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We Forget All Too Fast Just How Quickly It Can Hit The Fan
Currently there is probably no other great divide in opinions than the current state of oil and all it entails. (well maybe gold but that’s for another column)
I believe there’s not only two sides to this story but there is also a very legitimate concern for the two-sided sword that can be wielded – by both sides. And again, in my opinion, both have very valid reasons for optimism as well as concern. I don’t believe they are mutually exclusive.
Today we have what many would call an oil boon in not only the U.S. but Canada as well. Together the current debate falls along two fronts.
First: Is there really as much there as they believe there is?
And second: If so can it be extracted at a price bearable to both producers as well as consumers?
There seems a real split right down the middle and both sides make very good arguments. Who’s right and who’s wrong is yet to be seen. However, what does not need to be borne out any longer is the fact that the OPEC cartel believes there’s a real cause for concern. And that is a very positive byproduct to come forth from this whole debate.
Currently as oil prices plummet the outcry over whether it’s an immediate “tax break” to consumers is also flaring up with just as much furor. The “they’ll spend it during the holidays” vs “they’ll use it to pay down debt” is just as fiery as well as debatable.
Again, no one truly knows until after the fact, and we’ll see it in the numbers. Yet, just like the scenario above, what one doesn’t need to wait for is the fact that maybe – just maybe – we have a card in our back-pocket for once that we can use within our price tolerances where we aren’t held for ransom or extortionist prices on a whim by others.
However, when I made the claim earlier about a two-sided coin as well as a double-edged sword it was truly intentional as the example. For if there is one outcome based on a two-sided coin, as one side wins while the other means losing. The ability to be cut with both sides of the same blade one should infer, one way or another – you’re going to get cut. It’s just a degree of how bad that needs to be calculated and guarded against.
What we don’t know or can’t see in as far as “what’s there under the sands” we can more than make up for in true clarity what’s on the financial books. i.e., The high yield bonds funding it all.
There one doesn’t need “guesstimates.” We know. And it’s amazingly precarious, if not outright dangerous to the markets as a whole. This just might be an area the term “unforeseen consequences” gets seen all to clearly.
Not only do many not remember the early 80’s when U.S. oil producers went haywire, but they seem to have forgotten just how quickly in the sheer speed of panic, bankruptcies, and more that took place in the southern regions of the U.S. and Texas in-particular.
Personally I had family in Texas. At the time I was like so many trying to find my place in the business world and was living and had grown up in New England. I was about 19 or so. I had been working in clubs and doing other odd jobs (yes I was a manager/bartender at 19. I started cleaning coolers at about 16 for at the time the legal age was 18 and really wasn’t a big thing) and I was really in need of a change. I was desperate for what many would deem “good work at good wages” where I no longer needed to keep the hours of a vampire.
In a casual conversion with family the door was opened to me as to move to Texas and work for my Uncle who owned a business primarily focused on the oil business. i.e., welders, riggers, etc. The promises of a real change and all it entailed finally moved me past the point of inertia to finally saying, “Screw it, Why not.” And I made the arrangement to leave just weeks later. (the operative word there is “weeks.” Keep that in mind)
As I was sorting out my affairs and getting ready to go I had numerous conversions with my Aunt. She was “delighted” I was making the move. Things were going to be “so exciting” for me she would say. They were doing great, they just bought another building, hired more people, and they were expanding so fast I was “coming just at the right time” to get my feet wet and lean the business and move up in it as I progressed. For: “There’s real money to be made down here” was the over-riding meme. And it was sincerely stated as well as thought. So, I packed my things and off I went.
When I arrived it appeared to be everything they expressed it to be. However, within a few weeks of my arriving you could sense a shift in the air. The phones at the office went from ringing almost on cue to near dead silence.
The building which held space for all the service equipment, trailers, welding trucks, work-over rigging et al that I knew he owned (but had never seen for they were out in the fields working) near overnight appeared in the building crowding out most of the once wide open areas of work space. Now one had to squeeze through spaces between trucks and equipment just to get from one side or the other.
Within about 8 weeks of my arrival my Uncle’s business went from all the appearances of wealthy oil business owner to a near solo operation on the brink of bankruptcy daily.
So bad did it get, so fast, that I was asked to find employment elsewhere if I was to stay. They themselves along with everyone else in the “oil business” at that time were in the same straits. And it wasn’t getting better. As a matter of fact, is was growing exponentially worse for many of them by the day, let alone week.
In an effort to find work for the first time in my life I stood outside an oil refinery with hundreds (yes hundreds) of other people in the same straights I was, filling out employment applications about every 1/2 hour as they would call looking for a person to fill a certain position.
Over a loudspeaker you would hear: “Accepting now for 3 welding positions” and anyone who ever seen a welder let alone worked with one would rush to the office trailer and fill out an application listing anything remotely to do with a welder hoping (and some praying) it would be enough to get to the next step – a 10 minute interview for a yay – nay vote.
No applications were reused. Need a welder – fill out an app. Need a janitor – fill out another. Rinse repeat every single time – even for the same position if it came up more than once during the day.
There were husband and wife welding teams, same for electricians, cooks, you name, for everyone suddenly was unemployed and they would take anything. I did this for a week – 8 hours a day, it was one of the most demoralizing times in my life. And just in-case one forgot – less than just 90 days prior, it seemed like Dallas was the new OZ. Now 90 days later I was feeling like I was a pariah both to myself as well as my relatives.
In desperation I took work at a local meat factory. I got lucky (lucky is a relative term) and was hired as a meat cutter and worked on “the line.” It’s pretty much what you see when they role some sort of B footage on a news reel or documentary where people all in white standing on a line abreast pull pieces of beef off the center, cut, trim, and move onto the next. It was by far, too this day, the most grueling, repetitive, strenuous work I have ever done. And I’ve done some very strenuous manual labor for work throughout my career.
So little were the opportunities for anything else in employment (where just weeks prior most businesses couldn’t find any help and would pay “premium” wages) I decided I had enough of “the line” and found a bar-tending job at a local biker bar. (I grew up in biker bars so it was really was more like what I knew)
Finally, within less than 4 months since arriving I was called into a meeting with my Aunt and Uncle and was informed I needed to move out and find my own place to live. (they had a beautiful huge ranch styled home where they gave me for all intents and purposes my own apt.) The reason why I had to leave? They were going to lose it. They were just about to lose their business, and it wasn’t long for the house would be next. There was no way they were going to able to keep themselves afloat if things kept up the way it was going and this was my only “heads up” on just how bad things had turned. I was stunned.
Reluctantly I took the news as best I could and made plans to be gone in a week back to New England. I had nothing to go back to however, there surely was even less for me there.
It was a lesson I never forgot, and it’s why many times I rail against the flippant attitudes of “It’s different this time.” Yes it just might be, but with the precarious ways the Federal Reserve has injected its financial meddling into the markets and the resulting wonton ways yield chasing has adulterated risk in the high yield space. What we better hope (and possibly pray) is that if it is indeed “different this time”... that “different” doesn’t end up meaning worse.
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The answer lies in the top guy dealing with it later, and going to the golf course for now.
Wow.. The Hits just keep on coming here this afternoon!
Next up.. A real Blast From the Past form the Ramones to help get through all this shit:
https://www.youtube.com/watch?v=Eajk2uDWaP0
Not only do many not remember the early 80’s when U.S. oil producers went haywire, but they seem to have forgotten just how quickly in the sheer speed of panic, bankruptcies, and more that took place in the southern regions of the U.S. and Texas in-particular.
Bad financial choices repeat themselves, yep.
My grandfather rode a camel, my father rode a camel, I drive a Mercedes, my son drives a Land Rover, his son will drive a Land Rover, but his son will ride a camel. - rashid bin saeed al maktoum, former prime minister UAE
great quote, fun, and very ideologically accurate about the futur. you can adapt with horse for western ppl.
Baton Rouge circa 1987 says "hi".
my best friend's mother makes $82 /hr on the internet . She has been without work for five months but last month her pay check was $20842 just working on the internet for a few hours. browse around this website... www.yelptrade.com
If she would become a spokeswoman for the State Department she could earn $150 per hour and not even take her clothes off.
Aunt and Uncle took on too much debt in a risky business and lost it all. Not a new story and it will happen again to all those who are not too big to fail. The system needs more cleansing of this type and not less. I don't think the oil business is the big black swan. It could be but I doubt it seriously. There are much bigger blacker swans lurking out there.
Without oil, nothing in the modern world works.
If we stop getting our daily imports (say due to currency collapse or war), such a supply shock will quickly set off a cascade of system failures.
For instance, if your local grocer doesn't get several deliveries by oil-powered machines every week, the shelves quickly go empty. There's enough inventory in the typical Wal-Mart or other grocer for normal demand of about three days.
There's a phrase associated with this: "Nine meals from anarchy".
http://upload.wikimedia.org/wikipedia/commons/b/b0/Crude_oil_prices_sinc...
1980 - come to texas, oil going up forever! Real good paying jobs for everyone! Texas #1 economy in the history of the world!! 1982 - whoops!
2012 - come to north dakota, oil going up forever! Good paying jobs for everyone! Shale oil #1 energy deposit ever discovered in the known universe! 2014 - whoops!
When it comes to economics it has been well established that humans are only vaguely superior to monkeys. And even on that note there is evidence humans may not be on top.
http://www.dailymail.co.uk/sciencetech/article-2857745/Monkeys-better-hu...
Yeah, I would say the world of 1861 and today are not comparable. Back then and in many ways even before the mid-1900s cities could even get by with little in the way of oil-powered machines.
The 1970s were mostly a temporary thing, as the petrodollar gave the relief of imports and helped enable a stronger dollar along with Volcker's interest rate hikes (couldn't do that today).
Monkeys aren't subjected to constant advertising, so that may play a role. But, that's hilarious still.
I believe we are seeing a lot of demand destruction now. There won't be an ever increasing price because the economy can only handle a certain price point before it begins to contract.
You are dreaming with that 3 days of stock! I work in the grocery business and any hint of shortage and the shelves are empty in hours. Ever been in FL during hurricane season?
Ahh Geez....now you did it Tylers. It won't be long before some out of shape, fat, redneck brings up how much ammo he bought today.
I thought I was the only one that noticed that.
You say that like it's a bad thing? I was gunna buy me sum dem carbon credits but mah locul gun sto had a hella deal on 5.56.
Another banker found dead.
http://beforeitsnews.com/alternative/2014/12/top-belgian-banker-found-de...
Drink to that, Any in the USSA yet?
This one is actually pretty interesting. Mysterious and all.
It's Different this time.. as in Different means Worse.. ( yeah i like that idea )
OK...so tried to glom into some riches via family. That can never end well. How about creating your own thing instead of gloming or even being a slave or even a bartender while creating your own thing? Never have pity for followers.
Hey Putin .... tell the MUTTS it's 75% cash plus 25% Gold for all energy exports ....
http://youtu.be/Bc7Urzm0QE8?t=14m17s
I was in college, '81-'86. As I was wrapping up, I remember droves of Geology Majors coming back to school. Many of them hit the Computer Science Department, to join us Geeks.
I did the Fall of '86 in Grad School, then hit the Real World. I do remember the panic from the Geology Majors. Having grown up in the field though, I wasn't surprised by the whole thing. In the Oklahoma/Texas/Kansas area, it had a huge impact.
I'm wondering if too many have entered the medical field today. I realize the population is getting older, but insurance is costing more and people are making less. I know dozens of people that have gone back to school to become nurses. It just seems unsustainable. I have doctor friends that have complained about 50% pay cuts in the last 4 years.
Maybe. However, the government backing of the Medical Field should hold up for everybody, except the lower level/incompetent group. If we get a real Credit Contraction, ala the 1930s, everybody is going to get hit. I suspect that the Medicos will do better than the rest of us.
You described my world to a tee.
The Sunday paper in Houston used to come in 2 parts- one was.news, comics, sports, etc. and the second half was want ads....
I worry tremendously about this happening again. Im glad Im no longer a machinist making oilfield tools. I remember it being just like a switch was turned off. One day you could.pick the shop you wanted to.work at, the next there were "Not Hiring" signs in every shops parking lot.
With oil plunging in price as it is qho can afford.to.drill?
I've always sold drugs. So business does not vary much.
Big Pharma?
Or the honest guys?
Big Pharma. And ya those guys are way worse than the "illegal" drug dealers. EG> Oxycontin
If you mean pharma, then you're a most definitely-totally fucked. Medical reps are finished. They don't exist in Europe or any where else in the world, for that matter.
Socialized medicine=no medical reps
Just don't sell loose cigarettes in the open./sarc
The millenials and some Gen X'ers are too young to remember the late 70's-early 80's (I'm an old Gen X'er). It was a fucking scary time. Everything just stopped. My family was involved in multiple businesses. They shuttered all but one business and rode it out. The only business that had positive revenue was their plumbing company. It enabled them to stay afloat until things turned around. The economy looked like it was perpetually getting worse every week. Employees would come to the house on Sunday to ask dad for an advance on their paycheck to pay for this and that. Some couldn't wait until Monday. No one and no banks loaned money. This was well before the days of free money we've grown accustomed to. Imagine an economy were you don't have a credit card, access to personal loans, or student loans. ONLY the rich could get a loan. If someone drove a Mercedes or ANY new car they were rich. Few had access to lines of credit. The rich paid cash. Interest rates on savings accounts were over 10%. Interest rates to borrow were 12-20%, and few banks would take a chance. Again, it felt like things were getting worse every week.
The point of the article is that an early 80's economy can happen again and it's a mother fucker. Everything just stops, including your paycheck. Those days are coming again.
I lived in Sheffield when coal mines and steelworks were all closing. I worked for a while in the associated industry of refractory bricks - furnace liners and foundry products.
When I watched The Full Monty, I knew just about every place they filmed.
I was a one man business sign painter back then - an almost extinct skill - for a while I was busy, mostly making signs saying 'space for lease'
or 'building for sale'
Then things pretty much stopped.
I moved to Canada in '88 when unemployment had FALLEN to about 27%
Some parts of the North East of England were even harder hit.
Tough times for a one-man-band business.
your aunt and uncle sucked at business. i was in that area back then too. only the dumbasses went bankrupt. there were certainly still welder jobs (and hot women too) available even after the bust. cut and run fair weather yankee scumbag, and don't let the door hit you in the ass on the way out.
'It was by far, too this day, the most grueling, repetitive, strenuous work I have ever done.'
Ahh, what a fuckin shame, poor little white kid got his hands dirty for a while.
What if those were your prospects for the rest of your life, if you were lucky.
EBT if you're lucky.
So some rich white kids in the US suffer for 6 months out of 30 years, I should care ?
If you all got some horrible debilitating disease, a plague on all your houses perhaps, I should care ?
No, I'd be dancing in the streets.
I won't benefit from your demise, I don't want your assets, you can burn them in hell along with your good for nothing selves for all I care.
Malthus had it upside down, rid the world of the top 10% every 10 years and we can have paradise here on earth.
(that's a meme that has legs...bitchez)
Knew someone involved in lease/office/real-estate/buildings in Texas, California and other states back then.
Onion Bank took it all away (acquired nickname).
Many in business leverage on the boom town, probably 80% is financed in growth times.
Finance and fiat are viscious.
You know you have a broken system when the price of a commodity like oil goes down and the CB's are incensed those monies will go to the consumer's pocket and cite the "it'll crash the system" mantra.
"Hi there! I'm a total retard who thinks North Dakota is a clothing brand! I never saw a Government number hat wasn't total bullshit and am glad you think so too!"
Hey OPEC, we totally get you, we understand.
No one in our cartel is willing to cut production either.
But, don’t feel too bad. Unlike your oil the economic cost of producing our fiat money is zero, so there is no floor on its value whatsoever.
Yours truly,
The Central Bankers of The G8
I can attest to the story. I was a PE major at Texas A&M in 1980. Couldn't afford the cost of school and left during my second semester to work as a roughneck on an oil rig. the author says that cutting meat was the most gruleing job he had. I think the same can be said for being a roughneck. Its a bit of boredom mixed with the hardest physical work I ever did. Tripping pipe on a 2 mile deep hole. Start the shift pulling pipe and replacing the bit and going back into the hole I had worked physical labor in my fathers contruction business but the oilfield was the hardest work I ever did. When I started the rig count in the US was around 2000 wells. At the time that I quit it was down to around 800.
True story:
One day I went to pick our derrick man. Pulled up in front of his trailer with a engine hanging from the tripod / swingset. 2 dirty kids in diapers on the porch. I took a good long look while waiting and found the motivation I needed to get out of that life choice. I was lucky. I was 18 and 6 years later graduated with a business degree. A year later I was working for a BIG 8 brokerage house sitting at a bar after the crash of 87, but thats a whole new story.
The author is right. I have seen and lived boom in bust in construction, oil, brokerage, banking and tech.
Don't say you weren't warned. It ain't different this time
K
Thanks for your true story. If you step back ten years in your mind, I suspect that both things and the economy have not unfolded as you might have predicted.
When you see how the world has developed, the twist and turns are most unpredictable. Nowhere is this more apparent then in the economy, whether it is in the areas of interest rates and inflation or the rise and fall of companies. Surprise and awe, highlighted with bouts of shock is what we should expect going forward. More on the subject of predictions in the article below.
http://brucewilds.blogspot.com/2013/06/predicting-future-and-hindsight-mirrors.html
No different to the Australian mining industry as a lot of young guys are now finding out the hard way.
When financial problems occur in the energy sector it is often accompanied by political instability and sometimes her ugly sister war. As a rule the economy loves stability, bottom-line dropping oil prices means more risk for an already shaky world economy. All this is being complicated by the recently strong dollar. The dollars strength and the rising American stock market could also be taken as a sign of an unstable global economy.
When a strong shift in currencies occurs someone usually gets hurt and this can lead to bankruptcy, default, or contagion. A great deal of the shadow banking world overlaps and falls into the grey world of derivatives. The total derivatives market has grown to a massive size. It includes hundreds of trillions of dollars in over-the-counter non-reported agreements and private contracts and is estimated to be over 20 times larger than the global economy. Everyone paying attention knows that even a slight problem in a market this size could collapse the whole economic system. The article below delves deeper into the problems caused by falling oil prices.
http://brucewilds.blogspot.com/2014/11/dropping-oil-prices-increase-risk-to.html
Its like the 80's is so ancient history and those that run like the global economy know so much more than they use to, and and like I just saw how the like tar and shale industry is creating like oil independce for Americans.
Shit people don't remember yesterday let alone 30 years ago. Some real problems if oil falls below $50, and please stop with this American oil independence crap.
I love $2.00 a gal. gas.
I would love it if the Free Market took it there.
I don't care how it gets there.
Gotta love the intellectual simplicity of people like you, the horizon ends at the petrol pump.
It IS different this time. Just look at the USD-JPY!! Hitting 121.8 just now.
Won't be long anymore until this whole thing comes crashing down.
Or is Japan "likely to be contained"?
Contained??
You mean like Fukushima???
Good story and a stark warning for the new guys.
I was a boilermaker doing power plants. About the same story. You could go anywhere in the country and find a fantastic-paying job. Didn't like the boss, you went down the road a hundred miles and worked for someone else. Then it all stopped and has never really gotten going again.
All future construction is going to be done by Spanish-speaking robots. I don't know what the 80% of kids who aren't engineer material are going to do for a living.
Question...a genuine one. Do you think ordinary productive Americans like you will - or will be able to - do anything meaningful about this?
And by the way it seems that even the minority of kids who are engineering material won't be immune.....as your own story underlines.
twice for me -10 years, disc drives, off shored by seagate (machinist/buyer). gone nada.
20 years as RE broker-new homes, crash - zero traffic, nada.
is another banker dead yet?
that all, ha...
The moral of these stories, for those of us in the Bakken now, is to save your money! I constantly tell my coworkers to be thrifty...that this will end quickly and painfully. Few take it seriously.