Category Archives: Economy and Meltdown

Argentina: A Textbook Case Of Government Gone Mad

Submitted by David Galland via CaseyResearch.com,

Nick Giambruno: Joining me now is David Galland, the managing director of Casey Research. His internationalization story, which involved moving his life and his family from the US to Argentina, was recently featured in Internationalize Your Assets, a free online video from Casey Research. He is perfectly suited to help us better understand some of the important lessons in internationalization that Argentina offers. Welcome, David.

David Galland: Nice to be here.

Nick: First, why don’t you give us a little background about the Argentine people and how they have learned to deal with their government and recurring financial crises?

David: A good way to think about Argentina is that it is an immigrant society, very much like the US, except that the dominating culture emerging from the melting pot was Italian. This is why Argentines tend to be famous for their dark good looks, vibrant culture, and excellent food. Unfortunately, they also inherited “Italian style” politics. I think that’s a useful context for understanding the consistent dysfunctioning of the Argentine government.

This at least partially explains Argentina’s long love affair with the Peróns. The country had one of the most successful economies in the world until Juan Perón came into power and destroyed it. And, with some rare bright spots, it’s gone through long periods of financial crisis ever since. Despite that, the Perónistas are still very much in charge.

If you look at the history of financial crises in Argentina, you will see there is almost no 10-year period when there isn’t a financial crisis. As a result, the population has become extremely resilient in the face of financial crises. When you mention the faltering state of the economy, every Argentine you talk to will shrug and make a comment along the lines of, “No problem; this is Argentina, we’re used to it.” In other words, they have become fatalistic about such things.

But that doesn’t mean they are complacent, because thanks to their long experiences with financial crises Argentines have become masters at dealing with things like inflation and ridiculous government policies. For the most part, the government is highly ineffective, and so the Argentines just ignore it. Reasonably intelligent people always figure out ways to work around whatever the latest decree the government comes up with, then they tell their family members and friends. The word spreads so that in no time at all, the populace at large has figured out how to deal with the government’s latest misstep, as often as not turning it to their personal advantage. As a consequence, there is a very robust underground economy; if people can do business off the books, they do. Argentines pride themselves on their ability to outsmart the government.

Nick: How can the actions of the Argentine government give us insight into what a desperate government is capable of and what might be in store for the United States?

David: The current Argentine government is dominated by true believers – young people who have that idealistic notion of equality for all, and who believe that government mandates can fix anything that ails. They are hardcore socialists, leaning towards communism. But, as is the case in the United States, they really don’t know what they are doing and so pursue policies that are incredibly shortsighted. They are uninformed as far as history and economics are concerned and blunder from one harebrained policy to another. There is literally nothing that they will not try.

It is like a textbook case in government gone mad.

They have stolen the retirement accounts, devalued the currency, and put capital controls in place. There are trade controls so that people can’t import necessities into the country, but instead, have to manufacture them locally, with the government giving monopolies to their friends. They have price controls, which force the local supermarkets to not raise their prices. This will ultimately lead to shortages. And there are already shortages of certain items. They didn’t like an opposition newspaper, so they nationalized the newsprint manufacturing industry. In fact, just about every single thing that you could do to screw up a country, they have done. It is comical to see the extremes they have gone to. For example, in Argentina, if you publish an inflation statistic that differs from of the official government numbers, you could be hit with a $100,000 fine. I had never heard of this anywhere else – except maybe in communist Russia. They are really completely out of control and the country is spinning off into la-la-land. Frankly, I love living right in the midst of all of it.

There is a lesson to be learned from all of this, and I think it is a very important one. When it comes right down to it, any government – not just the Argentine government, but the US government as well – will simply do whatever it thinks it needs to do to keep the status quo intact, with no moral or ethical considerations.

In the case of Argentina, and the United States as well, it is a testament to the legacy strengths of the country – minerals, an educated population, agricultural land in abundance, energy resources – that despite a history of bad governance, the economy is still remarkably robust. People living outside of the country would be forgiven, based on the media reporting, for thinking the place is a basket case – but, against all odds, it isn’t. To a large extent that is because the government’s policies have chased much of the economic activity underground.

Nick: I think something that exemplifies some of the points you’ve just made was the recent debacle with the minister of the economy. During an interview he was asked a very straightforward question on the Argentine inflation rate. He uncomfortably stumbled through his answer and cut the interview short [Editor’s note: You can read more about that here]. How was that received in the country?

David: It was widely reported. At this point, the Argentines have a great sense of humor about their government, as in the majority of them think it’s a joke. That said, people are fed up too. In the seven months that we have lived down here, there have been two massive, countrywide protests totaling around two million people. That’s about 5% of the country’s population. In most countries that would be enough to send a dictator and the government scrambling for their private jets to get out of town.

The Kirchner government, however, has basically said, “Let the people protest. We don’t care; it’s just a bunch of noise.” To a certain extent, that is true. But it’s getting to the point where one of these days it’s going to boil over. In addition to the middle class, the unions – which have traditionally been a bastion of support for the Perónistas – are starting to show up in the streets as well. If the government’s purported friends are starting to protest against them, then you have to wonder how much longer the current regime can last.

Nick: Given the situation you just described, what’s it like for you personally to be living on the ground in a country that is going through all this? Does the inflation work to your advantage if your money is not denominated in pesos and not located in the country?

David: Yes, absolutely. Argentina is really two different countries. First, there is Buenos Aires [BA], which is a big city and contains by far the largest percentage of the country’s population. In BA there is a bit of crime, and in certain parts of the city you are going to have more crime, but generally speaking, you would be surprised to know that you were in the beating heart of a crisis. Restaurants are full; the stores are open and full of very nice stuff. Second, there are the provinces, which are mostly rural and agriculturally oriented. Here the central government’s authority is weak, and the people are relaxed. The quality of life is tremendous. This is not just the case for Americans, or people who are non-peso based; it’s pretty much for everyone. Food in a place like Cafayate, where we live, is so cheap it’s almost free. You can walk out of a store with a huge bag of fresh produce and it’s going to set you back only a few bucks. A kilo of fine tenderloin will cost you maybe five dollars. Back here in the US a couple of days ago I paid $22 for less than a pound of steak. Then there’s the cost of labor. In Argentina, we have an extremely competent maid who comes in for five hours a day, five days a week and does all the cleaning and laundry – drudge work that people in the Western world have learned to view as an unavoidable part of life – and the cost is all of about $40 a week.

So, despite the overarching reality that the government is dysfunctional and that this is currently being evidenced in the inflation, the quality of life in Argentina for anyone with a few bucks is very, very high.

When I first arrived in the country, I was expressing bewilderment about how screwed up the government was and all of their stupid policies to a friend of mine who owns a local café. After listening patiently, my friend looked at me and said, “David, is the sun not shining, is the wine not plentiful, and is the food not good? So what are you worried about?” It’s a fatalism, but it’s also a realism that the people don’t worry about the government. And because the government is so inefficient, people can, for the most part, ignore it with impunity. That’s not the case in the Western countries where the government has become very adept at using the latest technologies to keep an eye on the populace.

Another friend of mine, a retired successful businessman said, “You know, Argentina is the best country in the world. We just need a little better government.” And I looked at him and I said, “Just a little better?” And he said, “Yeah, just a little better. We don’t want them to become too efficient, then we wouldn’t be able to get away with everything we are able to get away with.”

That said, there are obviously middle-class and lower-class people who are struggling under the inflation. Again, this is especially the case in the big city where the social safety net of friends and family is not quite as tightly knit, and where ready access to the straight-from-the-farm produce is not as easy.

For anyone whose net worth isn’t tied up in pesos and who keeps most of their money out of the country, the current inflation has been a real boon.

You can go to the best restaurant in town and your entrée is going to cost you five to seven dollars, and this is a very good restaurant. A bottle of wine that would cost you $40, $50, $60 in the States, costs you maybe $5-6. The quality of life is incredible. A lot of that has to do with the exchange rate, which has been as much as ten pesos to the dollar recently. When we first started coming down here, it was like three and a half. In short, the inflation is a real benefit if you don’t have your savings and income tied up in the peso.

Nick: From what it sounds like, despite having capital controls, those measures are mostly aimed at people trying to take so-called hard currency, like US dollars, out of the country. For those bringing them into the country, it doesn’t appear that there is much of a problem. Is that the case?

David: You would think they would want more US dollars to flow into the country, but the government policy is so balled up they have put up some barriers to bringing money into the country. That said, there are simple mechanisms you can use to get around the restrictions that are completely legal. One of which involves buying Argentine bonds on the international market and selling them back in Argentina. As for the Argentines who want to get their money out of the country, they have to be extra clever, but they are very good at this kind of stuff. For me, dealing with this situation has been a great experience. Unlike in the US, where everything is straightforward and the rules generally make sense, in Argentina it’s a very fluid situation. I love the fact that I feel like I’m getting a degree in economic crises and how to operate in one.

Nick: Do Argentines favor gold? What about getting gold in and out of the country and buying or selling it in the country?

David: This is a very interesting question. I’ve asked that question in the context of economic crises around the world and throughout history. Gold only comes in as sort of the asset of last resort. We did a crisis panel at one of our conferences a couple of years ago, and we had people who had been through the hyperinflation in Zimbabwe and Serbia, and we also had someone from Argentina. I was moderating the panel and asked them all what factor gold played in preserving their wealth. Everyone said it was not a factor. Instead, they all used whatever strong currency they could get their hands on. In the case of Serbia it was the deutschemark. In the case of the Zimbabwe it was the South African rand, and in the case of Argentina it was, and still is, the US dollar.

In Argentina, the whole country revolves around US dollars; it’s their medium of exchange and how they preserve their cash. For now at least, the US dollar is king in Argentina. Personally, I exchange my dollars in a coffee shop where I slip behind the cashier’s counter and this very cute girl does the exchange from stacks of pesos and thousands of dollars. At some point, if the dollar starts to really collapse and there isn’t a suitable regional or local currency to take its place, I think you will see more transactions in gold.

As far as gold transactions in the country, there are dealers in Salta City, which is the nearest big city to us. Private transactions can also be arranged. In Buenos Aires, of course, you can buy and sell gold easier, but it’s just not part of the culture at this time.

Nick: Turning to real estate, there are many people who are potentially interested in Argentine real estate as we approach what appears to be the bottom of the current crisis. What are your thoughts?

David: I’m a big fan. We own a lot of real estate in Argentina, most of bought when it was a lot cheaper. If you are a dollar-based investor and you can get your money into the country at a good exchange rate, then the real estate prices are very reasonable. That said, I would add that the biggest market for Argentine real estate currently is for Argentinians, because they have to find a place to put their currency before its purchasing power erodes further. Right now it is depreciating probably at 30% to 45% a year. My general sense is that people who have their money outside of the country aren’t in a rush to bring it into Argentina. I can’t fault them for that.

As far as I’m concerned, if you can afford to live in La Estancia de Cafayate and you don’t, you are a fool. But that’s a lifestyle decision, not a pure investment decision. Cafayate is a really beautiful place, with all the amenities and a great community of people. It’s like the Napa Valley 80 years ago. Most people who are looking to make a pure investment right now should probably wait a bit longer. I don’t think the current crisis is over yet.

Nick: Last year the government made it illegal for people to use US dollars in real estate transactions. Now, as you mentioned, not everybody follows these types of rules. Is this something that’s adhered to? It could actually work to your significant advantage, if you are foreign investor or someone who is looking to make a lifestyle decision to buy property in Argentina, if there is a further significant decline in the peso and you are forced to use pesos in real estate transactions.

David: Absolutely. Provided you can get your money into the country and get a good exchange rate, which you can, using that bond trade method I mentioned previously. Cafayate is a small valley with a limited amount of real estate available. It is very much on the upswing, and prices are definitely going higher in dollar as well as peso terms. In terms of putting your money into a pure investment or real estate speculation, I don’t think you could go wrong buying in Cafayate at this point, especially if you get in at the right exchange rate. You have to have the right mentality though, as it is not a traditional investment.

Nick: What is the endgame with this current crisis? Do you think there will be devaluation of the official exchange rate or some other wealth-confiscation measures? What do you think will signal that we’re at the bottom?

David: I don’t think you are going to see wealth confiscation. The foreign percentage of ownership of the Argentine economy is pretty small, so I don’t think they would go after wealthy foreigners. Could they go after the wealthy Argentines? It’s possible, but Argentina is not a big country and everybody knows each other. Most of these government officials have managed to steal themselves enough money to become part of the elite they would potentially be targeting. So I don’t see wealth confiscation coming. I think the endgame will come when you get three or four million people in the streets and the government realizes it has to do something. Maybe they would give into the pressure for a devaluation of the peso.

Regardless, in the next election this October, I think there is a good chance the current government will get voted out. If the new government isn’t completely stupid, then I think you could end up with a real economic boom. That’s the history of Argentina, a crisis followed by a boom. I don’t think we are at the bottom of the current crisis yet, but I think we are getting there.

Nick: All right David, thanks for your time and insight into the situation. There are indeed many lessons that Argentina can teach for those wise enough to absorb them.

David: My pleasure.

    

Slamming The Money Market “Gates” – Capital Controls Coming To $2.6 Trillion Industry

The first time we wrote about the Volcker-led Group of 30 recommendation to crush Money Markets in January 2010 by effectively imposing capital controls and fund “gates”, whose purpose was simply to scare investors out of the $2.6 trillion liquidity pool and force said capital to reallocate into a much more “reflation friendly” asset classes such as stocks, many were concerned but few took it seriously. After all, such a coercive push into a “free” market at the time seemed incomprehensible (if, in reality, turned out to be just a few years ahead of its time).

Fast forward two years to July 2012 when the same proposal of “risk-mitigation” by allocating a portion of the balance to a “loss-absorption fund”, which would “create a disincentive to redeem if the fund is likely to have losses” was not only re-espoused by Tim Geithner, and the NY Fed but the SEC put it to a vote and the proposal would have almost passed had it no been for a nay vote by Commissioner Luis Aguilar opposing Mary Schapiro in the last minute. Still, once more many largely unconcerned about the implications behind this urgent push to intervene and establish pseudo-capital controls in this major source of potential stock buying “dry powder.”

A few months later, following the coercive bail-in of Cypriot deposits, and the new “blueprint” for Europe bank rescues, whereby the authorities have strongly hinted that no more than the insured limit should be kept as as a deposit at a bank and it is preferred that the balance is invested in stocks or some other ponzi-enabling instrument, many have finally started to wonder if indeed there isn’t some overarching strategy to “tax” financial assets in a world slowly but surely going insolvent and where the much desired debt inflation is so slow to materialize (just as we predicted would happen in September of 2011 in The “Muddle Through” Has Failed: BCG Says “There May Be Only Painful Ways Out Of The Crisis“).

Today, with a brand new leader, Mary Jo White, now that the clueless and co-opted Mary Schapiro is long gone, the $2.6 trillion Money Market Fund industry is one step closer to finally being gated. But don’t it call it that – the SEC prefers the term “protecting investors”

From Reuters:

A portion of the $2.6 trillion money market fund industry would be required to fundamentally change how it prices its shares in an effort to reduce the risk of abrupt withdrawals, under a proposal released by U.S. regulators on Wednesday.

 

Funds could also charge withdrawal fees and delay return of funds to customers in times of financial distress, under the Securities and Exchange Commission’s proposal.

 

The SEC plan comes after a long debate over whether changes made in 2010 were enough to avoid a repeat of a run on money market funds seen at the height of the financial crisis.

Naturally, those who see the writing on the wall – the MMF industry – is not happy:

The fund industry has warned that further major reforms could kill investor interest in money market funds.

Well, of course. After all this is the whole point. Recall what we said in July of 2012:

In a nutshell, money market funds (much more on this below), have always been one of the most hated liquidity intermediaries by the central planners: they don’t go into stocks, they don’t go into bonds, they just sit there, collecting no interest, but more importantly, are inert, and can not be incorporated into the rehypothecation architecture of shadow banking.

 

And perhaps that is precisely why the Fed is pulling the scab off an old sore. Recall that for the past year, our primary contention has been that the core reason for all developed world problems is the gradual disappearance of good collateral and money good assets.

 

Even if the MMF cash were to shift, preemptively, into bonds, or any other “safe” investments, the assets backing the cash can them enter the traditional-shadow liquidity system and buy time: the only real goal at this point. In the process, the cash itself would be “securitized” and provide at least a year or so in additional breathing room for a system that has essentially run out of good liquidity, and in Europe, out of any collateral.

 

Expect more and more efforts to disgorge the $2.7 trillion in money market funds as the world gets closer and closer to D-Day. And what happens with MMF, will then progress to all other real asset classes as the government truly spreads out its capital controls wings.

Funny: we said this 9 months before a capital control “disgorgement” struck in Cyprus. Fear not: it is coming to every other “taxable” financial asset. But whereas we thought the money market forced capital expropriation would be first, some places like Europe were so desperate they couldn’t afford to wait that long.

So what proposals is the SEC planning on applying in order to enforce the capital reallocation pardon avoid investor losses? There are two, both perfect strawmen, and have been well-known since the first time we approached this topic three and a half years ago.

In a compromise move, the SEC’s plan mostly focuses on prime funds for institutional investors, which are seen as more prone to runs because those investors are more sophisticated and more likely to pull large blocks of money first if there is a panic.

 

The SEC estimated that institutional funds represent 37 percent of the market with $1 trillion in assets.

 

The SEC’s plan calls for two alternative proposals that it said could be adopted alone or in combination.

 

The first piece would require prime funds used by institutional investors to transition from a stable, $1 per share, to a floating net asset value (NAV) – a move designed to reduce the risk of runs like those during the financial crisis.

 

The SEC said that retail and government funds, which are not considered to be at the same risk for runs, would not have to move to a floating NAV. Retail funds are defined as those that limit shareholder redemptions to $1 million per day.

 

The industry has long fought against moving away from a stable share price, which it says is appealing to investors looking for a safe product.

 

The second proposal, meanwhile, would give fund boards for institutional and retail funds the authority to impose so-called “liquidity fees and redemption gates” during times of stress.

 

That would give funds the power to stop an outflow of investor money, an idea that the SEC’s two Republican commissioners last year said they might be able to support.

We are not sure what is more amusing: that the SEC is so naive it thinks someone will actually believe it can prevent a capital run in a financial panic, or that its transparent attempt to spook money market investors away from their holdings now that the threat of imminent lock ups and gates looms over their heads is not what this is all about. We anticipate that the SEC will drop numerous analogies to Cyprus as a reminder that if something can be gated, it will be gated.

What is more important, is that unlike Schapiro’s plan the current SEC proposal should have no difficulty in passing.

The initial industry reaction on Wednesday indicated the SEC’s plan may not generate the same degree of opposition that the SEC faced last summer when then-SEC Chair Mary Schapiro called for what some consider stricter reforms.

 

Schapiro, who stepped down as SEC head last December, had advocated for a series of possible reforms, including capital buffers and redemption holdbacks, or a broader switch to a floating NAV – two ideas vehemently opposed by the industry.

 

She was unable to muster the votes needed to issue a proposal for comment after three of her fellow commissioners said they could not support her plan without additional study.

 

Schapiro’s proposal was starkly different from what the SEC unveiled on Wednesday. This time, the SEC’s plan contains some proposals that a few fund sponsors have previously said they could live with.

 

“It has been a journey to get to this point,” said SEC Chair Mary Jo White, who took over the agency earlier this spring.

And if the industry is onboard, all the token SEC votes needed to enforce the plan will be in place.

At that point money markets will merely be the latest experiment in behavioral control: how to spook those with money in the multi-trillion industry enough to where they pull their cash and either spend it on trinkets, boosting inflation – a very welcome outcome for the Chairman – or merely investing it in the “stock market.” Perhaps instead of a lock up, at times of crisis MMF investors will be given the opion of allocating funds to the Solyndra du jour (a la the Cyprus bank bailout) or lose all the money.

We are confident the central planners will find a way,

    

IMF Demands $18 For Hard Copy Admission That It Is An Idiot

As we reported earlier today, in somewhat surprising news, the IMF admitted that not only is it an idiot (this was public knowledge) but also a liar (curious, as no “serious people” do this in polite company and certainly not publicly).

Subsequently, it released the full 51 page report. Those who are inclined to read the IMF’s admission that all our allegations about the international agency’s credibility, competence and corruption (which, as it implicitly admits, was also using taxpayer funds from around the world to preserve the way of life for a few parasitic and unelected European technocratic dictators). But perhaps the funniest is that the “world’s bailout organization” (at least in the days before the New Normal) is actually charging $18.00 for every hard copy of the report in which it admits it was morally (if not financially, at least not yet) bankrupt.

So wasting hundreds of billions in taxpayer funds to preserve a broken monetary model and the wealth of a few good bankers is acceptable, but when it comes to attaching a stamp to a letter, the IMF is suddenly prudent and responsible?

Just when one thinks the IMF can’t shock any more, they go ahead and fully redeem themselves.

Full report for which we will not charge one penny – pdf link.

    

Feeling Confident? Just Two Charts

History may not repeat but it certainly rhymes and when it comes to the animal spirits of human fear and greed, nowhere is that more evident than the ‘surveys’ of confidence that US citizens have undertaken for thelast 30 years. As the following two charts show, while many are exuberant at the rise in confidence of late, it is a pattern we have seen play out twice before – and both previous times – it did not end well…


via Citi FX Technicals (charts recreated via Bloomberg),

The consumer confidence chart may remain an important factor in this equation

 

Chart of consumer confidence remains amazingly cyclical

 

 

 

Very clear trend so far of lower highs and lower lows. Since the all-time high in May 2000 at 144.70 we have been in a clear downtrend

 

Data on this indicator only goes back to Feb 1967 and prior to the all-time high in 2000 the peak had been 142.30 in October 1968 (right at the start of the lost 16 year period from 1966-1982)

 

LET US BE CLEAR there is no certainty at this point that a high has been posted in this move…but there are good reasons to suspect that it may have been (or at least that we are very close to that dynamic). If the chart above is consistent then the peak may well come from either the May or the June number.

 

The top of this channel comes in at 76.30 with the May number coming in at 76.20.

 

As can be seen above there has been a very close correlation in time frame in the 1998-2000; 2005-2007 and 2011-2013 moves. That would suggest that the peak in this number would likely be somewhere around present levels and in the May-July period (June would be an exact equal timeframe, to the other two moves)

 

Why might this be important???

 

One of the things that has performed better now than the 1970’s period and the early 1990’s period is the equity market. Or has it?

 

The post housing collapse rally in the equity market did not quite regain the 1973 high before a renewed 18 month fall of 27% whereas this market did regain the high. However it took twice as long (4 years instead of 2) as well as QE 1, 2 and 3 with massive fiscal stimulus to achieve those heady heights. Is that really a better performance???

 

By February 1994 when Greenspan tightened the S&P 500 had overcome the July 1990 peak by 79%. Admittedly this was after a much shallower fall of around 10 %, but from a wealth effect perspective provided a far bigger relative new high than today.

 

In addition when we look at the chart below we cannot help be a little cautious (Albeit recognizing that this is an environment where you have to be a skeptical participant on the move to new highs)

 

 

We are getting “relative triple divergence” between consumer confidence and the equity market. As the S&P has hit a high, higher high and now 3rd higher high consumer confidence has hit a high, lower high and lower high again. This suggests a larger disconnect between the level of “feel good” at the consumer level and the elevated level of the Equity market in an economy that is about 70% consumer driven.

Charts: Bloomberg

    

Guest Post: Will Rail Run Out Of Steam Post-Keystone?

Submitted by Daniel Graeber of OilPrice.com,

More than 97,000 rail carloads of crude oil were delivered in the United States during the first quarter of the year. That’s 20 percent more than the fourth quarter of 2012 and 166 percent more than during the same period last year. Rail shipments of grain, metallic ores and minerals declined, however. Oil companies are moving more of their oil by rail because pipeline capacity can’t keep up with North American production gains. Last week, a pipeline planned from Texas to California was shelved because of the lack of shipper interest, though for rail, there’s been relative surge in crude oil traffic. It remains to be seen if that can be sustained, however.

The Association of American Railroads said 97,135 carloads of crude oil traveled by rail in the United States during the first quarter of the year. That amounts to about 68 million barrels of oil over the course of four months. For the week ending May 25, rail shipments overall were down more than 3 percent compared to the same time last year. Grain deliveries were down 21.8 percent and metallic ores and minerals were down more than 10 percent when compared to last year.

Oil companies are turning to rail deliveries as North American oil production overwhelms existing pipeline capacity. Provided the U.S. government approves Keystone XL, it will be at least two more years before 830,000 barrels of oil per day in extra pipeline capacity comes on stream for U.S. refiners. In Canada, opposition to the Northern Gateway pipeline from the provincial government in British Columbia means an uncertain future for the 525,000 bpd project planned by Enbridge.

The American Petroleum Institute reports that U.S. oil production in March increased 13.8 percent year-on-year to 7.1 million barrels per day. For its part, the International Energy Agency said it expected North American oil production to account for more than 60 percent of the gains seen from outside the 12-member OPEC cartel. That suggests the rate at which production is increasing is faster than pipeline construction, federal permits notwithstanding.

Last week, pipeline company Kinder Morgan said it was focusing on rail deliveries from Texas oil fields for the short term. That followed a decision to scrap a pipeline that could’ve sent 277,000 bpd to California refiners. In March, Phillips 66 said it was “helping to shape the energy revolution in the U.S.” by exploring its options for rail loading. Two years ago, BNSF Railway shipped 70,000 barrels of oil from its near Bakken Oil Express, a rail hub servicing North Dakota.

The debate over pipelines versus rail hinges on access, price and reliability. Rail shipments are more expensive than pipeline, but rail has more diversity. In terms of spills, pipelines are far more reliable than the alternative, but when a train derails, any oil spilled is typically measured in hundreds of gallons versus thousands of barrels. Kinder Morgan’s lack of shipper interest suggests that, for now, there’s not much interest in new pipelines, at least from Texas. While much of the argument is, at least in some circumstances, like comparing apples to oranges, for now, it seems trains are winning the race. What happens long-term with more pipeline access, however, remains to be seen.