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The Unbearable Over-Determination Of Oil

Tyler Durden's picture




 

Submitted by Ben Hunt via Salient Partners' Epsilon Theory blog,


Jett Rink: Everybody thought I had a duster. Y'all thought ol' Spindletop Burke and Burnett was all the oil there was, didn't ya? Well, I'm here to tell you that it ain't, boy! It's here, and there ain't a dang thing you gonna do about it! My well came in big, so big, Bick and there's more down there and there's bigger wells. I'm rich, Bick. I'm a rich 'un. I'm a rich boy. Me, I'm gonna have more money than you ever *thought* you could have – you and all the rest of you stinkin' sons of … Benedicts!

Bick, you shoulda shot that fella a long time ago. Now he's too rich to kill.
? “Giant” (1956)

Mussawi: Bob, what do you know about the torture methods used by the Chinese on the Falun Gong? Huh? Method number one. What's your guess?
[pause]
Water dungeon. Did you guess water dungeon? Number two method? Number two, twisting arm and putting face in feces. Not interested in two? Number three. Number three is called 'pulling nails from fingers'. What do you think, Bob? Number three sound good to you? The purpose is to get the monks or whatever to recant their beliefs. What if I had to get you to recant? That would be pretty difficult right? Because if you have no beliefs to recant then what? Then you're f****d is what.
? “Syriana” (2005)

And therein lies the whole of man’s plight. Human time does not turn in a circle; it runs ahead in a straight line. That is why man cannot be happy: happiness is the longing for repetition.
? Milan Kundera, “The Unbearable Lightness of Being”

Everything we see hides another thing, we always want to see what is hidden by what we see, but it is impossible. Humans hide their secrets too well.

? Rene Magritte

9 Down Clue:

Market Leader

Answer:

T-H-E-F-E-D

New York Times Crossword Puzzle, Saturday November 16

You know you’re in trouble when the Fed’s Narrative dominance of all things market-related shows up in the New York Times crossword puzzle, the Saturday uber-hard edition no less. It’s kinda funny, but then again it’s more sad than funny. Not a sign of a market top necessarily, but definitely a sign of a top in the overwhelming belief that central banks and their monetary policies determine market outcomes, what I call the Narrative of Central Bank Omnipotence.

There is a real world connected to markets, of course, a world of actual companies selling actual goods and services to actual people. And these real world attributes of good old fashioned economic supply and demand – the fundamentals, let’s call them – matter a great deal. Always have, always will. I don’t think they matter nearly as much during periods of global deleveraging and profound political fragmentation – an observation that holds true whether you’re talking about the 2010’s, the 1930’s, the 1870’s, or the 1470’s – but they do matter.

Unfortunately it’s not as simple as looking at some market outcome – the price of oil declining from $100/bbl to $70/bbl, say – and dividing up the outcome into some percentage of monetary policy-driven causes and some percentage of fundamental-driven causes. These market outcomes are always over-determined, which is a $10 word that means if you added up all of the likely causes and their likely percentage contribution to the outcome you would get a number way above 100%. Are recent oil price declines driven by the rising dollar (a monetary policy-driven cause) or by over-supply and global growth concerns (two fundamental-driven causes)? Answer: yes. I can make a case that either one of these “explanations” on its own can account for the entire $30 move. Put them together and I’ve “explained” the $30 move twice over. That’s not very satisfying or useful, of course, because it doesn’t help me anticipate what’s next. Should I be basing my risk assessment of global oil prices on an evaluation of monetary policy divergence and what this means for the US dollar? Or should I be basing my assessment on an evaluation of global supply and demand fundamentals? If both, how do I weight these competing explanations so that I don’t end up overweighting both, which (not to get too technical with this stuff) will have the effect of sharply increasing the volatility of my forward projections, even if I’m exactly right in the ratio of the relative contribution of the potential explanatory factors.

Here’s the short answer. I can’t. As a social animal in the financial services ecosystem I can’t avoid some overweighting of the explanatory factors. The longer answer is that I believe I can reduce the naïve overweighting by a rigorous focus on Narrative formation and dissemination, a process that I’ll describe below. But before we get to that let’s examine the consequences of an investment world where the overwhelming majority of market participants are not even thinking about mitigating the naïve overweighting of the various explanatory factors for oil price movements that are rolling through their heads, and where the entire financial services sector is designed to magnify this overweighting behavior.

What do I mean by that last bit? I mean that when there’s a large move in an important aspect of the market – and a $30 plunge in the price of oil certainly qualifies on that score! – it creates an overwhelming demand from global investors, from trillions of dollars of investment capital, for an answer to a single question: WHY? Anyone in the financial services world, from the smallest FA to the largest institutional allocator, must supply an answer to that question of Why, or else the capital that you advise or allocate for will start looking for a new advisor or allocator. The rarest answer in the financial services world is “I don’t know”, even though that’s almost always the most honest answer, because the business risk of “I don’t know” is overwhelming during large market moves. Global capital creates a multi-trillion dollar demand for The Answer, and financial service providers (or at least successful financial service providers) will always provide it. 

When there’s a multi-trillion dollar market for The Answer, it should surprise no one that there is competition around the supply of The Answer. Many, many, many answers with a small-a will be supplied, each vying for contention for a slice of The Answer market. Not only is every advisor or allocator in the world today an answer-supplier in his or her own right, but also there are layers upon layers of answer supply and demand within the financial services world itself. The result is an artillery barrage of answers raining down on every market participant, including guys like me who have our own howitzers. ALL of us are caught in this barrage, and it’s LOUD. 

All of us may be caught in the barrage, but very few of us have an independently grounded view of what’s going on in oil markets or a process for assimilating the answers. Unfortunately, without that independent grounding or process the sheer volume of the shouted answers becomes a form of torture.

The vast majority of market participants are like George Clooney’s CIA agent in Syriana – ungrounded and without personal conviction in the competition at hand. When Clooney is tortured, it’s only pain – pure, unadulterated, senseless pain – with no purpose or process. Clooney will say or do anything to avoid the pain, but there is nothing he can say or do that will assuage his torturer because he doesn’t have what his torturer wants. You can’t repudiate grounded beliefs under torture if you don’t have grounded beliefs to start with, and whatever belief you espouse under torture will never be a grounded belief. All you can do is shout out some new belief, some new Answer, each time you get another nail pulled off a finger … or, as we might say down in Houston, each time the price of oil goes down another $10/bbl.

Okay, Ben, interesting metaphors and all that, but what’s the investable implication of what you’re saying? Simply this: whatever volatility you think exists in future oil prices … you’re too low. There is a behavioral and market structure dynamic in play today that will amplify oil price volatility beyond whatever your combination of fundamental-driven or monetary policy-driven rationales might imply. The loudness of the artillery barrage of answers to the question of “Why is oil down” is itself a driver of increased volatility in the price of oil and energy sector stocks. And yes, this loudness (more formally, the degree and scope of competition in the answer-supply market) can be measured, which may be an interesting thing for traders to think about. Just sayin’.

Now please note that I do not mean volatility as the word is all too commonly used, as a synonym for “down”. This isn’t some self-fulfilling prophecy, where more people talking about why oil is down somehow pushes oil prices down further. That’s not it at all. What I’m saying is that when more people talk loudly and competitively about their particular Answer to why oil is down, ALL answers become more and more over-weighted. The price of oil becomes more and more over-determined. Events that seem to fit one of the Answers are trumpeted to the high heavens, and everyone rushes to buy or sell according to that event and that Answer. Until, of course, the next event comes along which fits another Answer and is in turn trumpeted on high and is in turn followed by a mad rush to buy or sell according to that event and that Answer. Risk On / Risk Off. Bigger and faster price movements up AND down. Greater than expected “error” from whatever alpha or beta model you’re using. That’s what I mean by volatility.

And the reverse is true, too. When fewer people talk loudly and competitively about their particular Answer to a pressing question of Why, I expect volatility to decline. It’s no accident, in my view, that US equity market volatility has declined with almost perfect inverse correlation to the advance in the Narrative of Central Bank Omnipotence. Today I am hard-pressed to find anyone who argues that equity markets are at current levels because economic fundamentals are so good, or more generally that market outcomes – good or bad – are driven by economic fundamentals. Instead it’s all central banks all the time. There is zero competition in the marketplace of Answers on this enormous question of Why, and I think that’s the driving force behind not only reduced volatility, but also – and far more importantly for the financial services sector – reduced market activity and reduced market interest.

What I’m describing here is another way of getting a handle on the Common Knowledge Game, which I’ve argued is the principal strategic interaction in markets where grounded beliefs are few and far between. I won’t belabor all that again, as you can read about it here and here. But whether you’re thinking in terms of Keynes’ Newspaper Beauty Contest or the Island of the Blue-Eyed Tribe or how a CIA agent responds to torture, it’s all the same dynamic. When you’re not sure of yourself and you’re trying to figure out what consensus view to adopt, as likely as not everyone else is trying to do the same thing. In these situations it’s Common Knowledge – public signals that we all believe that we all heard, aka Narratives – that largely determines each of our individual behavioral decisions.

I mentioned earlier that I believe it’s possible to mitigate these behavioral and structural impulses to overweight explanatory factors through a rigorous assessment of Narrative creation and dissemination, so I’ll turn to that now. To be clear … I don’t have The Answer for what drives oil prices. I have MY answer, which is a small-a answer because it adapts to Narrative shifts in the relative prominence of fundamental-driven factors and monetary policy driven factors. It’s also a small-a answer because it’s a self-consciously Bayesian effort at arriving at a useful assessment of what’s going on, not a Platonic effort at uncovering some eternal Truth with a capital-T. All it really means to say that you’re a Bayesian decision maker is that you ground yourself with some set of prior beliefs and then you update those beliefs with new information. Here, then, are my grounded beliefs, first on fundamentals and then on monetary policy.

On fundamentals ... we have good models (good in the sense that they've been nicely predictive over the past several decades) for the relationship between global growth and oil prices. What all the models basically show is that US growth sets the floor and Chinese growth is the marginal driver above that floor, at least for the demand function. Without a US recession and/or a Chinese hard landing – neither of which are anywhere in sight – it's really hard for oil to get very far below, say, $70/bbl and it's almost impossible for the price to stay there for very long.

We also have good models for the relationship between oil supply and oil prices. Currently we have significant over-supply in the global energy markets, driven by two factors: the continued success of shale production efforts in the US (see the amazing chart below from Deutsche Bank’s Torsten Slok) and the mysteriously high production levels being maintained by Saudi Arabia.

I say mysteriously high because with 30% price declines Saudi Arabia has historically been rather quick to cut production, but they’ve been largely quiet of late. There’s a widespread belief (which I share) that there is geopolitical pressure on Saudi Arabia to maintain production levels in order to squeeze the economic vise on Russia and Iran. There are limits to this US geopolitical pressure, however, particularly with such a mistrusted Administration, and I think we’re now well past those limits. There’s also a somewhat less widespread belief (which I don’t share) that Saudi Arabia is content to maintain (or even increase) production in order to put more downward pressure on oil prices and force US shale production into unprofitable positions. While the proponents of this view are absolutely right that the threat of opening the production floodgates has always been the Saudi big stick used to maintain cartel discipline within OPEC, there’s just too much non-cartelized money, technology, and political capital invested in US shale production to slow it down in this way. It’s the Bick Benedict / Jett Rink problem from the classic movie Giant … if you’re Rock Hudson and you despise James Dean, you better get rid of him while he’s a dirt-poor wildcatter, because once he succeeds he’s too rich to kill.

Also, regardless of what happens in the short term with OPEC production targets, when you look at the production profiles of most major oil fields in the world today I think it’s very hard to see the current over-supply condition as anything but temporary, even with continued efficiency advances in the US shale fields  (for a particularly apocalyptic view on all this, see the latest quarterly letter from GMO’s Jeremy Grantham). As with the global growth models, it’s really hard to get oil much below $70/bbl from a supply model perspective.

But then there’s monetary policy. For the past 30 years we've had general global coordination around a weaker dollar (which supports higher prices of assets, like oil, that are priced in dollars) and for the past 5 years we've had intensive global coordination to promote massive dollar liquidity (which also supports higher oil prices). Today that coordination has stopped, and the dollar is getting very strong very quickly as the Fed cuts back on dollar liquidity at the same time that other central banks continue to increase their own liquidity operations. As I hope that I’ve made clear in recent Epsilon Theory notes (here and here), I think that this monetary policy divergence is a very significant risk to markets, as there’s no direct martingale on how far monetary policy can diverge and how strong the dollar can get. As a result I think there's a non-trivial chance that the price of oil could have a $30 or $40 handle at some point over the next 6 months, even though the global growth and supply/demand models would say that's impossible. But I also think the likely duration of that heavily depressed price is pretty short. Why? Because the Fed and China will not take this lying down. They will respond to the stronger dollar and stronger yuan (China's currency is effectively tied to the dollar) and they will prevail, which will push oil prices back close to what global growth says the price should be. The danger, of course, is that if they wait too long to respond (and they usually do), then the response will itself be highly damaging to global growth and market confidence and we'll bounce back, but only after a near-recession in the US or a near-hard landing in China.

So now for the balancing act ... is the price of oil today driven more by global growth and supply/demand factors or by monetary policy factors? I hope it doesn’t surprise anyone when I say that I think monetary policy dominates ALL markets today, including the global oil market. What’s the ratio? My personal, entirely subjective view is that oil prices over the past 3+ months have been driven by 3 parts monetary policy to 1 part fundamentals. How do I come up with this ratio? For the past 3+ months the oil Narrative has been dominated by public statements from influential answer-suppliers talking up the oil price dynamic of a rising dollar and monetary policy divergence. That’s the source of my subjective view of a 3:1 dominance for monetary policy-driven factors over fundamental-driven factors.

However – and this is the adaptive part where I play close attention to Narrative development and dissemination – the noise level surrounding this Thursday’s OPEC meeting is absolutely deafening. I mean, when the Sunday morning talking head shows are discussing OPEC and its influence on gasoline prices you know that something dramatic is happening with the Narrative. For at least this week and next the oil Narrative is going to be dominated by public statements from influential answer-suppliers talking up the oil price dynamic of OPEC decisions on fundamental global oil supply. For at least this week and next my personal, entirely subjective view of the ratio of explanatory factors is going to flip to 3 parts fundamentals to 1 part monetary policy. And since it’s hard to get the price of oil much lower than it is today on the fundamentals … well, you can draw your own conclusions about the risk/reward asymmetry over the next two weeks. Beyond that? I have no idea. I’ll just have to wait and see what happens to the Narrative.

I know this process probably sounds very reactive, as if I’m lacking all conviction about how the world works. Guilty as charged on the first count; innocI thent on the second. I don’t pretend that I have The Answer. I don’t pretend to have a crystal ball that tells me what OPEC is going to do this Thursday or when the next central banker will jawbone his currency down. I don’t know. Sorry. There are plenty of answer-suppliers out there who will be more than happy to tell you that they DO have that crystal ball, and if that’s what you need you’re wasting your time reading Epsilon Theory. I think that investing in a reactive manner – or as I like to call it, adaptive investing – is the best way to survive a profoundly uncertain world. That doesn’t mean that I don’t have strong ideas about how the world works, about how both monetary policy and fundamentals impact the price of oil. What it means is that it doesn't matter what I think about the way the world works. The only thing that matters is what the market thinks about the way the world works, and in times like these the market will think whatever Common Knowledge says it should think.

It’s crucial to have strong views about how the world works, to have an independently grounded vision of the world, because otherwise I might start to think that whatever Common Knowledge is dominant at some given time … US dollar strength for the past 3+ months, OPEC impact on supply fundamentals for the next 2+ weeks … is The Answer for oil prices, forever and ever amen, and I will be whipsawed mercilessly when the Narrative shifts. And it will shift. But it’s equally crucial not to become a prisoner of my strong views about how the world works, or else at best I will miss the path that the market takes from here to there, and at worst I might be … wrong.

Here’s my Answer: there is no Answer. In a structurally unstable market, there is no stable deterministic model of discrete market-exogenous factors like global supply/demand and monetary policy to “explain” oil prices. Oil prices are systematically over-determined, particularly during times of pricing distress, and you’re kidding yourself if you think you can find the world’s secret eternal code that hides behind market outcomes. The market itself – the strategic interaction of social animals all trying to outsmart each other – is part and parcel of the code. Strategic interactions are not factors that you can plug into your model or regression analysis. They are emergent properties of a game … a game with rules and stable patterns of behavior, so it’s knowable and predictable, but not predictive in the same deterministic fashion that the econometric toolbox promises. For investors and allocators steeped in this predictive promise of econometrics, game theory will always seem like thin gruel, as postdictive rather than predictive. Fair enough. But rather than cling to my econometric toolkit and make market predictions that are less and less useful in this, the Golden Age of the Central Banker, I’d rather look at the market through the lens of game theory and Common Knowledge and Narrative so that I can adapt quickly to what IS rather than what I’d prefer it to be.

 

 

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Tue, 11/25/2014 - 22:49 | 5489479 A Lunatic
A Lunatic's picture

Buy the dip. If you can't swim in it you don't own it.......

Tue, 11/25/2014 - 22:52 | 5489486 TeamDepends
TeamDepends's picture

It's the nigger whites, who have, through the decades kept the white niggas down. You like "Wheaties" for breakfast?

Tue, 11/25/2014 - 23:17 | 5489571 Dragon HAwk
Dragon HAwk's picture

Here’s my Answer: there is no Answer.

  why did he wait till the end of the article to write that..

could have saved me a lot of Time.. i think the whole article basically said. there are a lot of Mind games going on in the markets.

when derivatives outweigh the assets. strange things are going to happen.. that's my Answer.

Tue, 11/25/2014 - 23:43 | 5489643 The Shape
The Shape's picture

Too many articles like that here recently. 3000 words on the soapbox then a conclusion of "I dunno".

Tue, 11/25/2014 - 23:47 | 5489662 post turtle saver
post turtle saver's picture

the price itself is the story, the rest is just conjecture

Wed, 11/26/2014 - 02:01 | 5489907 glenlloyd
glenlloyd's picture

I was a bit put off by his suggestion that 1) the US will not enter a recession and 2) that China won't have a hard landing.

Again though this is conjecture on his part. I don't see how either one will be avoided tbh.

Wed, 11/26/2014 - 06:37 | 5490123 new game
new game's picture

that is wish/think theory.

as a side note:

i say it is time to unload your gas guzzler to short memory dolts...

Wed, 11/26/2014 - 10:47 | 5490695 Mrmojorisin515
Mrmojorisin515's picture

you're missing the point.  The narrative of central bank omnipatince (which he has a prior article on) is all that matters.  Until that fails the markets will continue to go up.  The narrative is all that matters, everyone who has been reading zerohedge knows what the narrative is.  The problem is we are all like hugh hendry, we understand how things should be, but currently the reality is being skewed by the narrative.  Until the narrative breaks, nothing changes.  dow to 50,000!

Tue, 11/25/2014 - 23:22 | 5489585 besnook
besnook's picture

overthinking a fairly simple dynamic and then seeking the confirmation of your peers and, most importantly, your clients is what wall street sells to the gullible. that is why one can only have "confidence" in an advisor and not not absolute trust.

oil prices are great. like the bdi, the oil market is the real time guage of business sentiment because the cycle is immediate. decisions need to made today for what is going to happen tomorrow so the slightest gape in capacity is immediately reflected.

the bottom line of monetary policy is somewhat similar in it's reactionary response in the forex market. when there are gaps in demand the gap is filled with more cash which means higher long term prices, good old inflation. in other words monetary policy really doesn't matter except as a very short term aberration. oil pricing has a huge effect on the aggregate economy as funds are distributed away from energy to more junk at walmart which employs more chinese and more minimum wage jobs for americans but it is lagged by 6 months although some may show up in time for christmas.

and then as supply and demand evens out again the price of a barrel goes back to 100 bucks so everyone can make money.

 

IT IS JUST SIMPLE CARTEL ECONOMICS!!! they never work for long.

Tue, 11/25/2014 - 23:51 | 5489671 HowdyDoody
HowdyDoody's picture

If the price of physical gold is determined by the price of paper gold, presumably the price of physical oil could be determined by the price of paper oil?

Wed, 11/26/2014 - 00:51 | 5489802 Dragon HAwk
Dragon HAwk's picture

Oil is Consumed quite rapidly, and somebody somewhere has to decide to put it in something and ship it somewhere. a black  or real market has to exist...

Tue, 11/25/2014 - 23:55 | 5489680 robnume
robnume's picture

Because=Cognitive Dissonance

Wed, 11/26/2014 - 00:19 | 5489737 MedTechEntrepreneur
MedTechEntrepreneur's picture

Answer is SIMPLE: Punish Putin...sheesh come on!  

Wed, 11/26/2014 - 04:32 | 5490041 chubbyjjfong
chubbyjjfong's picture

Exactly.  We can replace the whole article above with just your post.. it is that simple.  The Saudi's can withstand something like 7 years at low prices and the US can print.  Putin will not be allowed to fuck with the petro dollar, which is what he is clearly, successfully doing.  

Wed, 11/26/2014 - 00:56 | 5489817 Captchured
Captchured's picture

I actually liked the article. Yes, he was on his soapbox a lot. However, the following paragraph is the actionable item if that's what you crave.

However – and this is the adaptive part where I play close attention to Narrative development and dissemination – the noise level surrounding this Thursday’s OPEC meeting is absolutely deafening. I mean, when the Sunday morning talking head shows are discussing OPEC and its influence on gasoline prices you know that something dramatic is happening with the Narrative. For at least this week and next the oil Narrative is going to be dominated by public statements from influential answer-suppliers talking up the oil price dynamic of OPEC decisions on fundamental global oil supply. For at least this week and next my personal, entirely subjective view of the ratio of explanatory factors is going to flip to 3 parts fundamentals to 1 part monetary policy. And since it’s hard to get the price of oil much lower than it is today on the fundamentals … well, you can draw your own conclusions about the risk/reward asymmetry over the next two weeks. Beyond that? I have no idea. I’ll just have to wait and see what happens to the Narrative.

 


Wed, 11/26/2014 - 02:17 | 5489902 Wild Theories
Wild Theories's picture

I liked this article too, not just for the particular case for oil, but also for markets in general.

The environment we are in have passed from the realm of certain certainties based on fundamentals, into the realm of certain uncertainties because everyone is new and uncertain about how monetary distortions affects price discovery in the markets.

we are swinging between the predicatable but drugged state of central bank injected stupor, and the unpredicatable panicky state of its withdraw. This is what junkies go through, and this is what the global markets have become. We are certain of everything when we are hooked up in a delirium, and once off the hook back in the real world we become anxious panicky and no longer sure of anything.


the smart and savvy types can probably still do something with that. You just have to recognize where we are(a junkie on withdraw), forget hard data and fundamentals, and just watch the mood swings of the crowd and count how far the pendulum is swinging.

 

Going by what we hear from little birds and talking grapevines, the next round of central bank intervention will probably be returning sometime in 2015, so in any case we may not have that long to go before we can feel "certain" again.

Wed, 11/26/2014 - 02:51 | 5489953 zerohedgejjxxzz12
zerohedgejjxxzz12's picture

I think the Austrian economic sysytem could resolve all of this, just let the markets work them selves out. But hey, that wouldn't pay a shitload of A**holes, that think the economy needs to be managed. 

Wed, 11/26/2014 - 03:19 | 5489980 Falling Down
Falling Down's picture

I clocked in just to back you up, on that.

Too much "swarth", in the system.

Wed, 11/26/2014 - 04:14 | 5490034 Debugas
Debugas's picture

explanation:

oil prices were elevated (above real demand) for several years by speculators

as soon as free money for speculation dried out the prices started falling to their normal level defined by supply and demand

Wed, 11/26/2014 - 04:38 | 5490045 chubbyjjfong
chubbyjjfong's picture

It almost sounds like you are describing a functional market.

Wed, 11/26/2014 - 04:53 | 5490059 Ghordius
Ghordius's picture

in a functional market, speculators add in liquidity by buying up when prices are low and selling when prices are high

in a disfunctional market, they do the opposite, depending from the "ammunition" they have at their disposal, and hide behind the fig leave of "market fundamentalism"

but the oil market is anyway under the spell of a powerful international cartel called OPEC, isn't it? which is then again under the spell of geopolitical pressures, which are also under the spell of monetary considerations tied to a great global reserve currency

I repeat: in a functional market, volatility is low thanks to speculators. the "good speculator" makes prices more stable. in a disfunctional market, "bad speculators" want prices to fluctuate wildly, and so reap extra profits, best by leveraging up with other people's money

Wed, 11/26/2014 - 05:10 | 5490069 chubbyjjfong
chubbyjjfong's picture

Nicely put. The oil market ponzi is the ultimate definition of 'rigged'. About as far from functional as one can get.  How to fuck over everyone and everything. 

Wed, 11/26/2014 - 07:12 | 5490146 falak pema
falak pema's picture

Its been that way since Gulbekian days, aka 1928.

When the Seven Sisters took over the ME Oil patch --(and thats why during 1956 Suez crisis the US humiliated France and UK by telling them "git the hell outa here pronto") --Enrico Mattei said : I'm gonna propose to them 50/50 to make more competition as these Seven Sisters hold the Arabs by their Nuts! 

Poor Enrico ended up dead in an air crash in 1962. By then, the US had landed in Mobutu land and the Oil game hottened up to Africa as well; next stop being Biafra War.

Its a game where politics and gun boat diplomacy DOMINATE market forces since day 1.

The OPEC made it a two way fight which quickly became a One way street when Dear Henry made MIC protection the carrot to get OPEC leaders to join petrodollar hegemony. Only consequence of this HUGE profit sharing : Europe and US were now living on recycled petrodollars; aka on huge debt. They have never recovered, whence the slow demise of the western welfare state that Reagan and Thatcher put into motion to the benefit of the Oligarchy 1%.

It has consequences. We now see them on the streets of East, as of West. 

Wed, 11/26/2014 - 07:31 | 5490166 LawsofPhysics
LawsofPhysics's picture

Why do you think the "free money" has "dried up"?  LMFAO!!!  What part of ZERO interest rates policy don't you understand?  "Money" is still damn cheap asshat.

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