Some frightful warnings from prominent public figures this week:
Jamie Dimon, CEO of J.P. Morgan Chase, told attendees at a New York financial conference that he is preparing his company to weather what he described as an economic “hurricane” he believes is on the horizon. “You’d better brace yourself,” Dimon said. “JPMorgan is bracing ourselves and we’re going to be very conservative with our balance sheet.”
On the same day, Citi Group Inc.’s global head of commodity research, Ed Morse, said that global demand for crude oil is already starting to drop as the anticipated recession begins to take hold. Morse added his opinion that current triple digit crude oil prices would be better priced at about $70 due to the demand destruction that he believes is setting in.
Not surprisingly, traders reacted quickly to these statements from the two respected figures. After rising to just short of $118 in an early Wednesday rally, West Texas Intermediate was selling for $112 in Thursday morning trading.
This week’s statements from government figures aren’t really inspiring much confidence in the economic situation, either. Treasury Secretary Janet Yellen told reporters Tuesday that she “…was wrong [a year ago] about the path that inflation would take.” Well, yes, she was.
“There have been unanticipated and large shocks to the economy that have boosted energy and food prices,” she continued, “and supply bottlenecks that have affected our economy badly that I didn’t at the time fully understand.” Yes, and there was also the $1.9 trillion un-funded COVID relief bill the President signed as one of his early acts in office that prominent economists like Larry Summers believe played a large role in creating the current inflationary problem. Secretary Yellen left that part out of her remarks. I suppose we should be grateful the Secretary didn’t resort to using the administration’s silly “Putin’s Price Hike” talking point.
As the Trafalgar Group found in its May poll, the increasingly tiresome excuse making by the administration is not playing well with the public. Fully 59% of likely voters polled in that survey place the most blame for the problem of inflation on the President and his policies. Whether that belief among the public is factually accurate or not does not matter in a political sense. What matters is that the belief exists.
The high price for crude oil and the resulting high prices for gasoline and diesel have without question played a significant role in exacerbating the inflationary pressures seen during this administration. In writing about those high prices this year, I have noted several times that the global crude market was chronically under-supplied due to years of under-investment in the finding and development of new reserves, and that the only sure cure to that price picture would be an economic recession.
If Dimon and Morse are correct, that “cure” is now on the horizon. Their warnings received some data-based support Thursday morning with the release of the monthly ADP jobs report. That report indicates that U.S. private sector job creation in May was the lowest in almost two years, coming in at 124,000 vs. an anticipated 300,000 new jobs.
For President Joe Biden and his advisors, the problem of high gasoline prices has been a plague to their party’s electoral prospects since last fall. A long piece published by Politico on Tuesday says that “[s]enior officials and others close to President Joe Biden view [gasoline] prices as the cost that most directly affects voters’ everyday lives, and therefore their perception of the economy as well. As such, Biden and his top advisers fixate on them with an intensity that some aides describe as obsessive.” One unnamed source cited in the story claims that Chief of Staff Ron Klain has complained regularly about the fact that gas stations advertise their prices on large billboard-type signs on roadsides all across the country.
“Could they advertise anything else?” the source says Klain rhetorically asked one recent visitor. Well, no, they really can’t. They are gasoline stations, after all.
For Mr. Biden and his advisors, the prospect of somewhat lower oil, gasoline and diesel prices coming soon would seem to be a positive one politically, at least when considered in a vacuum. But taken as they must be in the context of a potentially severe economic recession – the “hurricane” envisioned by Mr. Dimon – Biden would be faced with a ‘cure’ that is even more politically damaging than the problem itself.
