Confounding and Confusing Events 12/20/21
It has been reported that lithium, the commodity that is the principal element from which lithium batteries are made is skyrocketing in cost, and in fact, has increased in the range of 240% during 2021. This has occurred for a variety of reasons. One obvious factor is the increase in demand, and secondarily, the cost associated with securing licenses and permits in order to extract and convert the lithium into a substance that can be used in batteries. It is also important to note that there is not a shortage of the natural resource, but rather the inability to extract and process it which is also impacted by the extremely high cost of set up.
As we have noted previously, there is substantial difficulty in gathering and analyzing data regarding employment, unemployment, open jobs, etc. A recent article indicates that the government is getting less data from employers, and thus economists have a hard time understanding how the pandemic effects consumer and business behavior. We have seen inconsistent numbers month-to-month, and big revisions to initial estimates particularly to the jobs added number. Factors impacting this process have been the unprecedented government stimulus’ which has been distributed, and the government has seen a sharp decline in the payroll data collection from employers. This is at least somewhat of an explanation of why the data is so difficult to gather and interpret.
As we indicated last week, there is great frustration on the part of Canadians with two issues in particular – soft wood lumber tariffs and the electric vehicle credits. Now Canada is talking about imposing tariffs, without specifying the level or the goods to be affected. This communication implicitly implies that tariffs would be on a broad number of consumer items for the sole purpose of punishing the US and US workers. What the US is not recognizing is the enormous effective tariff that our credits will create in our trade with Canada and Mexico. If Canada goes ahead and imposes tariffs on US goods and creates its own electric vehicle credit, cross border trade in electric vehicles could dramatically diminish and consumers will pay more.
The Defense Intelligence Agency (DIA) has been tasked by the Pentagon to take the lead on unclassified data. The focus of the DIA will be on the gathering and use of open-source data, and what policies the US Government should have toward that information since it is not classified. Due to the great volumes of data that moves through social media, online material and commercial data sources, the impact on modern military operations is evolving rapidly. This appears to me to be an intelligent (excuse the pun) action on the part of DOD and the US Government. We are all traveling into chartered waters as the amount of data that is unclassified and is flowing through social media grows geometrically. We will have to learn how to harvest the data, and analyze it.
As we drift into more and more conspiracy theories, it appears that one that is being posited is that birds are really drone replicas installed by the government to spy on Americans. The problem that I see, and that somewhat denigrates this conspiracy theory, is that there still appear to be those white smudges on my car. So, there must be some real birds out there.
US healthcare spending surged nearly 10% last year to more than $4 trillion primarily as the result of COVID, so if you are looking for inflation culprits, it is clearly there and likely spurred on by the intense activities of hospitals as they treated COVID victims. The unvaccinated represent a large portion of those who are hospitalized and those who get seriously ill. In fact, in Vermont it is around 70%. Whose to blame for this sector’s inflation?
The Chinese economy slowed in November, primarily due to a real estate slump and weak consumption which continues the trend developed in October with the only bright spot being an increase of 3.8% in industrial production. It seems China is suffering many of the same woes that the rest of the world is as COVID lingers on and supply chain is clogged.
Retail sales in the US slowed, increasing by a seasonally adjusted .3% in November which is smaller than the October increase which was 1.8%. This growth was negatively impacted by inflation and product shortages. The aggregate impact to the holiday season will be a factor that all will be interested in, but I suspect particularly the fed, as it tries to continue to evaluate and tackle ongoing inflation.
Republicans who railed against Biden’s stimulus bill are now, as I predicted in earlier commentary, embracing the money. It appears that there is little shame as they simply assume that their constituents will not be able to connect the dots, or that their constituents being like them don’t see this as any form of inconsistency. Numbered among those who are involved are Governor Noem of South Dakota, who I would note had scorching comments about the federal funding. She also claimed that the bill will cause inflation, but is happy to collect and spend the money which certainly would be a contributor to inflation if her logic held. The same is true of Governor Gianforte of Montano, Ron DeSantis of Florida and numerous Congressional Republicans, including our own Congresswoman, Ms. Stefanik.
The Fed announced that it would tighten monetary policy and utilize at least three interest rate increases during 2022. The reaction of the stock market was to go up. It must be that the stock market believes there is a need to strengthen or, I should say, tighten monetary policy and to take money out of the economy with increased interest rates, as well as, cease making its purchases in the bond marketplace. The response in Europe is not consistent from the top Central Banks.
Prime Minister Trudeau has ordered his Ministers to take a hard line in all negotiations with the US as the Electric Vehicle Credits and softwood lumber are really taking a toll on the relationship.
Bill Owens is a former member of Congress representing the New York 21st, a partner in Stafford, Owens, Piller, Murnane, Kelleher and Trombley in Plattsburgh, NY and a Strategic Advisor at Dentons to Washington, DC.
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