Diesel and Red Hot Inflation

Were you forwarded this email? [Sign-up to Rude Awakening here.]( [Unsubscribe]( [The Rude Awakening] Diesel and Red Hot Inflation - The CPI came in at an eyewatering 9.1%. - The consensus was 8.8% and May’s number was 8.6%. - Let’s pull on the diesel thread to show why inflation is so sticky. Recommended Link [Urgent Weekend Message From New England]( [Click here for more...]( With markets in turmoil I’ve been extremely busy doing interviews and strategic consulting. But there is something I haven’t said on TV regarding this crisis. Something I am reserving for newsletter subscribers like you. And it’s extremely urgent. I was able to get a moment on my computer and record this message over Zoom that I’d like you to watch immediately. [Click Here To Watch]( Sean Ring Editor, Rude Awakening Good morning to you on this fine Thursday. And by “fine,” I mean “expensive.” After that fake print of 10.2% two days ago, I was suspicious that the CPI would be higher than the consensus number of 8.8%. Though I didn’t write it, part of me thought a government insider leaked the fake number to see how the market would react. The market reacted poorly, of course. And yesterday, the markets were down hard on the open, though they recovered to nearly flat by the close. Why? Well, the headline number for June came in at 9.1%, year-on-year. That’s a staggering number for anyone who doesn’t park their yacht in Monaco Marina. It beat the consensus number of 8.8% and May’s 8.6% reading. And it ensures the Fed will raise rates by 75 bps at its next meeting. Long behind the curve, the Fed frantically races to catch up to “normal rates,” whatever those are now. But the knock-on effects will be worse. The 10-year yield will rise above 3% and stay there. The dollar index will sashay its way to 120. Anyone who has USD debts, but gets paid in another currency, will go broke. (I’m looking at you, emerging markets who still issue dollar-denominated debt.) However, If you’re lucky enough to get paid in dollars, but pay your bills in a weaker currency, you’re laughing. And since you need fewer of those stronger dollars to buy assets, USD assets should fall in price. That list includes stocks, bonds, real estate, crypto, and commodities. As raw materials get more expensive, less building and manufacturing will happen. Welcome to the 1970s all over again, folks! In this edition of the Rude, let’s parse out the inflation numbers and use diesel costs as an example of why inflation is so sticky. What the Heck Happened? Here’s a chart of what categories increased the most over the last twelve months. No prizes for guessing energy. Over the past year, the rate of inflation has nearly doubled, from 5.5% to 9.1%. Credit: [BLS]( Now let’s look at the energy numbers further: Credit: [BLS]( Notice the diesel (Fuel oil) number. It’s up an insane 98.5% year-on-year. Now let’s have some fun at the BLS’s expense. Read this [part of the report]( which explains what the energy numbers are: The energy index increased 7.5 percent in June after rising 3.9 percent in May. The gasoline index rose 11.2 percent in June after increasing 4.1 percent in May. (Before seasonal adjustment, gasoline prices rose 9.9 percent in June.) The index for natural gas rose 8.2 percent in June, the largest monthly increase since October 2005. The electricity index also increased in June, rising 1.7 percent. The energy index rose 41.6 percent over the past 12 months. The gasoline index increased 59.9 percent over the span, the largest 12-month increase in that index since March 1980. The index for electricity rose 13.7 percent, the largest 12-month increase since the period ending April 2006. The index for natural gas increased 38.4 percent over the last 12 months, the largest such increase since the period ending October 2005. Where’s the Fuel Oil? No explanation. I’m sure it’s just an oversight. But since the BLS left out diesel, I thought I’d explain why diesel matters so much. Even if you don’t drive a diesel car. Recommended Link [These weird devices are about to appear all over America]( [Click here for more...]( According to America’s top tech futurist – dubbed the “Tech Prophet” by Forbes – millions of these strange little devices are about to appear in every corner of our country… including your home. What are they? And why did one tech insider with connections to Apple and Microsoft claim they’ll “rewrite the rules of what’s possible?” [Click Here To Learn More]( Where Does Diesel Come From? Diesel comes from a refined barrel of crude oil. Here’s how that barrel breaks out: Credit: [PSC]( Don’t Drive a Diesel Car? It Doesn’t Matter… You’re Still Paying! I was on the phone with my paisano Mark Rossano last week, when we went through the insidiousness of inflation. Mark is the “Sherlock of the Supply Chain,” and he broke down for me why diesel prices are much more important to look at than gasoline prices. You see, when you drive to the store to buy your t-shirt, that’s the last link in the chain. Here’s what happens before that: - Farmers in, say, India, grow and harvest cotton. Their farm equipment and trucks run on diesel. - The cotton is processed into a usable textile and either woven in India or sent to the next leg of its journey. The next leg could be the processed cotton loaded on a ship (consuming marine fuel oil, which is essentially diesel) to be delivered to the athletic wear facility in Vietnam. - A truck driver picks up the container of cotton at the port and drives it to the factory. (more diesel) - Another truck driver sends the finished shirt back to the port for passage to America. (more diesel) - The container travels across the Pacific by boat to dock in Long Beach. (using marine fuel oil) - There, yet another truck driver takes the shirt from the ship and drives it to the local distribution center. (more diesel) - From the distribution point, you buy the t-shirt online and it goes into the FedEx process or it’s shipped to the local store. (more diesel) - If shipped to a local store, you drive to pick up your new shirt, in a gas-powered car. The inescapable conclusion: at every point in the supply chain, diesel costs hit you. So even if you’re not driving a sophisticated (bah!) European car, you’re still paying for every diesel link in the supply chain. If every citizen knew that, we’d have another revolution in the morning. And that war wouldn’t be so civil. And what’s worse is that even if you produce as much gasoline as you can to drive down prices at the pump, you’d produce less diesel. See the graphic above. For every 42-gallon barrel of oil, you get about 19 gallons of gasoline and 10 gallons of diesel. That’s why a gasoline price reduction isn’t “manna from heaven.” Unless and until you fix the diesel crisis, inflation will remain in the supply chain, and hence, our economy. Wrap Up The only easy answer is for Joke Biden to get the hell out of the way. I’ve never seen such a huge crisis that was wholly government policy-induced. This isn’t climate change, global warming, or “acts of God” screwing up the global economy. And it isn’t even Putin, “Putin’s Price Hike,” or the Russia-Ukraine conflict. It’s the USG’s idiotic policies, with the ass-sniffing EU right behind them. It reminds me of the ‘Rona. It wasn’t the virus that wrecked the economy. It was the government-mandated private sector shutdown that wrecked everything. It’s time for the populace to say, “enough is enough.” When you’re behind the Red Wave this November, or the Canadian or Dutch or German or Italian or Polish farmers, every little bit you can do helps. Until tomorrow. All the best, Sean Ring Editor, Rude Awakening [Whitelist Us]( | [Archive]( | [Privacy Policy]( | [Unsubscribe]( Rude Awakening is committed to protecting and respecting your privacy. We do not rent or share your email address. By submitting your email address, you consent to Paradigm Press delivering daily email issues and advertisements. To end your Rude Awakening e-mail subscription and associated external offers sent from Rude Awakening, feel free to [unsubscribe](. Please read our [Privacy Statement.]( If you are you having trouble receiving your Rude Awakening subscription, you can ensure its arrival in your mailbox by [whitelisting us.]( © 2022 Paradigm Press, LLC. 808 Saint Paul Street, Baltimore MD 21202. 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