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Submitted by Nicholas Colas of DataTrek Research

We have some observations based on the 1919 book “A Century of Prices”. The 1800s saw structural deflation due to technological advances in manufacturing and farming. This pulled interest rates lower (as has also occurred in the last 20 years), but numerous financial crises/recessions from 1865 – 1910 put a lid on stock prices. The book’s authors rightly assumed the then-new Fed would reduce the magnitude and frequency of future funding crises, but still thought human judgment would drive boom-bust stock markets.

We recently got our hands on an original copy of a 1919 book titled “A Century of Prices” by Theodore Burton and George Selden. Regular readers know we are fans of pre-World War II financial literature, both for its historical lessons and its ability to remind us that environment drives the human narratives which shape capital market prices.

Before we dive into the content, it is worth remembering that the publication date was just 54 years after the end of the US Civil War, analogous to 1966 today and both 5-decade periods (then and now) were times of social and technological change.

• Burton was born in 1861 and penned his portion of the book while on a Wall Street hiatus from the US Congress.

• Selden’s biographical details are lost to history, but he was a prolific financial journalist and managing editor of The Magazine of Wall Street in the 1910s.

• Both authors, therefore, had already lived through numerous wars and financial crises and also seen remarkable technological achievements like radio and powered human flight from their earliest days through to commercialization.

The book begins with a look at English commodity prices and bond prices/interest rates from the 1780s to 1918. The authors start here both because reliable long-run data was available and, more importantly, Great Britain was the world’s economic superpower in the 19th century.

Here is the commodities price chart:

And here is price (upper bar chart, left Y axis) and yield (lower bar chart, right Y axis) for British consolidated debt, or “consols” – perpetual government debt:

Three points of interest here:

#1: The 1800s was a century of commodity deflation caused by technological advancement.

As Burton and Selden explain, “The principal cause of this decline was the cheapening of production through improvements in machinery and in transportation. The machine-made shoe is cheaper than the hand-made shoe because less human labor is necessary to make it. Wheat raised by the aid of the tractor, the harvester and the threshing machine, and moved to market over the railroad, is cheaper than wheat sown and reaped by hand or by hand tools and hauled by horses over rough and muddy roads. And this transformation has extended throughout all industry.

#2: Money supply can, however, temporarily reverse secular trends to lower prices. As the first chart shows, prices rose from 1850 to 1873 and 1896 to 1914. According to Burton and Selden, a sudden threefold increase in the global supply of gold from finds in California and Australia in the early 1850s and another fourfold increase from 1893 – 1912 from new discoveries in Alaska were to blame for higher prices. The world was, after all, entirely on a gold monetary standard at the time.

#3: The chart of British consol prices/yields is remarkable because these are so stable from 1830 – 1910. Yes, the American Revolution and Napoleonic Wars jacked yields to 5 – 6 percent, but past 1835 the British government could finance itself at a steady 3 percent (and even just 2.5 percent in the 1890s) for decades at a time. That, we can assume, was due to Britain’s preeminent status as both world power and the center of the global financial system.

Lessons for today: first, technology has a long history of driving structural deflation and second, global reserve currency status lasts for a long time.

Now, let’s move on to US corporate debt and stock prices.

Here are US corporate bond yields from 1860 – 1917:

And here are US equity prices in the form of a 20-stock average of rail equities from 1860 – 1913 (left axis) and a larger 50-stock average (right axis, mostly scaled to match the left):

Three points here:

#1: While we have not included the book’s chart of US commodity prices from 1845 – 1918 to save space, these line up fairly precisely with corporate bond yields. The Civil War was quite inflationary (5.5 percent CAGR, 1860 – 1865), with US price levels peaking in 1865 and remaining elevated through 1870. For the next 27 years to 1897, inflation declined by a CAGR of -1.8 percent annually. Inflation did eventually pick up in the 1890s and early 1990s, and corporate bond yields rose with them.

#2: What is interesting is the authors do not ascribe the decline in yields to lower inflation (what modern eyes like ours see), but rather to something akin to rising credit quality among US corporations:

“The great fall in bond yields from the period of the ‘70s to 1900 was partly due to the better standing and stronger protection of our corporate bonds as a whole in the later years; but it was also largely due to the great increase in production of goods as a result of improvements in machinery and transportation. When labor produces more goods it is naturally easier to accumulate capital.”

#3: As for the stock price chart, we were surprised to see that US equities were somewhat of a volatile hot mess for the entire 1860 – 1919 period. They were more than cut in half from 1864 to 1878, then more than doubled through 1883, but then gave up most of those gains and treaded water until 1900.

Selden implicitly attributed this choppy zero-return environment to the frequent panics that occurred through the period. He counts 9 distinct bouts of suddenly tight short-term funding markets, all but one of which caused stocks to swoon along with 11 economic cycles running alongside these financial events. It is a good reminder that it’s not just earnings and rates that drive valuations, but investors’ perceptions of financial stability.

To the modern reader, Selden’s observation in the penultimate paragraph of the book seems prophetic (remember that the Fed had only been established 6 years before):

“The Federal Reserve System, with its easy rediscounting, will prevent extremely high money rates and may even have the effect of reducing the general average of rates somewhat.”

I trust this review’s utility is largely self-explanatory, at least as far as what lessons history can teach, so I want to close out on a bit of Selden’s commentary that – and remember this was written in 1919, after 50 years of extreme equity volatility – seems especially appropriate today:

“At low prices, stocks are mostly in the hands of courageous, outright investors, who cannot easily be frightened into selling. As prices rise, more and more stocks pass into the hands of buyers for profit only. The higher quotations go, the more the public comes into the market…

Buyers at higher prices are necessarily of a weaker class – weaker in judgement and therefore weaker in resources – than buyers at lower prices…

Eventually these weak speculative holders have bought all they want, or some of them become discouraged, or some unfavorable event dampens their ardor. They then begin to sell out on each other – since prices are too high to attract genuine investors for income.

For such a situation there is no cure except a decline to a level which will attract the stronger class of buyer…”

In summary: in many ways the US financial system is far more robust than in 1919, but we should remember that human nature is pretty much the same as 100 years ago.

One certainly can’t blame the Fed for not doing enough to stabilize markets during the covid crisis: having expanded its balance sheet by over $3 trillion this year alone and injecting $120 billion in liquidity every month, the US central bank – which is also buying corporate bonds and junk bond ETFs – remains the first and last line of defense for any equity drawdown.

As an aside, and for those asking why the Fed continues to “confuse” markets with the economy, the answer is simple: since the value of financial assets in the US economy at a record 620%+ of GDP, for the Fed capital markets are the functional equivalent of the economy since a market crash would destroy the highly financialized US economy, and thus can never be allowed.

There is just one problem: after a year in which the US budget deficit hit a record $3.1 trillion, and with the US facing a deluge in new debt issuance in 2021 which has already led to the biggest October deficit on record and which at $284 billion suggests another full-year deficit of well over $3 trillion (assuming no further lockdowns)…

… the Fed’s current rate of debt monetization – read QE – is simply not enough.

As Bank of America’s Michael Hartnett calculated in his latest Flow Show report published on Friday, over the next year, “Treasury supply will significantly outstrip Fed purchases in Q4 & Q1“, and this is even without factoring in the possibility of another major fiscal stimulus.

The problem: while the Treasury faces net Treasury issuance of roughly $2.4 trillion, the Fed is expect to monetize less than half of this total, or $960 billion. Considering that in 2020 under the auspices of “helicopter money” (from which we remind readers there is simply no coming back) the Fed will have monetized virtually every dollar of net issuance, this is a huge cliff and one which could lead to a shock drop in Treasury prices if the market reprices (lower) its expectations for Fed monetizations.

In short: the Fed needs to more than double its scheduled monthly QE in 2021 just to catch up to where it was in 2020.

Of course, other central banks are facing the same challenge of insufficient monetization and some have already taken appropriate steps: recently both the RBA and BoE announced an expansion in their QE.

Just next month, the ECB is also expected to announce a dramatic expansion of its QE operations and as Variant Perception writes, the central bank “may end up absorbing all government supply in 2021″:

The ECB has provided a clear indication that additional stimulus will come in December. A further expansion of PEPP could result in the ECB purchasing most, if not all, of the EGB supply in 2021.

Although the ECB left the monetary stance unchanged at their last Governing Council meeting, the press statement indicated that policy instruments will be recalibrated in line with new economic forecasts published in December – providing strong indication that fresh stimulus will be rolled out by year-end.

Given the slowdown in the rate of PEPP purchases over the summer (in part reflecting seasonal effects), there is still more than half of the existing capacity remaining in the current expanded envelope. As such, adding further capacity to the PEPP facility could result in the ECB absorbing all of the EGB supply in 2021.

According to VP, “so far the ECB has purchased €617BN through the PEPP facility, leaving €733BN for future purchases” and adds that it assumes “that the ECB expands the envelope in December by €500BN (a lower amount would not be material, while a higher amount would perhaps not be justified for now given the existing capacity) and extends the purchasing window by six months to end-2021.”

Putting this number in context, Eurozone governments have issued around €1.1 trillion of bonds YTD (including syndications), and even assuming a similar volume of issuance in 2021, this would fall in the ECB’s expanded PEPP envelope (at the current run rate, there would be €750bn in PEPP holdings by December, with a €500bn envelope expansion taking remaining capacity to ~ €1.1trn). d

And now that German opposition to out of control debt-funded stimulus has effectively been neutered, it is only a matter of time before Lagarde announces an expansion to QE which will ensure that the ECB monetizes 100% (if not more) of all net issuance in Europe (one caveat made by Variant Perception here is that “the ECB has had to repeatedly fend off recent criticism from some quarters that it is engaged in monetary financing. This argument will become more difficult to make if the ECB finds itself buying up all of the EGB supply that comes to market” although we doubt this will be a major hindrance if Lagarde can sell the alternative as a doomsday scenario, something central bankers are quite good at).

Which brings us back to the Fed: with the RBA, BOE and ECB all set to monetize 100% of domestic net issuance – in other words, central banks will henceforth fund the entire sovereign budget deficit which is what MMT and helicopter money is all about – it’s only a matter of time before Jerome Powell will join the club, and we expect that at some point in the next 3-4 months, the Fed will announce it too will double its monthly rate of debt purchases.

The only question is what crisis will be used as a scapegoat for the next massive QE expansion: as a reminder, the covid pandemic emerged in at a very convenient time for the central bank – just as the business cycle was set to go into contraction, with the Fed having launched “Not QE”, and with rates at a tiny 1.50 (which are now back to zero). And thanks to the $3 trillion “covid” liquidity injection, the Fed has effectively reset the business cycle for the foreseeable future. It just needs to do so again, and we are completely confident that Powell and company will be completely successful in finding the right crisis to blame it on.

Furthermore, now that we have Congressional gridlock for at least 2 more years (absent a dramatic victory for Democrats in the Georgia Senate race runoffs in January), the Fed’s much desired multi-trillion fiscal stimulus will simply not come, leaving it as the only source of potential stimulus for the foreseeable future, effectively ensuring that (much) more QE is just a matter of when not if.

In fact, one can argue that the creeping economic shutdowns, first at the state level and soon at the Federal, have just one purpose: to catalyze the next crash… and next bailout by the Fed.

Authored by Andrea Widburg via AmericanThinker.com,

On Friday morning, Georgia began to recount the votes it received on November 3.  However, within a short time, reports came in that the recount process was being conducted with as little respect for transparency as the original vote count.  Without that transparency, this recount is a waste of taxpayer time and money.

Before getting to the problem with the recount itself, we need to be sure we’re all on the same page about what’s happening in Georgia, so some background is necessary.  In my post about the two different types of election fraud, I explained that the first type of fraud goes to ballot legitimacy.  

That is, was the piece of paper that got fed into the counting machine from a duly registered voter?  If not, that vote cannot be counted.

We know from the affidavits flooding in from across the country that the Democrats used the Wuhan virus to justify mailing out millions of ballots to anyone on the voter registers, whether that person had since died, moved on, or lost interest in voting.  Because voter rolls are chock-full of such voters, mass mailings meant that thousand, tens of thousands, or even hundreds of thousands of ballots were floating around in mail-in states, free for anyone to grab and submit.

Democrats made this fraud possible because they have steadily chipped away at other election legitimacy gatekeepers, such as identification checks and signature matches.  In Democrat-run states, voting became as easy and as vulnerable to fraud as going to a shopping mall, filling out names on slips of paper, and sticking them in a big bucket for a promotional “drawing” for a bike or car.  Or, even better, mailing hundreds of completed slips of paper to your buddy at the car dealer for him to put in the bucket.  That’s how Democrat states ran their elections in 2020.

So here’s what’s important to know about Georgia’s recount: the recount will do nothing to correct this first type of fraud.  The process of vetting voters was wholly corrupt, and there is no way to disentangle the illegitimate from the legitimate ballots during the recount.

The second type of fraud involves counting.  Data-crunchers have produced powerful evidence that electronic voting machines in contested states were set to switch votes from Trump to Biden.  Jay Valentine has an accessible rundown of that type of fraud here.  What’s good about computer fraud is that, while it can be hidden on a small scale, on a large scale, it leaves unmistakable clues.  (You can read more about these clues here and here.)  There’s strong evidence that the same pro-Biden code that showed up in Michigan also affected votes in Georgia.

In theory, while it won’t winnow out illegitimate ballots, a hand recount will at least prevent a repeat of the computer counting fraud.  However, that works only if the humans doing the counting don’t cheat.

The best way to prevent humans from cheating is to watch them.  Indeed, those of you old enough to remember the Florida recount in 2000 will also remember that the media wandered freely through the counting rooms, getting close-ups of people carefully examining each ballot for those infamous hanging chads.  Everyone understood that the point was to get it right.

What happens, though, when the people in charge of the recount, in place of transparency, once again refuse to allow representatives of the parties to audit their work?  What happens is this:

We are limited to one credentialed monitor for each ten counting tables. Congressman Doug @CollinsforGA and I asked for a one to one ratio yesterday but our request was refused.

— David Shafer (@DavidShafer) November 13, 2020

In a brief video that I can’t embed but that you can view here, Dick Morris explains that there is more going on than just barring Republicans from observing the vote.  In addition, to the extent there are still available envelopes from the mailed in (absentee) ballots, secretary of state Brad Raffensperger stated that the counters would not attempt to match the signatures.

The refusal to check signatures or otherwise try to validate mail-in ballots has created hugely anomalous rejection rates.  Typically, Georgia rejects 3.5% of absentee ballots because they cannot be validated.  This year, says Morris, the rejection rate is 0.002%.  As Morris said, with nothing more, that discrepancy points to vast fraud.

Not content with removing these fraud controls, Raffensberger also ordered the counties to finish the process by 3 P.M. on Saturday.  Georgia received roughly 5 million votes.  It’s ludicrous to believe they can properly be recounted in one and a half days.  This isn’t a recount; it’s fraud theater.

For more information about what’s going on in Georgia, including the Senate runoff, be sure to check out VoterGA.com.  That site is all over Georgia’s election fraud.

When news first broke about the headline numbers from Pfizer’s vaccine trial on Monday morning, we couldn’t help but wonder how the Trump Administration and the White House had seemingly been left out of the loop. The Biden team was reportedly briefed on the data Sunday, one day before its release. Meanwhile, many at the WH first learned about the data from the press.

Since then, the media’s message that we were finally seeing “the light at the end of the tunnel” has been tempered by numerous ‘experts’ in fields from epidemiology to logistics assuring investors and the general public that there’s still a lot we don’t about the vaccines, from their long-term efficacy and side-effects, to what unanticipated delays might arise as the first approved vaccines start making their way from warehouses to doctor’s offices or pharmacies, wherever the vaccines will ultimately be distributed.

During his first press briefing since the election, President Trump delivered a bitter ‘I told you so,’ and slammed Dr. Fauci and Pfizer for sharing the data with Joe Biden and his team before the White House.

Trump comments followed confirmation from DHHS head Alex Azar, who told WMAL host Vince Coglianese that he learned about the trial results from the press…even though the trials were being overseen by agencies within DHHS.

“I, as Secretary of Health and Human Services, learned about this from media reports on Monday morning,” Azar said Wednesday during an interview with Washington D.C. radio station WMAL.

If accurate, that would mean Dr. Fauci & Co. shared the results with Joe Biden, before his victory was even officially certified, which sounds like a pretty brazen gesture of disrespect toward the president and his administration.

“If the Biden campaign found out Sunday night but you…didn’t find out until Monday, that sounds like there’s a problem there,” WMAL host Vince Coglianese said during his interview with Azar. “There certainly was a gap in communication, let’s say,” Azar responded.

According to media reports, White House staff were infuriated when they found out Biden had been given a sneak peak at the data ahead of Trump.

As the Federalist pointed out in a report on Azar’s revelation, the fact that Biden was briefed before Trump is just another sign that the rollout was a coordinated effort between Pfizer, Dr. Fauci and the NIH to delay the results until after the election to try and boost the former vice president’s chances.

Egged on by Bloomberg and other other media outlets, Pfizer has also been blatantly misrepresenting its participation in ‘Operation Warp Speed’. Though Pfizer didn’t receive any money upfront, the US government has promised to deliver a $2 billion payment in exchange for 100 million doses.

“We were never part of the Warp Speed … We have never taken any money from the U.S. government, or from anyone,” company Senior Vice President Kathrin Jansen said in an interview reported by the New York Times. Pfizer later had to revise her statement, as they have indeed benefited from a $2 billion dollar contract with HHS.

In a matter of weeks, top Dems, including NY Gov Andrew Cuomo and Biden’s running mate Kamala Harris, have gone from trying to discredit the Trump FDA, to trying to completely white was the administration’s efforts and accomplishments with OWS and other aspects of the COVID-19 response.

Authored by Michael Snyder via The Economic Collapse blog,

Even Jerome Powell is admitting that the boom years are over.  For months, I have been trying to explain to my readers that the debt-fueled “prosperity” that we were enjoying prior to the COVID pandemic won’t be coming back, and initially I received quite a bit of criticism for saying that.  But that criticism has subsided, because at this point pretty much everyone can see the truth.  Despite stimulus package after stimulus package, and despite unprecedented intervention by the Federal Reserve, we continue to be mired in the worst economic downturn since the Great Depression of the 1930s.  Fear of the virus continues to drag down the overall level of economic activity, more businesses are going under with each passing day, and the layoff announcements never seem to end.

Normally, Federal Reserve officials try very hard to be relentlessly optimistic.  But during a European Central Bank panel discussion on Thursday, Federal Reserve Chair Jerome Powell openly admitted that “we’re not going back to the same economy”…

“We’re not going back to the same economy,” Powell said. “We’re recovering, but to a different economy and it will be one that is more leveraged to technology, and I worry that it’s going to make it even more difficult than it was for many workers.”

The central bank leader said he was referring specifically to “relatively low-paid public-facing workers who are bearing this brunt,” many of whom are women and minorities.

His use of the phrase “a different economy” really got my attention.

When I am trying to break some really bad news to someone in a gentle way, I will often use the word “different” to describe what things will be like moving forward, and I think that Powell is doing the same thing here.  He knows that there is no way that things will “return to normal” any time soon, and he is quite correct to be particularly concerned about how this will affect low paid workers.

Low paid workers have been losing their jobs at a much higher rate than anyone else, and the job losses just keep rolling in.

On Thursday, we learned that another 709,000 Americans filed new claims for unemployment benefits last week, and that number is more than three times higher than what we witnessed during a typical week in 2019…

The Labor Department report showed an eleventh straight week that new jobless claims totaled below 1 million. But new claims have not yet broken back below 700,000 since the start of the pandemic and have held sharply above levels from before the outbreak. Throughout 2019, new initial unemployment claims were coming in at an average of just over 200,000 per week.

As of October 24th, a total of 21.16 million Americans were bringing home some type of unemployment assistance.

One year ago, that number was just 1.45 million.

In other words, we are in the midst of a national unemployment nightmare.

And many analysts are deeply concerned that the new wave of lockdowns that is now starting to happen around the nation will cause a renewed surge in layoffs…

As colder weather sets in and fear of the virus escalates, consumers may turn more cautious about traveling, shopping, dining out and visiting gyms, barber shops and retailers. Companies in many sectors could cut jobs or workers’ hours. In recent days, the virus’ resurgence has triggered tighter restrictions on businesses, mostly restaurants and bars, in a range of states, including Texas, New York, Maryland, and Oregon.

“The risk may be for more layoffs as coronavirus cases surge and some states impose restrictions on activity,” said Nancy Vanden Houten, an economist at the forecasting firm Oxford Economics.

Yesterday, I discussed the fact that one of the experts on Joe Biden’s new COVID-19 advisory board wants a full national lockdown for at least a month once Biden is in the White House.

Needless to say, that would make the economic depression that we are currently suffering through a whole lot worse.

But of course there are a lot of Americans out there that simply are not going to put up with any more lockdowns.  In fact, one new survey has found that only 49 percent of all Americans “would be very likely to stay home for a month if health officials recommend it”…

Fewer than half of Americans say are very likely to comply with another lockdown, despite growing concerns over the coronavirus pandemic, the latest Gallup polling shows.

About 49% of Americans polled between October 19 and November 1 said they would be very likely to stay home for a month if health officials recommend it following a coronavirus outbreak in their community, down from 67% in the spring.

Millions upon millions of lives were turned upside down by the lockdowns that were previously instituted, and the economic damage caused by another round of lockdowns would be incalculable.

But it appears that more lockdowns are coming anyway, and that means a lot more economic suffering is ahead.

Prior to the pandemic, 38-year-old Victoria Perez was working two jobs, but she quickly lost both of them once COVID came along.  Now she and her children are living in city housing in Oakland, California, and they are just one step away from being homeless…

Among them is Victoria Perez, who was working two delivery jobs before the pandemic struck. Having lost both jobs in the spring, she is now living with her children in city-subsidized housing near Oakland, California, and hoping to avoid homelessness.

The city housing, provided to people at heightened risk of the coronavirus, lasts only through December. Perez, 38, is a cancer survivor.

After the holiday season, what is she supposed to do if she can’t find a new job?

Being homeless is bad enough.  When you add children to the equation, we are talking about the sort of nightmare scenario that nobody should ever have to go through.

Unfortunately, the ranks of the homeless are absolutely exploding all over the country as the U.S. economy crumbles right in front of our eyes.

In 2021, I am anticipating the biggest wave of traffic in the history of The Economic Collapse Blog as our ongoing economic implosion accelerates even more.  I have been hearing from so many people out there that are deeply hurting right now, and I wish that I had better news for everyone.

Sadly, the consequences for decades of exceedingly foolish decisions are catching up with us, and saying that we are heading into a “different economy” is definitely a major understatement.

*  *  *

Michael’s new book entitled “Lost Prophecies Of The Future Of America” is now available in paperback and for the Kindle on Amazon.

Poland and Hungary are taking an aggressive stand against what many see as the European Union’s attempt to “force foreign values upon member nations” – this after West European nations have frequently derided Poland under President Andrzej Duda and Hungary under Prime Minister Viktor Orbán as “authoritarian regimes” – something also echoed widely in US and UK media.

Bloomberg reports on Friday that “Poland joined Hungary in threatening to veto the European Union’s 1.8 trillion-euro ($2.1 trillion) budget over the bloc’s efforts to make sure funds only go to countries that adhere to democratic standards.”

In EU technocrat-speak adhering to “democratic standards” tends to mean everything from open EU borders, to state services for all migrants, to redefining marriage, to ceding sovereignty to a bunch of bureaucrats in Brussels, to abortion on demand.

Both countries have been seen as ‘severe violators’ of such principles, given Orbán’s family first policies summed up in the controversial “procreation, not immigration” messaging, or in the case of Poland recently upholding its strict anti-abortion laws.

Already under formal EU probes, both countries have sensed the latest attempts to link budget and stimulus packages to conformity with EU consensus ideology – or what Brussels touts as ‘rule of law’ – is yet another attempt to legally impose external values and directives. 

Last week Orban said in a state radio interview that “Hungary can’t be blackmailed.” The Hungarian PM said further: “The rule-of-law debate sounds like it’s about the law but it’s a political debate.”

And now Poland is joining Hungary what increasingly appears their joint brinkmanship pushing back against being dictated to from abroad.

Meanwhile, establishment policy publications have in recent years frequently printed titles like this one in Foreign Policy magazine:

A day after Polish Finance Minister Tadeusz Koscinski said “Officials in Brussels are out of touch with reality,” Bloomberg reports:

At stake is whether the EU can swiftly deliver hundreds of billions in much-needed funds to combat the steepest recession on record, while making sure the money isn’t misappropriated by countries where democratic checks and balances are weak.

A junior party in Morawiecki’s government said on Tuesday that the proposal is an attempt by the EU and its biggest budget contributor Germany to force foreign values upon member nations. Without its support, the government doesn’t have a majority in parliament and would need opposition support to ratify EU plans to issue debt.

Both countries now have effective veto over the budget and stimulus package, given the EU requires unanimous approval among members to borrow from the markets to fund the recovery package.

However, it only needed a majority as it last week imposed the ‘rule of law’ and democracy conditions as part of the negotiations. But that conspicuous stipulation may prove its undoing.

Authored by Julianne Geiger via OilPrice.com,

For those who have been transfixed on oil demand forecasts over the last eight months, the recent news that Pfizer’s Covid-19 vaccine is 92% successful likely came with a renewed hope that oil demand will finally tick up and bring the industry out of the doldrums in which it has been languishing since the start of the pandemic.

The lockdowns are to blame for the loss in oil demand. And now, invigorated with the possibility that this new vaccine will allow people to resume their normal way of life – air travel, dining out, and shopping – the price of crude oil is rising.

They are expecting oil demand to recover – and fast – and not even the news of a slew of additional lockdowns that go into effect this week is dampening the bullish oil spirit.

Hold Onto Your Bulls

The reality is, however, Pfizer’s vaccine – which hasn’t yet received FDA approval – won’t be available to the masses for months. Oil bulls may want to strap that truth on.

And while it certainly looks promising, the vaccine needs to undergo a rather rigorous approval process, and it is by no means a sure thing. If it were a sure thing, they’d skip the approval process and move forward.

What to Expect

That’s not to say that things aren’t looking promising in the longer term. But we are most definitely talking about the longer term.

In the short term, we have a new round of lockdowns sweeping the globe that includes Sweden, New Jersey, and New York – all of which have varying degrees of restrictions on activities. Most of those restrictions involve eating out and going to bars. Some include more restrictions on private gatherings.

These most recent restrictions on our way of life are just the latest. Last week, Austria, France, Germany, the UK, and Portugal all began implementing a wide variety of restrictions that will no doubt compound the oil demand problem.

And while a vaccine is looking likely, things may not move as quickly as some are expecting. Below is a rough timetable of how the vaccine is expected to progress.

1) Safety

With efficacy now established, Pfizer must next establish safety, which comes after two months of tracking. This is to establish the likelihood of side effects. That two-month marker will come on November 16.

2) Emergency Use

Next, Pfizer must apply for emergency use authorization from the FDA. This allows Pfizer to skip over some of its study that is required for traditional approval. This isn’t typically a fast process. The FDA will deliberate in a public meeting to determine if the emergency use will be granted. It is very likely that this emergency use will only be granted for high-risk individuals such as those with co-morbidities and perhaps healthcare workers. There is no estimate, really, on how long this will take. The FDA has merely said that it plans to be quick.

3) Emergency Use Rollout

The good news is, Pfizer has already started to manufacture its Covid-19 vaccine, banking on an approval. This saves a lot of time. However, there are still limited quantities available during this stage, and the emergency use authorization does not cover everyone. Therefore, the initial rollout of the vaccine will be to a small number of people, who will then be tracked to ensure there are no other side effects that emerge.

4) The First 25 Million People

Pfizer has stated that by the end of the year, it will have 50 million doses available. It will likely start trickling in at the end of November or the beginning of December. That 50-million figure is good for 25 million people because each person must receive two doses. Whether this 25 million is used up in the emergency use portion of the process or whether some of it is left over for the full rollout is unknown. But either way, at most, 25 million people—worldwide—will receive the vaccine in 2020. At less than 0.3% of the world’s population, this isn’t going to make even the smallest dent in activity levels and hence, oil demand.

5) The next 1.3 billion doses

That brings us to 2021 when Pfizer expects to have 1.3 billion doses available, which means that 650 million additional people will be able to get vaccinated next year. Of course, this does not factor in other vaccine manufacturers such as Moderna, which announced on Wednesday that it was ready to begin analyzing interim data it amassed during its study, although we’re talking about just 53 cases. Other countries, too, may produce a viable vaccine. The U.S., the UK, Canada, Japan, and other European countries have already put their order in for millions of doses from Pfizer. In fact, just this week, it was revealed that the EU made a deal to purchase 300 million doses—for less than the U.S. will pay. This also means that those 650 million people will be spread across the globe—and across 2021—negating the possibility that any single location would be able to return to normal.

Many people likely heard Dr. Fauci say that the rest of the world may have the vaccine in April. But he’s referring to when the vaccine would start to be available to everybody, not that everyone would have it available. In fact, Dr. Fauci has said that it might take well into the second or third quarter of 2021 to even convince people to take it.

In other words, everyone should buckle up because oil demand isn’t going to snap back in January or even in Q1.

When Will Oil Demand Perk Up?

If you’re listening to Reuters market analyst John Kemp, we won’t see oil demand pick up for another six or even twelve months.

“Coronavirus vaccines are expected to boost international passenger transportation and oil consumption, but the first significant impact will not be felt until well into the second half of 2021, based on futures price movements on Monday,” Kemp said in a commentary on Monday.

This view is likely shared by OPEC, which released its MOMR on Wednesday. In it, OPEC forecast that oil demand will fall this year 300,000 bpd more than it thought last month. OPEC also said that this weak demand would continue into next year. Cutting next year’s demand outlook as well, OPEC now sees 2021 oil demand 300,000 bpd lower than it thought last month. This means it sees 2021 oil demand at just 6.2 million bpd over 2020 levels, and still under 2019 levels.

Why So Glum?

“These downward revisions mainly take into account downward adjustments to the economic outlook in OECD economies due to COVID-19 containment measures, with the accompanying adverse impacts on transportation and industrial fuel demand through mid-2021,” OPEC said in its MOMR, adding that the oil demand recovery “will be severely hampered and sluggishness in transportation and industrial fuel demand is now assumed to last until mid-2021.”

Regarding a Covid-19 vaccine, OPEC had few words.

“Further support, currently unaccounted for, may come from an effective and widely distributable vaccine as soon as 1H21. However, further downside risks to the current growth outlook may stem from ongoing challenges due to Brexit, rising geopolitical challenges in selective regions, unexpected repercussions from quickly rising global debt levels, and mounting social unrest in some countries as a consequence of COVID-19 and rising inequality.”

In other words, OPEC at least believes that the vaccine may help to boost oil demand at some point in 2021, but there are a whole host of other challenges that may dent the economy – and therefore oil demand – next year.

What Say the IEA?

The IEA on Thursday released its own vaccine-oil-demand bombshell, saying that oil demand is unlikely to see any substantial increase from a new vaccine – even one that starts to be distributed in a limited capacity at the end of this month – until well into 2021.

“It is far too early to know how and when vaccines will allow normal life to resume. For now, our forecasts do not anticipate a significant impact in the first half of 2021,” the IEA said, adding that “The poor outlook for demand and rising production in some countries … suggest that the current fundamentals are too weak to offer firm support to prices.”

And while the market largely ignored OPEC’s pessimistic view of the vaccine’s effect on oil demand, the IEA’s prognostication did not go unnoticed; in the early morning hours on Thursday, oil prices started to sink.

Not only has Russia been angry and frustrated over the Alexei Navalny fallout where for months Germany, European countries, and the US have accused the Kremlin of a conspiracy to assassinate the Putin critic via poisoning, but now Moscow is going gloves off in returning the favor of the pressure campaign Berlin has been waging.

Russian Foreign Minister Sergei Lavrov announced Thursday plans to sanction German and French officials as retaliation for EU punitive restrictions on Russian officials related to the alleged Navalny poisoning.

Before the Aug.20 incident Navalny was a somewhat obscure opposition activist (Russian officials have routinely dismissed him as a mere “blogger), but after being emergency airlifted to a Berlin hospital became a central figure amid Western efforts to push claims of nefarious Putin-sponsored and Russian intelligence hits on “major” opposition voices, akin to the saga of Skripal poisoning.

Russian officials have long been angry at not being able to conduct their own investigation or to access Navalny in Berlin. This week France and Germany rolled out with sanctions on a who’s who of top Russian intelligence and defense officials.

Russia then announced its own “reciprocal” sanctions on German and French officials:

Speaking of Russia’s reciprocal sanctions against France and Germany, the [Kremlin] spokesman stressed that “one couldn’t have expected anything different.”

“The reciprocity principle works here rather clearly, hardly anyone could have expected that Russia would leave this without a reaction,” he explained.

In response to a question which officials from Germany and France banned from entering Russia would correspond to the level of First Deputy Chief of Staff of the Presidential Administration of Russia Sergei Kiriyenko blacklisted by the West, the Kremlin representative noted “One can hardly find Kiriyenko’s equal but in any case, at least nominally, of course, it is easy to find a corresponding title.”

The Kremlin spokesperson called the allegations related to Navalny “more than dubious.”

And now Germany is upset, with a government spokesman on Friday lashing out at the “unjustified” and “inappropriate” Russian action.

The alleged poisoning of Russian activist Alexey Navalny was clearly an “amateurishly staged stunt” designed to justify sanctions against Russia, the country’s foreign ministry has claimed, in an emphatic denial of any official Russian involvement https://t.co/zb7XwHjTnP

— Bryan MacDonald (@27khv) November 7, 2020

Seeking to underscore that the Kremlin itself is at the center of a brazen crime and cover-up Chancellor Angela Merkel’s spokesman Steffen Seibert said from Berlin that “A Russian citizen was attacked with a military nerve agent on Russian soil.”

The German spokesman added:

“Russia has all means at its hands to clear up this crime. Instead, the Russian foreign minister announces sanctions against officials of foreign countries…”

“From the perspective of the German government, such a step is obviously unjustified and inappropriate.”

Meanwhile Russia has maintained its innocence in the Navalny affair. Officials also balked when it was alleged that the deadly Soviet-made novichok nerve agent, which is able to kill in minutes was used – given it would be such an “obvious” operation, easily traced back to Russian intelligence. 

Navalny alleged directly that Putin was behind ordering the poisoning, saying he had “no other explanation for what happened.” 

Navalny in a major German media interview over a month ago alleged that Putin directly ordered his assassination. “Putin is behind the crime,” Navalny had told Der Spiegel. “I have no other versions of the crime. I am not saying this to flatter myself, but on the basis of facts.”

The Russian government has yet to specify precisely which German and French officials will be targeted, which is at minimum to include a ban on entering the Russian Federation. All of this could put further strain on the nearly completed Russia to Germany gas pipeline Nord Stream 2, which Washington and its allies have been actively trying to thwart.