War and Water-Cut, Where to Stack Cash?

Headlines today suggest the rest of this week will be exceptionally busy for the one-percent.  The world is “trying to break” out from under them.

The headlines deal with two topics and one if an “oldie but goodie” that keeps everything in context.  Perhaps, it is best to start there.

We go back to Matthew Simmons book from several years ago (2005 to be precise): Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy.  In it, he lays out the problem the Saudis are now beginning to face.  As my friend Oilman2 is fond of saying “Depletion never sleeps.”

(Continues below)

 

Consider now the tactical problems of the Saudis:  They have a domestic extremism issue (the Wahhabi sect).  They have water-cut.  They have a national expectation of constantly rising incomes because of the ‘good times of oil.’

Yet, upon closer inspection, things are not going well.  The price of oil has dropped dramatically (though not unexpectedly) as we cross the bottom of the economic long wave.  When the economy – and inflation – was blowing things along, the Oil Cartel had the “luxury” of embargoes and gas lines.”  Now?  There’s a glut and North America has come into her own with a combination of new technologies.  These cover both new well development as well as the rework side.

Toss in the future of Venezuela – which you’ll notice has slid to the “not worth mentioning” pile – and you’ll see that any major oil producer has their share of headaches.

This comes against a larger backdrop:  We’ve been calling it the “Manufacturer’s Resource Wars” for years.  It’s what happens when industrialized and “first nations” need the continued supply of raw materials at rock-bottom prices in order to maintain financial viability.

Even so, the stock market’s recent meteoric rise, which we judge will be over soon enough, has been driving more by accounting than sound operational accounting.  Stock buy-backs, rosy promises of unlimited growth (and drone delivery) and the whole lot of it.

But, on closer inspection, there’s fraud in the book-keeping dept.  What’s happened is that as bonds have come down in price (because rates may actually go up over time) there are investors with only two real choices,  Take a flying on the digital tulips (Bitcoin is around $7,225 today) or buy up stocks that “talk a good story.”

At its core, the Saudi problems are global problems.  And Venezuela, as the Financial Times noted this morning “Venezuela’s debt struggle poses more questions for investors.”  Especially when other reports openly profile “The Drug Kingpin Running Venezuela’s Bond Negotiations.”

What could possibly go wrong?

Obviously, the Saudi’s need an out.  And what is predictable when countries get into intractable situations?  Why, they start wars, of course!

And that’s why it’s so interesting to follow the WW I rhyme with the pre-war Balkans prior to the Archduke Ferdinand killing that set WW I in place.

The Saudi’s are on the verge of ‘war’ with Hezbollah. Saudi Prince Salman’s Chess Game with Hezbollah in Lebanon.

Now, we need to look at a map because the Saudi’s already have what could be looked at as a hostage to use as a negotiating tool: Lebanon PM Under House Arrest in Saudi Arabia: Pro-Hezbollah Paper. So the map, please?

The circle upper left is the first Saudi problem if they want to beat the war drum:  Jordan.  With Israel on fairly good terms with them, Jordan has been a buffer zone between interests in the region.  However, the future of Jordan is looking “iffy” why?  Climate change: Jordan water crisis ‘to get worse’.

The right circle is where the oil is over toward Iran.  Where Satellite imagery reveals decline in ISIS oil production.

The Saudi crown prince is bright enough to know that Hezbollah needs external aid to exist.  And that’s why we read how the Saudi Crown Prince: Iran supply of rockets is military aggression .

To be sure, we don’t expect the outbreak of war this week.  But in the longer-term, depletion never sleeps. So until we get to the “whip-saw spike”  – expected when the results of reduced exploration and new production catches up – occurs, the pressures are on in Saudi Arabia and in Venezuela to meet social expectations on the one hand, while battling the demons of water-cut and depletion, on the other.

For now, the headline that matters is (as always) related to money: “Saudi Crackdown Widens as More Bank Accounts Said Frozen.”

This is not likely to have a direct or immediate impact on the U.S. markets, but as Saudi deals with other parts of the world stand to blow-up because of the internal house-cleaning now underway, if could drive future demands for liquidity and that’s where we look up the tracks a few miles to see that train a-comin’.

Where to Stack Cash?

While the uber-rich of the world can nod knowingly about the future of the Middle East – and place backing bets – they have a more immediate problem with a project by the International Consortium of Investigative Journalists.

They have just released their Paradise Papers and it outs all kinds of major corporations – like Apple.

Among their key investigative allegations about Apple?

  • As governments shut down tax loopholes, Apple found new ways to keep tax rates ultra-low.
  • Those rates allowed it to accumulate a $252 billion mountain of cash offshore.
  • Ireland tied itself in knots hoping to retain Apple, its biggest source of corporate taxes.

The group’s revelations also focus on some of the Trump inner circle claiming, for example:

“One offshore web leads to Trump’s commerce secretary, private equity tycoon Wilbur Ross, who has a stake in a shipping company that has received more than $68 million in revenue since 2014 from a Russian energy company co-owned by the son-in-law of Russian President Vladimir Putin.

In all, the offshore ties of more than a dozen Trump advisers, Cabinet members and major donors appear in the leaked data.”

As time permits, you might want to click over to the ICIJ website and read what they’re doing.  And maybe toss a couple of bucks in the Donate hopper.  Because with corporate “media control” keeping the mainstream in lock-down mode, groups like this are up against some tall odds.

The main reason for mentioning this project is simple enough:  Just like water-cut may (loosely) drive war in the Middle East, the leaking of names and parties in the tax-avoidance world may be compelling-enough to push some Big Money into new hidey-holes.

To accomplish that might mean raising some liquidity in coming weeks.  And where will markets go when “liquidity is raised?”

Trump Calls for Talks

In Korea, Donald Trump is calling for talks with North Korea.  But, as is predictable, the NorK’s, who may be watching a bit much media, have responded with a “nuclear sword of justice” rant.

So this doesn’t look to be going anywhere.  They continue to be a, uh, marvel.

Meantime, the useless fallout from Trump’s Japan stop continues as The Network‘s minions at the State Department will surely remain worked-up that Trump didn’t bow in Japan.

And come on, is “Hope Hicks wears a tuxedo to Japan state dinner” really, oh, you know….news?  Gotta say, she was looking “hotel-oscar-tango” to the fashion intelligencia.

That Gigantic News Hole

Ah, here we go:  Remember how I was telling you that with Trump on a trip, the media would have trouble filling up all those useless news minutes?

So here comes Grabien with “Media Invent Two Fake Trump Scandals in First Day of Asia Trump.”  NSS.

Let’s All Be “Experts”

Sometimes, we need a break from all the deep-thinking about here.  So we toss the darts into the Nostracodeus runs and see “whatsup wid dat…”

Today, we look in on “experts.”

AI needs time to evolve … then we can regulate it, expert says.  You mean like there wasn’t an FAA before Orville and Wilbur?  Who knew?

UM linguistics expert to speak on the world’s disappearing languages.  Question is, in what language will he speak?  Here’s a new concept:  Digital melting pot!

Can II be an expert now, too?

Markets

Another ugly “trute” for ya: CoreLogic US Home Price Report Reveals Nearly Half of the Nation’s Largest 50 Markets are Overvalued.

Market’s paying attention?  Nope:  Dow futures still up 12 ahead of the open.

Even with the top three Fed chiefs jumping ship.

Are we the only ones thinking “What do rats do?”

Or, are we just reading a bit too clearly between the lines?

More for Peoplenomics.com subscribers tomorrow.  Cheap seats here in the bleachers open again Thursday so dew drop in, bubba….

Comments

War and Water-Cut, Where to Stack Cash? — 22 Comments

  1. I kinda understand where Oilman 2 is comiing from on his Peak Oil theory. Just started to remembering about that pile of rocks above ground in western Colorado on the interstate around Rifle. Drove through there one weekend to visit a friend who was already there. Exxon had already spent over a billion on homes, golf courses, schools overpass over interstate. First class all the way. Seems as they were estimating enough oil there for 200 years Drove on up to Evanston Wy and listening on radio. Exxon Board of directors canceled the project on a sunday afternoon and decided to put a couple billion into offshore China oil leases. Best remember oil was at around $35 per barrel. Kinda changed my plans for the next several years. Worked out better in the long run for me but just remember we have that in reserve.

  2. I am constantly shocked.. With more abundant energy around us that is available at all times. Yet we worry about some country whose well is slowly depleting. We kill destroy whole countries all the while we are overwhelmed with access to more energy than we will ever need.
    That’s almost as brilliant as outsourcing all of our manufacturing to another country and giving them economic financial assistance while ignoring our own communities.
    Just baffles me..
    I realize it’s all about a number on paper or computer electric numbers that represent power.. Still the logic of it all just doesn’t add up for me

    • It doesn’t add up because we aren’t told the end goal. Total destruction of USA. Now does it add up?

    • What about subsidizing Amazon’s new construction while existing malls are shuddered and become eyes sores.

      It’s crazy.

      • A well-built mall could be ‘re-purposed’ as apartments or other needed services – the location for a mall hopefully was chosen because it was convenient for people to use. (At least there is parking or maybe an area for some of those ‘food pods’ that are so popular in some cities to be set up.)

        What will happen in the future can often be understood by studying the past. Some powerful individuals tried to limit the teaching of history and civics as to control society, and unfortunately there are uneducated people who are now afraid as they don’t know what has happened before. Knowledge is power!

  3. Did anyone see the new plans for home package delivery ups puts up a box that the driver can access that holds a house or apartment key.. Great idea..”What could possibly go wrong?”

  4. Well, Archduke Ferdinand is the usual suspect, but check out the Berlin-to-Baghdad railroad project as the probable real reason for WWI. Quigley talks about it in the first third of “Tragedy And Hope”.

    • The murder of the Archduke and his wife was the ‘excuse’ for WWI – not really understood as the ‘game changer’ it would become. WWI was a revolution of western society (much more than WWII) and was directly responsible for the Great Depression that developed in the late twenties and thirties.

      Much like tectonic plates that encircle the globe – societies can get ‘stuck’ as evidenced by such cultures as in Japan before the arrival of Admiral Perry in the mid-nineteenth century – and the discussion at hand, the powers that be that were ‘in charge’ in the early nineteen hundreds. There was going to be a ‘great earthquake’ – whether it was the horror of WWI, or perhaps a great uprising of the lower and middle classes (such as what actually happened in Russia).

      We are currently in another of one of those ‘stuck’ periods – and what the outcome will be is not as uncertain as the cause that will force change. It is possible (though increasingly unlikely) that the change will come without bloodshed; but entrenched powers hate change . . . and the world cannot continue such as it is forever

      • Never heard WW1’s cause as a great uprising of the lower and middle classes, that’s a new one! Especially since it ended up killing over 50 million of them in Russia alone.

  5. Regarding the Saudi news I see our own U.S. involvement as POTUS wants out of North Korea asap to pivot into this brewing Saudi/ Iran conflict(never mind our quagmire since 9-11 in that area!) Fight a great battle we must as we bankrupt our own country. His greatness must be as bright as the Sun. All hail “BIGLY”

  6. @ Jenny…

    Saudi won’t get their hands on anyone else’s oil. They do not even run ARAMCO, except at the executive level. ARAMCO employees are mostly expats working in KSA, not natives. There are many more expats than natives in KSA – it’s like they rent their workers.

    They rent their military too – mostly mercenaries or non-natives signed up just like the ARAMCO employees. So there aren’t many of these Saudi royals – thousands, not even close to a million. Whatever loyalty exists is bought, so it isn’t worth much.

    But the real reason is that even the dregs of KSA oilfields are far more prolific than what they could grab from Syria or Lebanon or Israel or Egypt. Maybe Iraq and Iran would be worth them trying to conquer, but they are totally out-manned when compared to those two countries.

    What you can count on is oil price fluctuations the rest of your lifetime. We are already in the beginning of the backside of the oil production curve. Expect the ride to be bumpy, and you will know it is bad when deliveries cannot be made due to insolvency of the buyer, banking foulups, tankers getting stolen (piracy) and other extreme events. But before those events, there should be a couple of huge price spikes, then another oil glut due to the world economy slowing even more.

    The entire Peak Oil thing never really was understood, mainly because it is a generations long event – and nobody in modern times can see much past their next birthday, at best.

  7. Oil production..

    Lack of oil is an illusion..
    When they serve the cool aid we drink it with gusto.

  8. Hope Hicks would be hotel-oscar-tango no matter what she wore, or failed to wear. Some things are simply transparent to a careful observer.

  9. Who to believe, what to believe? “This conclusion is the more inescapable when the true nature of the ICIJ is revealed. For to understand what this story is about it is important to know who put it out, with whom they are connected and who provides the money.

    The key is found in the list of the members of the Advisory Board, the Board of Directors and the funders of its parent organisation, the Centre For Public Integrity (CFPI). The ICIJ states on its website that is a non-profit organisation. That technically may be true but they failed to add that they act for the profit of the people who fund them and who control their operations. Funders of the CFPI include the Democracy Fund, the Carnegie Foundation, the Ford Foundation, the MacArthur Foundation, the Open Society Foundations of George Soros, the Rockefeller Brothers Fund, the Rockefeller Family Fund and many others of the same pedigree. Individual donors include such people as Paul Volcker, former chairman of the US Federal Reserve and many others of the powerful US corporate and financial elite.

    Its Advisory Board includes Geoffrey Cowan, who was appointed Director of Voice of America by President Clinton in 1994 and was in 1994-96 associate director of the United States Information Agency. He is now president of the Annenberg Foundation which has hosted US presidents at its retreat in California, dubbed Camp David West, including President Obama. He is also a member of the Council on Foreign Relations which is the American think tank whose membership includes several former heads of the CIA, several US Secretaries of State, and connected media figures and which has the role of promoting globalisation, free trade and other economic and foreign policies for the benefit of the rich and powerful in America.

    The Advisory Board also includes Hodding Carter III, former assistant secretary of state under President Carter and later a journalist for major western media such as BBC, ABC, CBC, CNN, NBC, PBS Wall Street”
    https://journal-neo.org/2016/04/09/the-panama-papers-the-people-deceived/

  10. What keeps everything in context??? There are too many of us on this ship, and we’re continuing talking poop. IMHO!

  11. U Bitcoin FUDsters remind me of the East Germans after the wall was torn down.First East Germans who thought that going to a tunnel to West Berlin at first couldn’t believe they were free, and thought it was STASI set up. Only when driven over Kurfürstendamm,runs along shopping district, they believed it. A lot of people still can’t believe that Bitcoin is the way to Freedom and think it’s a deep state/ “network” set up. As that other digital currency (FRN’s)runs out of value, I’ll be that A-hole laughing at the unwashed masses moaning about being so late to adopt and adapt to Change. Bwaaaahahahaha..

  12. Thanks for this article about Saudi, I have been trying to put the pieces together for a while now, and this helped. Matthew Simmons was almost a prophet, except that there were so many others talking about the same thing. But we’ve seen the thing happening that most of us expected, that is that when alternate sources came online, folks would just conveniently forget about the future and would think “oh we’re ok now”. Have been waiting for the next thing to happen, and this week, here it is. The king has renationalized billions of cash needed now to keep the facade standing upright. It will be interesting to see what happens from here and how exactly they get their hands on the oil in neighboring countries.

  13. George, once again an excellent column today. So, what do the Paradise Papers mean for the stock market? If a lot of the future tax cuts are already in the market, and with the big corporations and big players already offshoring most of their profits to avoid taxes, will the public now object to lowering corporate taxes and to a taxless repatriation holiday, with only a pittance going to the middle class? And if so, will the tax cuts then fail, triggering the big downturn? Man this stuff gets complicated. Mike

  14. They have been preparing for this. Any search of oil related stories on Google news results in all these deals going in back in October about increased us production of oil.

    Remember G! Revolutions are planned way ahead of them actually taking place. All this Saudi business was planned months ago.

    I can give many examples, Egypt revolution etc. Etc. Etc. The msm post these pictures of huge firework displays on the their website after the Egyptian revolution. Now, you have to order those fireworks 6 months to a year in advance! You honestly dont think some Egyptian dudes had all these expensive mortor fireworks just laying around in a shack incase there was a revolution do you? Lmao

    People are gullible.

    All this Saudi business is orchestrated. Planned probably 6 months ago.

    Later old dude.

    Off to grab 18 gears!