Archive - Dec 23, 2014 - Story

For all those who think the upcoming carnage to the shale industry will be "contained" we refer to the following research report from the Manhattan Institute for Policy Research. For the impatient ones, here is the punchline: "The $300–$400 billion overall annual economic gain from the oil & gas boom has been greater than the average annual GDP growth of $200–$300 billion in recent years—in other words, the economy would have continued in recession if it were not for the unplanned expansion of the oil & gas sector."

The next several months may be pivotal for the future of oil development in the Arctic. While Russia has proceeded with oil drilling in its Arctic territory, the U.S. has been much slower to do so. The push in the U.S. Arctic has been led by Royal Dutch Shell, a campaign that has been riddled with mistakes, mishaps, and wasted money. According to Platts, a decision on whether or not Shell plans to proceed with drilling in 2015 will be made by March. And if they turn their back on drilling, it could mean closing the doors on the Arctic for years to come.

Here are 2 charts that might give some pause for thought as investors ponder today's exuberance in stocks over the backward-looking GDP extravaganza thanks to surging healthcare costs... as opposed to expectations (the 'thing' stocks are supposed to discount) about future growth...

In the last couple of months, the sharp reversion in oil prices has certainly caught the world’s attention.  While the majority of economists and analysts continue to expect incorrectly that falling oil prices are a positive input to economic growth, the reality is that it is not.  The negative impact to economic growth from the decline in oil prices are quite considerable when you consider that almost 40% of all the jobs created since 2009 have been in energy related industries. While the economists and analysts are hopeful for a sharp recovery in oil prices, the current decline in oil prices is nothing more than a return to historical normalcy.

Since the ultimate goal of the ongoing hacking scare tactic appears to be the implementation of an Internet "Kill switch" which would likely be achieved by a controlled take down of the energy grid to demonstrate just how scary "hackers" may be, here comes the "other" Korea with an appetizer of what is to come to the US on short notice. According to RT, a South Korean nuclear plant operator’ computer system was hacked. The perpetrator has leaked blueprints and manuals, says if his demands for three reactors’ closure aren’t met, those living near the facilities should “stay away” from home.

But, but, but... who would buy bonds when they only yield 2%? It appears, for the 10th year in a row that the smartest people in the room have been totally and utterly wrong about the direction of interest rates. As 2014 draws to a close with stocks at all-time highs and 1% of the nation cock-a-hoop at the wealth being created, we wondered just how many know that mid- to long-duration bonds are up around 24% year-to-date, almost triple the 8.3% gains for The Dow...

ConvergEx's Nick Colas quarterly review of “Off the grid” economic indicators tells a story somewhat less sanguine than the typical government data. Confidence is returning, yes. But consider just how low it got: the top 3 Google autofills for “I want to sell my …” featured “kidney” for the first 3 quarters of this year. It was replaced in the current quarter with “Laptop”. Progress, of a sort...

And so, what is perhaps the greatest marketing campaign in movie history, comes to a close with the following update from Bloomberg, Sony executives talking about possibility of releasing “The Interview” on Dec. 25 during a conference call scheduled for 10am in Dallas, Dallas News reports, citing people familiar.

The terrorists un-win!

The mainstream economics narrative is so far down the monetary rabbit hole that the blinding clarity of the chart below has no chance whatsoever of seeing the light of day. That’s because it dramatizes the real truth regarding all the Fed gibberish about “accommodation” and “stimulus”. Namely, that what lies beneath its “extraordinary measures”, such as ZIRP, QE, wealth effects and the rest of the litany, is a central banking regime that systematically destroy savers. Period. TARP wasn’t “repaid” with a profit. It was simply perpetuated and  morphed into a new form of destructive state subvention and malinvestment.

Narrative, we have a problem! No lesser oil-man than T. Boone Pickens made quite an appearance on CNBC this morning - stunning the cheerleaders into first defense then silence as he broke the facts on oil's collapse to them. Oil is down "mainly due to weak demand," he explains... the anchors deny, "I am the expert, not you" Pickens rages as he warns drilling rigs will be laid down on a very wide scale (just as we have noted previously). Arguing over 'peak oil', he calls CNBC chatter "bullshit" and laid out a rather dismal short- to medium-term outlook for the oil & gas sector - not what the cheerleading tax-cut slurping media narrative wants to hear at all...

In a larger sense, the Fed is already intervening in the oil sector via its zero interest rate policy (ZIRP) and its unlimited liquidity for financial speculation.Should the Fed turn the dial of intervention up by buying futures and oil-based bonds, it is not a new policy--it is simply a matter of degree. The intervention has been going on in every sector since 2008. The implosion of the oil sector is simply the latest outbreak of consequence following cause.

Following last month's surge to record high home prices, it is perhaps no surprise that for the 6th month in a row, home prices have been revised lower. New Home Sales printed 438k, down from prior revised lower 445k and missing expectations of a surge to 460k... missing for 8 of the last 10 months. However, the key focus should be on the epic revisions of the (by now useless) home sales. For the period May - November, the initial new home sales prints amount to 2.779MM houses. Post revision, the number plunges by 22% to 2.168K. There goes the housing pillar of recovery (let's hope economists are wrong and rates don't rise next year eh?)

Despite the collapse of inflation expectations in last month's UMich confidence, the push to 7-year highs was unstoppable (though missing expectations)...after soaring confidence amid Ebola scares and crashing stocks in October, even the surveyers were questioning the respondents' replies "it would be surprising if recent declines in household wealth did not reverse some of the recent gains in optimism in the months ahead." But sure enough, to maintain the magic, UMich consumer confidence rose from November's missed expectations to the highest since Jan 2007 at 93.6. Inflastion expectations for the next year fell from the preliminary to the lowest in over 4 years.

What more is there to say really... over 1000 points off the Yellen lows in less than 5 days. Dow 18,000 - can't you just feel the wealth being created? Golf clap...