The story here is familiar to anyone who has studied the history of US economics/politics over the past forty+ years. In the old days, the sitting president would armtwist (not that much effort was needed) the Federal Reserve into adopting a too-stimulative money policy, one that would invariably have long-term toxic effects. Gerald Ford was a cautionary tale back then–he refused to drop rates in advance of the persidential vote and lost the election.

Despite Ford’s short stretch of monetary prudence, years of excessive money stimulation caught up with the economy in the late 1970s, in the form of runaway inflation. Prices were rising at a 13% annual rate–and accelerating–by the early 1980s. Fixed-rate mortgage loans carried 20% interest, and variable-rate ones were at 26%! This wasn’t Weimar inflation or Latin American, but the country was headed in that direction. You could almost see the money in your hand evaporating as you held it. Anyone with a variable-rate loan (an installment loan or credit card debt, for example) was in deep, deep trouble.

Companies reacted to this situation by stopping investment in new stores and factories, and bought gold mines, or anything else tangible that they thought would hold its value, instead. The unemployment rate, which had been 6% under Carter, quickly rose to almost 11% (later peaking at 13%).

Carter appointed Paul Volcker to run the Fed as an independent body and fix things. Reagan made it clear that he would stand aside and that Volcker should simply do what needed to be done. It took years, a very deep recession, a massive loss of wealth and Treasury bonds at 20% to kill the inflation. (One big difference between then and now is that OPEC emerged as an economic power, leading to a gigantic rise in the oil price. A second is that Carter and Reagan were trying to put out a fire that had raged for years; Trump, wittingly or not, wants to light the match again.)

President Trump lived through all of this as a real estate developer, where interest rates are a crucial variable. So he had to have been very well aware of the havoc that a too loose money policy would bring. Jerome Powell understands this, too–and has been refusing Trump’s requests to lower rates in a way that would give the economy a 1970s-like temporary boost, but would likely lead, down the road, to a reprise of the 1980s economic trainwreck.

As an investor, what I find most interesting is that there has been very little reaction either in the world value of the dollar (down almost 13% over the past year vs. the euro, but flattish today) or in interest rates on the news that the Justice Department is investigating Powell. At issue is apparently the claim that Powell lied to Congress about the extent/cost of renovations to the Fed’s headquarters. NBC News says Trump told it he’s unaware of the investigation.

There does seem to be a reenergizing of the US costs/foreign revenues trade as well a renewed interest in foreign rivals to the US-based tech giants.

President Trump sat down recently with the heads of the major, US headquartered, international oils–ExxonMobil, Chevron and ConocoPhillips–for what it seems he anticipated would be a love fest/bidding war for rights to develop Venezuelan oil.

He was told the obvious, instead, that Venezuela is “uninvestable” as things stand now.

How so?

A quick Google search would show that the selling price of a barrel of comparable grade to Venezuela’s, i.e., thick like tar and full of sulfur, is about $45. A two-minute discussion with someone from the Energy Department would presumably reveal that the all-in cost of lifting a barrel of Venezuelan crude to the surface is ~$80. (“All-in” here means not only someone with a bucket at the wellhead pouring oil into a 42-gallon container. It means the cost of geophysical mapping of the fields; planning and actually drilling wells; and providing storage facilities, pipelines, trucks and roads to the ports. Another few minutes would make it clear that although all this infrastructure existed in Venezuela at one time, very little is there now. My guess is that knocking down/hauling away the old stuff and building new will be more expensive than simply starting from scratch.)

An analogy:

Imagine two hotels. Hotel #1 is in midtown Manhattan. It’s newly-constructed, with has large rooms, great views, a Michelin-starred restaurant. Park Avenue offices and Fifth Avenue shopping are nearby. Hotel #2 is in a warehouse district. Construction is shoddy. The rooms are old, small, and roach-infested. There’s no internet, phone service, restaurant or nearby transportation. Crime in the neighborhood is high.

In both cases, the daily out-of-pocket cost of operation is probably not that different from one to the other. The cost of cleaning a room is probably around $20 and then there’s the customer-facing staff. Breakeven is at maybe 30% occupancy.

But the situations are totally different. For hotel #1, having a new owner is more or less a question of changing the sign on the door. For #2, it may be cheaper in the long run to demolish the old structure and build from scratch. Even so, the location may set a low cap on what daily room rates can be.

Gemini just told me that Forbes and The Economist estimated in 2022 that it would take $250 billion to restore Venezuelan crude operations to their previous good health.

My question: how could anyone with all the information sources of Washington, or even anyone just with Google, not know this?

There’s eventually a stock market point.

Renee Good was shot and killed by ICE in Minnesota on Wednesday. Two things struck me:

–in the dim past (i.e., 1968), my first duty station as a newly-minted second lieutenant was with the 5th Mechanized Infantry at Fort Carson, Colorado. Shortly after I arrived, we were shipped off to the Great Lakes Naval Training Center outside Chicago, on the idea that having federal troops nearby would discourage protesters from gathering outside the Democratic national convention.

The 5th contained a large contingent of Vietnam veterans, some recovering from wounds, most suffering from PTSD. A major concern was the rules of engagement, i.e., under what conditions were we allowed to use force to defend ourselves (there were news reports, for example, that protestors intended to blind troops by throwing lye into their faces–and that all the lye in stores around the convention had suddenly been bought).

Official guidance was very wishy-washy, but the message was crystal clear. Never harm an American citizen, and if you do, even to defend yourself, you’ll be prosecuted and jailed. Not a great testament to our leadership, or at least where we soldiers stood in the pecking order, but the rules were clear: –never harm a civilian.

In the case of ICE today, I see two possibilities: either, in a shocking absence of leadership, there are no guidelines on the use of force, or–worse–the guidelines call for gratuitous violence. Both are scary. I don’t see any other interpretation of the killing of Renee Good, however, or what appears to be the subsequent coverup by the administration.

–in the dim past, in the 19th century, Marx expected the political evolution to communism to take place in Germany. That’s because at the time it was the most highly industrialized country in the world–and therefore the most severely abusive to workers. As it turns out, the revolution eventually occurred in Russia, a heavily agrarian society and in theory the most unlikely place for the transformation to happen. How so? Lenin. His idea was that revolution required a trigger, a “vanguard of the people,” made up of professional communists willing to use violence to overthrow the existing order, even though this would be against the wishes of the great majority of citizens. ICE today?

stock market relevance

The key to stock market success in the US last year was to recognize administration-induced currency weakness and respond by shaping a portfolio to overweight companies with $US costs/foreign currency revenues and underweight the opposite.

This hasn’t changed, in my view. Nor has the market preference for companies whose US presence consists mostly of people and other intellectual property that can be easily relocated. I also think that Hong Kong-traded Chinese tech firms will continue to prosper.

What I think is new is the deepening reputational damage being done to the USA brand by things like ICE. At some point, though, I think foreigners will become interested in US brand names that have been pummeled by the negative combination of tariffs, ICE, and the administration’s continuing desire to weaken the dollar. I’ve been nibbling at a couple over the past few months. I’ve clearly been too early. But I think this is the next step in the domestic market’s evolution–picking through the wreckage. Recent stock price action, however, says there’s still more bad news to come.

I was reading the Financial Times late last night and found an article on Venezuela that cites Wood Mackenzie, perhaps the premier global oil and gas investment and advisory firm. WM’s estimate is that the breakeven cost of bringing a barrel of Venezuelan heavy crude to the surface is $80 or so. In other words, in today’s world where higher-quality oil (meaning less expensive to refine into salable products) is plentiful and goes for under $60 (Venezuelan crude sells for closer to $50), developing new production–or spending billions to repair old infrastructure–makes no economic sense.

I imagine this is why the US-based oil majors don’t appear to be enthused at all about the “opportunity” to develop Venezuelan reserves that the attack has presented to them. It’s also unclear if or how badly damaged the fields have been from lack of storage capacity for oil coming to the surface that the country has been unable to sell.

Venezuela does have 30-50 million barrels of oil already in above-ground storage because of the US embargo. Mr. Trump apparently intends to seize that oil and transport it to the US, where, luckily enough, one of his supporters has recently purchased three refineries configured to process heavy high-sulfur crude. Figuring 40 million barrels that would sell for $50 each, this seizure would be a $2 billion wealth transfer from Venezuela to the US. Trump will apparently control how the proceeds are used.

If media reports are correct, US forces entered Venezuela with 150 aircraft, destroyed the country’s air defenses and killed at least eighty people, ostensibly in order to serve a warrant to arrest Mr. Madero. My guess is that the operation had to have involved at least 500 servicepeople entering Venezuela. The cost? I have no idea, but it had to have easily been in the millions.

…not the stock market so much, where the same focus that governed last year–companies with costs in $US dollars and revenues elsewhere–remained in fine form on day one of 2026 trading.

Venezuela is the weird thing I see.

I can understand assertions that the Maduro arrest has been timed to distract voters from the ongoing Epstein files revelations and/or from Jack Smith’s testimony before Congress. Smith stated there that he had developed enough evidence to establish beyond a reasonable doubt that Trump did attempt to overthrow the government after he lost the 2000 election; and that his top secret documents crime was not possessing them after he left office in early 2021, but by failing to return them when asked and hiding them instead (the obvious question is why would one do so). As a human being and as a citizen, I find all this disturbing.

As an investor, though, I scratch my head trying to figure out why anyone would want to develop Venezuela’s relatively tar-like, high-sulfur, expensive-to-refine, heavy oil deposits, especially at a time when world demand for crude in general appears to me to be at best plateauing, and more likely in the early stages of secular decline.

Several issues:

–history shows even relatively small additions to global output–on the order of 1% or 2%– can trigger substantial declines in price.

–the parties most hurt by price declines will likely be, as they always have been, the highest-cost producers, that is, US-based frackers, who are also by and large strong Trump supporters. Price declines typically only stop when the highest-cost producers begin to lose money and/or go out of business

–Venezuelan oil might displace Canadian heavy crude, and US oil firms do have heavy oil-friendly refineries. Still, it may take years (a decade?) and billions in infrastructure investment to restore Venezuelan output to former levels. So investing there seems to me to be a risky bet on what oil prices will be a decade from now.

what to do?

I see this situation as a little like buying up Atlantic City casinos during the 1980s (btw, you can see my recent AC photos at danduandphoto.com). Nevertheless, US-based oil majors and oilfield service companies are up by 6-7%+ in pre-market trading this morning.

The Energy sector only has about a 3% weight in the S&P 500, even though the US is currently the world’s largest producer of oil. That’s less than the weight of any of the top five in the S&P (NVDA, AAPL, MSFT, AMZN, Google). For anyone not an oil and gas junkie, either neutralizing the sector by holding the index weight (arguably, the safer way) or simply having no oils (my approach), on the idea that the sector has to be up by 50% or so before it does any performance damage, are the easiest ways of avoiding having to spend time figuring the sector out.

My sense, too, is that professional equity investors worldwide are finding it increasingly hard to see any sound economic concept behind many of the administration’s other moves. As a result, for the first time in a quarter-century, professionals appear to be deemphasizing not only Energy but also US stocks overall vs. the rest of the world. The idea that seizing Venezuela’s oil is top of mind in Washington will likely only speed the asset reallocation.