Update (0953ET): Senate Majority Leader Chuck Schumer (D-NY) says the chamber has finally reached a deal to move the omnibus forward.

“It’s taken a while but it is worth it,” said Schumer, who says that while timing is unknown, he hopes to get a line of amendments through the voting process quickly. “We will vote on all of the amendments in order and then vote on final passage.”

WE HAVE A DEAL. Senate has a time agreement to get to the Omnibus. There is a line of amendments and Schumer is hoping to get through the votes quickly. Final timing still not 100%.

— Lisa Desjardins (@LisaDNews) December 22, 2022

Developing…

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A Trump-era border policy that allows immigration officials to turn quickly expel migrants without processing during a public health crisis is currently holding up passage of the omnibus spending package.

The effort, led by Sen. Mike Lee (R-UT), would keep Title 42 in place – and would cut funding for the office of Department of Homeland Security chief Alejandro Mayorkas unless the Biden administration reinstates the border control policy.

“We have a difference of opinion on immigration policy. We’re not going to solve that in this budge,” said Sen. Chris Murphy (D-CT), chair of the Senate Appropriations Homeland Security Subcommittee, who took aim at Lee’s immigration efforts. “And to let that disagreement take down aid to Ukraine to keep people alive during a cold winter, especially tonight, is pretty unthinkable.”

Lee, meanwhile, told Fox News on Wednesday night “I insisted that we have at least one amendment, up-or-down vote, on whether to preserve Title 42. Because Title 42 is the one thing standing between us and utter chaos. We already have mostly chaos. This would bring us to utter chaos if it expires, which it’s about to.”

The effort to maintain Title 42 has scuttled hopes that lawmakers could vote on the omnibus overnight, however on Wednesday evening, Senate Minority Whip John Thune (D-SD) said he thought they might be able to move forward on Thursday morning.

“There’s been some progress made. … I wouldn’t say breakthrough yet,” he said.

The Biden administration has sought to end the practice since the spring, arguing that the pandemic health emergency it was based on has subsided (despite extending the emergency last month). A group of GOP-led states has sued the administration in federal court to block him from ending the policy.

Title 42 was ruled “arbitrary and capricious” by a district court judge, and ordered the Biden administration to end it on Wednesday, but Supreme Court Justice John Roberts halted that deadline on Monday after the court was asked to intervene. On Tuesday, the Biden administration asked the court to end the program, but, asked for an extension until at least Dec. 27 to allow immigration officials time to prepare for a wave of illegal immigrants at the southern border.

While border agents are already encountering thousands of immigrants every day, the number is expected to rapidly spike when the program ends. Notably, the Biden administration has already minimized the use of Title 42 – instead processing immigrants under Title 8, which allows officials to screen for asylum claims, the Washington Examiner notes. Title 8 also allows border officials to refer migrants for criminal prosecution for repeat illegal entries.

US officials have expelled around 2.5 million migrants under Title 42, nearly two million of which have been carried out by the Biden administration.

A Democratic Senate aide told Punchbowl News that Lee’s insistence on Title 42 is a “poison pill”. If Lee’s amendment passes, Democrats say the omnibus bill would be “dead on arrival” in the house, which votes after the Senate. Democrats are reportedly circulating a competing amendment on Title 42 aimed at attracting centrists, and dissuading them from voting on Lee’s amendment.

“We have a difference of opinion on immigration policy. We’re not going to solve that in this budget,” said Sen. Murphy. “And to let that disagreement take down aid to Ukraine to keep people alive during a cold winter, especially tonight, is pretty unthinkable.”

Talk about a guilt trip…

According to Senate Majority Leader Chuck Schumer (D-NY), the chamber will work until 2am on Thursday. “It is my expectation that we will be able to lock in an agreement on the omnibus later this morning. We are very close, but we’re not there yet,” he said, asking members to stay near the chambers to “minimize any delays.”

Authored by Charles Hugh Smith via OfTwoMinds blog,

The gag reflex kicks in at some point and we walk away because it is no longer worth the price.

Everyone has a line in the sand when it comes to inflated prices they refuse to pay. For one Walmart shopper I observed, it was a carton of eggs for close to $10. She announced her line in the sand verbally, with great force and sincerity.

What’s your line in the sand, the point at which you simply refuse to pay the asking price? Is it the $25 burger? Or is it the $50 for two burritos and two beverages?

Each person’s line in the sand reflects their income, wealth, budget, social status and value system–what’s important to them. For some higher income folks, it might be the ridiculous “resort fee” that’s tacked onto the already overpriced resort room, hotel tax, excise tax, parking fees and the extra-special charge for Internet service.

For others, it might be the outrageous estimate for repairing a system failure in a nearly-new vehicle that is (surprise!) no longer covered by the manufacturer’s warranty. Hundreds of dollars for what?

How about $25 for a few ounces of specialty coffee beans?

Or is it $38 a pound for chocolate-covered nuts or some other confection?

Is it being stripmined to buy a hot dog and beer at a sporting event, or the “service charge” to buy a grossly overpriced ticket to a concert?

Or is it having to take out a second mortgage to cover the entrance fees to an amusement park?

Maybe it’s the shockingly high cost of what used to be dirt-cheap–a camping permit in a state or national park. (When camping becomes an expensive outing, the Revolutionary Clock is getting close to midnight.)

Could it be the absurdly inflated cost of cable TV service, or the total cost of all those subscriptions for marginal content/entertainment spew?

Or perhaps you finally had enough of paying over $5 for a box of cereal that’s now so narrow and tall (to mask the shrinking contents) that the box doesn’t even stand up on its own? (You can make your own much healthier granola for a fraction of the cost of packaged mostly-air cereals.)

Or maybe it’s paying extra to get a seat reservation after you’ve already bought the airline ticket. (Interesting, isn’t it, that buying an airline ticket doesn’t necessarily mean you have a seat reservation–that’s extra.)

Perhaps it’s the rental car fee that not that long ago was $25 a day that’s now $100 a day.

How about $2,400 a month for an ugly little flat in a new cookie-cutter apartment complex?

The gag reflex kicks in at some point and we walk away because it is no longer worth the price. Since price is set on the margins of supply and demand, all these lines in the sand will eventually become consequential.

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My new book is now available at a 10% discount ($8.95 ebook, $18 print): Self-Reliance in the 21st Century. Read the first chapter for free (PDF)

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A better than expected GDP print was just the kind of good news that stock market bulls didn’t want to hear this morning as Appaloosa’s David Tepper told CNBC told the world he is “leaning short” because central banks around the world are tightening and traders should “not ignore what the central bankers are saying.”

“I would probably say I’m leaning short on the equity markets right now because the upside/downside doesn’t make sense to me when I have so many Central banks telling me what they are going to do, what they want to do, what they expect to do,”

“I’m gonna lean short. I’ll be short bonds,” says David Tepper. “I’m an optimist but I would lean short on the equity markets because so many Central banks are telling me what they’re going to do.” pic.twitter.com/SWU1cTrGcl

— Squawk Box (@SquawkCNBC) December 22, 2022

His message is clear – rates will remain higher for longer as global central banks fight inflation that proves stubborn (wages and labor supply) and the market is not pricing that in at all…

“The market is not buying the Fed’s increasingly hawkish position that they are going to raise rates to a higher-than-expected level and keep them there,” said Lindsey Piegza, chief economist at Stifel Nicolaus & Co, according to Bloomberg.

The Appaloosa founder pointed out the hypocrisy of traders ‘fight the fed’ now after a decade of following them sheep-like: “I believed the Fed before and I believe the Fed now.”

“We are going to have a lot more tightenings.”

“Sometimes they tell you what they are going to do and you have to believe them,” Tepper added.

Tepper went on to say that the “upside/downside doesn’t make sense to me.”

“Don’t ignore what these guys (Central bankers) are saying,” Tepper said.

“I don’t think they will let a deep recession happen in some sense. It doesn’t necessarily bare well for earnings and the outlook.”

“It’s going to be just difficult for things to go up right now because of these banks and because what they are saying,” Tepper added.

Yields spiked on the ‘good’ GDP print…

All of which sent stocks tumbling…

Lots of people are passing around the following chart of the exploding put/call ratio suggesting everyone’s hedge so have no fear…

But, as SpotGamma warns, many regard this as a signal that traders are bracing for worlds end, but we can say with upmost confidence that this is not fear-based demand (which likely does not come as a surprise to SpotGamma readers). This put activity is being driven by an “operational” trade.

Finally, back to Tepper: as a reminder, in 2020 he appeared on CNBC and exclaimed that QE would pump markets…

“I love riding a horse that’s running,” Tepper told CNBC’s Joe Kernen in an exclusive email.

“We have been long and continue that way.”

…he was right then… and now that tide is going the other way, and he is riding that wave back out.

Let’s hope he is not ‘that’ right!

After the US economy plum

bed a technical recession in the first half on the back of a trade and inventory drag in Q1 and Q2 respectively, which pushed GDP negative in H1 but which was never recognized by the NBER, moments ago the BEA reported its final estimate of Q3 GDP which came in even hotter than previously expected, rising at a 3.240% rate, above the 2.930% estimated one month ago and well above the 2.57% initial estimate reported in October, mostly on the back of another upward revision in personal consumption.

The update from the “second” estimate reflected upward revisions to consumer spending, which rose 2.3% in Q3 up from 1.7% in the previous estimate and up from 2.0% in Q2, as well as upward revisions to business investment, and state and local government that were partly offset by downward revisions to inventory investment and exports.

Here is the breakdown:

• Personal consumption contributed 1.54% to the 3.240% GDP bottom line, up from 1.18% in the 2nd estimate and up from 0.97% in the 1st Q3 GDP estimate
• Fixed investment subtracted 0.62% in Q3, a smaller reduction than the -0.74% in the second estimate
• The change in private inventories however took off a bigger chunk, subtracting -1.19% from the final Q3 GDP, up from -0.97% previously.
• Net trade added 2.86% to the bottom-line GDP print (1.65% to exports, 1.19% imports), slightly below the 2.93% in the second estimate.
• Finally, government consumption added 0.65% to the bottom line print, up from 0.53% seen in last month’s revision.

Looking at the bigger picture, the third-quarter increase in real GDP reflected increases in exports, consumer spending, business investment, and government spending that were partly offset by decreases in housing investment and inventory investment. Imports, which are a subtraction in the calculation of GDP, decreased.

• The increase in exports reflected both goods (led by industrial supplies and materials, “other” goods, and nonautomotive capital goods) and services (led by “other” business services and travel
• The increase in consumer spending reflected an increase in services (led by health care and “other” services) that was partly offset by a decrease in goods (led by motor vehicles and parts as well as food and beverages).  
• The increase in business investment reflected increases in equipment and intellectual property products that were partly offset by a decrease in structures.   
• The increase in government spending reflected increases in state and local as well as federal (both defense and nondefense spending).  
• The decrease in housing investment was led by new single-family housing construction and brokers’ commissions.  
• The decrease in private inventory investment was led by retail trade (mainly clothing and accessory stores, other general merchandise stores, and “other” retailers). 
• The decrease in imports reflected a decrease in goods (led by consumer goods) and services (led by transport)

Strong GDP also meant higher inflation, and the GDP price index was revised up from 4.3% to 4.4% in Q3 (also higher than the 4.3% estimate), if below the 9.0% prior quarter. Core PCE Q/Q rose 4.7% in 3Q, also higher than the 4.6% in the previous estimate and 4.6% consensus estimate for the final print.

Today’s release includes estimates of GDP by industry, or value added—a measure of an industry’s contribution to GDP. Private services-producing industries increased 4.9 percent, government increased 0.6 percent, and private goods-producing industries decreased 1.3 percent. Overall, 16 of 22 industry groups contributed to the third-quarter increase in real GDP.

• The increase in private services-producing industries primarily reflected increases in information (led by data processing, internet publishing, and other information services); professional, scientific, and technical services; and real estate and rental and leasing (led by real estate). Partly offsetting these increases were decreases in utilities as well as finance and insurance (led by Federal Reserve banks, credit intermediation, and related activities).  
• The increase in government reflected an increase in state and local government that was partly offset by a decrease in federal government.  
• The decrease in private goods-producing industries primarily reflected a decrease in construction that was partly offset by an increase in mining

Russia has blasted Ukrainian President Zelensky’s Wednesday visit to Washington and appearance before Congress, calling it a “Hollywood-style trip” that’s meant keep the fires of “proxy war” against Russia burning. 

“The Hollywood-style trip to Washington by the head of the Kiev regime has confirmed that the administration’s conciliatory statements about the lack of intention to start a confrontation with Russia are just empty words,” Russian ambassador to the US, Anatoly Antonov, said in fresh statements.

“What was essentially announced to applause and sarcastic smirks, was the need to continue the ‘proxy war’ against our country. Until a complete victory over us,” he added. 

During Zelensky’s some 30-minute long speech before Congress, which was frequently interrupted by spontaneous standing rounds of applause from US lawmakers, the Ukrainian leader vowed “absolute victory” to be accomplished “with” the United States – in provocative words given while VP Kamala Harris and outgoing House Speaker Nancy Pelosi were just over his shoulder. 

Antonov further blasted the “manic idea of defeating the Russians on the battlefield” in reacting to the speech, also condemning Biden’s newly announced pledge to send Patriot missiles. The Russian ambassador warned that any crew, even if directly from the US or NATO, found manning the Patriot batteries and systems becomes a fair target on the battlefield. 

He additionally claimed that throughout the conflict Moscow has tried to “appeal to common sense at all levels,” but blamed the West for upping its supply of longer range missiles and more advanced arms which is leading to escalation and thus future consequences “impossible to even imagine.”

But Zelensky’s address to Congress and “the American people”, which marked a very rare opportunity for a foreign leader, was peppered throughout with phrases like “Only victory!” Near the end of the address he also quoted from Franklin D. Roosevelt’s famous “Day of Infamy” speech.

“The American people in their righteous might will win through to absolute victory,” Zelensky said while quoting FDR, and he followed by pledging that Ukraine too will achieve “absolute victory.” 

Caught up w/ the Ukrainian diaspora delegation on their way into the Capitol to cheer for Zelensky
They told me $45 billion wasn’t enough, neo-Nazis do not exist in Ukraine and the banning of the Russian wing of the Orthodox Church & oppo parties was justified bc “martial law” pic.twitter.com/pFE2wmWaH9

— Max Blumenthal (@MaxBlumenthal) December 22, 2022

As Zelensky arrived in Washington Wednesday, the Kremlin had signaled the trip to the US and meeting with Biden at the White House now means there’s no chance of peace with Kiev.

“The supply of weapons continues and the range of supplied weapons is expanding. All of this, of course, leads to an aggravation of the conflict. This does not bode well for Ukraine,” Kremlin spokesman Dmitry Peskov had said.

Authored by Rystad Energy via OilPrice.com,

• Europe’s renewable energy industry is booming.

• If Europe is to remain a leader in renewable energy, the region will have to invest more into its grid.

• Grid bottlenecks could derail Europe’s green energy boom. 

Europe’s energy transition ambitions face several challenges, but a major impediment to bringing new renewable power online is insufficient grid capacity. Rystad Energy’s current base case forecast has Europe adding as much as 530 gigawatts (GW) of solar PV and onshore and offshore wind between 2022 and 2030, more than 66 GW per year on average. Furthermore, the share of solar and wind combined as a share of total installed capacity surpassed 10% in 2010 and more than tripled in 2021, reaching 34%, according to Rystad Energy research.

Growth is not expected to slow down anytime soon, as European countries are planning huge additions of renewables over the next few years. If Europe is to remain a leader in the energy transition, a huge amount of grid capacity will need to be developed, both to integrate new generation capacity into respective countries’ power mixes and to better connect European countries so that electricity can flow in the most optimal way.

The staggering amount of new solar and wind capacity expected to come online in Europe in the coming years means that grid interconnectivity will be the bottleneck to both the more efficient use of energy sources as well as overall slower decarbonization of the power sector as more fossil fuels need to be used to compensate. Historically, this has been much less of an issue as Europe’s power system has been dominated by four large sources – coal, gas, nuclear and hydropower – all with varying degrees of dispatchability but none considered intermittent.

With the pace of renewable energy development substantially exceeding the speed of grid upgrades and expansion projects in parts of Europe, policymakers and the power sector will need to carefully examine if a country’s development plans for new generation capacity match its development plans for both internal and cross-border transmission capacity. The timelines for new projects are very long and some countries in Europe are already curtailing renewable power that could be used elsewhere – for instance, Germany curtailed about 10.2 terawatt-hours (TWh) of wind power in 2017, the highest of any European country to date. The yearly average is around 5% of variable renewable energy curtailed, highlighting how bottlenecks are already an issue.

“Europe’s increasingly connected power grid is one of the first globally to take on substantial amounts of renewable and intermittent power. Moving power around the continent to minimize the use of carbon-emitting fuels will only be possible if the grid is upgraded. This will not be simple, quick, or cheap, but it will reduce greenhouse gas emissions and increase energy security. The race is now on to see if grid upgrades can match the staggering levels of new renewables set to come online in the next decade,” says Fabian Rønningen, senior analyst, power markets at Rystad Energy.

Europe’s grid will need to connect northern winds and southern sunshine

The existing capacity base and future capacity will be spread unequally between European countries, with the likes of the North Sea emerging as another European energy hub with hundreds of GW of capacity planned to come online in the coming decades. For a future energy system, in which Europe’s energy sources are utilized optimally, both policymakers and industry will have to think differently about grid development, compared to the status quo. Most of the new capacity that will come online in Europe in the coming decades will be solar and wind, with such resources varying significantly across the continent. Southern parts of Europe have better solar conditions than the north, while wind resources are highest in the northern and eastern regions of the continent, as well as all coastal and offshore areas. This means that Europe’s future energy system could have a much higher degree of electricity flows between countries than we see today, despite Europe already being considered well interconnected.

Case study: Spain  

Spain has emerged as one of the European leaders when it comes to both solar and wind development, and currently has one of the largest renewables pipelines in Europe. Spain has the most economic solar potential of the large European countries due to its sizeable landmass and high yearly solar irradiation, while it has also been a pioneer in the European wind industry. Furthermore, due to its relatively weak coupling to the rest of continental Europe, Spain provides an excellent example of how internal European grid bottlenecks could hamper Europe’s energy transition.

Although grid development within Spain is expected to grow rapidly over the coming decade, only three high-voltage interconnectors to France are currently planned, two of which are not expected to come online before 2027. This is just one example of potential bottlenecks Europe could face over the next decade, as hundreds of GW of solar and wind power come online, while the development of supporting grid infrastructure lags, especially cross-border interconnections. Policymakers need to ascertain whether grid development plans are in line with ambitious renewable energy targets to ensure transmission capacity does not constrain the energy transition.

Installed capacity from renewable energy sources in Spain will more than double by 2030 in Rystad Energy’s current base case forecast. While installed capacity from non-renewable energy sources will drop from 54 GW in 2022 to 34 GW by 2030, capacity from renewable energy sources will grow from 64 GW to 151 GW. Solar will drive most of the growth in renewables, primarily driven by developments in central Spain. Expansion plans for transformer capacity are set to keep up with these ambitious growth targets in installed capacity. Spain’s transmission system operator (TSO), Red Electrica, has mapped out detailed plans for upgrades and expansions to its transmission network. Towards the end of this decade, these plans could see transformer capacity grow by more than 220% compared to 2022 levels. Although these upgrades to the network are planned across Spain, most capacity looks set to be added in southern and central Spain, particularly in communities such as Andalucia and Castilla y Leon (Figure 4). These are also the regions where most of the planned solar and wind capacity will come online in the next few years.

The last time a high-voltage interconnector between Spain and France went operational was in 2015. In subsequent years, the countries acknowledged the mutual benefits of further integrating their power grids by projecting three other high-voltage direct current connectors across their shared border. One of the projects is a 400-kilometer link that will run between the Cubnezais substation (near Bordeaux, France) and the Gatika substation (near Bilbao, Spain), known as the Bay of Biscay project. The interconnector will mainly be laid subsea in the Atlantic Ocean with the rest buried underground, and will be the first submarine interconnector between Spain and France. The project has total transmission capacity of 2 GW and will lift total interconnection capacity between the two countries to 5 GW. The project is currently expected to be completed by 2027. Additionally, the countries are investing in reinforcements to existing interconnectors.

When it comes to the use of France-Spain interconnectors, power has mainly flowed into Spain. Spain has been a substantial net importer of French electricity every year since 2016, with 12.4 TWh of net yearly imports at peak in 2017. This year will show a significant change with Spain a net exporter to France every month in 2022 except for February, amid a large shortfall in French nuclear generation. From 2016 to 2022, Spain was a large net importer of cheap French nuclear power, while in 2022 Spain had the flexibility to increase mainly gas-fired power generation to support French consumers amid the energy crisis. This further highlights the benefits of increased interconnectivity for both countries. Furthermore, Spain is currently one of the largest generators of renewable power in Europe and has an impressive pipeline of renewable energy projects, while a substantial proportion of electricity exported to France so far in 2022 has been solar and wind.

Unlike Spain, France has not planned to increase the share of renewable energy sources in its power mix to the same extent. The situation with nuclear power in France is expected to improve in 2023, which will also benefit Spain. With more interconnectors between France and Spain, the two can rely on each other during periods when their power production is low. Given the abundant renewable energy power that will be produced in Spain, France will then be able to import clean, renewable energy when the sun shines and the wind blows. On the other hand, Spain will be able to import stable and dispatchable energy from France’s nuclear reactors to fill the intermittency gaps when the weather is less favorable. In other words, expanding high-voltage connections between the two power grids will benefit both countries and the wider European region.

This begs the question: is enough interconnector capacity being developed in Spain and France compared to the pace of renewable installations? The timelines of the interconnector projects are very long, as shown by the Bay of Biscay project, which is expected to take 10 years from initial consultations started in 2017 until it is expected online in 2027. As an illustration, 5 GW of transmission capacity will be able to interchange roughly 40 TWh per year if used at very high utilization factors – a substantial amount, but relatively small compared to total power demand in both countries. Both countries’ power demand is also expected to increase rapidly after 2025, as the electrification of their economies continues. Furthermore, the Spain-France example is just one of many. Many of the same questions will arise in other parts of Europe, especially as the North Sea is emerging as another European energy hub with hundreds of gigawatts of capacity planned to come online in the coming decades. Therefore, both policymakers and the power sector should carefully examine if a country’s development plans for new generation capacity match with its development plans for both internal and cross-border transmission capacity. The timelines for new projects are very long and Europe simply cannot afford grid bottlenecks halting its energy transition plans.

Authored by Yanis Varoufakis via Project Syndicate,

After the 2008 financial crash, the European Union only papered over the internal North-South conflict that emerged, and the war in Ukraine has produced a new East-West divide. Once peace arrives, both fault lines will only grow deeper, uglier, and impossible to ignore.

This is not a polemic about whether Russia can be trusted to respect any future peace treaty with Ukraine. Nor is it a commentary on the merits of ending the war by diplomatic means. It is, rather, a reflection on the latest European paradox: While peace in Ukraine would help stem Europe’s economic hemorrhaging, the moment any peace process begins, the European Union will be divided by an internal East-West fault line, which is bound to reawaken the EU’s earlier North-South conflict.

A credible peace process will require difficult negotiations involving the world’s great powers. Who will represent Europe at that high table? It is hard to imagine Polish, Scandinavian, and Baltic leaders ceding that role to their French or German counterparts.

In the EU’s eastern and northeastern flanks, French President Emmanuel Macron is considered a Putin appeaser ready to impose on Ukrainians a reprehensible (to them) land-for-peace agenda. Likewise, setting aside Germany’s long-term reliance on Russian energy, Chancellor Olaf Scholz’s standing as a torchbearer of Europe’s collective interest has been damaged further by his €200 billion ($212 billion) fiscal defense of German industry – the type of tax-funded protective shield which Germany vetoed at the EU level.

Meanwhile, French and German elites pour scorn on the idea that the EU might be represented in any peace process by the likes of Kaja Kallas, Estonia’s Prime Minister, or Sanna Marin, her Finnish counterpart. “The moral crusades of the Ukraine war maximalists are fashionable now but they will hinder, not help, any peace process,” was how a German official put it to me.

So, the question remains: Who will represent the EU in any future peace process?

Had the EU seized upon the massive banking-cum-debt crisis of the post-2008 era to democratize its institutions, Europe might now be credibly represented by its president and foreign minister. Alas, as things stand, European citizens and national leaders would cringe at the thought of being represented by Charles Michel, the EU Council President, and Josep Borrell, the EU foreign policy supremo. Macron and Scholz, alongside almost every other European president or prime minister, would surely object.

The optimistic view in Brussels is that, despite its lack of legitimate envoys and military weakness, the EU will carry considerable weight in any negotiations because it is the economic powerhouse that will pay for Ukraine’s reconstruction and be the arbiter of any process by which Ukraine joins the EU single market, customs union, or even the EU itself. But is such optimism justified?

The EU will undoubtedly pay huge sums and orchestrate any postwar Ukraine accession process. But there is no reason to think this will guarantee the EU an influential role during the peace process. In fact, there are good reasons to think that the EU’s role as the main funder of Ukraine’s reconstruction will divide and weaken the Union more than even the crisis a decade ago.

The EU’s own European Investment Bank estimates the cost of Ukraine’s reconstruction to be around €1 trillion – the amount of the EU’s budget over the 2021-27 period and 40% higher than its post-pandemic recovery fund, NextGenerationEU. Already hamstrung by its domestic €200 billion plan to shore up Germany’s collapsing industrial model, and the €100 billion Scholz has earmarked for defense spending, Germany lacks the fiscal space to provide even a fraction of that sum.

If Germany can’t pay, it is clear that the other EU member states can’t, either. The only way to pay for Ukraine would be for the EU to issue common debt, retracing the painful steps that led to the recovery fund’s creation in 2020.

Pressed to deliver the cash, the EU might well go down that path, only to find it leads to vicious acrimony. True, EU leaders agreed on common debt during the pandemic. But inflation was negative at the time, and all EU members were facing an economic implosion as lockdowns killed demand across Europe. Once peace prevails in Ukraine, they will need to agree to even more common debt to fund Ukraine’s reconstruction at a time when interest rates have quadrupled, inflation is rampant, and the economic benefits to EU members are bound to be grossly uneven.

Spain will question the fairness of shared debt when German companies get the lion’s share of Ukraine’s reconstruction business. Poland will protest loudly when Germany and Italy announce that, with peace restored, they will be buying energy from Russia again. Hungary will sell its acquiescence to any Ukraine fund dearly, demanding even more exemptions from the EU’s rule-of-law and transparency conditionalities. In the midst of this bedlam, the old North-South (or Calvinist-Catholic) divide, on the merits of fiscal union, will return with a vengeance.

Germany already fears that France will insist on permanent, and fairly regular, issuance of common debt, which the German political class will resist, and not only because the German Constitutional Court has already ruled against the idea. The deeper reason is that the fiscal union France seems to favor would require German conglomerates to abandon a practice that is in their DNA: accumulating US assets that they purchase on the back of the large net exports to America made possible by stagnant German wages and underpriced natural gas.

So, unless President Joe Biden’s Inflation Reduction Act changes Germany’s mindset by raising a protectionist barrier around the United States that kills off German net exports to America, any negotiations to end the Ukraine war are bound to aggravate the EU’s East-West divide – and then reignite the old North-South divide.  

None of this should be surprising. After the 2008 financial crash, the EU only papered over the North-South fault line that emerged. The war in Ukraine inevitably produced a new East-West fault line. Once peace arrives, both fault lines will only grow deeper, uglier, and impossible to ignore.

Lumber peaked at $1,336 per thousand board feet in late February but has settled at around $380 this week, representing a dramatic 72% decline in prices, primarily due to elevated mortgage rates, slowing housing activity, waning builder confidence, and overall mounting macroeconomic headwinds. 

The plunge in lumber prices is no surprise as builder confidence for newly-built single-family homes posted its 12th consecutive month of declines in December, according to the National Association of Home Builders. Confidence is at its lowest reading since mid-2012.

Besides dismal homebuilder sentiment, housing starts and building permits for November also showed deterioration in the housing industry. The number of housing starts (SAAR) is at the lowest since June 2020. 

Forward-looking housing Permits are down over 22% YoY – the most significant drop since 2009 (with single-family permits -29.7% YoY and multi-family down 10.7%)…

Single-family building permits will likely move lower as homebuilder expectations for future sales are at decade lows..

Weaker housing conditions will persist into 2023 and are explicitly weighing on lumber demand, and thus lumber prices.

Lumber prices are expected to remain range bound between $400 and $200 until Jay Powell is forced to cut interest rates back to zero due to the recession and sparks the next housing craze. 

Framing, paneling, and plywood, types of lumber used to build a home, are well off their highs. Remember when plywood at Home Depot was fetching nearly $100 per sheet? 

If you waited for the lumber bubble to deflate — this might be the perfect time to buy. 

Authored by Tsvetana Paraskova via OilPrice.com,

The EU’s price cap on natural gas is an untested tool that may not work as intended to prevent gas price spikes for European households and businesses, the head of the European Union Agency for the Cooperation of Energy Regulators (ACER) told the Financial Times. 

The gas price cap is “a difficult creature. It’s unprecedented, it’s untested,” ACER’s director Christian Zinglersen told FT after the EU energy ministers agreed to set a cap on the benchmark EU gas price as of the middle of February 2023.    

Zinglersen also noted that he would be “reluctant to rely on this gas price cap” to protect EU consumers from price spikes. 

After months of negotiations, the EU finally agreed on Monday to set a price cap on natural gas to protect consumers from excessive price spikes and limit inflationary pressure and industrial damage to European economies.

On Monday, EU energy ministers reached a political agreement on a regulation that sets a so-called “market correction mechanism”, which would come into force on February 15, 2023.  

The market correction mechanism will be triggered if the month-ahead price on the Title Transfer Facility (TTF), Europe’s key benchmark, exceeds $191 (180 euros) per MWh for three working days, and the month-ahead TTF price is $37 (35 euros) higher than a reference price for LNG on global markets for the same three working days.

However, if risks to the security of supply occur, the European Commission will suspend the price cap rule, the EU agreed.  

The price cap could limit Europe’s capacity to continue to draw most of the global spot LNG supply, analysts say.

Some EU member states such as Germany and the Netherlands had reservations about a price cap, concerned that a market intervention and a ceiling on prices would take away Europe’s key advantage in attracting LNG supply—higher prices than in Asia. Germany agreed to back the price cap only after the EU also agreed to accelerate permitting rules for renewable energy projects, according to EU officials.