Dana Blankenhorn

When Will This War End?

An Army travels on its stomach. It’s not generals who win wars. It’s economies.

This is the lesson of the Civil War and World War II. It’s the lesson of Ukraine.

War “experts” like to ignore this. They assume dictators can always get more of what they need from somewhere. Thus, they over-estimate America’s foes and under-estimate America itself.

Putin is all-in on the Ukraine invasion. He can’t put in more people without risking civil strife in Belarus, Kazakhstan, Georgia or even Russia itself. He can’t get more of anything, and his people are getting hungry. Money no longer works. Russia hasn’t had much manufacturing capacity since the Soviet era. The population was already falling due to vodka and COVID.

What’s needed to end the war is a way out of it. That’s why the President’s moves to re-supply Ukraine are all covert. The Congressional anger at Biden helps our cause. It lets him play the good cop.

Dawn is Coming

We’re approaching one of the biggest snap back rallies Wall Street has ever seen.

Once Putin’s War is over, everything’s going up. How much depends on the result.

Right now, signs are good. Israel has joined the sanctions regime. China is only going to sell stuff to Putin for cash. But China is in worse trouble than we are. They’re still fighting COVID with lockdowns. Their stock market is a mess. Their property magnates are collapsing. Hong Kong has created a brain drain. Shared prosperity is becoming shared misery. I expect a slow policy readjustment.

Once the war is over inflation will decline. Not magically. Prices are always sticky downward. You don’t cut your price based on costs. You do it when your rival cuts theirs.

Technology remains our best weapon against inflation. My long-term concern remains deflation, and how the gains of technology are apportioned. Fortunately, all those forces who sided with Russia, including our worst oligarchs, are being discredited by events. No one in Washington can see this because they only see today.

The Paralysis of War

War is paralyzing, even for those unconnected with it.

You can’t make plans. You have no energy. You have no idea what’s going to happen next.

I go back and forth. One day I think Ukraine can win this thing, or at least hang on until Putin is deposed. The next day I think they’re doomed, and the world with it.

Regardless of the result it’s already clear that Ukraine and Russia must be rebuilt. Ukraine, physically. Russia, politically.

It’s Russia that’s the biggest problem. It can’t sustain a Ukraine occupation. We couldn’t sustain one in Iraq, or even Afghanistan. Yet Putin thinks he can, and so-called “analysts” in the West agree. They don’t think the Russian people can do anything, nor do they think the Ukranians can once occupied.

This is naïve.

OPIC

My one fault with the Biden Administration so far has been its leniency toward its enemies.

Republicans aren’t the loyal opposition anymore. Vladimir Putin isn’t just an adversary. Those who still support Putin are domestic enemies, and it’s there in the oath of office, that you protect against both foreign AND domestic enemies.

The spike in oil prices may be another opportunity lost.

The opportunity is to create what I call an Organization of Petroleum IMPORTING Countries (OPIC). While the U.S. is nominally an exporter, we are the natural leader of this group, which could include India, Japan, Europe, South America, most of Africa and even China.

The first task of OPIC would be to account for the elimination of Russian supply from the market. Each member would agree to a specified reduction in imports, or an import maximum. Each member government would deal with this shortfall however it saw fit. But if no one breaks the agreement, then you can go toe-to-toe with OPEC in the oil markets, searching for price stability.

Saudi Arabia and other OPEC members want price stability. They like price spikes, but they know they’re a short-term thing. Over time, over the next 10 years, they know that their net production will rise, while demand will fall. The Sun shines, the wind blows, rivers, and tides, roll, we live on a molten rock, and there’s also efficiency. Today’s cars, trucks, appliances, and computers all use much less energy than they did before. The increase in time between charges for your phones is all due to their becoming more efficient. The batteries are the same.

The Second Coming of Armand Hammer

During the decades of the Soviet Union, there was a Russian spy hiding in plain sight. He was welcome in boardrooms, even the White House.

His name was Armand Hammer.

Hammer represented Soviet interests practically from its beginning. As detailed in the 1996 biography Dossier: The Secret History of Armand Hammer, Hammer befriended Lenin back in 1921. He continued to represent Russian interests almost until his death, in 1990.

During his life he was often called a “go-between,” because as CEO of Occidental Petroleum he was a business executive welcome on both sides of the Iron Curtain. While The New York Times called him a “riddle” in 1981, a more accurate term from Epstein’s work is traitor.

I believe we have another Armand Hammer in our midst, which is why I bring his name up.

I Know Things Look Bleak Now But…

I didn’t think Vladimir Putin was stupid enough to invade Ukraine.

I was wrong.

He’s just that stupid.

While most of the Internet (and all of Ukraine) is either fighting or cowering in fear right now, I want to offer some reasons for hope.

The Electric Car Bowl

While after-action stories about Super Bowl ads focused on cryptocurrency exchanges, electric car ads got more minutes.

That’s important because, if anything, electric cars are more imaginary than Bitcoin.

General Motors, Ford, Volkswagen, and a host of start-ups in the U.S. and China are all rolling out electric cars for 2022. They’re going after Tesla, now worth more than the rest of the industry despite representing less than 10% of the U.S. car market.

But while crypto is garbage, electric cars are real. And important.

On TV just now, I just heard someone ask why Russia is attacking Ukraine now, for the first time since 2014. The reason is the same. Oil and gas prices are near record highs. Russia is a huge exporter. The more Putin can control the market and scare the West that he might cut off supplies, the more money he makes. Ukraine isn’t costing him money. He’s making money on it.

But there’s a sell-by date, as the electric car ads show. The more we can drop demand for oil, by using electricity for cars, and devices like windmills and solar panels to generate it, the bigger the thumb we have on the price. U.S. shale oil producers cut production in response to falling prices, and banks aren’t backing any play to use debt to increase it, because they know what’s coming.

The next oil crash will be the last one.

Putin and the Saud family have no incentive to cut America a break, and every reason to boost the price. American producers have every reason to produce what they can now, but no incentive to invest in their long-term future.

The reason was all over your TV yesterday. Electric cars already dominate the luxury market. They’re headed directly for the mass market. Orders for electric vans and delivery vehicles continue to pour in. None of yesterday’s advertisers think things will be any different for them. Make all you can, make it today, and make money. Demand looks unlimited.

This is the most hopeful thing I can write for Valentine’s Day. Today’s crisis is going to pass. The war won’t be won on the battlefield, or at the negotiating table. It will be won as all wars are won, on the production line.

Correction?

We’re not seeing a crash, but a correction in real assets.

There is a crash for garbage. Garbage cryptocoins. Garbage stocks. Garbage assets of all types.

Here’s why.

When money costs money, even a little money, things that were bought with free money are worth less. The punch bowl has been taken away. Those who benefitted from the party are throwing a hissy fit.

Inflation, they scream. Crash, they cry.

Uh, no. Markets adjust.

Imaginary Crisis

One thing I have learned reading American history is that every generation feels it’s in an existential crisis.

Usually, they’re right.

In the Founders’ generation, John Adams passed a Sedition Law against Thomas Jefferson and his supporters. Then James Madison, the “father of the Constitution,” lost a war and saw his Capitol burned. America was only saved by Bonaparte’s downfall, which caused Great Britain to lose interest in us.

Jackson Democrats saw Whigs as oligarchs, looking to destroy the poor for the benefit of a few. The death of Whig President W.H. Harrison in 1841 destroyed Nathaniel Hawthorne’s faith in democracy. Abraham Lincoln was a Whig, then 1 in every 50 Americans died during the Civil War, which was nearly lost.

A Non-Standard Story of Solar Shingles

When I first covered renewable energy a decade ago, solar shingles were the Holy Grail. It was what everyone said they wanted to make. A solar shingle would be as efficient at creating electricity as a solar panel but would go on just like a regular roof, with a nail gun.

A lot of people tried and failed to create the product. Home Depot tried selling homeowner-installed solar panels. Elon Musk built a billion dollar “Gigafactory” in Buffalo, New York, supposedly to make solar shingles.

But at the truncated Consumer Electronics Show (CES) in Las Vegas this year, a game-changing solar shingle finally debuted. Its story is almost as interesting as the technology.

The shingle is called Timberline. Sandia Labs helped develop it. The manufacturer is GAF Energy.

The shingles are slightly bigger and much heavier than conventional roof shingles, but they go on the same way, with a nail gun. GAF says it has invested $1 billion into the product, which converts 22.3% of solar energy hitting it into electricity. 

GAF itself may be more interesting than its shingle. It was once the U.S. arm of I.G. Farben, the Nazi chemical company seized after World War II.  Under Jesse Werner, it became a big roofing company in the 1980s. This included an outfit called Rubberoid, which owned an asbestos mine in Vermont. (Oops.) Under the name G.I. Holdings, it went bankrupt in 2001 but was still paying out to victims in 2011.