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One Bank Crunches The Numbers On Oil Supply/Demand Dynamics, Reaches A Shocking Conclusion

One Bank Crunches The Numbers On Oil Supply/Demand Dynamics, Reaches A Shocking Conclusion

With oil prices surging amid a broader global energy crisis, many are hoping that this particular price spike is truly transitory as incremental supply

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2 years ago

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One Bank Crunches The Numbers On Oil Supply/Demand Dynamics, Reaches A Shocking Conclusion

With oil prices surging amid a broader global energy crisis, many are hoping that this particular price spike is truly transitory as incremental supply - whether from OPEC+ or shale - kicks in and resets the market lower.

But maybe not so fast: as Morgan Stanley's chief commodity strategist Martijn Rats writes, on current trends, global oil supply is likely to peak even earlier than demand. And as prices search for the level at which demand erosion kicks in, he is increasing his Q1 2022 Brent forecast to $95/bbl, while also lifting his long-term forecast from $60 to $70/bbl.

As hinted by the bold text above, the note from the Morgan Stanley commodity strategist (available to pro zero hedge subs in the usual place) focuses on arguably the two key drivers in the oil market: peak demand and peak supply. As Rats explains, while tThe planet puts boundaries on the amount of carbon that can safely be emitted - and therefore, oil consumption needs to peak - this is such a well-telegraphed prospect that it has solicited its own counter-response already: low investment (especially in conjunction with ESG pressures to curb fossil fuels). The question has therefore become: which will actually peak first? Supply? Or demand?

According to MS, the second scenario would materialize if demand were to decline very sharply, say along the trajectory of the IEA’s ‘Net Zero by 2050’ study. 

This assumes that oil demand falls by ~29% between 2019 and 2030, driven by technological improvements, a change in end-user behaviour and other factors (recent event have shown just how much of a pipe dream this is). The sum of all oil future oil demand in this scenario amounts to ~700-900 bn barrels, roughly half the estimate of proved oil reserves in the BP Statistical Review of World Energy of 1.7 trillion barrels.

As the window of opportunity to monetize these resources closes, this could incentivize the major producing countries to increase output quickly,unleashing competition for market share. As shown in the next chart, most OPEC countries have a much greater share of the world’s oil reserves than of the world’s oil production. Therefore, their the need to take market share could be especially strong.

Under those conditions, the price of oil would probably fall to the marginal cost of production. Taking into account that some of today's high-cost output would no longer be necessary, this price would likely be low – the IEA pegs oil at ~$35/bbl between now and 2030 under this scenario, falling further to $24/bbl by 2050.

That said, this scenario is hardly new and has been firmly on the horizon now for some years – rarely has a major economic inflection point been telegraphed ahead of time as much as ‘peak oil demand’. Therefore, the industry is already responding to this scenario. This reaction – counter-intuitive though it may seem – is rapidly increasing the probability of the alternative scenario: supply peaking well before the peak in demand!

For those who haven't guessed it yet, in its note Morgan Stanley argues that this scenario of peak supply hitting sooner than peak demand, is rapidly becoming the more likely one, and will likely lead to a period of sustained high oil prices.

While the full Morgan Stanley notes dives into much more detail focusing on three key questions:

  • How much energy does the world actually need?
  • How much of this will be supplied by oil?
  • And is the industry on-track to meet this demand?

... we won't dwell much on these - those who are curious about long-term supply/demand dynamics in the oil space are strongly encouraged to read the note - but we will take a look at energy demand which has three powerful drivers: The world's population is expanding by 1 bn every 13-14 years, during which GDP per capita in real terms is set to increase by ~35% as well.

The deeply uneven distribution of energy consumption around the world puts upward pressure on energy demand too. Despite efficiency efforts,energy consumption will still likely grow from ~600 EJ today to ~740 EJ by 2040, MS estimates. The chart below shows that a more-or-less modern lifestyle requires ~100 GJ per head in primary energy supply. At the moment, the world's energy consumption is ~600 exajoule in total. However, if all countries that currently consume less than 100 GJ/head were lifted to that level (and the rest were to remain unchanged) this would bring the world's energy consumption to ~900 GJ.

In any case, there is a huge range of uncertainty about oil demand, and that is reflected in the wide range of estimates

  • The OPEC secretariat estimated 2030 demand at 106.6 mb/d in its recent World Oil Outlook, released in September.
  • Earlier in October, the EIA – part of the US Department of Energy – released a set of scenarios with 2030 oil demand estimates ranging from 103.4 mb/d to 115.4 mb/d, with a base-case estimate of 109.2 mb/d.
  • Last month, S&P Global Platts showed an estimated for 2030 demand of 113 mb/d in its reference case,and still 102.3 mb/d in its most recent 'Two Degree' scenario released in August.
  • The IEA showed forecasts in its recent World Energy Outlook (WEO) ranging from 103 mb/d under its 'Stated Policies' scenario, down to 72 mb/d under the 'Net Zero Emissions' scenario. However, these are somewhat in contrast with other figures from the IEA, specifically its medium-term oil market forecasts. In 'Oil in 2021', released in March 2021, the IEA estimated demand to reach 104 mb/d already by 2026.

Clearly, there is potential for large divergence between what will happen and what should happen.

For the purposes of oil market forecasting, Morgan Stanley's working assumption is that oil demand will continue to grow in coming years and still reach a level of ~105 mb/d around the turn of the decade, (based on the two models which it discusses in the full report.) The question then becomes: can the industry supply this? On current trends, the answer is probably 'no'.

Here are some arguments why not (much more in the full note) and yes, ESG has a lot to do with it:

In recent years, investment in oil & gas field development has fallen sharply – from ~$740bn in 2014 to ~$475bn in 2019,according to data from Rystad (not including exploration spending). In 2020, it fell another 25% to ~$350bn.

This level is already consistent with the IEA's Net Zero scenario. The IEA has indicated that in its Net Zero scenario, oil demand will fall by 29% and natural gas demand by 7% by 2030, relative to 2019. As a result, it has also said that "there are no new oil and gas fields approved for development in this pathway". Under this scenario, the IEA estimates that oil prices will be around $35/bbl in 2030 and decline thereafter. The prospect of this scenario is a significant deterrent to invest.

Still, even though no new oil & gas fields need to be developed in the 'Net Zero' scenario, the IEA recognizes that some investment needs to take place in existing oil & gas fields (maintenance capex). As shown below, the IEA estimates the required level of investment at ~$365bn per year to 2030. With capex at $350bn in 2020, the industry is already investing for 'Net Zero'

Now it is true that 2020 was an unusual year in which many capex projects were put on hold because of covid-19. However, capex does not seem to be rebounding in 2021,and probably not even in 2022 either. Rystad Energy, which estimates capex based on visible project plans,estimates capex at $365bn in 2022 – up only marginally from 2020. The same can be seen in consensus estimates for listed oil companies. The relationship between oil prices and 12-month forward capex has practically broken (chart below left).

The chart below right shows consensus capex estimates for oil & gas companies by year. This suggests some recovery, but even by 2023, capex does not reach 2019 levels. To be clear, this latter chart shows all capex – not just upstream oil & gas capex. It also captures renewables capex from the oil majors, which is clearly rising. Underlying oil & gas capex appears distinctly flat.

So what will happen to global oil supply if capex stays flat at the 2020 level? Rystad's UCube allows for a detailed analysis of this, based on field-by-field data, including individual project break-evens. If capex remains around $350-360bn, oil production will still grow in 2022 and 2023, driven by projects that are already underway, but peak in 2024 and decline thereafter.

Here the Morgan Stanley commodity strategist is quite laconic: "Naturally, if supply peaks around mid decade and demand peaks only around the turn of the decade, this would create substantial tension in the oil market."

Translation: oil prices are going through the roof.

Arguably, the investment pressures discussed above are mostly applicable to publicly listed oil companies – perhaps government-owned oil companies, i.e. OPEC, can fill the gap? Perhaps – but there are two complications with this.

  • First, despite indications from OPEC countries about capacity expansion plans, they are showing limited signs of accelerating such plans. As per Exhibit 29, the rig count in OPEC countries is still 40%+ below pre-covid levels and recovering even more slowly than in non-OPEC countries. Also,announced capacity expansions take time: Aramco has recently indicated that its planned 1 mb/d capacity expansion will only be realised by 2027.

  • Second, if OPEC needs to fill the gap, its market share will rise, possibly quite sharply. This is indeed the case in the IEA's 'Net Zero' scenario, in which OPEC market share increases from ~37% recently to ~52% by 2050. Add Russia,and OPEC+ market share most likely exceeds 60%. The historical relationship between OPEC market share and the oil price is quite clear:as OPEC market share increases, oil prices usually rise.

With this in mind, Morgan Stanley expects that the tension in the oil market will need to be resolved via price (i.e., higher) ,and we raise our price forecasts substantially:

Short term - $95/bbl by1Q22, up from $77.5: At the moment, oil markets are objectively tight. So far this year, observable inventories have declined by ~450 million barrels – a draw rate of ~1.8 mb/d. MS expects this to persist for the remainder of 2021 and into the first part of 2022. As we argued above, oil prices disconnected from marginal production costs already some time ago. Instead, they are searching for the level at which demand destruction starts to kick in.

What this level is, is fiendishly difficult to know. However, Exhibit 30 and Exhibit 31 may give an indication. Here we show the dollar-value of oil consumption, expressed as a percentage of GDP (in other words, the oil burden on GDP) by region. At the global level, the oil burden on GDP would be ~3.6% if Brent were to remain at $84/bbl for a full year. That is still well below the level of 4.5% that prevailed during 2011-14.

This analysis suggests there could still be ~30% upside to oil prices before the oil burden reaches the average of 2011-14. However, there is broad dispersion across regions in this: For the developing economies in Asia (incl. China) and North America, it could be as high as 50%, but for Eastern Europe, South America and Africa,another 10-15% rise in oil prices would get it there. Another 10-15% rise in oil prices would drive Brent to ~$95/bbl, which is Morgan Stanley new forecasts for 1Q22.

* * *

Long-term – $70/bbl, up from $60 (but much more likely to be $90 and possibly higher): Here MS defines 'long term' as the period starting in 2023 and stretching into the second half of the decade – it is not meant to reflect the period after 2030, which is an altogether different matter. Taking the thesis of this report to its logical conclusion would suggest that also by 2023/24, and beyond, oil prices will need to be at those 'demand destruction' levels - i.e. $85- 90/bbl, possibly higher. However, there is still a small-but-non-zero possibility that the scenario that kicked off this note plays out: that oil demand indeed falls sharply as decarbonsation efforts gain momentum and that this triggers a competition for market share amongst the major producers – i.e.as the window closes, the oil industry rushes to monetize its resources.

In this scenario, prices would probably be driven to very low levels, most likely close to the ~$35/bbl that the IEA estimates in Exhibit 24. But there is a very big "if" here - for this scenario to play out, important technological breakthroughs need to be made and/or more invasive government measures will need to be put in place (recall those trillions in QE that central banks will need to inject to get the Net Zero scenario on its feet - yeah, that) in order to realize the demand decline. At the same time, increased funding needs to emerge to finance this production expansion. As Morgan Stanley puts it, "that scenario appears unlikely, but it is possible nonetheless." The main use of the long-term price forecast is for equity valuation purposes. Therefore, it needs to reflect the weighted-average across all possible scenarios, not simply the scenario with the greatest likelihood. On balance, the bank raises its long-term forecast for Brent to $70/bbl,up from $60 before, while conceding that the most likely long-term price will be $85-90 "possibly higher."

* * *

Medium term – $85/bbl, up from $75/bbl: The short term and the long term connect in 2022,and when they do so there may well be a wobble. Next year, US shale production will probably grow. Publicly-listed oil companies have barely added any rigs for the last 6 months, but privately owned E&P companies have increased activity materially. Therefore, production growth in 2022 will not look anything like the 2016-19 cycle in US shale, but should nevertheless expand by ~0.7 mb/d. In addition,a return to the JCPOA may unlock ~1 mb/d of additional exports from Iran. Also, OPEC still has spare capacity to unwind. Whilst the oil market is tight now and will be tight again in 2023/24, there may be a softer period in 2022.

The flipside to this forecast is that this expectation is relatively consensual, and there is much to offset it. Principally, OPEC will likely manage the market and keep the balance intact. The reason for this is that OPEC's market share is looking increasingly strong over the medium term. In the past, OPEC usually had to make a choice: support prices for the short term or defend market share for the long term. These tended to be mutually exclusive, but that is arguably no longer the case. Continued strong oil prices are evidently in OPEC's interest,also in 2022. However,at the moment, OPEC can keep the market tight without fearing a non-OPEC supply response. Therefore, MS suspects that OPEC will manage the market carefully during 2022, until market share will come its way in 2023/24.

* * *

We strongly urge any readers who are invested in oil and/or commodities to carefully read the full note as it may transform their entire investing portfolio because if Morgan Stanley is right the price of oil is about to go much higher.

Tyler Durden Wed, 10/20/2021 - 14:35

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Government

Mistakes Were Made

Mistakes Were Made

Authored by C.J.Hopkins via The Consent Factory,

Make fun of the Germans all you want, and I’ve certainly done that…

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10 hours ago

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March 17, 2024

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Mistakes Were Made

Authored by C.J.Hopkins via The Consent Factory,

Make fun of the Germans all you want, and I’ve certainly done that a bit during these past few years, but, if there’s one thing they’re exceptionally good at, it’s taking responsibility for their mistakes. Seriously, when it comes to acknowledging one’s mistakes, and not rationalizing, or minimizing, or attempting to deny them, and any discomfort they may have allegedly caused, no one does it quite like the Germans.

Take this Covid mess, for example. Just last week, the German authorities confessed that they made a few minor mistakes during their management of the “Covid pandemic.” According to Karl Lauterbach, the Minister of Health, “we were sometimes too strict with the children and probably started easing the restrictions a little too late.” Horst Seehofer, the former Interior Minister, admitted that he would no longer agree to some of the Covid restrictions today, for example, nationwide nighttime curfews. “One must be very careful with calls for compulsory vaccination,” he added. Helge Braun, Head of the Chancellery and Minister for Special Affairs under Merkel, agreed that there had been “misjudgments,” for example, “overestimating the effectiveness of the vaccines.”

This display of the German authorities’ unwavering commitment to transparency and honesty, and the principle of personal honor that guides the German authorities in all their affairs, and that is deeply ingrained in the German character, was published in a piece called “The Divisive Virus” in Der Spiegel, and immediately widely disseminated by the rest of the German state and corporate media in a totally organic manner which did not in any way resemble one enormous Goebbelsian keyboard instrument pumping out official propaganda in perfect synchronization, or anything creepy and fascistic like that.

Germany, after all, is “an extremely democratic state,” with freedom of speech and the press and all that, not some kind of totalitarian country where the masses are inundated with official propaganda and critics of the government are dragged into criminal court and prosecuted on trumped-up “hate crime” charges.

OK, sure, in a non-democratic totalitarian system, such public “admissions of mistakes” — and the synchronized dissemination thereof by the media — would just be a part of the process of whitewashing the authorities’ fascistic behavior during some particularly totalitarian phase of transforming society into whatever totalitarian dystopia they were trying to transform it into (for example, a three-year-long “state of emergency,” which they declared to keep the masses terrorized and cooperative while they stripped them of their democratic rights, i.e., the ones they hadn’t already stripped them of, and conditioned them to mindlessly follow orders, and robotically repeat nonsensical official slogans, and vent their impotent hatred and fear at the new “Untermenschen” or “counter-revolutionaries”), but that is obviously not the case here.

No, this is definitely not the German authorities staging a public “accountability” spectacle in order to memory-hole what happened during 2020-2023 and enshrine the official narrative in history. There’s going to be a formal “Inquiry Commission” — conducted by the same German authorities that managed the “crisis” — which will get to the bottom of all the regrettable but completely understandable “mistakes” that were made in the heat of the heroic battle against The Divisive Virus!

OK, calm down, all you “conspiracy theorists,” “Covid deniers,” and “anti-vaxxers.” This isn’t going to be like the Nuremberg Trials. No one is going to get taken out and hanged. It’s about identifying and acknowledging mistakes, and learning from them, so that the authorities can manage everything better during the next “pandemic,” or “climate emergency,” or “terrorist attack,” or “insurrection,” or whatever.

For example, the Inquiry Commission will want to look into how the government accidentally declared a Nationwide State of Pandemic Emergency and revised the Infection Protection Act, suspending the German constitution and granting the government the power to rule by decree, on account of a respiratory virus that clearly posed no threat to society at large, and then unleashed police goon squads on the thousands of people who gathered outside the Reichstag to protest the revocation of their constitutional rights.

Once they do, I’m sure they’ll find that that “mistake” bears absolutely no resemblance to the Enabling Act of 1933, which suspended the German constitution and granted the government the power to rule by decree, after the Nazis declared a nationwide “state of emergency.”

Another thing the Commission will probably want to look into is how the German authorities accidentally banned any further demonstrations against their arbitrary decrees, and ordered the police to brutalize anyone participating in such “illegal demonstrations.”

And, while the Commission is inquiring into the possibly slightly inappropriate behavior of their law enforcement officials, they might want to also take a look at the behavior of their unofficial goon squads, like Antifa, which they accidentally encouraged to attack the “anti-vaxxers,” the “Covid deniers,” and anyone brandishing a copy of the German constitution.

Come to think of it, the Inquiry Commission might also want to look into how the German authorities, and the overwhelming majority of the state and corporate media, accidentally systematically fomented mass hatred of anyone who dared to question the government’s arbitrary and nonsensical decrees or who refused to submit to “vaccination,” and publicly demonized us as “Corona deniers,” “conspiracy theorists,” “anti-vaxxers,” “far-right anti-Semites,” etc., to the point where mainstream German celebrities like Sarah Bosetti were literally describing us as the inessential “appendix” in the body of the nation, quoting an infamous Nazi almost verbatim.

And then there’s the whole “vaccination” business. The Commission will certainly want to inquire into that. They will probably want to start their inquiry with Karl Lauterbach, and determine exactly how he accidentally lied to the public, over and over, and over again …

And whipped people up into a mass hysteria over “KILLER VARIANTS” …

And “LONG COVID BRAIN ATTACKS” …

And how “THE UNVACCINATED ARE HOLDING THE WHOLE COUNTRY HOSTAGE, SO WE NEED TO FORCIBLY VACCINATE EVERYONE!”

And so on. I could go on with this all day, but it will be much easier to just refer you, and the Commission, to this documentary film by Aya Velázquez. Non-German readers may want to skip to the second half, unless they’re interested in the German “Corona Expert Council” …

Look, the point is, everybody makes “mistakes,” especially during a “state of emergency,” or a war, or some other type of global “crisis.” At least we can always count on the Germans to step up and take responsibility for theirs, and not claim that they didn’t know what was happening, or that they were “just following orders,” or that “the science changed.”

Plus, all this Covid stuff is ancient history, and, as Olaf, an editor at Der Spiegel, reminds us, it’s time to put the “The Divisive Pandemic” behind us …

… and click heels, and heil the New Normal Democracy!

Tyler Durden Sat, 03/16/2024 - 23:20

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International

“Extreme Events”: US Cancer Deaths Spiked In 2021 And 2022 In “Large Excess Over Trend”

"Extreme Events": US Cancer Deaths Spiked In 2021 And 2022 In "Large Excess Over Trend"

Cancer deaths in the United States spiked in 2021…

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18 hours ago

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March 16, 2024

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"Extreme Events": US Cancer Deaths Spiked In 2021 And 2022 In "Large Excess Over Trend"

Cancer deaths in the United States spiked in 2021 and 2022 among 15-44 year-olds "in large excess over trend," marking jumps of 5.6% and 7.9% respectively vs. a rise of 1.7% in 2020, according to a new preprint study from deep-dive research firm, Phinance Technologies.

Algeria, Carlos et. al "US -Death Trends for Neoplasms ICD codes: C00-D48, Ages 15-44", ResearchGate, March. 2024 P. 7

Extreme Events

The report, which relies on data from the CDC, paints a troubling picture.

"We show a rise in excess mortality from neoplasms reported as underlying cause of death, which started in 2020 (1.7%) and accelerated substantially in 2021 (5.6%) and 2022 (7.9%). The increase in excess mortality in both 2021 (Z-score of 11.8) and 2022 (Z-score of 16.5) are highly statistically significant (extreme events)," according to the authors.

That said, co-author, David Wiseman, PhD (who has 86 publications to his name), leaves the cause an open question - suggesting it could either be a "novel phenomenon," Covid-19, or the Covid-19 vaccine.

"The results indicate that from 2021 a novel phenomenon leading to increased neoplasm deaths appears to be present in individuals aged 15 to 44 in the US," reads the report.

The authors suggest that the cause may be the result of "an unexpected rise in the incidence of rapidly growing fatal cancers," and/or "a reduction in survival in existing cancer cases."

They also address the possibility that "access to utilization of cancer screening and treatment" may be a factor - the notion that pandemic-era lockdowns resulted in fewer visits to the doctor. Also noted is that "Cancers tend to be slowly-developing diseases with remarkably stable death rates and only small variations over time," which makes "any temporal association between a possible explanatory factor (such as COVID-19, the novel COVID-19 vaccines, or other factor(s)) difficult to establish."

That said, a ZeroHedge review of the CDC data reveals that it does not provide information on duration of illness prior to death - so while it's not mentioned in the preprint, it can't rule out so-called 'turbo cancers' - reportedly rapidly developing cancers, the existence of which has been largely anecdotal (and widely refuted by the usual suspects).

While the Phinance report is extremely careful not to draw conclusions, researcher "Ethical Skeptic" kicked the barn door open in a Thursday post on X - showing a strong correlation between "cancer incidence & mortality" coinciding with the rollout of the Covid mRNA vaccine.

Phinance principal Ed Dowd commented on the post, noting that "Cancer is suddenly an accelerating growth industry!"

Continued:

Bottom line - hard data is showing alarming trends, which the CDC and other agencies have a requirement to explore and answer truthfully - and people are asking #WhereIsTheCDC.

We aren't holding our breath.

Wiseman, meanwhile, points out that Pfizer and several other companies are making "significant investments in cancer drugs, post COVID."

Phinance

We've featured several of Phinance's self-funded deep dives into pandemic data that nobody else is doing. If you'd like to support them, click here.

 

Tyler Durden Sat, 03/16/2024 - 16:55

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Government

Gen Z, The Most Pessimistic Generation In History, May Decide The Election

Gen Z, The Most Pessimistic Generation In History, May Decide The Election

Authored by Mike Shedlock via MishTalk.com,

Young adults are more…

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23 hours ago

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March 16, 2024

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Gen Z, The Most Pessimistic Generation In History, May Decide The Election

Authored by Mike Shedlock via MishTalk.com,

Young adults are more skeptical of government and pessimistic about the future than any living generation before them.

This is with reason, and it’s likely to decide the election.

Rough Years and the Most Pessimism Ever

The Wall Street Journal has an interesting article on The Rough Years That Turned Gen Z Into America’s Most Disillusioned Voters.

Young adults in Generation Z—those born in 1997 or after—have emerged from the pandemic feeling more disillusioned than any living generation before them, according to long-running surveys and interviews with dozens of young people around the country. They worry they’ll never make enough money to attain the security previous generations have achieved, citing their delayed launch into adulthood, an impenetrable housing market and loads of student debt.

And they’re fed up with policymakers from both parties.

Washington is moving closer to passing legislation that would ban or force the sale of TikTok, a platform beloved by millions of young people in the U.S. Several young people interviewed by The Wall Street Journal said they spend hours each day on the app and use it as their main source of news.

“It’s funny how they quickly pass this bill about this TikTok situation. What about schools that are getting shot up? We’re not going to pass a bill about that?” Gaddie asked. “No, we’re going to worry about TikTok and that just shows you where their head is…. I feel like they don’t really care about what’s going on with humanity.”

Gen Z’s widespread gloominess is manifesting in unparalleled skepticism of Washington and a feeling of despair that leaders of either party can help. Young Americans’ entire political memories are subsumed by intense partisanship and warnings about the looming end of everything from U.S. democracy to the planet. When the darkest days of the pandemic started to end, inflation reached 40-year highs. The right to an abortion was overturned. Wars in Ukraine and the Middle East raged.

Dissatisfaction is pushing some young voters to third-party candidates in this year’s presidential race and causing others to consider staying home on Election Day or leaving the top of the ticket blank. While young people typically vote at lower rates, a small number of Gen Z voters could make the difference in the election, which four years ago was decided by tens of thousands of votes in several swing states.

Roughly 41 million Gen Z Americans—ages 18 to 27—will be eligible to vote this year, according to Tufts University.

Gen Z is among the most liberal segments of the electorate, according to surveys, but recent polling shows them favoring Biden by only a slim margin. Some are unmoved by those who warn that a vote against Biden is effectively a vote for Trump, arguing that isn’t enough to earn their support.

Confidence

When asked if they had confidence in a range of public institutions, Gen Z’s faith in them was generally below that of the older cohorts at the same point in their lives. 

One-third of Gen Z Americans described themselves as conservative, according to NORC’s 2022 General Social Survey. That is a larger share identifying as conservative than when millennials, Gen X and baby boomers took the survey when they were the same age, though some of the differences were small and within the survey’s margin of error.

More young people now say they find it hard to have hope for the world than at any time since at least 1976, according to a University of Michigan survey that has tracked public sentiment among 12th-graders for nearly five decades. Young people today are less optimistic than any generation in decades that they’ll get a professional job or surpass the success of their parents, the long-running survey has found. They increasingly believe the system is stacked against them and support major changes to the way the country operates.

Gen Z future Outcome

“It’s the starkest difference I’ve documented in 20 years of doing this research,” said Twenge, the author of the book “Generations.” The pandemic, she said, amplified trends among Gen Z that have existed for years: chronic isolation, a lack of social interaction and a propensity to spend large amounts of time online.

A 2020 study found past epidemics have left a lasting impression on young people around the world, creating a lack of confidence in political institutions and their leaders. The study, which analyzed decades of Gallup World polling from dozens of countries, found the decline in trust among young people typically persists for two decades.

Young people are more likely than older voters to have a pessimistic view of the economy and disapprove of Biden’s handling of inflation, according to the recent Journal poll. Among people under 30, Biden leads Trump by 3 percentage points, 35% to 32%, with 14% undecided and the remaining shares going to third-party candidates, including 10% to independent Robert F. Kennedy Jr.

Economic Reality

Gen Z may be the first generation in US history that is not better off than their parents.

Many have given up on the idea they will ever be able to afford a home.

The economy is allegedly booming (I disagree). Regardless, stress over debt is high with younger millennials and zoomers.

This has been a constant theme of mine for many months.

Credit Card and Auto Delinquencies Soar

Credit card debt surged to a record high in the fourth quarter. Even more troubling is a steep climb in 90 day or longer delinquencies.

Record High Credit Card Debt

Credit card debt rose to a new record high of $1.13 trillion, up $50 billion in the quarter. Even more troubling is the surge in serious delinquencies, defined as 90 days or more past due.

For nearly all age groups, serious delinquencies are the highest since 2011.

Auto Loan Delinquencies

Serious delinquencies on auto loans have jumped from under 3 percent in mid-2021 to to 5 percent at the end of 2023 for age group 18-29.Age group 30-39 is also troubling. Serious delinquencies for age groups 18-29 and 30-39 are at the highest levels since 2010.

For further discussion please see Credit Card and Auto Delinquencies Soar, Especially Age Group 18 to 39

Generational Homeownership Rates

Home ownership rates courtesy of Apartment List

The above chart is from the Apartment List’s 2023 Millennial Homeownership Report

Those struggling with rent are more likely to be Millennials and Zoomers than Generation X, Baby Boomers, or members of the Silent Generation.

The same age groups struggling with credit card and auto delinquencies.

On Average Everything is Great

Average it up, and things look pretty good. This is why we have seen countless stories attempting to explain why people should be happy.

Krugman Blames Partisanship

OK, there is a fair amount of partisanship in the polls.

However, Biden isn’t struggling from partisanship alone. If that was the reason, Biden would not be polling so miserably with Democrats in general, blacks, and younger voters.

OK, there is a fair amount of partisanship in the polls.

However, Biden isn’t struggling from partisanship alone. If that was the reason, Biden would not be polling so miserably with Democrats in general, blacks, and younger voters.

This allegedly booming economy left behind the renters and everyone under the age of 40 struggling to make ends meet.

Many Are Addicted to “Buy Now, Pay Later” Plans

Buy Now Pay Later, BNPL, plans are increasingly popular. It’s another sign of consumer credit stress.

For discussion, please see Many Are Addicted to “Buy Now, Pay Later” Plans, It’s a Big Trap

The study did not break things down by home owners vs renters, but I strongly suspect most of the BNPL use is by renters.

What About Jobs?

Another seemingly strong jobs headline falls apart on closer scrutiny. The massive divergence between jobs and employment continued into February.

Nonfarm payrolls and employment levels from the BLS, chart by Mish.

Payrolls vs Employment Gains Since March 2023

  • Nonfarm Payrolls: 2,602,000

  • Employment Level: +144,000

  • Full Time Employment: -284,000

For more details of the weakening labor markets, please see Jobs Up 275,000 Employment Down 184,000

CPI Hot Again

CPI Data from the BLS, chart by Mish.

For discussion of the CPI inflation data for February, please see CPI Hot Again, Rent Up at Least 0.4 Percent for 30 Straight Months

Also note the Producer Price Index (PPI) Much Hotter Than Expected in February

Major Economic Cracks

There are economic cracks in spending, cracks in employment, and cracks in delinquencies.

But there are no cracks in the CPI. It’s coming down much slower than expected. And the PPI appears to have bottomed.

Add it up: Inflation + Recession = Stagflation.

Election Impact

In 2020, younger voters turned out in the biggest wave in history. And they voted for Biden.

Younger voters are not as likely to vote in 2024, and they are less likely to vote for Biden.

Millions of voters will not vote for either Trump or Biden. Net, this will impact Biden more. The base will not decide the election, but the Trump base is far more energized than the Biden base.

If Biden signs a TikTok ban, that alone could tip the election.

If No Labels ever gets its act together, I suspect it will siphon more votes from Biden than Trump. But many will just sit it out.

“We’re just kind of over it,” Noemi Peña, 20, a Tucson, Ariz., resident who works in a juice bar, said of her generation’s attitude toward politics. “We don’t even want to hear about it anymore.” Peña said she might not vote because she thinks it won’t change anything and “there’s just gonna be more fighting.” Biden won Arizona in 2020 by just over 10,000 votes. 

The Journal noted nearly one-third of voters under 30 have an unfavorable view of both Biden and Trump, a higher number than all older voters. Sixty-three percent of young voters think neither party adequately represents them.

Young voters in 2020 were energized to vote against Trump. Now they have thrown in the towel.

And Biden telling everyone how great the economy is only rubs salt in the wound.

Tyler Durden Sat, 03/16/2024 - 11:40

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