Chaos is Spreading Everywhere!

Sure, the S&P 500 just broke 5,500 for its first time ever (and then failed miserably), but everything else this past week is proving out all the points I made in my last Deeper Dive, “Why the Fed's Inflation Fight is Far from Over” and is also building into a “Year of Chaos.”

Take for example, this statement in that Deeper Dive about the one category that did the most to bring a tiny drip to overall CPI in its last report:

Oil, I’ve been saying, is more likely to rise right away, as the summer travel season gets going, than to keep falling. That is elementary because rising in price during the northern hemisphere’s summer is oil’s common pattern because travel in the summer by jet and by car and by RV and by ship all increase in the nations with the largest populations on earth and the most travelers.

What do we see this week but the predictable, which is why no one should have put any stock in that tiny downward blip in CPI, which was dependent on falling oil prices:

“2nd and 3rd busiest days ever for TSA in June”

“This year’s extended AAA Independence Day travel forecast exceeds pre-pandemic numbers, sets new record”

As I continued last weekend,

When so much of the drop in CPI was due to oil prices falling, markets were foolish to think the little wiggle downward in CPI meant anything to the Fed (or to the rest of us who buy gasoline or diesel), as oil is highly likely to reverse that move this month … and, as I keep saying, oil prices into everything else. It affects all prices down the road.

It’s not surprising then that we see oil is pushing and holding well above the$80/bbl level for the second week in a row.

West Texas Intermediate has gained 4.8% this week, while global benchmark Brent is up 3.8%. Prices found support Thursday as U.S. crude and gasoline stockpiles fell for the first time in weeks, suggesting an uptick in demand….

The drawdown outpaced the expectations of analysts surveyed by Reuters.

Gasoline stocks fell by 2.3 million barrels, while analysts forecast a 620,000 barrel build. And distillate inventories, which includes diesel, dropped by 1.7 million barrels, while analysts expected a 261,000 barrel increase….

Patrick de Haan, head of petroleum analysis at GasBuddy, described the drawdowns as the “wrong trifecta,” warning that prices at the pump are likely to rise as a consequence.

JPMorgan analysts told clients in a Thursday note that the seasonal uptick in oil demand, refinery runs, weather risks, and OPEC+ extending production cuts through the third quarter should lead to a tighter market as inventories draw down. The investment bank forecasts Brent will hit $90 per barrel in September as the market tightens on falling inventories.

So, it’s happening. Plain as can be.

Wars and rumors of war

Another factor I’ve talked about in past writings that is likely to drive the price of oil up, raising the price of everything else and damaging the Fed’s fight against inflation, is all the wars in oil-producing regions, which I’ve maintained for many months are likely to get worse. Anticipating that they are less threatening to oil, as stock investors have done, is folly. This week’s news is showing, sadly, how true that is:

• Israel Warns Of ‘All-Out War’ With Hezbollah Despite US Envoy Visit

• Official Announcement: "Diplomacy Has Failed" - Israel - Hezbollah Heading to War (Doom Scale Just Hit 10)

• Nasrallah Says 'No Place' Safe, Even Threatens Cyprus, If Israel Invades Lebanon

And, if Cyprus gets involved, so may Greece, which still thinks Cyprus should belong to it.

On top of that, we are seeing intensifying efforts to heighten the risks of war by Putin, as he formed a much more notable military alliance with the nefarious North Korea this week and as he has moved his nuclear-capable submarines and war ships into the Caribbean and just off the United State’s southeastern coast.

China, too, is stirring things up more on the seas as its Coast guard attacked a Philippine vessel, using swords like pirates, hacking off the hands, etc. of crew members and as China constantly increases its military presence around Taiwan.

Tensions are also escalating in the Middle East again, with Israel and the Iran-backed militia group Hezbollah threatening war.

Israel’s military said Tuesday in a statement on social media that “operational plans for an offensive in Lebanon were approved and validated.” On Wednesday, Hezbollah leader Hassan Nasrallah warned Israel in a televised speech that the militant group would fight with “no rules and with no red lines” if war breaks out.

Oil prices rallied in April to annual highs as OPEC member Iran and Israel nearly went to war. Traders shifted focus back to market fundamentals after tensions eased, unwinding the risk premium that had lifted crude futures.

Well, then, time to wind that risk premium back up because unwinding it was almost a delusional mistake. All of which is to say that any bet that the Fed was starting to win the battle against inflation again just because of one tiny blip down in the latest CPI report, due mostly to oil, was, as that last Deeper Dive said, a seriously miscast bet.

“While many market participants have relegated this conflict to the back burner, we continue to warn that an Israel-Hezbollah confrontation could prove to be the tripwire for direct Iranian involvement in the war given Tehran’s staunch support for its most important armed proxy,” ” Helima Croft, global head of commodity strategy at RBC Capital Markets, told clients in Thursday note.

The other certain inflator on the horizon

There is another major fact that we already know will be driving CPI back up in the months ahead that I laid out in that Deeper Dive because the moves are already in the bag. It’s certain and easy to see; the only question is timing because everyone agrees there is a substantial lag time before it works into CPI, but there is disagreement on exactly how long the lag is. Without the metrics in that Deeper Dive to lay it all out for you in the clearest of terms, let’s just say that housing has some nasty surprises in store for inflation that are not that far off.

And that is why I say with a fair degree of confidence that overall CPI is not done rising as the two categories that brought it down a mere nudge in May have a lot of natural upward pressure already built up. I would imagine the Fed understands this, and that is why it stated so clearly at the last meeting that it needs to see several months more data to become convinced that overall inflation is going back down.

Fed’s labor gauges are still a mess

We also got another taste of those whacked-out labor metrics the Fed is relying on which once again demonstrated how badly the Fed’s labor gauges are broken. Last week California delivered the highest rise of any state in new unemployment claims. I laid out here in The Daily Doom why that was and how misguiding those metrics have been for some time. We saw how misguiding they were again as California wiped out almost all of last week’s gains in initial jobless claims.

While the labor metrics are starting to waver around more and unemployment may be rising, readings are not clear and are continuing to show a lot of noise and unreliability. So, it still would not be surprising (in fact, I expect it) to see the Fed surprised when the labor metrics finally do change with clarity and the Fed finds itself already standing waist-deep in a recession.

Chaos keeps coming

Keeping tabs on how that Year of Chaos is coming along, look at some of the major turns in European politics that are proving internally disruptive in European nations (and then let’s take a look at our own mess).

The biggest turn toward chaos comes from France, where …

France is about to bring the EU to the brink of collapse

The present political conflict in France (just like all the talk of civil war in the US over social and political issues)…

… is a terrifying showdown, an epic moment of truth that threatens to blow up the EU, trigger another Eurozone crisis….

In two weeks’ time, France will have either elected the most radical Right-wing populist government ever to control a nuclear power, opted for a rabidly anti-capitalist, anti-Western, far-Left coalition, or proved itself to be entirely ungovernable….

The centre won’t hold…. President Emmanuel Macron may even have to resign. Chaos could overshadow the Olympics. I fear for the France I love, but above all I am angry at decades of failure by an arrogant … ruling class whose hatred of classical liberalism and disdain for conservative values are forcing the country into such an unpalatable choice.

The election’s impact will be explosive….

As in the US, two polar opposites may be heading toward violent conflict in a war over values. It all sounds so domestically familiar:

It is impossible to exaggerate the scale of the psychological shock that a Le Pen/Bardella victory would cause. The global great and good would be horrified. Swathes of French society, including many in the banlieues and unions, would be enraged.

The culture war is intense in merry ol’ England, too, where Brexit-maker Nigel Farage is making a strong play to become prime minister.

He planned to ‘build a bridgehead in the commons’ at this election, then construct a ‘big national campaigning movement around the country over the course of the next five years for genuine change’….

The response was mockery. ‘Ridiculous,’ said departing Cabinet minister Michael Gove. ‘Don’t be silly,’ proclaimed Tony Blair’s biographer John Rentoul.

They’re wrong. Our political establishment may not want to hear it. But with only two weeks of the campaign left, Reform’s leader now has a clear and credible path to Downing Street.

Of course, here in the US, one of the likely contenders for Biden’s position, should ol’ Joe die of malingering age or from falling off a stage before he hits the Democrat’s big convention stage, is Gavin Newsom, who cannot govern his own state, but has turned it into an economic mess of surging and halting unemployment and frequent violence.

California became a war zone on Juneteenth, a solid example of what America may soon become as leaders like Newsom do their best to constantly gin up racial hatred with things like CA’s great reparations plans. Juneteenth turned into a gun fight in the state run by the party that does its best to abolish guns while gunslinging states like Texas remained far more quiet.

In a state governed by radical leftist Gavin Newsom, where common sense law and order are seemingly absent, such scenes are becoming more frequent. This incident further exemplifies why people and businesses continue to flee to safer, red states.

Around 2015 local time, a fight broke out at a sideshow involving "motorbikes and vehicles" at Grand and Bellevue avenues—and that was the moment when all hell erupted.

California’s OK Corral, I guess.

#BREAKING: Multiple people have been injured after being shot and stabbed during a Juneteenth celebration

Use link to see video: Twitter

Is it really any wonder that liberal cities are becoming ungovernable when you consider what Obama and Biden have brought upon these cities, which defy federal law with their self-proclaimed immigration sanctuary status? We’ve seen years of flash looting parties, defunded police told to stand down, and forced profusions of violent criminals through a program called DACA: (All the stuff Liberals love.)

In First Five Years, 79,000 of DACA Recipients Admitted to U.S. Had Arrest Records.

…President Joe Biden on Tuesday announced he was expanding deportation protections and job opportunities for recipients of the Deferred Action for Childhood Arrivals (DACA) program created by executive order by former president Barack Obama in 2012….

Tuesday was the 12-year anniversary of DACA, which a federal judge has twice ruled is illegal. Several states, led by Texas, are still fighting to end DACA in a case that is expected to eventually be decided by the U.S. Supreme Court….

According to the data, of the 888,818 DACA requestors, 765,166 were approved, including 79,398 who were approved with an arrest, or 10.38% of applicants … including more than 25,300 arrested for driving-related crimes excluding driving under the influence (DUI). Nearly 13,000 were arrested for immigration-related civil and criminal offenses; nearly 8,000 for theft, larceny; nearly 7,000 for drug-related crimes; more than 4,200 for DUI; more than 3,400 for battery; more than 3,300 for assault; more than 3,000 for obstruction, fabrication, false claim.

That’s the kind of people I want brought in to build America back better again! And that is where all of the net new jobs in America have gone in the past year (to immigrants, including many of these).

With leaders this blatantly stupid or inept and millions who vote for them, what hope do we have?

The report also notes that 41 illegal foreign nationals were granted DACA status who’d been arrested more than 10 times; 963 were granted DACA status who’d been arrested five times; 15,482 who’d been arrested twice.

Nothing like people with a rap sheet.

The greatest number of arrests and the greatest number of DACA requesters arrested by their last known state of residency were in the same three states: California, Texas and Illinois.

At least, Texas appears to know what to do with them—bus them to Illinois or CA since those states are dominated by sanctuary cities that clearly want illegal people.

According to the Department of Homeland Security, if DACA recipients “knowingly misrepresent information, or knowingly fail to disclose facts, in an effort to obtain DACA or work authorization through this process,” they “will be subject to criminal prosecution or removal from the United States or both.”

Oh, good: years of process for people who have no legal right to be in the country (or shouldn’t). Maybe we should just catapult them back across the border. We owe them NOTHING, but to be humane, we could wrap each one in a mattress before launch.

Come on! The fact that we are willing to wrangle with these people for months or years in courts at great expense while educating their children and providing healthcare and some form of housing is beyond stupid. End DACA and streamline the laws that already say with great complexity illegal immigrants don’t belong here, smack them hard on the behind for breaking our laws by crossing the border and send them back. Start jailing the people who hire illegal aliens, and most of the illegal aliens who are here for jobs will take themselves back home.