Category: Uncategorized

US retail sales and savings

Posted on by Philip J Palin

July retail sales — both nominal and real — continued to be strong. The Wall Street Journal summarized:

Overall retail sales—a measure of spending at stores, online and in restaurants—were flat in July compared with the prior month’s revised 0.8% increase, the Commerce Department said Wednesday. But a measure of spending that strips out gasoline and auto sales rose 0.7% last month from June, showing shoppers maintained the ability to spend with much of the spending moving online.

In July 2019 US consumers spent $453,667 million on retail goods and services. Last month we spent $596,765 million, slightly more than ever before. Even when adjusted for inflation, retail sales are more than 13 percent higher than an entirely prosperous — and low inflation — mid-summer 2019 (see first chart below).

How are we doing this? We are saving less of our income (see second chart below) and we are spending down savings some of us accumulated early in the pandemic (more). I suspect that this spending spree is encouraged by a combination of pandemic-induced pent up demand and strong employment (there are now about 1.6 million more employed than in July 2019). Wages have also been increasing (more), if not keeping up with inflation. (Is this about to change?)

The demand surge that started in early 2021 mostly explains last year’s acute supply chain challenges (more). The persisting high rate of demand — and mismatch with production/distribution capacity — mostly explains inflation.

US domestic freight flows

Posted on by Philip J Palin

I just completed a 2000 mile road-trip. Truck traffic seemed strong, especially at Indianapolis (major road construction undoubtedly amplified that observation). I can confirm that Lexington KY loads and flows circling Cincinnati are impressive (lots of activity at the nearly one-year-old Amazon hub).

Demand for stuff has moderated (I agree), but it remains plenty strong. July shipment numbers are almost identical to July 2021 and 2019. In 2020 flows were still early in recovery. In July 2018 we were just past an unusually high peak. More people are now employed in trucking than ever before. The number of warehouse workers soared through this Spring and has been mostly stable since.

Diesel is still expensive, but is well-off its mid-June peak.

This Spring the freight market went through another transition: shifting consumer demand and swiftly rising fuel prices seemed to threaten capacity-shedding (more). Some trucking firms closed. I was worried. But adaptation happened (more and more and more). By early July I was telling clients that third quarter freight capacity would mostly be well-balanced between demand and supply. Half-way through, that forecast has (so far) unfolded. Below is Freightwaves’ national Outbound Tender Volume Index showing changes between the first and second weeks in August. Pretty placid.

Given fertile sources of volatility, I have no confidence regarding the fourth quarter or beyond… but for now and the near-term we are making clean, dry hay… most of the time in most places.

Flows: better but not balanced

Posted on by Philip J Palin

Disruptions, disconnections, delays, surprising demand, congestion, and confusion are supply chain constants. Minimizing and mitigating mismatched pull with push is what supply chain managers do. So do production line workers, DC selectors, truckers, and retailers… day after day, even minute-by-minute.

War (and rumors of war), natural disasters, and pandemics can create especially dramatic complications. Recent collisions of all three (plus more) certainly have had consequences. Yet flows have continued. According to some measures, push is now much better aligned with pull.

Here is one angle of measurement focused on US supply chains:

The Logistics Managers’ Index reads in at 60.7 in July, down (-4.3) from June’s reading of 65.0. This is the lowest reading since May of 2020 and the second consecutive reading below the all-time index average of 65.3. While this does still represent a healthy rate of expansion in the logistics industry, it is a far cry from March when the index hit an all-time high reading of 76.2. As is often the case, transportation metrics are the driving force behind this shift. Transportation Prices read in at 49.5 in July. While this is very close to no movement month-to-month, with a reading under 50.0 we have crossed the Rubicon into a state of contraction for the first time since May of 2020. Fueling this deflationary pressure are levels of growth in available Transportation Capacity (reading in at 69.1) that we have not seen since April of 2019. Interestingly, the downshifts we observed in transportation metrics were much more muted in the last week of July (as we will discuss below), leaving open a possibility for a bit of recovery as we move towards peak season. Warehousing and Inventory metrics continue to buoy the logistics sector. Inventory Levels remain high (and are responsible for dragging down U.S. GDP in the second quarter), and warehouses continue to struggle to hold and manage the volume.

Below is a chart reflecting a second angle of measurement for global supply chains. According to the principal researchers at the New York Federal Reserve:

  • Global supply chain pressures declined in July, continuing the easing observed over the past two months.
  • The July decline was uniform across most of the subcomponents of our index.
  • The moves in the GSCPI from the beginning of 2022 suggest that although global supply chain pressures have been decreasing, they remain at historically high levels.

Current constraints include rigorous counter-covid policies in China. The planet’s second largest economy shrank in the second quarter. (Yet China’s exports to external demand have remained strong.) There are stubborn constraints on global fossil fuel production capacity (more and more and more) and US refining capacity is very tight. This blog has given recurring attention to serious challenges with food flows, both US domestic and global (here and here and here). While there is still plenty of food and fuel flowing, prices have increased and the most price-constrained consumers are struggling to pull what they really need. According to many of the world’s shippers and carriers a combination of persistent demand, volatile demand, and resulting congestion of flows is keeping freight costs elevated.

There is a wider recognition now than thirty months ago of the ebb and flow of demand and supply. It is more fully undertood that the beautiful bottlenecks built to enhance flow velocity can suddenly become ugly chokepoints cutting off supply. The Suez Canal can be blocked. Pipelines can be turned off. Ports can back-up. There are real reasons for worry and motivaton to continue minute-by-minute, day-by-day, practical and principled and strategic steps to reduce risks, such as those suggested in the map below.

July food inflation persists

Posted on by Philip J Palin

While the headline and core numbers moderated (see chart below), food inflation continues to hurt. Here is the complete CPI blurb for food from this morning’s Bureau of Labor Statistics report:

The food index increased 1.1 percent in July; this was the seventh consecutive monthly increase of 0.9 percent or more. The food at home index rose 1.3 percent in July as all six major grocery store food group indexes increased. The index for nonalcoholic beverages rose the most, increasing 2.3 percent as the index for coffee rose 3.5 percent. The index for other food at home rose 1.8 percent, as did the index for cereals and bakery products. The index for dairy and related products increased 1.7 percent over the month. The index for meats, poultry, fish, and eggs rose 0.5 percent in July after declining in June. The index for fruits and vegetables also increased 0.5 percent over the month. The food away from home index rose 0.7 percent in July after rising 0.9 percent in June. The index for limited service meals increased 0.8 percent and the index for full service meals increased 0.6 percent over the month.

The food at home index rose 13.1 percent over the last 12 months, the largest 12-month increase since the period ending March 1979. The index for other food at home rose 15.8 percent and the index for cereals and bakery products increased 15.0 percent over the year. The remaining major grocery store food groups posted increases ranging from 9.3 percent (fruits and vegetables) to 14.9 percent (dairy and related products).

The index for food away from home rose 7.6 percent over the last year. The index for full service meals rose 8.9 percent over the last 12 months, and the index for limited service meals rose 7.2 percent over the last year.

Ants busily build winter storage

Posted on by Philip J Palin

[Updates below] Natural gas storage facilities in the European Union are now over seventy percent full. Inflows have been well above normal for Spring/Summer since the end of May (see chart below). France is at over 80 percent, Italy about three-quarters, Germany at the EU average. Austria, Hungary, and Latvia are closer to 55 percent (more). The (very high) natural gas benchmark price at Rotterdam has eased just a bit (see chart below). High temperatures this week — increasing electricity demand — will not allow much near-term progress. Off-season natural gas demand (and prices) could also surge if coal deliveries to power plants along European rivers are disrupted by drought and falling river levels. Winter is certainly not the only threat. But winter is surely coming. Very few grasshoppers are seen in European capitals this year.

relates to European Natural Gas Prices Ease Amid Rising Inventories

August 10 Update: According to Bloomberg, “The Rhine River is to become virtually impassable at a key waypoint in Germany, as shallow water chokes off shipments of energy products and other industrial commodities along one of Europe’s most important waterways. The marker at Kaub, west of Frankfurt, is forecast to drop to the critical depth of 40 centimeters (just under 16 inches) early on Aug. 12, falling to 38 cm later in the day, according to the German Federal Waterways and Shipping Administration. At that level, barges that haul everything from diesel to coal are effectively unable to transit the river.” (More and more) On August 11 the Wall Street Journal reports on reduced water levels for European rivers other than the Rhine.

August 12 Update: S&P quotes a German gas-trader, “Even with full storages it could get difficult if winter gets cold or Russia cuts further.” In the same report other market insiders argue, “We won’t run out… no commodity ever runs out… it’s all a matter of pricing now… the gas shortage will just be replaced with extreme price highs.” Another European gas trader, also highly skeptical that Europe will run out of gas, said that “as storages continue to fill, the market should start realizing that the winter is looking less and less scary… as long as it doesn’t turn out very cold.” During an August 11 news conference, German Chancellor Olaf Scholz said, “We’ll be in a situation . . . where it might be expensive to get gas, because of the state of the global market, but we will always get enough.” (more and more).

August 19 Update: Over the last nine days the Dutch TTF LNG price has surged almost one-quarter higher. Rhine River water levels are not the only cause, but are contributing . S&P provides the following infographic on the near-term economic reverberations of Rhine River reductions in flow. For a longer-term view, please see Helen Thompson’s assessment in today’s Financial Times. She foresees reduced energy access and sustained higher prices resulting in very tough economic and geo-political choices.

California soil moisture

Posted on by Philip J Palin

The Golden State grows (and typically processes and packages) about 13 percent of total US agricultural sales. Almost twenty percent of US dairy production occurs in California. The state is the leading source of fresh fruits and vegetables consumed in the United States, including over 99 percent of almonds, clingstone peaches, dried plums, raisins, and olives.

According to the US drought monitor, all of California is currently experiencing drought conditions. The most productive agricultural regions of the Central Valley are experiencing “extreme” or “exceptional” drought. Some studies suggest the current drought may be the worst in 1200 years (more and more).

Despite these conditions, California subsoil moisture measurements are, so far, less than apocalyptic (see map below and more). According to the USDA, as of July 31, eighty percent of California crops had “adequate” moisture, fifteen percent was “short”, and only five percent was “very short”. Irrigation often explains why California moisture levels are currently doing much better than Iowa’s.

Proportions depend on what, when and where is measured, but at least 40 percent of California agriculture is irrigated. Credible estimates suggest up to 80 percent of agricultural sales depend on some irrigation. Irrigation is provided by local groundwater pumping and long-distance canals (that also provide water to urban areas). In response to the drought, several constraints have been placed on irrigation and other water use.

According to Bloomberg, spot prices for water in California are up 56 percent since the beginning of the year. “The soaring prices are a reflection of how quickly California’s water crisis is escalating, with dire implications for food crops that are almost entirely reliant on irrigation. Historic drought has cut off surface water to even those with the most seniority under California’s complex water-rights system, and California Governor Gavin Newsom has declared a state of emergency, ordering water-use restrictions and some curtailments for irrigation districts and farmers. ” The spot price has continued to increase since the Bloomberg report, see chart below (more and more). Given the long-term drought, California groundwater reserves are being drained and not replenished.

Downstream demand always depends on upstream capacity. In the case of California agricultural production what is literally upstream has been reduced for most of this century and the pace of reduction has recently accelerated.

Global food flows

Posted on by Philip J Palin

[Update Below] Upstream food capacity is variable by place, precipitation, and season. Midstream flows are vulnerable to a wide range of disruptions. Downstream demand is profound — and sometimes desperate, especially in the face of price increases.

Grain exports from the Northern Black Sea through the Dardanelles were fundamental to food flows (and prices) for the Athens of Socrates, Plato, and Aristotle. Russian (including Ukrainian) grain exports — and related imports — were a significant backstory for the Crimean War (1853-1856). Since 2010 Ukraine’s wheat exports have quadrupled. Russia exports even more wheat than Ukraine. The largest proportion of both Russian and Ukrainian agricultural exports depend on maritime channels through the Black Sea (more).

Less than a dozen ports along the Black Sea handle large volume food flows at comparatively high velocity. But for the last five months the Black Sea has been transformed from an effective bottleneck into a troublesome chokepoint.

According to FarmdocDaily from the University of Illinois:

Last year, Russia and Ukraine accounted for almost 30% of the global trade in wheat. Because of the war, Ukraine’s wheat production for the marketing year 2022/23 is projected to be 19.5 million metric tons, down 13.5 million tons (-41%) from last year. The USDA includes estimated output from Crimea. Harvest began at the end of June and will continue until mid-August. Russian wheat production is expected to be 81.5 million tons, up 6.3 million tons (8%) from last year… Total harvested area is projected to be 27.8 million hectares, up 1% from last year.

Russian grain exports have not been physically blocked, but flows have been disrupted by spillover effects of a wide range of economic sanctions (more).

The predictable outcome of upstream reductions (and worry) and midstream complications (and more worry) has been downstream price increases (see chart below). But even before Monday’s departure of a grain shipment from Odesa, the March to May price spike had fallen almost as fast as it had risen. Worry has been assuaged by a bumper US wheat harvest and close-to-normal harvests for Canada (more and more). Despite drought in France, German wheat harvests are expected to rise slightly. It’s too early to predict Argentina, but conditions don’t look as dire as a few weeks ago. Consumers and markets have demonstrated a readiness to embrace wheat alternatives. Food price increases have also been moderated by falling fuel prices.

Russia’s invasion of Ukraine plus related sanctions have created real constraints and cause for worry. The increasing strength of the dollar — and dollar-denominated commodity contracts — increase global food costs. Many have gone hungry and some have died as a result of disrupted flows and increased prices. But so far production capacity has been diverse enough to fill most gaps. Distribution capacity is delivering where demand can be expressed with effectual pull (in other words, dollars or other recognized transactional value). The most treacherous problem is where demand is real, but non-effectual.

August 5 Update: “The FAO Food Price Index* (FFPI) averaged 140.9 points in July 2022, down 13.3 points (8.6 percent) from June, marking the fourth consecutive monthly decline. Nevertheless, it remained 16.4 points (13.1 percent) above its value in the corresponding month last year. The July decline was the steepest monthly fall in the value of the index since October 2008, led by significant drops in vegetable oil and cereal indices, while those of sugar, dairy and meat also fell but to a lesser extent.”

Grain ship departs Odesa

Posted on by Philip J Palin

[Updates below] Today at 0948 local time the bulk carrier Razoni departed Odesa, Ukraine for Tripoli, Lebanon carrying 26,000 tons of Ukrainian corn. This is the first shipment to leave a Ukrainian Black Sea port since the war began on February 24. The Razoni is one of seventeen cargo vessels trapped when the war began. Together these ships hold almost 580,000 tons of grain.

On July 22 Ukraine and Russia signed agreements with the United Nations and Turkey to open safe corridors through the war zone from Odesa and two other ports. The next day Russian missiles hit near Odesa’s port. Sunday a drone-delivered bomb exploded at the headquarters of the Russian Black Sea Fleet in Sevastopol. Given these and other provocations, the Razoni’s (Reasonable in Croatian) sailing is a crucial step in restoring global grain flows. (On the map below the Razoni is circled in red, as of about 0430 Eastern.)

More than 20 million tons of last year’s harvest have been blocked by insufficient alternatives to Black Sea ports. Rail links to Baltic or North Sea or Mediterranean grain terminals are complicated by lack of capacity and different track gauges. The Romanian port of Constanta (shown on map below) is handling more Ukrainian grain than before the war, but was already at capacity moving Romanian, Bulgarian, Serbian, Hungarian, and Slovak grain. Truck and rail connections between Constanta and Ukraine were not designed for high volumes (more and more and more and more and more). This year Ukraine’s grain exports have been slashed by more than half. High volume channels are seldom flexible or easy to replace.

According to the New York Times, “An additional estimated 40 million tons — of wheat, rapeseed, barley, soy, corn and sunflower seeds — is expected to be harvested in the coming months. Storage facilities not destroyed by Russian shelling are filling up, and room is growing scarce for the freshly reaped crops.”

Extracting loaded ships that have been trapped in the war zone is one thing. Convincing more ships — and their insurance carriers — to trust the safe corridors will be even more challenging. An initial $50 million in cargo coverage was put in place last week. The status of loading infrastructure at the three “safe corridor” ports is also not entirely clear.

According to the Financial Times, “Another 16 ships are awaiting departure… The conflict has left as many as 47mn people globally at risk of acute hunger, according to the World Food Programme.” (more) People in thirty-eight nations are especially vulnerable to any significant disruption of Black Sea grain flows. Below is a chart developed by S&P using FAO 2021 data differentiating these high risk consumers of Ukraine’s and Russia’s grain.

There is profound demand, but not always effectual demand. There have been significant reductions in current distribution capacity and cause for serious concern regarding next year’s grain production and distribution capacity. The departure of the Razoni is good news. Its arrival in Lebanon may well be lifesaving. Will sixteen more ships soon follow? If so, will that be enough to renew maritime cycle times for at least three Ukrainian ports? Many were holding their breath this morning. Deep breathing is advised for the month (and more) ahead.

Cargo Ship Razoni location at approximately 0430 Eastern (red circle off Odesa)

+++

August 2 Update: In an interview with the Financial Times, Ukraine’s infrastructure minister, Oleksander Kubrakov, said he expects no more than five vessels to leave in the next two weeks from Odesa, Chornomorsk and Pivdennyi. In recent years these three ports have discharged roughly 60 percent of of Ukrainian grain exports, often in carriers with double or better the cargo space of the Razoni. Still, Kubrakov aims to receive the first new cargo carrier before the end of August.

August 5 Update: Three more bulk cargo ships have departed Ukrainian ports. The first new ship is being inspected on its way to Chornomorsk (between Odesa and Constanta).

August 7 Update: According to Bloomberg, “A flotilla of four grain vessels sailed early Sunday from Ukraine’s Black Sea ports, Infrastructure Minister Oleksandr Kubrakov said… The Liberia-flagged Mustafa Necati and the Star Helena, Glory and Riva Wind, which all sail under the Marshall Islands flag, have almost 170,000 tons of agricultural products on board, he said. The exact contents of the cargoes and their destinations is unclear.  Late Saturday, the cargo ship Fulmar S arrived at Chornomorsk, the first incoming vessel since Russia’s invasion of Ukraine in February. “Our next step is to ensure the ability of Ukrainian ports to handle more than 100 vessels per month,” Kubrakov said.  

August 8 Update: Today the third of three ports designated as points of origin for a Black Sea humanitarian corridor saw off its first grain shipment since the war began. The bulk carrier Sacura departed Pivdennyi, north of Odesa (see map below, Sacura in the lead) to rendezvous with the Arizona out of Chornomorsk and continue toward inspection outside the Bosporus. Ten grain ships have departed these three Black Sea ports since August 1.

August 13 Update: The Financial Times has a good update on the circuitous “rest of the story” for the Razoni with helpful insight into the complicated realities of global demand and supply.

Food consumption: summer diets?

Posted on by Philip J Palin

According to this morning’s report from the Bureau of Economic Analysis, during the month of June US real personal consumption expenditures continued flat, almost unchanged from January and basically the same as October 2021. The “feels-like” rate of expenditure is much hotter because of inflation (economic humidity?), but in terms of steady 2012 dollars US demand for aggregate goods and services has been very consistent.

In June 2019 US consumers spent $990 billion on food-at-home (see chart below). In March 2020 fear-of-missing-out (and plenty more fears) spurred grocery purchases to over $1200 billion. But as most shelves continued to be stocked and various viral fears subsided, the contents of grocery carts settled at about six to seven percent higher than pre-pandemic, partly reflecting significantly reduced consumption of Food-Away-From-Home.

Then in the first quarter of 2021 grocery purchases lifted over ten percent and wobbled there most of last year. I will confess (again) that I expected to see this level of grocery buying gradually decline as eating-out climbed. But according to the data, starting in April 2021 American consumers spent as much or more at restaurants than pre-pandemic, even while maintaining our plentiful pandemic pantries (and/or expanded waistlines?).

Until February 2022 — since at least Super Bowl Sunday real expenditures on groceries have declined. Despite this decline, US consumers are still spending well-above real pre-pandemic trend on food-at-home and far above the prior trend on food-away-from-home. I suspect — but don’t have evidence to prove it — that this bifurcation reflects the very different “felt” reality of the top two earning quintiles from the other three. (Nominal dollars spent on groceries are still increasing slightly, but this is due to inflation.)

On June 26, in the context of several posts related to how supply chain disruptions can contribute to inflation, I wrote:

I hypothesize that between May and September we will see food-at-home real consumption gradually decline by another seven to ten percent and then flatten or incrementally increase. I hypothesize that durable goods and services will begin to show slopes similar to 2022 food consumption. I also hypothesize a more rapid rate-of-change than that for food between last November and April. These are deniable hypotheses. I am not sure. It does seem plausible. If this happens, demand and supply will be closer to equilibrium.

The durable goods slope is not (yet?) displaying my anticipated slant. Neither is the services slope… but I really did not expect services to begin falling until summer is over. The June services number is lower than expected. Sustained demand for durable goods remains higher than I expected five weeks ago. (This is why it is called a deniable hypothesis.)

In April the PCE for food-at-home was $1071 billion. Real food expenditures in June were $1056 billion or a decline of about 2.5 percent. If the May+June rate of change continues through the end of September consumption would be lower by slightly less than seven percent. I hope this more gradual easing is maintained. That result is certainly better for the grocery industry and would be consistent with an economic “soft-landing.” More when we see July’s data…

In any case, at least in the food sector, we now have a level of demand much better calibrated with current production and distribution capacities. In my judgment, this means the supply-driven contribution to inflation is diminished.

BELOW: INFLATION ADJUSTED PCE FOR FOOD-AT-HOME THROUGH JUNE 2022

Decadent Demand?

Posted on by Philip J Palin

President Putin is depending on decadent demand. He is depending on European consumers and bourgeois politicians to succumb to high prices and chilly room temperatures.

Putin has restored General Winter to a prominent place in Kremlin councils. He hopes this month’s temperature extremes will return to Europe in dramatic winter garb. January is Berlin’s coldest month with an average low of 29°F and high of 38°F.

In recent years natural gas has generally provided between one-fifth to one-quarter of the European Union’s total energy mix. There is considerable variation nation to nation.

Natural gas fuels roughly one-fifth of EU electrical generation. This ranges from over 40 percent in Italy and Netherlands to less than 15 percent in Germany or barely more than 5 percent in Denmark.

Last year more than 40 percent of EU natural gas consumption was supplied by Russia. Since February 24 this proportion has plummeted. Flows vary by season. I’m not confident of a current comparative statistic. But several credible sources (here and here and here) indicate that Russia’s EU market share for natural gas has been reduced by at least one-quarter, maybe as much as one-third. But, once again, dependence on Russian flows differs considerably by region. Hungary, Slovakia, Italy, and the Czech Republic are much more exposed to reductions in Russian flows than other EU nations.

Europe has significantly increased imports of non-Russian LNG. In June for the first time, US LNG deliveries to Europe exceeded Russian pipeline deliveries (more). The US would almost certainly be exporting even more if the Freeport LNG facility was still operating (and price-pull could be found). Qatar and Algeria (more) are also increasing LNG flows to Europe (more). As of July 25, EU natural gas domes are about two-thirds full. [Below is a map showing current LNG terminals and natural gas pipelines. At the source map natural gas storage facilities can also be located.]

Yesterday, July 26, The European Commission announced decisions intended, “to reduce gas use in Europe by 15% until next spring. All consumers, public administrations, households, owners of public buildings, power suppliers and industry can and should take measures to save gas. The Commission will also accelerate work on supply diversification, including joint purchasing of gas to strengthen the EU’s possibility of sourcing alternative gas deliveries.” According to S&P, a significant proportion of this reduced consumption may also be teed-up by price-driven reduced demand (see chart below):

A 15% voluntary gas demand reduction target aligned relatively closely with a Platts Analytics’ estimate of demand destruction due to high prices. Gas demand in Northwest Europe would fall by 13% between August 2022 and March 2023 compared to the five-year average demand for the period, Platts Analytics modelling showed. Based on its TTF price forecast of Eur125-140/MWh, demand would be reduced in the power sector through maximum coal and oil switching, while industrial demand is forecast to drop by 15%.

President Putin has cut back Russian natural gas flows to Europe. He has not cut off these flows. As long as any Russian natural gas is going, this gives him potential leverage to cut further or promise increases. The cuts so far are enough to cause European economic (and political) friction (and to significantly increase prices being paid for what is delivered). Putin perceives that time is on his side. Maybe the Atlantic hurricane season will wallop US LNG exports. Maybe General Winter will descend on Amsterdam to Warsaw with the coldest temperatures in two centuries. He is confident that contemporary European consumers — and voters — are effete, weak, self-indulgent, and can eventually be distracted from any concern for Ukraine… much less what might come after Ukraine.

Yesterday the host of the EU energy consultations said, “… everybody understands that this sacrifice is necessary. We have to, and we will, share the pain” (more). Putin is not alone is perceiving time as a potential ally.

The sharp and mostly unified NATO (plus) response to the invasion surprised Putin. But it now seems clear enough (to him) that this was just reflexive sentimentality. With the help of some snow and ice, his debauched neighbors will, he now expects, turn against their current political leaders who will then turn to him to restore flows…

+++

WEDNESDAY AFTERNOON UPDATE: The words above (and charts below) were posted about 0600 Eastern this morning. Natural gas prices were already moving higher. They continued to do so as the promised Gazprom cutbacks materialized. According to the Financial Times: “European gas prices jumped higher on Wednesday after Russia followed through on its threat to further reduce supplies to the region, increasing the risk the continent could face shortages in the winter months. Gas prices rose as much as 13 per cent on Wednesday as flows on the Nord Stream 1 pipeline were cut to just a fifth of normal capacity.” (More and more and more.) Prices might be even higher (and will move higher) when China’s demand for energy recovers. EARLY THURSDAY MORNING: European natural gas prices eased overnight and, so far, this morning on indications that the lower flows from Russia are, in fact, flowing.