Month: January 2023

Optimism is increasing on Wall Street, with investors hoping for a “soft landing” in the economy.

“David Kelly, the chief global strategist at JPMorgan Asset Management, is betting that inflation will continue to ease in 2023, helping the U.S. economy to narrowly escape a recession. Ed Yardeni, the longtime stock strategist and founder of his namesake research firm, is putting the odds of a soft landing at 60 percent based on strong economic data, resilient consumers, and signs of tumbling price pressures,” reported Bloomberg.

As Lance Roberts recently explained, the hope is that despite the Federal Reserve hiking rates at the most aggressive pace since 1980, reducing its balance sheet via quantitative tightening, and inflation running at the highest levels since the 1970s, the economy will continue to power forward.

Is this a possibility, or is the “soft landing” scenario another Fed myth?

To answer that question, we need a definition of a “soft landing” scenario, economically speaking.

According to a definition by Investopedia, “A soft landing, in economics, is a cyclical slowdown in economic growth that avoids a recession. A soft landing is the goal of a central bank when it seeks to raise interest rates just enough to stop an economy from overheating and experiencing high inflation without causing a severe downturn.”

The term “soft landing” came to the forefront of Wall Street jargon during the tenure (1987–2006) of former Fed chair Alan Greenspan. He was widely credited with engineering a soft landing in 1994–95. The media has also pointed to the Federal Reserve engineering soft landings economically in both 1984 and 2018.

The chart below shows the Fed rate-hiking cycle with soft landings notated by orange shading. I have also noted the events that preceded the “hard landings.”

(Source: Federal Reserve Bank of St. Louis / Refinitiv chart by RealInvestmentAdvice.com)

There is another crucial point regarding the possibility of a soft landing. A recession, or “hard landing,” followed the last instances when inflation peaked above 5 percent. Those periods were 1948, 1951, 1970, 1974, 1980, 1990, and 2008. Currently, inflation is well above 5 percent throughout 2022.

(Source: Federal Reserve Bank of St. Louis / Refinitiv chart by RealInvestmentAdvice.com)

Could this time be different? Absolutely, but there is a lot of history that suggests otherwise.

Furthermore, while the technical definition of a soft landing is “no recession,” if we include crisis events caused by the Federal Reserve’s actions, the track record becomes worse.

Bear in mind also that it is the labor market alone that is holding up the economic ‘signals’ as ‘soft’ survey and ‘hard’ industrial data is sliding significantly…

…and Leading Economic Indicators are screaming ‘hard landing’…

As noted above, there were three periods where the Federal Reserve hiked rates and achieved a soft landing, economically speaking. However, the reality was that those periods were not pain-free events for the financial markets.

Goldman Sachs notes in its latest ‘Top of Mind’ report, there are plenty of ‘experts’ on either side of the ‘soft’ vs ‘hard’ landing question:

Soft Landing

“I do continue to believe that there’s a path to a soft, or soft-ish, landing... And I think the path is pretty clear… We see inflation and, you know, the goods inflation get better, housing services inflation gets better, and the labor market softens but doesn’t go into recession.”
– Jay Powell, Federal Reserve Chair (Brookings Institution interview, December 2022)

“The probability of a soft landing has increased compared to where it was in the fall of 2022, where it was looking more questionable… And the reason I think that the prospects for a soft landing have increased is that the labor market has not weakened the way many had predicted… and growth levels rebounded from weakness.”
– James Bullard, President, Federal Reserve Bank of St. Louis (CFA Society speech, January 2023)

“My own prediction is indeed for a softish landing: inflation does seem to be coming down, and while we might not completely avoid a recession, if we have one it will probably be mild.”
– Paul Krugman, Nobel Prize winning economist (New York Times column, January 2023)

“We might see, actually, the job market loosen up dramatically… but that GDP grows much faster than most people think and we have a chance, if the Fed pivots, to really avoid a recession and have a good year for profits.”
– Jeremy Siegel, Professor, Wharton (CNBC interview, December 2022)

“All the signs are pointing to a higher, not a lower, probability of a soft landing… It may still not be more than 50-50. But 50-50 is looking better than it was a few months ago.”
– Alan Blinder, former Federal Reserve Vice Chair (Fortune interview, January 2023)

“The deeper I look into the bowels of last week’s job market data, the more I think we can skirt a recession…”
– Mark Zandi, Chief Economist, Moody’s (Twitter, January 2023)

Hard Landing

“One has to be careful of false dawns… I would stick with my view that a recession this year is more likely than not.”
– Larry Summers, former Secretary, US Treasury (Bloomberg interview, January 2023)

“A recession is pretty likely just because of what the Fed has to do.”
– Bill Dudley, former President, NY Fed (Bloomberg interview, January 2023)

“A recession does appear to be the most likely outcome at this time. While the last two monthly inflation reports did show a deceleration in the rate of price increases, it does not change the fact that prices are still increasing… Wage increases, and by extension employment, still need to soften further for a pullback in inflation to be anything more than transitory.”
– Alan Greenspan, former Federal Reserve Chair (Advisors Capital note, December 2022)

“I don’t want a recession. I hope we luck out with a soft landing but I just think a soft landing is a hard thing to achieve… It’s easy to avoid a recession, its hard to avoid a recession while bringing inflation down.“
– Jason Furman, former Director, National Economic Council of the US (CNBC interview, January 2023)

“I think either it’s going to be a borderline or very mild recession, or it could be a deeper one… There has been a little bit of good news recently, but the markets maybe are overplaying it, wages have a long ways to go. Wages have not kept up with inflation.”
– Kenneth Rogoff, Professor, Harvard University (CNBC interview, January 2023)

“[We] are predicting the recession to start mid-year and it’s because we think the Fed is continuing to push on the QT accelerator and continuing to drive down inflation as well as labor costs… The more quantitative tightening that we see, the more we see the risk of a more prolonged and deeper recession.“
– Anne Walsh, CIO, Guggenheim Partners (CNBC interview, January 2023)

The Case for a Hard Landing…

Historically, a substantial decline in job openings – a key requirement to tame the current bout of inflation – has never occurred without a sharp rise in unemployment…

…and since 1949, every time the three-month moving average of the unemployment rate has risen by 0.5pp+ relative to its low during the previous 12m, a recession has ensued (Sahm Rule)

Financial conditions tightened substantially over the course of 2022…

…and macro models suggest that monetary policy, which affects the economy through financial conditions, affects the level of GDP with a relatively long lag.

Inflation has declined, but remains well above target…

…and while wage growth has moderated, it remains high

The Case for a Soft Landing…

We expect solid growth in real disposable income this year…

We find that the lags from financial conditions on GDP growth are relatively short, suggesting that the US economy has already bore the brunt of the 2022 tightening in financial conditions…

We expect core goods inflation to turn negative this year…

The jobs-workers gap has so far shrunk mainly through a decline in job openings without a sharp rise in the unemployment rate, and we expect this pattern to continue…

The best alternative measures of new lease rent growth have slowed, and show signs of further slowing ahead…

Accordingly, we expect core PCE inflation to decline to 2.9% by YE23…

With those thoughts in mind, Goldman opines on how will the market react to a ‘soft’ (no recession) landing or a hard (recession) landing…

• The avoidance of a US recession and an improving global growth picture would push global equities higher. US 10y Treasury yields would be expected to rise by around 40bp, and bund yields potentially by more. Shorter-dated rates would also potentially climb higher as the market backs away from the deep rate cuts it has begun to price. Non-US equities would be expected to outperform, both in local and USD terms. Commodities would be expected to rise significantly, particularly under the more generous assumptions about China pricing. The USD would broadly weaken but would strengthen against JPY and weaken less versus EUR, with cyclical currencies performing strongly. A “Goldilocks” version of this outcome in which rapid inflation declines lead to more Fed relief despite improving growth would mitigate upward yield moves, provide a further tailwind to global equities, and reinforce USD weakness.

• In the case of a recession, US equities would be expected to fall significantly, with cyclical equities underperforming, and credit spreads widening sharply. Non-US equity markets would decline too, but to a lesser degree. US yields would decline along the curve, with the 10-year Treasury yield falling by nearly 60bp and smaller predicted declines in bund yields. Front-end rates would likely fall by more, implying yield curve steepening.  In FX, cyclical and EM currencies would mostly weaken against the USD, but EUR, CHF, and, most significantly, JPY would be expected to strengthen against the USD. Commodities would generally weaken. A “hawkish recession” – in which inflation proved stickier – would be expected to lead to larger declines in risky assets, more limited declines in yields, and broader USD strength.

So, with all that said, RealInvestmentAdvice.com’s Lance Roberts notes that Powell’s recent statement during a speech at the Brookings Institution was full of warnings about the lag effect of monetary policy changes. It was also clear that there is no pivot in policy coming anytime soon.

When that lag effect catches up with the Fed, a pivot in policy may not be as bullish as many investors currently hope.

We doubt a soft landing is coming.

Authored by Peter Reagan via Birch Gold Group,

Much like the Patriot Act had little to do with making life safer in the U.S., the Biden administration’s “Inflation Reduction Act” has very little to do with reducing inflation.

Thanks to this “Inflation Reduction Act,” our lives are about to get even more expensive for just about everyone. If you’re saving money for retirement, heating your home or driving a car, well, get ready to start paying higher prices.

That’s because of several new taxes that were tucked away in the 274 pages of the Inflation Reduction Act. Those new taxes have become law as of January 1st, 2023.

I’d argue this is a clear contradiction of Biden’s campaign promise that he wouldn’t tax Americans who have annual incomes under $400,000. This is open to debate, however – because the new taxes we’re discussing today don’t target the average American household directly. Rather, everyday hard-working families are collateral damage of the Biden administration’s battle against “greedy corporations, evil energy companies” and the like.

So let’s go through five new taxes aimed at the “greedy” and “evil” that will ultimately punish everyone.

What’s wrong with taxing the greedy and the evil?

If we view taxes as punishment (rather than as a method to finance public services), then we can understand why any administration would want to raise taxes on the “greedy” and the “evil.” Honestly, if a company or industry is actually evil, you’d think law enforcement rather than the IRS would get involved? Regardless, it’s easy to feel good about out-of-favor businesses and industries being punished.

There’s just one small problem: the punishment doesn’t stop with the corporation paying higher taxes.

Simon Black summarized a very useful way to think about tax increases, regardless of who signs them into law and whatever their stated purpose. Taxes that seem to focus on “big businesses” and “unpopular industries” don’t stop there:

That’s because taxes, like sh*t, always roll downhill. Think about it – a ‘corporation’ can’t actually absorb the cost of taxes. A corporation is nothing but pieces of paper. It’s not real.

The burden of additional taxation falls onto the owners of the business… and onto the consumers who buy its products.

Remember when President Biden threatened to tax oil companies for making “excessive profits” a few months back? I concluded that the President either doesn’t understand basic economics, or is willing to pretend not to for political purposes.

Because Black is right! Corporations don’t just absorb higher costs – they pass them on to customers.

So anytime taxes go up on an industry or a company, who ultimately pays the bill?

You do. I do. The American taxpayer does.

Here are the new bills we’ll be paying this year…

These five new taxes will raise our cost of living

A report by Americans for Tax Reform explained how one of the five tax increases will raise your cost of living.

The first is a regressive tax on American oil and gas development. The tax will drive up the cost of household energy bills. The Congressional Budget Office estimates the natural gas tax will increase taxes by $6.5 billion.

A letter to Congress from the American Gas Association warned that the methane tax would amount to a 17% increase on an average family’s natural gas bill. Democrats have included a tax in the bill despite retail prices for energy surpassing multi-year highs in the United States.

(Note: calling a tax “regressive” means that it affects everyone, regardless of their ability to pay. The opposite of a “regressive” tax is a “progressive” tax, which is levied proportionally to income.)

Higher prices on natural gas are a big deal! About 40% of our consumption is used to produce electricity, and another 30% for residential heating and cooking.

So, by penalizing American energy development, this tax will (indirectly) raise electricity and heating bills for many families.

Second:

a 16.4 cents-per-barrel tax on crude oil and imported petroleum products that will be passed on to consumers in the form of higher gas prices.

Now, remember, this same bill has already penalized oil and gas development here in the U.S. At the same time, the “Inflation Reduction Act” is raising prices on energy imports, too!

There’s a pretty clear purpose here: by charging higher taxes on both domestic and imported energy sources, the end result is higher energy prices – guaranteed.

But we’re not done yet…

Third:

the tax rate on coal from subsurface mining would increase from $0.50 per ton to $1.10 per ton while the tax rate on coal from surface mining would increase from $0.25 per ton to $0.55 per ton. JCT estimates that this will raise $1.2 billion in taxes that will be passed on to consumers in the form of higher electricity bills.

Listen: I’m not particularly a fan of coal as an energy source. But more than doubling the tax on coal while raising taxes on oil and gas development and importing all at the same time? That’s a deliberate declaration of war on the entire energy industry.

What’s the purpose? It doesn’t matter, because regardless of whether or not these three taxes achieve their intended purpose, they will absolutely raise energy prices for everyone.

Well, now that we’ve devastated the U.S. energy industry, let’s turn to the more general war on investors concealed in the “Inflation Reduction Act.” These are a little more subtle, and might be a bit harder to understand, but bear with me – it’s worth it.

Fourth:

a new federal excise tax [on investing income] which will reduce the value of household nest eggs. Raising taxes and restricting stock buybacks harms the retirement savings of any individual with a 401(k), IRA or pension plan.

This tax specifically makes it more expensive for corporations to buy back their own stock. Corporate buy-backs have become a popular alternative to dividends. When a company issues a dividend, investors pay up to 20% tax on that dividend income. Companies figured out that they could buy their own shares from investors on the open market – which reduces the number of shares in circulation, and subsequently raises the share price.

Investors who own shares of the company benefit from the higher share price without paying taxes on the increase (at least, not until they sell the shares – possibly never if they own those shares in a Roth-type retirement account).

Are share buybacks a good idea? I don’t know. Are they more tax efficient for investors than dividends? Yes. Now, everyone who invests in stocks will pay this indirect tax.

Finally, a more direct tax on corporations:

a 15 percent corporate alternative minimum tax on the financial statement income of American businesses reporting $1 billion in profits for the past three years. The cost of this tax increase will be borne by working families in the form of higher prices, fewer jobs, and lower wages.

Once again: raising producer prices doesn’t just punish producers – it punishes everyone who buys their products.

To be clear: the “Inflation Reduction Act” won’t lower inflation. (After all, as Dr. Ron Paul reminded us, all inflation comes from just one place. The only way to lower inflation is to stop printing money to finance massive government deficit spending.)

The “Inflation Reduction Act” won’t lower prices, either – quite the contrary! As we’ve seen, prices are extremely likely to rise across the board – and virtually guaranteed to rise for gasoline, electricity and natural gas.

Our cost of living will go up this year. On top of prices continuing to surge thanks to actual inflation from the massive increases in money supply. In the face of a recession (either already underway or imminent, according to virtually every economist).

Rough economic times are ahead. I think it’s a good time to consider ways we can add stability to our financial futures.

Creating your own economic stability

For now, only two things are absolutely certain (as Ben Franklin famously said): “Death and taxes.”

As we’ve seen, it’s virtually guaranteed that we’ll be paying higher prices, thanks to inflation and these misguided tax hikes, for the rest of this year at least.

One of the major challenges we face when considering the future, especially our personal financial futures, is uncertainty. That’s really what the Ben Franklin quote is about. In the absence of certainty, we have to guess what we should be doing today that will turn out, in hindsight, to have been a smart move years or decades down the road.

To that end, let me share a story from Jefferey Tucker on inheriting his father’s gold and silver coin collection:

Gold keeps its value. But more than that, it symbolizes what it means to keep our values, as people, as societies, and as nations. They are physical objects but more than that, they embody a philosophy of living.

Think about this. One day your children or grandchildren will be rifling through your stuff and they might come across your collection of gold and silver… In a world of fleeting values and ceaseless and often pointless change, here we have something that we can both believe in and own. It’s real wealth, wealth for the ages, stuff we can carry in our pockets.

Here’s the thing: Presidents come and go. Tax laws are revised, refined and amended constantly. The IRS itself might change dramatically over the next decade or two.

But you could make a move today that could provide long-term benefits: learn more about physical precious metals and what it means to own “real wealth for the ages.” Would such an option help you and your family navigate the uncertain times ahead? For tens of thousands of people just like you, the answer is yes.

With global tensions spiking, thousands of Americans are moving their IRA or 401(k) into an IRA backed by physical gold. Now, thanks to a little-known IRS Tax Law, you can too. Learn how with a free info kit on gold from Birch Gold Group. It reveals how physical precious metals can protect your savings, and how to open a Gold IRA. Click here to get your free Info Kit on Gold.

By Eric Peters, CIO of One River Asset Management

“We delivered record earnings and cash flow in 2022, while increasing investments and growing U.S. production to a company record,” said Chevron CEO Mike Wirth. “We are well positioned to lead in both traditional and new energy businesses, delivering higher returns, lower carbon, and superior shareholder value.”

The market rejoiced in the $75bln share buyback program, ushering in a new era for oil producers. In the past, commodity leaders were rewarded for production. Strong profits were followed by even stronger investment. Low-cost producers gained market share by leveraged buyouts of smaller higher-cost ones.

Not today. CEOs are incentivized by profitability, and the era of climate policies reinforces the goal. Politicians don’t like it, naturally. Abdullah Hasan’s message on behalf of the White House was blunt: “For a company that claimed not too long ago that it was ‘working hard’ to increase oil production, handing out $75 billion to executives and wealthy shareholders sure is an odd way to show it.”

Policy signals are clear – climate change demands an energy transition. But the world needs an offramp, and none has been offered. So, it is being imposed by the market in the most brutal of manners. It is the unintended consequence, generating geopolitical strife.

“Transmission lines tripped, which resulted in isolation of north and south system,” wrote Sajjad Akthar, general manager at Pakistan’s state-run National Transmission and Distribution Company. Complete grid failures are rare. Operators of modern grids observed shocks from integration of renewable energy as their primary challenge. Pakistan’s blackout last week was its second near-complete grid failure and the third in south Asia in three months. 220 million people were impacted.

“Due to unavailability of generators, services are affected in health centers in suburbs,” Dr. Imran Zarkoon declared, the director of a local health department.

It is also not a shock. Prime Minister Sharif already ordered all federal departments to reduce their energy consumption by 30% earlier in the month. Italian energy major Eni also notified it would not deliver an LNG cargo to Pakistan due to circumstances outside its control. Eni has a long-term contract to deliver one LNG cargo per month to Pakistan through 2032.

“All the previous disruptions in LNG delivery suffered by ENI have been caused by the LNG supplier who didn’t fulfill the agreed obligations,” the company said. “At the request of the authorities, an in-person Fund mission is scheduled to visit Islamabad,” the IMF’s Resident Chief stated. Negotiations for unlocking the $1.1bln IMF tranche come after FX companies removed a floor for the currency, opening the door for a 10% decline.

And it is all in an election year with Beijing Islamabad’s chief supporter. The China-Pakistan Economic Corridor is an elaborate, 3000-kilometer infrastructure project covering sea and land, securing passage for China’s energy imports. So, it’s complicated. It always is. Just as the weakest links are always the first to reveal distress.

Anecdote

“If humanity does not fail nature, nature will not fail us,” October 28, 2022. Who said it? No, not Al Gore. Greta gave it a thumbs up, but it wasn’t her. It was President Xi in his unveiling of China’s White Paper on Climate Change.

Climate is poised to dominate investment in the next decade. A wide-ranging survey showed 53% of investors regard climate change as the most important factor affecting their investment decisions; 78% of private and business clients surveyed are concerned about climate change; these echo in the chambers of the WEF, focused on “staving off disaster and catastrophe.” Herds are famous for stampeding principled contrarians in financial markets. Investors are asked to be wise enough to see the follies of the collective and disciplined enough to not get run over by the herd. Irony is the answer.

Global CO2 emissions have increased 44% in the past two decades – China accounts for 68% of the world’s rise. Climate goals without capital discipline won’t matter. This is also where it pays to avoid the herd, who are dedicated to hopelessly inefficient solutions.

China accounts for more than one-third of global commodity production – cutting raw material output is the only way of achieving Beijing’s ambitious climate goals.

Raw materials will be in high demand through the world’s energy transition. Those will also be shorter in supply. China is preparing, the world is talking, and markets are the arbiter with high prices accelerating the energy transition. And in that transition shines the most ironic climate theme. Long oil.

The White House refused to say if it will provide Ukraine with Bradley Fighting Vehicles equipped with radioactive depleted uranium rounds, ammunition that is linked to cancer and birth defects.

Depleted uranium is typically created as a byproduct of producing enriched uranium and is extremely dense, making it an effective material to pierce the armor of tanks. Bradleys can be equipped with depleted uranium ammunition, which is why they are known as “tank killers.”

When asked on Wednesday if the Bradleys the US is sending to Ukraine will be equipped with depleted uranium, a senior Biden administration official said, “I’m not going to get into the technical specifics.”

The official also declined to answer if the M1 Abrams tanks the US is providing Kyiv will be equipped with a depleted uranium cage.

Konstantin Gavrilov, the head of Russia’s delegation in Vienna on arms control, has warned Moscow would view the use of depleted uranium weapons in Ukraine as the use of a “dirty bomb.” Gavrilov claimed that Germany’s Leopard 2 tanks could also be equipped with depleted uranium rounds.

“In case such munitions for NATO-made heavy weapons are supplied to Kiev, we will consider that as the use of dirty nuclear bombs against Russia with all the consequences that come with it,” he said, according to the Russian news agency TASS.

Cancer and birth defects spiked in Iraq after the Gulf War, during which the US fired an estimated one million depleted uranium rounds.

The US also used toxic ammunition in its 2003 invasion, and studies have found that birth defects are more common in areas where depleted uranium was used. Birth defects are still common today in the city of Fallujah.

Authored by Tsvetana Paraskova via OilPrice.com,

• Oil majors’ earnings for 2023 are set to drop from the 2022 record to around $150 billion.

• Although oil prices traded below $90 per barrel in the last weeks of 2022 and prices increased on an annual basis by only around 10% last year compared to 2021.

• The industry, the top performer in the S&P 500 index over the past year, has boosted dividends and share buybacks in recent quarters thanks to the massive cash flows.

The five biggest oil majors in the world are expected to report record profits for 2022 in the coming days, for around $200 billion in combined yearly earnings thanks to the jump in oil and gas prices last year. 

This year, earnings at ExxonMobil, Chevron, BP, Shell, and TotalEnergies are set to be around a quarter lower than the combined profits for 2022, but they will still be a whopping $150 billion for 2023, analysts say.  

The record quarterly earnings which the majors reported for the second and third quarters of 2022 have already drawn intense criticism from the White House, which has scrambled to have gasoline prices down from the record levels seen in June. The Biden Administration has accused Big Oil of “war profiteering” and has called on companies to invest in more supply or “face higher taxes.” In Europe, the record earnings are already subject to windfall taxes, which ExxonMobil has challenged in court. 

The five oil and gas supermajors are expected to report at the end of January and early February combined 2022 earnings of $200 billion, according to early estimates compiled by S&P Capital IQ and cited by the Financial Times. Fourth-quarter earnings will still be well above year-ago levels, although lower than the record quarterly profits for Q2 and Q3. 

The majors’ earnings for 2023 are set to drop from the 2022 record to around $150 billion, which – despite the decline – would be the second-highest profit haul for Big Oil, per projections by S&P Capital IQ.

For 2022, the U.S. supermajors alone are set to post combined yearly profits of nearly $100 billion, analysts say.

Exxon is set to report a record of as much as $56 billion in profit for 2022, while Chevron’s earnings are projected to exceed $37 billion, also a record-high, per estimates compiled by S&P Capital IQ cited by the Financial Times. 

Although oil prices traded below $90 per barrel in the last weeks of 2022 and prices increased on an annual basis by only around 10% last year compared to 2021, extreme volatility and the frequent surges above $100 per barrel helped all oil firms, including the biggest American integrated companies, generate record or near-record quarterly profits and cash flows. 

The industry, the top performer in the S&P 500 index over the past year, has boosted dividends and share buybacks in recent quarters thanks to the massive cash flows. And its earnings are set to lead the 2022 earnings growth of all 11 sectors in the S&P 500.   

The energy sector is expected to report the highest annual earnings growth of all eleven sectors at 151.7%, John Butters, Vice President and Senior Earnings Analyst at FactSet, said in a report last month. 

“The Energy sector is also expected to be the largest contributor to earnings growth for the S&P 500 for CY 2022. If this sector were excluded, the index would be expected to report a decline in earnings of -1.8% rather than growth in earnings of 5.1%,” Butters noted.  

Lower oil and gas prices in the fourth quarter will impact Q4 earnings at the majors, but refining has held up, and LNG trading at the European majors is also expected to have helped Big Oil in the October-December quarter. 

Early this month, Exxon said in an SEC filing that lower oil prices could have an up to $1.7 billion negative effect on Q4 earnings, while the drop in natural gas prices could have a negative effect of up to $2.4 billion. Those negative effects will be partly offset by a positive contribution of mark-to-market derivative gains of up to $1.5 billion. 

In Europe, Shell said that trading and optimization at its integrated gas and LNG division is expected to have been significantly higher in the fourth quarter of 2022 compared to the third quarter, despite a decline in production volumes. 

Although Q4 and 2023 earnings at the majors are expected to come off the record highs seen in the previous quarters and full-year 2022, profits this year would still be huge compared to the years before 2022. Analysts expect that Big Oil will continue to seek to reward shareholders with the surplus cash, much to the resentment of the Biden Administration. 

U.S. supermajor Chevron announced this week a $75 billion share buyback program without a fixed expiration date, which immediately drew criticism from the White House.  

White House Assistant Press Secretary Abdullah Hasan said, commenting on the news, “For a company that claimed not too long ago that it was ‘working hard’ to increase oil production, handing out $75 billion to executives and wealthy shareholders sure is an odd way to show it.”  

Authored by Lily Zhou via The Epoch Times,

“The deep state is real,” according to Dominic Cummings, former Prime Minister Boris Johnson’s ex-chief advisor.

In an interview with the “Manifold” podcast last week, Cummings said the so-called deep state, a moniker for the unelected bureaucracy, wields far more power than the elected politicians.

But in his view, it’s often “very good, sensible, intelligent,” and experienced officials trying to “stop the idiots who are being elected doing terrible things.”

“A lot of the things that were best in COVID was the deep state thwarting [then-Health Secretary] Matt Hancock, the elected politician for the benefit of the country,” Cummings declared.

COVID-19 Lockdown

Cummings spoke of how Johnson and Hancock were pressured by officials into locking down the country in March 2020, after COVID-19 was declared a global pandemic.

“There was an official plan which was herd immunity,” Cummings said, adding that the plan came from the Cabinet Office and the Department of Health and Social Care, which “kept thinking that … this was the only way of handling it.”

Prime Minister Boris Johnson and Secretary of State for Health and Social Care Matt Hancock walk from Downing Street to the Foreign and Commonwealth Office on Sept. 30, 2020. (Leon Neal/Getty Images)

By March 12, 2020, data scientists in the government’s advisory team and “various outsiders” began “shouting” for lockdowns, Cummings said.

He described how he and a small team “got Boris in a room” to “talk to him through the reality” with the help of some whiteboards, referring to a projected model by a team led by Neil Ferguson, a professor of mathematical biology at Imperial College London, that suggested up to half a million people could die from COVID-19 without restrictions.

Cummings also said that they “explained” to Johnson that Hancock was “pushing the idea that there is only this one way is single-wave herd immunity plan” because he didn’t understand the situation, and that resistance to lockdowns would soon become politically unsustainable.

He said advice at the time that said people wouldn’t tolerate restrictions for more than a few weeks “turned out to be complete nonsense.”

Johnson announced the first national lockdown on March 23.

Cummings’ comments echo an earlier revelation by Ferguson, who was dubbed “professor lockdown” for his modelling that influenced ministers’ decisions.

Ferguson told The Times of London that the government initially didn’t think Europe could impose lockdowns like the Chinese communist regime did.

“It’s a communist one party state, we said. We couldn’t get away with it in Europe, we thought,” he said, adding, “And then Italy did it. And we realised we could.”

Broken Lockdown Rules

Johnson, Hancock, Ferguson, and Cummings all got in trouble for breaking lockdown rules during the pandemic.

On May 6, 2020, Ferguson quit the government’s Scientific Advisory Group for Emergencies after he was caught meeting his mistress at home.

British Epidemiologist Neil Ferguson is seen during a press conference on May 5, 2020. (Screenshot/Reuters)

Less than three weeks later, Cummings sparked outrage after he drove 250 miles to drop his 4-year-old son at his parent’s home before he and his wife, both had COVID-19 symptoms, went into isolation. Johnson stood by Cummings, refusing to fire him at the time.

Hancock resigned as the health secretary in June 2021 after CCTV footage emerged showing the married minister kissing an aide whom he hired with taxpayers’ money despite the social distancing guidance.

Since December 2021, Johnson was mired in the so-called Partygate scandal for months as media reported on gatherings in Downing Street and Whitehall.

Johnson received a fine over one of the gatherings. The scandal ultimately contributed to the collapse of his government. An inquiry is ongoing regarding whether or not he intentionally mislead Parliament.

The Deep State

Asked “who really runs the UK,” Cummings said he was surprised that donors have “remarkably little influence” and it was the officials that made decisions.

“COVID’s a classic example of this.”

Britain’s Prime Minister Boris Johnson, Chris Whitty, Chief Medical Officer for England and Chief Scientific Adviser to the Government, Sir Patrick Vallance, arrive for a news conference on COVID-19, in London, UK, on March 3, 2020. (Frank Augstein/Pool via Reuters/File Photo)

Cummings said while the media reported disagreements among ministers over COVID-19 policies, “in fact, almost always … these ministers had absolutely nothing to do with anything important, and the decisions were taken almost entirely by officials with almost no ministerial input at all.”

He said officials, particularly private secretaries, make 99 percent of the decisions, while the prime minister and chancellor of the exchequer made few but “big” decisions.

Asked whether it’s fair to call the officials a “deep state,” Cummings said he believed it is fair in the sense that “they are a kind of deeply entrenched institutions, which actually practically controls huge amounts of what happens with zero to very little democratic insight or even knowledge and understanding.”

“That is unarguably the case,”  he said, adding that it doesn’t mean there are conspiracies going on.

Cummings believes on the one hand it’s “for the good” that “brilliant 30-year-old women who no one’s heard of and no one elected [are] actually running things” because “the quality of the elected people is so desperately bad now across Western governments.”

On the other hand, it means the institutions become “incredibly stale and self reinforcing” to the point “almost nothing can change in any way, including by the deep state itself,” he said.