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By Vishwanath Tirupattur, global head of Quantitative Research at Morgan Stanley

For some time, our economists have been highlighting that recession risks are rising globally. In their mid-year outlook, they lowered their 2022 global growth forecast sharply to 2.9%Y, less than half the 6.2%Y level a year ago. Since then, deceleration has continued. The combination of updated forecasts for a recession in the euro area, weaker incoming data, and revisions to 1Q GDP has led our US economists to shift down their 2022 US GDP forecast to 0.9% 4Q/4Q, and they have suggested that the risk of a US recession by the end of this year is high. A hallmark of the last three US recessions has been a spike in corporate credit default rates. We would argue that the credit default experience in a potential US recession may be more moderate this time around. However, despite the significant repricing in June, valuation adjustment is still incomplete.

At the onset of the current hiking cycle, credit fundamentals were on a much healthier footing than in other cycles. Despite some deterioration at the margin in the last quarter, fundamentals remain reasonable and in line with pre-Covid levels – low net leverage, high interest coverage, and still-healthy cash on balance sheet. The ratings mix of the high yield bond market has improved. Currently, over half of the benchmark HY bond index is BB rated, versus 43% in 2018-19 and 40% in the aftermath of the GFC. Furthermore, refinancing needs are low. During 2022-24, only about 10% of the US$3 trillion in leveraged finance debt (high yield bonds and leveraged loans combined) is due to mature.

We expect higher risk premiums in credit but do not anticipate a spike in corporate defaults over the next 12 months. Our credit strategists, led by Srikanth Sankaran, forecast HY default rates to track 2-2.5% on the Moody's count-weighted measure through 2Q23 – double the current levels but well inside prior recession peaks. While this would be a notable departure from the experience of the last three recessions, it is not without precedent. In the 1970s and 1980s, we had recessions but without a spike in corporate default rates. No doubt stresses could increase over the medium term, but the more imminent concern is downgrades.

Leveraged loans are the segment of the credit markets most vulnerable to higher rates, given their floating-rate nature. Over the course of past few years, we have seen the loan market drift towards the lower-quality segments (B3/B- ratings). Moody’s estimates that if rates were to increase by 300bp, absent meaningful earnings growth, as many as half of the B3 rated companies would see their interest coverage fall below 1.0x – a level more typical of a Caa rating than B3. Not surprisingly, the downgrade potential is much greater for companies that depend on leveraged loans (floating-rate liabilities) rather than the fixed-rate high yield bonds for funding. Thus we expect downgrades, particularly in the loan market, to be a bigger and more immediate concern for credit markets over the next 12 months rather than spiking defaults.

Until about a month ago, we could argue that credit markets in general, and leveraged credit in particular, were underpricing recession risks. After the sell-off in June, US HY spreads are ~150bp wider, loan prices are down 2.5 points, CCC spreads have breached 1,000bp, and stressed tails have doubled. Clearly, growth risks are starting to be priced, but we think that the credit markets need to calibrate the risk of a recession more fully. For context, IG and HY spreads are at 155bp and 569bp, respectively, while garden-variety recessions/growth scares tend to see spreads go north of 200bp and 750bp, respectively. Thus, more repricing is needed since spreads are still shy of historical levels heading into a recession, especially in the lower-quality segments of the market. Unlike some previous credit cycles (such as the energy sector downturn in 2015-16), we don’t have a 'problem sector' per se. As such, identifying defensive sectors and flagging sectors to stay away from is more complicated this time around. Companies with a heavy reliance on low-end consumer demand, elevated wage intensity, and commodity/logistics input costs remain vulnerable in this regard.

As the market recalibrates growth and liquidity risks, we expect decompression and dispersion themes to re-emerge. We would fade any rally in credit markets and recommend investors move up in quality/improve the liquidity profile of their portfolios.

Enjoy your Sunday.

 

The pandemic housing boom hit a peak and should start rolling over as rising inventory forces some home sellers to slash prices. The weight of soaring mortgage rates and increasing inventory are the possible markings of a top that has already led some sellers in major US cities to cut listing prices. 

"The housing market is absolutely in need of a reset," George Ratiu, senior economist at Realtor.com, told Bloomberg. 

Realtor.com's data showed almost a third of listings in June had price cuts in Austin, Phoenix, and Las Vegas metro areas. Price cuts are a growing national trend as higher rates triggered an affordability crisis, removing millions of new prospective home buyers. 

Bloomberg spoke with Naples, Florida, real estate agent Jennifer DeFrancesco who advised her clients to drop listing prices as she believes the flood of demand from the Northeast has eased. 

Carolyn Young, a broker associate with Christie's International Real Estate Sereno in the San Francisco Bay Area, said demand for homes in a 55-and-over community in Brentwood had seen dramatic declines since many retirees were battered by awful performance in their stock and bond portfolios in the first half. She advised clients at Trilogy at the Vineyards to lower their listings by $50,000 to $100,000 because of faltering demand. 

"For sellers, it's devastating, especially if they bought something else earlier and paid too much for that," Young said.

Price cutting comes as a flood of inventory enters a very tight market. Another Realtor.com report this week showed the number of active US listings soared 18.7% in June from a year earlier.

Danielle Hale, the chief economist for Realtor.com, said, "We anticipated that more inventory will eventually cool the feverish pace of competition." The rise in inventory was more profound in Austin, Texas; Phoenix, Arizona; and Raleigh, North Carolina, which saw active listings more than double from a year ago. In Nashville, Tennessee, active listings jumped 86%, and 72% in Riverside, California. 

Mortgage applications and pending home sales are down, which suggests the jump in the 30-year fixed-loan mortgage rate from 3% to over 6% this year (back in March, we warned coming rate explosion would trigger a housing affordability crisis) is quickly cooling the market. Next, we should first see price declines in areas that were red hot during the early days of the pandemic.

It's only a matter of time before the Case-Shiller (newly minted S&P CoreLogic CS) home price index data turns. 

Within an hour of the US Supreme Court striking down a law which required New York residents to show "proper cause" to obtain a concealed carry license, Governor Kathy Hochul (D) promised legislation to counter the ruling.

To that end, Hochul on Friday signed sweeping gun legislation into law that adds several layers of red tape for those who wish to obtain a gun in the state - including a new rule requiring anyone applying for a concealed carry permit to submit a three-year history of their current and inactive social media accounts. The new law will take effect on September 1, 2022.

Applicants for concealed carry permits must also undergo 16 hours of firearm training, provide four character references, and list the contact information for domestic partners or adults who reside in the same house.

More via the Post Millennial:

Potential applicants will also be required to show "good moral character," meaning "the essential character, temperament and judgment necessary to be entrusted with a weapon and to use it only in a manner that does not endanger oneself and others."

At a press conference regarding the new legislation, Hochul said "we are creating a definitive list of sensitive locations where individuals will not be able to carry firearms."

I just signed a new law to keep New Yorkers safe – even in the face of a monumental setback from the Supreme Court.

Thanks to @AndreaSCousins, @CarlHeastie, and our legislative partners for your quick work and collaboration to pass these critical gun safety reforms. pic.twitter.com/AIujZJz0TP

— Governor Kathy Hochul (@GovKathyHochul) July 2, 2022

This list includes "schools, summer camps, libraries, daycares, parks and playgrounds, places children gather, theaters, museums, entertainment venues, places of worship for religious observation, polling places, educational institutions, and health medical facilities. Federal State Local government buildings, homeless and domestic violence shelters, places where alcohol is consumed, restaurants, bars, public transportation, subway buses, airports and at public demonstrations and rallies, and in Times Square."

Another new rule is a "Default of No Concealed Carry on Private Property and Businesses Unless Deemed Permissible by Property Owners." Hochul said of this law, "We are making 'no open carry' the default position for private businesses. That means that any business, grocery store, retail, private home, place that wants to allow guns on their premises will have to demonstrate that and establish that they put a sign out there that says concealed carry guns are welcome here."

*  *  *

One day after the June 23 ruling in New York State Rifle and Pistol Association v. Bruen, both Hochul and NYC Mayor Eric Adams vowed to enact legislation that would work around the USSC ruling.

"Our state will continue to keep New Yorkers safe from harm even despite this setback from the Supreme Court," Hochul said on Friday.

In reaction, the state GOP said "the legislation not only violated the Second Amendment, but also privacy and free speech rights," according to the Associated Press. The lawmakers were reportedly "incensed" and predicted that the new rules would be struck down.

As Jonathan Turley further notes;

One of the most questionable elements is the requirement that gun owners show “good moral character.” That obviously raises comparisons to the invalid Sullivan Act of 1911, giving local officials discretion over who can carry concealed guns based on a showing of “proper cause.”  The Court rejected the notion that citizens must prove their need to use an individual right as opposed to the government shouldering the countervailing burden:

“We know of no other constitutional right that an individual may exercise only after demonstrating to government officers some special need. That is not how the First Amendment works when it comes to unpopular speech or the free exercise of religion. It is not how the Sixth Amendment works when it comes to a defendant’s right to confront the witnesses against him. And it is not how the Second Amendment works when it comes to public carry for self-defense.

New York’s proper-cause requirement violates the Fourteenth Amendment in that it prevents law-abiding citizens with ordinary self-defense needs from exercising their right to keep and bear arms.”

Under the New York law, applicants must undergo “enhanced screening” with in-person interviews and submit to reviews of their social media, including required access to social media. That provision seems ripe for challenge on a host of grounds, including the denial of free speech and associations rights.

The law seems another overreach by the state. As I noted earlier, New York has thus far been about as effective in curtailing gun rights as Monty Python’s “Judean People’s Front Crack Suicide Squad” was effective in combating Roman occupation.

After all, who needs Texas when gun rights advocates have New York?

As discussed previously, one of the most notable events of the past week was the decision by G7 leaders "to work" on a price cap for Russian oil as part of efforts to cut Moscow’s revenues.

However, it didn't take long for the same G7 motley crew to realize that they have a major problem on their hands: as JPM's commodity desk notes, given Russia’s strong fiscal position, the country can cut up to 5 mbd of production without excessively hurting its economic interest. Meanwhile, a 5mbd cut would spark a Europe-wide depression, confirming that once again Europe had not even done the simple math.

What about prices? According to JPM, given the high levels of stress in the oil market, a cut of 3.0 mbd could cause global Brent price to jump to $190/bbl, while the most extreme scenario of a 5 mbd slash in production could drive oil price to a stratospheric $380/bbl.

Let's back up: as we noted last week, the stated goal set out by G7 leaders this week is two-pronged:

1. to limit upward pressure on global oil prices
2. to curb Russia’s revenues from oil sales.

To achieve those goals, the allies agreed to explore a new mechanism that aims to impose a ceiling on Russian oil prices. The idea behind this price cap is to permit countries that have not imposed import bans to buy Russian oil as long as it is priced at or below a predetermined price. The cap could be enforced via limits on availability of European insurance for Russian oil cargoes as well as shipping services and US finance. While G7 leaders have not indicated where the price cap would be set, it must be lower than the $80/bbl at which Russia’s Urals grade trades today (a $32/bbl discount to Brent) and higher than Russia’s marginal cost of maintaining production levels, estimated at around $40/bbl to ensure Russia’s earnings are reduced while production is maintained.

A $50-60 per barrel price cap would likely serve the G7 goals of reducing oil revenues for Russia while assuring barrels continue to flow. Of course, for the price cap to work, oil importers like India China and Turkey—which have significantly increased their purchases of heavily- discounted Russian grades—would need to agree to participate to access even cheaper oil.

That's the background. Here are the 3 scenarios as to what happens next. They are, as one would expect from any plan conceived by hapless politicians, bad, worse and much worse.

Scenario 1: Russia does not cooperate and retaliates — a 3 mbd cut would likely deliver a $190/bbl oil price

The most obvious and likely risk with a price cap is that Russia would not to participate (which, of course, it won't as why would Putin agree to produce oil at a lower price than clearing) and instead retaliates by reducing exports. In fact, as JPM head commodity strategist Natasha Kaneva notes, Russia had already showed its willingness to withhold supplies of natural gas to EU countries that refused to meet payment demands. Indeed, emboldened by a surging current account surplus, after entirely cutting off the flow of piped gas to the Netherlands, Bulgaria, Finland and Denmark, since the start of June Gazprom has reduced the flow of gas to Italy by 50% and to Germany by 60%—though claiming the latter reductions in June were due to maintenance-related issues.

As a result, the EU as a whole is now receiving 53% less gas from Russia than it averaged before the start of the war. Withholding gas volumes from Europe comes at a personal cost to Russia—as a measure to manage the reduced export-related flows, Russia has had to allow for natural production declines. According to Gazprom, the company will reduce its production by 17 Bcm this year, or 3% of 2021 production. That said, history suggests that there is far more capability for production reductions in Russia. For example, in 2019 Gazprom production was ~500 Bcm, while in 2020 Gazprom production fell to ~453 Bcm. So far in 2022, Gazprom production has been down 20 Bcm yoy, suggesting further declines are likely relative to Gazprom’s current forecast.

Unlike gas, which accounts for about one-fifth of Russia’s budget revenues, oil makes up over half. Russia’s policymakers will likely address the challenge of the oil price cap from the position of strength, and as JPM concedes, "Russia’s starting fiscal position is strong." Besides, the global oil market has tightened, while the strong balance of payments opens room to accommodate lower export volumes without inflicting too much financing pain. Which brings up the key question: How much oil production can Russia realistically cut without hurting its economic interest?

In answering this question, JPM notes that Russia's fiscal position strong: low deficit, low debt.

Russia’s sovereign balance sheet remains strong even as half of CBR’s reserves were frozen. Last year, Russia’s federal budget recorded a modest surplus of 0.4% of GDP or $7bn, while this year, as things stand, is tracking a modest deficit of less than 1% of GDP. Financing needs are equally low. The National Wellbeing Fund—effectively, a government deposit at the CBR—reached an equivalent of $198bn by May 2022, with $116bn in usable funds. Treasury cash balances exceed ~$85bn. Gross sovereign debt stood at 15.9% of GDP (~$279bn) as of end-2021.

Federal budget revenues, originally budgeted at RUB25tn ($347bn), are tracking about RUB26tn this year ($394bn) as higher oil & gas revenues more than offset the shortfall in non-energy fiscal revenues. If fiscal rule was still operational, Russia would  accumulate around $80bn into the sovereign fund this year. Yet, as following the old fiscal rule has become challenging, the authorities decided to use additional oil & gas revenues to increase spending and reduce issuance instead. A new fiscal rule is being debated in the government.

So let's assume the G7 plan is effectuated and a hypothetical $50/bbl price cap on Russian oil was imposed and effective, Russia could lose about $75bn per year in export revenues and about $42bn in budget revenues compared to JPM's base case of an average annual price of around $80/bbl. The impact on budget balance would be smaller, as exchange rate would offset part of the impact.

JPM concludes that the Kremlin would not face big problem financing a deficit of ~$40bn given the large stock of savings and low initial level of debt. The local financial system should be able to absorb additional issuance, especially given the scarcity of available instruments for savings outside of Russia. For example, in 2020, the government raised an equivalent of 4.8% of GDP ($71bn) from the local market.

However, as JPM's commodity team also notes, the Russian government will likely retaliate by cutting output as a way to inflict pain on the West, especially since the tightness of the global oil market is on Russia’s side, the continued appreciation pressure on the exchange rate would ease, and the strong public finances could absorb the revenue losses without too much difficulty.

As a hypothetical scenario, a cut of 3 mbd from JPM's base case of 9.7mbd output assumed for this year could open up a deficit of $50bn at a $50/bbl price, which could be relatively easily funded by issuing local bonds without stressing the oil fund. Importantly, the imbalance in Russia’s external accounts, which generates excessive inflows of hard currency to the local market, might, ironically, even be considered as a relief.

Then there is the question of too much USDs and EURs to stomach. Russia’s key macro-economic challenge following the imposition of sanctions has been the unsustainable dynamics of the balance of payments, which has resulted in significant appreciation of the exchange rate. Main sanctions-induced developments were the following:

• First, sanctions against the central bank made it close-to-impossible for the CBR to accumulate reserves. Last year, the CBR accumulated $64bn in reserves, while this year, if the fiscal rule was still operational and domestic crude price averaged ~ $80/bbl (at a big discount to Brent), the CBR would have had to purchase more than $75bn. Today, the CBR is only able to buy gold from local producers (small scale). Policymakers study the feasibility of buying assets of friendly EM countries, but infrastructure constraints, closed capital accounts, and lack of depth of EM markets will likely make the rollout of EM-buying slow and lacking scale in the near term.
• Second, sanctions and, more importantly, risks of further financial sanctions (asset freezes) have made residents reluctant to accumulate foreign assets in ‘unfriendly’ countries. In the past, accumulation of foreign assets was traditionally the main channel of private capital outflows, averaging ~$80bn in the past 10 years. This has largely dried up now.
• Third, trade and logistical restrictions have dramatically affected imports, which, judging by indirect data, halved. Given the strong oil revenues, Russia's 2022 current account surplus to reach ~$170bn this year ($68bn in 1Q22).

The higher current account surplus and the lack of private and public sector capital outflows has meant that the RUB has been the main adjustment valve. This has made Russia’s non-energy exports expensive and uncompetitive. Policymakers have focused their efforts on reviving imports, by stimulating domestic demand and addressing logistical challenges and the CBR has cut policy rate aggressively, while fiscal authorities are contemplating a stimulus of 2-3% of GDP. Obviously, given the nature of sanctions / trade restrictions, reviving imports, especially of investment-related goods, will be hard.

In addition, most of capital controls that were introduced at the height of the crisis have been removed. Also, a couple of quasi-sovereign institutions have had to accumulate foreign assets in recent months, but this is not seen as sustainable or desirable due to sanctions risk. As Russian officials often put it, USDs and EURs have become “toxic”.

Although authorities’ preference would be to increase imports and recycle petrorubles in friendly EMs, this does not look an easy task, especially in the near term. Hence, if the geopolitical situation requires, it now appears more likely that export cuts could be used as leverage / policy tool.

Putting it all together, JPM concludes that "given the high level of stress in the oil market, a cut of 3.0 mbd could cause global Brent price to jump to $190/bbl, while the worst-case scenario, a 5 mbd cut, could drive oil price to a stratospheric $380/bbl."

* * *

Russia would be able to cut 3 mbd of production, if done temporarily

If Russia decides to make significant cuts to its output, JPM warns that there do not appear to be significant limitations to doing so if done temporarily. In general, halting oil production carries serious risks, depending on how long oil production reductions are needed. Prolonged cutbacks in specific Russian regions could potentially lead to some permanent shut-ins due to operational challenges across an industry with little storage capacity and natural geological constraints in a large number of maturing fields. Currently, Russia has more than 200 thousand active wells that are capital and labor intensive to operate, especially the country’s older wells, which have meager flow rates and poor economics. For some wells, the longer a reservoir remains idled, the higher the chance pressure, water content, and clogging could affect future production. For example, West Siberia—an oil producing region in central Russia that contributes more than half of Russia’s total crude output—is facing permafrost melting and rising associated water levels. A prolonged, large-scale shut-in would mean closing tens of thousands of marginal wells, many of which could never return to profit. For example, following the collapse of the Soviet Union, Russian crude oil production reached a record low of about 6.0 mbd in 1996, down from a record high of 11.4 mbd in 1987. Only after more than two decades of strong capital investment, equating to hundreds of billions of dollars, was Russia able to restore its crude oil production capacity.

The nearly 2.0 mbd decline in Russia crude oil production in May 2020—or around a fifth of its total output—was the first time since early 1990s that Russia experienced a double-digit collapse in the oil ouput. But despite the unprecedented magnitude and speed of the 2020 cuts— Russia shut in 1.94 mbd of oil production in just one month between April and May 2020—fears that future Russian oil production would be compromised didn’t materialize. As OPEC+ tapered its cuts over the following year and a half, there does not seem to be any indication that Russian oil fields had issues restoring output. Because the Russia-Ukraine war and the resulting sanctions on Russian oil supplies started before Russia had fully restored output—in March 2022, fields where Russia shut in production during 2020 were still producing about 350 kbd less than they were in January 2020—one cannot be certain that those fields would have returned to full output without issue, but the recovery in those fields leading up to April 2022 appears to have been relatively stable with few exceptions. Since there do not seem to have been significant issues in this circumstance, with oil fields at least partially shut in for nearly two years, JPM does not think that, if Russia decided to once again cut output, their ability to restore production would be a significant barrier to doing so, especially if those cuts were only expected to last a few months. Rotating shut-ins between fields or among wells within fields can also help limit the risk of reservoir issues. Simply throttling wells instead of shutting them entirely can also mitigate some of those risks.

Additionally, Russia has tools outside its domestic production to interfere in the global oil supply. About 80% (~1 mbd) of Kazakhstan’s crude exports are shipped from the Caspian Pipeline Consortium terminal in the Black Sea port of Novorossiysk, controlled by Russia. Most of this crude goes to the EU. In Libya, political unrest continues to escalate, and fighting is at levels not seen since 2020, when General Khalifa Haftar, supported by the Russia-linked Wagner Group led his forces to take Tripoli. Libya’s oil production is now likely below 400 kbd after Libya’s National Oil Corp. announced on Thursday that it has declared force majeure on two of its three largest oil export terminals this week, while two other major oil export ports have not shipped any oil in months.

2.  Scenario 2: China and India don’t cooperate—the end of the European insurance dominance

History shows that oil sanctions are notoriously leaky, and sanctioned oil supplies almost always find a buyer at the right price, and China and India might not cooperate with the goals of Western governments. The state-run Shipping Corporation of India has in the past carried Iranian oil for state-run Indian refiners when the West first sanctioned Iran in 2012. The Indian government has previously approved coverage from state-run insurers, setting a precedent that it could do so again in the future, should the need arise. Similarly, China’s COSCO vessels have in the past transported Iranian oil in 2013 with Iran commenting that insurance was handled by the “Chinese side.” Similarly, Japan had also guaranteed up to $1 billion of insurance claims for Iranian shipments made in 2012.

Russia and some buyers have already found alternatives to European insurance markets, effectively circumventing European cargo insurance bans. While Russia initially struggled to find a replacement for Western consumers of its oil products and has had to shut in refining capacity, Russian crude oil has not only found new buyers, but waterborne flows of Russian crude are actually higher than they were before the Ukraine crisis. Not only are Russian crude oil deliveries resilient, but there are signs that shipments of bottom-of-barrel oil products like fuel oil are beginning to recover as well (Exhibits 6 & 7). The reality is that with almost 1/5 of global oil production capacity today under some form of sanctions (Iran, Venezuela, Russia), there is no practical way to keep these barrels out of a market that is already exceptionally tight.

The state-controlled Russian National Reinsurance Company (RNRC) is now acting as the main reinsurer of Russian ships, including Sovcomflot’s fleet. In mid-June, Sovcomflot disclosed that it has insured all its cargo ships with Russian insurers and the cover meets international rules, likely enough to keep Russian vessels sailing around the world. To guarantee RNRC has adequate resources to provide reinsurance, Russia’s central bank in March raised RNRC’s capitalization to 300 bn rubles ($5 bn) and hiked its guaranteed capital to 750 billion rubles.

India is also providing safety certification for ships operated by Sovcomflot, enabling oil exports to India and elsewhere. Certification by the Indian Register of Shipping (IRClass)—one of the world’s top classification companies—is the final link after the insurance coverage for gaining access to ports. Chinese insurers are also apparently looking to take on business that was previously covered by their Western counterparts, but they would likely require a sovereign guarantee, which China would provide.

Scenario 3: Russia fully re-routes exports from west to east but loses pricing power, prices stabilize in low-$100s

Left to their own devices, JPMorgan strategist write that energy markets tend to work very efficiently and effectively, and the market adjustment mechanism has kicked in. Record oil product prices and rapidly tightening central banks are cooling consumption so that supply can catch up. In the US, a lackluster driving season so far pushed gasoline demand further below pre-pandemic norm, contributing to an unseasonal build in national stockpiles. As the EU gradually but unequivocally transitions away from Russian energy sources, Russia will continue to re-route its discounted oil flows toward other buyers and global ex-OPEC+ supply growth would have time to grow sufficiently to fill at least some of the Russia-sized hole in global oil supply. US production growth will likely be very strong (especially once the Democrats lose the midterm elections), adding more than 0.7 mbd through the end of 2022, though that growth is expected to halt in 1H 2023 as natural gas infrastructure constraints in the Permian Basin place a temporary cap on oil output. These conditions should be sufficient to stabilize global oil prices in low-$100s in 2H22 and high-$90s in 2023. Because JPM expects global refinery margins to normalize in 2023 and for refined products prices to fall from current levels, a sustained $100/bbl crude oil price, though still substantially higher than it has been since 2014, should be low enough allow demand to continue to grow. This process of normalization is already under way and is especially visible in other commodities like metals, where there is less policy intervention.

Consequently, Russian revenues from crude oil exports have declined.

Authored by Rick Moran via PJMedia.com,

Do we need to give prospective presidents an economic literacy test?

There’s little doubt that, judging by this tweet, Joe Biden would get an “F.”

My message to the companies running gas stations and setting prices at the pump is simple: this is a time of war and global peril.

Bring down the price you are charging at the pump to reflect the cost you’re paying for the product. And do it now.

— President Biden (@POTUS) July 2, 2022

Wow. Jeff Bezos accused the U.S. president of either deliberately misleading the public or lacking a “basic” understanding of the forces that actually drive prices.

Ouch. Inflation is far too important a problem for the White House to keep making statements like this. It’s either straight ahead misdirection or a deep misunderstanding of basic market dynamics. https://t.co/XgKfEICZpk

— Jeff Bezos (@JeffBezos) July 3, 2022

Biden apparently doesn’t know that gas station owners are mostly independent small businesses whose razor-thin profit margins make it impossible to willy-nilly lower prices at the pump just because the president orders them to.

Shut up and sit down you weasel handler!

We are NOT in a war and ma & pa gas station owners ARE making their prices to reflect what they’re paying for it. https://t.co/3AbgQX24Ek

— Kristi (@Kristi_Weaver4) July 2, 2022

“You know as well as everyone that the Federal Reserve actually sets the prices—through rampant inflation,” wrote the Libertarian Party’s account.

“When 40 percent of the dollars in the world was printed in one year, inflation sets in and prices skyrocket. Just yesterday you were blaming [Russia]. We see through your scam.”

You know as well as everyone that the Federal Reserve actually sets the prices - through rampant inflation. When 40% of the dollars in the world was printed in one year, inflation sets in and prices skyrocket.

Just yesterday you were blaming Putin.

We see through your scam.

— Libertarian Party (@LPNational) July 2, 2022

Added California gubernatorial candidate Michael Shellenberger,

“At a time of war, Biden could have leveled with the American people and united the country through an ‘all-of-the-above’ clean energy strategy that included oil & gas. Instead, he has repeatedly lied about the causes of the energy crisis and divided the country.”

At a time of war, Biden could have leveled with the American people and united the country through an "all-of-the-above" clean energy strategy that included oil & gas.

Instead, he has repeatedly lied about the causes of the energy crisis and divided the country.

— Michael Shellenberger (@ShellenbergerMD) July 3, 2022

At least the Chinese agree with Biden.

They mocked the American president for proving their point about “capitalist exploitation.” New York Post:

In response to Biden’s demand that oil companies lower their prices, the president was trolled by Chinese state media.

“Now US President finally realized that capitalism is all about exploitation. He didn’t believe this before,” wrote Chen Weihua, EU Bureau Chief and columnist for China Daily, an English language media outlet owned by the Chinese Communist Party.

Biden’s unseemly begging comes on the heels of a White House advisor’s warning that we must suffer these high prices for fuel because “This is about the future of the liberal world order, and we have to stand firm.”

Biden himself suggested Americans are just going to have to grit their teeth and get used to it. At a press conference in Madrid, he made it clear that the high prices would be with us as long as Ukraine could convince the United States to stand with them

Q : The war [in Ukraine] has pushed [oil] prices up.  They could go as high as $200 a barrel, some analysts think.  How long is it fair to expect American drivers and drivers around the world to pay that premium for this war?

THE PRESIDENT:  As long as it takes, so Russia cannot, in fact, defeat Ukraine and move beyond Ukraine.  This is a critical, critical position for the world.  Here we are.  Why do we have NATO?

“So Russia cannot, in fact, defeat Ukraine and move beyond Ukraine,” is very cold war-ish, don’t you think? It was the rationale used by the right in every American intervention during the Cold War. The left mocked any notion of Russian expansionism at the time as childish and an excuse for imperialism.

What say ye now, Joe Biden?

Supplies wouldn’t be short and prices wouldn’t be as high if Biden had continued the policies of Donald Trump that made America virtually energy independent.

Biden is going to Saudi Arabia later this month, hat in hand, to beg the Kingdom to open the spigot and pump more oil. What’s worse is that Biden refuses to take any responsibility for gas prices spiking. He has blamed everyone else for his failures. This latest idiocy demonstrates a shocking ignorance of basic economics and a childish political effort to evade blame.

*  *  *

Support PJ Media's conservative reporting on Joe Biden's radical, leftist, "America Last" agenda. Join PI Media VIP to support our conservative journalism and use the promo code AMERICAFIRST to get 25% off VIP membership!

Update (1322ET): DW News and Sky News both report one person has been arrested at the Field's shopping mall in the capital of Copenhagen after a shooting inside the mall left several injured. 

BREAKING NEWS: One person has been arrested following a shooting at the Field's shopping centre in Copenhagen, according to Danish police.

Latest: https://t.co/9JDAxwGY0L

?? Sky 501, Virgin 602, Freeview 233 and YouTube pic.twitter.com/17PaUVCQZe

— Sky News (@SkyNews) July 3, 2022

* * * 

Copenhagen Police said gunshots were reported at the Fields shopping center in the capital of Copenhagen on Sunday evening. 

"We are still present, shots have been fired and several people have been hit. We work on-site. People in the Fields must stay and await the police," Copenhagen Police tweeted.

Sky News now reporting the incident. 

BREAKING NEWS: Police in Denmark say several people have been hit by gunshots at a shopping mall in Copenhagen.

Latest: https://t.co/rxs04p0YTo

?? Sky 501, Virgin 602, Freeview 233 and YouTube pic.twitter.com/mDJcvVKbIj

— Sky News (@SkyNews) July 3, 2022

Here's an alleged video from within the shopping mall at the time of the incident. 

#BREAKING Possible terror attack in #Copenhagen, #Denmark. Man on a shooting rampage inside 'Fields' shopping mall. Several people shot according to Danish police.
The 25th of June - #Oslo experienced a islamistic terror attack, connected? https://t.co/CeWUpzumkC pic.twitter.com/17liSKP6a9

— ?????????????? ???????????????? (@MArizanti) July 3, 2022

People were seen fleeing the mall. 

#Breaking: Just in - Reports of a multiple gunshot event in #Copenhagen in #Denmark at a shopping center. pic.twitter.com/evBqci5Rio

— Sotiri Dimpinoudis (@sotiridi) July 3, 2022

Danish radio said heavily armed police have arrived on the scene as well as ambulances. 

#Breaking: Just in - The Copenhagen police is treating this shooting inside the shopping center as a "serious mass victim event" and dozens of first emergency responders are parked outside the shopping center. #Copenhagen #Denmark pic.twitter.com/379xQgxLCq

— Sotiri Dimpinoudis (@sotiridi) July 3, 2022

#Update: Just in - Police forces are evacuating and clearing the building of the fields shopping center in #Copenhagen in #Denmark, after a suspect shot multiple rounds inside the shopping center. pic.twitter.com/hhv7ZAecwH

— Sotiri Dimpinoudis (@sotiridi) July 3, 2022

There are no official reports of how many people may have been killed or wounded.

*Developing 

Via OilPrice.com,

• The IEA is calling for the world to boost nuclear capacity.

• The agency says global nuclear capacity needs to double over the next three decades to reach net-zero goals.

• An IEA official also noted that the energy crisis has presented a unique opportunity for a nuclear revival.

Nuclear power capacity needs to double worldwide over the next three decades to reach net-zero carbon emissions targets to ensure energy independence, argued the International Energy Agency (IEA).

The Paris-based group’s executive director Fatih Birol outlined that nuclear has a unique opportunity for a revival in the context of the global energy crisis, skyrocketing fossil fuel prices, energy security challenges, and climate commitments.

However, he suggested this was not guaranteed, and instead depended on government policy geared toward greater expansion.

Birol said: “It will depend on governments putting in place robust policies to ensure safe and sustainable operation of nuclear plants for years to come.”

In the group’s latest report, Nuclear Power and Secure Energy Transitions, the IEA revealed nuclear power has to be significantly ramped up to meet the twin aims of supply security and net zero carbon emissions.

It has warned that to reach net-zero emissions, nuclear power capacity has to increase to 812 gigawatts (GW) by 2050 from its current 413 GW total.

While advanced economies operate nearly 70 percent of global nuclear capacity, the IEA noted nuclear fleets across the West were aging, amid stalled investment and over-budget projects.

The IEA calculates that around 260 GW, or 63 percent, of nuclear plants in the world, are currently over 30 years old and nearing the end of their initial operation licenses.

In the 2030s, annual additions of nuclear power capacity needed to reach 27 GW just to offset closed-down power plants – which could shrink by a third over the coming decade in developed economies.

For context, the UK’s ‘big new’ bet on nuclear, which represents a historic boost in nuclear power generation, is an increase from 7GW to 24GW over the next three decades.

Hinkley Point C is expected to open within the next five years, with the Government looking to secure public funding for Sizewell C – as it targets the greenlighting of eight new reactors by 2030.

The US is funding technology to allow Russian citizens to get past Russian government censors in efforts to circumvent an information crackdown related to the war in Ukraine.

The US-backed Open Technology Fund is paying out cash to a number of American companies who provide virtual private networks (VPNs). These are now seeking to allow Russians access free of charge, which aids in both accessing blocked websites and preventing Kremlin authorities from tracking IP addresses, thus better protecting online identity. 

"Our tool is primarily used by people trying to access independent media, so that funding by the OTF has been absolutely critical," said a spokesman one of the involved companies, identified as Lantern.

An attorney with an information access rights group called Access Now said of the program, "It's so very important for Russians to be connected to the whole world wide web, to keep resistance going."

One firm cited in AFP receiving US government funds reported that on average 1.5 million Russians are using its tools daily, and further:

Tech firms Psiphon and nthLink have also been providing sophisticated anti-censorship applications to people in Russia, with OTF estimating that some four million users in Russia have received VPNs from the firms.

Psiphon saw a massive surge in Russian users, with the number soaring from about 48,000 a day prior to the February 24 invasion to more than a million a day by mid-March, said a company senior advisor Dirk Rodenburg.

This US program to fund companies providing VPNs to assist users living under "authoritarian regimes" has been ongoing for years, but greatly ramped up in the wake of the Ukraine invasion and short-lived attempts of Russian groups to mount protests in major cities like Moscow and St. Petersburg.

A spokesman for Lantern said that getting past Russian censors is fairly easy with the right tools, given  "They weren't ready to block anything" - in reference to Kremlin authorities. "Over time, Russia learned how to block the easy stuff but Lantern and Psiphon are still up and running."

You will find more infographics at Statista

Meanwhile, Russian officials even before the Feb.24 invasion have complained of US covert efforts to infiltrate Russian society. They have charged Washington with seeking to jump-start a "color revolution" aimed at toppling or at least weakening Vladimir Putin's rule.