On the recent earnings call Valero (largest independent US refiner) said the following:

“…there’s really no indication of any demand destruction.
In June, we actually set sales records. We sold 911,000 barrels a day in the month of June, which surpassed our previous record in August of ’18 where we did 904,000 barrels a day.
We read a lot about demand destruction, mobility data showing in that range of 3% to 5% demand destruction.

Again, we’re not seeing it in our system.
We did see a bit of a lull in the first couple of weeks of July, but our seven-day averages now are back to kind of that June level, with gasoline at pre-pandemic levels and diesel continuing to trend above pre-pandemic levels.”

Again, the myth of “demand destruction” popularized by the so-called “economists” who need to reexamine the facts, remains, well,… a myth.

– Aren’t Technology companies supposed to grow day in and day out?

Apple reported revenues growth of 2%, way below inflation and below the old dog IBM (which grew 9% year over year).

Check this chart on long term earnings of Apple suggesting how much their earnings SHOULD decline for the next 2 years based on the inevitable mean reversion on the Covid demand pull forward.

Shallow and short recessions are preceded by lack of any meaningful excesses without any serious overheating.

Do we have that? Hell, no!

We had serious, serious overinvestment in:

1) Technology – 13 years bull run in Tech

2) Venture Capital – propelled by the trillions in returns in IPOs

3) Cryptos – massively overbuilt, despite the long-term promise

4) Government Debt – irresponsible pile up (mostly G7)

5) Consumer Discretionary – on the back of low rates and post-covid stimulus

6) Economy was so tight that sub 4% unemployment was the lowest in 20 years…

Beyond these trillions of dollars of overinvestments – we have nothing to worry about!

No overbuilt in energy, transportation, airlines, hotels.

How could it be otherwise, our promise (and even if Australia and Qataris) will step by LNG shipments to Europe, other LNG buyers (S. Korea, Japan) would start bidding up prices immediately to secure their own supplies.

That is further reinforced by the merciless reality that even if the US, Qatar, Norway and Australia put in a major effort to boost production and exploration of natural gas, they would need at least till 2026 to alleviate any global shortages.

That applies to BOTH the production of molecules and inadequate capacity of LNG Terminals globally.

It reflects nothing but hyperbolic retrospection of the 90th, when Emerging Markets were over levered and the Developed World debts were very low.

Let’s look at the Debt/GDP ratio (vertical axis) vs. the 10Y interest rates (horizontal axis):

It is so striking that Emerging Markets have much lower Debt to GDP (40-80%) vs. the Developed markets of 80-150%, not to mention Japan at 250%!
And Emerging Markets have already higher nominal rates, i.e., they were conditioned (and disciplined) for decades to have high interest rates, and inflation.

So, who do you think is more vulnerable now:
 – South Africa with the 70% Debt and 11% rates,
 – or the US with the 125% Debt and 3% rates? 
while inflation in S. African is lower than in the US?

BTW S. Africa is emblematic of a setup common for EMMs

Crude Oil futures offer 40-60% annualized returns,
assuming even if the oil would not go any higher

The amount of crude oil released from the SPR since the end of 2021 is the steepest drop in US history.
Now the SPR holds the crude oil amount equivalent to the 1987 level, when our economy, the population were much smaller….

Obviously, this current release was done with a single goal in mind – arrest the inflation creep. 

Well, are we exposing ourselves too much to any true emergency that the SPR was designed for?
What if oil tightness would persist and we would be forced to replenish the SPR at a higher price – amplifying the inflation?

We had this breakneck outperformance of the US assets being solidly grooved in since the 2009: 

1. US equities were booming
2. US Treasuries (sovereign bonds) were booming
3. US corporate credit was booming
4. US Real Estate was booming
5. US Dollar was booming
6. US Venture Capital was booming

This outperformance grew increasingly in conflict with the fundamental, undeniable reality of life & business:
the inevitable mean reversion of valuations AND fundamentals. 

We will face, almost certainly, at least 5-10 years of underperformance of the US assets.

Foreign and US Asset Managers would be pulling money away from the US shores,
and would be steadily growing allocations to other countries
(from Australia to Zambia) and the likely underperformance of US assets would serve as a painful regular reminder for us all.

Well, the conventional logic – we have money to buy back shares when things are good, denies the reality that the goal should be to buy a stock cheap, not when it is advancing…
It is a clear misallocation of capital by Treasuries and Boards to authorize buy backs at the top – these are counterproductive.
While shares buybacks at the tough moments would add stability to the market….

Oh, well… Wall Street is not a place for idealism

In 1973, OPEC boosted prices and the newly created Department of Energy, led by William Simon, imposed taxes on so those “bad” oil companies couldn’t “take advantage” of the higher crude prices created by OPEC to reap “windfall profits”.
Contrary to expectations, these windfall taxes forced US companies to reduce output and underinvest in drilling, etc. for many years! 
In retrospect, it would have been smarter to let these energy companies enjoy these windfall profits to allow them to reinvest back to boost the output and lower the price of oil.

Hmmm…

BTW has anyone mentioned windfall profits of Amazon or Apple from the Covid-related Work-from-Home overspending on outfitting home offices to work and study?