while we're on our knees, may God have mercy on Joe Biden's soul.

More Lies About Jobs Data

Today - March 4, 2022 - we got what looked like a very strong jobs report. Nonfarm payroll growth of 678,000 in February, with January's gain revised up to 481,000, December's at 588,000, and November's at 647,000. The unemployment rate at 3.8%. Average hourly earnings up 5.3%. That all sounds pretty darn good, right? No wonder the Biden Administration is crowing about their economic track record, how they've added 7.7 million jobs since they took office.

Not so fast.

As The Curmudgeon has noted before, politicians do precious little to "add" jobs, unless they hire interns and aides. (Bill Clinton was particularly good at that.) The private sector adds the jobs. The best politicians can do is to get the hell out of the way, cut regulations and not add new ones, and let businesses do their thing. And that's not the Biden Administration's style. They like to regulate.

Now - and this is a digression, so stay with me - the ultimate government interference in a business' operation would be to shut it down. Of course, legally, the government can't do that, unless the business is itself violating a law or regulation. The government has no Constitutional authority to shut down businesses.

Yet, in March 2020, that's exactly what the U.S. government did, en masse. It shut down a lot of businesses, and those businesses just stood by and let it happen. Here's where the digression ends.

How did that affect jobs? Well, in March 2020, nonfarm payrolls fell by nearly 1.7 million, the biggest drop on record, more than double the worst month of the Great Recession in 2008-09. And that was just a partial month's result; the government shutdown didn't hit until well into the month.

Then April came along, and said, "Hold my beer."

The April nonfarm payroll loss was a staggering, dumbfounding, jaw-dropping 20.7 million jobs. More than in all of the Great Recession.

(For reference, the economy had been humming along very nicely before that. Unemployment was at record lows, and payroll gains were averaging about 236k/mo. in the six months before the shutdown. And let's state right now, for the record, that not only was the shutdown wrong, and illegal, and unconstitutional, it was unnecessary, and did nothing to change the trajectory of the pandemic, or to save lives. That's been proven. If you believe otherwise, you need bandages on your knuckles.)

Now, two of the biggest states in terms of employment, New York and California, shut down again in December 2020 (what's the definition of insanity, again?), and as a result, nonfarm payrolls for the nation as a whole shed 306,000 jobs, because those states' job losses dwarfed all other states' combined job gains.

So, taking those three months of shutdowns together, the U.S. economy lost 22,668,000 jobs. Due to stupid, unnecessary, illegal, government-mandated business closures in response to a pandemic. Let that sink in.

Now, in all the months since April 2020, excluding December 2020, when California and New York decided to repeat the failed shutdown experiment, nonfarm payrolls have gained, in the aggregate -

20,544,000 jobs.

In other words, we haven't added one. damn. job. We're still more than two million jobs behind.

No wonder there are still help wanted signs everywhere. We've nowhere near caught up to where we were two years ago, much less accounted for the normal growth that should have occurred since then, plus inflationary growth spurred by excessive government spending over those two years. That should add up to at least the current 11 million job openings.

Moreover, since Joe likes to tout his big numbers (which are nothing more than replacements of jobs lost during the shutdown), let's look at some of the numbers replaced under Trump:

May 2020: 2.8 million jobs, June: 4.8 million, July: 1.7 million, August: 1.6 million, September: 716k, October: 680k.

As MC Hammer sang, "You Can't Touch This."

As for that 3.8% unemployment rate - it was 3.5% in February 2020, before the shutdown, under Trump. So we're still not fully recovered there yet, either.

Finally, that 5.3% payroll growth rate is great - except that the inflation rate is 7.5%. So real wage growth - adjusted for inflation - is negative, by more than two percentage points. That's why we're all feeling squeezed.

A final note. I was listening to a business news anchor interviewing one of President Biden's economic advisors, and the advisor kept touting all that the administration is doing to bolster up the supply side. Wait a minute - supply side economics? That's "trickle-down" economics, right? Didn't Joe just tell us in the SOTU the other night that trickle-down economics doesn't work? And yet his advisors are pushing it?

Glad to see the liberals abandoning the dark side, and coming to the light. Of course, they're not actually embracing supply-side economics, or we'd be drilling oil like mad. But it's nice to hear a liberal economist acknowledging that it's the right approach.