Just30:
TODAY RUSSIA IS DOING THIS TO THE REST OF THE WORLD
and Saudi Arabia is panicking


In fact, I’d argue that it is the single most powerful word in any language.

In the midst of the worst market meltdown in a dozen years which has at its source problems within global dollar-funding markets, Russia found itself in the position to exercise the Power of No.

Multiple overlapping crises are happening worldwide right now and they all interlock into a fabric of chaos.

Between political instability in Europe, presidential primary shenanigans in the U.S., coronavirus creating mass hysteria and Turkey’s military adventurism in Syria, the eastern Mediterranean and Libya, markets are finally calling the bluff of central bankers who have been propping up asset prices for years.

But, at its core, the current crisis stems from the simple truth that those prices around the world are vastly overvalued.

Western government and central bank policies have used the power of the dollar to push the world to this state.

And that state is, at best, meta-stable.

But when this number of shits get this freaking real, well… meeting the fan was inevitable.

And all it took to push a correction into a full-scale panic was the Russians saying, “No.”

The reality has been evident in the commodity markets for months. Copper and other industrial metals have all been in slumps while equity markets zoomed higher.

But it was oil that was the most confounding of all.

Most of 2019 we saw oil prices behaving oddly as events occurred with regularity to push prices higher but ultimately see them fall.

Since peaking after the killing of Iranian General Qassem Soleimani oil prices have been a one-way trade. Down.



Our inept leaders are trying to blame coronavirus as the proximate cause for all of the market’s jitters.

But that masks the truth. The problems have been there for months, pushed to the back burner by incessant Fed intervention in the dollar-funding markets.

The 2008 financial crisis was never dealt with, just papered over.

The repo crisis of last September never ended, it’s still there.

And it reappeared with ferocity this week as people sold dollars and bought U.S. treasuries pushing U.S. yields on the long end of the curve to absurd levels.

Credit markets are melting down. Stock markets are the tail, credit markets are the dog. And this dog was run over by a bus.

The Fed intervenes to keep short term interest rates from rising to preserve the fiction it is still in control.

The market wants higher rates for short-term access to dollars.

The Fed tried to help by cutting rates by 0.5% but all that did was tell people the Fed was as scared as they were. The selling resumed and gold bounced back to it’s recent high near $1690, only to be swatted down on the New York open this morning.

That didn’t work either.



OOPS!

And into this mess OPEC tried to save itself by asking for a historic production cut.

OPEC needs this cut to remain relevant. The cartel is dying. It’s been dying for years, kept on life support by Russia’s willingness to trade favors to achieve other geostrategic goals.

I’ve said before that OPEC production cuts are not bullish for oil just like rate cuts are not inflationary during crisis periods.

But finally Russia said No. And they didn’t equivocate. They told everyone they are prepared for lower oil prices.

The panic was palpable in the reporting on the meeting.

“Regarding cuts in production, given today’s decision, from April 1, no one — neither OPEC countries nor OPEC+ countries — are obliged to lower production,” he told reporters after the meeting.

OPEC’s Secretary General Mohammed Barkindo said the meeting had been adjourned, although consultations would continue.

“At the end of the day, it was the general, painful decision of the joint conference to adjourn the meeting,” he told reporters.

Earlier, Oanda analyst Edward Moya had suggested that a failure to reach an agreement could spell the end of OPEC+.

“No-deal OPEC+ means the three-year experiment is over. OPEC+ is dead. The Saudis are all-in on stabling oil prices and they may need to do something extraordinary,” he said.

There comes a point where negotiating with your adversaries ends, where someone finally says, “Enough.” Russia has been attacked mercilessly by the West for the crime of being Russia.

And I’ve documented nearly every twist and turn of how they have skillfully buttressed their position waiting for the right moment to get maximum return to reverse the tables on their tormentors.

And, to me, this was that perfect moment for them to finally say “No,” to get maximum effect.

When dealing with a more-powerful enemy you have to target where they are most vulnerable to inflict the most damage.

For the West that place is in the financial markets.

Remember, the first basic fact of economics. Prices are set at the margin. The only price that matters is the last one recorded.

That price sets the cost for the next unit of that good, in this case a barrel of oil, up for sale.

In a world of cartelized markets the world over, where prices are set by external actors, it is easy to forget that in the real economy (regardless of your political persuasion) the world is an auction and everything is up for bid.

High bid wins.

So, the most important geostrategic question is, “Who produces the marginal barrel of oil?”

For more than three years now, President Trump has supported his policy of Energy Dominance in a Quixotic quest for the U.S. to become that supplier. Trillions of dollars have been spent on building up domestic production to their current, unsustainable levels.

This policy pre-dates Trump, certainly, but he has been its most ardent pursuer of it, sanctioning and embargoing everyone he can to keep them off the bid.

What he could never do, however, was push Russia off that bid.

The reason U.S. production rates are unsustainable is because their costs are higher per barrel than the marginal price especially when all other prices are deflating. Simple, straightforward economics.

If they were, on balance, profitable then the industry as a whole would not have burned through a few hundred billion in free cash flow over the past decade.

That’s where the Russians’ power comes from. Russia is one of the lowest cost producers in the world. Even after paying their taxes to the government their costs are far lower, close to $20 per barrel break-even point, than anyone else in the world when one factors in external costs.

When you don’t owe anyone anything you are free to tell them, “No.”

Sure, the Saudis produce at similar cash costs to the Russians but once you factor in its budgetary needs, the numbers aren’t even close as they need something closer to $85 per barrel.

They can’t tell their people, “No,” you have to do without. Because the populous will revolt.

Russia can ride out, if not thrive, in this low price regime because :

the ruble floats to absorb price shocks in dollars.

A majority of their oil is now sold in non-dollar currencies – rubles, yuan, euros, etc. – to lessen their exposure to capital outflows

the major oil firms have little dollar-denominated debt

low extraction costs.

its primary governmental budget ebbs and flows with oil prices.

All of this adds up to Russia holding the whip hand over the global market for oil.

The ability to say, “No.”

And they will have it for years to come as U.S. production implodes. Because they can and do produce the marginal barrel of oil.

That is why oil prices plunged as much as 10% into today’s close on the news they would not cut production.

There is a cascade lurking beneath this market. There is a lot of bank and pension fund exposure in the U.S. to what is now soon-to-be non-performing fracking debt.

Liquidations will begin in earnest later this year.

But the market is handicapping this now.

I cannot overstate how important and far-reaching this move by Russia is. If they don’t make a deal here they can break OPEC. If they do make a deal it will come with strings that ensure pressure is lifted in other areas of stress for them.

The knock-on effects of oil plunging from $70 per barrel to $45 over two months will be felt for months, if not years.

And it is no shock to me that Russia held their water here. If they didn’t, I would have been surprised.

This was Putin’s opportunity to finally strike back at Russia’s tormentors and inflict real pain for their unscrupulous behavior in places like Iran, Iraq, Syria, Ukraine, Yemen, Venezuela and Afghanistan.

He is now in a position to extract maximum concessions from the U.S. and the OPEC nations who are supporting U.S. belligerence against Russia’s allies in China, Iran and Syria.

We saw the beginnings of this in his dealings with Turkish President Erdogan in Moscow, extracting a ceasefire agreement that was nothing short of a Turkish surrender.

Erdogan asked to be saved from his own stupidity and Russia said, “No.”

This condition of producing the marginal barrel of oil in a deflationary world places Russia in the driver’s seat to drive U.S. foreign policy behavior in an election year.

Talk about meddling in our elections!

The Achilles’ heel of the U.S. empire is the debt. The dollar has been its greatest weapon and it is still king. And it is a weapon with a great deal of power but wielded only against the U.S.’s allies, not Russia.

Markets will adjust and calm down in a few days. The panic will subside. But it will come back soon enough in a more virulent form. Today is a replay of 2007-08 but this time Russia is far better prepared to fight back.

And when that happens, I suspect it won’t be the Saudis or the Turks that come running to Russia to save them, but the U.S. and Europe.

At which point, I have to wonder if Putin will channel his inner Rorschach.

* * *

Inspector Clouseau, Kindly relate this to what we were talking about without trying to look smart.

TayserMahrii:


Inspector Clouseau, Kindly relate this to what we were talking about without trying to look smart.

read and you will understand

Just30:
we are celebrating because
we will safe a lot.

our production levels are lower than what we import for processing.

still hurts your nascent oil export industry

Celebrating what? Why don’t you fvcking mind your own business? Ghana’s economy is not under threat. You know why? Because Ghana is also a major exporter of gold. Anytime oil prices fall, gold prices go up kikuyu boy, I call that win-win Fuckeduppedness

TayserMahrii:


Are we on the same page bro? The bolded looks like writings from a sleeping man.

If you guys are oil exporters then you shouldnt be celebrating.

Sharaaaaap it is a global problem, it is not a Ghanaian problem. Get that into your thick kikuyu head, mudder fugger

TayserMahrii:


still hurts your nascent oil export industry

Danielnino00:


Kenya is already feeling the heat from the coronavirus outbreak even though their country hasn't been affected... I've been seeing report online that they are being hostile to the Chinese.. I pity them... When China gets out of this sh*t and decides to deal with them,e no go funny ..

Thought you said we shouldnt joke about coronavirus and here you are as uncultured as always

Danielnino00:


There's no Kenyan dead or alive that's greater than Kwame Nkrumah!! . Not the thieving Moi and Kenyattas .that Natasha Maria just has a habit of not respecting greatness and culture.... See him making fun of name of places in Nigeria...
A compound mumu... Na wetin him be...

yet still publicly getting hormonal

TayserMahrii:


still hurts your nascent oil export industry

Tullow has bleeped your government up with huge bills

Danielnino00:
Just30 ..just look at this pussies ..

They are already being affected by something that hasn't hit them...

Every country in the world is feeling the economic effects of the virus, including those without a confirmed case. The only way not to feel it is if your country is not global.

TayserMahrii:


still hurts your nascent oil export industry

not really

our production fields are mostly gas fields

unless we start producing oil above 500,000 bpd, a drop in price won't affect us negatively

TayserMahrii:


Every country in the world is feeling the economic effects of the virus, including those without a confirmed case. The only way not to feel it is if your country is not global.

sorry
no everyone has been economically hit by the virus

mtisTheQubit:
And ye shall hear of wars and rumours of wars: see that ye be not troubled: for all these things must come to pass, but the end is not yet. For nation shall rise against nation, and kingdom against kingdom: and there shall be famines, and pestilences, and earthquakes, in divers places. All these are the beginning of sorrows

Nothing new under the sun. The bolded has been happening since day 1, and will continue happening until at least 1 billion years to come. Had you said that to me 250 million yrs ago I would have believed, seeing the mayhem of the Permian extinction wiping out nearly 90 % of life on earth.

jln115:
28% of Nigerias total imports are from China.... 23% of Kenyas imports are from China..... Nigeria is more reliant on Chinese imports than Kenya.

Secondly with the oil prices at under $40 Nigeria will be entering a recession by the next quarter

A nigerian shouldnt talk about economic performance esp when we talking of coronavirus (which is in their country already), China and oil prices. For very obvious reasons.

jln115:
Actually Nigerias economy will be the most effected as it is the biggest importer of Chinese goods in Africa

They wouldn't know unless they are told by smart people like you

Mzal3ndo:

Listen, I am not saying that South Africa doesn't have influence in SADC, what I am saying is that their are two prime way to spread influence, Harp power, such as Military and Soft power (culture, history, economy and diplomacy). Tanzania can use the later to influence SADC better than SA.

And when it comes to the point SA and Tanzania are competing for influence(That would never happen) SADC countries will tend to lean on to which county is a better friend and how will they stand to benefit. And with Swahili, that has been Tanzania's push for a long while. SADC has no benefit of adopting Swahili so they could have just said no.

Are you in SADC to influence people or to do business? Its sheer madness for a Tanzanian to dream of competing with SA. Out of touch with reality.

jln115:

Let me simply respond to the bolded as I think it answers all the boxes.

If what you say does by some very impossible chance comes true and SADC has to choose between South Africa and Tanzania... I can guarantee you every single country would choose to side with SA... Not because SA is a better friend but simply the economic impact alone of not having South Africa as a trading and investment partner would be monumental!! Even Tanzania would not dare let that happen since SA is one of its biggest investors and 4th largest importer

Now we know Tanzania joined SADC to look for relevance and influence. Can anybody then wonder why doing business with Tanzania is always wrought with nonsensical hassle?! They need cheerleaders not business partners.

Mzal3ndo:

The countries most close to South Africa will indeed choose South Africa but Zambia,Malawi and the DRC for a fact will side with Tanzania. And IMPORTS What the hell are we getting from South Africa that we can not get from China Among the reason for strong trade between Tanzania and SA is due to large amount of Tanzanians living in SA so don't even for once think that without SA SADC with somehow suffer.

SADC trades with SA because its the logical thing to do so as to push regional cooperation and economic uplifting not because that is the only option that SADC has, so don't even for a second think that without SA SADC would move and grow.

Theres no siding here nigga, its strictly trade. How would siding with Tanzania benefit a country that needs high tech stuff that tanzanian doesnt make but SA does. Will siding with Tanzania give you the goods Tanzania doesnt make?

Torture2020:
Celebrating what? Why don’t you fvcking mind your own business? Ghana’s economy is not under threat. You know why? Because Ghana is also a major exporter of gold. Anytime oil prices fall, gold prices go up kikuyu boy, I call that win-win Fuckeduppedness

You never proven worth a reply fuckupness. Why should I waste time when I know the response is always going to be the same

Just30:
Tullow has bleeped your government up with huge bills

Nice deflection.

Just30:
not really

our production fields are mostly gas fields

unless we start producing oil above 500,000 bpd, a drop in price won't affect us negatively

Ghana is a tiny weeny. Noyting that happens in the world should matter to you. You always operating on micro scales.

TayserMahrii:


Ghana is a tiny weeny. Noyting that happens in the world should matter to you. You always operating on micro scales.

The rest of the world can burn for all we care

TayserMahrii:


Nice deflection.

deflection from ?

Just30:
sorry
no everyone has been economically hit by the virus

Tiny countries like Ghananina cant be affected.

TayserMahrii:


Tiny countries like Ghananina cant be affected.

Countries that have not placed themselves in precarious international debt exposures are breathing with ease.

TayserMahrii:


Nothing new under the sun. The bolded has been happening since day 1, and will continue happening until at least 1 billion years to come. Had you said that to me 250 million yrs ago I would have believed, seeing the mayhem of the Permian extinction wiping out nearly 90 % of life on earth.

Msee you do realise ths are theories...like now I have my own ..I call it halo universe...yes I theorise that the universe is a halo

Just30:


The rest of the world can burn for all we care

Just30:
deflection from ?

From the main point...

Just30:


Countries that have not placed themselves in precarious international debt exposures are breathing with ease.

Who gonna bail the colonies if the bailers are broke

Just30:


Countries that have not placed themselves in precarious international debt exposures are breathing with ease.

Coronavirus is not impacting debts but markets,,,have you seen stocks collapsing in big economies ? Those are not debts at work son.

mtisTheQubit:

Msee you do realise ths are theories...like now I have my own ..I call it halo universe...yes I theorise that the universe is a halo

But so is everything we rely on including GPS all theories.
Ok, tell me sth about halo universe

TayserMahrii:


From the main point...

were we talking about oil or not?

mtisTheQubit:

Who gonna bail the colonies if the bailers are broke

exactly

who is going to pick up Kenya's debt when China is in trouble and pulling back?

TayserMahrii:


Coronavirus is not impacting debts but markets,,,have you seen stocks collapsing in big economies ? Those are not debts at work son.

you forgotten that debt is part of the market