Europe’s Mild Winter is a Stroke of Good Luck

In a rare loss for Putin, Europe’s mild winter means fewer natural gas imports. [The Rude Awakening] February 16, 2023 [WEBSITE]( | [UNSUBSCRIBE]( [Ed. note: Important housekeeping note: As you may have noticed, your emails are now coming from a new email address: rude@mb.paradigmpressgroup.com. Ensure delivery of every email in your subscription by following [these simple whitelisting instructions.]( Europe’s Mild Winter is a Stroke of Good Luck - This winter simply isn’t that cold in Europe. - Europe hasn’t used up all its storage and will likely start next winter with full reserves. - Putin counted on a fiercely frosty winter to bring Europe back to the bargaining table. [[SCIENTISTS SPEECHLESS] Patent No. 11,219,620 B2: The End Of Arthritis?]( This tiny stock’s new patent could give new hope to millions… and make early investors rich. [Click here to learn more]( And it all kicks off with an announcement that I expect any day now… when this $87 million company will announce what could be the potential end of arthritis. [>> Click Here Now.]( [Click Here To Learn More]( [Sean Ring] SEAN RING Happy Thursday on this warm, sunny day in Piedmont. Having spent the previous 14 winters in Asia, I wasn’t sure how I’d react to this European winter. The cold hasn’t bothered me that much. But what’s confusing the heck out of me is the daily temperature range. Today’s low is 0C (32F), and today’s high is 16C (61F). When I walked Micah to school yesterday, I made him wear his scarf, gloves, and hat. I wore a fleece zip-up and my North Face puffer jacket. But when I picked him up, I had my spring jacket on and only made him put his coat on. I don’t remember February ever being like that, even when I lived in London. This warmth is excellent news for Europe. As you know, I wrote fearfully about this winter being cold and suffering through it without Russian gas. But it looks like we’ll get through this winter just fine. And next winter, too. That’s an even bigger surprise. Let’s have a look to see what the implications of all this are. It Wasn’t Just the Weather “Courage. And shuffle the cards,” said General Sir Harry Flashman, VC. And boy, did the Europeans get away with one. For the record, I’m thrilled. I live in Europe and didn’t want to freeze this winter. From [Politico]( … a combination of mild weather, increased imports of liquefied natural gas (LNG), and a big drop in gas consumption mean that more than 50 billion cubic meters (bcm) of gas is projected to remain in storage by the end of March, according to the Commission analysis. “A good part of the success is due to unusually mild weather conditions and to China being out of the market [due to COVID restrictions],” the official said. “But demand reduction, storage policy, and infrastructure work helped significantly." Ending the winter heating season with such healthy reserves — above 50 percent of the EU’s roughly 100bcm total storage capacity — removes any lingering fears of a gas shortage in the short term. It also eases concerns about Europe’s energy security going into next winter. Thank heavens for global warming! But the official’s comment regarding [China’s Covid closing]( also rings true: China’s reduced LNG imports proved just as important as Europe’s gas conservation measures and mild winter in coping with the disruption to gas supplies following Russia’s invasion of Ukraine. China accounted for 21% of global LNG imports in 2021, and the share would have increased further if imports had continued growing on the previous trend. Instead, reduced imports represented a “saving” of roughly 4% of the global LNG supply and 6% or more compared with the pre-2022 trend. China’s slower importing allowed Europe to refill its storage earlier, faster, and for longer than normal ahead of winter 2022/23. Germany’s rush to fill its storage at any price helped to drive Europe’s gas prices to record levels during July and August 2022. But prices would likely have risen even higher and remained elevated if China’s reduced buying had not created some slack in the global market. Europe, you lucky, lucky bastards! Switching From Russian Pipes to Yankee Shipments The red bars in the below chart show how Russian pipeline gas dwindled as the year and the war rolled on. The white bars represent the LNG imports into the UK and the continent. [sjn] Credit: [Reuters]( It’s easy to see why Australia mainly supplies Asia, as evidenced in the below chart (right-hand side). Australia is light years away from Europe, so the shipping costs are high. Qatar can easily supply energy-hungry Asia from Western Asia/Middle East. But as it’s much closer to Europe than Australia, it’s cheaper for them to ship to Europe (the light blue bars in the middle chart). As the US is only across the pond, they can supply Europe easily (left-hand side chart). [SJN] Credit: [Reuters]( But US LNG prices are still high for Europe. Why is that? Supply and demand imbalance: Europe has faced a severe gas shortage after an unusually frigid winter [last year] that depleted its storage levels. In contrast, demand has rebounded strongly due to economic recovery and coal-to-gas switching. Meanwhile, lower Russian pipeline flows and maintenance outages in Norway and Algeria have constrained supply and reduced LNG imports from Qatar and Nigeria. But now that Nordstream is, ahem, taken care of, I’m sure Norway will jump right back in. Competition from Asia: US LNG exports have been diverted to Asia, where prices are even higher than in Europe due to strong demand for power generation and air conditioning amid heat waves and low hydroelectric output. Asia also lacks major pipeline supplies and is willing to pay a premium for US LNG. Transportation costs: US LNG exports incur additional costs for liquefaction, shipping, and regasification, which make them more expensive than Russian pipeline gas. These costs vary depending on the distance, freight rates, port fees, and terminal charges. [According to Reuters]( transportation costs can add up to $6 per MMBtu for US LNG delivered to Europe. Market dynamics: US LNG prices in Europe are influenced by the price of natural gas at the Dutch TTF hub, which is a European benchmark for gas trading. The TTF price reflects the supply and demand situation in Europe and global factors such as oil prices, carbon prices, and exchange rates. The TTF price has spiked due to the gas shortage and European geopolitical tensions. [SJN] Credit: [Reuters]( In the above chart, US LNG export revenues have rocketed, leaving Europeans to wonder if they got made on this deal. Alas, nothing pisses off a European politician more than paying American companies for stuff they need. [[VIDEO] Nord Stream Attack a “Covert Act of War” By President Biden?]( [AWN]( Shocking new details have come to light that all but PROVE Biden had something to do with the attack on Russia’s Nord Stream pipeline… And the ramifications are going to be felt by you and EVERY American citizen… Including crippling fuel shortages… widespread “Biden blackouts”… and energy bills rocketing to $1000! This is NOT a drill. [Click here to reveal the shocking truth – and learn how to protect yourself NOW]( [Click Here To Learn More]( An Unlikely Solution for Europe: Egypt Egypt has built out its LNG capacity. According to [oilprice.com]( Back in June [2022], Egypt, the European Union, and Israel signed a memorandum of understanding (MoU) to boost natural gas exports to Europe, with the framework hailed as the first to allow Israel to export "significant" amounts of gas to Europe. And now the parties are looking to extend the deal that will maintain "relatively high volumes" of LNG deliveries to Europe. Egypt’s Petroleum Minister Tarek El Molla says the country hopes to match last year’s output when it produced about 7.5 million tons of LNG with 80% going to Europe. The problem is that Egypt is trying to balance domestic issues with international demand. And quite frankly, Egypt must sell abroad to bring in dollars to ease its massive deficit. However, if Egypt solves this issue, it can become a local, reliable, and cheap LNG vendor to Europe. And that would further ease Europe’s energy issues and neutralize Putin on energy. Wrap Up Europe may actually get away with it. Europe has escaped Putin's grasp with a warm winter, a closed China, and US LNG. Getting Egypt involved would lower the LNG cost, allowing Europe to switch vendors. All in all, it’s a good day for Europeans. Until tomorrow. All the best, [Sean Ring] Sean Ring Editor, Rude Awakening In Case You Missed It… Time to Watch the Fed Again [Sean Ring] SEAN RING Happy Hump Day! It’s a clear, crisp day here in Northern Italy. Usually, when I get my morning cappuccino from my favorite cafe, I gently scroll through the financial news sites to get an idea of what I should write about. Today, there’s so much gook clogging the newswires. I couldn’t believe it. “Where’s Greta?” was my first thought while watching the environmental disaster in Ohio unfold. The EUseless has just banned petrol and diesel cars from 2035. (Good luck with that!) But I’ll tackle the Brainard move instead. Federal Reserve Vice Chairman Lael Brainard is leaving the Fed to head the National Economic Council. It’s an interesting move from a career perspective. I think Brainard thought she’d never get the top job at the Fed, so she moved laterally. As for what the implications of her move are, let’s have a look. Inflation Update Quickly, inflation cooled slightly at the start of 2023 to 6.4% in January (year-on-year). Energy, housing, food, and other items kept the pressure on prices. Month-on-month, the CPI rose 0.5% in January from December, compared with a previous 0.1% increase. Since we had already had our big inflation burst in 2022, it’s more important to look at the monthly numbers than the yearly ones. But good friend and Rundown writer Jonathan Rodriguez wrote this on our bulletin board yesterday: I hate to be the bearer of good news, but even with several months of hot prints… inflation is still on the downswing. In fact, CPI would still drop below Fed Funds (450 bps lower bound) by May with three straight months of 0.5% MoM increases. [SJN] Credit: Jonathan Rodriguez Fair enough. But why is what Jonathan is saying important? Because if the CPI is higher than the Federal funds rate, it indicates inflation is increasing faster than the Fed's target. That leads to a decrease in the dollar's purchasing power and harms the consumer. Then, the Federal Reserve would have to keep raising interest rates to curb inflation. On the other hand, if the CPI is lower than Fed funds, it shows there is a risk of deflation. Keynesians fear deflation because they think it leads to decreased consumer spending and business investment. I disagree. Read Guido Hülsmann’s masterpiece of a pamphlet [Deflation and Liberty]( to find out why. In this case, the Federal Reserve would lower interest rates to stimulate the economy. Jonathan is saying that we’re close to the end of rate hikes. And maybe close to the beginning of rate cuts. That’s a big positive for the stock market. [Urgent Notice From Paradigm CIO Zach Scheidt!]( [Click here to learn more]( Hi, Zach Scheidt here… I’m the Chief Income Officer at Paradigm Press. With inflation raging (and showing no signs of coming to an end any time soon), almost everyone in America is feeling the pain in a big way. Which is why, several months ago, I set out on a big mission… my goal was to create a [complete, step-by-step plan to surviving and beating inflation]( one that anyone could take advantage of. Today, after hundreds of hours of research, I’m revealing all of my findings. [Simply click here now to see how to survive America’s deadly inflation crisis](. [Click Here To Learn More]( The FOMC and Rate Hikes But something’s happened at the Fed. Lael Brainard has resigned from her position as the Vice Chairman of the Federal Reserve to become the Director of President Biden’s National Economic Council. Ok, let’s get some things straight. The FOMC, or Federal Open Market Committee, is the monetary policy-making body of the Federal Reserve System in the United States. The committee makes decisions regarding monetary policy, mainly setting interest rates, to achieve the Fed's dual mandate of promoting maximum employment and stable prices. The FOMC has 12 voting members, including the seven members of the Board of Governors of the Federal Reserve System (including Brainard) and five of the 12 Reserve Bank presidents. The Board of Governors Jerome H. Powell, Chair Lael Brainard, Vice Chair* Michael S. Barr, Vice Chair for Supervision Michelle W. Bowman Lisa D. Cook Philip N. Jefferson Christopher J. Waller The Chair of the Board of Governors also serves as the Chair of the FOMC. The FOMC meets eight times per year to review economic and financial conditions and make monetary policy decisions. Now, why is Brainard leaving important? She’s a dove. A “dove” is inclined to cut rates and is into easy monetary policy. A “hawk” is inclined to hike rates and is into dispelling inflation altogether. According to Nick “Nikileaks” Timiraos of [The Wall Street Journal]( She had become one of the Fed’s most persuasive policy “doves,” officials who think high inflation is likely to slow as lingering effects of the pandemic reverse and who want to minimize potential job losses. By contrast, the central bank’s “hawks” more readily embrace stiffer measures to curb inflation. At the margins, Ms. Brainard’s Fed exit raises the risk of a recession because it could lead the central bank to raise rates more aggressively this spring, said Derek Tang, an economist at the forecasting firm LH Meyer. On the face of it, it should be an absurd thing to write. One member of the FOMC leaving raises the risk of a recession. Really? But Timiraos has a point that Brainard’s leaving could tip the balance in favor of Chairman Pow’s hawks. That is, we could see the Fed hike higher for longer, which, all else being equal, is bearish for the stock market. So why would Brainard leave? What’s the National Economic Council? From [whitehouse.gov]( The National Economic Council (NEC) was established in 1993 to advise the President on U.S. and global economic policy. It is part of the Executive Office of the President. By Executive Order, the NEC has four key functions: - to coordinate policymaking for domestic and international economic issues. - to give economic policy advice to the President. - to ensure that policy decisions and programs are consistent with the President’s economic goals. - and to monitor the implementation of the President’s economic policy agenda. Working with many department and agency heads within the administration, the NEC Director coordinates and implements the President’s economic policy objectives. The Director is supported by a staff of policy experts in various fields, including: infrastructure, manufacturing, research and development, small business, financial regulation, housing, technology and innovation, and fiscal policy. This looks to me like she knew she wouldn’t get Powell’s job, so she went for one where she’s a quasi-member of the cabinet. At a youthful 61, Brainard has plenty of time to try again. She looks like she could play Buffy the Vampire Slayer compared to the ancient ghouls roaming the streets of DC. Wrap Up I look forward to the day I stop caring about the Fed. But that’s a long way off. For now, who operates the controls matters. And with Brainard gone, Powell can return to his most hawkish self. Until tomorrow. All the best, [Sean Ring] Sean Ring Editor, Rude Awakening P.S As I was writing my polemic against ESG investing yesterday, I missed a relevant article in the newswires. Florida Governor Ron DeSantis announced [a crackdown on ESG investments]( using state funds. In the article, DeSantis defined ESG as a “mechanism to inject political ideology into investment decisions, corporate governance, and really just the everyday economy.” Agreed. My thanks to friend and colleague Chris Harris for pointing out this article. [Paradigm]( ☰ ⊗ [ARCHIVE]( [ABOUT]( [Contact Us]( © 2023 Paradigm Press, LLC. 808 Saint Paul Street, Baltimore MD 21202. By submitting your email address, you consent to Paradigm Press, LLC. 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 [click here.]( Please note: the mailbox associated with this email address is not monitored, so do not reply to this message. We welcome comments or suggestions at feedback@rudeawakening.info. This address is for feedback only. For questions about your account or to speak with customer service, [contact us here]( or call (844)-731-0984. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. 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