Let's see, since last week diesel and gas hit new highs, US 10-year Treasury broke over 5% and mortgage rates over 7.25%, Saudi Arabia global oil shipments went to zero, diesel pumps went dry in Florida and Texas and the US President in a televised speech before the UN General assembly threatened to annihilate and "send to hell" a country with 91 million people. Pretty normal I would say considering how this year is going so far, right? According to the US Energy Secretary, Chris Wright, who spoke in an interview last night on FOX, the straight of Hormuz is completely open and 20 million barrels of oil are cruising through every day. More than before the war he says! Only, it's not. Not even close. Literally anyone with an internet connection can debunk this claim which is shocking when you consider how brazenly we are all being lied to.
Honestly, no one really needs to do much work to see the claims of abundant supply are false. If oil was no problem, why are we at record high prices with pumps running dry then? Why is our Strategic Reserve being drained to tank bottoms then? Why is Saudi Arabia cancelling shipments to Europe? The level of gaslighting is truly unbelievable. Truckers are being squeezed right now and they're seriously considering a strike on October 1st to protest the unsustainable fuel prices. Many of my own clients are logistics companies so I see their problems first-hand; not only are they struggling to earn a profit but they also can't get approved for working capital loans because lenders are nervous and won't take risk on them.
It is hard too overstate the level of disruption to our entire economy that a trucking crisis represents. Literally everything depends in one way or another on trucks in this country from Walmart and Home Depot right down to local mom and pop stores.
When I watch the disconnect between what is glaringly apparent to everyone and the bald-faced lies we're being fed every day by media, it occurs to me that this might just be happening by design. I don't engage in speculation or conspiracies but, if I wanted to destroy the US economy I wouldn't do anything differently than what is happening right now. The attack on diesel is especially concerning considering what a critical input it is for every aspect of our economy's supply daisy chain.
"America makes far more diesel than it uses, and it is already using all of it. Between domestic demand, export commitments and refineries running near their limit, the U.S. has no spare barrels to offer a world that has lost 1.6 million barrels a day of diesel exports. Until finished fuel supply recovers, the adjustment will come through higher prices, reduced economic activity, or both."
Why would anyone want this to happen? I don't know but, I do know that fuel and energy are directly correlated to prosperity with a 1:1 ratio. That is, the more fuel we consume the more prosperous we are. Anyone telling you you need to consume LESS energy is actually saying "be LESS prosperous". Most folks tend to expect that our leaders have an incentive to look out for us and will make decisions which will better our lives and help us attain prosperity and happiness. That assumption is being tested in real time right now.
"Last Saturday: The diesel pumps ran dry in Florida and Texas. The Joliet refinery remained offline. The Houthis struck Riyadh airport. The Kursk nuclear plant cooling tower burned. The PJM grid emergency covered thirteen states. The banks faced $326.7 billion in unrealized losses. The heating oil crack spread hit the highest level in history. The truckers pressed the decline button ten thousand times a day. The G7 met to discuss the Hormuz closure. Macron convened an emergency session. The Saudi exports to Europe sat at zero. The Colombian earthquake swarm passed 1,200 tremors. The Kilauea pattern broke. The war remained contained to the periphery. The narrative remained controlled. The agenda proceeded."
"Complexity is expensive. Every layer of social organization—every regulatory body, technological system, educational institution, logistical network—requires energy to maintain. When energy is abundant and cheap, societies can afford complexity. They build skyscrapers and space programs, maintain standing armies and welfare states, support artistic traditions and scientific research. When energy becomes scarce or expensive, complexity must be shed. Archaeologists call this simplification. It’s the defining characteristic of civilizational decline."
Ok, I can already hear the complaints that I'm a "Boomer-Doomer" who only points out the bad stuff. If I'm going to honest I would say "guilty as charged" to some of that. It's not that I only see bad stuff happening though; business owners and Americans in general are very resilient and creative so there's plenty of room for optimism in our world. It is important however to be realistic and make decisions using facts and not engineered narratives.
To that end, I publish this humble blog every week in the hope that some of the research I do and information I learn reaches my dear readers and helps them make informed decisions. I don't enjoy delivering bad news but I also refuse to avoid it especially when I see how actively the main stream sources of news are lying and gaslighting all of us with fake news and false narratives such as: "The straight is open!" "There is no oil shortage!" "Vote us back in and get $5000!".
Business owners have to make informed decisions. The only way to do that is for them to have verified and vetted information they can act upon and not misinformation that misleads them into making poor judgements.
Right now, lending conditions are understandably tight; lenders are nervous and they are scrutinizing small business loan requests much more than before. Some industries like trucking, construction and retail stores aren't being approved at all even when their financials are stellar. The US Treasury bonds which are the largest part of banks' balance sheets are hemorrhaging big-time as rates explode higher causing un-realized losses to mount at those banks. Commercial office building loans are experiencing record-stetting default rates above 12% which is higher than during the 2008 financial crisis or COVID. All these conditions are a perfect storm which is affecting lending in general cutting off many businesses from critical working capital at a time when they need it most.
The best advise I can offer as a commercial lender who evaluates loan requests every day is to use debt conservatively and keep some extra inventory on hand in case of supply disruptions. The rule of thumb that most business owners should follow is to have enough capital on hand to run the business for six months with no revenue and hope you never need to wait that long.
Until next week...good luck and may God bless!