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Brace For Price Shock: Americans’ Heating Bills To Soar Up To 50% This Winter

Brace For Price Shock: Americans’ Heating Bills To Soar Up To 50% This Winter

So far, Americans have been watching the money-depleting energy crisis that hit Europe and Asia with detached bemusement: after all, while US energy prices are…

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Brace For Price Shock: Americans' Heating Bills To Soar Up To 50% This Winter

So far, Americans have been watching the money-depleting energy crisis that hit Europe and Asia with detached bemusement: after all, while US energy prices are higher, they are nowhere near the hyperinflation observed in Europe. That is about to change because as the Energy Information Administration warned this week, much higher heating bills are coming this winter.

According to the IEA's October winter fuels outlook (pdf), nearly half of U.S. households that warm their homes with mainly natural gas can expect to spend an average of 30% more on their "multi-year high" bills compared with last year. The agency added that bills would be 50% higher if the winter is 10% colder than average and 22% higher if the winter is 10% warmer than average.

The forecast rise in costs, according to the report, will result in an average natural-gas home-heating bill of $746 from Oct. 1 to March 31, compared with about $573 during the same period last year.

The IEA projects that U.S. households will spend more on energy this winter than they have in several years due to soaring energy prices—natural-gas futures have this year reached a seven-year high—and the likelihood of a more frigid winter than what most of the country saw last year.

As the Epoch Times adds, propane costs are forecasted to rise by 54%, heating oil costs to rise by 43%, natural gas costs to rise by 30%, and electricity costs to rise by 6 percent. And with natural gas consumption projected to rise by 3% this winter, households are expected to spend $746 this winter, up from $573 last winter.

The increase in natural gas heating costs varies by region with the Midwest U.S. leading the price hike at a 45% increase from last winter, and the Northeast expecting a hike of 14%.

Nearly half of all U.S. households use natural gas as the primary source of heating. Households relying on heating oil over winter will spend $1,734 over winter, relative to $1,212 last winter.

Houses in Northeastern regions will be more affected by the price hike as nearly one in five homes in the region rely on heating oil as their primary source of space heating. The projection is based on the Brent crude oil price, which helps determine the prices of U.S. petroleum products.

“The higher forecast Brent crude oil price this winter primarily reflects a decline in global oil inventories compared with last winter as a result of global oil demand that has risen amid restrained production levels from OPEC+ countries,” according to the EIA.

While most households commonly use electricity for heating, 41% rely on electric heat pumps or heaters as their primary source for space heating. These homes should expect to spend $1,268 this winter season, relative to $1196 last year. This projection accounts for 3 percent more residential electricity demand with more Americans working from home, a colder winter, as well as a rise in fuel costs for power generation.

“During the first seven months of this year, the cost of natural gas delivered to U.S. electric generators averaged $4.97/MMBtu, which is more than double the average cost in 2020,” stated EIA.

The 5 % of U.S. homes using propane as the primary means to heat can expect to spend $631 more on average compared to last winter, depending on the location.

Residents of the Midwest can spend an average of $1,805 this winter, reflecting higher propane prices and a 2 percent increased consumption.

Propane prices have been at their highest since February 2014 due to increased global demand, relatively flat U.S. propane production, and limited oil supplies from OPEC+ countries.

The looming increase, on top of rising prices for many consumer goods and commodities, is likely to cause stress for Americans at many income levels. Should prices rise too far, a repeat of the mass protests observed across European capitals denouncing soaring energy costs, is likely.  Economists warn that the larger utility bills are most likely to affect those households still hobbled by the Covid-19 pandemic.

“We are very concerned about the affordability of heat this winter for all customers, but in particular those who struggle every day to afford their utility services,” says Karen Lusson, a staff attorney for the National Consumer Law Center, a nonprofit that advocates on consumer issues for low-income communities.

Sounds like another laser-guided stimmy courtesy of the Biden admin is coming.

Tyler Durden Thu, 10/14/2021 - 18:20

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Economics

How Did Friday’s Selling Compare To March 2020 Selling? My Takeaways

News that a new COVID-19 variant has surfaced in South Africa spooked global equity markets on Friday. Was it an overreaction and an opportunity to buy some of your favorite stocks cheaper? Or is the start of a much deeper, panic-driven selloff. Unless…

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News that a new COVID-19 variant has surfaced in South Africa spooked global equity markets on Friday. Was it an overreaction and an opportunity to buy some of your favorite stocks cheaper? Or is the start of a much deeper, panic-driven selloff. Unless you're a scientist with inside knowledge, I don't think it's possible to know. There are so many questions right now that haven't been adequately answered and may not be answered for several days or weeks. Among those questions would be (1) rate of transmissibility, (2) efficacy of current vaccines against the new variant, (3) the new variant's infection fatality rate (IFR), and so forth. Without this information, it's impossible to try to determine what steps countries around the globe may need to take.

When the delta variant was first studied, it was found to be much more contagious and now the World Health Organization (WHO) estimates that 99% of the world's COVID cases are the delta variant. The worst case obviously would be that this new variant is even more contagious and that vaccines are proven to be ineffective protecting against it. But if global markets continue to panic and selloff as they did on Friday and the new variant poses less risk than first thought, clearly a major global rally could follow.

So what do we do?

Well, rather than search media outlets looking for financial advice, which proved to be absolutely worthless during the height of the 2020 pandemic (remember the Great Depression 2.0 forecasts?), I'd suggest we focus instead on what Wall Street is doing with their money. What sectors and industries are performing poorly on a relative basis (suggesting more exposure to an extended selloff)? Also, which sectors and industries actually performed better during the day on Friday, which would impact their respective AD lines. If you recall, the AD lines were, in my opinion, the best technical indicator throughout 2020 as they helped us identify which areas were being accumulated vs. distributed during the pandemic.

So let's take that approach again as we analyze Friday's action.

It's Deja Vu All Over Again

When I looked at major index and sector performance on Friday, the ranking was nearly identical to the period from February 19, 2020 (market top before panicked selling began) through March 23, 2020 (subsequent low on the S&P 500).

Energy (XLE), financials (XLF), industrials (XLI), and real estate (XLRE) were the bottom 4 sectors during the panicked selloff in 2020 and those 4 were again among the weakest on Friday. Meanwhile, consumer staples (XLP) and health care (XLV) were first and second (though reversed) both during the initial crisis in 2020 and again on Friday.

The order of performance on our major indices were almost identical.

Based on this quick analysis, if we continue to see a COVID-related selloff, I'd most definitely be expecting those bottom groups to continue to lead the selloff. If you have significant exposure in Friday's weakest sectors and industry groups, then I believe your risk is higher as we move into next week.

The Outliers

Not all industry groups conformed with last year's performance ranking. Those that remained relatively strong on Friday (key word here is relative as it wasn't a good day for many groups) and were also relatively strong back in March 2020 included the following industry groups:

  • Gold mining ($DJUSPM): #1 in March 2020 and #2 on Friday, or 1 and 2 (out of 104 industry groups)
  • Mining ($DJUSMG): 3 and 3
  • Mobile telecom ($DJUSWC): 4 and 6
  • Biotechnology ($DJUSBT): 8 and 1
  • Toys ($DJUSTY): 9 and 4

These were the only 5 groups that were in the Top 10 in March 2020 and on Friday.

Then there's the flip side - those industry groups that were weak in both periods:

  • Recreational Services ($DJUSRQ): 103 and 104
  • Oil equipment & services ($DJUSOI): 101 and 96
  • Coal ($DWCCOA): 100 and 98
  • Airlines ($DJUSAR): 99 and 103
  • Aerospace ($DJUSAS): 97 and 97

These were the industries that were in the Bottom 10 in both periods. I'd definitely avoid all of these groups in the very near-term until we get more clarity. It may mean you miss some upside, but steering clear will eliminate the significant risk that exists if this new COVID variant proves to be more problematic than the delta variant.

What About Accumulation/Distribution (AD Lines)?

We saw very weak futures overnight on Thursday and our major indices gapped down significantly. But where did Wall Street see opportunity to accumulate? Well, one way to gauge that is to compare Friday's closing price to its opening price. It makes common sense that a higher close means there were more buyers than sellers throughout the day. The opposite is true if the close was below the open.

I'll be honest. I wasn't expecting the results that we actually saw. For instance, energy (XLE) was clearly the worst performing sector on Friday, but it rallied strongly in the afternoon and its AD line neared a 3-month high:

I have to say that energy behaved quite well during the day on Friday after a rather inauspicious start. The hammer at support, along with that rising AD line provides hope for a group that I said to avoid earlier in this article. We can't ignore that volume because it came on extremely heavy volume. Nearly 45 million shares changed hands, which wasn't the biggest volume day of the year. But we need to keep one thing in mind. The market closed early at 1pm ET on Friday. Had we been open a full day I believe the XLE may have traded its heaviest volume of the year. That, combined with the huge reversal, could signal a major bottom here. We'll have more days ahead that will provide us more clues, but based on my AD analysis, I'd turn bullish the group if I knew we weren't going to wake up to more negative COVID news on Monday morning. But that's the world we live in right now and the uncertainty is almost paralyzing.

There was one industry group on Friday that showed even greater signs of accumulation, gaining roughly 3.5% in the final 90 minutes of trading. The S&P 500 was flat during this same 90-minute period and the NASDAQ actually lost some ground, making this industry group's recovery stand out even more. I'm featuring the group and one of its component stocks to keep an eye on in my FREE EB Digest newsletter on Monday morning. If you're not already a free EB Digest subscriber, you can subscribe HERE by providing us your name and email address. There's no credit card required and you may unsubscribe at any time.

Happy trading!

Tom


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Commodities

Mexico’s Wealthiest Person Ricardo Salinas: “Buy Bitcoin Now”

Mexico’s wealthiest person, Ricardo Salinas Pliego said that the US looks quite irresponsible and like a third world country because of its mass printing policies but BTC is here to solve the problem, urging his followers to buy Bitcoin now. Let’s…

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Mexico’s wealthiest person, Ricardo Salinas Pliego said that the US looks quite irresponsible and like a third world country because of its mass printing policies but BTC is here to solve the problem, urging his followers to buy Bitcoin now. Let’s take a closer look at today’s Bitcoin news.

Mexico’s wealthiest person Ricardo Salinas Pliego continued showing his support for Bitcoin by urging his investors to allocate money to it and compared BTC to gold giving his preference to BTC. The billionaire businessman Ricardo Salinas Pliego has been a long-time bitcoin advocate and admitted that he started investing in the leading digital asset in 2016 when it stood at only $800. In June 2021, he opined that bitcoin is a financial tool that has an international value and is traded with huge liquidity and that for that reason, each investor should own portions of it. Right after, he labeled all fiat assets as fraud and said that he will hold only BTC for the next 30 years if he had to choose.

The Mexican doubled down on his support for BTC and advised people to enter the BTC ecosystem as soon as possible. He also slammed the USA and the Federal Reserve for printing “fake money.” it is worth noting that the central banking system of the USA printed trillions of dollars to reduce the economic blow that the COVID-19 pandemic caused. The vast amount of cash in circulation with other controversial monetary policies led to increasing inflation rates around the world.

On the other hand, BTC is finite with  21 million BTC ever to exist. As such, most see the asset as a hedge against inflation and a huge investment solution during a monetary crisis. Salinas Pliego is known as the third richest man in Mexico also supports this statemetn and added that Bitcoin is the new digital gold. Both assets have similar use cases but the cryptocurrency is superior because it is easier than having gold in your pockets. Grupo Salinas is the parent company of Banco Azteca as one of the leading in Mexico and earlier this year, Pliego announced his intentions to provide other opportunities to clients of the bank.

However, the Central Bank, the National Banking and Securities Commission as well as the Ministry of Finance, reiterated that digital assets are not considered money according to the current law in Mexico.

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Government

Jobs (US) and Inflation (EMU) Highlight the Week Ahead

The new covid variant and quick imposition of travel restrictions on several countries in southern Africa have injected a new dynamic into the mix.  It may take the better part of the next couple of weeks for scientists to get a handle on what the new…

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The new covid variant and quick imposition of travel restrictions on several countries in southern Africa have injected a new dynamic into the mix.  It may take the better part of the next couple of weeks for scientists to get a handle on what the new mutation means and the efficacy of the current vaccination and pill regime.

The initial net impact has been to reduce risk, as seen in the sharp sell-off of stocks.  Emerging market currencies extended their losses.  The JP Morgan Emerging Market Currency Index has fallen in eight of the nine sessions.  Among the major currencies, the currencies used to fund the purchase of other financial assets, namely the yen, Swiss franc, and euro, strengthened in response to the covid news.  The currencies that are seen levered to growth,  like the dollar bloc and Scandis, fell. 

Although it may not always seem that way, there are few sure things.  We occupy a probability world.  What is known and not known about the new variant leads market participants to reduce the odds that the old trajectory would continue unabated.  In the context of the sensitivity of foreign exchange prices to monetary policy, that trajectory was characterized by an elevated risk of a BOE hike next month and for Fed to accelerate the pace of tapering.  The sharp rally in the fed funds and Eurodollar near-term futures contracts reflect the market reassessing the odds.  The implied yield of the December 2021 short-sterling interest rate futures contract fell to its lowest level since September 23.  

The week ahead features the US November jobs report and the eurozone's preliminary estimate of November CP, which are the stuff that moves markets typically.  Yet, the new variant may overshadow the economic data.   

Before the emergence of the new variant, the rising infections in Europe seemed to be having a minimal economic impact.  The flash composite eurozone PMI rose in November, the first increase in four months, and at 55.8 suggest output remains robust even if not as much as in Q3 (average composite PMI was 58.5) and Q2 (average composite PMI was 56.8). Moreover, the eurozone Sentix expectation survey for November rose for the first time in May.  Indeed, it fell more in July and August than it did in September and October.  

That said, economists have been anticipating a sharp slowdown in EMU growth in Q4.  Recall that after contracting in Q4 20 and Q1 21, the eurozone economy expanded by 2.1% in Q2 and 2.2% in Q3 (quarter-over-quarter). The median forecast in Bloomberg's survey sees 0.8% quarterly expansion through the first half of next year.  It is bound to be more volatile than that, and the risks are on the downside in Q4 21 and into Q1 22. 

On the other hand, the US economy is accelerating after the disappointing 2% annualized pace in Q3.  Nearly all of the high-frequency monthly data was stronger than the median (Bloomberg) forecast in October.  Rising consumption is a critical factor.  Consumer durable purchases are important, and next week's news is expected to include the second consecutive increase in auto sales after a collapse from April (18.5 mln vehicles seasonally adjusted annual rate) through September (12.18 mln).   

Two main forces drive US consumption. First, the wealth effect is captured in rising financial assets and house prices.  It is arguably what has let many people retire early since the pandemic struck.  Then there is the income effect.  Government transfer payments are essential even in "normal" times.  While some programs, like the federal supplemental unemployment compensation, have expired, others, such as the enhanced child-earned tax credit, have only recently begun.  Still, wages and salaries are key, which brings us to the November jobs report on December 3.  

From a high level, the US labor market is sizzling.  It filled an average of 582k jobs a month through October.  Economists look around another 500k people to have joined the payrolls in November.  The ADP private-sector jobs estimate has been lower than the national estimate by an average of 23k a month over the past three months and about 51k a month so far this year.  The median forecast in Bloomberg's survey projects that about 525k private sector jobs were filled in November.  Manufacturing employment, which surged by 60k in October, the most since last June, is expected to have slowed to 45k, which is still about 50% higher than this year's average pace. 

Unemployment is expected to fall to 4.4% from 4.6%.   Recall that it was above 6% until May.  The underemployment rate is also falling.  While much of the labor market has evolved as Fed officials, investors, and households had hoped, a problem remains.  The (relatively) low participation rate remains problematic.  Before the tech bubble burst in 2000, it hovered around 67% and was bouncing around 66% when the Great Finance Crisis hit.  It fell to about 62.5%, and 2014-2019 appears capped approximately 63%, though, in late 2019, it reached an eight-year peak of 63.4%.  Covid saw the rate plummet to 60.2%.  It has recovered, but it has been 61.6%-61 since April.7%, first seen in August 2020.   

Outside of regulatory issues and where climate change and monetary policy intersect, this is one of the few issues that seem to separate Powell and Brainard.  Given the trade-offs, theFed Chair seems open-minded about it but is unsure that the previous participation rate can be achieved. Dr. Brainard also seems open-minded but tilts in the other direction.  This appears to be one of the few issues that former Treasury Secretary Summers agrees with Bernanke.  

The eurozone is in a difficult position.  While the preliminary composite PMI ticked up to rise for the first time since July, the news has been overshadowed by the rising pandemic in Europe.  Some new social restrictions have been implemented, spurring large-scale protests in some countries.  It may take a little while for the impact to be seen in the real sector data. However, sentiment indicators may detect it first.  The November German IFO assessment of the overall business climate, reported last week, fell to its lowest level since April.  It had been pulling back since recording the cyclical peak in June.  

At the same time, price pressures are accelerating.   Higher energy prices, a weaker euro, and the base effect point to the risk of a large rise when the preliminary estimate of this month's aggregate CPI is reported on November 30.  The statement that accompanied the preliminary November PMI noted that the selling price in the manufacturing and service sectors accelerated to almost 20-year highs.  Brent crude oil is off slightly this month, but natural gas prices have soared by more than 40% since the end of October.  

The euro was having a poor month, falling more than 3% against the US dollar to levels not seen since July 2020.  It pared some of these losses ahead of the weekend, leaving it off about 2.3%.  And to aggravate the situation, recall that EMU CPI fell by 0.3% in November 2020.  When this drops out of the 12-month comparison, the chances of a shockingly strong number rises. The median forecast in Bloomberg's survey for CPI to rise to 4.3% from 4.1% seems too cautious.   The report will provide fodder for the debate at the December 16 ECB meeting.  

The meeting is expected to confirm that the Pandemic Emergency Purchase Program will end in March as currently planned.  The "modalities" of the Asset Purchase Program will also be announced.  The size,  flexibility, and duration are of prime interest.  The hawks may crow about the high inflation. Still, the ECB's leadership appears to have majority support that the price pressures are temporary and mostly related to the distortions around the pandemic.   While a surge in CPI could embolden the hawks, the virus wave works against looking past the emergency too early.   

Three other events will draw attention in the week ahead.  The first is China's November PMI.  We don't think the details matter so much.  It is manufacturing PMI has fallen without interruptions since March and has been below the 50 boom/bust level in September and October.    The non-manufacturing PMI recovered from the drop below 50 in August (47.5) but slipped in October and is expected to have fallen in November.  The composite has been trending lower this year.  It peaked last November at 557. and stood at 50.8 in October.  Officials are dissatisfied with the growth and the risks to the economy.  Beijing is encouraging lending, including to the property market, and wants local governments to step up their spending.  Word cues by the PBOC have renewed speculation about a cut in reserve requirements (the last reduction was in July). 

Second, on November 30, Treasury Secretary and Federal Reserve Chair Powell testify before the Senate Banking Committee on the CARES Act, the first (of several) fiscal responses to the pandemic.  It was a $2.2 trillion effort approved in March 2020.  The Federal Reserve welcomed the initiative, and Powell has often recognized the importance of fiscal support. To the extent that either official talks about the current economic conditions, investors will take notice.  

Third, OPEC+ meets next week to set policy.  It had been set to boost output by another 400k barrel per day in December, but several countries announced intentions to sell some of their oil reserves, which may change their calculus.  It looks like the consumer nations may release 65-70 mln barrels.  It was led by a 50 mln barrel commitment by the US, which includes accelerating the sale of 18 mln barrels that it had previously planned, which was related not to an emergency but a previous budget deal.  

The remaining 32 mln barrels are not entirely sold, more like lent out and would be returned. It could take several months for the operation to be completed.  Reports indicated that China would provide more oil, but it seemed to cast doubt on a coordinated effort. The UK offered 1.5 mln barrels of oil but conditioned it on the willingness of the private sector to participate.  

The oil that the US is making available is the heavy sour crude that needs more refining and is not desired by US refiners. A gasoline shortage remains.  Reports suggest India and China refiners have been the beneficiaries of the sales of US crude this year.  Paradoxically,  the US wants to deter Chinese companies with military ties while selling it oil used to fuel tanks, ships, and planes.  Lenin's quip about capitalists selling the rope that will be used to hang them comes to mind, despite the Trump tariffs remaining in place.    

OPEC+  may want to send a signal that it will avoid another devastating price war. Investing in crude capacity and carbon, more generally, is not in vogue.   Ironically, the risk is that the reluctance to invest in the old economy may deter the transition to the new economy.  Several OPEC+ members do not have the capacity to boost output and therefore have been falling shy of their 400k barrels a day increases, but the members who have the capacity have not made up for it. January WTI peaked a month ago near $83.85.  Before the weekend, amid the volatility unleashed by the new variant, it tumbled to $67.40, a 13% decline and more than a three-sigma move.  It is slightly above the 200-day moving average, which it has not traded below this year.    


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