Elon Musk Saves the World (and Other Bad News)

It seems like these days we just bounce from one distraction to the next. 

The war between Russia and Ukraine was momentarily bumped from the headlines when another battle broke out…

Scrolling through Thursday morning’s news, the headlines screamed from every source. There was:

CNBC chimed in…

The Wall Street Journal had an interesting lead (or typo)…

(I have no idea how much $43 billion “Elon” would actually be worth, but it’ll be interesting to see if anyone takes the lead and launches a new crypto in his honor…)

As soon as Musk’s 9.2% purchase was announced earlier in the week, it was “game on.” The left made its collective voice heard through a series of op-eds and other outlets: 

Musk tweeted that US tech companies shouldn’t be acting ‘as the de facto arbiter of free speech’… Musk’s world would be dominated by the richest and most powerful people in the world, who wouldn’t be accountable to anyone for facts, truth, science or the common good. That’s Musk’s dream. And Trump’s. And Putin’s. And the dream of every dictator, strongman, demagogue and modern-day robber baron on Earth. For the rest of us, it would be a brave new nightmare.

That particular one was written by struggling man of the working class Robert Reich (Bill Clinton’s former secretary of labor and currently a professor of public policy at UC Berkeley).

Whether Musk can pull this off or whether Twitter’s board of directors will accept his offer, remains to be seen. Right now I don’t have much of an opinion on the move except that it’ll be entertaining to watch. 

A nice distraction from the more serious news that’s happening…

If It Wasn’t For Bad News…

Inflation numbers were released this week. They weren’t good. In fact, they were downright abysmal… dire… shocking… horrifying… you can pick your adjective. 

If I were a member of the Fed, I’d be typing up my resignation letter and looking for a nice secure job as a TV news contributor. 

They’re facing an inflation monster that was created by the massive supply chain shock that arose from the pandemic lockdowns. 

On top of that, the US took the alliance lead in a war that had little to do with anything we were dealing with here at home, and issued sanctions against the Russian aggressor (who happens to be one of the world’s largest exporters of grain and energy) setting in motion yet another chain of uncertainty that has spun the global economy into even more chaos.

In your March issue of Streetlight Confidential, I wrote about the cost of taking “the moral high ground.” The question became how much inflation could we expect here in the US. 

We took a look at German prices which were getting squeezed particularly hard as sanctions began to be put in place.

You can check out the entire issue here, but here’s a reprint of the section in question…

In January, Germany’s inflation rate was posted at 4.9% — down from 5.3% the previous month — and well behind the U.S.’s recent print of 7.5%.

German Inflation

Source: Tradingeconomics.com

At the same time wholesale prices — the prices charged at the supplier level — rose 16.2% year over year. These are the prices that retail merchants pay for the goods they sell.

German Wholesale Prices

Source: Tradingeconomics.com

What is driving this increase? The prices paid by manufacturers for raw materials — producer prices  — which spiked a staggering 25% year over year in January.

German Producer Prices

Source: Tradingeconomics.com

These are significant and, frankly, scary numbers. Price spikes feed down from the producer to the wholesaler to the retailer. If these numbers don’t come down soon, that is to say, even if they just level off for any length of time, German citizens are eventually going to be out of pocket a whole lot more for the basic necessities of life.

So what’s been the result just two months later?

In February, German producer prices made a new record high for the third straight month at 25.9%… Wholesale prices reached another record peak of 22.6% in March and… Inflation has exploded from 5.1% to 7.3%.

German Inflation

Source: Tradingeconomics.com

That same chain reaction is headed to a grocery store near you. This week, the reports from the US have been even less encouraging.

US headline CPI showed an 8.5% increase in March 2022…

US Consumer Prices

Source: Tradingeconomics.com

And possibly the worst news of all, producer prices — those prices that feed into the prices you pay for everything — exploded 11.2%!

US Producer Prices

Source: Tradingeconomics.com

To call these numbers “out of control” is an understatement to say the least.  And barring some “come to Jesus” moment on the part of the Biden administration, inflation’s top is far from in.

Adding Inflation on Top of Inflation

When this much inflationary $#!% is hitting the fan, as a politician, you’ve got to do something.

In an almost laughable attempt to do something about rising prices at the gas pump this week, the president announced this past Tuesday that the EPA will eliminate restrictions on E15 gas (gas that contains 15% ethanol ) throughout the summer months.

According to the Wall Street Journal:

The decision will allow gasoline with 15% ethanol to be sold between June 1 and Sept. 15. Normally only a 10% ethanol blend can be sold during that time period to reduce smog caused by the 15% blend’s higher volatility.

But they’ve tried this before as well: 

Congress created and expanded the ethanol program, the Renewable Fuel Standard, with bipartisan support under President George W. Bush, when lower U.S. oil production had policy makers looking for new sources of energy.

Expanded ethanol production under the program raised corn prices by 30% and the prices of other crops by 20%, according to a report published earlier this year in Proceedings of the National Academy of Sciences.

This brainstorm comes when, thanks to a global fertilizer shortage, corn prices are on the rise and supplies will be questionable thanks to farmers switching out crops due to disappearing margins.

July Corn Nearby Contract

Source: Barchart.com

Of course this idea has found major favor with Democrats and Senator Chuck Grassley (R-Corn Country). 

Mr. Grassley said. “Unlike tapping into the Strategic Petroleum Reserve and begging OPEC for more dirty oil, this is a step toward energy independence.”

I’m afraid he’s delusional too.

Will cutting the refining mix of gas with a commodity whose prices are soaring so high that farmers weren’t going to be able to afford to grow it, really ease consumers’ pain at the pump?

We’ve officially reached fantasy land. 

Throughout my career, I’ve seen bad government behavior cause problems in the economy, but I’ve never seen anything quite like this. There is a simple answer… Re-embrace the oil industry and ensure them of governmental support for their production going forward. 

Our economy, collapsing under the weight of out of control secular inflation, will drive a change in attitude at the ballot box this coming November. But until then, it’ll be a painful, expensive slog.

Unless we get more entertainment from Elon Musk…

Make the trend your friend,

Bob Byrne
Editor, Streetlight Confidential