The Straits of Hormuz. Jobs, what jobs?

The Straits of Hormuz. BLS reporting.

The shutting down of the Straits of Hormuz

Question: If our diesel comes from the Gulf of Mexico, then why did the price per gallon jump by a $1 over the past two days?

Iran firing all those missiles and drones at all their neighbors is creating a lot of anger levied at both Iran and the US. One report said that the Saudis were starting to use their own air force to bomb Iranian targets.

Iran shut down the Straits of Hormuz when four of its drones hit oil tankers traveling through the straits. Brig Gen Ebrahim Jabbari, a senior adviser to Iran’s revolution guards, said “We will attack and set ablaze any ship attempting to cross.” Maritime insurers promptly started canceling insurance. Twenty million barrels travel through the straits every day. Iran is threatening to fire missiles at any ship going through the straits. Larger quantities of food also go through the straits. Insurance companies are starting to drop insurance from the tankers operating in the Gulf. Trump has said that he will have the military force safe passage through the straits. But can he really? Currently the straits are effectively shut down with hundreds of ships stuck in the Persian Gulf. Iran has missiles to dissuade shipping and also can mine the straits if need be. Oil prices are now above $100 a barrel and analysts are saying the global economy is in danger of going into a recession. Of particular interest is that almost 50% of China’s oil goes through the strait. So what will China do?

I find it a bit interesting that the Saudis would shut down their Saudi Ras Tanura oil refinery, the country’s largest just because two drones were intercepted over the site. Qatar halted liquefied natural gas production due to a couple of drones. Isn’t that an overabundance of caution?

Trump says he as a work-around bringing more supplies online. Venezuela anyone? But when? And how is that going to get those 700 ships in the Persian Gulf to their ports? What is Iran’s new supreme leader, Mojtaba Khamenei, son of the slain previous supreme leader, going to do? I would think that the younger Khamenei would be wise to zoom his meetings.

Somewhat overlook but almost of equal importance is the fertilizer that goes through the straits. Did you know that the Persian Gulf is a primary source of the world’s fertilizers? Fertilizer is produced in the region and shipped around the world. It will have an impact on food production in the Ukraine – Europe’s breadbasket. everywhere. Iran, Saudi Arabia, Qatar, the United Arab Emirates and Bahrain supply more than a third of the world’s urea, an important nitrogen fertilizer, and nearly a quarter of ammonia. And they all use the Strait of Hormuz to export their products. Prices for fertilizer have increased almost 35 percent. Food, like oil, will get more expensive. If this war goes on for much longer we will surely see inflationary recession, which Iran is counting on. Who blinks first?

Jobs. What jobs?

The latest job report revision came out and the stock market fell 900 points indicating that a lot of misinformed dumb people are in the market. The press said that markets fell because of the dismal jobs report and economists were predicting modest job gains. Well those economists give the profession a bad name – if that is possible. We should know by now that the initial jobs reports are nowhere close to reality. Recall when Trump fired the head of the Bureau of Labor Statistics for not reporting favorable job numbers claiming that she was a democrat and wanted to make him look bad? Well how does he look now? His Commerce secretary Lutnick also promptly fired the members of the two advisory boards at the Bureau because I guess they were made up of too many democrats. Well, when the Bureau releases its job data, they are from a survey of businesses and are then revised. Invariably the revision is downward. The markets should be used to this so when the market reacts to a release, it is admitting that it was duped. 

Consider that last year the jobs report said that 147,000 jobs were added in June. The White House issued glowing press releases and Trump was running around doing high fives. Karoline Leavitt was crowing about the Trump economy. The market went up. Well in August the numbers were revised to show a growth of only 14,000 jobs. So maybe the larger number was a misprint? Then the final revision was made last month and lo and behold, instead of a gain of 147,000 jobs, the reality was that there was a job loss of 20,000 jobs! How could this be? Shouldn’t Trump fire these guys too? The sobering number is that over the past two years job “growth” has been overstated by one million jobs.

The January report showed a gain of 126,000 jobs. Again the White House was jubilant. But virtually all the jogs were in healthcare or state and local governments. One wonders what the actual numbers are after they get revised? The February jobs report says that the US lost 92,000 jobs. The market was expecting a gain – again showing the fallibility of those in the markets. The Wall Street Journal’s survey of experts expected 50,000 more jobs. Maybe the Wall Street Journal should find some other “experts.” Mind you, if the initial survey shows a 92,000 job loss then what will the revisions show? These numbers will cause Trump to put even more pressure on the Fed to lower its Fed funds target rate at its March 17-18 meeting. However, the Fed expected to hold due to the inflation numbers going up. Trump’s guy at the Fed, Stepen Miran is back at his old job at the National Economic Council and Kevin Warsh has yet to have had hearings. I don’t think there will be a single vote on the Open Market Committee to lower short term rates especially because of the pressure on prices that will soon be reflected due to the jump in gas prices. The bottom line is that no one should give credence to the preliminary survey numbers reported by the BLS. The fact that some people do never ceases to amaze me.