A Rubicon of Methane
Putin demands payment in rubles, Biden taps the strategic reserves and Europe hangs in the balance...
(Source: Getty Images)
Joel Bowman, checking in today from Buenos Aires, Argentina...
A not-so funny thing happened on the way to... global petrodollar hegemony. (Didn’t see that coming, did ya?)
As the rest of the world debated what must (“MUST!”) be done to address the Russo-Ukrainian conflict, one Vladimir Vladimirovich Putin quietly declared that the Rubicon shall henceforth flow (or not) with methane. The newswires were on the story...
March 31 (Reuters) - Russian President Vladimir Putin said on Thursday that he had signed a decree saying foreign buyers must pay in roubles for Russian gas from April 1, and contracts would be halted if these payments were not made.
"In order to purchase Russian natural gas, they must open rouble accounts in Russian banks. It is from these accounts that payments will be made for gas delivered starting from tomorrow," Putin said in televised remarks.
"If such payments are not made, we will consider this a default on the part of buyers, with all the ensuing consequences. Nobody sells us anything for free, and we are not going to do charity either - that is, existing contracts will be stopped."
As of this writing, Russian gas heats and lights up one in every three homes across Europe, a not-insignificant contribution to the power supply for the entire continent. And, as our friend Byron King mentioned in this space before, Europe has been steadfastly hampering its own ability to produce energy, from shuttering nuclear plants in Germany to “going green” elsewhere.
As such, more than a few nations are fast approaching a crucial decision point: abide by western sanctions and freeze in the dark... or renegotiate in Vlad’s rubles?
For quick reference, Russia accounted for about 45% of Europe’s total gas imports in 2021, with Germany, Turkey, Italy, Belarus, and France receiving most of the feed.
Plenty are those happy to stand with their Ukrainian brothers... as long as they can do so from a safe, warm, well-lit distance. The world will see who is left standing after this latest development.
As for importers of Russian oil, China leads the pack... followed by Germany, the Netherlands, the U.S., Poland and South Korea.
Meanwhile...
At the behest of democratic lawmakers, President Biden this week announced an unprecedented release from the nation’s Strategic Petroleum Reserves – 1 million barrels per day for the next 180 days.
For those doing the sums at home, 1 million barrels equals roughly 1/20th of the US daily consumption... or about the same amount as the Keystone XL pipeline is NOT delivering from your friendly, NATO card-carrying neighbors north of the 49th parallel. (That project was friendly-fired on Mr. Biden’s first day in office.)
Bonus Irony: Readers will recall that it was Senator Chuck Schumer who, last November, began urging Biden to tap the nation’s Strategic Petroleum Reserve.
“We’re here today because we need immediate relief at the gas pump and the place to look is the Strategic Petroleum Reserve,” Schumer pleaded at a press conference in New York at the time.
If you feel like you’ve heard Chucky’s name in conjunction with the SPR before, that’s because you have. It was the very same Senator Schumer who was seen crowing from the rafters not two short years ago, after having proudly blocked the previous administration’s initiative to refill the reserve tanks “to the brim” back in March, 2020. Crude oil was $24.49 per barrel at the time, or about a quarter of today’s price.
Boy, that extra capacity sure would have been nice to have on tap now, eh? Oh well...
Meanwhile, BPR Investment Director, Tom Dyson, was on weather watch this week... and the forecast ain’t pretty.
Here he is, writing from the family home in Chiswick, London...
There’s a huge storm brewing and we’re sailing right into the heart of it.
Our core hypothesis is that the U.S. economy is laboring under a massive weight of unproductive debt, zombie companies and bad speculations, all financed with cheaper and cheaper credit. The forces of deflation are immense and without intervention, they will quickly overwhelm the economy and lead to a disorderly liquidation and economic depression.
Knowing this, the Federal Reserve and the other important central banks must operate in a near continual state of inflation. “Inflate or die” is what we call this dynamic here at Bonner Private Research. The optimal investment strategy, therefore, requires front-running the central bankers.
Right now, we are in one of the rare moments when (most) central bankers are not inflating. Instead they are raising interest rates and unwinding QE. If our core hypothesis is right, big chunks of the economy should soon start self-liquidating. Hence our advice – which we’ve repeated since the beginning of the year – hold lots of cash, lots of physical gold and prepare your portfolio for a recession and bear market.
The moment the Fed pivots back to inflation – which may happen extremely suddenly – we’ll have to pivot too. We’ll see. We’re not there yet.
The multi-trillion dollar question, then... what to do? Tom sent this chart around earlier in the week. Call it a snapshot of the year so far.
“Last quarter, we advised: cash, gold, select stocks... and NO bonds,” he wrote.
Here’s how it played out...
It should also be pointed out here that when it comes to “select stocks,” Tom is primarily focused on “tactical” trades. That is, the kind that respond to both the macro outlook he and Dan are tracking PLUS the short-term market conditions governing the flow of capital in and out of certain sectors and individual businesses.
It’s not surprising, then, that while the broader market is down over 5% year-to-date (The S&P 500 is underwater 5.23%, even after the recent rally), all of Tom’s picks are in the black... including a couple of solid double digit gainers.
The specific Trade of the Decade play - which we covered in depth for paid readers during our Winter Catastrophe briefing with Byron King and Rick Rule back in December of last year - has since doubled.
Again, the strategy here is a balance of long term macro forecasting (to help protect you from the “big loss”) and shorter- medium-term tactical trading, to take advantage of particular aberrations in the market. Interested in learning more, or even joining our paid subscribers? Learn how, here...
And now for Bill Bonner’s missives from the past week...
That’s all from us for today. Tune in tomorrow for your regular Sunday Sesh, when we’ll have a few words to say about the benevolent angels overseeing our collective destiny.
We also caught up with Dan Denning on the Fatal Conceits podcast for a Q1 update on all things BPR related. We hope you can join us.
Until then...
Cheers,
Joel Bowman
Fascinating ! Will be very interesting to see how this plays out over time. Unfortunately very dangerous time financially and possibly physically. Hope to surround myself with the smartest, clear thinking people. Keep up the great work !
Please get Byron King on your service more frequently, PLEASE!