The person who risks nothing, does nothing, has nothing, is nothing, and becomes nothing.
To all those wondering if everything is rigged, we have a very simple answer: Yes.
For years, we've been warning that the economics of the US 'shale revolution' were suspect. Namely, that they've only been made possible by the new era of 'expensive' oil (an average oil price of between $80-$100 per barrel). We've argued that many players in the shale industry simply wouldn't be able to operate profitably at lower prices. Well, with oil prices now suddenly sub-$60 per barrel, we're about to find out. Using the traditional corporate income statement, it is difficult to determine if shale drilling companies make money. There are a lot of moving parts, some deliberate obfuscation at some companies, and the massive decline rates make analysis difficult – since so much of reported profitability depends on assumptions made regarding depreciation and depletion. So, can shale oil be profitable? If so, at what price? And under what conditions?
Despite the authorities' best efforts to keep everything orderly, we know how this global Game of Geopolitical Tetris ends: "Players lose a typical game of Tetris when they can no longer keep up with the increasing speed, and the Tetriminos stack up to the top of the playing field. This is commonly referred to as topping out."
"I’m tired of being outraged!"
On the other hand...
Putting Things In Context ...
Meet the next piece of work...
Running a multi-billion dollar energy company isn’t easy. Just ask the executives in the corner suites of some of the energy companies that have gone bust over the years. Some, like Enron, were brought down because of insider malfeasance. A few, like ATP, blamed damaging government policies, while others went off the rails due to market forces that left the company and its shareholders flat-footed, deep in debt, and eventually broke. Here are the bankruptcies that will be etched into the tombstones of failed energy fortunes for time immemorial.
There are some serious reserves 'estimate' discrepancies rife in the U.S. shale industry that could be at least on par with how Enron 'mis-communicated' to investors its leverage position...
Shale Fracking Is a “Ponzi Scheme” … “This Decade’s Version of The Dotcom Bubble” … “A Lot In Common With the Subprime Mortgage"Submitted by George Washington on 09/19/2014 00:12 -0500
“... Just Before It Melted Down”
If you were raised in a religious household, or were sent to a Catholic school, you have heard of the seven deadly sins. These transgressions -- wrath, greed, sloth, pride, lust, envy and gluttony -- are human tendencies that, if not overcome, can lead to other sins and a path straight to the netherworld. In the investing world, these same seven deadly sins apply. These "behaviors," just like in life, lead to poor investing outcomes. Therefore, to be a better investor, we must recognize these "moral transgressions" and learn how to overcome them.
Central bank stimulus is not leading to virtuous circles but to vicious ones. How can we get out? – Only by changing our attitudes to monetary interventions fundamentally. Only if we accept that interest rates are market prices, not policy levers. Only if we accept that the growth we generate through cheap credit and interest-rate suppression is always fleeting, and always comes at the price of new capital misallocations. The prospect for such a change looks dim at present. The near-term outlook is for more heavy-handed interventions everywhere, and the endgame is probably inflation. This will end badly.
- Ukraine Shifts to Defense Against Russian Incursion (WSJ)
- U.S. forces carry out operation against al-Shabaab in Somalia (Reuters)
- Bond Markets Tilt Toward Frankfurt as Draghi Negates Fed (BBG)
- Another "unexpectedly" - Swiss Economy Unexpectedly Stalls as Euro Area Takes Toll (BBG)
- Japan's 'Abenomics' feared in trouble as challenges build (Reuters)
- Germany Imposes Nationwide Ban on Uber's Cab-Hailing Service (WSJ)
- Japan's 'forward guidance', the GPIF, has "already begun a highly anticipated portfolio reshuffle" (WSJ)
- Detroit Brings Bankruptcy Plan to Court With Billionaires (BBG)
- Burger King has maneuvered to cut U.S. tax bill for years (Reuters)
The dirty little secret that everyone (and we mean everyone) wants to act as if it no longer exists is: These prices are only representative of anything worth value if they can be sold. We are now at heights where even the so-called “Uber Bulls” are beginning to get a little nervous in the hoof. For just who is going to buy when the first major dip goes stampeding past? There’s no true true economic recovery picture to be bought.
These Fake Rallies Will End In Tears: "If People Stop Believing In Central Banks, All Hell Will Break Loose"Submitted by Tyler Durden on 06/24/2014 14:11 -0500
Investors and speculators face some profound challenges today: How to deal with politicized markets, continuously “guided” by central bankers and regulators? In this environment it may ultimately pay to be a speculator rather than an investor. Speculators wait for opportunities to make money on price moves. They do not look for “income” or “yield” but for changes in prices, and some of the more interesting price swings may soon potentially come on the downside. They should know that their capital cannot be employed profitably at all times. They are happy (or should be happy) to sit on cash for a long while, and maybe let even some of the suckers’ rally pass them by. As Sir Michael at CQS said: "Maybe they [the central bankers] can keep control, but if people stop believing in them, all hell will break loose." We couldn't agree more.