The Israeli invasion of Gaza, as part of its announced attempt to eliminate the Hamas terrorist group, is now underway. This new escalation in the war has fortunately not broken out on other fronts, despite some skirmishes.
Crude oil prices have moderated, but liquefied natural gas (LNG) prices remain high due to disruption fears as well as the fact that winter is fast approaching. Israel’s LNG exports to Egypt have been disrupted. Additionally, Norway’s LNG exports were recently disrupted due to a problem with a compressor failure. My No. 1 LNG stock is Dorian LPG, which transports liquefied petroleum gas (LPG) through 25 LPG tankers worldwide.
The United States is “the Saudi Arabia of natural gas” and LPG exports are booming. Even though California and New York are trying to ban natural gas, the truth of the matter is that in the United States, natural gas will be flared if it is not used, since much of the natural gas in the United States is a byproduct of crude oil production. Natural gas is much cheaper in the United States than most of the rest of the world, because natural gas is so abundant.
China continues to dominate the EV supply chain and is producing double the batteries that China needs domestically. This means that it will be cheaper to import batteries from China than produce batteries in the United States, which is why Ford shelved its plans for a U.S. battery plant with Chinese battery company CATL. Furthermore, the United Auto Workers strike exposed the fear that workers would lose their jobs due to any conversion to electric vehicles (EVs).
Speaking of EVs, the Big Three all curtailed their EV plans due to a lack of consumer demand. Apparently, consumers will not pay more for EVs, so they are being heavily discounted. In fact, Ford is now losing $36,000 on every EV it sells, so it lost $1.3 billion on the 20,962 EVs it sold in the third quarter. Even Tesla is now forecasting that it will lose money on its Cybertruck, which will begin shipping later this month. A big culprit in low EV sales is higher interest rates, which CEO Elon Musk has repeatedly cited.
Another casualty of falling EV sales is Tesla’s primary battery supplier, Panasonic, which lowered its 2023 battery profit forecast by 15 percent. Although Panasonic has geared up to build Tesla’s new 4680 battery cells, the Tesla EVs above $80,000 are not selling well. If Panasonic is struggling to make money building EV batteries, all the other new battery plants in the United States are also expected to struggle.
Another casualty of higher interest rates is the domestic alternative energy industry, which is why I sold some green energy companies in the past week. I was hoping that the transition to big green commercial projects, especially battery installations for utilities, would help make the transition from falling demand for home solar and battery installations, but the high interest rate environment has squelched commercial demand, as utilities have also curtailed investing in more green energy solutions.
Looking forward, as the EV and green revolution stalls, any confidence in the Biden administration’s economic incentives now seem futile, since the federal budget deficit is spinning out of control due to two proxy wars the United States is now funding. Although President Joe Biden will be apparently buying a lot of ads during the coming Super Bowl to convince voters that he has done a good job and deserves to be re-elected, many voters are not buying it any more. As a result, both consumer and investor confidence has been shaken.
Going into 2024, the Federal Reserve is likely going to be blamed for any economic problems, due to the high interest rate environment. The Fed hates being in the spotlight, so I expect the Fed will be lowering key interest rates in early 2024. Inflation continues to cool, so the Fed will be able to cut its key interest rates early in the new year. This should eventually help to boost both investor and consumer confidence.
Speaking of central banks, according to the World Gold Council, central bank buying of gold has risen 14 percent in the first nine months of this year, to 800 metric tons. The People’s Bank of China has led the central bank gold-buying this year and reportedly bought 181 tons of gold. Poland bought 57 tons, followed by Turkey, with 39 tons. Due to the tension in the Middle East, I suspect this gold-buying will persist. Buying pressure by central banks will likely keep gold prices firm, so gold may yet stay above $2,000 per ounce.
