Balancing Act---Sanctions, Venezuela, Trade War and Demand

(edited)

7 minutes ago, Jan van Eck said:

But that assumes (as does William Edwards) that the end refined product is going to be used as a regulated transport fuel.  I would posit yet another outcome:  that the sour crude will be "refined" to the point where it can meet No. 4 fuel oil specifications, and then it will be consumed in heating plants and stationary diesel and steam generators.  

For example, there are still plenty of coal plants out there, and those operators continue to face all kinds of political and shareholder pressures to go off-coal.  The classic direct substitute would be a retrofit to #4 fuel oil.  I don't think there is a sulfur standard for stationary plants.  Burning #4 that has more than 0.5% sulfur would be entirely possible, even plausible, and the retrofit requires only the oil tanks installation, the plumbing, and the burner nozzles.  That is not that difficult to do.  If you can burn #4 (or even #6, which is a bit harder to do but not impossible by any means) in stationary plants, then you have product substitution - heavy oil for coal. Do you have to go remove crud stuff first - such as the asphaltenes?  Sure you do.  But the Canadians have to do that anyway.  Is there a market for that asphalt product?  Sure there is - but if there is too much placed into the market, unless there is some new market developed, you cannot make any money with it.  Can you develop new markets?  Sure you can - but then you have to get off your ass to go do that.  

The failure to develop new markets for your products means that you are always elbowing your peers in the established markets.  And that is the recipe for price wars.  You want to stay away from that. 

Your solution might be available by, say 2030. How does the industry, and particularly the heavy sour crude producer, make the overnight change on Dec 31, this year? I apologize for bringing reality into the discussion.

In essence, the IMO merely said that the industry must quit burning 13,000 tons of sulfur, each day, after Dec 31,2020, than what was burned on the last day of this year. They did not say how. Nor did they say "you can wait as long as you like to quit burning it". They said "On Jan 1, 2020, 13,000 tons less sulfur will be pushed into the air.

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1 minute ago, William Edwards said:

Your solution might be available by, say 2030. How does the industry, and particularly the heavy sour crude producer, make the overnight change on Dec 31, this year? I apologize for bringing reality into the discussion.

And that is a problem.  It requires, at a bare minimum, a big push by government(s).   One possibility would be the use of a 150% or even 250% federal tax credit for the conversion costs.  In effect, the federal government(s)  [Canada and USA] would be bribing the users of coal to switch immediately to oil for heat and steam generation - and in the case of stationary diesel power plants, for electricity generation.  Is that a naked bribe?  Sure it is.  Is that "socialist planning" run amok?  Probably.  But it could be done.   Such would not be a Capitalist solution.  But then again, requiring the 0.5% sulfur cap is a governmental reach into free markets in the first place.  A logical argument can be made that tax credits can be used as a mechanism to go "off-coal."  Over to you... 

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1 minute ago, Jan van Eck said:

And that is a problem.  It requires, at a bare minimum, a big push by government(s).   One possibility would be the use of a 150% or even 250% federal tax credit for the conversion costs.  In effect, the federal government(s)  [Canada and USA] would be bribing the users of coal to switch immediately to oil for heat and steam generation - and in the case of stationary diesel power plants, for electricity generation.  Is that a naked bribe?  Sure it is.  Is that "socialist planning" run amok?  Probably.  But it could be done.   Such would not be a Capitalist solution.  But then again, requiring the 0.5% sulfur cap is a governmental reach into free markets in the first place.  A logical argument can be made that tax credits can be used as a mechanism to go "off-coal."  Over to you... 

You obviously have a greater belief in government magic than I, Jan.  Switching 4 million barrels a day of coal burning for oil in, say eight hours, is impossible. Maybe eight years!

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8 minutes ago, William Edwards said:

Your solution might be available by, say 2030. How does the industry, and particularly the heavy sour crude producer, make the overnight change on Dec 31, this year? I apologize for bringing reality into the discussion.

In essence, the IMO merely said that the industry must quit burning 13,000 tons of sulfur, each day, after Dec 31,2020, than what was burned on the last day of this year. They did not say how. Nor did they say "you can wait as long as you like to quit burning it". They said "On Jan 1, 2020, 13,000 tons less sulfur will be pushed into the air.

Mr. Edwards, It doesnt mean that if you are not aware or part of new innovations that have happened or are happening, doesnt mean they dont exist, it is not happening overnight. This was known back from 2016. Numerous technologies have been around to desulf crude and refined products, with varying degrees of success and commercial application. The biggest winners of these techs are and or will be

1) producers to are proactive and acquire and or develop these techs to desulf their crude streams and command higher value for cleaner feedstock

2) refiners who acquire or are licensees for desulf and upgrading techs and will capture the bigger market share of refined cleaner low sulf fuels

I believe Russian refiners will be the biggest losers in terms of ability to market their heavier sulf non IMO 2020 compliant fuels, but then again, as was stated, those now soon to be deemed undesirable products will be shifted elsewhere. China and other fuel hungry countries will have no issue taking up these fuels for power gen and industrial uses and or again blend these undesirables with other even worse bottom of the barrel undesirables for their needs at lower costs.

But techs are there to convert and upgrade, companies that have taken proactive steps will be the winners.

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1 minute ago, William Edwards said:

You obviously have a greater belief in government magic than I, Jan.  Switching 4 million barrels a day of coal burning for oil in, say eight hours, is impossible. Maybe eight years!

Yet you see governments using tax credits and other such incentives with great market-distorting effect.  take for example the project of "Cash for Clunkers" done in the UK.  It was so generous that today there are still vast fields of used cars, including occupying entire old WWII air force bases, packed with old clunkers.  the idea was to reduce fuel consumption and thus air pollution. Was it a good idea?  Probably not.  Did the UK Government do it anyway?  They sure did.  Who profited the most?  Probably Japanese car importers and builders.  Oh, well. 

You can produce dramatic changes very quickly with financial incentives.  I have no doubt that it could be done.  It could be done inside Canada, if the Trudeau government ever manages to figure out that Alberta oil is key to the entire country's survival.  They seem to be remarkably unable to grasp that.  It could be done inside the USA, except that at this point the Administration is not particularly focused, so any such projects will get lost in the chaos inside Washington.  SO in the USA context, I consider it most unlikely. 

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7 minutes ago, Jan van Eck said:

And that is a problem.  It requires, at a bare minimum, a big push by government(s).   One possibility would be the use of a 150% or even 250% federal tax credit for the conversion costs.  In effect, the federal government(s)  [Canada and USA] would be bribing the users of coal to switch immediately to oil for heat and steam generation - and in the case of stationary diesel power plants, for electricity generation.  Is that a naked bribe?  Sure it is.  Is that "socialist planning" run amok?  Probably.  But it could be done.   Such would not be a Capitalist solution.  But then again, requiring the 0.5% sulfur cap is a governmental reach into free markets in the first place.  A logical argument can be made that tax credits can be used as a mechanism to go "off-coal."  Over to you... 

Your "government will act" theory holds water, Jan. But instead of requiring a long-term fuel switch to solve an immediate problem, I suspect that they will resort to an immediate order to Suncor, Imperial, CNRL and Cenovus to QUIT PUMPING! This action can be implemented overnight. Although realistically, it will only happen after the WCS discount soars above $50/B again, probably in January 2020.

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3 minutes ago, ceo_energemsier said:

Mr. Edwards, It doesnt mean that if you are not aware or part of new innovations that have happened or are happening, doesnt mean they dont exist, it is not happening overnight. This was known back from 2016. Numerous technologies have been around to desulf crude and refined products, with varying degrees of success and commercial application. The biggest winners of these techs are and or will be

1) producers to are proactive and acquire and or develop these techs to desulf their crude streams and command higher value for cleaner feedstock

2) refiners who acquire or are licensees for desulf and upgrading techs and will capture the bigger market share of refined cleaner low sulf fuels

I believe Russian refiners will be the biggest losers in terms of ability to market their heavier sulf non IMO 2020 compliant fuels, but then again, as was stated, those now soon to be deemed undesirable products will be shifted elsewhere. China and other fuel hungry countries will have no issue taking up these fuels for power gen and industrial uses and or again blend these undesirables with other even worse bottom of the barrel undesirables for their needs at lower costs.

But techs are there to convert and upgrade, companies that have taken proactive steps will be the winners.

Yes, Jan, some steps have been taken by the industrytry, but the biggest and the best of the elite consulting firms still cannot tell us where all of that high sulfur oil will go in January. I keep asking.

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1 minute ago, William Edwards said:

Although realistically, it will only happen after the WCS discount soars above $50/B again, probably in January 2020.

Yup, that discount will zoom, to the point that it becomes impossible to produce the stuff without huge losses.  A sad situation.

Also quite unnecessary.  If the Canadians ever got their act together, considering there are 36 million consumers and a cold climate, the internal market should be able to absorb the overflow if it was a closed market and US supplies of refined product were shut out.  But I just don't see the Trudeau government figuring this out.  It remains remarkable how insular that government is. 

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1 minute ago, William Edwards said:

Yes, Jan,

Yes, Jan????   I didn't write that post. 

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Just now, Jan van Eck said:

Yup, that discount will zoom, to the point that it becomes impossible to produce the stuff without huge losses.  A sad situation.

Also quite unnecessary.  If the Canadians ever got their act together, considering there are 36 million consumers and a cold climate, the internal market should be able to absorb the overflow if it was a closed market and US supplies of refined product were shut out.  But I just don't see the Trudeau government figuring this out.  It remains remarkable how insular that government is. 

It is not only the government that is to blame for short-sightedness. It is the companies as well. I personally advised Cenovus' management in 2013 to stop increasing production and begin adding upgrading capability. They heard my advice, continued with their production expansion program, bought out Conoco's reserves and spent nothing on upgrading. How smart was that?

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3 minutes ago, Jan van Eck said:

Yes, Jan????   I didn't write that post. 

Oops! Another of my errors. I apologize. But I hope that the CEO read the response.

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1 minute ago, William Edwards said:

It is not only the government that is to blame for short-sightedness. It is the companies as well. I personally advised Cenovus' management in 2013 to stop increasing production and begin adding upgrading capability. They heard my advice, continued with their production expansion program, bought out Conoco's reserves and spent nothing on upgrading. How smart was that?

Very incompetent move to say the least. Now that they have been caught with their pants around their ankles, would be a good time going forward, to buy their crappy oils and set up an upgrading facility and then market that crude oil to USGC refiners and for export.

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1 minute ago, ceo_energemsier said:

Very incompetent move to say the least. Now that they have been caught with their pants around their ankles, would be a good time going forward, to buy their crappy oils and set up an upgrading facility and then market that crude oil to USGC refiners and for export.

The problem with your proposed solution may be that the cost of producing their crap will exceed the maximum that any refiner would pay for such crap. That is what I expect to happen.

The benefit to Canada is that they will suddenly have much greater pipeline capacity than that required for their limited exports. Forget Transmountain. Forget Keystone XL. Wish you had not expanded existing lines. Forget reversing Capline. 2020 will be a different year!

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1 minute ago, William Edwards said:

How smart was that?

Not very.  And I will make a general observation here, that goes to the thrust of the discussion.

Making money is an art form.  Contrary to the public popular belief, it is not taught, at least not with any great success, at those MBA schools. It is an innate skill that is verbally passed on between generations, usually father to son.  there are a limited number of people who have those skills, thus the bulk of organizations, both civilian and governmental, are run by folks who do not have that skill set.  And the result is that you see some seriously profound stupid decision-making out there.  

Your client had all the information it needed to "make money."  You handed that to them.  They chose to not make money.  Instead, they chose ego gratification and personal aggrandizement - with their investors' cash.  OK, so they got more acreage and a bigger corporate footprint.  But how much money did they make?  Obviously not much.

To see just how disastrous the hiring of ego-types can be, I point out the case of General Electric.  The shareholders have suffered as the value of their investor cash shrank from some $65 a share down to single digits - what was it, five bucks?  And whose fault was that?  A very small group, consisting of a useless Board of Directors and those loose cannons, Jack Welsh and Jeffrey Inmelt.  Why would you hire people like that?  These colossal egotists who think they know more, and know better, than everyone else?  All that brought was ruin. The investors who depended on GE dividends to pay their bills got - a 3/4 drop in dividend payments.  Or complete suspension, I have lost track of it.  Real smart leadership.  The absurdity of it all just staggers me. 

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1 minute ago, Jan van Eck said:

Not very.  And I will make a general observation here, that goes to the thrust of the discussion.

Making money is an art form.  Contrary to the public popular belief, it is not taught, at least not with any great success, at those MBA schools. It is an innate skill that is verbally passed on between generations, usually father to son.  there are a limited number of people who have those skills, thus the bulk of organizations, both civilian and governmental, are run by folks who do not have that skill set.  And the result is that you see some seriously profound stupid decision-making out there.  

Your client had all the information it needed to "make money."  You handed that to them.  They chose to not make money.  Instead, they chose ego gratification and personal aggrandizement - with their investors' cash.  OK, so they got more acreage and a bigger corporate footprint.  But how much money did they make?  Obviously not much.

To see just how disastrous the hiring of ego-types can be, I point out the case of General Electric.  The shareholders have suffered as the value of their investor cash shrank from some $65 a share down to single digits - what was it, five bucks?  And whose fault was that?  A very small group, consisting of a useless Board of Directors and those loose cannons, Jack Welsh and Jeffrey Inmelt.  Why would you hire people like that?  These colossal egotists who think they know more, and know better, than everyone else?  All that brought was ruin. The investors who depended on GE dividends to pay their bills got - a 3/4 drop in dividend payments.  Or complete suspension, I have lost track of it.  Real smart leadership.  The absurdity of it all just staggers me. 

As usual, you provided an outstanding description of our business world. And political world, as well. Thanks, Jan.

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1 minute ago, William Edwards said:

The problem with your proposed solution may be that the cost of producing their crap will exceed the maximum that any refiner would pay for such crap. That is what I expect to happen.

The benefit to Canada is that they will suddenly have much greater pipeline capacity than that required for their limited exports. Forget Transmountain. Forget Keystone XL. Wish you had not expanded existing lines. Forget reversing Capline. 2020 will be a different year!

Their crap selling @ deep discounts will be incentive enough. With 3 different proven techs ( tested and proven in Venezuela, KSA, Q-8, and in the US and EU over a period of 14 years) to upgrade various grades of ultra heavy, heavy, sour , high sulfur crudes , plus refined products with low API, high sulphur along with other impurities and contaminants, it could be a very profitable venture to test out and explore various options for Crappy Canadian materials.

 

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Just now, ceo_energemsier said:

Their crap selling @ deep discounts will be incentive enough. With 3 different proven techs ( tested and proven in Venezuela, KSA, Q-8, and in the US and EU over a period of 14 years) to upgrade various grades of ultra heavy, heavy, sour , high sulfur crudes , plus refined products with low API, high sulphur along with other impurities and contaminants, it could be a very profitable venture to test out and explore various options for Crappy Canadian materials.

 

I have already done this work, CEO. And I have identified the most appropriate upgrading technique. And I have done the arithmetic. Using cash operating cost for oil sands production, Canada is still a $20/B more expensive source of oil than the Middle East. Not very competitive, unless somebody blows up that part of the world.

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(edited)

On 4/25/2019 at 6:18 PM, Osama said:

Has Trump Given Up On Keeping Oil Prices Low?

Below are my thoughts on the on-going conditions in market---relevant to this thread as well:

https://oilprice.com/Energy/Energy-General/Has-Trump-Given-Up-On-Keeping-Oil-Prices-Low.html

"Oil prices have rallied more than 2 percent this week after the Trump Administration canceled the waivers given to major consumers of Iranian oil - including both China and India which together account for almost 50 percent of the Islamic Republic’s exports. Trump’s decision will undoubtedly have unforeseen consequences for the oil market. However, in the short term, there are two key questions that must be addressed: One, now that the United States is the largest producer of oil in the world, will Trump ignore higher oil prices and focus less of forcing Saudi Arabia to increase output? And, two, if the United States does continue to press the Saudi Kingdom to make up for lost oil exports by Iran; will Saudi Arabia acquiesce to Trump’s demands?"

Cc: @Tom Kirkman, @William Edwards, @ceo_energemsier, @Marina Schwarz, @Jan van Eck, @Enthalpic

 

I'm not sure if the right questions have been addressed......... US would like Saudi to decrease output so that the price would go higher than the used to be $40++.......... no?? If increase oil price per barrel is the aim and US is the largest producer now then..... there might be no intention to let the price drop nor to let others increase in the output to have maximal desirable outcome in any biz no?? Here's the best chance to maximize export earning ....... from oil..... in this context.... no?

2. shall there be a concern of oil price at consumer end when the price keeps increasing..?? Inflation and all would not be a good sign for the coming election. 

Hence... a neutral path of status quo or slightly lower price would probably be in consideration??

Edited by specinho

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(edited)

4 minutes ago, specinho said:

I'm not sure if the right questions have been asked......... US would like Saudi to decrease output so that the price would go higher than the used to be $40++.......... no?? If increase oil price per barrel is the aim and US is the largest producer now then..... there might be no intention to let the price drop nor to let others increase in the output to have maximal desirable outcome in any biz no?? Here's the best chance to maximize export earning ....... from oil..... in this context.... no?

I suspect that Trump, like most people, only sees a part of the picture at a time. If you put the entire picture in front of most people, including Trump, it overwhelms their ability to assimilate. In addition, Trump understands almost NOTHING about the business of oil, particularly its pricing.

Edited by William Edwards
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1 minute ago, William Edwards said:

Not very competitive, unless somebody blows up that part of the world.

Which remains plausible, the way things are going.  But before we get that dramatic, let us remember that there is another solution. 

When producing a product, either a raw material such as oil, or a finished product such as a manufactured good, you need two components:  a customer (or set of customers) who want to buy, and those customers that have the ability to write a check.  If you don't have that, then all the producing equipment, special refining equipment, or factories are utterly useless.

To illustrate, I point out the situation that the mighty and powerful General Motors found itself in, around 2009.  GM had huge production capacity, and it could build vast numbers of cars and trucks.  It even had customers who wanted to buy them.  But -big but - the bright-eyed MBA guys over at the GMAC finance division had decided to make their mark by expanding from auto-finance into sexy products, such as sub-prime mortgage loans on dubious real estate.  When the housing market imploded, GMAC became instantly illiquid and had no cash to finance auto loans.  the upshot: GM customers who traditionally counted on GMAC to finance their auto purchases were shut out.  So now GM ends up with lots of production and has willing buyers, but cannot finance, so nobody can write the check. 

Those bright young guys with their fancy MBAs converted mighty GM into a collapsed, utterly bankrupt failure, with losses in the hundreds of billions.  The stock was totally wiped out.  The shareholders were wiped out.  The pensioners were wiped out.  The workforce was wiped out. All orchestrated by a small group of over-eager guys with their Finance degrees, but who had no ability to restrain their glorious impulses and keep the finance division operating in - auto finance, the reason it was set up in the first place.  And this is what happens when you let these kids loose with your corporation.  You go bust. 

Can the Canadian oil producers of heavy crude end up with customers willing to buy?  Sure they can.  All that is needed is for Ottawa to place a zero-import quota on outside oil, without  a special license - which is then never issued.  By artificially creating a closed market, it forces Canadian refiners to only use Canadian feedstocks.  It artificially creates the customers.  OK, so this goes flat against free-market principles.  Hey, governments have been interfering with free markets since the beginning of time.  No reason to hold back now!

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8 minutes ago, William Edwards said:

Trump understands almost NOTHING about the business of oil, particularly its pricing.

All true. Even worse, neither do any of his advisors or Cabinet.  Or anyone else in Washington.  

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4 minutes ago, William Edwards said:

I suspect that Trump, like most people, only sees a part of the picture at a time. If you put the entire picture in front of most people, including Trump, it overwhelms their ability to assimilate.

Thank you for the sharing Mr. Edwards. Pardon my ignorant but .........  I'm not sure what else would they need to see in a trading biz besides profits?? The more the leader of a country allows his countrymen to make the more support he would have or no?? And at the same time...... if he could avoid burdening the public with their earnings...... he might be on the road to win-win ....... or no?

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2 minutes ago, Jan van Eck said:

Which remains plausible, the way things are going.  But before we get that dramatic, let us remember that there is another solution. 

When producing a product, either a raw material such as oil, or a finished product such as a manufactured good, you need two components:  a customer (or set of customers) who want to buy, and those customers that have the ability to write a check.  If you don't have that, then all the producing equipment, special refining equipment, or factories are utterly useless.

To illustrate, I point out the situation that the mighty and powerful General Motors found itself in, around 2009.  GM had huge production capacity, and it could build vast numbers of cars and trucks.  It even had customers who wanted to buy them.  But -big but - the bright-eyed MBA guys over at the GMAC finance division had decided to make their mark by expanding from auto-finance into sexy products, such as sub-prime mortgage loans on dubious real estate.  When the housing market imploded, GMAC became instantly illiquid and had no cash to finance auto loans.  the upshot: GM customers who traditionally counted on GMAC to finance their auto purchases were shut out.  So now GM ends up with lots of production and has willing buyers, but cannot finance, so nobody can write the check. 

Those bright young guys with their fancy MBAs converted mighty GM into a collapsed, utterly bankrupt failure, with losses in the hundreds of billions.  The stock was totally wiped out.  The shareholders were wiped out.  The pensioners were wiped out.  The workforce was wiped out. All orchestrated by a small group of over-eager guys with their Finance degrees, but who had no ability to restrain their glorious impulses and keep the finance division operating in - auto finance, the reason it was set up in the first place.  And this is what happens when you let these kids loose with your corporation.  You go bust. 

Can the Canadian oil producers of heavy crude end up with customers willing to buy?  Sure they can.  All that is needed is for Ottawa to place a zero-import quota on outside oil, without  a special license - which is then never issued.  By artificially creating a closed market, it forces Canadian refiners to only use Canadian feedstocks.  It artificially creates the customers.  OK, so this goes flat against free-market principles.  Hey, governments have been interfering with free markets since the beginning of time.  No reason to hold back now!

I accept the principle of forced consumption. I question the arithmetic of the demand within Canada to implement your solution. But I have not done that arithmetic. Maybe you have. And what happens to the industry during the months or years that are required for your solution?

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2 minutes ago, specinho said:

Thank you for the sharing Mr. Edwards. Pardon my ignorant but .........  I'm not sure what else would they need to see in a trading biz besides profits?? The more the leader of a country allows his countrymen to make the more support he would have or no?? And at the same time...... if he could avoid burdening the public with their earnings...... he might be on the road to win-win ....... or no?

For starters, there are real producers and real consumers who's financial health depend upon the trading results.

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4 minutes ago, Jan van Eck said:

All true. Even worse, neither do any of his advisors or Cabinet.  Or anyone else in Washington.  

Too true!

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