You Thought The Saudis Were Kidding?


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    NPC Sidney Lust’s 18th Street cinema decorated for Halloween, Washington, DC Oct 1920 There are many things I don’t understand these days, and some ar
    [See the full post at: You Thought The Saudis Were Kidding?]


    5% GDP. Is that deflationary? Will it be when it hits 7 to 9% in a few quarters? The level the Fed needs it to be,to fund the U.S. Union and Government Pension Systems?


    A whole lotta folks left a whole lotta money on the table, in believing fiat monetary systems are deflationary in nature.

    Golden Oxen

    My gut feeling is the Saudi’s have very little to do with all this.

    We are witnessing a world wide economic contraction that is accelerating in my opinion and all the jibber jabber and phoney numbers are mere noise that confuse the issue.

    The damage that has been done to the minds of the worlds middle class by all this talk of buy ins, pension cuts, negative interest rates etc as well as fears of job stability are never talked about but have taken a major toll on confidence.

    Expecting big trouble after the holidays.


    Agree with GO, except I expect ‘big trouble’ after the last LTO fields drilled in the sweet spots start to decline in earnest.


    You are correct. Because they listen to bullshit spewed by RIM. When we have never had deflation of any magnitude in a fiat system.
    Because when World assets are over 1.4 Quadrillion and world Debt is 230 Trillion only a retard like RIM would say deflation is inevitable.
    Like his stupid sidekick’s Canadian Real estate will go down 90% call in 2010. How’s that working for you Nicole?


    From the get go, I thought this was all due to global slowdown but American distraction has turned it into an energy issue. Assuming there is some new level at which things will stabilize and an ever increasing global population, it’s only a matter of time until energy limits are slammed into again.

    People absolutely hate insecurity and avoid it at all costs. Consequently, we have a future of optimistic predictions, crazy solutions, deep pessimism, massive denial and all the other things people do as they scramble to feel “secure”. Will be one helluva ride.


    Supply and demand started the ball rolling down in oil but now it has taken on a life of its own, supported by Saudi rhetoric and others too. That’s how markets work even our corrupted ones.

    My new take is the Saudis don’t like anyone especially Iran and Russia and talking down oil is the best way to hurt them. They have their issues with the West too so shaking them up a bit is fine. It is also all simply a way to exercise power. No matter the outcomes the feeling of power is always seductive. With the king all but dead it is hard to say where the decision making lies there. I don’t think anyone knows what machinations are going on at the top of the family which is the state. Let’s not forget the House of Saud is hugely motivated by its particular sect of Islamic fundamentalism where there is a longing to return to the 11th century. I suppose they know our feckless leaders would never consider the most obvious thing that real empire builders would. Simply taking over the oil fields. Of course I now remember that there are dark rumors that the infrastructure has some self destruct systems in place. It is now totally forgotten that Nixon at least entertained the thought.

    And again, the Fed cannot raise longer term Treasury rates. Most other rates can rise and many are right now but unless Uncle Sam either goes on another borrowing binge or starts talking about default or the Fed itself starts selling paper there is no short term way to raise Treasury rates in a world filled with trillions of dollars looking for a safe home. Which rates are rising is a crucial distinction.

    The safe haven status of the US Treasury and equity markets and the dollar speaks not to decline but to a new period of ascendancy, relative anyway. In certain ways including the embrace of The Empire of Chaos all over the globe can be seen and certainly is by the power elites here as the empire gaining strength.


    The Saudis might not like Russia and Iran, much the same way as maybe we don’t like some of our relatives when we see them at Xmas. If the U.S. did not like what the Saudis were doing, they’d simply take them out, Gaddafi-style. There’s an agreement between the Saudis and the U.S. – the Saudis buy U.S. Treasuries and do what they’re told, and, in turn, the U.S. protects the Saudis.

    Look at how quickly Gaddafi was gone when he didn’t play ball.

    NATO’s Destruction of Libya

    This has the “U.S.” written all over it, just like the 5% GDP fairytale, sanctions haven’t worked in Cuba, so now we’re accepting them back fairytale, North Korea just hacked and Ukraine rebels downed the plane fairytale.

    There is a whole other layer of players above sovereign countries who are coming up with the narrative/story and who, as Ilargi says, “…have the message fit the purpose, set up a narrative that makes it make total sense”.

    There’s something happening here, but what it is ain’t exactly clear. Who is going to benefit?


    “So, we agree, American shale-oil production must die. As a token of our understanding, we give you this bling made of solid barbaric relic.”



    Depending on how much you deposit in a Chinese bank, you just might end up with a free Mercedes-Benz or a bag of potatoes.

    “Lenders in China, desperate to attract customers who are finding alternatives for their savings, are turning to giveaways. On offer at one branch in Beijing: An iPhone 6 Plus or a Mercedes-Benz.

    Cash rebates, trips abroad, interest rates at the highest premium ever over the official benchmark rate, even free vegetables are among other goodies banks are dangling to get Chinese savers to deposit their yuan in savings accounts.”


    ” It would also include a lot of ugliness in the US shale patch, with a great loss of jobs.. ”

    You’ve got a major point there. Oil booms always provide an outlet for young ambitious dudes with physical skills. This oil boom is different because there are NO OTHER OUTLETS for such men. Previously they could go back home and find decent physical jobs. Those back-home jobs didn’t pay as much as oil work, but they were a lot more comfortable. Now they’ll go home to long-term unemployment. Not a good sign for law and order.

    Dr. Diablo

    I see a lot of straight-line extrapolation around. First oil was going to $200 because the line said “up.” Now it’s going to $20 because the line says “down,” yet neither predicted the reversals at all. Simple math: if oil projects aren’t profitable at $60, then over time oil will rise back to $60, or $80, or whatever the breakeven line is, regardless of the economy. Because as the man says, what other means can you move 4 men and their luggage 10 miles at 50mph for .25 litres of gas?

    In the meantime, however, prices will wildly undershoot (and already have), shutting off production–many times permanently, by stranding small, less profitable tail-ends of the fields–then once the fields have been ruined more than they had to be due to the financial, “bubble” mismanagement, the production wall will suddenly strike and raise prices far OVER what they need to be. …That’s what happens when you have a broken price mechanism, either in central planning, fraud, or bubble finance, none of which are capitalism. So I don’t doubt we’ll get back up there in price soon enough. And in a stable structure, probably the price ceiling would be getting progressively lower due to a fraying economy and poor wages. However, I expect the system will fracture and be re-written this time, and not take the straight-line projection, just as it didn’t the last two or more times.

    Economy? 5% GDP??? I nearly banged my head on the steering wheel hearing these feckless idiots on NPR. Wtf do they live? K street? Reality check: 20% of Millennials live in poverty. More than that in Britain and Europe where 20% of ALL people live in poverty. Near 50% of 25-year-olds live at home. And these guys have the gall to say unemployment is super-low, the economy hasn’t been this hot in over 10 years? Friends, we have reached a “reality-free zone.” They may not have thought it would be this bad, but clearly the facts are being synthesized from thin air to support the pre-determined narrative: that is, to raise rates. Any excuse will do, they no longer care about reality.

    But funny thing: even when you no longer care about or include gravity in your calculations, it still exists.

    Russia can tolerate low prices. China can tolerate low input costs. Europe can stand a lower cost of living. But there’s one nation that can’t tolerate low oil prices, a multi-trillion industry to be cut in half, the dollar to spiral up, and deflation to take hold, and that’s the United States. It looks like it can with the dollar rising, but it can’t–that is exactly the Depression-era scenario where gold (i.e. money) was scared out of the whole world and fled to the U.S. for safety, killing the economy and markets alike. Ultimately, Roosevelt had to default, revalue gold, and re-set the Monopoly board as the bad economy destroyed the REAL financial market, i.e. bonds. Cities defaulted, states defaulted, and without wages or economic motion, companies REALLY defaulted, taking the banks with them. The Dow was merely a sideshow. So Huck Finn, deflation in a fiat system—this one’s for you.

    It may look like the U.S. is raiding the emerging world by raising the dollar–and they are for now–but this is a temporary distance in a predetermined destination. Like Roosevelt, the dollar will be defaulted on via a rules change or the pain will never end. One other thing: by leaving the dollar standard–just as the nations left the gold standard in 1930–the now 100+ BRICS nations will recover first. Addendum to that, when the U.S. dollar is no longer the reserve currency, the U.S. will be valued on its trade and industry. And the U.S. has become a hollow shell of graft, fraud, waste, and mis-reporting, with 20% of GDP probably Wall St. paper ginning, and 20% more in health care waste, with the real nation perhaps no larger than Brazil or Russia.

    That’s a long way down, friends.


    Merry Christmas everybody, and all those around you!

    John Day

    T.Boone Pickins says that Peak Oil WAS in 2005, and that the drop in oil prices is due to loss of global demand, as CNBC dittohead interviewer (younger, stronger) shouts him down, until Pickins tells him who the “expert” is.

    Also: An airport-worker witness in the MH-17 shoot down says a Ukrainian fighter jet did it, leaving with air to air missiles, returning without them, names the pilot and quotes him.


    Ilargi, both the WSJ and Zero Hedge badly botched the reporting on the 3rd quarter GDP revisions, and then Yves quoted what you wrote here and spread the damage…

    real health care outlays were a tenth of 3rd quarter GDP and less than half of the upward revision….they actually increased at a real rate of 4.6%, so health care was actually a small drag on the overall quarterly increase…

    here’s my breakdown of PCE, with the links showing my math:

    <p>real personal consumption expenditures, the largest component of GDP, were revised to show growth at a 3.2% annual rate rather than the 2.2% growth rate reported last month, and hence they contributed 2.21% to the quarter’s growth rate, not the 1.51% previously estimated…real consumption of durable goods grew at a 9.2% rate, revised from the 8.7% growth rate reported in the second estimate, and added .67% to the final GDP figure; major contributors to that were a 15.7% real growth rate in consumption of recreational goods and vehicles and a 11.2% real growth rate in motor vehicle and parts consumption, while real consumption of furnishings and durable household equipment rose slightly and consumption of other durable goods fell, even as all durables consumption benefited from a negative 2.1% deflator…meanwhile, real personal consumption of non-durable goods rose at a 2.5% rate and added 0.39% to GDP, revised from the previous estimate of a 2.2% growth rate, even though inflation adjusted outlays for food and beverages, clothing, and energy goods were virtually unchanged….in addition, real consumption of services grew at an 2.5% rate and added 1.15% to the quarter’s growth, revised from the 1.2% growth rate and 0.53% addition reported in the second estimate last month, as real consumption of financial services and insurance grew at a 7.0% annual rate, real consumption of food and lodging services grew at a 4.9% rate, and real outlays for health care services rose at a 4.6% rate, offsetting a small decrease in real outlays for housing and utilities and while outlays for recreation and other services were flat.. </p>

    Mike Twain

    ‘We owe, we owe, so we got to sell the oil, ya know’ Does everybody think the Saudis are debt free? They can sell oil down to zero if they want, but they still got to cover the monthlies, just like the shalers. Raul and Nicole got it right, but nobody can call the exact moment of the turn. Not even the great and powerful Marty Armstrong. I’m still going with early rather than one day late.
    By the way, in Bosnia the government was still proclaiming good times just 72 hours before the SHTF. Read a little Selco before you take your next happy pill.


    As for the growth in the economy, you have the reality exactly. It always reminds me of a very old joke about lies, damn lies, and government statistics. Or the one about the applicants for an accounting job, where a lawyer gets the position after asking the CEO, ‘what do you want the answer to be?’.

    1999 was the end of growth. We have seen nothing but national contraction since then,the reign of seasonal adjustments. A generation living in their parent’s basement, 15 years of deflation in incomes and occupations, national policy in the hands of bank sycophants, consumer sentiment at all time highs, you just can’t make stuff like this up. Oh, and I almost forgot about the national denial of an almost certain ecological catastrophe.

    And KKR and the Carlyle Group think it’s a great time to buy….

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