Argentina’s vote began a trend that may have strong repercussions for Latin America, as well as Europe, and perhaps the United States. With 143 percent annual consumer inflation, 133 percent central bank interest rates, long gas lines, and a perpetually depreciating currency, voters in Argentina had little to lose by voting for change, since capital flight out of Argentina to Uruguay, and other financial havens, had become commonplace.
Argentina’s winner, Javier Milei, wants to peg Argentina’s peso to the U.S. dollar. This move may start a trend toward pro-American sentiment after China has tried to move in to dominate in our hemisphere.
An even more surprising election result came from far-right leader Geert Wilders, who secured a major victory in the Netherlands last Wednesday. He is now expected to become the next Dutch prime minister after he forms a governing coalition. In the past, opposing parties have tried to oust Mr. Wilders’ Freedom Party from any ruling coalitions, but this time the Freedom Party secured 37 of 150 seats in parliament. By contrast, the next closest rival party secured only 25 seats. After his victory, Mr. Wilder said, “The hope of the Dutch people is that they will get their country back.” By that he meant the “de-Islamization” of The Netherlands, since he has campaigned to ban the Quran, shut mosques, and close borders to immigrants from Islamic countries. Migration into Europe has risen sharply since the end of the COVID-19 pandemic, prompting fresh efforts to tighten restrictions on immigration inflows, thereby stirring political tensions.
Last year, net migration into The Netherlands more than doubled, to more than 220,000, partly because of refugees fleeing Russia’s invasion of Ukraine. The Dutch government has projected that applications for asylum could reach more than 70,000 this year. This has put pressure on housing in a densely populated country of 18 million, not much larger, area-wise, than Maryland, fueling calls for tighter immigration controls.
A rise in the volume of immigrants seeking asylum in other European nations has led to political debates throughout Europe. For example, Germany is on course to receive more than 300,000 asylum applications this year, the highest level registered since Europe’s 2015/2016 refugee crisis. This influx of immigrants has helped propel the far-right Alternative for Germany to become the country’s second-most popular party. Another example is Italian Prime Minister Giorgia Meloni, who came to power a year ago, partly on a pledge to curb immigration. This immigration tension is widespread in Europe. The latest example was in Dublin, Ireland, last Thursday, when fires and looting broke out after a reputed stabbing of children by an immigrant.
This trend may have implications in the U.S. elections next year. Despite growing optimism for the economy in 2024, President Joe Biden is doing very poorly in the latest polls, and virtually everyone in the media is calling for the president to step aside for a more energetic and younger candidate, like California Gov. Gavin Newson. The recent political earthquakes in Argentina and The Netherlands set a precedent for unconventional candidates like Robert F. Kennedy Jr. or Donald Trump. It’s obvious that when the voting public is upset, they will take a chance on a “radical change” candidate. That has happened elsewhere, and it may happen in the United States, too.
Two Types of Corporate Earthquakes in America
In addition to these political earthquakes, another type of earthquake happened when OpenAI founder Sam Altman resigned due to a fight with the board, and was quickly hired by Microsoft. There followed a flurry of other resignations at OpenAI, including co-founder and chairman Greg Brockman. This board dispute at OpenAl was apparently based on disagreement over how fast artificial intelligence (AI) should be implemented. Apparently, Mr. Altman was plowing ahead by implementing AI faster than the board wanted, as some feared that AI was a potentially dangerous technology that needs to be checked and scrutinized at every turn.Microsoft CEO Satya Nadella said, “We are extremely excited to share the news that Sam Altman and Greg Brockman, together with other colleagues, will be joining Microsoft to lead a new advanced AI research team.” But then, a couple of days later, Messrs. Altman and Brockman were already back at OpenAI, in what was viewed as a major victory by Microsoft, which owns 49 percent of OpenAI. Also, two new board members were added, one of them former Treasury secretary and Harvard president Larry Summers.
Another type of earthquake was chipmaker Nvidia’s third-quarter earnings announcement, in which Nvidia said that its third-quarter sales surged 205.6 percent, to $18.12 billion compared to $5.93 billion in the year-ago quarter. During the same period, the company’s earnings soared 1,274 percent, to $9.24 billion, or $3.71 per share, versus $680 million, or $0.27 per share, a year earlier. Excluding extraordinary items, Nvidia’s operating earnings were $4.08 per share. The analyst community was expecting sales of $16.2 billion and operating earnings of $3.36 per share, so the company posted a 12 percent sales surprise and a 21.4 percent earnings surprise. (Disclaimer: The stock is the largest holding in my managed accounts.)
Nvidia also raised its sales and earnings guidance, and said that sales to other markets would “more than offset” a “significant” drop in sales to China due to the Biden administration’s new chip restrictions.
AI, plus pent-up demand for some goods, are expected to boost U.S. productivity this quarter. Higher productivity tends to boost GDP growth. Right now, the Federal Reserve Bank of Atlanta is estimating annualized fourth-quarter GDP growth of 2.1 percent, but since energy exports and a shrinking trade deficit, alone, account for nearly all (2.0 percent) of that GDP growth, productivity growth, as well as inventory rebuilding after the holiday season, are key to providing much stronger GDP growth rates now and in 2024. Also, the growing anticipation that the Fed will be cutting key interest rates early in 2024 is also expected to boost GDP growth in 2024.
On the downside of last week’s economic news, the Commerce Department announced last Wednesday that durable goods orders declined 5.4 percent in October, which was worse than the economists’ consensus estimate of a 3.1 percent decline. Furthermore, September durable goods orders were revised down to a 4 percent rise from the 4.6 percent increase, previously announced. The primary reason that durable goods orders declined in October was that transportation orders plunged 14.8 percent, after increasing 11.6 percent in September, and the primary reason for the drop in transportation orders was that commercial aircraft orders dropped 49.6 percent, because Boeing received only 123 aircraft orders in October, down from 224 aircraft orders in September.
The good news in that report is that core capital goods orders were flat (-0.1 percent) in October, after rising 0.5 percent in September. This raises optimism for improving GDP growth, especially as rates continue to fall.
Prepare for a Colder Winter—and Higher Energy Prices
Crude oil prices are lower lately due to seasonal trends, but also because there is infighting at OPEC+ after tits meeting was delayed until Nov. 30. Despite deep production cuts by Russia and Saudi Arabia, other OPEC+ members were apparently cheating on their quotas. Most observers expect OPEC+ to extend their production cuts. However, the speculation over the OPEC+ meeting delay caused crude oil prices to decline. Also contributing to the decline in crude oil prices is that the American Petroleum Institute (API) reported last Tuesday that there was a 9-million-barrel rise in crude oil inventories. But the API also reported that gasoline inventories declined 1.8 million barrels, and distillates dropped a whopping 3.5 million barrels in the latest week, which is good news for refinery profits. I expect that when OPEC+ meets that they will want to shock world crude oil markets with a slightly larger production cut.
I should let you know that you might want to plan ahead for a colder-than-normal winter. It is already quite cold out in the mountainous West, where our main offices are located, in Reno, Nevada. It has been snowing here since October. The snow is covering my Reno home, which is at about 5,000-foot elevation.
You won’t hear it from the global warming press, but record-cold temperatures were set earlier in 2023: • Tongulakh, Siberia, experienced the “world’s coldest air” last January, -62.4° Centigrade. • The Halifax airport in Nova Scotia recorded a record low of -45.4° C in February. • Mount Washington, New Hampshire had the “coldest ever wind chill” (-78° C).
There were also record-low temperatures this year in the Southern Hemisphere, in Argentina, Brazil, Chile, and Uruguay. What are the main causes? Actually, the extreme temperatures are mostly due to a wildly oscillating jet stream in the Northern Hemisphere and the polar jet stream in the Southern Hemisphere.
This year is an El Niño year, which influences the tropical jet streams in both the Northern and Southern hemispheres. An El Niño typically causes a wet winter in California and the southern states. When the jet stream dips during an El Niño, it tends to dip farther east and so the Northeast can become bitterly cold.
The primary reason the northern jet stream and the southern polar jet stream are oscillating is due to the fact that the magnetic poles are moving and will eventually shift, which they do every 60,000 years or so (that is how rocks are dated for all the magnetic pole shifts recorded). In the Northern Hemisphere, the magnetic North Pole has been moving since being tracked in 1840 and appears to be getting ready to shift again. The net result is more wild jet stream oscillations, so more extreme weather, both hot and cold.
Obviously, any Arctic cold blast in the Northeast or Europe should also help to boost natural gas prices. I am talking about record-low temperatures because it can have a dramatic impact on natural gas demand this winter. Not only does it have to get cold for natural gas demand to rise but also cold temperatures must be in populated areas, where a lot of people live, like Chicago, New York, Boston, London, Berlin, etc.
Last year, it was very cold out West, but not in the Northeast or Europe, so natural gas demand moderated, and prices plunged 50 percent in November. This winter is tracking better, so natural gas prices are more stable.
Meanwhile, Europe’s green agenda—like its immigration policy—is losing its political grip. In Germany, for example, Chancellor Olaf Scholz has been blocked from diverting funds to support green initiatives and electricity subsidies for business users. The biggest blow is in electricity subsidies, since German industry is at a major competitive disadvantage compared to the Czech Republic, Hungry, Poland, and Slovakia. Germany has become increasingly conservative after regional elections, since Chancellor Scholz’s party took only fourth place, so Germany’s green subsidies are expected to be slashed in the 2024 budget.
Speaking of the green agenda, the 2023 United Nations Climate Change Conference, or Conference of the Parties, more commonly known as COP28, opens in Dubai on Nov. 30. Just to remind you, a couple of years ago we sent a representative to COP26 in Scotland, which concluded with a statement that green hydrogen is the fuel of the future. Then at COP27, in Egypt, the poor countries, like Bangladesh and Pakistan, were seeking reparations from flooding that they blamed on rich countries.
At COP28 in Dubai, green hydrogen will likely be relentlessly promoted by the United Arab Emirates, since it they dominate desalination and have lots of water for making green hydrogen. The fact that the fossil fuel industry is taking over the green movement has folks like Al Gore enraged, but green energy is very expensive, and the fossil fuel industry has the capital and the patience to invest in green energy.
