“I drove my Chevy to the levee, but the levee was dry.”
You may recognize this iconic lyric from the song, “American Pie.”
But it reminded me of consumers in the U.K. who’ve been unable to fill their tanks due to a nationwide gasoline shortage.
So, is the U.S. next?
To answer that, we must look at several large-scale events alongside Covid-19 causing shortages across multiple sectors…
In just the last few months, the U.K.’s surging wholesale electricity prices have broken all records.
Natural gas has jumped six-fold in the last 12 months… not to mention the country is running out of things like fertilizer and dry ice. That’s creating bottlenecks in food supply, and supermarket shelves are emptying out quickly. Freak accidents have knocked out refining capacity, so they are running out of gasoline too.
Clearly, the situation is rapidly worsening for those in the U.K.
Should we anticipate this in the U.S. as well?
It’s hard to tell, but tempers are flaring. Some are blaming the pandemic and others are blaming Brexit. The reality is both have played a part in the debacle, but political idealism is the primary culprit.
This is mainly seen in the way that the country rushed adoption of renewable energy. And, by relying too heavily on variable sources of energy like wind and solar, they were left exposed to a natural gas supply shortage.
This has created all sorts of trouble and exposed the weakness in their renewable energy plans.
The issues affecting the U.K. are now seeping into mainland Europe. In China, the same thing is happening but for very different reasons.
The Communist Party wants clean skies over Beijing for the Winter Olympics in February. They have ordered coal mines – as well as steel and aluminum smelters – to shut down, creating outsized demand for natural gas.
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Meanwhile, in the U.S., storms have curtailed supply. That’s not unusual, but drillers have already been slow to ramp up their activities since the onset of the pandemic.
On top of that, investors have been eager for them to be more financially responsible. That means they were unwilling to drill until prices rose enough to guarantee profitability.
Despite a willingness to drill, employment has been down thanks largely to the pandemic. Employment in drilling is only now beginning to increase. Once winter begins, the price of natural gas is likely to move substantially higher from here.
I’m saying all this to highlight how political idealism and rushed policy is creating a snowball effect in many sectors, and now we’re seeing shortages in one of the most important sectors that keeps the economy afloat…
Look, I’m all for clean air. Who isn’t?
However, the reality is that the world is nowhere near ready to get rid of fossil fuels.
They are essential to modern living and will be for a long time. Vilifying the energy sector has only created a more fragile economy where a little cold weather could cause untold hardship.
Energy problems in both Europe and China are also the result of political idealism. We have our fair share of that here in the U.S. too, but we still have time to head off a worst-case scenario.
Luckily, the U.S. is the world’s biggest natural gas producer. If we choose to do what is necessary, a disaster can be avoided, but it’s going to be tight.
Currently, domestic natural gas prices are playing catch up with the global price. West Texas Intermediate (WTI) crude oil closed at a six-year high on Monday and energy shares are just beginning to respond.
The Energy SPDR Fund (XLE) has been ranging for the last six months and is now bouncing from its lower boundary.
As we await what will happen this winter, it looks like a solid candidate to take over leadership in the stock market as commodity investing comes back into fashion.
I’d keep an eye on this, since oil could be making even more headlines in the near future.
All the best,
Eoin Treacy
Contributing Editor, Market Minute
Reader Mailbag
In today’s mailbag, Marker writes in his thoughts about Jeff’s essay on limit orders…
Hi Jeff, I always use a limit order, but some orders require whole 10 cent increment limits on higher price options. This is irritating but on lower priced options it’s as useless as a market order. The market maker can cheat you out of a few percent because the spread is protected by that arbitrary requirement, especially when there’s a huge spread.
Sometimes placing a defensive limit order to fish for the best price gets no execution and the follow-on order(s) chase the price to a worse outcome than if you put in a market order in the first place.
– Marker
And, a few subscribers wrote in their opinions about Jeff’s essay on government spending and social security…
When you DO start collecting, the government taxes 85% of your “benefit.” Also, there is a bit of “insurance” in the social “insecurity” taxes we pay – there are still single earner families, which can benefit from the early death of their wage earner.
That said, you were spot on. Keep up the good work. Hopefully, some of your readers will start actually saving for their retirement instead of relying on the government.
–Ferdinand
Hi Jeff, I agree with your conclusions on the government stealing our money. However, I have expanded the den of thieves to include all government… With all enjoying the fruits of my labor while they only produce headaches and heart burn for the citizens.
I have concluded that the citizens should stop being employees and become independent contractors. Thus, we stop the flow of money into the government on a regular schedule. Now is especially a good time since the employers are looking to hire workers.
Of course, you would owe taxes at the end of the year, but you have greater flexibility with your deductions concerning earning your income so you would reduce your taxable income. And maybe keeping more of what we have worked so hard to create.
Since there is so much conversation concerning the changing of the economy due to the government’s actions, now the taxpayers can disrupt the cash flow of the government. Just an idea.
– Marvin
Dear Jeff, regarding your Market Minute essay titled “Keep the Change and Leave Us Be” – Amen, Amen, and AMEN!
– Dan
Thank you, as always, for your thoughtful comments. We look forward to reading them every day. Keep them coming at [email protected].