Friday March 27, 2026 Update

Keeping up with the daily chaos is difficult, but I suppose that's the M.O for the Epstein Class--keep everyone chasing ledes while they rape and plunder. That said, in today's first installment: 

1. The TACO Index is flashing red.
2. "The Trump Doctrine", one analysts attempt to determine where a US landing might occur.
3. Your daily fraud take.
4. Propaganda 

, 

As I mentioned the other day, Deutsche Bank created what it called The Pressure Index, but what is commonly referred to as The TACO Index. The index is comprised of the economic factors that dominate Trump's decision making: stock prices, oi prices, interest rates, and inflation. I don't have access to the current index, but we can certainly find the movements of its components.

 

 

    The S&P 500 fell 1.75% yesterday and is down another 1% as of 10 a.m.  Oil ended yesterday's close at $93 and is currently trading at $98. The 10-year T-bond yield is nearing 4.5%, which is the highest it's been since last July. 

    All signs point to a TACO moment today. However, investors aren't stupid. Trump's comment yesterday about extending the deadline for bombing Iran's oil infrastructure was another attempt to reverse the rising TACO trend, and while oil prices did reverse for a brief period, they turned back up toward the end of the day. If Trump wants to move markets today, it's going to take something a little more believable. Will he announce, while looking in the mirror, "We have an agreement"?  Stay tuned.

 

 The Trump Doctrine

    There has been so much chatter about the movement of elite US military units to the Middle East conflict zone, and most of the speculation surrounds Kharg Island as the focal point as its Iran's most important oil export terminal. Given the highly publicized (for military operations at least) talk, other analysts have been trying to decipher what the "real" objective might be?  I've been thinking about this myself. Fortunately, in my morning news feed is a fairly good analysis of where the US military might land. I have no idea who the author is or his qualifications, but it is well-reasoned.  His description of the doctrine:

Taking audacious risks, making the operation a media spectacle, not justifying or making the case for action or spending political capital beforehand, and letting success justify itself post hoc. Before taking the big gamble, the Trump doctrine is all about staying out of the range of the enemy whenever possible. The Trump doctrine is more conservative prior to action and shifts to being more audacious during it.  

He supports this with a look at previous Trump military adventures. The most obvious was the last bombing of Iran. Trump declared Iran's nuclear ambitions were obliterated and the mission was a resounding success.  What is lesser known about this is the agreement from both sides to allow Iran to bomb a US base in Qatar in response, AFTER US military personnel evacuated it.  

    At any rate, the author suggests a very likely target for the US is a more isolated area of Iran that is situated outside of the Strait of Hormuz, near the the Pakistan border--currently a US ally after we helped depose and jail Imran Khan the unfriendly former PM--Chabahar Bay. It's an interesting argument, and you can read the full analysis HERE.

 

 Your daily fraud take

 In relation to the insider billion dollar gains from Trump's claim of negotiations last week, the trades that were made 10-15 minutes before his announcement, this Irish, Russia-based journalist tweeted this interesting parallel to pre-Putin Russia: 

In 1990s Russia, access to power (such as the so-called "Semibankirschina" of Boris Berezovsky, Mikhail Khodorkovsky, Mikhail Fridman and friends) meant access to information. Those close to the Kremlin or state banks could see devaluations coming, understand when policy would shift, predict when borrowing would collapse or when assets were about to be handed over. They positioned accordingly and made enormous profits while ordinary Russians and the real economy got crushed. 

That was how the system worked. The same networks that benefited from insider knowledge also ended up acquiring state assets through schemes like loans-for-shares, locking in their positions for decades. Most of them still hold these assets today.  

 This reminded me of a presentation by a Russian economist in the early 2000s about Russia's economic development or lack thereof.  He described how the (mafia) oligarchs used Russian industries to syphon off for themselves. As he explained, rather than invest to expand and grow, they invested only the minimal amounts to maintain production levels.  Most of these oligarchs had ties with west, and I'd argue this is what supported Putin's rise, as he is a Russian nationalist.  He "putsched" out these corrupt oligarchs and replaced many with his own corrupt oligarchs; but at least they were now his, focused on Russian interests, not the west.  

Unfortunately, X won't let me embed the tweet, but you can find the author here: @BrianMcDonaldIE

 Propaganda 

I've argued that Q-Anon was a gigantic Psy-Op, designed to capture a significant portion of the population disaffected by the so-called two-party system.  The idea pushed by Q-Anon was Trump and his "white hats" were going to take down the Pizza Gate child-rapist empire. All of the evil democrats would be tried and hanged at Guantanamo. After Trump's loss in 2020, MAGA moved off of traditional social media spaces, creating their own like Truth Social and "underground" echo chambers on platforms like Rumble. This has essentially created a way to control the information that MAGA receives. 

    So, folks wonder, given the blatant fraud, manipulation, outright lying, why does MAGA still support this guy?  I think this video of a MAGA supporter gives the explanation as I've suggested above, as she states: 

CPAC attendee: He is the president of peace. When this gets taken care of, it's going to be peace. I'm on Truth Social, that's the only social media I do... he's got a plan. He's a genius. And we trust President Trump. 

 

Okay, that's all for today folks.

 

h/BrianMcDonaldIE/status/2037115451936039224?s=20

 

Elon Musk's (mis) understanding of economics

In this interview with Sean Hannity, Elon Musk shows his understanding of economics is not grounded in the real world.  His two main points in this clip focus on inflation and interest rates.  His explanation of inflation relates to one of Milton Friedman's old dictums: "Inflation is caused by too much money chasing too few goods".  As I used to tell my students, this says everything and nothing.  I'll address this simpleton's guide to inflation in a future post.  

Here, I want to focus on his second point, that interest rates are high because of large government deficits. As Musk suggests, if we simply lower those deficits, then interest rates will come down. The problem with this view is the evidence is extremely weak, as can be seen in the figure below.  The figure shows the relationship between government deficits as a percent of GDP (right side scale) and the 10-year US treasury interest rate (left side scale).  According to Musk, as deficits get larger (a drop in the green line here), interest rates should rise (the blue line) because "government borrowing competes with the private sector for scarce funds".  If this is the case, the lines should move in opposite directions; instead, they move (roughly) together.  For example, since 2020, deficits have declined as a share of GDP but the 10-year interest rate has been increasing.

In the economics literature, this relationship is known as crowding out, which suggests government borrowing "crowds out" private sector borrowing by causing interest rates to rise when it competes for limited funds in capital markets.  However, more often than not, larger deficits are associated with falling interest rates.  

So, why is Musk (along with many economists) wrongheaded on this point?  For one, in my view, the most important factor influencing long-term interest rates is inflation and expectations of future inflation. For example, from 2012 to 2019, the 10-year rate hovered between 2-3% because inflation hovered around 2%, and was expected to remain low.  In 2020, the Covid shock caused inflation to increase, leading to an increase in the 10-year rate.  The 10-year rate never went as high as the inflation rate, because investors expected the inflation shock was temporary, as it turned out to be.  

If inflation and expectations are the primary factor moving long-term rates, then there is a mechanism for how cutting deficits could lower the 10-year rate, but it's due to the impact deficits have on growth and inflation. As an economy grows and incomes are rising, deficits naturally fall, as tax revenues are rising. However, if a government decides to slash and burn based on a false belief "we need to balance our budgets", then these austerity measures can cause a reduction in growth, if not a recession.  This piece shows the austerity policies pushed by EU countries after the 2008 crisis "negatively affect(ed) economic performance by reducing GDP, inflation, consumption, and investment".  In other words, the main way Musk's view would be right is because cutting deficits would lead to lower growth or a recession, which would then cause inflation and interest rates to a decline.  Most inflations are tamed via recessions.

Relatedly, in this view, the impact government deficits have on long-term interest rates has more to do with how those deficits might impact inflation and not so much on the demand for scarce funds in the capital markets.  In the next post, I will explain why government deficits (mostly) have little impact on interest rates which is related to the somewhat controversial view of Modern Monetary Theory.

https://x.com/elonmusk/st9330434

https://x.com/elonmusk/status/1892443739949330434

Un-retiring...

 I retired from my academic position as of September 1, 2024.  Now that I am a man of leisure, I intend to re-activate my blog. While much of what I previously wrote focused on economics, especially the oil market, I intend to include more writing on "political" economy going forward (or left....:-), emphasis on political.  We are in strange (interesting) times in this world, and I know a majority of the population has been fed information that is designed to support the political status quo, which is designed to keep us in endless, costly wars to enrich themselves.  It will be interesting to see if Trump indeed tries to break from these entrenched interests, or if he is simply the con that many believe?

So, Happy New Year all! 

I'm looking forward to much more blogging activity in 2025.

One last "I told you so"...

While I did not formally make a prediction on oil prices this year, the same forces I've described have continued to play out: since the WTI oil market is dominated by speculators, every attempt to push prices higher ends in a collapse when inventories "unexpectedly" rise. 

In mid April, based on geopolitical issues, WTI was trending toward $70, driven by speculative bulls of course.   As inventories started rising, the bulls pulled back starting in late April.  And now, as this Wall Street Journal article suggests, oil is on the verge of a bear market, approaching $50.

Despite our president's attempt to extol the virtues of "molecules of freedom," fossil fuels, oil especially, are facing long term headwinds of green energy that will keep prices in check.  However, I doubt this will dispel the best efforts of Hedge Fund speculators to hype another oil bubble....

Good luck fellas.

It's so predictable..

Just see my last post, "Lather, rinse, repeat."  While there has been geopolitical turmoil, the Iran sanctions, the problem is STILL investors--Hedge Funds--driving prices up to quickly, beyond CURRENT fundamentals, leading to inventory builds. 

Take note: a good sell signal is when so-called "analysts" claim oil will hit $100/barrel again.  They are much like bitcoin and gold enthusiasts who need additional buyers to maintain their ponzi scheme, so they can bail and take profits...

Lather, Rinse, Repeat...

Nothing earth-shattering to report; it's the same 'ol, same 'ol....

After breaching $70--the top end of my prediction for WTI this year, we are now seeing the usual pull-back in prices which is, as usual, being driven by Hedge Funds. As it became apparent a peak was reached in mid-July (just over $74), the hedgies unloaded 178 million (paper) barrels of oil the week of July 17th (see this Reuters article). 

Adding insult to injury, this week's inventory data showed an unexpected rise: the "consensus" was a draw of about 2.5 million barrels, however inventories rose by 6.8 million, which was the third increase in the past five weeks.

As we move out of the summer driving season, I think it's safe to say WTI will remain in my predicted trading range for the remainder of the year (always with the caveat no unexpected geopolitical event occurs...).

Moving forward, I have been meaning to write some posts on the economy in general.  As I mentioned in a previous post, I expect a recession sometime in late 2019 or early 2020.  I will expand on those thoughts in the near future.

A brief Oil Market brief

Having recently just eclipsed the $70 high end of my price range, WTI appears to be receding back into range. According to a Reuters article today:

 "A sea of red is washing over the energy complex as rising U.S. production coupled with a looming relaxation in OPEC-led cuts sends bulls scurrying for the exits," said Stephen Brennock, analyst at London brokerage PVM Oil Associates.

In addition, the article notes the most recent COT report shows that Hedge Funds have decreased their long positions, which signals they believe the price rise has run its course. This belief is based on the above noted recent increases in oil output by both US shale and OPEC, specifically the Saudis and Russians are relaxing the production cuts that were put in place a year ago to help re-balance global markets.

Barring further geopolitical issues (the odds of which are getting higher that one will occur with Iran!), WTI prices should remain on the high side of my range, from $60-$70.