Authored by Irina Slav via OilPrice.com,

• North American Reliability Corp: As much as two-thirds of the United States could experience blackouts in peak winter weather.

• Earlier this year, NERC issued a blackout warning for some parts of the U.S. over the summer, citing extreme temperatures.

• The regulator points to the lack of gas transport infrastructure as one of the main challenges for the U.S. grid this winter.

As much as two-thirds of the United States could experience blackouts in peak winter weather this and next year, the North American Reliability Corp has warned.

These warnings have become something of a routine for the regulatory agency lately. Earlier this year, NERC issued a blackout warning for some parts of the U.S. over the summer, citing extreme temperatures.

This latest warning also has to do with extreme temperatures. Yet it’s not just the temperatures themselves that are the problem. It’s the power generation mix that is making the grid more vulnerable.

In its latest assessment, NERC cited recent data showing that up to a fifth of generating capacity could be forced offline in case of a cold snap over areas that do not normally get this kind of weather.

The regulator points to the lack of gas transport infrastructure as one of the main challenges for the U.S. grid this winter as it compromises the security of generating fuel supply. The report also notes historical evidence that extreme winter weather can also affect the production of natural gas and, as a result, reinforce the effect of weather on power supply security.

It is not just natural gas that is problematic, however. The massive buildout of wind and solar capacity has also had an impact on electricity supply reliability and could turn into a problem during the winter.

“Electrification of the heating sector is increasing temperature-sensitive load components while increasing levels of variable output solar photovoltaic (PV) distributed energy resources (DER) add to the load forecast uncertainty,” the regulator wrote in its Winter Reliability Assessment report.

“Underestimating electricity demand prior to the arrival of cold temperatures can lead to ineffective operations planning and insufficient resources being scheduled,” the agency added.

There is a problem with accurate forecasting, however, NERC also said, and not just in the generation area, with wind and solar accounting for a bigger portion of the output today than in previous years.

It is difficult to forecast demand as well because of the unexpected weather patterns that NERC believes could unfold this winter. “Extreme cold temperatures and irregular weather patterns characterized by strong cold fronts, wind, and precipitation can cause demand for electricity to deviate significantly from historical forecasts,” the regulator said.

It appears that NERC is warning that the weather is becoming more unpredictable, and this is problematic for grid security. Although nowhere in the report is the phrase “climate change” mentioned, it is implied that the changing climate is creating uncertainty in weather forecasts and, as a result, a reduced capability for generators to respond to sudden changes in demand, for instance, or severe weather.

The other thing that is stated indirectly rather than directly is the effect of more wind and solar on grid reliability. Although NERC admits intermittent wind and solar electricity output is problematic by definition, it stops short of spelling out something that another regulatory agency, the Federal Energy Regulatory Commission, said bluntly earlier this year.

“One nameplate megawatt of wind or solar is simply not equal to one nameplate megawatt of gas, coal or nuclear,” FERC commissioner Mark C. Christie told Congress in June, during a hearing in front of the Subcommittee on Energy, Climate and Grid Security.

Christie explained that it is not wind and solar themselves that are problematic but rather the rate at which baseload-providing, dispatchable electricity generation capacity was being retired to be replaced with non-dispatchable wind and solar farms. Dispatchable capacity is the kind that provides electricity 24/7 or on demand, such as coal, gas, and nuclear. Wind and solar, on the other hand, only generate electricity when the weather allows it.

At that June hearing, Christie and another FERC commissioner, James P. Danly, said the challenging state of affairs was the result of subsidies for wind and solar, which had distorted the market and compromised grid reliability.

Now, NERC is saying that “There is not enough natural gas pipeline and infrastructure to serve all the gas generation in certain big areas like PJM, MISO, New York, and New England,” according to the agency’s director for reliability assessment and performance analysis.

The reason there are not enough gas pipelines is because opposition to new gas pipeline projects is so severe that getting a gas pipeline built has become an occurrence similar to a miracle. The chief executive of EQT recently told the FT in an interview that if it took a special legislative act to get a gas pipeline built that “should scare the hell out people”. Rice was referring to the act of Congress that ensured the green light for the Mountain Valley Pipeline, which has faced a barrage of obstacles.

What NERC, for some reason, did not mention specifically is that severe cold affects more than just gas generation. It also affects wind power generation, not to mention solar power output. Wind turbines do not excel in severe winds or in wind drought that is common during the coldest months, and solar irradiation during those same months is far from optimal for solar panels, as are severe temperatures.

After two months of increases in the 1-Year inflation expectation as tracked by the NY Fed’s monthly consumer survey, October saw the first decline in this series which traditionally is also a proxy for the price of oil since July. The drop in 1 year inflation expectations was matched by a small decline in 5 year inflation expectations, while inflation expectations at the 3 year point were unchanged.

Here are the details: as shown in the chart below, inflation expectations at the one-year horizon decreased to 3.57% from 3.67% in Sept; median inflation expectations at the three-year ahead horizon remained unchanged at 3.0% while 5-year-ahead inflation expectations declined to 2.72% from 2.84%, the lowest since April.

Tomorrow’s CPI update, which is different from the Fed’s preferred inflation metric, the core PCE, should help to inform policymakers before their next gathering on Dec. 12 and 13. The monthly and annual measures of overall CPI are expected to slow in October on retreating gasoline costs. But excluding energy and food prices, the core metric is seen staying at levels above the Fed’s target.

A separate report released last week by the University of Michigan found that consumers’ long-term inflation expectations increased to the highest since 2011 and that people are becoming more concerned about high borrowing costs and the economy’s prospects. 

The report also noted that median inflation uncertainty (the uncertainty expressed regarding future inflation outcomes) increased slightly at the one-year ahead horizon, remained unchanged at the three-year ahead horizon, and declined at the five-year ahead horizon.

Turning to median home price growth expectations were unchanged at 3.0%, remaining well above the series 12-month trailing average of 2.1%…. which of course is the opposite of what the Fed wants to achieve, and suggests that the Fed’s tightening plans may need to be boosted to extract some more disinflation from the single, most important asset class for the US middle class.  The decrease was more pronounced among respondents below the age of 40 and those who live in the South Census regions.

Next, turning to year-ahead commodity price expectations, households expect prices to rise more rapidly for gas and medical care; there was also a reversal in last month’s slide in college education costs, which has tumbled from 8.2% to 5.8% – the largest one-month decrease since the onset of the survey in 2013 – only to rise again in October to 6.0%; meanwhile median year-ahead expected gas price changes increased by 0.2%  to 5.05% while medical care prices are expected to rise by 0.3% to 9.11%, rents are seen rising at 9.09%, unchanged from last month, and food prices are expected to rise 5.58%.

The report also showed consumers have mixed views about their ability to access credit and find work. A smaller share of respondents reported finding it more challenging to access credit now than a year ago. But a larger share of people said they expected to see tighter credit conditions in one year. As for the jobs market, the perceived odds of losing a job in the next year rose by 0.3 percentage point to 12.7% and the probability of finding a job after becoming unemployed rose slightly to 56.6% from 56.5% (see more below).

While households still expect most prices to keep surging, the silver lining is that two months after it slumped to 2.9% – the lowest since July 2021 – in October expectations for household income growth managed to clawback some losses and rose to  3.1% from 3.0%, remaining above the series’ pre-pandemic level of 2.7% but well below the series 12-month trailing average of 3.5%.

Curiously, while household income growth posted a modest increase, the same was not true for actual earnings expectations: indeed, the median one-year ahead expected earnings growth decreased by 0.2 percentage point to 2.8%, matching the lowest in over 2 years.

Finally, after a sharp surge last month which pushed expectations for debt delinquency to 12.5%, the highest since the covid collapse, in October a smaller percentage of consumers, 11.99% or down 0.5%, expected to not be able to make minimum debt payment over the next three months. This is a level comparable to the prevailing one just before the pandemic.

It wasn’t clear why this trend reversed at a time when both auto and student loan delinquencies are exploding to levels not seen since the Lehman collapse, but we are confident after a few months, the series will revert back to its increasingly more upward-sloping trendline.

Here are some of the other key observations from the latest NY Fed survey, first those dealing with household finance

• Median household spending growth expectations were unchanged at 5.3%. While the series is well below its level of 7.0% from a year-ago, it remains well above its February 2020 pre-pandemic level of 3.1%.     
• Perceptions of credit access compared to a year ago improved slightly with a decreased share of respondents reporting that it is more difficult to obtain credit now than a year ago. In contrast, expectations about future credit access worsened slightly with an increased share of respondents expecting tighter credit conditions a year from now.
• The average perceived probability of missing a minimum debt payment over the next three months decreased by 0.5 percentage point to 12.0% 
• The median expected year-ahead change in taxes (at current income level) declined by 0.2 percentage point to 3.8%, its lowest reading over the past three years (someone is in for huge disappointment).
• Median year-ahead expected growth in government debt increased to 9.8% from 9.5%.
• The mean perceived probability that the average interest rate on saving accounts will be higher in 12 months decreased by 0.5 percentage point to 30.3%.
• Perceptions about households’ current financial situations improved in October with more respondents reporting being better off than a year ago and fewer respondents reporting being worse off. Year-ahead expectations were mixed with both a larger share of respondents expecting to be worse off and a larger share of respondents expecting to be better off a year from now.

And the labor market:

• Median one-year ahead expected earnings growth decreased by 0.2 percentage point to 2.8%. The series has been moving within a narrow range of 2.8% to 3.0% since September 2021. The decline in October was driven by respondents below the age of 40 and without a college degree.
• Mean unemployment expectations—or the mean probability that the U.S. unemployment rate will be higher one year from now—decreased by 1.5 percentage points to 38.6% , slightly below the series 12-month trailing average of 40.2%.
• The mean perceived probability of losing one’s job in the next 12 months increased slightly by 0.3 percentage point to 12.7%. The mean probability of leaving one’s job voluntarily in the next 12 months remained unchanged at 18.2%.
• The mean perceived probability of finding a job (if one’s current job was lost) increased marginally to 56.6% from 56.5%.

One final notable point is that the mean perceived probability that U.S. stock prices will be higher 12 months from now fell by 2.5% to 34.2%, its lowest level since October 2022.

If this survey is even remotely accurate, it remains the case that for most households (and their generous credit cards) a recession remains far off into the horizon.

More in the full report here.

Authored by Nik Hoffman via BitcoinMagazine.com,

Grayscale CEO Michael Sonnenshein took to X (Twitter) Monday morning to say “it’s been a ten year dress rehearsal. we’re ready for the main event,” ahead of seemingly imminent approval for the conversion of its flagship fund into a spot Bitcoin ETF.

it’s been a ten year dress rehearsal. we’re ready for the main event.

— Sonnenshein (@Sonnenshein) November 13, 2023

On June 29, 2022, Grayscale filed a lawsuit against the SEC for denying its spot Bitcoin ETF conversion.

Since then, Grayscale won its lawsuit against the SEC, with the regulator then deciding not to appeal the court decision after.

Ten days later, the US Court of Appeals issued a mandate that the SEC must re-review Grayscale’s spot Bitcoin ETF application.

[ZH: The discount that GBTC trades at has collapsed from almost 50% at the end of 2022 to around 10% now…]

Approval of a spot ETF by the SEC appears almost certain, with Grayscale’s chief legal officer recently saying that a spot Bitcoin ETF approval is “a matter of when, not a matter of if anymore.” JPMorgan also commented back in September, saying that the SEC will likely be forced to approve spot Bitcoin ETFs, following Grayscale’s victory in court.

Last week, it was highlighted by Bloomberg ETF analyst James Seyffart that a brief window of opportunity for the SEC to approve all 12 spot Bitcoin ETF filings, including Grayscale’s GBTC conversion.

This window opened up last Thursday and will remain open for at least eight days, with this being the last chance of approval for a spot Bitcoin ETF in the US in 2023.

While it’s possible the batch of spot Bitcoin ETFs get approved this week, it is seemingly unlikely.

“If we are indeed going to see Bitcoin ETF approvals for this wave, I think it’s more likely to happen closer to January than this current window,” said Seyffart.

New Research note from me today. We still believe 90% chance by Jan 10 for spot #Bitcoin ETF approvals. But if it comes earlier we are entering a window where a wave of approval orders for all the current applicants *COULD* occur pic.twitter.com/u6dBva1ytD

— James Seyffart (@JSeyff) November 8, 2023

Bitcoin is up 122% year to date, at the time of writing, on the speculation of the first spot ETF approval in the United States, in addition to the upcoming halving in 2024. 

Beazley Plc, a leading European and US specialist insurer, issued the market’s first cyber catastrophe (CAT) bonds earlier this year. The insurer is now considering issuing a new cyber CAT bond valued at $100 million, as reported by Artemis, a research firm focused on insurance-linked securities. Similarly, Axis Capital is readying a $75 million cyber CAT bond, according to a document obtained by Bloomberg.

CAT bonds transfer difficult-to-insure risks for major corporations to capital market investors for high-yield returns that have traditionally focused on natural disasters like hurricanes and floods. However, the soaring risks associated with cyberattacks have made cyber CAT bonds increasingly popular this year. 

Beazley’s cyber underwriting placed the market’s first insurance-linked securities (ILS) instrument of a $45 million cyber CAT bond in early January of this year. 

According to a report co-authored by Kathleen Faries, chief executive officer of Artex Capital Solutions, ILS “offer corporate boards and business owners a degree of comfort over their balance sheet resilience in the event of a larger cyber event.”

Investors told Bloomberg the proliferation of cyber CAT bonds is a welcoming sign and opportunity to increase exposure to the ILS space: 

“We are now seeing leading cyber underwriters positioning themselves to tap the ILS market with transparent deal structures that target catastrophe—rather than attritional—risk, in a form and at pricing levels that we believe have become attractive,” said Joanna Syroka, director of new markets at Fermat Capital Management, a top CAT bond investor. 

Syroka said Fermat “will consider all deals as they are announced,” adding, “Cyber could be the fastest growing line of ILS, in line with the growth rate of the underlying cyber insurance market, due to the relative lack of internal diversification within the peril.”

Beazley’s global head of cyber risks, Paul Bantick, said cyber losses for corporations mean “traditional reinsurance can’t get you there.” He said the new cyber CAT bonds will allow companies to fill the reinsurance gap. 

Just last week, DP World Plc was hit with a cyberattack across Australia, leading to 30,000 shipping containers piling up at ports. And multiple casinos on the Vegas Strip were hit with a cyber incident early this fall. 

Gallagher Securities’ head of cyber ILS, Theo Norris, said, “There are enough ILS investors to make a dent in the capital needs of the cyber insurance market.”

Beazley’s cyber CAT bonds were structured and placed by Gallagher Securities. Norris said the goal of the bonds is to “continue building on this to attract even more ILS investment to support our clients and ultimately make cyber insurance more available and affordable.” 

“I’m fairly confident we’ll use cat bonds to transfer cyber risk to the capital markets,” said Henning Ludolphs, a managing director at the German reinsurer. He said, “This could be sooner rather than later, maybe even within the next couple of months.”

By Benjamin Picton, senior markets strategist at Rabobank

The University of Michigan’s gauge of 5-10 year inflation expectations rose to 3.2% last week. The last time it was that high was in June of 2011, and you have to go all the way back to June of 2008 to find a higher reading (3.4%). 1-year inflation expectations also surprised by lifting to 4.4% versus a prior reading of 4.2% and an expected print of just 4%. This sets an interesting scene for the week ahead, because the US CPI report for October will be released tomorrow, and Keynesian types will tell you that inflation expectations ultimately become inflation.

Headline CPI is expected to print at 3.3% y-o-y (down from 3.7% in September), but the consensus estimate of economists surveyed by Bloomberg is for the core reading to remain unchanged at 4.1%. Stubborn inflation pressures, and the risk of ‘un-anchored’ expectations may have been on Fed Chair Powell’s mind last week when he told an IMF conference in Washington that “we’re trying to make a judgement at this point about whether we need to do more.”

This recalls Powell’s words from August, where he said that (with respect to monetary policy) “we are navigating by the stars under cloudy skies”. In short, the Fed doesn’t know whether it has done enough or not, and if the world’s most powerful central banker is uncertain on the outlook for rates and inflation, perhaps it comes as no surprise that compensation for uncertainty (the term premium) has been rising since July.

Financial markets seem to think the tightening cycle is over. Fed funds futures put the probability of another rate hike at only ~30%, and also imply close to three 25bp cuts before Christmas next year. With expectations of a cutting cycle that steep, it makes you wonder why any further hikes would be priced in at all? There seems to be a disconnect between what the central bank is saying (higher for longer, honest!), and what traders are hearing. We are firmly in the camp of Fed sceptics ourselves, maintaining as we do our call for a US recession beginning in Q4 and no more rate hikes.

The last few days have thrown up some new complications for policy makers in the USA. Moody’s announced on Friday that it has cut its outlook for the US credit rating from stable to negative. The rationale behind the shift is rising risks from large fiscal deficits and seemingly intractable political polarization, but you have to wonder if last week’s dreadful 30-year treasury auction that saw the longest tail on record and primary dealers left holding the baby to the tune of 24.7% of total issuance (more than double the average for the past year) was also a factor. Moody’s affirmation of the USA’s AAA long-term issuer and senior unsecured ratings seems to suggest that it was not, but maybe we have to read between the lines here.

Moody’s has been the lone holdout on rating the USA’s credit as AAA after Fitch cut their rating to AA+ in August and S&P did the same all the way back in 2011. The timing of the Moody’s change presents a source of embarrassment for the White House as Joe Biden is due to host Xi Xinping in San Francisco this week for the APEC conference. The two leaders will meet on Wednesday in what is sure to be an important event for both geopolitics and trade relations.

China has struck a more conciliatory tone recently as trade restrictions and a drought of foreign direct investment have added to economic woes from high debt loads and a teetering real estate sector. Just this morning Bloomberg reported that Xi may seek to offer Biden an olive branch on Wednesday by agreeing to smooth the path for Boeing to sell its 737 Max aircraft in China. This follows similar softening of China’s trade stance against US ally Australia, who had been put in the naughty corner after signing up to buy US nuclear submarines.

For Biden’s part, it might be a case of seeing is believing when it comes to market access in China. Long-time China watchers may be getting the feeling that they have seen this film before. Securing a deal to sell Boeing jets into China would be a win for Biden though, and with the loss of the final AAA rating looming, he could definitely use a win.

Trade considerations aside, White House National Security Advisor Jake Sullivan has indicated that restoring bilateral communication links between the American and Chinese militaries will be a priority for the conference. Those links were severed last year when former Speaker Nancy Pelosi visited Taiwan, and are seen as critical for minimising risks of ‘miscalculation’. The subject of Iran’s nuclear program is also likely to be discussed, though it’s hard to see China agreeing to use its influence to reign in Iranian ambitions while Iran remains a major energy supplier for China and a fellow traveller in seeking to dismantle American hegemony.

So, it’s another big week ahead for financial markets and geopolitics. We will be watching the US CPI print and the Biden-Xi meeting with interest, but not with any sense of great expectation.

Authored by Joseph Lord via The Epoch Times (emphasis ours),

Lawmakers will return to Capitol Hill this week with only a few days to avert a government shutdown.

Under current congressional funding authorizations, the government is set to go into a shutdown on Nov. 17. When lawmakers return to the Capitol on Nov. 13, they’ll only have four days until this deadline.

Every year, Congress needs to pass appropriations for twelve different sectors of the federal government. Failure to do so before the funding deadline leads to a partial or complete government shutdown, during which only federal services deemed essential remain functioning. Most federal employees are furloughed during a shutdown, and nobody—including members of the military—receives pay during this period.

Historically, government funding has been dealt with through major, usually thousand-page packages dubbed “omnibus” bills, a collection of most or all required spending legislation in a single bill. But many Republicans found this status quo unacceptable and have demanded that Congress instead pass each of the twelve spending bills on their own, a process they say is more transparent but also one which makes it harder to pass funding. The initial deadline to fund the government was at the end of September.

However, in an act that cost him the speaker’s gavel, then-House Speaker Kevin McCarthy (R-Calif.) put a continuing resolution (CR) on the floor, a stopgap spending bill that keeps the government open. This bill, which kept the government funded for 45 more days, passed largely due to Democrats’ support.

Just days later, on Oct. 3, Rep. Matt Gates (R-Fla.)—a longtime critic of Mr. McCarthy—put an ultimately successful measure on the floor to vacate Mr. McCarthy’s speakership.

Since then, the House remained largely paralyzed as Republicans sought a new speaker they could agree on, going through three unsuccessful nominations before landing on Rep. Mike Johnson (R-La.) as their pick to lead the House.

When he was elected on Oct. 25, Mr. Johnson inherited a House with only a few weeks to pass funding, a herculean task for a speaker still learning the ropes of leadership.

So far, each chamber has passed some of the required spending bills.

The Republican-led House under Mr. McCarthy and Mr. Johnson has passed seven of the twelve required bills, including funding for the Pentagon, Energy and Water, the Department of Homeland Security, the Department of the Interior and environmental agencies, the legislative branch, military construction projects and the Department of Veteran’s Affairs (VA), and the State Department and U.S. foreign operations.

Last week, House leadership was forced to pull two funding bills from the floor due to a lack of required votes, including funding for Financial Services and funding for the Department of Transportation and the Department of Housing and Urban Development.

The Democrat-led Senate, meanwhile, has passed three appropriations bills in a single package, dubbed a “minibus.” Senate-passed spending bills include funding for agriculture, military construction and VA, and the Department of Transportation and the Department of Housing and Urban Development.

However, none of the House or Senate-passed bills have yet gone to conference, meaning that, so far, not a single bill has made it to President Joe Biden’s desk.

And finding agreement between the two chambers on funding may be easier said than done. House Republicans hope to use the funding battle as a means of winning concessions on controversial issues from Democrats, and will likely demand at least some concessions that will be hard for Democrats to swallow in order to agree to a spending bill from the Senate.

Thus, Congress functionally remains at square one on funding the government a month and a half after the original deadline.

Under his newly-introduced plan, Congress would pass two CRs: one extending some government funding until Jan. 19, and another extending funding until Feb. 2.

In contrast to a traditional CR, which extends all government funding in a single package, Mr. Johnson’s laddered CR proposal would provide extensions for individual government sectors.

“This two-step continuing resolution is a necessary bill to place House Republicans in the best position to fight for conservative victories,” Mr. Johnson said in a statement.

“The bill will stop the absurd holiday-season omnibus tradition of massive, loaded-up spending bills introduced right before the Christmas recess,” he continued.

Such a method for extending government funding will likely be more amenable to some conservatives, but would also still likely need the support of Democrats to pass.

Democrats and Republicans alike have indicated they’d support such a proposal, but don’t necessarily consider it the best course of action.

Rep. Mario Diaz-Balart (R-Fla.) demurred from predicting whether this would be the route Mr. Johnson took.

“That’s a speaker’s call,” Mr. Diaz-Balart told The Epoch Times.

He indicated that he would support such a move, but said he didn’t see the benefit to breaking up the CR that way.

“You know, if you ask me, does that ladder thing have any real benefits? I would probably argue that I don’t see them,” Mr. Diaz-Balart said.

He added, “I think 99 percent of the people here, Republicans, understand that shutdown is really, really damaging to the country, to our national security. It wastes an amazing amount of money. And it gives you no leverage, right. But so so and we needed short-term CR we’ll see how we go on to handle that.”

Rep. Mike Garcia (R-Calif.) agreed, telling reporters that, while he would support a laddered CR if it came to the floor, “I don’t know if it’s the wisest move.”

Likewise, Rep. Thomas Massie (R-Ky.) didn’t comment on whether he thought Mr. Johnson would go with a laddered CR, but said that if he does, it should expire sometime early next year.

The real test for this plan will be in the Senate, where Democrats hold a thin majority. However, it seems from public comments that such a scheme could win the support of the upper chamber.

While he didn’t seem super enthusiastic about the prospect, Sen. Chris Murphy (D-Conn.) during an appearance on “Meet the Press,” said, “I’m willing to listen.”

Still, he opined that Congress shouldn’t be passing multiple CRs.

“That’s no way to run a railroad,” Mr. Murphy said.

“I don’t like this ‘laddered’ CR, it looks gimmicky to me,” he continued, but added that he was “open” to considering whatever the House sent over. “I don’t like what the House is talking about, but I’m willing to listen.”

Now that Mr. Johnson has committed to taking this approach, lawmakers can expect votes on the two stopgaps in the coming days.

Authored by Daniel Lacalle,

Market implied Fed Funds rate discount a string of cuts starting in January 2024 and culminating in a 4.492 percent in January 2025. These expectations are based on the perception that the Federal Reserve will achieve a soft landing and that inflation will drop rapidly. However, market participants who assume rate cuts will be bullish may be taking too much risk for the wrong reasons.

The messages from the Federal Reserve contradict the previously mentioned estimates. Powell continues to repeat that there is more likelihood of rate hikes than cuts and that the battle against inflation is not over.

Markets are not following monetary aggregates, and what they show is not good for the economy. According to the Federal Reserve, between September 2022 and September 2023, M1 declined from $20.281 trillion to $18.17 and M2 slumped from $21.52 trillion to $20.75. However, total borrowings soared from $20.3 trillion to $223 trillion. These are the total borrowings from the Federal Reserve, including those from the “discount window’s primary, secondary, and seasonal credit programs and other borrowings from emergency lending facilities.”

What does this mean for inflation and the economy? First, the amount of money in the system is not declining, and it is basically soaring to keep the troubled banking system alive. So monetary aggregates are declining fast, credit for families and businesses is dropping, and the cost of debt is rising at alarming rates, but the Fed’s liquidity injections into banks and lenders are at new record levels. That is why inflation is not falling as it should.

Yes, money printing goes on, but the productive sector is not seeing any of it. In fact, the private sector is bearing the entire burden of monetary contraction.

Because borrowing from the Fed continues to reach new highs, inflation is unlikely to drop as fast as M2 would indicate, and excess money growth continues to generate problems in the economy with few improvements as it just keeps zombie financial entities alive.

In this scenario, unless the economy starts growing fast without any significant credit impulse, something that is too hard to believe, it does not matter if the Fed cuts rates or not. The Fed is likely going to continue to ignore the weakness of the private sector, poor investment, and debt-driven consumption and accept a gross domestic product figure bloated by debt, while unemployment may remain low but with negative real wage growth.

If inflation remains persistent, the Fed will not cut rates, and the deterioration of the productive private sector will be worse because all the contraction in monetary aggregates will come from families and businesses. However, if the Fed decides to cut rates, it will be because they see a significant decrease in aggregate demand. Thus, as government spending is not dropping, the slump in demand will be fully generated by the private sector, and rate cuts will not make families and businesses take more credit because they are already living on borrowed time.

With these conditions, it is almost impossible to create a solid and positive credit impulse from rate cuts when the economy loses the placebo effect of debt accumulation.

It is difficult to believe that the productive sector is going to react to rate cuts in the middle of an earnings and wage recession in real terms.

Rate cuts will only come from a slump in aggregate demand, and this can only be the consequence of a collapse in the private sector. By the time the Fed decides to cut rates, the negative impact on earnings and margins is unlikely to drive markets higher, as many expect.

Fed rate cuts as the drivers of multiple expansions and bullish markets may be the ultimate mirage. If the Fed does cut rates, it is because it failed to achieve a soft landing, and by then, the risk accumulation in debt and Fed borrowing will be hard to manage.

It isn’t just Bill Gates who’s making a long-term bet on mining for EV metals: oil supermajor Exxon has joined the party, announcing this week that it is beginning to drill for lithium in Arkansas and that it hopes to become a major U.S. supplier for EV battery makers by 2030, according to a new report by the Wall Street Journal.

Though the Journal made mention of the idea back in May when the company bought drilling rights on 120,000 acres in southwest Arkansas for more than $100 million, Exxon let the public in on its longer-term plans for the first time on Monday. 

The company announced its commencement of lithium drilling in the Smackover region of Arkansas, with intentions to begin production of battery-grade lithium by 2027, per the report. 

Exxon will brand the new product Mobil Lithium.

The Journal reported that lithium prices have dropped by over 60% this year due to increased market supply and a slowdown in EV sales growth. But short-term moves in lithium prices have not deterred Exxon, which has a longer-term outlook on their objective. 

Exxon aims to supply lithium for over 1 million EVs annually by the decade’s end, with plans for global expansion and ongoing discussions with battery and EV manufacturers.

Dan Ammann, head of Exxon’s low-carbon business, highlighted the company’s commitment to enhancing North American energy security and reducing transportation emissions: “It’s a perfect example of how ExxonMobil can enhance North American energy security, expand supplies of a critical industrial material, and enable the continued reduction of emissions associated with transportation.”

For battery-grade production, Exxon plans to construct one of the world’s largest lithium-processing facilities, capable of producing 75,000 to 100,000 metric tons annually.

Exxon anticipates that demand for internal combustion engine fuels will peak by 2025 and return to early 2000s levels by 2050, with EV sales and lithium demand expected to surge by 2030, The Journal reported.

The expanding lithium industry in southwest Arkansas could revive the area, potentially creating thousands of jobs, a region affected by the 1980s oil crash.

Arkansas Governor Sarah Huckabee Sanders has committed to supporting this growth through tax cuts and regulatory simplifications. Exxon’s venture into lithium is both a new direction and a return to its roots, recalling its pioneering role in the 1970s lithium ion battery development.

Reuters reports that Exxon is also testing unproven Direct Lithium Extraction (DLE) technology that will be “crucial for commercial operations”. 

By Mish Shedlock of MishTalk

Christmas season rates to be dismal according to shipping analysis. And the economy is iffier than most think. Hold off on early sales, or better yet, just say no to a Christmas splurge.

The Wall Street Journal has some interesting thoughts on holiday sales this year partially based on import and rail traffic.

Please consider Five Economic Signs You’re Smart to Procrastinate on Holiday Shopping This Year

Early signs—from the number of boxes loaded on railway cars to rising consumer debt—signal a weaker holiday season than the past three, when pent-up demand coming out of the worst of the pandemic sparked shoppers’ spending.

“This holiday will be late breaking and heavily deal reliant,” Chris Cocks, the chief executive of toy maker Hasbro, which makes such wish-list staples as My Little Pony, Nerf blasters and Transformers, told analysts recently.

The National Retail Federation expects overall sales increases could be in line with the slower pace we saw in the decade leading up to the pandemic, from 2010 to 2019, when the average annual increase over that period was 3.6%. It expects November-December spending, not including inflation, to rise 3% to 4%. By contrast, sales rose 5.4% in 2022, 12.7% in 2021 and 9.1% in 2020.

Others are even gloomier. Some economic and company forecasts call for almost no growth in holiday spending this year, particularly when inflation is stripped out. The consulting firm Bain expects inflation-adjusted retail sales in November and December for stores and e-commerce to rise 1%, the slowest pace since the financial-crisis holidays of 2008.

Shoppers can look forward to more discounts as Christmas approaches, predicts Jordan Voloshin, CEO of the upscale chain of cookwares stores Sur La Table. “October was very soft,” he said. He expects sales will be concentrated on a few big days of discounting like Black Friday and the Saturday before Christmas.

Many businesses are planning for a ho-hum holiday season by importing less stuff. U.S. imports of TVs and computer monitors, footwear and toys—including games and sports equipment—fell 20% or more in the nine months through September, compared with the same period a year earlier, according to the Census Bureau. Bicycle imports are down 41%, and smartphones declined 16%.

Despite the United Auto Workers (UAW) union securing a tentative labor deal with Ford Motor Company in late October, there seems to be a division regarding the contract’s ratification, as indicated in an overnight vote by Ford employees in Louisville, Kentucky. 

According to local media WHAS11, Ford workers at the truck plant and assembly plant in Louisville, represented by the UAW Local 862 union, voted against the new labor contract. About 2,279 plant workers voted “yes,” and 2,812 voted “no” to ratify the new contract.

The vote was also revealed in a Facebook post: About 55% of the production workers voted against the new four-year contract, while 69% of skilled trade workers voted for it. 

In late October, Ford reached a tentative agreement on a new four-year labor contract with UAW. The deal included a roughly 25% pay increase over four years, cost-of-living wage adjustments, pensions and job security increases, and even the right to strike over plant closures. 

Local 862 boss Todd Dunn told the local media outlet that workers in Louisville have had their say by expressing discontent over the new contract. He said they must now wait for the rest of the union to cast their decision. 

“It’s an overall majority. It’s not a 50% plus 1, yes, it passed you’re good to go. So they take in all the numbers of everyone who voted across the country and do that population,” Dunn said.

At the end of last week, UAW workers at General Motors’ Flint, Michigan plant rejected the tentative contract agreement. About 53% of UAW Local 598 production workers voted against the deal, while 65% of skilled workers voted “yes.” Overall, 52% voted against the proposal.

Also, workers at a Flint engine plant voted against the deal, and four other units were in favor, according to UAW Local 659. 

Meanwhile, UAW Local 900 workers at Ford’s Michigan assembly plant voted 82% in favor of the deal. 

The tentative labor deal that ended the largest strike ever against the Big Three automakers might not be over if UAW members can’t ratify the new four-year labor contract.