California: Saved from the Disaster of its Own Policies

Gavin Newsom speaks against the Senate vote (WSJ)

It wasn't overlooked, but one action the Senate took this week received less attention than other items in the news--for example the "big, beautiful" tax bill and the White House visit of South African president Cyril Ramaphosa--but it was nevertheless highly important to the future of the auto and energy industries in the United States. [bold added]

The U.S. Senate on Thursday voted to block California’s first-in-the-nation regulations that would ban the sale of new gasoline-powered passenger vehicles statewide in 2035, setting up a certain legal battle over the future of electric cars in the United States.

By a vote of 50-44, the Republican-led chamber voted to revoke permission that the U.S. Environmental Protection Agency under the Biden administration had given to California to set the rules.

In 2020 California banned the sale of new, gasoline-powered cars beginning in 2035. Because of California's influence as the wealthiest, most populous state, other states copied California's anti-fossil-fuel rules. Perhaps more importantly, automakers found it too costly to manufacture different models for the U.S. market and began offering only California-compliant models.

The Senate vote directed the Environmental Protection Agency to stop providing California a waiver, thereby negating California's ability to set its own environmental rules regarding gasoline-powered cars.

Your humble blogger has been opposed to California's fossil-fuel ban since 2021:

100% dependence on solar and wind power is nuts. Single sourcing of electricity and transportation systems should not be on notoriously unsteady renewable energy, especially during extreme weather events that knocked out power during the California wildfires and the Texas freeze.

Battery technology is improving rapidly, but it's not at the point where we can pull the plug on the oil and gas that run the vast majority of our cars and power plants. (For an example of how well government predicts construction of technologically advanced infrastructure, see California's high-speed rail fiasco.)

We have already seen the effects of the 2035 ban within California. Refineries that produce California's special blend of gasoline are closing because it is not worthwhile to repair or improve them. Maybe now refiners will reverse course.

California politicians won't admit it, but the Republican Senate may have saved California from the disaster of its own policies.

In the Furtherance of Their Own Goals

(Sarah Stierch via Flickr CC 2.0/SFGate)

The war against CO2 claims another sacrifice: 2,554 acres in the Mojave Desert plus the character of the nearby town of Boron (pop.2000). From SFGate reporter Sam Mauhay-Moore: [bold added]

On a warm October night last fall, I sat near a taxidermied bobcat and a trove of other historical Mojave memorabilia inside Boron’s treasured Twenty Mule Team Museum. A group of locals gathered there to discuss the Aratina Solar Project, which was just starting to make headway less than a mile from the town’s southern boundary.

“They’re just destroying this place,” Jerry Gallegos, longtime Boron resident and co-president of the museum, said at the meeting. “They’re plowing down 3,000 Joshua trees right now, taking chainsaws and cutting them down three at a time.”

Joshua tree in the Mojave (drcooke/Getty/SFGate)

The Aratina Solar Project has a footprint of 2,554 acres, of which 2,317 acres will be covered by solar panels. It "generate(s) up to 530 megawatt-alternating current (MW-AC) of renewable energy, including up to 600 megawatts of energy storage, on privately-owned land in unincorporated Kern County."

Fortunately there is a natural-gas power plant of similar capacity in Kern County that can be used for comparison.

The Elk Hills Power Plant (EHPP) is located on a 12-acre site within the Elk Hills Oil and Gas Field, in western Kern County, near the community of Tupman...EHPP is a nominal 550-megawatt (MW) combined-cycle, natural gas-fired, cogeneration power generating plant.

It's well beyond the scope of this post to rehash the traditional natural-gas vs. solar debate (carbon emissions vs. none, power-as-needed vs. intermittent capability). But we can note a vast difference that has not often been mentioned, namely, solar's 4-sq-mile destruction of the Mojave desert vs. less than 1/2 of one percent of that area for natural-gas power.

It would be wrong to declare that environmentalists are guilty of an apparent double standard when they are silent about natural habitats being destroyed in the furtherance of their own goals. They must have a good explanation.

Four Lights

There are four lights! (Star Trek reference)

When it came time to replace the 40-watt bulbs in the bathroom, only the white LED product was available at Home Depot. Because having a mixture of lights was not esthetically pleasing, I removed the incandescents and stored them away.

When the leftmost LED burned out this week, I reached for an incandescent. I had forgotten how much a warmer light changes the mood, and I will go back to the old bulbs now that President Trump's EPA will allow them again, along with the older-standard showers, toilets, washing machines and dishwashers.

(We may not have heard the last word about President Trump's action, because the energy-efficient regulations were based on the Energy Independence and Security Act of 2007. The Act, in my humble non-lawyerly opinion, does not mandate specific energy criteria for consumer lightbulbs, leaving the details to the Secretary of Energy. Under President Biden consumer incandescents were banned by the Department of Energy, and President Trump's rescinding of the ban is within the latter's authority. Of course, I could be wrong...)

James Earl Carter, Jr. (1924-2024)

Former President Jimmy Carter, 100, has died:

The 39th president’s sole term in office was marred by a listless economy and stubborn inflation, squabbles within his party, gridlock in Congress and the seizure of American hostages in Iran. Considered a long-shot Democratic candidate when he announced his bid, Carter would broker a historic peace treaty between Israel and Egypt and set in motion other changes that would dominate global politics in subsequent years.

Many of the achievements for which he was recognized came after he left office in January 1981. He was the most active former president in modern U.S. history, gaining renown for work over four decades monitoring elections around the world, fighting neglected diseases, working to raise living standards for the poor and advocating for human rights. He did much of this work through the Carter Center, the humanitarian nonprofit he founded with his wife, Rosalynn Carter, in 1982.

“Jimmy Carter will probably not go down in American history as the most effective president. But he is certainly the best ex-president the country ever had,” said Gunnar Berge of the Norwegian Nobel Committee in his 2002 speech presenting Carter with the peace prize.

Because of the Iran hostage crisis and moribund economy during his term, Jimmy Carter's Presidency is poorly regarded. But there were some positives:

But he had some notable successes in foreign affairs, including the Camp David Accords. Signed with Israeli Prime Minister Menachem Begin and Egyptian President Anwar Sadat, they reshaped the Middle East by bringing a lasting peace to two hostile nations. And domestically, the president was able to push deregulation of airlines, railroads and other industries. He signed a law establishing the Energy Department to regulate existing sources of energy and fund research into new sources and other technologies.

If there's one thing that I remember about President Carter, it's his outspoken Christianity. He was mocked by the Eastern cognoscenti for the Playboy "lust in my heart" interview:

"I've looked on a lot of women with lust. I've committed adultery in my heart many times."

In his defense he wasn't saying anything that most red-blooded American males didn't identify with, but back in the '70's one just didn't talk about such things in public. To his secular supporters he had committed an unforced error by bringing up one of the central struggles of being an evangelical Christian---that God judges men not by their actions but by what is in their hearts:

“You have heard that it was said, ‘You shall not commit adultery.’ But I tell you that anyone who looks at a woman lustfully has already committed adultery with her in his heart.---Matthew 5:27

Jimmy Carter spent his post-Presidency showing everyone what it was like to walk the walk over more than four decades. He and Rosalynn lived humbly in Plains, GA and gave generously of their time and money to philanthropic endeavors.

IMHO, Jimmy Carter's failures provide the answer to a question that journalists liked to ask during the recent Presidential campaign: "How can Christians vote for a rapist, serial liar, and convicted felon?" The answer is obvious: we elected a saint once before, and look where that got us. R.I.P.

A Regular Responsibility

The air filter on our Lennox furnace should be changed once a year, but I let it go for 17 months. The blackened filter, probably due to two summers of wildfires, showed that I should have adhered to the schedule.

Looking after our stuff (cars, appliances, landscaping, and heating, hot water, and security systems) has become problematic. Each item by itself is not burdensome, but together they add up.

Maybe downsizing or even renting is in our future. Let someone else shoulder these regular responsibilities.

23 Years Later

On the 10th anniversary of the 9/11 attacks, I posted the following, now updated with minor edits, using strikethroughs and italics:

============================================================

(Reuters photo)

I saw it on TV, like almost everyone else. I shuffled to the kitchen table with my cup of coffee and pushed the remote. The TV was set to Channel 11, NBC. It was 5:45 a.m. The Today Show was on; strange, normally it doesn't start till 7 a.m. on the West Coast.

The camera was fixed on the World Trade Center. Black smoke was pouring out of one of the towers. There were no jump cuts or commercials to distract the unblinking eye. Katie Couric's voice seemed dispassionate as she described how an airplane had crashed into the building. Surely it was a small plane and a horrible accident.

Then the second jet hit, another struck the Pentagon, and the towers fell. Other images are seared into our memories--the Pennsylvania field that became hallowed ground, the throngs who lustily cheered the deaths of thousands, flames and smoke everywhere, the weeping, the exhausted searching and the death of hope.

The fear gripped us for a long time. Not knowing has that effect. Who did it and why, how powerful were they, what's next, what should we do, what can I do?

Everyone--even those who were in charge of our government--can list major mistakes in the past ten twenty years. All the criticisms have at least some plausibility: we waged war against the wrong people, maybe we shouldn't have gone to war at all, we mistreated prisoners, we had intelligence that was grossly wrong, we sacrificed too many of our civil liberties, we didn't pay the cost of the wars, and we are no farther only a little further along in being energy independent or securing the safety of Israel.

But if we are honest with ourselves, we will remember the worst of our fears:

1) we would be hit again and perhaps lose a major city; this event coupled with our response, could forever change the character of America;

2) if the attack were biological, we could lose much more than one city;

3) oil supplies would be disrupted, maybe cut off for a long time, and usher in a new Dark Ages;

4) Israel, surrounded by powerful enemies, could be destroyed.

5) A state of war would exist between the West and the Islamic world, which has over a billion people.

Ten Twenty-threeyears and trillions of dollars later none of these fears has been realized, yet victory, which we can't even define, seems as distant as it was in 2001.

I'll take it. © 2011 Stephen Yuen

California Gas Prices: the Answer Always is More Regulation

The Phillips 66 refinery in Rodeo (Merc)

We've posted before about why California gasoline prices are higher than the rest of the country (gas taxes, "boutique" gas formula, banning new Internal Combustion Engine cars after 2035, etc.).

As refineries close down, the ones that remain have been accused of price gouging--any person capable of critical thought might ask herself why refiners are abandoning such a profitable business--but critical thinking about Progressive governance has been sorely lacking for decades.

The long-term supply outlook has become so dire that last week the Progressive government floated trial balloons about California seizing control of the refineries. Realizing that running refineries (and bearing responsibility for the inevitable debacles) was a step too far, Governor Newsom proposed a bill that he thinks will stabilize fuel prices. [bold added]

California Gov. Gavin Newsom on Thursday announced a first-in-the-nation plan to require petroleum refiners to maintain minimum fuel reserves to avoid supply shortages he says create higher prices at the gas pump.

The proposal would authorize the California Energy Commission to require state refiners to maintain a minimum supply, which would help prevent gas price spikes and save Californians hundreds of millions of dollars every year. Newsom said profit spikes for oil companies are overwhelmingly caused by refiners not backfilling supplies when they go down for maintenance.

The industry is likely to have to build storage facilities in order to hold the gasoline reserves. Also, the gasoline reserves themselves have a cost. As students learn in Finance 101, all assets on the balance sheet are financed through debt or equity (for analytical purposes debt is assumed). Adding storage and gas-reserve assets will increase interest expense which the companies will try to recover through higher prices.

Higher prices are what Governor Newsom was trying to avoid, but if the regulator doesn't allow the expense to be passed through to the customer, the exodus of refiners will accelerate. In the one-Party state, the answer to unforeseen consequences of regulation is always more regulation that will make the problems worse.

Like "Sanctuary" Cities, Easy to Proclaim Your Virtue Until You Have to Step Up

Data centers in northern Virginia (WSJ photo)

The tech giants all profess to be "green," but when the choice is between net-zero carbon emissions and the creation of power-hungry artificial-intelligence data centers, watch what they do, not what they say. [bold added]

An explosion of so-called hyperscale data centers in places such as Northern Virginia has upended plans by electric utilities to cut the use of fossil fuels. In some areas, that means burning coal for longer than planned.

These giant data centers will provide computing power needed for artificial intelligence. They are setting off a four-way battle among electric utilities trying to keep the lights on, tech companies that like to tout their climate credentials, consumers angry at rising electricity prices and regulators overseeing investments in the grid and trying to turn it green...

Many new data centers coming to Northern Virginia are known as hyperscale, or facilities that are far larger than previous generations of data centers. The big ones use as much power as the city of Seattle...

Wind and solar can’t serve data-center demand around the clock, so growth will need to be supplemented by natural-gas-fired power generation, said Arshad Mansoor, chief executive of the nonprofit Electric Power Research Institute.

“You can be an idealist,” Mansoor said. “But if you’re a realist, you’ll add a ton of solar and you can balance that with gas.” The only other option to new gas plants is delaying coal and nuclear-plant retirements, he said.

The moguls who run the mega-cap tech giants know very well that the artificial-intelligence gold rush will delay national decarbonisation for years. By talking a good environmental game (and deflecting blame onto the utilities) they hope to retain their ESG credentials and keep consumers and regulators off their backs.

A Valuable Hole in the Ground

Long before I joined it, my former employer did a leasing deal with an energy company at the height of the early-80's energy bust. At the end of the long-term lease my employer, as owner, made a few bucks selling the heavily used equipment (aka "residual value"). It also retained ownership of an underground salt dome used for the storage of natural gas. The people who did that deal were mocked incessantly for years as buying a "hole in the ground."

Underground salt domes are valuable commodities in the energy industry for their ability to store large quantities and varieties of substances. The latest application is hydrogen storage. [bold added]

Salt caverns like these are emerging as one possible solution to the question of how to store solar and wind energy for later use.

It’s a three-step process. First, electricity from solar and wind farms is used to produce hydrogen. Then the hydrogen is stored in caverns like those scheduled to be completed next year at the Advanced Clean Energy Storage project in Delta, Utah. Finally, the hydrogen can be used as a green substitute for climate-warming fossil fuels in uses ranging from power generation to steel manufacture and shipping...

The problem is that renewable power generation can fluctuate a lot depending on the time of day or year. Solar-panel output, for instance, stops when the sun sets, and in California can roughly halve in winter versus summer.

Utilities are building big battery installations that can suck up some of that renewable electricity when it’s plentiful during the day, and release it for a few hours in the evening. But the lithium-ion batteries most commonly used today are too small and expensive to absorb the massive amounts of power needed to balance out grids over months or seasons, energy-industry executives say...

Capturing that renewable power by making hydrogen with it and storing the gas underground isn’t cheap. Industry executives say the cost to make a salt cavern could easily exceed $100 million, on top of expenses for the equipment needed to produce the hydrogen. But trying to provide similar storage with batteries is much pricier.

Green Hydrogen International, a company planning a cavern project in South Texas, estimates it would take around 38,500 Tesla Megapacks—a type of battery popular for large-scale utility installations—at an estimated cost of $59 billion to store the amount of energy it is hoping to keep in its caverns, which it estimates will cost $150 million to make...

Salt caverns have been used since at least the 1940s to store fossil fuels. The U.S. keeps a good portion of its natural gas underground, as well as its emergency crude-oil reserves, which reside in four huge salt caverns in Texas and Louisiana.

The caverns are typically hollowed out of deposits of rock salt, formed from the remnants of ancient seas that have hardened into layers or been squeezed into pillars or mushroom-shaped domes of salt underground.

Salt deposits have advantages for storing hydrogen, a notoriously tough gas to trap. They are more leakproof than other types of rocks used for storage sites—a feature especially important for hydrogen, which is the smallest molecule in existence. And the rock salt doesn’t react with hydrogen, which can be corrosive to tanks when it is stored above ground.

To create a cavern, engineers drill deep down into a salt deposit, then flush it with massive amounts of water, which slowly erodes the salt and forms a long, tubelike hole, a process that can take two or three years.

As for my employer's hole in the ground, it was sold for a multiple of the original cost of the entire project (it helped that the dome was required to be filled with increasingly expensive natural gas when it was turned over to us). And the men who did that deal became CEO's and Executive Vice Presidents.

Absolute Power Corrupts Absolutely

2020: in front of four EV's Gavin Newsom bans the sale of gas-powered cars by 2035.

Gavin Newsom's war against fossil fuels has been waged across several fronts, including

Banning the sale of new gasoline-powered vehicles starting in 2035;

Imposing "price gouging" penalties on the oil and gas industry;

Prohibiting improvements to and retrofitting of pre-existing wells around which communities have sprung.

Yesterday the Governor withdrew the price-gouging legislation in favor of setting up an Executive Branch "watchdog": [bold added]

On Wednesday, the governor’s office said it is proposing legislation to create a watchdog body, backed by subpoena powers, within the California Energy Commission to investigate the state’s oil refinery market and gas prices. Based on findings from the watchdog entity, the commission could issue penalties at its discretion on the state’s oil refiners, according to advisers in the governor’s office.

IMHO, the new proposal is worse than the one it replaced. "Penalties at its discretion" is an invitation to corruption, i.e., payments to the right people will get fines waived since there don't seem to be objective criteria about where the penalty lines are.

It's also clear that a persistent price premium must have an explanation other than capitalist greed, which, if that were the case, would exist peculiarly only in California. My hypothesis: gasoline producers have only 12 years to recover their investment in California plant and equipment, after which the market for gasoline will dry up. In the rest of the country refiners can count on a useful life of 20 years or longer, thereby lowering the prices they require to turn a profit.

Come summer hellfires or winter high waters, the Progressives in charge of the one-party State are marching California to their utopian destination, while making sure that they're getting their cut along the way.

California Premium

California's "price gap" between its gasoline and the rest of the country's is nearing $2 per gallon, the largest in 22 years: [bold added]

Much of California’s high gasoline costs are explainable. The state’s 54-cent gasoline excise tax is among the highest in the country — only Pennsylvania’s is higher. There are also stricter environmental regulations and special fuel blends that prevent rampant smog from accumulating in cities, altogether these factors tack on roughly $1.20 to California’s gas prices.

But the widening gap between what everyone from San Jose to Los Angeles is paying compared to the rest of the country is due to the concentrated nature of California’s oil refineries, experts say. Due to the state’s special gas blend, California is often termed a “fuel island” because nearly all gas sold in the state is refined locally by a handful of companies, including Chevron, Marathon Petroleum and PBF Energy. That means mechanical hiccups at refineries can cause major price spikes not seen elsewhere in the country.

California progressives have imposed a boutique gas formulation and higher gas taxes because they can do so without opposition. These factors have been known for years; for example, in 2019 we posted on this subject when the price gap was a mere $1.40 per gallon.

Undoubtedly the politicians will blame the oil refiners for greedy behavior that is mysteriously absent in the other 49 states. Having neither self-awareness or business experience, the politicians cannot imagine why capitalists don't invest a dime in an industry that they not only have trashed publicly but will regulate out of existence beginning in 2035.

Well, Californians have voted for these policies consistently since the turn of the century, and if they are looking for someone to blame they should just look in the mirror.

It's Very Clear

Consumer sentiment, which tracks inflation, and consumer
confidence, a jobs-based indicator, both fell in 2022 (WSJ)

Following up on yesterday's post on the prices I've been seeing at the store and at the pump, this morning's inflation report confirms that inflation is "easing":

U.S. Inflation Eased Slightly to 8.5% in July

U.S. inflation eased slightly but remained close to a four-decade high in July despite cooling energy prices.

The Labor Department on Wednesday reported that the consumer-price index rose 8.5% in July from the same month a year ago, down from 9.1% in June. June marked the fastest pace of inflation since November 1981. The CPI measures what consumers pay for goods and services.

Core CPI, which excludes often volatile energy and food prices, held steady in July, increasing 5.9% from the same month a year ago, a sign that broad price pressures remain in the economy.

Because these reports are based on recent historical data, they don't necessarily capture what is going to happen.

There are moderating trends in real estate. In June we pointed out the dramatic negative effect that interest rate hikes can have on housing prices. In the Bay Area we have seen seller markdowns, fewer bids on listings, and houses being pulled from the market.

We're hopeful, but don't break out the bubbly. Barring a severe recession, the overall price level will not be dropping. In fact, Fed Chairman Powell's goal is to get inflation down to "the Fed’s 2% target within a couple of years." With apologies to the Gershwins, it's very clear high prices are here to stay.

Prices Dropping to a Higher Plateau

A regular shopper at Costco, I was taken aback by the sight of Charmin toilet paper on sale.

Palettes and shelves of toilet paper had fluctuated between empty and threadbare since the beginning of the pandemic, and the markdown gave hope that the balance between production, inventory, and demand had somewhat normalized.

However, the sale price of $19.49 was about 10% higher than the comparable sale price at the end of 2019.

The price level of toilet paper, in fact everything, appears to have reached a higher, permanent plateau.

We were pleased to see that gas had dipped below $6 a gallon at the end of June. During our round trip to Seattle at the end of July the cost in California was $5.20, while in Washington it ranged between $4.50 and $4.80. In the Bay Area this week we paid $4.95 (picture).

I like the downward trend, but I doubt we'll ever see the $3.20/gallon we paid at the end of 2019 in a "normal" economy or the $2.80 at the end of 2020 when activity had slowed to a crawl. Like I said, a higher, permanent plateau.

Will the Dip Stick?

For the first time in a month, I paid less than $6 a gallon for gasoline.

This could be one of those good news/bad news moments, the good being that gasoline prices have peaked, and the bad being that a recession is becoming more probable.

Headline: Consumer Sentiment at Record Low Is Another Ominous Sign for Economy

The University of Michigan’s gauge of consumer sentiment reached a final reading of 50 in June. That was the lowest reading on record going back to 1952, and down from both an initial reading earlier in the month and May’s 58.4 reading.

A souring mood for consumers, who face the highest rate of inflation in four decades, is a concerning sign because household spending accounts for about 70% of U.S. economic output. Retail sales fell in May, the first decline this year, and job and wage growth slowed last month. Economists surveyed by The Wall Street Journal have raised the probability of recession.

When consumers think that a recession is on the horizon, many will cut back their spending to build a financial cushion, all but ensuring a recession will occur. We may even see sub-$5 gas, but it won't be because more supplies are coming online but because the economy is slowing.

California on the Precipice

Lake Tahoe is shrinking (Chron photo)

We take a break from looking at our incredibly shrinking stock portfolio to worrying about the apocalyptic summer in store for Californians: [bold added]

This year’s extraordinarily dry, warm weather, which is expected to continue in the coming months, is stoking fears of a multitude of problems: increasing water restrictions, extreme heat, blackouts, wildfire and smoke — potentially all of the above in one vicious swoop...

Already in California, climate volatility, as palpable as it’s been, has joined the list of reasons people cite for wanting to move away, after soaring home prices, high taxes and traffic. The state’s population, which had grown for decades, dropped in each of the past two years.

“We have people say they’re concerned about drought, they’re concerned about wildfire,” said Scott Fuller, founder of LeavingTheBayArea.com, a 7-year-old real estate company that helps people relocate. “We’ve had clients say this is literally the final straw.”

And we haven't even mentioned the danger that most concerned us during the last century: a major earthquake.

Should the latter happen, that really will be the last straw for millions of soon-to-be ex-Californians. Will the last one out the door please close the lights, if they're not out already?

They Learned Nothing from the Experience

Now that's a hockey-stick (WSJ graph)

The 1970's-type inflation that we've been predicting for over a year is here with a vengeance.

U.S. Inflation Hit 8.6% in May: Energy, groceries, shelter costs drive fastest rise in consumer-price index since December 1981

U.S. consumer inflation reached an 8.6% annual rate in May, its highest level in more than four decades as surging energy and food prices pushed prices higher...

May’s increase was driven in part by sharp rises in the prices for energy, which rose 34.6% from a year earlier, and groceries, which jumped 11.9% on the year, the biggest increase since 1979. But inflation pressures were distinctly broad-based in May, said Sarah House, senior economist at Wells Fargo Securities.

“Inflationary pressures were seen nearly everywhere,” she said.

Prices for used cars and trucks—a key engine of the past year’s inflation surge—rose 1.8% in May from April, reversing three months of declines. Shelter costs, an indicator of broad inflation pressures, accelerated on a monthly basis in May and were up 5.5% compared with a year ago.

Airline fares rose 12.6% on the month, the third straight double-digit rise.

The younger folk who have never lived through high inflation may be forgiven for not seeing the warning signs, but the gerontocrats who run the country have no excuses.

But wait--it could get worse. We are already seeing early signs of a recession with layoffs in tech and a cooling housing market (mortgage interest rates have risen above 5%). The dreaded stagnation + inflation = stagflation is possibly looming. It will require skilled economic leadership to engineer a "soft landing," i.e., reduce inflation without cratering the economy.

Based on their performance so far, how would you bet, dear reader?

20 Years Later

On the 10th anniversary of the 9/11 attacks, I posted the following, now updated with minor edits, using strikethroughs and italics:

============================================================

(Reuters photo)

I saw it on TV, like almost everyone else. I shuffled to the kitchen table with my cup of coffee and pushed the remote. The TV was set to Channel 11, NBC. It was 5:45 a.m. The Today Show was on; strange, normally it doesn't start till 7 a.m. on the West Coast.

The camera was fixed on the World Trade Center. Black smoke was pouring out of one of the towers. There were no jump cuts or commercials to distract the unblinking eye. Katie Couric's voice seemed dispassionate as she described how an airplane had crashed into the building. Surely it was a small plane and a horrible accident.

Then the second jet hit, another struck the Pentagon, and the towers fell. Other images are seared into our memories--the Pennsylvania field that became hallowed ground, the throngs who lustily cheered the deaths of thousands, flames and smoke everywhere, the weeping, the exhausted searching and the death of hope.

The fear gripped us for a long time. Not knowing has that effect. Who did it and why, how powerful were they, what's next, what should we do, what can I do?

Everyone--even those who were in charge of our government--can list major mistakes in the past ten twenty years. All the criticisms have at least some plausibility: we waged war against the wrong people, maybe we shouldn't have gone to war at all, we mistreated prisoners, we had intelligence that was grossly wrong, we sacrificed too many of our civil liberties, we didn't pay the cost of the wars, and we are no farther only a little further along in being energy independent or securing the safety of Israel.

But if we are honest with ourselves, we will remember the worst of our fears:

1) we would be hit again and perhaps lose a major city; this event coupled with our response, could forever change the character of America;

2) if the attack were biological, we could lose much more than one city;

3) oil supplies would be disrupted, maybe cut off for a long time, and usher in a new Dark Ages;

4) Israel, surrounded by powerful enemies, could be destroyed.

5) A state of war would exist between the West and the Islamic world, which has over a billion people.

Ten Twenty years and trillions of dollars later none of these fears has been realized, yet victory, which we can't even define, seems as distant as it was in 2001.

I'll take it. © 2011 Stephen Yuen

Inflation Fears Spreading

Though Hawaiians are used to high prices, even they're noticing the increases.

In February I was concerned enough about inflation to shift some of the portfolio into traditional hedges like real estate and precious metals.

By May the alarm bells were ringing loudly as the Administration's trillion-dollar deficit spending plans took shape, despite signs of recovery, while at the same time the Federal Reserve committed to keeping interest rates low. (The Fed will buy up government debt and release cash into the economy; this combination of actions is what people mean when they say that the government can spend away because it can "print money.")

Now awareness of inflation is hitting Main Street. Consumers see it everywhere in car, food, gas, and housing prices.

U.S. inflation continued to accelerate in June at the fastest pace in 13 years as the recovery from the pandemic gained steam and consumer demand drove up prices for autos, airline fares and other items.

The Labor Department said last month’s consumer-price index increased 5.4% from a year ago, the highest 12-month rate since August 2008. The so-called core price index, which excludes the often volatile categories of food and energy, rose 4.5% from a year before.

The Fed still holds that the spike is temporary, and to be sure, there are influential voices that hold to the rosy view. As for me, I'm pessimistic but I hope I'm wrong.

Regardless, millions see their pocketbooks being hurt now, and inflation is going to be a hot topic for the 2022 elections.

Inflation: the Transitory Story

We didn't buy it at $15 a lb. Look at it now.

We have previously voiced our fear that 1970's-style inflation is back. At the ground level we consumers see the evidence all around us: rising prices at the pump, grocery stores, and the real estate listings in our neighborhood.

The Treasury and Federal Reserve still insist that the price spike is transitory, and we cannot unequivocally say they're wrong.

Economists still have some authority with your humble blogger and aren't completely Democratic-Party cheerleaders like the other social sciences. So I'll listen to them though they may take the Administration's side.

On the side of transitory inflation is Prof. Alan Blinder, former Fed Vice Chair:

If you’re worried about a return to the double-digit inflation of the 1970s and ’80s, relax. There is a lot of angst these days as a result of the stunning 5% inflation rate (for the year ending May 2021) in the last consumer-price index release. We haven’t seen a reading that high in 13 years, but the huge supply shocks of the double-digit days aren’t present, and the Federal Reserve won’t let inflation soar. It is certainly possible, however, that inflation will linger above the Fed’s 2% target for a while...

Much of this year’s inflationary surge can be traced to two transitory factors: bounceback from the anomalous negative inflation readings of early 2020 and bottlenecks as the economy reopens unevenly.

...there are three counterarguments [to the high-inflation argument].

First, this worry reflects Phillips curve thinking, which hypothesizes that low unemployment rates make the inflation rate rise. But inflation wasn’t rising before the pandemic despite a 3.5% unemployment rate.

Second, the bond market isn’t buying the argument. Inflation forecasts embedded in bond yields remain consistent with the Fed’s low target.

Third, much of the extreme fiscal stimulus that has been driving spending is transitory. Most pandemic relief spending will be ending soon, and I don’t think Congress will approve much more spending this year that isn’t paid for.

At the heart of the inflation story, like many other important issues of the day, is the battle between our fears (derived from past experience) and hopes (the professionals know what they're doing). Well, once in a while the experts are right.

Meanwhile, as we said in May, it would be wise to hedge your bets:

shift some investments into real estate, gold, art, or more stable foreign currencies that can keep up with dollar inflation. (I would recommend cryptocurrencies, but I don't understand them well enough.) Get out of bonds and low-growth dividend paying stocks. If you have variable-rate loans, convert them to long-term fixed-rate debt.

Good luck.

Beating the Heat

In Foster City the thermometer hit 97 °F, but we were lucky. Inland it was 110 °F:

Our solution: one cool bedroom

Temperatures soared above 100 degrees across the Bay Area on Thursday — with Fairfield peaking at 110 — as the sweaty and sweltering sought ways to stay cool, plunging in pools and swarming to the coast for a cool breeze...

Fairfield appeared to be the hottest place in the Bay Area, reaching 110 at Travis Air Force Base, according to the National Weather Service. Concord and Livermore followed with 107 degrees.

Records were broken in San Rafael, which hit 103; Santa Rosa, 104; Kentfield, 103; Redwood City, 102; and Gilroy at 106. Santa Rosa broke a record set for the same day in 1922, when it hit 101.

Out with the old. Luckily it
was appliance pickup week.

In a rare display of forward thinking, I spent last Saturday installing a window air conditioner and disposing of a portable A/C that had stopped working. We have one cool bedroom to which family members can retire if they can't take the heat.

(Our central air conditioning coolant had leaked out in the 1990's, and I've been too cheap environmentally conscious to spend thousands of dollars just to cool off the entire house for a couple of weeks each year.)

The temps will drop back to the 70's next week. Meanwhile, I'll be drinking lots of ice water.