QUANTITATIVE EASING IS PERMANENT…WITHOUT A DOUBT

Headlines:
1. QE = The PERPETUAL CRUTCH For Financial Markets.
2. Federal Reserve = ALWAYS Moving The Goalposts.

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The Absolute Size Of The Federal Reserve’s Balance Sheet = Does Not Matter Anymore.

All You Need To Know = It Will Grow…Indefinitely…Sometimes At A Slower Pace…But Grow It Will.

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Anyway…What Is The Real Point Of Central Banks Supporting Financial Markets With Broad Asset Purchases?

The Belief…Seems To Be…That Higher Financial Asset Prices Boost Consumer Confidence…Thereby Inducing John Q. Public To Spend…Thus Stimulating The Economy With A Demand Impulse.

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And Generally…That Is True.

So What’s The Problem?

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The Problem = THE CONTEMPORARY GLOBAL ECONOMY LIVES ON A PERMANENT SUPPORT SYSTEM DEPENDENT ON CENTRAL BANK MONEY CREATION…

Yet…THE GLOBAL MONETARY INFRA-STRUCTURE WAS NOT DESIGNED FOR THIS TYPE OF UNRELENTING SUPPORT.

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SEEMINGLY INFINITE MONEY CHASING FINITE FINANCIAL ASSETS

…NECESSARILY DISTORTS RATIONAL PRICE DISCOVERY.

Therefore…INDEFINITELY IRRATIONAL FINANCIAL ASSET PRICES.

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So…Central Bank Monetary Policy Has…No Doubt…Changed.

And Seemingly Changed For The Worse…As

  1. Endless Money Is Authoratatively + Historically Inexpensive.
  2. Financial Asset Prices Are Contorted.
  3. Mounting Sovereign Debt Has Ceased To Be A Legitimate Concern.

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And The Rules Governing Central Bank Power?

They’ve Been Dramatically Expanded + Liberalized…So Much So That The Goal-Posts…Measuring Policy Directive + Execution…Are Dimensionally Limitless.

Hence…As A Central Banker…It’s Almost IMPOSSIBLE NOT TO SPLIT THE UPRIGHTS.

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So…Short Term Interest Rates Remain Pinned At Zero + Equities Continue To Launch Higher.

Legacy Valuation Metrics…Are Now Considered Archaic + Revenue Growth Trumps Profitability.

It Seems…The Primary Barrier To Higher Prices Is That The Markets Are ONLY Open For 6.5 Hours/Day + 252 Days/Year.

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You Might Say… “OK…BUT…WHAT ABOUT RISK?

I Could Respond… “What Enduring Risk?”

…That Central Banks Will Not Attempt To Quickly Alleviate.

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You See…It’s Actually Happened…

That Odd Thing That Many/Most Market Participants NEVER THOUGHT POSSIBLE…Back In 2009…At The Onset Of QE In The United States.

That Is…QE…THAT RADICAL MONETARY IDEA 10+ YEARS AGO…IS NOW INSTITUTIONALIZED POLICY…ENORMOUSLY APPLIED.

And Is Currently The ONLY REMEDY…To Cure ANY Market Ill…That Central Bankers Care To Administer.

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Apparently Too…QE Can Help To Solve Social Problems Never Prevously Considered …Including Covid-19 + Global Warming.

Because…Central Bankers Now Believe ANY Dramatic Market Volatility Is  Faultless + That All Shall Be Bailed Out…Regardless Of Sloppy Capital Management Skills.

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And The Almost Daily…Central Banker Public Relations “Spin” …Intends To Reassure Insecure Market Actors.

We Will Offer Unlimited Monetary Support To All Global Financial Asset Markets” …

Is The Primary Message…Artistically Shaped In A Variety Of Verbal Cloaks.

Interpretations Below:

 “WAH WAH WAH” …Asset Purchases
WAH WAH WAH” …Covid
WAH WAH WAH” …Balance Sheet
WAH WAH WAH” …Flatten The Curve
WAH WAH WAH” …Forcefully Use Our Tools
WAH WAH WAH” …Herd Immunity
WAH WAH WAH” …Average Inflation Targeting
WAH WAH WAH” …Masks
WAH WAH WAH” …Quantitative Easing
WAH WAH WAH” …Pandemic
WAH WAH WAH” …Whatever Is Necessary
WAH WAH WAH” …Shelter In Place
WAH WAH WAH” …Zero Interest Rates
WAH WAH WAH” …Social Distancing

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Somehow…Charley Brown’s Simple School Teacher…Successfully Penetrated These “Brainiac” Central Bankers With A Basic + Enduring Lesson =

“The Content Of Your Message To The Flock…Is Not Subject To Any Scrutiny…Just Keep Saying It…And Eventually They’ll Adhere.”

Because Untouchable Authority ALWAYS WINS.

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Contact The Author: Dominate@GlobalSlant.com

BULLS GETTING GREEDY AS SENTIMENT STRETCHED…BIG TIME

Headline:
Equity Markets Love Covid Driven Liquidity

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There Are Almost An Infinite Supply Of Equity Market Indicators.

Still…No One Indicator…Or Even A Cocktail Of Many Indicators…Is Even Close To Perfect…Let Alone Regularly Reliable.

Frankly…Most Indicators Are Entirely Useless…When Tested Across Vast Data Sets Over Just Medium Time Frames.

But A Select Few Do Merit Attention.

One Such Indicator…Is Investor’s Intelligence Weekly Bull/Bear Data.

Yet…Despite It’s Relatively Simple Presentation…This Data Series Can Be Surprisingly Subtle To Interpret…

As It Can Be “Sliced + Diced” Into Scores Of Iterations.

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Anyway…According To The “Sliced and Diced” Version…What Does It Currently Indicate?

That Professional Money Managers Are Excessively Bullish…To A Rare Extreme.

But Just Because This Contrarian Signal Is Flashing BRIGHT RED Does NOT Necessarily Indicate That Equity Markets Are Primed For A Short Term Sell-Off…Though That Could Easily Occur.

Further…Even At Presently Taut Levels This Particular Sentiment Indicator Could Prove “Sticky” For Several Months…Through Year End ’20 Without Much Of A Problem…As Its Tactical Value Is Debate-able.

Eventually Though…It Will Reverse…Its Strategic Worth Is Reliable + Solid As Texas Oak.

So When The Sentiment Data Actually Do Revert…Equity Markets Are Particularly Vulnerable To A Sharp Move Lower.

There Just Is Not Much Slack In The Markets For Any Unfavorable News…Or Just Maybe…Not Enough Favorable News To Maintain Richly Valued Indices/Shares.

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Thus…To NOT Include This Sentiment Data In A Quiver Of Broad Qualitative  + Quantitative Market Indicators…Could Be Costly…

As The Big 4 Equity Indices Have Rallied Tremendously Off Of Their March ’20 Lows…Without Much Of A Meaningful Pullback.

Consider The Following Returns Since March 23, 2020…

SPY = + 68.19% [see above]
DIA = + 65.29%
IWM = + 93.79%
QQQ = + 85.01%

In Just 8 Months = Simply Remarkable.

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The 4 Primary Reasons To Account For The Equity Rally…

1. Federal Reserve Liquidity Injections [see shaded portion of chart].
2. U.S. Treasury Liquidity Measures.
3. TINA = There Is No Alternative [to equities].
4. FOMO = Fear Of Missing Out [on equity gains].

…Are NOT ABSOLUTE + PERMANENT.

But…For Now…Are Perceived As Such…

Hence…Almost Unprecedented…Colossal + Unrestricted Bullishness.

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Naturally…Bullish Sentiment Could Elevate + Propel Even Higher…But That Scenario Would Likely Be Short Dated.

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Contact The Author: Dominate@GlobalSlant.com

AZN COULD EASILY ACQUIRE GILD

Headlines:
1. Market Dynamics May Inspire AZN To Re-Engage.
2. A $200B+ Healthcare Juggernaut May Result.

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Since June 8, 2020…When Speculation Bubbled About A Possible AZN-GILD Combination [see vertical line in above chart]…The Following “Deal” Metrics Have Adjusted…Quite Dramatically In AZN’s Favor…

1. British Pound [AZN] = +3.13% vs. US Dollar [GILD]
2. AZN Share Price = +8.33%
3. GILD Share Price = -14.32%

…Lifting AZN’s Enterprise Value To Almost 1.8x Gilead’s …The Market’s Invisible Hand May Be Tempting AZN To Outright Acquire GILD…Rather Than The Prior Merger Chatter.

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Worthwhile To Note…Also…That While Gilead Apparently Rebuffed AstraZeneca’s Overtures Earlier This Year …Current CEO’s…Pascal Soriot At AstraZeneca + Daniel O’Day At Gilead…Simultaneously…Worked Together At Swiss Drug Giant Roche.

So…Likely…The Discussions Were More Than Plain Cordial + Superficial.

And Make No Mistake…Being Acquainted With Each Other = A Big Help In Corporate Courting Matters.

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Further…A Deal To Sell Gilead Could Bail Out O’Day’s Brief And…Thus Far…Disappointing Legacy At Gilead…Initiated March 2019…Partially…With The Hope Of Inspiring New Product Revenue Streams…And Hence…The Share Price.

Thus Far…Neither Have Occurred…Despite Covid Driven Hopes For Several Months…Earlier This Year…As Shares Continue To Dismally Lag Its Peers …While Wall Street Seems To Be Tremendously Unimpressed With Both O’Day’s Execution And His Strategic Vision.

Plus GILD’s Relative Share Price…Vis-A-Vis the XLV Healthcare Index [see below] Further Validates…Even Pre-Dating O’Day’s Arrival…Despite Being A Strong Cash Flow Generator With A Bulletproof Balance Sheet And A 4.1% Dividend Yield.

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So…IF…AZN Is Genuinely Interested In Acquiring GILD…Now May Not Be Such A Bad Time…Certainly MUCH Better Than Early June.

And GILD Shareholders…Frustrated With The Stock’s Dramatic Under-Performance For Almost 4 Full Years [Pre + Post O’Day]…Would Likely Encourage + Rubberstamp Any Reasonable Offer From AZN.

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For It’s Part…AZN Could Fold Several Solid Franchise Drugs [Hepatitis + HIV] Into Its Existing Portfolio By Acquiring Gilead…Structuring A Capital Accretive Deal Without Much Financial Risk Given GILD’S Investment Grade Credit Ratings…And…Save An Easy $3.4B Annually By Culling GILD’s Too Rich Dividend.

Other Low-Hanging Cost Rationalizations/Synergies Include Back Office + Facilities + Research + Sales/Marketing.

In A Suppressed Interest Rate Environment Begging For Investment Grade Debentures…The Financing Would Essentially Be A “Slam Dunk”…Though A Sizeable Equity Component From AZN = Logical.

Plus…The Ego “Kicker” For All Interested Parties = The “New-Co” Would Automatically Gain Membership To An Exclusive U.S. Club Comprised Of Just Two Other $200B EV Members…[Merck + Pfizer]…And Prove To Be A Formidable Global Pharmaceutical Giant…An Appropriate Creation From Two Former Roche Executives.

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Contact The Author: Dominate@GlobalSlant.com

THE FED’S MONEY TREE INFINITELY GROWS…DOES NOT SEEM TO “MATTER”

Headline:
Fed’s Parabolic Appetite For Financial Assets = “Laughing Out Loud

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Social Issues [Covid + Race Relations] In The U.S. Are Grabbing Most Of The Mainstream Headlines While The Ignored “Elephant In The Room” = The Federal Reserve’s Titanically Sized Balance Sheet.

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Likely…The Federal Reserve Governors And Regional Presidents Are Hopelessly Giddy…

As Their Unprecedented Money Printing Obsession Is Diverted By A Couple Of Health + Social Side-Shows…Over-Flowing With:

1. Complainers
2. Malcontents
3. Victim Syndromers

…Commanding All…How To Think + Instructing All…What Really Ought To “Matter”...Or Else…Challenging Those That Do Not Adhere To Their “Group-Think”…With Disturbing Threats + Violent Acts.

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All These “Complainers …etc.”…It Seems…Missed A Very Brief + Critical Life Memo That Universally Applies =

Sooner Or Later We ALL Get Screwed…Deserved Or Not.

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Of Course…The Same John Q. Public Whom Has No Idea…And Does Not Care To Ponder…The Enormously Negative Impacts Of A Bulging Central Bank Balance Sheet For Both Themselves + Their Progeny…

Is “All In”…On The Visceral Social Agendas Of The Moment.

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Contact The Author: Dominate@GlobalSlant.com

GLOBAL OIL MARKET DOMINATED BY TWO MINIATURE SOVEREIGNS = RUSSIA + SAUDI ARABIA

Headlines:
1. Sovereign U.S. Has Much Leverage.
2. Does Donny T. Have The “Sack” To Exercise It?

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So Oil Closed At $-37.63 Several Weeks Ago…Which Is Truly Remarkable.

Three Very Simple…Simultaneous…Reasons Account For This:
1. Demand Shock [Covid-19].
2. Supply Shock [U.S. “Ally” Saudi Arabia + U.S. Adversary Russia].
3. Lack Of Adequate Storage [Tied To Both Demand Slack + Supply Surplus].

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So What Now For Oil Prices?

Naturally…It Depends.

But First…Consider The GDP Of The World’s Three Major Oil Producers…All At/About 11M/bpd +/- :

…U.S. GDP = $20.5T
…RUSSIA GDP = $1.6T
…SAUDI ARABIA GDP = $.8T

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Now…Consider The Largest Oil Consumer On The Planet.

That Is…The U.S…At 20M/bpd +/-.

Yes…The U.S. Consumes More Oil Than It Produces…Despite Repeated Assertions From Prez Donny T. That The U.S. Is Petroleum Independent.

Actually…It Is Not…By About 9M/bpd…Just Under One Half Of Its Oil Consumption.

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Back To The Basic Math…

The U.S. = The Largest Consumer Of Petrol + One Of The Three Largest Producers Of Petrol.

However…Of The Three Largest Sovereign Oil Producers…The U.S’s Cost Of Production Is Higher [for many reasons… primarily faster depletion rates + repeated fracking costs associated with quicker depletion] Than Both Russia + Saudi Arabia …So The Advantage In This Part Of The Calculus Goes To Political Leaders Putin Of Russia + Bin Salman Of Saudi Arabia.

And Make No Mistake…The Sovereign Governments Of Both Russia + Saudi Arabia Are Making All “The Calls” On Production In Their Respective Countries…As It Is Their Primary Source Of Revenue…30% Of GDP For Russia + 42% For The Saudi’s…Those Numbers Grow As A Percent Of Exports For Both.  So…For Them…It Matters…A Lot.

To The Contrary…U.S. Private Companies Make “The Call” On Domestic Production…Not D.C…And Oil Revenue As A Percent Of GDP Approximates Just 7.6%…Far Below Russia + Saudi Arabia.

Still…U.S. Sovereign Policy…To Be Specific…Monetary Policy…Has Had A Huge Impact On U.S. Oil Economics…Mightily Contributing To The Current Oil Glut.

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How So?

The Short Answer = The Federal Reserve…Predominantly By Pinning Interest Rates At/Near Zero For…Essentially…A Decade.

And Odd As It May Sound…Many U.S Oil Producers Have Been Outspending Their Cash Flows Since ’09…And Have Largely Been Encouraged To Do So…By The Yield Starved Fixed Income Market.

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In Business Cycles Prior To The ’08/’09 Depth’s Financing Corporate’s Saddled With Persistently Negative Cash Flows Would Have…Largely…Been Considered Reckless…Only Acceptable On A Relatively Minor Scale…But The Economic Game Has Changed Since The Onset Of Both Interest Rate Suppression + Quantitative Easing In 2009…And Continues Today…Of Which…The Far Reaching + Negative Economic Impacts Have Primarily Been Ignored.

The Recent Price Collapse In The Global Oil Markets Is An Example Of These Inevitably Disruptive Impacts…Catalyzed By Extremely Careless Central Bankers…Thus Influencing The Previously Rational Decision Dynamics Of Most Fixed Income Portfolio Managers.

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It Works Like This…Yield Hungry Portfolio Managers Generate Very Little Absolute Return In U.S. Corporate Debt…As Corporate Rates Are Anchored By Sovereign Rates At 0%.

Thus…The Portfolio Manager Must Take More Risk…In Order To Generate Higher Returns…In Many Cases Acquiring The Debt Of Negative Cash Flow Generating Domestic Oil Companies…Enticed By Higher Current Coupon Payments/Income.

But Balance Sheet Risk Is The Trade-off To Current Income…As The Endless Burden Of Debt Increasingly Weighs…Unless Oil Prices Continually Grind Higher…And Since ’09…Prices Have NOT Accommodated [see below].

Some Oil Company Executives May Be Skilled Enough To Forward Sell Their Production At Higher Prices…But That Is An Expensive Exercise In Insurance…That Can Materially Cut Into Returns…And Is Largely The Domain Of…Typically…The Largest Companies.

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And Now…The Black Oil Swan Swoops In To Devastate + Shock The Entire Oil Industry.

The Most Vulnerable…Those Many U.S. Producers + Service Providers That Serially Outspend Their Cash Flows…Some Even Borrowing To Pay An Equity Dividend…Rather Than Their Directly State Subsidized + Supported Competitors In Russia + Saudi Arabia.

Of Course…Now Donny T. Is Even More Pissed Off Than Usual…As He Requires Petroleum Focused States Like Texas…In The Oil Patch…To Secure Electoral Victory In Fall ’20 Elections.

So He Stumbles Into The Fray To Wave His Perceived…Presidential Wand…In Order To Rescue A Debt Drunken Industry Inspired By A Central Bank’s  Obsession With Interest Rate Suppression.

Consequently…Russia + Saudi Arabia Quickly Acquiesce + Cut Supply…But The Volume Cuts Are Nowhere Near The Plunge In Demand…And Oil Prices Continued To Plummet…Rallied Since…But Still Below $20 barrel For WTI.

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Ironically…Behind Closed Doors The Russians + The Saudis Just May Be Giggling With Delight.

Sure…Prices Are Down + That Hurts…But Their Relative Pain Is Diminished By: Costs That Are Generated In Their Own Paltry Currencies [ruble + riyal] + Direct Sovereign Subsidies + Favorable Tax Policies + Revenues Realized In The World’s Most Valuable Currency = $U.S.

And Just Maybe…Prior To The Disintegrated Supply Curtailment Between Russia + Saudi Arabia…Both Of These Countries Forward Sold Their Supply At Loftier Prices…Allowing Them To More Easily Withstand This Brutal Price Slump…Certainly Better Than Their U.S. Rivals.

And BTW…The Russians Have Played This Game Before…In The Summer Of July 2013…The Global Fertilizer Market…Bringing The Potash Market To Its Collective Knees With Massive Price Declines…Driven By Over-Production …And Aggressive Price Cuts.

The Fertilizer Market Has Flat-Lined Since Then…And Maybe This Is The Template For Oil Too.

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So…The Self Described Presidential “Dealmaker” Has Allowed Two Puny Countries [one of which is almost entirely dependent on the U.S. for security of its oil production facilities]…With Combined GDP’s Just Over 1/10th The Size Of The U.S…To Control The Global Price Of Petroleum…In A Direct Attempt To Crush The Cost Inefficient US. Oil Producing Industry.

And So Far…They Have Succeeded…As Corporate Producers In The U.S. Fall Over Themselves To Cut Capital Expenditures + Dividends + Employees + Production In Order To Survive This Vicious Cycle.

Maybe…If They Do Survive…They Will Suspend Negative Cash Flow Production…But Even That Is Unlikely…In The Medium Term…As Low Cost Debt Is The Elixir For Any Marginal Business Model.

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Ironically…Prior To The Fracking Phenomenon In The U.S….That Has Boosted U.S. Oil Production To The Top Tier…Recently Tumbled Oil Prices Would Have Been Celebrated…Trumpeting The Efficiencies Of A “Free” Market …Solely Subjected To Demand + Supply.

But No More…Now The U.S. Prez…And Oil Industry Executives Too…Are Whining About A “Fair Oil Price“…To Defend Their Money Shredding Business Models That Have Been Exposed…As Their Underlying Equity Soberly Reflects [see below]…

Memo To Both Prez. Donny T. + U.S. Oil CEO’s = “Business Is Anything But Fair”…Especially When You Are Competing Against Autocratic Sovereigns Like The Russians + Saudis.

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Naturally…Donny T. Desperately Wants Higher Oil Prices…But To Get Them…It’ll Require More Than Just U.S. Production Cuts…That Is…More Cuts From Russia + Saudi Arabia…Which Ain’t Happening…At Least Not Voluntarily.

So…What’s The End Game?

Eventually…Demand Will Return + That’ll Help…More Than Anything Else…But That Could Take Some Time…Even Beyond The Early November Voting Calendar…Of Which…Trump Seems Obsessed.

As For Supply…It Could Be Foolish To Rely On Both An Inexperienced + Ruthless 34 Year Old Leader In Saudi Arabia And 67 Year Old Former Head Of The KGB + “Master Of Chaos“…To Submit To Further U.S. Demands.

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Still…The U.S. Is The Globe’s Largest Consumer Of Oil + The Second Largest Importer Of Oil [just behind China]…Which Equivocates To A Mountain Size Of Negotiating Leverage.

But In This Case…That Leverage Might Not Yield Much In Return…As The Oil Extraction Economics In Russia + Saudi Arabia Far Outweigh Their U.S. Counterparts…Of Which Politically Secure…And Patient…Putin + Bin Salman Are Acutely Aware.

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Of Course…Donny T. Always Has The “Nuclear” Option…That Is…Pulling U.S. Security From Saudi Arabia…Allowing For Increased Vulnerability From Long Time Saudi Antagonist Iran…Thereby Collectively Destabilizing The Middle East + Bin Salman’s Power + Putin’s Influence.

Many Economic + Poitical Dominoes Could Fall…But Probably Not The Oil Price Domino…Indeed…That Rectangular Block Would Likely Lift Much Higher…Under Such A Scenario.

But By Now…It Is Clear That Trump’s Convictions Are Short On Starch + He Undeniably…Lacks “The Sack”…To Make Such A Bold Geo-Political Move …Even If The Result Were To Increase His Re-Election Probabilities.

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Contact The Author: Dominate@GlobalSlant.com