I was struck in reading the Financial Times the other morning that the paper ran three articles that touched on Trump administration policies.

–The first is that the world’s reserves of just-in-case petroleum are being depleted at a rate that suggests being completely tapped out occurs in about a month. No one knows for sure what will happen to the crude oil price then, but it will presumably not be a decline

–Number two is that the oil majors have told Washington that they won’t speed up their drilling plans because of the Hormuz crisis. Strange–but for this administration probably more like par for the course–no one seems to understand much about the way the world works or to have done enough contingency planning to approach them before attacking Iran. The reality is, though, that all extra drilling or faster extraction from underground would do would be to wreck the fields–meaning reduce the amount of oil ultimately recoverable–where faster pumping might be feasible

–The third is that the administration seems to be taking extraordinary steps during this possible crisis to shut down alternative energy sources. Kind of like planning to ensure an energy shortage happens no matter what rather than to prevent one. My read is that this is not a Machiavellian plot from the administration, but rather that no one is driving the bus. A more depressing thought would be that no one knows how to drive

The chief economic result of the administration’s escapades to date, as I see it, has been to crush the dollar. Yes, everyone’s poorer, but it’s hard to put a finger on who’s responsible or why this is happening. $7 a gallon gasoline is different, I think, because it’s much more concrete.

It’s unclear to me where the safe spaces are to hide. My initial reaction is that it makes AI even more attractive, because everything else will be so much worse off. The one thing that the last few weeks’ trading has indicated is the market belief, initially at least, is that the negative impact of higher crude prices will be worse outside the US than in. If so, in a weird way US tech companies are that much more attractive.

…this by the government that also gave us ICE deportations, a huge fall in the value of the dollar, the war in Iran and a looming oil price crisis.

why I think it’s a really bad idea

the data are readily available

We’re living in the 21st century. Even the smallest companies have had easy and cheap access to sophisticated management control software for decades. Maybe some of this involves trade secrets–things like a country-by-country breakout of a multinational’s sales and profits–but for a long as I’ve been reading them (close to half a century) this level of detail is not required and companies have long since become very good at muddying these waters. So I don’t see reformatting the readily available data to fit SEC specifications as being an incredible hassle.

So whether you release data four times a year, or twice or once is more or less how many times a company pushes the “SEC format” button.

foreign companies, British, Australian, Irish for example, have steadily been relisting in the US.

…this despite the more extensive disclosure required here, well more than double what may be required in their home markets. The reason, I think, is that the increased disclosure leads to higher PE multiples placed by investors on company earnings. That’s because they have greater ability to assess what the company is really worth.

most growth companies compensate key employees primarily through stock options

So if I’m correct that less disclosure leads to lower PEs, and I’m very sure that this is right, the simplest response to the company-damaging move to less disclosure would be to relocate–to, say, Canada.

why would anyone choose the less disclosure road?

… especially given the possibility that in a less disclosure world companies would be worth less, not more. The only reason I can come up with is that there are firms whose operations for whatever reason can’t stand the light of day are chomping at the bit to raise equity capital.

About a month ago. the S&P 500 was down by about 7% ytd. The Energy sector was up by about 40%

Today, in the early afternoon, the S&P is now ahead ytd by 4%, with the Energy sector up by 31%.

At the same time, memory maker Micron is up by 78% ytd. The 4 TB solid state drive my family gave me as a birthday gift last November has tripled in price to $500 and the 4 TB CF express card I bought for my video work somewhat earlier (a year?) than that for ~$200 now sells for close to $2000.

Another way of putting this:

…as a human being, a citizen and a former infantryman, I find the war against Iran deeply disturbing, if for no other reason, the apparent lack of any thought or planning put into the decision to attack by the administration, and the equally unsettling unwillingness of Congressmen of both political parties to take effective action to stop it.

…but taking that hat off and donning my stock market visor, there are other sectors of the market that are far more important. Energy is only 4% of the index; but IT makes up about a third; and the consumer is about 15%. There is an overall negative impact on the economy from the sharp rise in the oil price caused by the war, since the US imports about 6.5 million barrels of oil daily in addition to the 13.5 million or so we produce. Presumably, this implies a further contraction to spending, with most of the burden borne by families with average or below-average incomes, and in addition to the cost of the tariffs.

Another thing to keep in mind: since the war’s beginning, the US stock market is no longer lagging the rest of the world’s bourses. This is presumably because, generally lacking large oil reserves, economies in Europe and the Far East are being hurt more deeply than the US.

The Organization of Petroleum Exporting Countries was formed in 1960. It only came to prominence in the mid-1970s, however. That’s when OPEC set production quotas for member countries–and put oil prices on the long road from a selling price of $1 or so a barrel to the current $100-ish.

Late in the last century, there was plenty of discussion about “peak oil.” Back then it meant the day when global demand would exceed the ability of the world’s oil nations to supply their black gold and would result in a sharp increase in prices. Great for oil producers, not so much for consumers.

Today, though, the term has come to mean peak demand, the time when alternative energy sources begin to replace significant amounts of petroleum.

The cartel itself can be divided into two camps, nations like Saudi Arabia or the United Arab Emirates, which have oil reserves that can continue to produce for decades and decades, and other members whose reserve lives are relatively short. The former group, which has to date dominated OPEC policy making, has a strong economic interest in keeping prices low–in order to delay the shift to alternative energy sources. The latter want the highest possible price today. They have no need to plan for the decades ahead.

It seems to me that the UAE is effectively joining the second group, which implies to me that it believes we’re now at, or past, peak oil. The trigger, I’d imagine, is the US attack on Iran, whose chief long-term result may end up being underlining the attractiveness of alternative energy sources. And although it will take some time, I imagine that leaving the cartel frees it to substantially increase its production.

The two chief economic policies of the second Trump administration from its earliest days have been, as I see them:

–to use ICE to remove immigrants from the domestic workforce. This is a (dubious, for me) cultural goal, with clear and substantial negative consequences for US GDP.

–the second continues, whether framed this way or not, to be to reduce the real value of government debt through creating inflation. Foreign government holders of Treasuries have recognized this from the beginning, and have been taking the sensible course for them: they sold their exposure to the dollar quickly in currency markets and have been dribbling out the bonds bit by bit since.

The worry is that Kevin Warsh will follow administration orders to lower interest rates even though Fed professionals believe that to do so would ultimately cause prices to rise. The idea is that rates that are too low reduce the incentive to save, as well as making borrowing to spend on goods and services easier and less expensive. All this results in increased demand, which causes sellers to raise prices. An inflationary spiral begins.

History says this process feeds on itself and is very hard to stop once put in motion, without sharp increases in rates. Higher rates on new Treasury bonds decrease the value of older, lower-rate issues–which is why foreign government owners of tons of Treasuries are selling.

On the other hand, holders of fixed assets like property tend to benefit, which may be why a former real estate investor desires this outcome.

oil

For almost half a century, Iran has made the point that it would close the Strait of Hormuz in the event of an attack. It has mined waters in the area in the past. It is also a supplier of drones to Russia and a host of other parties. The global issue with closing the Strait is that about 20% of the world’s oil travels to market through it.

If news reports are accurate, however, the world doesn’t seem to have planned that well for any of this happening prior to the US attacking Iran.

My guess as to how things will play out:

–the prior consensus was that peak world oil production would happen around 2030. This is a demand phenomenon, not supply. Current events, however, suggest that we’re seeing peak oil now

–if so, the oil producing countries worst affected would be Saudi Arabia and the US, with the development of Venezuelan heavy oil pretty much a non-starter without large government subsidies

–this would also imply that the oil price will tend to drift lower, until it reaches $50? a barrel, which is where the highest cost new drilling projects will no longer be profitable

–if the current situation triggers a large move toward renewable energy, which it may well, oil could follow the path into irrelevance once trod by wood and coal. Not something I’d bet on today, but a possible eventual outcome.