Neil Oliver returns from a vacation to deliver one of his best contemplative monologues to date.  Mr. Oliver rightly says that if you reset your historic reference points, and you begin to recognize that thinking the unthinkable is actually the best reference point for your current state, it is like a key that unlocks the answers.

We are the battered spouses in an abusive relationship with government. Nothing we can do is going to appease the abuser, it is the inherent state of their disposition. WATCH:

[Transcript] – It is hard to think the unthinkable – but there comes a time when there’s nothing else for it. People raised to trust the powers that be – who have assumed, like I once did, that the State, regardless of its political flavour at any given moment, is essentially benevolent and well-meaning – will naturally try and keep that assumption of benevolence in mind when trying to make sense of what is going on around them.

People like us, you and me, raised in the understanding that we are free, that we have inalienable rights, and that the institutions of this country have our best interests at heart, will tend to tie ourselves in knots rather than contemplate the idea those authorities might actually be working against us now. I took that thought of benevolent, well-meaning authority for granted for most of my life, God help me. Not to put too fine a point on it, I was as gullible as the next chump.

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The price differential is remarkable.  In this report from NewsNation, they follow Americans who travel to Mexico for their essential purchases.  Not only is gasoline over a $1/gal cheaper, but everyday essential items are significantly lower.

Retailers in the video highlight an increase in sales of 20 to 30% from cross border shoppers. Biden’s economic plan is Making Mexico Great Again.  WATCH:

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The Bureau of Labor Statistics (BLS) has released the July inflation figures known as the Consumer Price Index (CPI) [DATA HERE]. I’m not going to spend much time on the review because the big picture results are exactly what we expected, the appearance of a false inflation plateau, drop and/or moderation of inflation.

The July energy prices dropped significantly driven by a reduction in consumer demand for gasoline and fuel oil, which lowered prices.   We can expect a very similar outcome in August (report in Sept).

Most financial and economic media are reporting an “unexpected” drop in inflation, ex:

“Prices that consumers pay for a variety of goods and services rose 8.5% in July from a year ago, a slowing pace from the previous month due largely to a drop in gasoline prices. On a monthly basis, prices were flat as energy prices broadly declined 4.6% and gasoline fell 7.7%. That offset a 1.1% monthly gain in food prices and a 0.5% increase in shelter costs. {link}

Most econ people will look at the price drop sectors and accept that consumer spending on durable goods and non-essentials has become a downward price point on key categories like vehicles etc.

This is the ‘stag’ part of the ‘stagflation’ (economy), or the new lingo; the ‘dis’ part of the ‘disinflation’ (consumer spending).

For the middle-class or working class, especially those families with young children, I would shake all those data points away, clear the table and look more closely at [BLS Table-2] to see where our eyeballs should be focused.

Look closely at all food group products that originate as “ROW CROPS” and/or “GRAIN”.   Just by looking at the current rate of price increase, you can easily see that all grain and row crop outcomes are going to explode in price in around 60 to 90 days.

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The previous first quarter productivity drop of 7.4% was the largest quarterly drop in 74 years.  Today the Bureau of Labor Statistics (BLS) reports the second quarter productivity dropped another 4.6% [Data Here].

For July, companies are paying 5.7% higher wages and getting a 4.6% drop in output, resulting in a total unit labor cost increase of 10.8%.  That increase in final output cost will either result in higher prices or lower profits.

With weak consumer purchasing (low demand) already creating an inventory surplus, hence lower outputs, lower profit leads to cutbacks.  The largest company expenses are generally labor and energy costs. The more variable and controllable of those two expenses is labor.  You know what comes next.

(WSJ) – […] Rising productivity is the key to improving living standards; it allows companies to raise wages without raising prices and fueling inflation. Instead, businesses appear to be paying workers more to produce less. The higher unit labor costs suggest companies will either endure lower profits or pass on higher costs to consumers.

“The trend in productivity growth has worsened compared to prior to the pandemic, and the surge in unit labor costs makes the Fed’s challenge of getting inflation back down to its 2% target all the more challenging,” Wells Fargo economist Sarah House said in a research note.

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Prior to the 51-50 passage of the massive $700+ billion democrat spending bill, they called it the “inflation reduction act.”  However, after Senate passage they are now calling it the climate change bill.  Funny how that happens.

The bill itself contains absolutely nothing that will lower inflation; in fact, the bill itself will raise supply-side inflation in direct proportion to the energy production it reduces. To offset the contracted revenue caused by a much smaller economy, the Democrats have doubled the IRS tax army that will enforce personal income tax compliance.

The income tax compliance portion of the bill is very significant on two fronts.  First, it literally doubles the size of the IRS, giving them much more power to conduct audits and capture taxes from income earned.  As a review of tax audits has shown, the ordinary U.S. taxpayer is the target of this increase enforcement mechanism, not corporate tax review.

WASHINGTON – […] The bill, a product of 18 months of intense wrangling, passed by a margin of 51 to 50 on Sunday with Vice-President Kamala Harris casting the deciding vote. It was previously blocked by two Democrat senators who shared Republican concerns about its cost.

The Senate bill includes $369bn for climate action, the second largest investment on Green New Deal spending in US history.  The largest bill on climate change was the previous Obama-era American Recovery and Reinvestment Act (AARA), that paid billions of dollars to solar groups (ex. now bankrupt Solyndra) and climate energy companies connected to Democrat donors.

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The great pretending continues.  During a Sunday talk show appearance, San Francisco Fed Chair Mary Daley states, “what I see is supply and demand are just unbalanced. About 50% by my own staff’s estimates of the excess inflation we see is related to demand. The other 50% to supply.”  Note, she is not talking about energy.

Margaret Brennan, maintaining her position as the professional CBS narrative engineer, never thinks to ask: (a) where is this demand you speak of, and what exactly are they demanding? and/or (b) What is this 50% inflation on the supply side connected to?  Obviously, an actual probing of inflation wasn’t in the script. The great pretending continues.  [Transcript Here]

CTH has stated without reservation that August’s inflation report will show a significant –albeit temporary– drop in inflation as measured by the govt.  The drop in gasoline prices throughout July (created by a drop in demand) will allow the fiscal and monetary policy makers to falsely claim overall inflation peaked. However, after a brief respite the inflation now growing in the ground (massive increases in farm costs), will then launch into the food supply chain.  This delayed food inflation will overtake the energy inflation in the latter part of this year.  WATCH:

[Transcript] – MARGARET BRENNAN: We turn now to the state of the economy and the president of the San Francisco Federal Reserve Bank, Mary Daly. Good morning to you.

FEDERAL RESERVE BANK OF SAN FRANCISCO PRESIDENT MARY DALY: Good morning.

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The good news is that gasoline prices have dropped in the past several weeks to an average of $4.13/gal.  However, the bad news is that most of the drop in price is related to gasoline demand dropping to the same level as July 2020 during the pandemic lockdown phase.

Obviously, $4.13/gal is still a very high price for gasoline, and that is leading to fewer people purchasing gasoline.

(Via Fox) – […] New data from the Energy Information Administration (EIA) shows that gas demand dropped from 9.25 million barrels per day to 8.54 million per day last week. That’s 1.24 million barrels per day lower than last year and “in line with demand at the end of July 2020,” when there were widespread virus-related restrictions and fewer people were hitting the road, according to AAA. 

The latest demand figures bolster a recent AAA survey that revealed 64% of drivers had changed their driving habits or lifestyle since March to offset the high prices at the pump. (read more)

If you think about the position of the Organization of Petroleum Exporting Countries (OPEC or OPEC+), it makes sense for them to recognize the intentions of the western leaders to shrink the western industrial economies and respond accordingly.

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A few days ago, we were discussing the disconnect within the economy as it relates to corporate valuations.  The Bureau of Labor Statistics report today [DATA HERE] highlights another economic disconnect, this time with labor.  According to the BLS survey 528,000 jobs were added to the economy in July, the unemployment rate drops to 3.5%.

The household data [Table A] shows the number of eligible workers unemployed dropped 242,000; however, the number of eligible workers no longer in the workforce increased by 239,000.  The total labor force is shrinking as unemployment drops.

Keep in mind the previous BLS survey of job openings (JOLTS report) showed available jobs dropped 605,000 in July.  “On the last business day of June, the number and rate of job openings decreased to 10.7 million (-605,000) and 6.6 percent, respectively. The largest decreases in job openings were in retail trade (-343,000), wholesale trade (-82,000), and in state and local government education (-62,000).” [JOLTS survey]

Going back to today’s release, 303,000 part-time jobs were added in July; these are workers working part-time for economic reasons.  The Household Data shows that within the leisure and hospitality sector [Table B-1] restaurants and bars added 74,000 jobs.

If we combine both BLS surveys two days apart is: 605,000 job openings cancelled, and 528,000 new jobs gained.

Of the 528,000 new jobs gained, 303,000 were part time jobs with the largest growth in the jobs in restaurants and bars.

Again, blending data from both reports and focusing on retail.  The retail sector cancelled 343,000 job openings in July, and the retail sector added 21,600 jobs in July.  Within the retail sector (table B-1), jobs at automotive dealers, furniture stores and clothing/apparel stores dropped by a combined 7,200 jobs.

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Whenever we are discussing the intentionally managed decline of the western countries, it is important to remember the closely connected relationship between multinational corporations and the political leaders of those nations.  Specifically, their public-private connections as they run through the World Economic Forum assembly.

An intentionally managed decline of western economic activity should have a direct impact on the private corporations within those economies.  If the politicians are collectively going to stop energy development, raise energy prices (inflation), then use monetary policy to shrink the economy down to the level of energy available, we would normally think corporations were going to make less money.

That preceding paragraph is not controversial.  It simply explains exactly what is happening; that is the situation.  However, for some weird reason the system that evaluates corporate wealth is not responding negatively to the reality of the situation.

Traditionally, we would think destroying the economy would be against the interests of the multinational corporations who benefit from economic expansion.  However, in the era of subsidized and controlled economic management, I’m not so sure the corporations are stakeholders in economic growth.  Something is profoundly disconnected, or else the corporations would be raising hell with the politicians.

BERLIN, Aug 3 (Reuters) – BMW (BMWG.DE) lowered its output forecast and warned of a highly volatile second half on Wednesday, pinpointing supplies of energy in Europe and chips worldwide as the two crucial factors to the carmaker hitting full-year earnings targets.

New incoming orders were beginning to fall but order books remained filled for the next few months, chief executive Oliver Zipse said. (read more)

All of the basic indicators point in one direction.

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A few months ago, amid all of the headline warnings about inflation and prices of essential products, CTH noted that if we were to continue waiting about six months, we would see a massive backlog of unsold goods and as a consequence the prices of non-essential durable goods would begin a rapid decline.  That exact scenario is about to unfold.

Keep in mind, this is not necessarily a collapse of total global economic activity; what we are seeing is a collapse of western nation economic activity that is impacting the rest of the world.  A great economic fracturing is taking place as the western nations intentionally shrink their economy.  The supplier nations are feeling the consequences.

Maersk is the international shipping company that delivers millions of containers of goods all around the world, mostly by ship.  They are warning that warehouses are full of previously delivered goods, unsold consumer durable goods, as retail sales have come to a standstill.

The amount of inventory in warehousing is so extreme, major wholesale and retail groups have run out of storage space (link).

COPENHAGEN, Aug 3 (Reuters) – Shipping group Maersk (MAERSKb.CO) expects global container demand to fall this year as sales of durable goods come to a “standstill”, leaving flat-screen TVs and furniture piling up in warehouses, the company said on Wednesday.

A surge in consumer demand and pandemic-related logjams holding up containers in key ports had boosted freight rates and profits in the shipping industry in recent quarters, yet the cost-of-living crisis has reversed that trend.

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