Month: April 2022

Western oil majors have quit Russia altogether, taking billions of dollars in vague impairment charges on Russian energy assets, and now comes the hard math. This morning energy giant Shell Plc said that it will write off between $4 and $5 billion in assets in a first-quarter 2022 outlook.

Thursday’s announcement provides investors with an early glimpse at the costs of fracturing global supply chains for oil majors following Shell’s decision to exit Russia after the invasion of Ukraine. 

“For the first quarter 2022 results, the post-tax impact from impairment of non-current assets and additional charges (e.g. write-downs of receivable, expected credit losses, and onerous contracts) relating to Russia activities are expected to be $4 to $5 billion,” Shell said. 

“These charges are expected to be identified and therefore will not impact Adjusted Earnings,” it continued. 

The charge surpasses the company’s earlier estimate of $3.4 billion worth of oil-producing assets in Russia.  

More details about the impairment charges will be announced in Shell’s first-quarter earnings report on May 5. Shell also said that its cash flow would be hit by “very significant working capital outflows as price increases impacting inventory have led to a cash outflow of around $7 billion.”

Previously, BP Plc said it would exit its 19.75% stake in the Russian oil company Rosneft. The move could cost BP at least $25 billion. Shell’s shares trading in London were down nearly 2% on the news. 

Commenting on Shell’s move is Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, who told CNBC, “despite the eye-watering costs, the share price should continue to stay reasonably resilient given the divestment far outweighs the reputational damage which could be caused had it not pulled out.” 

Western oil majors operated in Russia for several decades as both world regions cooperated on energy production. However, the Ukraine conflict has driven a wedge between Moscow and Washington/Brussels as the old world order crumbles and a new multipolar world emerges. 

US jet-fuel inventories have fallen to a seventeen-year low. More troubling is that jet-fuel inventories for the US East Coast (PADD 1) have fallen to a 25-year low. Tight fuel supplies ahead of a traditionally busy travel season may suggest ticket prices could jump. 

U.S. inventories of jet-fuel are at the lowest level for this time of the year in 17 years. For the East coast (PADD 1), they are the lowest seasonal level since 1997. Airline programs suggest a big rise in flights coming in the next 5 months. Jet is going to be very tight #OOTT

— Javier Blas (@JavierBlas) April 6, 2022

US jet-fuel inventories are well below average. 

US East Coast PADD 1 Jet-Fuel Inventory Hits 25-Year Low 

On the other hand, Jet-fuel prices (now at a record-high) have risen more than 162% since mid-March, mainly on energy supply disruptions following the Russian invasion of Ukraine and Western sanctions. 

What this may suggest is that tight fuel supplies plus soaring travel demand could force airlines to boost ticket prices. Although the correlation between jet-fuel inventories at PADD 1 and US CPI airfare isn’t clean, it at least allows some understanding that airlines could soon pass along fuel costs to consumers with higher airfare.  

“The consumer will see an impact in fares. There’s no question about it. Or they will see airlines cut back on flights,” Tom Kloza, global head of energy analysis at OPIS, told CNN.

With Memorial Day holiday weekend (one of the busiest travel times of the year) less than two months away, consumers could be greeted with rising ticket prices, and those who drive will be greeted with record-high gasoline and diesel prices. On top of this, consumers are getting hit with record-high food inflation. It’s only a matter of time before consumers go on strike. 

After a years-long period of relative inactivity, Warren Buffett’s Berkshire Hathaway has been on a bit of a buying spree lately, first buying the insurance company Alleghany, before disclosing late yesterday that the company had purchased about 121 million shares in HP – a roughly 8.8% stake in the company – worth about $4.2 billion.

HP shares surged 9.9% to $38.38 in after-hours trading after Berkshire disclosed the stake in an SEC Form 4. Ironically, the deal is Buffett’s third since the release of his latest letter to shareholders, where he claimed that equity valuations were too stretched to offer good dealmaking opportunities (“we find little that excites us,” Buffett wrote at the time).

In addition to buying Alleghany, Berkshire also bought Carl Icahn’s stake in Occidental Petroleum (leaving Icahn with a profit of roughly $2 billion).

According to Reuters, which approached Berkshire for comment, Berkshire wouldn’t specify whether Buffett himself, or his portfolio managers Todd Combs and/or Ted Weschler, were responsible for the HP stake (although Buffett normally handles larger investments made by the company).

In his latest letter, Buffett declared Berkshire’s insurance business the first of four “giants” accounting for much of the company’s revenue.

That cluster of insurance operations, which includes GEICO, MedPro, National Indemnity, generates a massive cash “float” that is now worth more than $147 billion.

Before announcing the Alleghany deal, Berkshire had gone six years without a buyout, preferring during that period to invest in fractions of companies via public equity.

Authored by Egon von Greyerz via GoldSwitzerland.com,

“There is gonna be a new world order out there and we’ve gotta lead it!

And we gotta unite the rest of the world in doing it!”

That is what Biden proclaimed in a recent speech.

But since Biden has a tendency to get his speeches wrong, what he meant to say was:

“There is gonna be a new world DIS-order out there and we’ve gotta lead it!

Sadly, as the world has heard in many speeches by the US president, he hasn’t got a clue that his “empire” is collapsing around him.

But regrettably for Biden, the US isn’t an empire at all but a bankrupt nation without leadership. But even worse, the US has just in a final act of desperation not just shot itself in the foot but in the head.

CONSEQUENCES

Very few, if any, of today’s world leaders understand the consequences of their actions and clearly not Biden.

As the world is experiencing the end of an economic era, we are getting the leaders that we deserve and thus the appropriate ones to take the world to Armageddon.

So the world is now entering the final battle, a battle with totally incompetent heads of state which will lead to everyone losing.

The route to Armageddon will be disastrous for the world. Distressed leaders will take calamitous actions, exacerbating not only their own country’s problem, but also the rest of the world’s.

And that is exactly what we are seeing now with the worst possible concoction of debt deficits, currency debasement and decadence. The consequences were of course always predictable based on history. But no leader in the current era is a real student of history. And that is why the world is in such a mess.

HYPERINFLATION FOLLOWED BY A DEFLATIONARY DEPRESSION

I have in many articles outlined the course of events that I see from here – inflation, hyperinflation, debt collapse, asset collapse, leading to economic misery and eventually to a deflationary depression. “All Hell Will Break Loose for Humanity” as I wrote in a recent article.

There will be continued migration, but probably to a lesser extent since there will be no promised lands which will offer the migrants a better life. There will be isolationism and many countries will try to close their borders.

Sadly there will also be wars, cyber, civil and even major military wars. Mankind has never for any longer period stayed away from wars and especially not in periods of economic depression and high debts. Wars are such a wonderful excuse for poor leaders both to print more money and as a blame for the misery that the people suffer.

Western dominated media and propaganda are naturally blaming Putin for the war. And many leaders including Biden want him gone.

WARS HAVE BUILT THE WORLD

Wars are of course terrible whoever starts them but as I just said, the history of the world is very much based on wars and empire building whether we talk about Persian, Roman, Han, Mongol, Ottoman, Spanish, Russian, or British empires.

Many of these empires have been revered for what they achieved and still are today whilst some like the Mongol left very little positive traces for posterity.

The British Empire for example was remarkable. A small island created the biggest empire in history lasting for over 300 years and covering 26% of the world. The cultural and language influence is still significant.

Very few voices are heard today requiring that the kings or emperors of those eras to be convicted for war crimes posthumously.

The US never created an empire but unprovoked attacked countries like Vietnam, Iraq, Libya and Syria. Over 300,000 civilians have been killed in these wars led by the US.

Whilst virtually the whole Western world considers Putin to be a war criminal, we have not heard similar attacks on the US, UK or French leaders who were involved in the above recent wars.

Without intending to take sides, why should we have different rules or laws for different war criminals? There is clearly not a level playing field.

CORNERING A RUSSIAN BEAR HAS CONSEQUENCES

Coming back to consequences, any intelligent Western leader could have predicted Russia’s recent actions since the Maidan Revolution in Ukraine in 2014. This was when a US and Western led coup ousted the elected Ukrainian leader and government and installed a Western friendly leadership.

This coup, combined with new Nato members surrounding Russia, was such a clear threat to Russia that Putin’s reaction was obvious. Cornering a Russian bear is very dangerous.

A strong Western leader and Statesman would have foreseen this and taken up negotiations with Russia. But Western leaders totally ignored all the warnings from Putin and Russia and that is why the world is not just in a mess but in a situation that is geopolitically very dangerous.

Some observers argue that the current situation has been engineered by US Neocons in order to start a conflict/war with Russia.

SANCTIONS HAVE CONSEQUENCES

The Roman Empire prospered for centuries due to free trade within and outside. But to sanction a country like Russia which has the world’s greatest natural resources to the extent of $75 trillion is total madness. Even worse when this sanctioned country supplies the energy of almost half of Europe, this is not just shooting yourself in the foot but in the head. See my article “A Global Monetary Inferno of Nuclear proportions”.

This will not just lead to energy and food shortages in the West but also a massive decline in world trade as well as GDP.

The CEO of BASF, the world’s largest chemical producer, said recently:

“Cutting off energy from Russia will spiral Germany into its most “catastrophic economic crisis going back to the end of WWII!”

But this should not come as a surprise for students of history. At the end of major economic cycles, countries get the abysmal leaders they deserve and these leaders will show a total lack of both intelligence and statesmanship. So sadly there is not even one leader who is capable of negotiating with Putin.

As a matter of fact, the US doesn’t seem to have a leader at all. And Germany’s new leader Scholz had hardly got his feet under the table before he was landed with the small problem that his country gets 55% of its natural gas from its enemy Russia. How inconvenient.

Germany clearly never learnt the expression “Don’t bite off the hand that feeds you”.

Both Britain’s Boris “Partygate” Johnson and France’s “Manu” Macron can count themselves lucky that the war took the attention away from their domestic problems.

THE US FINANCIAL EMPIRE ON THE ROAD TO PERDITION

The US used to be a financial empire but sadly now the country is on the road to perdition.

As I have pointed out many times, with the following abysmal figures the US can neither be an economic nor a moral leader of the world:

• Federal debt & deficit growing every year since 1930 (with 4 minor exceptions)

• Since 1971 Federal debt is up 60X from $500billion to $30 trillion

• Total country debt up 53X since 1971 to $90 trillion with GDP up only 22X

• Balance of payment in deficit since early 1970s

It is really astounding that the rest of the world accepts being dictated to by a country that is way past its sell-by date and can only generate false growth by printing endless amounts of worthless money. Before the 1970s the US had a strong economy with a respected currency. But since Nixon closed the gold window in 1971, the US has been on a slippery slope with debt exploding and the currency collapsing.

As the chart below shows, the dollar has lost 88% in real terms (gold) since 1999 and 98% since 1971 (not shown).

The fall to ZERO is guaranteed since all currencies, without exception, have become extinct throughout history.

But have we ever heard a central bank head or a president telling their people that the currency is going to become worthless due to their reckless actions?

No, of course not. Firstly they don’t understand or study history and secondly no elected politician can ever tell the truth because if they did, they would never be elected.

Just remember “Tricky Dick” Nixon:

Clearly, Nixon had no understanding what happens to money when debt backs the currency rather than gold. Or did he just lie as he had the custom of doing?

Regardless, he orchestrated a dollar fall (off the Matterhorn as illustrated above) of 98% with the remaining couple of percent loss down to a 100% happening in the next few years.

Biden has with his current disastrous actions created the perfect climate for achieving the final 2% fall of the dollar. But remember that is a 100% fall from here.

FREEZING ASSETS HAS CONSEQUENCES

By demonstrating to world central banks that the US can freeze any country’s foreign exchange reserves held outside their country, the world financial system and central bankers have learnt a lesson that will permanently change the way they do business.

No sane country will ever hold their reserves in US dollars or other currencies at a bank that the US government can directly or indirectly control.

Nor will countries trust the Swift system which the US can unilaterally manipulate.

The flight from the US dollar will not happen overnight but it will be more rapid than anyone can imagine.

No judicious central bank chief will ever consider handing their forex reserves to the US, a bankrupt nation, with a collapsing currency which at a whim can confiscate other countries’ reserves.

But not only that, who would ever put their money into US treasuries. Investors would not only lose their total investment on the falling value of the dollar but also on the US as a dodgy debtor which could easily default by debasing the currency to ZERO or extinguish the debt.

Russia saw this coming already some years ago and thus liquidated all their US treasuries. Instead they wisely bought gold.

US debt is now entering the Pass The Parcel Game with NO investor wanting to be left holding the parcel.

Consequences our US friends, Consequences! Do you now see that your government has not just shot yourself in the foot but has inflicted your country with a lethal head wound.

The collateral damage will clearly lead to a distrust not only in the US but in all governments and all currencies. Globalism is now turning into isolationism.

AND THE OBVIOUS CONSEQUENCE OF THAT WILL BE A FLIGHT TO COMMODITIES AND ESPECIALLY PHYSICAL GOLD AND SILVER HELD IN A VERY SAFE PLACE.