After months of preparing financial markets for this news, the Federal Reserve is widely expected to announce that it will finally begin shrinking its $4.5 trillion balance sheet.
I know, that probably sound reeeeally boring. A bunch of central bankers talking about their balance sheet.
But it’s phenomenally important. And I’ll explain why-
When the Global Financial Crisis started in 2008, the Federal Reserve (along with just about every central bank in the world) took the unprecedented step of conjuring trillions of dollars out of thin air.
In the Fed’s case, it was roughly $3.5 trillion, about 25% of the size of the entire US economy at the time.
That’s a lot of money.
And after nearly a decade of this free money policy, there is more money in the financial system than ever before.
Economists have a measure for money supply called “M2”. And M2 is at a record high — nearly $9 trillion higher than at the start of the 2008 crisis.
Now, one might expect that, over time, as the population and economy grow, the amount of money in the system would increase.
But even on a per-capita basis, and relative to the size of US GDP, there is more money in the system than there has ever been, at least in the history of modern central banking.
And that has consequences.
One of those consequences is that asset prices have exploded.
Stocks are at all-time highs. Bonds are at all-time highs. Many property markets are at all-time highs. Even the prices of alternative assets like private equity and artwork are at all-time highs.
But isn’t that a good thing?
Well, let’s look at stocks as an example.
As investors, we trade our hard-earned savings for shares of a [hopefully] successful, well-managed business.
That’s what stocks represent– ownership interests in businesses. So investors are ultimately buying a share of a company’s net assets, profits, and free cash flow.
Here’s where it gets interesting.
Let’s look at Exxon Mobil…
In 2006, the last full year before the Federal Reserve started any monetary shenanigans, Exxon reported $365 billion in revenue, profit (net income) of nearly $40 billion and free cash flow (i.e. the money that’s available to pay out to shareholders) of $33.8 billion.
At the time, the company had $6.6 billion in debt.
Ten years later, Exxon’s full-year 2016 revenue was $226 billion, net income was $7.8 billion, free cash flow was $5.9 billion and the company had an unbelievable debt level of $28.9 billion.
In other words, compared to its performance in 2006, Exxon’s 2016 revenue dropped nearly 40%, due to the decline in oil prices.
Plus its profits and free cash flow collapsed by more than 80%. And debt skyrocketed by over 4x.
So what do you think happened to the stock price over this period?
It must have gone down, right? I mean… if investors are essentially paying for a share of the business’ profits, and those profits are 80% less, then the share of the business should also decline.
Except — that’s not what happened. Exxon’s stock price at the end of 2006 was around $75. By the end of 2016 it was around $90, 20% higher.
And it’s not just Exxon. This same curiosity fits to many of the largest companies in the world.
General Electric reported $13.9 billion in free cash flow in 2006. Last year’s free cash flow was NEGATIVE.
Plus, the company’s book value, i.e. its ‘net worth’, plummeted from $122 billion in 2006 to $77 billion in 2016.
So investors’ share of the free cash flow is essentially worthless, while their share of the net assets has also fallen dramatically.
GE’s stock was actually down slightly in 2016 compared to 2006. But the minor stock decline is nothing compared to the train wreck in the company’s financial statements.
Between 2006 and 2016, McDonalds reported only a tiny increase in revenue. And in terms of bottom line, McDonalds 2016’s profit was about 30% higher than it was in 2006.
McDonalds’ debt soared from $8.4 billion to $25.8. And the company’s book value, according to its own financial statements, dropped from $15.8 billion to NEGATIVE $2 billion.
So over ten years, McDonald’s saw a 30% increase in profits, but took on so much debt that they wiped out shareholders’ book value.
And yet the company’s stock price has TRIPLED.
Coca Cola. IBM. Johnson & Johnson.
Company after company, we can see businesses that are performing marginally better (or in some cases WORSE). They’ve taken on FAR more debt than ever before.
Yet their stock prices are insanely higher.
How is that even possible? Why are investors paying more money for shares of a business that isn’t much better than before?
There’s really only one explanation: there’s way too much money in the system.
All that money the Fed printed over the years has created an enormous bubble, pushing up the prices of assets to record highs even though their fundamental values haven’t really improved.
As the Wall Street Journal reported yesterday, “Financial assets across developed economies are more overvalued than at any other time in recent centuries,” i.e. at least since 1800.
Investors are paying far more than ever for their investments, but receiving only marginally more value in return. And they’re actually excited about it.
This doesn’t make sense. We don’t get excited to pay more and receive less at the grocery store.
But when underperforming assets fetch top dollar, people feel like they’re wealthier. Crazy.
Today the Fed should formally announce that after nearly a decade, it’s going to start vacuuming up a lot of that money it printed in 2008.
Bottom line:they’re going to start cutting the lights and turning off the music.
And given the enormous impact that this policy had on asset prices, it would be foolish to think its reversal will be consequence-free.
After reports surfaced last month that President Donald Trump was becoming “frustrated” with his Secretary of State Rex Tillerson, another world leader has expressed regret at honoring the former ExxonMobil CEO. Russian President Vladimir Putin joked during public remarks on Thursday that Tillerson had “fallen in with the wrong company” since being awarded with a Russian state honor for his contribution to Russian-U.S. relations, according to Reuters.
The remark was emblematic of the deterioration in relations between the Trump administration and Putin’s government:
Late last month, the White House ordered the closure of three Russian consulates – purportedly to achieve “parity” between the two countries’ diplomatic missions, saying the missions needed to be closed by Sept. 2. The decision, a response to Russia kicking out dozens of US diplomats earlier in the summer, provoked outrage in Russia.
Addressing a US citizens at a plenary session of an economic forum in Vladivostok, Putin said: “We awarded your compatriot Mr. Tillerson the Order of Friendship, but he seems to have fallen in with the wrong company and to be steering in the other direction,” according to Reuters.
“I hope that the wind of cooperation, friendship and reciprocity will eventually put him on the right path,” Putin added, drawing cheers from the crowd.
Back in 2013, Putin awarded Tillerson, then CEO of Exxon Mobil, the Order of Friendship for his “significant contribution to strengthening cooperation in the energy sector.”
Under Trump, the US has expanded its economic sanctions against Moscow – measures that were passed by Congress over the explicit objections of the administration, which warned that they would imperil a détente between the two world powers. Russia is, of course, still at the center of multiple probes into whether it meddled in the US presidential election. Trump had widely praised Putin during the campaign, saying he wanted to improve ties between Russia and the US to focus on areas of “mutual interest” like fighting ISIS.
Goldman Sachs FICC-trading income was an unexpectedly ugly blemish on what was already a poor Q2 earnings report. And while the FDIC-backed hedge fund initially blamed the decline on lower trading revenues, lack of volatility and depressed client activity...
... there was more to the story. The Wall Street Journal has uncovered what really happened: A $100 million bet on regional natural-gas prices gone awry after production problems at a local pipeline sent prices soaring, decimating Goldman’s short position.
“Goldman wagered that gas prices in the Marcellus Shale in Ohio and Pennsylvania would rise with the construction of new pipelines to carry gas out of the region, said people familiar with the matter. Instead, prices there fell sharply in May and June as a key pipeline ran into problems.”
More specifically…
“Goldman’s key miscalculation last quarter was betting that natural-gas prices in the Marcellus Shale would rise relative to the national benchmark price in Louisiana known as the Henry Hub, the people familiar with the matter said.”
The quarter was the worst ever for the bank’s commodities unit, which, as WSJ notes, has been one of the firm’s most consistent profit centers, and a training ground for many of its top executives, including Chief Executive Lloyd Blankfein. The trading loss “extended a broader slump at a company once known as Wall Street’s savviest gambler.”
Goldman shares fell 2.6% on the day of the report, which analysts largely attributed to the miss in trading revenues, despite a stronger-than-expected bottom-line profit.
The investment bank has held on to its commodities-trading business even as most other American banks exited following the financial crisis. It is currently the seventh-largest market maker for natural gas in North America, larger than some energy giants like Exxon Mobil. According to WSJ, trading oil, metals and other physical commodities is increasingly dominated by smaller firms like Glencore PLC and Gunvor Group Ltd. that don’t face as much government regulation.
“The loss highlights the trade-offs Goldman made in sticking with the risky commodities-trading business, even as other large banks retreated following the financial crisis. Goldman is the seventh-biggest marketer of natural gas in North America, up from 13th in 2011, according to Natural Gas Intelligence—bigger than U.S. energy giants such as Exxon Mobil Corp. and Chesapeake Energy Corp. It has been the only U.S. bank in the top 20 since 2013, when J.P. Morgan Chase & Co. left the business.”
WSJ explains that Goldman’s position would"ve produced a profit if a pipeline being built to carry natural gas out of the Midwest had been completed on time. Instead, it faced multiple delays after a series of fluid spills and the accidental bulldozing of a historic Ohio home.
“Essentially, it was a bet on the timely completion of pipelines under construction to ferry a glut of gas out of the region.
But one of those pipelines ran into trouble this spring: the 713-mile Rover, which would transport gas from the Marcellus to the Midwest and beyond.
Its developer, Energy Transfer Partners, in February bulldozed a historic Ohio home without notifying regulators, and scrambled to finish clearing trees before the roosting season for a protected bat species. In May, federal regulators barred Energy Transfer from drilling on some segments of the route after a series of fluid spills.
The first leg of the pipeline, which had been set to come online in July, isn’t expected until at least September. Energy Transfer said it has “been working efficiently and nonstop to remediate” problems and expects to have the entire pipeline operational in January.”
In all likelihood, part of Goldman’s short position was accumulated to offset the risk-management needs of the bank’s clients, WSJ reported. Goldman’s counterparties, the drillers operating in the Marcellus shale, reported strong gains in their derivatives books.
“Goldman was in part likely catering to gas producers in the region that wanted to lock in steadier revenue through swaps and other contracts. Many Marcellus drillers reported big gains in the value of their derivatives portfolios in the second quarter—meaning their trading partners lost money in that period, at least on paper.”
Of course, the bank’s executives would have you believe the loss was solely the result of Goldman fulfilling its duty to help its clients manage risk, and that the bank’s trades didn’t violate the Volcker Rule (a ban on proprietary trading that was part of Dodd-Frank). As WSJ notes, whether or not a trade violates the Volcker rule depends on who initiated it, how long the bank held the position, and myriad other factors.
But with President Trump in the White House and with future Fed Chairman Gary Cohn"s only nemesis getting the boot earlier today, soon Goldman will be empowered to take much more trading risks with the explicit blessings of 1600 Pennsylvania.
Just when you think you"ve seen it all, the snowflake capital of the world finds new, creative and amazing ways to shock your system. In it"s latest attempt to do just that, three California counties, two in the Bay Area and one in Southern California, have filed a lawsuit against 37 of the world’s biggest oil and coal companies alleging they"re ultimately responsible for the public"s usage of fossil fuels and the greenhouse gas emissions they create which will ultimately contribute to rising sea levels and lay waste to their cities...at least that seems to be the "logic" as far as we can tell.
According to The Chronicle, Marin County, San Mateo County and Imperial Beach (located in San Diego County) filed separate but nearly identical lawsuits in their respective Superior Court offices that seek to tie fossil fuel development to climate-related problems in coastal areas. Attorneys for the three counties worked together on their lawsuits and noted that their residents have already experienced more frequent flooding and beach erosion as well as the possibility that water will eventually inundate roads, airports, sewage treatment plants and other real estate.
Of course, we would love to know just how many polar bear-killing private flights these taxpayer-funded legal teams took back and forth between San Francisco and San Diego while drafting their highly practical lawsuit.
Moreover, wouldn"t it be more appropriate to sue the owners of the 27 million, give or take, vehicles registered in California, more than any other state by a very wide margin by the way, who are shamelessly destroying the planet by commuting back and forth to work each day? Afterall, if there were no demand for fossil fuels then none of these companies would exist.
Of course, the lawyers contend that the oil companies knew about the damage their actions were causing, denied it and sought to discredit scientific findings that greenhouse gas emissions were heating the Earth’s atmosphere.
The suits are just the latest in a small but growing effort to hold Chevron, ExxonMobil, BP, Shell and other major energy companies accountable for the effects of climate change. Legal experts say the challenge is more comprehensive than previous endeavors, and is based on "better climate science" and more evidence to support a claim of conspiracy among oil company executives.
“This is a long-anticipated move in climate litigation,” said Michael Burger, executive director of the Sabin Center for Climate Change Law at Columbia University. “You’ll find pieces of it in other cases, but bringing it together like this is different than what’s been done before. You can expect there will be a great deal of interest in how this litigation proceeds.”
“There’s tremendous concern for us as a county on how do we address these issues,” said Marin County Supervisor Kate Sears. “This case is about fairness and accountability and standing up for our residents and businesses.”
“We think we meet the elements of the public nuisance,” Beiers said, “but obviously we recognize this as the first lawsuit of its kind.”
So how much are these snowflake havens seeking in damages? Well the exact cost of the total death and destruction that will ultimately befall America"s left coast has apparently not yet been calculated with any level of specificity but it"s at least $55 billion according to San Mateo and Marin counties.
The two Bay Area counties and Imperial Beach are seeking reimbursement for current and future losses caused by climate change, as well as punitive damages. The suits don’t specify the value of losses so far, but estimate that the total will be in the billions of dollars over coming decades.
San Mateo County says the Bayshore Freeway, BART lines, San Francisco International Airport and $39 billion worth of assessed property are threatened by projected sea-level rise. Marin County counts $15.5 billion worth of North Bay real estate in harm’s way, along with ferry terminals, SMART rail tracks and Highway 101 and Interstate 580.
Of course, if you discount that $55 billion at 7%, the same rate the CalPERS uses to discount their pension obligations, for a period of 250 years to adjust for when the damages are actually expected to occur then the present value of the asserted damages is roughly $2,500. Perhaps Exxon and Chevron should just split the cost and move on...
With WTI prices back below $50, it appears stocks and NOPEC production are trumping any OPEC hype/hope and today"s Baker Hughes" rig count merely adds to those concerns. For the 13th week in a row, the number of US oil rigs rose (up 5 to 688, the highest since April 2015).
*U.S. GAS RIG COUNT UP 5 TO 167 , BAKER HUGHES SAYS :BHI US
*U.S. OIL RIG COUNT UP 5 TO 688 , BAKER HUGHES SAYS :BHI US
Though the rig count iuncreased, it is the smallest rise in 3 months...
US Crude production reaches its highest since August 2015 as it tracks the lagged rig count higher...
At this pace, US crude production will be at record highs (above 9.6mm b/d) by August. And while the U.S. shale sector continues to be the hottest spot in natural resources investment, OilPrice.com"s Dave Forest notes that news this week suggests America’s oil and gas industry may have a new rival — as shale in a completely different part of the world gets ready to go commercial.
In Argentina.
The governor of Argentina’s Neuquen province Omar Gutierrez said in a statement Monday that shale production is about to begin in earnest in his territory. With ExxonMobil reportedly about to push the button on a major project in the Vaca Muerta shale here over the coming weeks.
Governor Gutierrez noted that he was in Houston last week meeting with Exxon management. Who reportedly told him the company will enter the “production phase” on the company’s Vaca Muerta projects this May.
Gutierrez didn’t give additional detail on the specific projects that will be put into full-scale production. And Exxon itself hasn’t made any announcements — but the move to commercial production would make sense, given that the firm launched a pilot project for shale production in the Vaca Muerta last year.
If the major is indeed going ahead, it would be one of the biggest developments we’ve seen for international shale. With Governor Gutierrez saying that Exxon’s investment in the Vaca Muerta by the end of 2017 will have already amounted to a full $750 million.
The Governor also said Exxon plans to ramp up production quickly here — noting that the major aims to hit 5 million cubic meters (176.5 million cubic feet) per day over the next two to three years.
That kind of production growth would clearly point to Argentina as the “next big thing” in shale. And would show that local gas pricing — where producers are currently being offered $7.50/MMBtu — is working in supporting development.
Watch for confirmation from Exxon on plans for the Vaca Muerta. And for increasing activity in the play, with a tender for 56 new oil and gas blocks here currently in market by Argentina officials.
The global warming activist democrats in Trump"s White House, led by Ivanka and Jared Kushner, are trying to convince the President to reneg on yet another campaign pledge, against the advice of Steve Bannon.
According to Bloomberg, a pro Paris bloc in his administration, which targets greenhouse emissions, is recruiting energy companies to lobby the President to remain in the controversial agreement that he specifically said was a waste of money during the campaign.
Liquified natural gas producer, $LNG, is an ardent supporter of the agreement, obvious reasons.
"Domestic energy companies are better positioned to compete globally if the United States remains a party to the Paris agreement," Cheniere wrote. The accord "is a useful instrument for fostering demand for America’s energy resources and supporting the continued growth of American industry."
Additionally, Exxon Mobil, Royal Dutch Shell Plc and BP Plc are pro agreement. This is classic crony capitalism. By erecting environmental obstacles, the above energy giants will, effectivley, create a moat around their businesses. No one actually believes BP or Exxon cares about global warming, right?
Both Steve Bannon and EPA head, Scott Pruitt want out of the agreement. But, since Trump"s fashion designer daughter wants to keep her liberal NYC friends, the President is said to be weighing his options.
Trump is nearing a decision on whether he will fulfill repeated pledges to withdraw the U.S. from the accord he previously derided as "bad for U.S. business." The White House postponed a planned Tuesday meeting of senior administration officials, including Pruitt, Tillerson, Kushner and Bannon, to go over the pros and cons of staying in the agreement, according to an aide citing a scheduling conflict.
The administration will decide what to do before late next month, when world leaders gather for the Group of Seven summit in Italy, White House press secretary Sean Spicer said.
Not every energy executive is on board. Coal baron Robert E. Murray has been outspoken in criticizing the deal, arguing it’s "just a way for other countries to get American money."
Sec. of State, Rex Tillerson, warned that backing out of the deal might cause the eurofags to retaliate by boycotting US businesses.
The Paris agreement, formed under Obama, commits America to cut emissions by 26% by 2025.
"The Paris agreement is designed to undermine American self government over the long term because the whole point of it is to put the United States inside a political pressure cooker" and influence domestic energy policy, said Marlo Lewis, a senior fellow at the Competitive Enterprise Institute. "The coal companies and oil and gas companies that are flirting with the Paris agreement don’t understand the existential threat that they’re buying into.”
We eagerly await the outcome of yet another Bannon v Kushner battle.
Market dislocations occur when financial markets, operating under stressful conditions, experience large widespread asset mispricing.
Welcome to this week’s edition of “World Out Of Whack” where every Wednesday we take time out of our day to laugh, poke fun at and present to you absurdity in global financial markets in all its glorious insanity.
While we enjoy a good laugh, the truth is that the first step to protecting ourselves from losses is to protect ourselves from ignorance. Think of the “World Out Of Whack” as your double thick armour plated side impact protection system in a financial world littered with drunk drivers.
Selfishly we also know that the biggest (and often the fastest) returns come from asymmetric market moves. But, in order to identify these moves we must first identify where they live.
Occasionally we find opportunities where we can buy (or sell) assets for mere cents on the dollar – because, after all, we are capitalists.
In this week’s edition of the WOW: ExxonMobil
In January of this year, ExxonMobil spent a whopping $6.6 billion on new oil leases - a sizeable amount even for Exxon whose net income in 2016 was $7.8 billion.
This was their biggest deal since the buyout of XTO Energy in 2009 when, after largely ignoring shale oil for a decade, they played catch up shelling out $41 billion for XTO - all of it in Exxon stock. More on that in a moment...
A popular narrative around this deal is the following:
This is dollar bearish. After all, oil and the dollar are relatively inversely correlated so why would you go spend a bunch of money on oil assets if you thought the dollar was going materially higher?
You probably wouldn"t, so what makes Exxon special and why should we pay attention to them? Why have so many analysts been pontificating over Exxon"s moves? After all, companies, even behemoths like Exxon, get it wrong all the time.
Insider knowledge:
Since Rex Tillerson, former CEO of Exxon had just been appointed Secretary of state, and it figures that old Rex would have spent some time on the golf course with the Donald, and after chatting about that cute new intern with the lazy eye, he would have gathered some insights into Trump"s game-plan.
And so to see XOM turn around and do this deal, it"s understandable to assume there"s some plausibility to a Trump administration that will actively devalue the dollar sending commodities in general and certainly the black stuff higher... at least in greenbacks.
Maybe...
Here"s a 20-year chart of Exxon Mobil.
There are many many things which affect prices. Investor psychology, currency risk, sector risk... and algos... Yes, those blasted algos which I"ll come to in a minute.
But first take a look at the valuations numbers for XOM.
If you really think that XOM is worth 44x Earnings then please share with me whatever drugs you"re taking.
Taking a look at earnings growth vs share price growth for the last five years (till Year end 2016) we can see that the share price increased by 7.2% from $84.76 to $90.89, all the while EPS decreased by 78.2% from $8.67 to $1.89. Whoah!
Ok, so the share price has backed up a fraction and is around $83 today not $90, but we"re still staring at an over 70% collapse in EPS. 78% actually. Essentially earnings are flat while the share price has been rocketing higher. Mmmm...
Cyclical
It"s worth remembering that commodity markets are cyclical. They do well in good times and poor in bad. Markets it is said are forward looking. In this respect maybe just maybe investors are thinking that XOM can grow into the valuation and are pricing in this growth. In order for this to happen then presumably we"re going back to $100 oil.
Perhaps...
Here"s what I think is really happening:
Machines are buying everything from currencies to equities, bonds, and anything in between. The algos dictate where the capital gets allocated.
Where this matters for a company like Exxon is that it sits in a number of the "low vol ETPs" - I wrote about these animals before.
So essentially what happens is the algos buy the low vol equities and ETPs, and ironically their buying depresses the volatility even more, causing the algos to recalibrate and add additional weightings to the equities exhibiting low volatility, causing more buying.
Think of a fat kid eating candy. It tastes good so he stuffs more into his face, and that too tastes good so he shovels some more in. When he vomits we don"t know but vomit he will.
So while the stock price is elevated you have to ask yourself the question: What would you do if you were Exxon management, staring at an overvalued stock price and being in the business of energy?
I know what I"d do...
I"d use my paper to acquire relatively undervalued assets. It"s the perfect trade and it"s got bugger all to do with my view on the dollar. Even if I overpay a little on the asset if I"m doing so with very overvalued paper then net-net I"m arbitraging the value difference.
Having met with Vladimir Putin, US Secretary of State Rex Tillerson and Russia Foreign Secretary Sergei Lavrov are set to hold a joint press conference...
Bloomberg"s Paula Dwyer notes that Trump is now the fourth consecutive president who started off seeking a Russia reboot -- only to have a change of heart about the relationship once in office. Judging by Lavrov"s sarcastic tone at the start of the talks, the Putin meeting wouldn"t have been as friendly as when the Russian president pinned a medal of friendship on Tillerson -- then the CEO of Exxon Mobil -- in 2013.
There will be no joint statement.
Live Feed (timing is unknown but chatter is before 1330ET):
Having recently waded into the Russia-NATO axis scandal, when as Reuters first reported on Monday Rex Tillerson planned to skip the April 5-6 meeting of NATO foreign ministers despite flying a week later to Russia, which as Reuters said is "a step allies may see as putting Moscow"s concerns ahead of theirs", only to reverse his decision last night, and offer NATO several "conflict-free" dates which could work for an upcoming meeting (NATO has yet to respond), attention has turned this morning to an interview Tillerson gave to the IJR, in which the former Exxon CEO appears to be expressing some reluctance about his current posting.
In the interview, Tillerson said the job of secretary of State wasn"t a role he actually sought out.
"I didn"t want this job. I didn"t seek this job," Tillerson told the Independent Journal Review in an interview during his recent Asia trip.
So why did he take the job? As the Hill points out, when asked why he agreed to take on the position of secretary of State, Tillerson said his wife "told me I"m supposed to do this."
During the interview Tillerson said he had never met President Trump before the election. After his victory, the president wanted to talk with Tillerson "about the world."
“When he asked me at the end of that conversation to be secretary of State, I was stunned," Tillerson said. Tillerson later told his wife about the offer.
“I told you God’s not through with you," he said his wife told him. The former ExxonMobil CEO added: “I was supposed to retire in March, this month. I was going to go to the ranch to be with my grandkids."
Tillerson also said he serves at the "pleasure of the president."
"My wife convinced me," he said. "She was right. I"m supposed to do this." Tillerson was confirmed as secretary of State in February, despite a late effort by Democrats to slow down the nomination.
(ANTIMEDIA) The duty of a Washington DC lobbyist is to bend the ears of lawmakers and administration officials in the hopes of influencing bills and initiatives that might divvy out taxpayer dollars to corporations or keep regulatory agencies sniffing in other directions. When Trump assumed the presidency, many lobbyists were wringing their hands. His pledge to “drain the swamp” and widely praised policy to discourage revolving doors between the private and public sectors indicated they would fall on hard times. However, President Trump’s choices of appointees to his administration have repeatedly shown that even if Trump appears unswayed by lobbyist influence, D.C.’s love affair with the corporate state is far from over.
Goldman Sachs was, to some extent, ousted from a long-standing seat of power after the recession. Though President Obama invited Wall Street insiders into his administration, he also signed the Dodd-Frank Act into law, a bill that, among other things, established the Bureau of Consumer Financial Protection, an agency designated to place a stricter emphasis on evaluating the practices of big banks.
Trump, whose administration is filled with Goldman Sachs affiliates, has repeatedly expressed his eagerness to repeal that bill. Sach’s spent millions on the election cycle alone; the Center for Responsive Politics reported that the Wall Street juggernaut forked over upwards of $5 million. Though the Trump administration did not receive those funds, he has nevertheless appointed a number of Sach’s alumni, including Treasury Secretary Steve Mnunchin and Senior Adviser Anthony Scaramucci. Even Steve Bannon, who is widely regarded as the most influential man in Washington, cut his teeth at the bank. Gary Cohn was working as Goldman’s Chief Operation Officer until Trump appointed him Director of the National Economic Council.
Despite Trump’s strong support among voters who feel ostracized by big industries, corporate America seems to have a seat at the table in the White House. Secretary of State Rex Tillerson faced a blistering confirmation hearing in which his ties to Exxon Mobil, the company he once led, were scrutinized. CNN reported that Tillerson has placed his stocks in that company under a blind trust, and while Exxon was one of the top spenders on lobbying during 2016, many hoped Tillerson’s former employer wouldn’t enjoy any privileges. Yet in a press release, the White House appeared to have plagiarized from the oil giant. Both press releases, one from the company and one from the White house, praised Exxon, reading:
“ExxonMobil is strategically investing in new refining and chemical-manufacturing projects in the U.S. Gulf Coast region to expand its manufacturing and export capacity. The company’s Growing the Gulf expansion program, consists of 11 major chemical, refining, lubricant and liquefied natural gas projects at proposed new and existing facilities along the Texas and Louisiana coasts. Investments began in 2013 and are expected to continue through at least 2022.”
Like Goldman Sachs, Exxon did not contribute funds to Trump’s campaign (Exxon employees did contribute over $90,000 to Hillary Clinton’s campaign while Sachs paid big fees to entice the former secretary of state to deliver private speeches at their company). Nevertheless, Exxon is enjoying ties to positions of extreme influence.
Trump continued this trend with his appointment of Patrick Shanahan as deputy defense secretary this week. The move gives another company — this time, Boeing — a voice inside the administration. The Hill notes that “Shanahan has been Boeing’s senior vice president for supply chain and operations since April.” On Boeing’s website, Shanahan enjoys a lengthy bio that states he “was vice president and general manager of Boeing Missile Defense Systems, starting in December 2004.” He held that position, one based out of Washington DC, until 2007, and worked in the company in various positions for years before assuming that role.
Boeing has a longstanding relationship with the government as a leading supplier of military aircraft, and they’ve spent a great deal of money on lobbyists ($17 million in 2016) to ensure that their relationship with the Pentagon is strong, regardless of who is in the White House.
On Twitter, the president previously criticized government deals with Boeing. In December, he wrote, “Boeing is building a brand new 747 Air Force One for future presidents, but costs are out of control, more than $4 billion. Cancel order!” However, he has also praised the company. In February, he visited a Boeing plant in South Carolina where he declared, “[W]e are looking seriously at a big order…the problem is that [Boeing CEODennis Muilenburg] is a very, very tough negotiator, but I think we may get it.”
Earlier this week, Trump unveiled his budget, which among other things, proposed a $54 million increase in military spending. That weighty investment could spell a big payday for industries like Boeing, and while there will likely be plenty of lobbying before the budget is finalized, companies like Boeing, Exxon, and Goldman Sachs each have inside men and are likely to continue to enjoy loud voices in Washington D.C. — without paying the president a dime.
Last September, when the price of oil was well below where it had been trading for the bulk of the past several years, we reported that NY Attorney General Eric Schneiderman was probing why Exxon Mobil hasn’t written down the value of its assets, two years into a pronounced crash in oil prices. The complaint was simple: out of the 40 biggest publicly traded oil companies in the world, Exxon - then still led by now Secretary of State Rex Tillerson - was the only one that hasn’t booked any impairments in the prior 10 years.
As the WSJ wrote at the time, "since 2014, oil producers world-wide have been forced to recognize that wells they plan to drill in the future are worth $200 billion less than they once thought, according to consultancy Rystad Energy. Because the fall in prices means billions of barrels cannot be economically tapped, such revisions have become a staple of oil-patch earnings, helping to push losses to record levels in recent years." And yet, Exxon had - until the later half of 2016 - declined to take any write-downs, the only major oil producer not to do so, which has led some analysts to question its accounting practices.
Maybe the NYAG was on to something?
To be sure, the company had played down the criticism, saying it is extremely conservative in booking the value of new potential fields and wells. That reduced its exposure to write-downs if the assets later prove to be worth less than expected. Then again, not even the most "conservative" company could have factored in oil crashing from $100 to $42 without that impacting the balance sheet.
Needless to say, avoiding reality and Exxon’s "ability" to avoid write-downs, and the massive losses that come with them, had been the main factors helping the company outperform rivals since prices began falling in mid-2014. Exxon shares had fallen by about half of the average of top peers Chevron, Royal Dutch Shell, Total and BP. Since 2014, those companies have booked more than $50 billion overall in write-downs and impairments. But not Exxon.
Then-CEO Rex Tillerson has an unusual explanation why Exxon has refused to write down assets so far: Rex told trade publication Energy Intelligence in 2015 that the company has been able to avoid write-downs because it places a high burden on executives to ensure that projects can work at lower prices, and holds them accountable.
“We don’t do write-downs,” Mr. Tillerson told the publication. “We are not going to bail you out by writing it down. That is the message to our organization.”
All of that changed this afternoon, when Exxon, now ex-Tillerson, disclosed the deepest reserves cut in its history as the ongoing rout in oil prices erased the value of a $16 billion oil-sands investment and other North American assets. In a press release filed after the close, Exxon announced that "proved reserves were 20 billion oil-equivalent barrels at year-end 2016, inclusive of a net reduction of 3.3 billion oil-equivalent barrels from 2015. Reserves changes in 2016 reflect new developments as well as revisions and extensions to existing fields resulting from drilling, studies, analysis of reservoir performance and application of the methodology prescribed by the U.S. Securities and Exchange Commission."
As a result of very low prices during 2016, certain quantities of liquids and natural gas no longer qualified as proved reserves under SEC guidelines.
In other words, after years of denials, and claims that "we don"t do write-down", Exxon just concluded the biggest reserve cut on record, as 3.3 billion barrels of crude was removed from the company"s "proved reserves" category. The revisions were triggered when low energy prices made it mathematically impossible to profitably harvest those fields within five years. The massive 3.5-billion barrel Kearl oil-sands development in western Canada accounted for most of the hit, with another 800 million oil-equivalent barrels in North America did not qualify as proved reserves, "mainly due to the acceleration of the projected economic end-of-field life."
Following the reserve cut, the company"s total reserves dropped to 20 billion, the lowest in two decades.
As Bloomberg adds, the oil-sand mines in northern Alberta are among the costliest types of petroleum projects to develop because the raw bitumen extracted from the region must be processed and converted to a thick, synthetic crude oil. As such, they have been particularly hard hit by the worst oil slump in a generation.
The reductions were partially offset by reserves additions of oil and natural gas totaling approximately 1 billion barrels of oil equivalent in the U.S., Kazakhstan, Papua New Guinea, Indonesia and Norway, which replaced 65% of production and were the result of acquisitions, improved asset performance and a decision to fund an expansion of the Tengiz project in Kazakhstan.
According to Bloomberg calculations, the 19 percent drop amounts to the largest annual cut since at least the 1999 merger that created the company in its modern form. That includes 1.5 billion barrels of reserves that were pumped from wells. The previous record cut was a 3 percent reduction taken during the height of the global financial crisis in 2008.
Proved Reserves are among the most important metrics watched by investors because they are an indicator, along with commodity prices, of future cash flow. When the 2008 reserves cut was announced in February 2009, Exxon shares lost more than 4 percent in a single day, wiping out almost $17 billion in market value.
Today, after the biggest reserve write down in history, the shares gained 0.2% to $81.08 in after-hours trading as of 5:46 p.m. in New York on Wednesday, after closing at $80.93, suggesting that either the market does not care about fundamentals, or had largely priced in the announcement. As noted above, Exxon was facing an SEC probe into how it valued its portfolion, and signaled in October and again last month that the revision was probably coming, which may explain the lack of reaction.
On Tuesday, ConocoPhillips engaged in a similar reserve reduction when it removed the equivalent of 1.15 billion barrels of oil-sands crude from its books as part of a 21 percent cut that pushed the Houston-based company’s reserves to a 15-year low.
Under SEC rules, proved reserves can only include oil fields that can be produced economically within the next half decade. Price trends from the previous 12 months are compared against the estimated cost to harvest crude and gas in determining which reserves are counted.
Despite the near record increase in U.S. oil inventories last week – an increase of 13.8 million barrels – oil prices traded up on February 8 and 9 as traders pinned their hopes on a surprise drawdown in gasoline stocks, which provided some evidence of stronger-than-expected demand.
The abnormal crude stock increase took inventories close to 80-year record levels at 508 million barrels, and is another bit of damming evidence that should worry oil bulls. But the oil markets were not deterred. In fact, that has been a defining characteristic of the market in recent weeks – optimism even in the face of some pretty worrying signals about the trajectory of the market “adjustment” process.
More signs of optimism abound. Wall Street is pouring the most money into oil and gas companies in the U.S. since at least 2000, according to Bloomberg. In January alone, drillers and oilfield service companies raised $6.64 billion in 13 different equity offerings. "The mood is absolutely different," Trey Stolz, an analyst at the investment banking firm Coker & Palmer Inc., told Bloomberg. "Go back to a year ago and the knife was still falling. But today, it feels much, much better."
Moreover, the money raised for these U.S. companies represented more than two-thirds of the total $9.41 billion in new energy equity issued across the globe in January. Big Finance is ready to pour money back into the oil and gas sector and they are doing it mostly in the U.S.
The industry should see more activity this year as companies rush to conclude deals ahead of the rebound. A new report from Moody’s Investors Service predicts that M&A activity will rise substantially in 2017. “E&P acquisitions and divestitures dropped off when commodity prices collapsed in late 2014, but have significantly ticked up since mid-2016,” the Moody’s report says.
A lot of the action, unsurprisingly, is occurring in the Permian Basin. Austin-based Parsley Energy just announced its decision to spend another $2.8 billion on Permian acquisitions. The additional 71,000 net acres will give it one of the largest holdings in the Permian for an independent company. “It’s really been remarkable what Parsley’s been able to do,” Jackson Sandeen, Wood Mackenzie’s chief Permian Basin analyst, told the Houston Chronicle. “The company’s been on a tear.” Parsley has spent more money in the Permian this year than any other company besides ExxonMobil, which spent more than $6 billion in January to double its holdings in the Permian.
Wood Mackenzie says that 2017 will be even larger than 2016 in terms of the value of deals in the Permian. Last year, the industry spent $24 billion in mergers and acquisitions, a colossal sum that turned the basin into the hottest play in the country. Land prices skyrocketed as capital flowed into West Texas. But Wood Mackenzie says that less than two months into the New Year, the industry has already spent half of that amount in the Permian.
Moody’s cautioned that the valuations of some of the deals in the Permian might have become too large. The high prices might fall back a bit as the bubble deflates. Nevertheless, the ratings agency sees more money pouring into E&Ps, pipeline companies, oilfield service companies and refining. “As oil and natural gas prices stabilize at higher levels, increasing confidence in industry prospects will spur further acquisition activity in 2017,” Moody’s wrote.
The boom in the Permian will now lead to a rash of deals in the midstream sector, as more pipelines are needed to carry the larger flows of oil.FuelFix reports that companies like Magellan Midstream Partners and Enterprise Products Partners are rushing to build new pipelines from West Texas to Houston and the Gulf Coast, allowing more Permian oil to be processed and refined or exported abroad.
In short, the sentiment in the oil patch continues to improve even as oil prices have faltered in the low-to mid-$50s per barrel. That has translated into a record net-long position from hedge funds and other money managers, an incredible build up in bullish bets on oil.
The flood of money back into the industry portends a strong rebound in 2017. It could also leave a lot of people and companies on the hook if oil prices fall back again.
It’s now clear to nearly everyone that U.S. President Trump intends to seek warmer U.S. relations with Russia, while putting China and Iran relations in the deep freezer. Trump has made no secret of this major shift in policy. It’s also clear that he sees China, very much like Obama, as a major threat to U.S. global leadership.
Trump has often stated that he thought the Obama sanctions on Russia was catastrophic for the U.S., resulting in only pushing Russia into an alliance with China, a fear that many noted policy experts have echoed. For Russian energy companies, it means the doors are cracking open again for business.
Russia is again a hot topic on nearly every news site. And the topic has become even hotter with the U.S. election of a Putin-friendly president, who seems ready to share responsibilities with Russia for organizing the world’s response to global terrorism.
In a world where Trump seems to have a strangle-hold on the daily news, his energy friendly policy ideas are well known: reducing regulations, opening restricted government land for leasing, rejecting climate change, and bringing back to life rejected pipelines such as Keystone XL.
But hardly anyone expected the announcement that rocked the entire U.S. establishment, the nomination of Exxon’s CEO, Tillerson as Secretary of State in the new Administration. Even veteran political analysts were caught off guard, unaware that for the first time an oil industry leader was being considered to take the helm at State. Further upsetting many Trump opponents is Tillerson’s long and successful relationship in Russia with President Putin.
Suddenly the world is full of angry politicians, some who hardly know Tillerson, others who have happily received donations from his company, now castigating this life long Texas Republican as a Putin-crony, despite the fact that his relationship with the Russian President was often stormy and contentious.
But for the oil industry Tillerson’s appointment went beyond their wildest dreams. With this single act, Trump has established that his Administration may be one of the most oil industry friendly in history.
For over a decade, Exxon has had large investments in Russia, starting out with the development of oil and gas reserves in the far Eastern region of on Russian Pacific Coast, in the frozen wasteland of Sakhalin Island. In partnership with Russian-controlled companies giant oil companies, the project started off well enough, with Exxon pioneering the discovery and development, with a ready and interested buyer in Japan close at hand, offering the second largest energy market in Asia. Solidifying the deal, two of Japan’s major oil companies became partners in the venture.
But soon thereafter, the Kremlin passed new regulations that restricted foreign companies from owning a controlling interest in Russian energy ventures. After months of painful negotiations, Exxon was forced to sell down its controlling stake and become a minority owner to its former junior partners, Gazprom and Rosneft.
Although forced to comply with the new rules, what Exxon had demonstrated was that it could open up the Russian markets to high tech western companies, and make billions in the process. Almost all the other western oil giants were soon to follow suit, including Shell, Chevron, Conoco, BP, Eni, and Total, bringing the finance and technology that Russia so badly needed for the development of large scale projects.
Consider that Exxon, with its deep pockets and more than twenty years of experience in the Alaskan Arctic, is the most technologically advanced oil company in the world. The company brought much needed technology to Russia, where it partnered with the Russian giant oil company, Rosneft, for Arctic drilling.
In their very first effort on the Russian Arctic shelf, where Exxon is believed to have invested around $1 billion, the companies struck oil in a reserve estimated to hold some 750 million barrels of oil, with a market value of some $40 billion, at today’s oil prices.
Consider the significance of that project to Exxon, with Russia, as the largest country in the world, laying claim to the largest section of the Arctic, a region estimated to hold some 35 percent of the world’s remaining energy reserves. With Exxon now emerging as the key energy developer of the Russian Arctic shelf, the company saw the potential for leap frogging its competitors in becoming the chief developer of Arctic energy sources.
Unfortunately for Exxon, the project had to be abandoned because of the onset of sanctions on Russia. It’s well known that Tillerson, who publicly objected to the sanctions, made his complaints directly to the Obama administration.
In his recent Senate confirmation, Tillerson voiced harsh criticisms of Russia, that some observers felt were only newly invented for the sole purposes of easing his confirmation. He took particular aim at the Russian take-over of Crimea. This, despite the fact that Exxon and Rosneft have plans to exploit development of the Black Sea’s vast offshore energy reserves, something that could never have been possible without a Russian Crimea that enabled Russia to lay claims to large territorial rights on the Black Sea.
He also responded that he would not attempt to ease U.S. sanctions against Russia. Yet, observers are also suspicious that he may never have to do so since the sanctions are due to expire in March. There is little expectation of sanctions renewal by the Trump Administration.
Instead, a major part of the Trump Administration foreign policy will be to normalize relations with Russia, while advancing oil industry interests. Tillerson appointment to the post of Secretary of State is seen by many as a key part of that strategy.
Conclusion
At base, a major part of the job of the State Department has always been as advance guard for U.S. business. In that sense, a businessman as Secretary of State makes some sense.
It also could make sense to have an oil industry leader at the helm when we consider that much of the geopolitics of the world revolve around oil, particularly in the hottest conflict areas of Eurasia, where the U.S. and NATO have been embroiled in war for the past generation.
His confirmation could be seen as a Trump-sponsored “get out of jail card” for Putin. Already the EU seemed to be reading the writing on the wall. Suddenly Gazprom proposed pipelines that had been stalled for more than two years are being approved in Europe.
At a time of rising oil prices, Tillerson’s appointment will almost certainly spark renewed investor interest in Russian energy assets, particularly Rosneft, one of the most undervalued oil industry giant in the world. How undervalued? For comparison, consider the fact that although Rosneft’s reserves are greater than Exxon"s, Exxon’s market value is seven-fold greater than Rosneft’s.
At the same time, as a state controlled company, Rosneft provides several advantages for Exxon, a company that has serious problems in replacing its reserves. These include Rosneft’s privileged, and exclusive right to reserves in the Arctic. Only Gazprom, the other state controlled energy giant, has similar exclusive rights, and is also likely to benefit from the Tillerson appointment.
The Senate Foreign Relations Committee approved Rex Tillerson’s nomination as secretary of state by a vote of 11-10 - falling along party lines (with Democrats dissenting). As Bloomberg notes, this vote clears the way for the full Senate to confirm one of President Donald Trump’s most critical cabinet choices.
Before the vote on Monday, Democrats also said they were concerned about Tillerson’s statement that he would recuse himself from matters related to Exxon during his first year as secretary and rely on guidance from the State Department’s ethics office after that.
“In the end, I just had too many concerns and questions about the kind of leadership he would provide at the state department to feel comfortable voting for him,” said Senator Jeanne Shaheen, a New Hampshire Democrat.
The 11-10 vote came hours after Senator Marco Rubio, who had been the lone Republican withholding his support, said he would back the nomination of the former Exxon Mobil Corp. chief executive officer as the nation’s top diplomat despite concerns over his ties to Russian President Vladimir Putin and his refusal in his nomination hearing to condemn human rights abuses in Russia and the Philippines. As The Hill reports,
“I concluded that it would not be good for our country to unnecessarily delay or created unwarranted political controversy over this particular nomination,” Rubio told the panel at the Monday meeting.
“My concern was that Mr. Tillerson would be an advocate for and would pursue a foreign policy of dealmaking at the expense of traditional alliances and at the expense of the defense of human rights and of democracy,” he said, which he weigh against positive answers from Tillerson on issues like Cuba and supporting armament for Ukraine against Russia.
Sen. Bob Corker (R-Tenn.), the panel’s chairman, said that Tillerson had “no doubt that Rex Tillerson is well-qualified.”
“He has managed the world’s eighth largest company by revenue, with over 75,000 employees. Diplomacy has been a critical component of his positions in the past, and he has shown himself to be an exceptionally able and successful negotiator who has maintained deep relationships around the world,” Corker said.
Two key GOP senators who have been concerned about Russia and Putin, Lindsey Graham (S.C.) and John McCain (Ariz.), also announced in recent days that they would support Tillerson.
Tillerson will now face a vote in the full Senate, where he is nearly certain to get the majority vote that he needs to become the United States’ top diplomat.
We were surprised by how contained China was this morning after yesterday"s confirmation hearing of Rex Tillerson, in which the former Exxon CEO said that a failure to respond to China had allowed it to “keep pushing the envelope” in the South China Sea and added that “we’re going to have to send China a clear signal that first the island-building stops and second your access to those islands is also not going to be allowed” and that putting military assets on those islands was "akin to Russia’s taking Crimea” from Ukraine."
Traditionally such a direct threat would be i) perceived as very undiplomatic and ii) prompt an immediate, and angry rebuke from Beijing, with China immediately shifting to the offensive.
“This is the sort of off-the-cuff remark akin to a tweet that pours fuel on the fire and maybe makes things worse,” Malcolm Davis, a senior analyst at the Australian Strategic Policy Institute in Canberra told Bloomberg. “Short of going to war with China, there is nothing the Americans can do.”
But not today: during his press conference earlier today, Foreign Ministry spokesman Lu Kang could barely muster the will to sound defensive, saying China has been acting within the limits of its sovereignty. “Like the U.S., China has the right within its own territory to carry out normal activities,” he said at a regular briefing in Beijing. When asked repeatedly about Tillerson"s comments on blocking access to islands, China"s foreign ministry spokesman said he couldn"t make any guesses as to what Tillerson was referring to and would not answer hypothetical questions, Reuters reported.
As it turns out, China may not have had time to digest what Tillerson said. After all his South China sea remark was toward the end of his nearly all day long hearing, and so many local media outlets may have simply missed it. However, they caught up today, and first China Daily, then its nationalist tabloid, the Global Times took turns to first mock, then attack Tillerson.
Here is the gist of the China Daily op-ed published earlier today: according to the Chinese daily mouthpiece, not only were Tillerson"s views "divergent from, even contrary to, those of Trump on some critical issues. He openly conceded he is yet to have a serious, in-depth discussion with Trump on foreign policy imperatives. These boil down to one simple point – his remarks at the Wednesday hearing, sensational as they were, turned out to be of little reference value except for judging his personal orientations."
Yet while China realizes that Tillerson"s bluster was intended for a specific audience, that does not make it any happier:
The backlash that has ensued is understandable. It is certainly no small matter for a man intended to be the US diplomat in chief to display such undisguised animosity toward China. Tillerson labeled China"s reclamation projects in the South China Sea as "an illegal taking of disputed areas without regard for international norms," in obvious disregard of the essential truth that all those activities took place well within the country"s persistent, historical territorial claims.
Blaming the "extremely worrisome" state of affairs in the South China Sea on an "inadequate US response", the US secretary of state nominee even claimed China"s access to those islands should "not to be allowed". Which sounded intimidating; though he stopped short of elaborating how to achieve it. And like Trump, he blamed Beijing for "not being a reliable partner" in dealing with the Democratic People"s Republic of Korea.
And then, the not so subtle threats followed:
Such remarks are not worth taking seriously because they are a mish-mash of naivety, shortsightedness, worn-out prejudices, and unrealistic political fantasies. Should he act on them in the real world, it would be disastrous.
As many have observed, it would set a course for devastating confrontation between China and the US. After all, how can the US deny China access to its own territories without inviting the latter"s legitimate, defensive responses?
Finally, the mocking of Tillerson as a clueless former company exec who does not have the faintest understanding of diplomacy: "Tillerson wanted a reality-based China policy that is "based on what we see and not based on what we hope". But what he presented was based more on what prejudice and arms-spurred self-righteousness make him believe and hope than on real-world realities. What happened on Wednesday shows that if and when confirmed, Rex Tillerson needs to first acquaint himself with the ABCs of China-US relations and diplomacy at large."
The Global Times approach was almost verbatim. First, the justification of Tillerson"s "bluster":
It is suspected that he merely wanted to curry favor from senators and increase his chances of being confirmed by intentionally showing a tough stance toward China.
Tillerson did not give details of how he would achieve his self-proclaimed goals. Nonetheless, he also mentioned that Chinese and American economic interests are deeply intertwined and that "China has been a valuable ally in curtailing elements of radical Islam." He noted that "We should not let disagreements over other issues exclude areas for productive partnership."
Motives aside, the GT then explained that China no longer views itself as America"s subordinate:
China has enough determination and strength to make sure that his rabble rousing will not succeed. Unless Washington plans to wage a large-scale war in the South China Sea, any other approaches to prevent Chinese access to the islands will be foolish. The US has no absolute power to dominate the South China Sea.
Following this, just like in the case of China Daily, there was the mocking:
Tillerson had better bone up on nuclear power strategies if he wants to force a big nuclear power to withdraw from its own territories. Probably he just has oil prices and currency rates in his mind as former ExxonMobil CEO.
Next, the not so thinly veiled threat - again - aimed not so much at Tillerson but at Trump:
As Trump has yet to be sworn in, China has shown restraint whenever his team members expressed radical views. But the US should not be misled into thinking that Beijing will be fearful of their threats.
How does it all end according to China? Unless Trump"s diplomatic team changes course, the Times said "the two sides better prepare for a military clash."
Tillerson"s statements regarding the islands in the South China Sea are far from professional. If Trump"s diplomatic team shapes future Sino-US ties as it is doing now, the two sides had better prepare for a military clash. South China Sea countries will accelerate their negotiations on a Code of Conduct. They have the ability to solve divergences by themselves without US interference.
And the conclusion:
Just as the Philippines and Vietnam are trying to warm their ties with China, Tillerson"s words cannot be more irritating. It is hoped that Tillerson will desire a productive partnership with China more and his harsh words are just coaxing the Senate Foreign Relations Committee. But no matter what, China will always respond to various US diplomatic maneuvers.
As a reminder, all this has already happened and Trump isn"t president yet. We eagerly look forward to the president-elect"s next steps vis-a-vis an increasingly angry CHina and vice versa.
President Putin shakes the hand of Rex Tillerson, Trump’s pick for Secretary of State.
This article was written by Aaron Dykes and originally published at TruthstreamMedia.com.
Editor’s Comment: It will interesting to see what happens next. The future depends not only on what kind of president Mr. Trump will be, but also on what kind of foreign affairs the country will carry out. Rex Tillerson is a bold and seemingly atypical choice – he is plucked straight out of Big Oil headquarters.
There have been hopeful signs on the part of Trump and Putin that relations can be significantly improved, and that would set a working peace. However, the situation could quickly change as the administration takes charge; Syria or Iran could be a catalyst for war. Rex Tillerson, who already has a personal business history with Russia and with Putin himself, will be in a very interesting and nuanced position – assuming he is confirmed – as tensions rise and events take place. The fluctuation of oil prices has had a tremendous amount to do with geopolitical turmoil – including in Russia – and Tillerson may have something to do with it all.
The most interesting dynamic is the unraveling of OPEC dominance and the promise of return to domestic exports of oil, gas and energy. With the yuan now pegged to the SDR and global currency basket, the dollar will play a different role in the coming years, and so will oil.
And the Secretary of State Is… A Fracking Pioneer Who Is Now Steering Geopolitical World Order
by Aaron Dykes
Not sure yet, but I think that Donald Trump’s stunning campaign run will not be the last time America will be surprised. Political realignment historically happens in the U.S. every 30 or 40 years; it’s like shifting teeth and growing pains. There is every reason to guard carefully the jewel of liberty during this time. The new face of the country is a political unknown; perhaps even a chameleon.
The cabinet, who pack the real power behind the throne, are already gearing up to be a potent gang of corporate cronies and Wall Street insiders. But the ace card was announced today. Trump has finally announced that he will name Rex Tillerson, CEO and chairman of ExxonMobil, as the next most powerful official and highest ranking foreign dignitary in the U.S. government. Oil is big, but Tillerson’s background is awe inspiring in its totality on the balance of the great game. He created a revolution that is now taking down world order.
Admittedly, the choice is a bit more outside the box than Romney, Petraeus or Giuliani, all of whom have embarrassing scandals trailing them, and easy-to-pick-a-part dysfunctions.
Nonetheless, it is worth stating plainly that President-elect Trump’s reported nominee for Secretary of State is the man who initiated the entire era of fracking, a practice he first pushed for decades ago towards the beginning of his long career with ExxonMobil.
It was his greatest achievement as an early entrepreneur, and it solidified his role in the company for years to come.
It was 1976, and Tillerson had been sent to East Texas for his second assignment at the company. His job was to follow around rigs drilling for natural gas and “complete” the wells. That meant experimenting with a process known as hydraulic fracturing, or fracking. By pumping water, sand, and chemicals down into a well at high pressure, he could cause cracks in the stone where the gas was trapped and allow more of it to flow.
That winter Tillerson practically lived out of the back of his car, driving to the company’s district office in Tyler at night so he could run punch-card decks through the computer to design his new fracking programs.
Moreover, this multi-billion dollar industry has become an incredibly important part of geopolitics and statecraft… incidentally, the State Dept. is engaged in ongoing economic warfare against a variety of target states around the globe.
All this, while the petrodollar is crumbling, and the global currency standards are shifting East.
Axis of Power: Oil, Rockefellers and Bushes
Tillerson was apparently recommended for the job by former Secretary of State Condoleezza Rice and former Secretary of Defense Robert Gates, both close Bush allies.
Tillerson was brought into Trump Tower for an interview with Trump at the recommendation of former Secretary of State Condoleezza Rice and Defense Secretary Robert Gates, who count Exxon among their private consulting clients, according to two sources familiar with the conversations. (source)
Rex Tillerson has every tie to the Rockefeller dynasty, whose Standard Oil fortune branched off into ExxonMobil – even if the members of the family publicly distanced themselves from the oil industry, and dumped their shares in the very stuff their fortunes are based upon, but their foundations argue is destroying the planet.
Tillerson’s Power Play
Now, Tillerson’s control over natural gas, oil and energy – which has the power to send the price of oil into free fall – could prove to be the ultimate weapon.
And just as Hillary used her position to see to the removal of several heads of state in the Arab Spring (with the head-prize of Gaddafi), the next Secretary of State – presumably Rex Tillerson – will be waging covert wars around the world using the vast leverage of oil as his most important tool of negotiation.
It is also worth noting that Tillerson has argued in favor of the Trans-Pacific Partnership (TPP) free trade agreement – but Donald Trump publicly campaign against it and promised to stop it. It is not yet clear if Tillerson’s opinion has changed since he was quoted in 2013, but as Secretary of State he would have far more involvement in the trade negotiations than President Trump would.
If fighting off the TPP is of major importance to American jobs and the economy at large, then the US is in a difficult spot.
According to the Dept. of State website, the Secretary of State’s duties include a great deal of power over trade and international business.
• Promotes beneficial economic intercourse between the United States and other countries;
• Negotiates, interprets, and terminates treaties and agreements;
• Conducting negotiations and concluding agreements and treaties on issues ranging from trade to nuclear weapons;
• Helping developing nations establish stable economic environments that provide investment and export opportunities;
• Assisting U.S. businesses in the international marketplace;
Incidentally, the TPP has faced such strong opposition in large part due to the concerns about corporate involvement with the negotiations, the terms of which have been arranged and kept in secret. Sec. Tillerson would mean a major corporation representative with a very wide latitude for negotiations – and some of those decisions will undoubtedly affect the oil trade.
“Control oil and you control nations”
Of course, as President and CEO of ExxonMobil, Rex Tillerson has met countless world leaders, and is intermingled in high level affairs across the globe. Given the still unchecked power of oil (and natural gas, etc.) over the affairs of a nation (to reference a quote from Kissinger), the head of any major oil company is essentially as powerful as a head of state in many respects.
David Rockefeller, as an executive of Chase Manhattan and an heir to the family fortune, bragged that he had the phone number in his roledex of every president or prime minister, as well as every defense and state minister in every Latin American country. He made lots of inroads in Europe, Japan, Russia, the Middle East and China as well. He famously visited Castro and negotiated privately with the Communist dictator.
David Rockefeller and Henry Kissinger, along with the help of the Trilateral gang, set up the petrodollar standard in 1973, using their ability to manipulate production levels to strong arm nations in to cooperation on their terms. It’s more complicated than that, but…
Now, Tillerson – if confirmed – would make the marriage between energy and government more formalized.
Natural Gas and the Downfall of Venezuela, Saudi and Russia?
His greatest strength lies in the positioning of his assets of state and private enterprise vis-a-vis the geopolitical struggle to keep afloat with declining oil prices. These appear rigged, and have triggered economic vulnerabilities in the key states of Russia, Saudi Arabia and Venezuela. The collapse of the latter has been pronounced; 95% of its exports are based on oil, and with falling prices, the socialist regime has no way to pay its social obligations, keep power and infrastructure maintained, or keep its currency out of hyperinflation, or its people starving. Via SHTF Plan:
Through fracking, the U.S. trade deficit in oil is expected to balance out and to transform America into a profitable net exporting region in petroleum and gas within just a few short years:
There is no question that the US has entirely changed the global energy landscape and poses an existential threat to Opec. America has cut its net oil imports by 8.7m bpd since 2006, equal to the combined oil exports of Saudi Arabia and Nigeria.
Putin, well aware of the economic warfare strategies of the West via petro-politics, has diversified and kept Russia’s economy from tanking, though it was designed to put pressure on social programs and benefits, i.e. gifts to the people, in order to undermine his popularity in the motherland. The Saudis have also ridden out the waves, and quietly made new negotiations to navigate the swiftly changing climate.
Meanwhile, the meaning of Ukraine is magnified by the importance of the gas pipeline that Russia uses to supply its clients in Europe who need heat – an important source of revenue; U.S. fracking enterprises have been using the puppet regime as cover for their natural gas explorations, in a bid to fuel Europe themselves via LNG (liquid natural gas) extracted from seized basins in Ukraine exploited by U.S. corporations.
Rex Tillerson, named to be the next Secretary of State, with Vladmir Putin.
Putin and Tillerson
The fact that ExxonMobil does business with Russia in natural gas is both ironic, and apropos. Now, they will dance, I suppose.
The country most often mentioned in the same breath as Tillerson is Russia. His experience in overseeing a large, successful project there in the 1990s both elevated Tillerson’s stature at Exxon and provided a solid basis to negotiate what looked like his greatest achievement: 2011’s strategic partnership with Rosneft, blessed by President Vladimir Putin himself. As I wrote here, sanctions imposed following Russia’s seizure of territory from Ukraine put that partnership in deep freeze, undermining an important growth prospect for Exxon. (source)
This could actually be quite interesting as it plays out. Putin has purged a lot of the influence from western banking powers (i.e. Rothschild) and western NGO proxy war culture battles, but the ties still run deep.
The establishment is currently beating the drums of war against Russia, while opening a campaign to expose and silence supposed-Putin collaborators who are allegedly parroting pro-Russian propaganda. Perceived ties with Putin were a campaign issue for Trump, and now his Secretary of State has definitive and direct ties to Russia. Trump announced during the campaign that he ‘doesn’t know Putin’ (personally), but Rex Tillerson most certainly does know Putin.
But he is no pawn to draw controversy over a revived Cold War – this guy actually holds the keys to global conflict… and he and Trump could establish peaceful ties and establish mutual business. On the other hand, the ability to control the supply & demand of the energy economy becomes a power play. If the Administration wishes to poke Putin, they can do it directly through sanctions, or indirectly through sabotage.
The petty debates over resolutions and sound bytes about the Russian threat will be muted by the simple dynamic of whether or not Putin is happy, and whether or not Tillerson is peaceful or warlike.
At some point, there is meant to be more world war, and greater global control… but perhaps for a time there will be peace.
Clearly, this connects back to the life and times of Rex Tillerson, who putting fracking on the map, and created a post-peak oil paradigm in which fossil fuel giants can continue to dominate the earth for the foreseeable future.
Draining the Swamp? Enter, the Council on Foreign Relations and the North American Union scheme
Should the United States seek so-called energy independence in an elusive effort to insulate this country from the impact of world events on the economy, or should Americans pursue the path of international engagement, seeking ways to better compete within the global market for energy? Like the Council’s founders, I believe we must choose the course of greater international engagement. … The central reality is this: The global free market for energy provides the most effective means of achieving U.S. energy security by promoting resource development, enabling diversification, multiplying our supply channels, encouraging efficiency, and spurring innovation.
If there is job growth, it is fracking and its derivatives. “Newly discovered” fields in Midland, Texas or the Dakotas and wherever else is the battlefield for a new front of CFR globalism. Energy is now a product of economic control and digital surveillance at every level. It has become an important tentacle in society; the report indicates the general plans to routes the electrical grid throughout North America, and eventually to transfer natural gas to Central America and beyond.
The larger motivations for North American-ism in the thinking of government can be explored at a later time.
What is important to recognize, is that the powers-that-be have a strategy here. As chaotic as the 2016 appeared, there was a quiet churning in the background; the steady hum of 1,000 points of light, come to implement the accepted agenda, and spout the talking points.
It isn’t clear whether or not Trump is “in on it”, but it is clear that he has surrounded himself with players in the scheme. At this time, it appears that Rudy Giuliani will not play a direct role in Trump’s administration; this may also be true of Gen. Petraeus, whose scandals are just more political baggage – but regardless of whether or not they take cabinet positions, they are directly involved in the larger plan for geopolitical and full spectrum dominance.
Restoring energy exports at home will rally the patriotic base and rouse that “Made in America” spirit – and perhaps there are legitimate advantages – but ultimately the political nature of this industry will be played for benefit by a globalist organization.
Nevertheless, we are entering a new era in politics altogether. Let’s pick apart the pieces of that new paradigm carefully, so we can avoid repeating the painful mistakes of the past.
This article was written by Aaron Dykes and originally published at TruthstreamMedia.com.
