It’s a tale of upstream and downstream !


Even those affected with attention disorder noticed that oil price where low last year. The precious liquid was priced around 100$, it felt under 50 during the year 2015. A sharp decline that produced a very wide range of effects. Reduced energy prices gave consumming economies a small boost in growth by the virtue of smaller trade deficits. Producers, on the other hand suffered greatly. Russian Ruble halved in value, Venezuela in on the rope, Saudi Arabia is begging on world financials markets.

Oil Majors published reduced earning, BP is even in the red for the second year in a raw. It’s sound absolutly logical so far. But there’s is something strange. If you read financials statements of those industrials giants there is one thing you should notice. Downstream (mainly raffinage) is going fine indeed, bordering on booming to be clear.

Total the french giant proudly report a doubling of it’s net income coming from downstream (1).

Exxon the mother of all oil companies is on a similar path, earnings coming from the downstream is also tripling (2).

Shell could do no less, so without any surprise it’s 2015 report show a tripling of net earnings coming from from the downstream opérations (3).

Meanwhile Valero the american refining giant is showing a very small progress on what is it’s main business. The refining income coming from the refining operations trend higher by somthing like 20%, from 5884 millions dollars to 6973, that’s good but not stellar (4).

So we can only say that that where is a shadow boom for downstream business of oil majors wich is working only for them. That is a very interesting situation wich is almost impossible to explain rationnaly as almost every western market is in over capacity as consumption is slowly decreasing year after year including in the USA. One way to go is to think that they can play with market prices in order to regain in the downstream a share of what they lost in the upstream.
The link we are putting below should is perhaps a key to understand how they did it.

Country are in blue; company in pink, each link show an interest in raffinage from a company down to a country.


When Janet the dove became an hawk


 No Christmas gifts for Président Donald 

Explaining why Janet is very political explains that we will have a Trump’s Fed.

In September 2016, Janet though that the situation was not proper for a rate hike, Hillary Clinton was ridding high. Now in December, as President elect Trump is nominating his cabinet, it is urgent to hike them, so be it. But the surprise was not there, the American economy is now so strong that she talked of three hike in 2017. The American people didn’t noticed it but the long awaited boom has finally arrived, since September Goldilocks camed back.

It’s a joke, the ending of the Obama’s presidency would have been a good time to let rates go higher, prompting a long awaited purge in the bond market; it would have been good for the USA and for the world. But Democrats were desperate to keep the power, there would be no end of mandate crash as there was in 2000 and 2008, Hillary Clinton was to be the new president…Pennsylvania, Michigan and Wisconsin decided otherwise, wisely I think.

But now President Donald have a problem on his tiny hands ! If he doesn’t want to destroy his presidency, he can’t let a bond bloodbath occur now, he would own it. Further more, with Janet hawkishness, the dollar is going stellar which is a less than ideal spot for a man which want to bring back jobs. All that means that his administration will have to ensure the Fed is obedient and remain the good dove it was during the whole Obama’s presidency. That fight will begin on day one, don’t forget to follow Donald on twitter…more fun is on our way !

Dollar bloodbath and inflation, at last !croyez_le_le_president_donald_trump_cartes_postales-r6a1cf94370b54366b8d8b3ec4de6a51d_vgbaq_8byvr_324

All that means that we will see a fight for the Fed which will be followed be a very lenient new policy. The bond market will not collapse as it is doing since the Brexit but the dollar will go down from his current high mark. Otherwise, a Trump’s presidency will not be able to have any significant impact.

From our perspective, Donald Trump is very unlikely to not act and launch an all out offensive to make the Fed giving up it’s current policy. A weak dollar is still the best way to take protectionist steps. As oil is following an international price, it will give a big boost to producers in the USA : they need that, Rex Tillerson could tell you that. So all in all, we think that the markets are going to be surprised in 2017, rates will not go higher and higher and sometimes in September next year, we will have a Fed member telling us that the economy is not that stellar, to say the least. It will high time, a new very expansionary budget will be on his way !

On the long run all that means that the USA economy let a golden occasion to make things right in September, the political opportunity is now over. It’s only logical to assume that the USA and Europe are going to glide further on the Japanese road of no interests for at least four more years. It should be understood that we’ve been there for a long time now and four more years…is a long time. Our broken system is very tired and it could burst any day, no one knows, but here we make the bet that President Donald will not dare the beast …Maverick perhaps, mad no !

Trumpism is not Trump’s fault !

Donald Trump

The long view on Trump. Reading the legacy media, shock and surprise seemed to be the only way to illustrate the 8th of November upset. For us, that way of branding the event is as deceitful as the polls where at the event of the election ! It is just another way to skip the real subject : the possibility of an historic turn-around in US politics. One that could have happen four years from now but who took place a few days ago for reasons that will appear anecdotal in due time. To understand it we have to go back 153 years. From an economic stand point, the Civil War saw free traders being crushed by protectionists. Appomattox1 was the starting point of an industrial boom like no other. It took half a century to a country thorned by Civil War to become the first industrial power in the world. The foundation of that prosperity was protectionism.

But when the US became the first industrial power, it became the powerful free trader, as England did at the hight of the nineteen century. It is only logical once again, there were so much profits to rip from the world’s markets that temptation was irresistible. In 1945, Europe needed americans products to rebuild itself. Things began to change in 70’s when deficits made their appearance but the US remained the indispensable economy in the world. But on the long run, american might on globals markets wane more and more. As it happened to every declining producing economies, finance became the name of the game. Thirty years of declining interest rates produced a financial boom like no other, it could be said that it is already over. 2008 showed clearly that Wall Street irrational exuberance could not go forever. Quantitative Easing signals the end of that economic phase. Todays interest rates can’t go lower without destroying the real economy for good. That is why Central Bankers are edging their bets on that front, it was necessary to stop the deflation but it was dangerous to push for another bump in the monetary growth. In short, the US economy is sitting at the bottom of the growth cycle, something have to change.


A view of Shangai’s port

Now is time for change, a new giant is know working it’s way to the top. China, according to Purchase Parity Power, is now the new leading economy in the world. It is a producing behemoth as strong as the US where on the eve of the 20th century. Times ares changing and we have to change with them. The player which will earn the marginal product of world trade is not the USA anymore. An open border policy cannot be a net positive for the US economy given world markets circumstances. While that process was already hitting hard, the rust belt “America Inc.” could rip healthy profit from the flow of service and goods coming from Asia. But now, it is clear that chinese and others asian companies are on their way to manage the process from the producer to the consumer. From now on, it is clear that the fortune 500 companies are going to feel the heat more and more. Following our perspective, it is not difficult to understand that the 8th of November is not that a surprise : it was only a matter of time before such an event took place in the historical process, and, if history maybe of some help, it could bring the American people rich rewards in due time.

But if it’s potentially an healthy thing, why so much noise and consternation ?

To understand that, it is necessary to point at the social forces behind the statu quo. It was not for nothing that Goldman paid Hillary Clinton absurd amount of money for questionable speeches; it is worth noticing too that the Silicon Valley was behind her, at the notable exception of Peter Thiel 2

Finance could suffer heavily from a financial reorganization focused on production, the tech companies are among the last ones to grow in the international sphere. Just imagine how much trouble it would be for Apple if president Donald set punitive trades tariffs. For them, change could bring mayhem, that fact founded a powerful alliance. Add to that the interests of a security apparatus build for imperial status and you’ll get a good view of what the establishment is. In short, what is good for Apple and Goldman Sachs is not so for main street and that fact is set to grow bigger and bigger each year passing. It’s a loosing war, but the Civil War was also decided in it’s ending from the very first day. We can only suggest that the terrible ideological fight taking place is an healthy alternative to civil war. It should not be surprising if it get even nastier.

11865 : the reddition of Lee’s Potomac army

How US love for the kurds is an old story !



Those days kurds are all over the news. They are fighting ISIS in Syria in the same move that see them helping on the outskirts of Mossoul. We are told that they fight bravely against evil.



It must be said that this sudden glory is founded on serious facts :



In October 2011, ExxonMobil signed six Production Sharing Contracts covering more than 848,000 acres in the Kurdistan Region of Iraq. 1 Total23 is there too re-discovering oil in places already prospected one century ago. It seems that friendship and business are going hand in hand those days in the north of Irak.



But it should noted that the interest of the westerns powers for the Kurds is not new.


During the seventies, la cause Kurde, was already important for the USA.


An important episode is cleared by US archives. The USA and Iran helped Kurdish leader to build a military force able fight the Iraqi army. In those times Iraq was nearly aligned with soviet union, Kissinger thought it was important to create a bleeding wound in Iraq. So the CIA took action accordingly.


« CIA reports that more than 1,000 tons of non attributable arms, medicine sand blankets have been supplied(a value of over [less than 1 line not declassified] which cost less than [less than 1 line not declassified]); our monthly subsidy of [less than 1 line not declassified] has enabled Mulla Mustafa to maintain and strengthend a 25,000-man military force; intelligence on Iraq is received from Mulla Mustafa’s mountain headquarters [less than 1 line not declassified] our support is channeled through the Iranians (who contribute $4.8 million per year plus unknown arms and services) and has been coordinated in general terms with [3 lines of text not declassified]. »4



But the central government in Iraq prevailed and a few years later, kurdish people will find they where on their own all along. By a vicious twist Iran became the enemy and Iraq, for a few year, was seen as a less bad option. Saddam Hussein who was really a bad guy took good care of those poor people. Nor the USA or France took any action. It took the first and second Iraq wars to change the tide, again, kurdish people proved to be useful to the westerns powers. Step by step the Peshmerga build something which is almost a state, now.



But Iran’s position seems pretty clear on that subject, there will be no partition of Iraq, it can be presumed that the Turkish state is not a friend either. Kurdish people are now fighting alongside the US and France which are legacy powers in the region. In case of a retreat of the west, the future would be very bleak for kurdistan. I am very afraid that we are on the verge of another dark decade for Kurdish people. In time we will be able to gauge the enthusiasm and rhetoric we are exposed to for what it is, greed and







Revisionist power, did you say revisionist power ?

Foreigns affairs American think tanks are actively discussing the rise of china.

Those speaking events while being a must if you are interested in those subjects seems to cross on an important point, the question is almost framed as follow : China is very probably a revisionist power, and if so,then there’s how things are going to unravel. Thenceforth it seems logical to think alongside well known historical precedents. The story line that follow is simple. Germany and Japan were strong and powerful revisionist powers do you remember how it ended ?

These are bright people to be sure; yes historical precedents are almost all we have. but one can wonder why they use such an easy way to elaborate on a complex and versatile situation. Our answer is two fold, such an angle is easy listening for the audience as everybody know what was going then, more importantly, framing the subject in such a way lead to reassuring conclusions. Our opinion is that sadly the second argument is probably the one to keep in mind.

Even, as we are not an expert in that field we can suggest that other parts of history could have been invoked convincingly. Ashton Carter reminded us of the dreaded thirty years war comparing it to the messy business in the middle east, pointing particularly the conflict between Shiites and Sunnites. We saw there a powerful historical parallel that he probably didn’t have in mind.

Framing the discussion in an other direction.

At the dawn of the 17teen century Spain was still the most powerful western empire. Charles Quint split his empire between his heirs in order to create manageable estates, administration was so cumbersome and byzantine that the term state is probably too strong. The western estate took with it the Americas and Philippines as well as Spain, the Low Country and various places in Italy. The eastern part was an even stranger peace of statecraft. The Holy Romain Empire found itself ruled by a Habsbour who found his power on Austria and Bohemia witch were imperial lands as well as parts of Hungarian and Croatia. All in all the second branch inherited considerable prestige from the imperial title as the western branch enjoyed the generous stream of revenues coming from the Americas.

With time it was inevitable that each one of these greats houses would go in his own way, guided by the flow of a changing world. But two things played a powerful role in keeping the international politics of the two Habsbourg branches being played in a cooperative mode. The Habsbourg played a very strong role in the counter-reform, religious bias were shared, those people thought they were defending the true faith and in the case of Spain Inquisition was there to enforce what was a state policy. More importantly both had a powerful neighbor on the rise again after having suffered terribly from the religious trouble : France.

That country was a producer of wheat, wine, lumber, textiles and so many others things, it’s population was great and more important it’s state was very strong and competent if compared with the state of affair prevailing in the habsbourgs estates. Worse, having remained catholic by the grace of Henry IV senses of real-politic it was a contender in the matter relatives to the holy roman church. France had been a foe during the 16teen century, it would be again now and it was dangerous for both houses.

But the Holly Roman Empire was too weak to risk a direct confrontation. First it had to build a powerful administrative structure, Protestant had to be put in their place, and princes had to bend before the emperor. Then and only then it would be possible to take on the only power that could oppose them. That’s what Ferdinand Of Habsbourg embarked on, starting what would be known as the thirty year war.

At first France could and would do nothing, but time passing it became obvious it couldn’t allow Ferdinand’s scheme to be allowed. So it’s started to spend money and to give a push to every protestant ready to fight. War in Germany became uglier and uglier despite a very promising start for the Habsbourg. Then at the tipping point, Gustav Adold’s the swede guy camed in a rush making the odds of a positive outcome for Ferdinand less and less possible. It’ was time for Spain to put it’s weight in the balance, France could do no less that to follow suit. What was a very nasty war by proxy had become a full blown war between the great powers of the time. The conflict was now clearly out of control. Spain ran out of men and treasure, Austria was exhausted, the disaster of Rocroi made it clear to the world an entire army could be wipe out in one engagement. It was hard to see a positive outcome on the side of the Habsbourg it was time to search for a settlement.

Incidently it’s worth noticing that the long search for it founded the institutional framework that some in the USA though outdated, who is revisionist ?

What is the point ?

Spain had both the best army (the feared tercios) and money (gold and silver from the americas), it was too strong at sea to be seriously challenged. But in the end it would never be able to manage a come back from what was a devastating enterprise. France was a producer of goods and raw materials, it edge it’s opponents in population and management, it played a long strategic game keeping it’s options opens. It’s game became clear late in the process.

15 year ago USA felt threatened by the rise of China, it was already foreseeable that it was becoming formidable again after a two century eclipse. So it felt compelled to put it’s hand on the world greatest prize (middle east oil) without sharing “fairly” with it’s old gang, against the international community. Doing so, it entered a world of hurt as every power had an interest to make their life harder in those place not even counting the locals which were reluctant to say the least. Now another great player entered the game using his considerable strength to make his point, Russia, the one that was supposed to be tamed. China is not even officially involved and things are already going very sour. Prestige, money and innocent people blood have been spend in enormous amount. Meanwhile the social fabric of that great nation suffered heavily as the current election cycle underscore . Here it is : that’s my theory of the reluctant declining great power. It should be said that the passing of the torche was relatively easy between the two Anglo-Saxon powers, thanks to the Germans thumbling their hand again and again. One century sooner the defeat of France under Napoleon came at a great cost for everyone, and as i just reminded the reader: the Habsbourgs fall in a blood bath. Perhaps those in Washington should better to think along those terms from time to time.

It’s time for humility

Every comparison could be used, up to a point. We do not think that our example is that pertinent but it has some things playing in his favor. The question is now simple, why our American thinkers are using such a simplistic geopolitical framework of reference ? I can understand that public and academic life being what it is, being polite is an important part of the exercise but i suspect a more sinister reason behind this bias : those people really believe what they are saying, not in every point of course, but the framing is a good way to understand their point of view nothing could go very badly. Perhaps that the powerful think-tanks as wise and knowledgeable as they are have a very difficult time to embark on a real critical discussion of what’s going on. That would be sad, a failing global strategy can’t be address by an intellectual elite that apparently started to believe in it’s own pie in the sky stories. As you can imagine by know I think those stories are dangerous, sadly, probably a warning of more blunder to come. But who knows what is going to happen, our strongest guess is it will surprise the good people of the Wilson center, CFR and many more and, if things go smoothly, even myself.

The game is rigged folk’s, there will be blood !

Perhaps most of us won’t find it that funny, but is that important considering the great schemes of things ? I think not. Yes, everything seems blurred, market mismatch are every where, oil is in the crapper, in good company China is there too.


The feeling I have is very different. From my prospective, the game is pretty clear indeed.


The Washington consensus died when Lehman got bankrupt. From this day on, central bankers worked very hard to gain time for states around the world to find a new global modus vivendi. Currency, banking and oil are at the forefront of the next great deal, no big news there. A  newcomer, gas stand proud in the international game, two wars under his belt. Yes ,Ukraine, Syria, are gas issues.


Considering oil, one can find surprising that it’s price is falling very sharply . At this very moment India is gearing up. Despite a world depression, oil consumption will be millions barrels per day higher in a few year. What is happening now to explain the current state of affairs ?


Is that not surprising, in the USA, juniors made the bulk of the growth generating huge amount of debt ? Why Exxon and it’s fellow majors did not jump into the game, they got bored of easy money ? Pushing the production in the USA was costly, around 500 billions dollars, a big chuck of money even for an oil giant. Was it not more adequat to pay this investment with printed money ? Is that not smart to push the newcomers into the abyss to buy their asset for a penny on a dollar ? Yes it is, and that’s what is going to begin this summer. In short, the current state of affairs is very profitable to the majors, in the long run.


One could ask :  “is that not very dangerous to push the financial sector over the edge once again, is that not a bridge to far ?” This one is easy to answer considering how our financial system appeared following the oil crisis of the 70’s. The money which was taken from the pocket of the consumer by the Saudis and others, came back immediately on the Western financials markets. That’s why deficit didn’t matters, for a very long time, fresh money was to be coming for sure. Bankers where given the heavy duty to manage it in the best interest of the public, in order to prop a good healthy economy. It was a tremendous success, Alleluia ! That game is now over, deficit have became too heavy, structural unbalance are too enormous.


Following my argument, one should understand that our financial system will change deeply very soon. Hard times are coming for New York, London and Paris, London especially, sorry for you UK ! But finance is only the tip of the iceberg, oil and gun are the name of the game !


The USA are already the biggest oil producer, in due time they will become a powerful exporter, the legal side of this predicament is already fulfilled. In a few year people will see it clearly, Oil production will bring a new wealth to the USA but Wall Street will be very diminished it’s political usefulness being exhausted. It will change the political balance for this great country and many others.


The end of the presidential campaign, as usual, will be the best moment to move. The market are going to explode , oil juniors will bankrupt themselves in numbers, along with financial institutions. That’s for 2016, cool.  But the real fun will come in 2017. It will be time to see the oil price going up and up and up in order to launch a new wave of investments around the world. Do you really believe that Exxon is going to pay for all that ? No price will do that surely.


At this moment, the USA will appear to be broke, completely. Defaulting will come to mind, quicker even that with the QE which are a soft way to do so. Those parameters point directly to the good people of Saudi Arabia. Pushing them over the edge is a nice solution to kill two birds with one stone. Enormous problems are on their way for the Kingdom, and angry Iranians won’t be the worst. Alas, when Ryad will be burning, the  USA will suddenly find it very hard to « locate » the wealth accumulated by the Kingdom in bonds shares and other assets. In short, China will receive Saudi’s money is that not nice ?

In the end, President Donald will travel to Moscow in his brand new golden Air Force One, embrace Vladimir. Together, they’ll set the new oil price for the world as well as many other petty things. Russia and the USA will be the new OPEP and believe me, they will manage their position in the best interest of every body, for sure…

29 all over again !

29 all over again !

Chinese markets plunged Monday in a free fall manner, despite all the care they received. Some could see that move as a logical conclusion of the mammoth growth which took place there for 35 years. Yes it is that and something much more important.

In 2008 when world trade was in free-fall, China took it on herself to launch a massive stimulus program, giving breath to a dying construction boom. Such a move was already unneeded for internal purposes,  it only help a struggling world economy to lurch six years on an impracticable path of QE and stimulus. China helped the world avoid the depression we are facing now, stronger than ever. But it was not for free as the country was asking politely for two important items : a restructuration of the internationals institutions like the FMI and the World Bank as well as a change in the us policies concerning debt and ultimately the status of the dollar. Peking even agree to let the Yuan go higher and higher in an effort to set things straits for the day it would flow freely. Indeed king dollar bought less and less yuan until the devaluation move which came last week, in 2006 it bought 8.2 yuan, in 2014 it bought only 6, almost a 25% reevaluation ! The recent Chinese move which is highlighted now is only a come back to 2011 at 6,5 yuan per dollar.

Alas, despite all Chinese goodwill and sacrifice, the USA were unwilling or unable to proceed in what was could only be described as a downsizing of their global political and economical reach. Even worse QE came after QE, china would not gain interest on her hard earned cash.No surprise, China is now playing her cards in a non collaborative way, tit for tat is the name of the game shall we say. But the West should be aware of a very nasty precedent.

During the roaring twenties the USA launched a manufactured boom using the new tools provided by the brand new Federal reserve, it was supposed to help Europe in dire need of economical relief, the reds were at the door, unrest everywhere. easy money started flowing even as European currency were always going down, time after time. That policy gave birth to a twin boom in real estate and stocks prices. When it became clear that such a policy created more problems than it could solves, the FED unplugged the market giving birth to what we know as the great depression.

US entered a full blown depression which had paradoxical consequences while it was seen as an economic catastrophe in the country and elsewhere   when the dust settled, the USA where the only one still standing firm in the economic scene. England and France had lost their economic status, Germany had gone crazy.

We think that what has began Monday is a move which is comparable in scope and range, the world will shake. Chinese state has new allies and can rely on the Russian hinterland which is offering guaranties in the case things go very sour. In others words they are ready to deal with what is unleashed on a reluctant world, are we ?