The oil price went below zero on Wednesday at the closure of the May oil contract. There are may reasons why. The most relevant perhaps, is that storing oil is not free.
If you buy oil with a futures contract it will be delivered to you unless you roll the futures contract to the next month (rolling it means selling the May contract and buying June, normally with very little difference in price). That’s what happened this week. Most of the market tried to roll the May contract at once so that oil was not delivered to them. Vastly more speculators than users of oil, with all speculators selling and no buyers, the price equals zero and briefly, quite a lot less than zero. The very next day, the price is $20 or thereabouts, as we are now trading the June contract.
Unfortunately for May contract holders, rolling zero into twenty, equals zero. They lost all their money and didn’t get any oil either. Better news awaits retail investors who did not roll their contracts. They will receive oil and Exxon’s trucks will be depositing 10,000 barrels at 187 Greenviews Drive, Arizona because dad thought, “I’ll have a crack at $17”.
Holding costs, delivery costs, storage costs, security costs and assay costs are relevant in commodities. Now, I would argue, the easiest liquid asset (ho ho) in the world to deliver (instant), store (free for small amounts), secure (cheap if you know what you are doing) and assay (free), is bitcoin.
Whoever invented bitcoin, knew about commodities. I hope they are alive and I hope they enjoyed their foresight this week. It is a vastly superior commodity asset in a number of ways, not just because it is the most scarce.
Actually, that is complete nonsense. I’ll show you why:
1. Hyper-Joe: Hyper-Joe is super ambitious with a vastly inflated opinion of his own ability. He generally moves jobs every two years. Every time he gets a job, he considers “his employers ambitions don’t match his own” and he moves on, unless they sack him first:
Total jobs: 8
Total resigns 6:
Total sackings: 1
2. Steady Svetlana: loyal and hardworking, Steady Svetlana is the opposite. She underrates her ability and sticks around, being taken advantage of by her avaricious employer:
Total jobs 2:
Total resigns 1 (she moved country)
Total sackings: 0
3. Debbie Dim: Debbie is unable to keep a job. Sadly, she is a complete degenerate, devoid of any ability:
Total jobs 24:
Total sackings: 24
So, we have proved numerically across three skill sets, with total jobs of 33 and total sackings of only 25, it is actually easier to get a job than to lose one. Definitionally, you can’t lose a job if you don’t have one in the first place.
The more interesting question is, why is it so difficult to get fired? The answer is that sacking people is hard. If you are a manager in a business, you would far rather employ someone than sack someone. Firstly, it builds your empire (which people like) and secondly, sharing good news is a nice thing. Scaling back, retrenching people, is very hard. Your empire shrinks, you worry about the long term prospects for the business and you must deliver bad news. Most people will make excuses, they will not call out low productivity “he’s a good guy and he has five kids” . I am not at all saying this is a bad thing, perhaps a good thing overall, but arguably the human element hugely restrains productivity.
Coronavirus has removed the empathy that protects so many unproductive workers. Businesses have laid off up to 80% of their staff. No questions asked, no hard conversations, no “good guy, five kids”. By contrast, productivity has only fallen in some cases by 20%. We have read for years that labour productivity has not been rising and hence wages have not been rising. We now know the reason why, a lot of people simply weren’t doing that much. Wherever you work, look around. What are they all doing?
In the chart below, we can see that since 2008, labour productivity has hardly moved at all. I suspect there is a link here to the monetary policy regimes since 2008. In politics “we will print money, we will bail you out and you will not sack people”.
As we have seen through quarantine, IT is capable of a great deal, potentially reducing operating costs by orders of magnitude. The more powerful the IT, the greater the saving but also the greater the skill component of the workers required to use it.
Perhaps the saying will become true, and getting a new job in 2020 will be a lot harder than losing one. Nearly 20 million Americans will be putting this to the test over the next few months.
In the US, the money give-aways are having the desired effect. The stock market returning to mid-2019 levels, despite 20 million people being unemployed. It seems financial markets have totally disconnected from cold hard reality for the time being.
Stock prices do not employ people though, and in anticipation of a long haul, new legislation was introduced in Congress this week known as the “Emergency Money to the People Act”. Yes, it is real and the full act can be read on the Congressional website . Like the $1,600-for-everyone cheque that was unthinkable in January, we now have EMPA, which potentially goes a lot further.
$2,000 Monthly Stimulus Cheque for the following Americans:
- Those 16 and older making less than $130,000 annually would receive at least $2,000 per month.
- Couples earning less than $260,000 would receive at least $4,000 per month.
- Qualifying families with children will receive an additional $500 per child – for up to three children.
- Those who had no earnings, were unemployed, or are currently unemployed
So basically, everyone who doesn’t work on Wall Street.
This is Universal Basic Income.
Currently, I see no way that the Republican Party will support these proposals. However, if we get two more months of high unemployment, we will be entering into July with only four months to the Presidential election. How does Trump resist the giveaway? How do the Democrats then object? They proposed it.
The cost equates to roughly 2% of GDP per month, roughly half a trillion. It’s a great deal less than Wall Street received and for that reason alone, it could happen. If it lasted a year and added 20% to US debt, would that make any difference? Probably not, short term.
We have seen “mini UBI” in most major countries with one-off giveaways. We are one step now from its permanent imposition.
The arms race in bitcoin mining continues. This new miner in the video above from WhatsMiner, is a serious piece equipment. The trick to mining is to have the most power per unit of energy consumption, so you find the metrics are defined as Joules per Terhertz.
That is, how many computer calculations per unit of energy.
Last year the best bitcoin miner was known as the Antminer S9 it used 0.1 Joules per GH/s. The new miner uses 31 Joules per TH/s.
Having done the maths, it’s 3.2x more efficient than the Antminer and 9x faster.
Bitcoin mining is an industry alone. It is huge, with its own chip development houses, chip manufacturing and mining facilities throughout the world (now including nuclear powered facilities). Not five years ago you could successfully participate in mining using your home computer, no longer.
The beauty of bitcoin though is that you can buy one of these machines, plug it in at home and mine bitcoin. Here’s the link if you wish to buy one. Make sure before doing so that your electricity cost is less than 3cents/KWh (p.s. don’t bother checking, you’re paying a lot more).
Finally, an interesting anecdote for you. Here in Sydney there is a rather nice second hand watch shop in town. Unusually, the owner writes a daily blog post which is often amusing. In today’s update, he raged about potential clients asking him for discounts on watches because of the shutdown. He had this to say:
“Watches are a poor investment class, but an asset nevertheless. In times of severe crisis, any asset is worth more than paper money. No watch dealer is going to rush to exchange a real asset for money that is losing its purchasing power.”
Money printing. Governments can pretend it doesn’t cost people money, but it will not take long for people to lose faith in paper currency.
Long Rolex, short fiat.