We Are a Foolish People, Colonial Pipeline, Cryptocurrencies, Job Numbers

Foolish people...

Point One

Monday morning. Rise and shine. Rough, tough, can't get enough. By now, every one of you will have heard of the "Colonial Pipeline" eastern route that was taken offline late Friday, thus restricting the movement of "finished" fuels such as gasoline, jet fuel and diesel form the refineries on the U.S. Gulf Coast to the New Jersey side of New York Harbor (5,500 winding miles), supplying Atlanta, Washington, DC, and ultimately the northeastern United States with as much as 2.5M barrels (across all fuels) per day, approximately 15% all U.S. demand. The New York market alone relies upon this pipeline to supply a rough 900K barrels of fuel per day.

The problem, in short, would be that cyber-criminals were able to use a ransomware known as "Darkside" to encrypt data belonging to an organization, agency, corporation, or even individual, in this case... Colonial Pipeline. The very idea of "ransomware" is basically to hold this data hostage until the criminal enterprise is paid to release it back to its rightful owner(s). Payment is usually demanded in cryptocurrency due to the anonymity and lack of traceability of the blockchain technology.

The entire Colonial system is owned by a number of energy space investors most notably, Koch, and managed from suburban Atlanta. As of the time of this writing, there is no publicly disclosed timeline for the re-opening of this key pipeline, but we do know that President Biden, as well as leadership across several key federal agencies, are being kept in the loop and working on the issues created. U.S. eastern markets are also served by the "Plantation" pipeline, which is jointly owned by Exxon Mobil (XOM) and Kinder Morgan (KMI) .

Other than relying more heavily on this "other" pipeline, options... should the shut-down persist, could include increased maritime transport, the trip between Pasadena, Texas and New York Harbor taking on average anywhere from a week and a half to two weeks, as well as increased road and rail transport. The federal government does keep emergency stockpiles of refined fuels around the nation. The gasoline stockpile positioned in the northeast only holds a rough 1 million barrels. This is intended to support the New York Metropolitan area as well as all of New England including Boston in case of emergency. As we have already discussed, that is barely more than one day's normal supply for the New York City area... so not really a solution. 

Conclusion 1: Wake up call. Glaringly obvious is the vulnerability of the entire U.S. infrastructure complex. How long will this pipeline be down? I would say that a week (maybe less) could force average consumer level gasoline prices above the $3 mark. That was not supposed to happen until after Memorial Day. Beyond refined fuels, what else is susceptible to sophisticated criminal or terrorist activity? The entire grid? Clean water?

Conclusion 2: President Biden meets with several key legislators this week to discuss the currently under negotiation $2.3 trillion infrastructure package. Obviously, this is one place where a little sense of urgency might be appreciated.

Conclusion 3: There is now and already an overt necessity to intensely regulate all cryptocurrencies, not just to safeguard the public, but simply to reduce large scale opportunities such as this for those of nefarious intent.

Conclusion 4: We are a foolish people.

Point Two

Dogecoin traded wildly around Tesla (TSLA) CEO Elon Musk's appearance on the long forgotten (until now) comedy-skit show "Saturday Night Live". No, I did not watch the show. I did see Dogecoin trade as high as $0.74 going into Musk's SNL appearance and trade as low as $0.40 coming out. Early Monday morning, I see the digital token, originally conceived as a joke, trading in between $0.50 and $0.51. I read this morning that at this level Dogecoin runs with a market cap of $69 billion. For comparison's sake, the smaller firms included in the S&P 500 run with market caps in the high single digits in billions of dollars. 

Conclusion 1: We are a foolish people.

Conclusion 2: There are some cryptocurrencies that certainly have an asset-like quality to them, especially if governments are slow to crack down on, and prevent use for criminal purposes. Perhaps the fact that cryptocurrencies are reliant themselves upon both sustainable electric and internet service, could be the only reason that those parts of our "infrastructure" are yet to be seriously threatened by criminal activity. That said, the vast majority of available cryptocurrencies available for purchase do not serve as a medium of exchange, do not really serve as a unit of account, and can hardly serve as a store of value. In fact, the only purpose I see for most cryptocurrencies is for that of speculation.

Conclusion 3: Oh, yeah... We are a foolish people.

Point Three

The fact is that I was aghast as I looked at the BLS employment survey results for April released on Friday. Terrible !! Could it be? Refresh. Refresh again. How would economists be so wrong? Looking for a million jobs created and seeing only 266K. Maybe the economy isn't so strong? Maybe the $300 weekly federal stipend being added to state-level unemployment benefits is keeping some folks on the sidelines?

Maybe so, but I have other questions. How does one apply a seasonal adjustment to an economy engaged in a "novel" economic environment, and still reacting to an unpredictable event global in both size and scale? The fact is you can not. YOU CAN NOT. The fact is also that a lot of this is smoke and mirrors. Why not hit the public with the raw data? Why not let those interested in the data either professionally or for other reasons rely upon professional economists working in the private sector to explain? (Never trust public sector economists. Oh, never trust private sector economists either, but do not trust public sector economists even more.)

Facts are facts, and the numbers released on Friday are probably still somewhat disappointing, but if the "somewhat ignorant" public knew that the U.S. economy in its entirety, actually created 1.1 million jobs in April and not the 266K reported... If the "somewhat ignorant" public knew that the private sector actually created 992K jobs in April instead of 234K, then maybe, just maybe the messaging would not be so discouraging.

Yes, I get it. The federal government is sticking with the beefed up unemployment benefits for now. I know, you all see the 498K initial jobless claims tacked on to the (almost) 3.7 million folks remaining on state-level unemployment. You then see the roughly 7.5 million job openings across the nation (March JOLTs data is due Tuesday this week,) and in your mind's eye you see all these folks sitting on the couch watching cartoons while you and I work for our pay. The fact is that when all benefits programs are added together, including PUA (Pandemic Unemployment Assistance, aimed at supporting out of work sole proprietors, freelancers and gig workers, who do not qualify for "normal" benefits) and all other programs, more than 16 million individuals are still unemployed.

Forget skill-set mismatches, you go ahead and fill every single open slot with a warm body and you still have almost 9 million unemployed folks. I am not even counting those forced out of the labor market to care for family. Clearly, a lot of work, a lot of rebuilding still to do. That said...  I think without knowing for sure that the federal government through the Treasury Department is experimenting with its ability to force consumer level inflation through forced wage inflation. As the economy re-opens, if employers can be forced to pay more for labor (having to outbid the state for help), the next experiment will be done on the durability of inflation as the government attempts to balance the rising cost of servicing massive debt with using less valuable fiat to pay off debt that had been borrowed at higher currency valuations relative to either peer fiat or consumer level purchasing power. 

Conclusion 1: We are a foolish people.

Conclusion 2: The April employment situation as reported by the BLS through the magic of seasonal adjustment was terribly misleading, and really after taking a second, third and fourth look, much better than originally understood... even by your favorite author.

Conclusion 3: The Treasury Department and Federal Reserve both crave inflation. In fact they are willing to bid a high enough price for low skill and unskilled labor supply to force local employers to pay up for help in order to re-open.

Conclusion 4: We really are all on our own.

Transitory?

Can be anything "they" need it to be. Six months, six years, or 60 years. If you can not buy commodities, buy the names that produce, refine, or transport both raw and finished materials. Now go. Now win.  

Economics (All Times Eastern) 

No significant domestic macroeconomic data-points scheduled for release.

The Fed (All Times Eastern)

08:30 - Speaker:Chicago Fed Pres. Charles Evans.

Today's Earnings Highlights (Consensus EPS Expectations) 

Before the Open: (ADP) (2.12), (DUK) (1.23), (MAR) (0.04), (PLUG) (-.08), (TSN) (1.03)

After the Close: (BRKS) (0.51), (IFF) (1.54), (NVAX) (-3.80), (RBLX) (0.13), (SPG) (2.26)

At the time of publication, Stephen Guilfoyle had no position in the securities mentioned.