That’s because the world’s #2 producer, Saudi Arabia (12.4 million bbl/day), has decided to increase its output, ending–for now at least–its attempt to stabilize prices at a high level. The move has presumably been prompted by the 10% fall in the world crude price over the past few weeks, a time of typical seasonal strength driven by demand for heating oil during the northern hemisphere winter.

(Note: global oil production is now around 97 million barrels daily, down slightly from a year ago. The US is the #1 producer, lifting 14.8 million barrels daily; Russia is #3, at 11.2 million. There’s a sharp falloff from there to China at #4, 4.9 million.)

What makes this noteworthy is that the Saudis usually do the opposite, that is, they expand and restrict their own output to maintain a stable price. The conventional view, which I think has been correct, is that they’ve long since adopted the role of swing producer, stabilizing prices in order to protect the value of their many decades worth of future production that’s still in the ground.

This may simply be because Saudi Arabia is temporarily short of cash to fund its ambitious program to transform the country’s economic base. On the other hand, there’s a significant amount of consolidation going on in the US, with the purchase of larger independents by the descendants of the 19th-century Standard Oil. There’s also the proliferation of petroleum substitutes in solar panels and hybrid/EV automobiles. And, of course, there’s climate change.

So maybe this is a sign that the Saudis believe an important shift toward maturity in the world oil market is now taking place, with the consequent need for a new production (and, for you and me, a new investment) playbook.

All four of my grandparents emigrated as teenagers to New York City from Ireland at the end of the nineteenth century. Both of my parents were born in the early twentieth in what was then the west-side midtown Manhattan ghetto. Both went to work to help support their families when they finished grammar school.

This history has made me curious as an adult about the economic role of immigrants in fostering economic growth.

A central economic issue for the US is that the native-born working population is growing at less than one percent yearly. Given that real economic expansion is driven by two factors, the growth in the number of workers and increasing worker productivity (meaning more machines or more education), the fastest way for the US to boost the economy is to admit immigrants. Conversely, the fastest ways to undermine the domestic economy are to close the borders and to deport foreign-born workers already here. Put a different way, the Trump immigrant deportation plans are a sure-fire road to a deep and lengthy decline in national GDP.

Yesterday, I read a study that indicated that although Republican-leaning areas of the country are the most strongly opposed to immigrant arrival in the US, very few immigrants actually live in red communities. Most live in blue areas instead. The study didn’t say why, but presumably immigrants go to where there’s work. Why the anger in GOP land? As economist Tyler Cowen put it in Create Your Own Economy, “objective reality does not determine what people believe…People misperceive reality or people self-deceive to create a more pleasant reality within their own minds.”

This situation is full of ironies. The parlous condition of many Republican-leaning areas is a direct result of the “Reagan revolution,” which played a key role in modernizing American manufacturing in the 1980s but which has no useful thoughts on how to maintain roads, bridges, railways, communication networks…, putting the US solidly in the third world in these areas. Nor does it have any intention of helping areas that have fallen on hard times.

Worse than that, take Springfield, Ohio, a reddish area undergoing an economic renaissance in significant measure through the arrival in town of internet warehouses and manufacturing businesses. These are being manned by families who have emigrated from Haiti, and who now make up about a third of the local population. The only obvious complaint about the new residents is that they don’t drive very well. The town is under attack, however, by Trump and by its own US senator, J D Vance, apparently because it has pulled itself up by its own bootstraps. This is happening through their amplification of the baseless conspiracy theory that Haitian immigrants are stealing, killing and eating the pet animals owned by long-time residents. The Ohio governor has deployed the state police to deal with numerous bomb threats targeting local schools that these claims have produced.

Why would anyone believe the pet-eating lie? Back to Prof. Cowen–I guess it’s easier than thinking that the people you’ve been voting for are the ones responsible for your own economic woes.

There are lots of non-economic reasons to be concerned about a second Trump term:

–the most obvious, to my mind, is that he attempted the violent overthrow of the government when he lost his reelection bid in 2020. I find it hard to see how anyone gets past that one. Among others,

–he choked when the country needed him during the pandemic. The number of unnecessary deaths Trump’s pandemic denial caused–as opposed to deaths caused by deficiencies in national health care–is unclear, but the most conservate estimates seem to start at 100,000+.

–his clearly diminished mental capacity

–the fact that J D Vance, a Trump Mini-Me who’s being sued by his own constituents for damage from his unhinged “they’re eating our pets” claims about Springfield, Ohio, would become president if Trump were more obviously incapacitated.

Trumponomic follies

Even if these weren’t issues, Trump’s economic program, if that’s the right phrasing, is a gigantic worry. It consists of two toxic elements:

–widespread imposition of tariffs, which, as the Great Depression of the 1930s illustrated, are a recipe for economic disaster. If we look for a more contemporary example, one would be the US auto industry. The Detroit Big Three have been protected by trade barriers for a half-century. The result has been terrible cars, government bailouts and multiple bankruptcies. GM, in fact, has become a business school case in how to lose 2/3 of a 50% market share. This is even worse than Trump’s idea that people would flock to the Atlantic City beaches in the dead of winter.

–more tax cuts for the wealthy, or “trickle-down” economics. The basic idea is that private enterprise will always provide better goods and services than government. Starving government of funds, therefore, will create space for private entrepreneurs to innovate. They will create enormous wealth for themselves, which will (eventually) “trickle down” to you and me as the entrepreneurs spend the money they’re accumulating.

This approach appeared to work well in the 1980s, but, I think, for very different reasons than the theory suggests. As I see it, World War II destroyed the industrial bases of Europe and Japan, but not the US, because of our geographical distance from Europe and Asia, where the war was fought. By the 1960s, Europe and Japan had rebuilt, and had, across the board, the most modern technologies. When I entered the stock market in the late 1970s, high-grade steel, for example, was coming from state-of-the-art plants in Japan, while US Steel was still using blast furnaces from the 1890s.

The corporate raiders that Reaganomics released spent the next decade+ consolidating and modernizing large swaths of US industry, funded by junk bonds and pension funds.

This was a one-off phenomenon, though.

Conventional economic theory maintains, correctly I think, that the marginal propensity to consume decreases as one gets wealthier. This means that putting more money in the hands of the already wealthy is the least effective method of stimulating economic growth.

Another big flaw in Reaganomics, I think, is that it assumes there’s no such thing as a public good. Private solutions are always better. But this means there’s no conceptual space for infrastructure development/repair or for natural gas/electric/water utilities to function as monopolies …or for public provision for health care. No wonder our roads are bad, the trains are slow, we have second-rate communications infrastructure and iffy health care.

Then there’s the issue of what happens to the currency or the government’s ability to issue new debt if potential buyers begin to figure out that a Trump administration wouldn’t have even the concept of an idea of how it would repay existing government debt if it double down on tax cuts for the wealthy. It wouldn’t be pretty.

Typically in close to half-century I’ve been watching financial markets, the period from early September through early October has been a weak one for US stocks. That’s because trading is dominated by mutual fund selling in advance of book closing at the end of their October fiscal year.

As I’ve written before, this book closing itself is an odd process. Mutual funds are exempt from income tax on their realized gains, avoiding the normal double taxation of corporate dividends (which are paid from after-tax corporate income but whose recipients are also subject to income tax on them). They are required, however, to pay out all their realized gains as dividends to shareholders, who are subject to income tax on these payments. Traditionally, mutual fund holder like to receive these payments, and regard them as a mark of a fund’s success. However, almost everyone has the distributions automatically reinvested, so all they ever see is the tax bill.

The old school portfolio cleanup, resetting and dividend creating–each of which entails selling–hasn’t happened so far this year. My first thought was that maybe ETFs–which don’t have the mutual fund distribution issue–have become big enough that they dominate the markets. According to Citibank, though, although ETFs have had explosive growth, they hold only about half the assets of traditional mutual funds.

It’s possible, I think, that because ETFs are very popular and they typically don’t make distributions to owners, maybe mutual funds–or their holders–no longer see the need to distribute, say, 3% of the assets every year. Or maybe the lightbulb has gone on for shareholders that the distribution is mostly the occasion for Uncle Sam to get a cut of the profits.

Of course, there’s still time between now and mid-October for a fund-induced selloff to happen. Strange, though, that there’s little sign of one so far.

Another thing:

I happened to turn on CNBC this morning to watch prices on the crawl at the bottom of the screen. There was a discussion underway among the commentators about the topic above, the lack of a seasonal selloff so far. The exchange was embarrassingly bad. It struck me for the first time that this was like watching a sports talk show where none of the panel had ever played any sports ever, even in grammar school–yet were presenting themselves as informed experts. Weird. But if you’re the only game in town, I guess you can set the bar as low as you want.

I subscribe to Puck, which I find delivers interesting, well-written, gossipy, stock market-adjacent stuff about a number of industries.

William D. Cohan, an investment banker turned investigative journalist had this to say the other day, under the above heading, about Trump’s appearance at the Economics Club of New York:

“Yes, Trump’s insane, rambling, nonsensical dissembling at the Economic Club of New York was the latest evidence of his declining acuity. But it was also yet another example of his terrible understanding of simple business concepts.”

I think this hits the nail on the head. Yes, Trump has a somewhat more stylish haircut recently and he’s lost a considerable amount of weight (semaglutide?). Maybe you get used to his orange face makeup. Maybe you can also get past the fact that he tried to overthrow the government when he lost the last election, that he’s a convicted felon, that he may well have given top secret documents to potential enemies …or that he seems to be undergoing a cognitive decline similar to Biden’s. This last may be accentuated by the fear that if he loses in November he may face years in jail.

The bottom line, though, about government policy is that Trump gives no evidence that he knows anything much about either economics or finance. We may argue about whether trickle-down economics has passed it’s sell-by date (I think it had a useful, if very painful, decade+ but no longer works). But I’d thought the devastation of the Great Depression had put to bed forever the notion that tariff wars are a good thing.