THE SUBPRIME U.S. ECONOMY: Disintegrating Due To Subprime Auto, Housing, Bond & Energy Debt

SRSrocco's picture

srsrocco

By the SRSrocco Report,

The U.S. financial system continues to disintegrate even though most Americans hardly notice.  The system is being gutted from the inside out... much the same way a chronic disease weakens a patient even before any symptoms are felt.  However, we are already experiencing painful symptoms as U.S. economic indicators continue to weaken.

Here are just a few of the recent headlines:

Energy Giant Schlumberger Fires Another 8,000 As "Market Conditions Worsen" in Q2

The Financial System Is Breaking Down At An Unimaginable Pace

Potential Crisis Triggers Continue To Pile Up In 2016

Just In Time—–Big Wall Street Housing Investors Cashing-Out On Housing Bubble 2.0

Corporate Bond Defaults Hit Highest Rate Since Financial Crisis

These are just some of the recent headlines pointing to BIG TROUBLE AHEAD.  However, the U.S. financial system is in dire shape due to the SUBPRIMING of the entire economy.  Today, anyone can purchase a car for little or nothing down and finance it for 84 months.  The U.S. housing market is also in the same predicament.

According to the article, Are We Heading for Another Housing Crisis?, published on May 12th this year:

While the economy and home prices have both rebounded, some people have expressed concern we are headed for a repeat housing bubble. As of January 2016, home prices were rising at a rate twice that of inflation, according to the S&P/Case-Shiller U.S. National Home Price Index.

 

What's more, Fannie Mae and Freddie Mac have unveiled programs to allow first-time homebuyers to make a purchase with only 3 percent down. Plus, some lenders are using alternate credit scores, which may make loans available to those who can't get one under conventional credit scoring methods.

So, here we are heading down the same path as we did prior to the 2008 U.S. Investment Banking and Housing collapse.  However, this time around its both a Subprime Auto & Housing problem.  But, that is just part of the Subprime mess.

As most of you already know, many of the world's sovereign bonds have negative yields.  According to the article, The Financial System Is Breaking Down At An Unimaginable Pace:

In February 2015, the total amount of negative-yielding debt in the world was ‘only’ $3.6 trillion.

A year later in February 2016 it had nearly doubled to $7 trillion.

 

Now, just five months later, it has nearly doubled again to $13 trillion, up from $11.7 trillion just over two weeks ago.

Think about that: the total sum of negative-yielding debt in the world has increased in the last sixteen days alone by an amount that’s larger than the entire GDP of Russia.

 

Just like subprime mortgage bonds from ten years ago, these bonds are also toxic securities, since many of are issued by bankrupt governments (like Japan).

 

Instead of paying subprime home buyers to borrow money, investors are now paying subprime governments.

And just like the build-up to the 2008 subprime crisis, investors are snapping up today’s subprime bonds with frightening enthusiasm.

To see total world negative-yielding debt doubling to $13 trillion in just the past six months is a BLINKING RED LIGHT.

So, not only do we have Subprime Auto & Housing... we also have to include Subprime Govt Bonds.  While U.S. Treasuries and bonds are not yet negative-yielding, I believe it is just a matter of time.

As we can see, the U.S. is now becoming a massive SUBPRIME ECONOMY.  Unfortunately, it gets much worse.  The factor that most analysts have not yet factored into the subprime disaster is energy.

I would like to remind my readers and new followers that it takes energy to run the Auto, Housing & Bond markets.  Yes, it takes the burning of energy to allow the global bond markets to function.  Basically, Treasuries and Bonds are nothing more than claims on future economic activity.  My sympathy goes out to anyone holding onto 20-30 year bonds until maturity.  I highly doubt these bonds will ever make it to maturity.

That being said, let's look at the catastrophe taking place in the U.S. Subprime Energy Industry.

U.S. Shale Oil Companies Saddled With Debt Up To Their Eyeballs

I discussed the big trouble with the U.S. Shale Energy Industry in my recent interview with Dan at Future Money Trends.  If you haven't yet checked it out, I highly recommend it:

https://youtu.be/Zpxb2G_6oes

During the interview I spoke about the following chart below.  These are some of the top U.S. Shale oil companies.  I included Chevron, not because it is a large shale oil producer, but because it is one of the three major oil companies in the United States:

US Shale Oil Companies Long Term Debt

In 2006, these seven U.S. oil companies held $17.2 billion in combined long-term debt.  However, by 2015... this ballooned to $72.1 billion.  Basically, their debt increased four times in a decade.  Now, the interesting thing to understand about this chart is that their long-term debt really started to increase in 2011.  Why is this significant?

Because, the price of U.S. oil (West Texas Crude) was nearly $100 for 2011, 2012 and 2013.  Which means, the high oil price did nothing to help these companies pay down their debt.  Rather, their long-term debt more than doubled in just the past four years.

I hope anyone reading this will realize, SHALE OIL IS SUBPRIME ENERGY that really wasn't economic unless we had zero interest rates and monetary printing.  Even though the U.S. Shale Oil Industry brought on a lot of oil in the past decade, they really didn't make any money... they just saddled their balance sheets with debt.

Let's take a look at the most recent data from the top four shale oil fields in the United States.  According to the U.S. EIA Drilling Productivity Report released on July 18, the Bakken and Eagle Ford shale oil fields are estimated to suffer large declines in August:

Bakken Oil production

Eagle Ford Oil production

The EIA forecasts that the Bakken and Eagle Ford will lose 80,000 barrels per day in just August.  These are BIG NUMBERS.  If we look at the actual production figures for the top four shale oil fields, here is the result:

Top 4 Shale Oil Production

Oil production from the top four shale oil fields has declined 914,000 barrels per day (bd) since the peak in March 2015.  This translates to a 17% decline in oil production from these four fields in just 16 months.  However, the impact on the U.S. economy is even worse when we look at the figures on a monthly and annual basis.

This next chart shows the combined loss of oil production from these top four shale oil fields based upon the minimum production from Nov 2014 to Nov 2015.  Let me explain.  In Nov 2014, these shale fields produced 5,027,000 bd, peaked in March 2015 at 5,304,000 bd and then fell back to 5,106,000 bd in Nov 2015.  So between Nov 2014 & Nov 2015, these fields produced a minimum of 5,067,000 barrels per day.

In August, the Bakken, Eagle Ford, Niobrara & Permian oil fields will be producing approximately 4,390,000 barrels per day.  This is a 676,000 barrel per day decline from the minimum production these four fields produced for a year during that Nov 2014-2015 time period.

The reason why I decided to do it this way is to show that these four fields produced at least 5,067,000 barrels per day for an entire year.  To show the decline from the high peak is disingenuous because it was only for a brief one month period.  This means, these top four fields will lose 20.3 million barrels of oil in a month and a stunning 247 million barrels in a year:

Top 4 Shale Oil Fields Production Loss

However, it will be much worse than this going forward as U.S. Shale oil production continues to decline.  How bad will it be?  Well, if these companies received $50 a barrel for oil, it turns out to be a loss of $13.7 billion in a year.  But, as I stated, it will be worse as oil production continues to decline.

I published this chart in a previous article, but it's important to see again:

U.S. Energy Sector Interest on Debt

The U.S. Energy Sector is saddled with $370 billion in debt.  In 2015, the U.S. Energy Sector paid 48% of their operating profits just to pay the interest on their debt.  This ballooned to 86% in Q1 2016 when the oil price fell to $33.  If the oil price remains between $40-$50, the U.S. Energy Sector will likely have to fork out 60-70% of its operating income just to service its debt in 2016.

And of course... IT'S EVEN WORSE THAN THAT... LOL.  We must remember, for most of 2015, the top shale oil fields were producing 676,000 barrels per day more than they will be this year.  Thus, they will have less revenues due to falling oil production.

So, the billion dollar question is this... how will the U.S. Energy Sector survive with low oil prices and falling production???

Welcome to SUBPRIME USA.

Unfortunately, the coming collapse of the U.S. economic and financial system will be orders of magnitude greater than what took place in 2008.  Why?  Because we just had a subprime housing market in 2008, whereas the entire U.S. economy today is SUBPRIME....  Subprime Auto, Housing, Bonds & Energy.

Lastly, while some precious metals investors have become a bit frustrated by the low gold and silver prices or the ongoing manipulation of the markets by the Fed and Central Banks, the current system is not sustainable.  The doubling of world debt with negative yielding debt in the past six months is a bad sign indeed.

Owning physical gold and silver will provide a lot more options during the next economic and financial collapse than most of the paper assets 99% of the world is invested.

IMPORTANT NOTICE:  Here is the link to register for the SRSrocco Report Precious Metals Webinar taking place on Tuesday, August 2nd at 6 pm EST - Eastern Standard Time:

SIGNUP For SRSrocco Precious Metals Webinar

Lastly, if you haven't checked out our new PRECIOUS METALS INVESTING section or our new LOWEST COST PRECIOUS METALS STORAGE page, I highly recommend you do.

Check back for new articles and updates at the SRSrocco Report.

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oldguyonBMXbike's picture

My credit is awesome.  I have very little income, but I pay my bill several times per month, so they keep increasing my credit limit and think I'm the best debitor ever!

SmittyinLA's picture

As bad as shale is, green energy is worse, and LABOR INTENSIVE and any investment in green energy increases the "national energy handicap" growing our trade deficit and increasing immigration.

Trade debt always results in foreign ownership and invasion because there is no debt, debt's are instantly settled with wealthy Chinese apartment owners and bond holders and Smithfield Farms owners.

Mr. Cynic's picture

" However, the U.S. financial system is in dire shape due to the SUBPRIMING of the entire economy.  Today, anyone can purchase a car for little or nothing down and finance it for 84 months."

Which all indicates an impending auto recovery industry boomtown!

See? Silver-linings are everywhere.

steveo77's picture

 Breaking! University of Hawaii Research Shows Radiation in Hawaii Soil 2016 as Bad as 7 Prefectures in Japan 2 weeks After Fukushima
stock here

Breaking! University of Hawaii Research Shows Radiation in Hawaii Soil 2016 as Bad as 7 Prefectures in Japan 2 weeks After Fukushima

http://nukeprofessional.blogspot.com/2016/07/breaking-university-of-hawa...

1200 Bq/M2 in Hawaii, most from potassium, about 400 Bq/M2 from Radioactive Cesium 137

Most wild mushrooms in Hawaii around 50 Bq/kG, but some as high as 100 Bq/kG

2 weeks after Fukushima the IAEA published findings of ground contamination in 7 prefectures around Fukushima.   These are shown below.

Only 1 Prefecture in Japan exceeded 400 Bq/M2 after Fukushima -- Most of Hawaii now exceeds 400 Bq/M2 of Radioactive Cesium 137.

wholy1's picture

With the"credit-worthy" potential "borrowers" maxed out, what's left?

Helicopter currency to the baby-factory single parents/disability cons/migRATS.

"Murkaa" is soooooooo TOTAL[alitarianly] SCREWED!

Get rural away from the "urbs", coasts, nuke plants on to an UNEMBUMBERED, elevated, arable portion of county[ed] dirt.

Get very "neighborly".

Get GUNNED.

ThrowAwayYourTV's picture

Man, we have had about 20 used car sales lots open up around here in the past 6 month. Funny as hell! You cant drive a mile without seeing at least 2 used car lots. All with balloons and flags and BIG SALE signs and Guaranteed financing! all over the place.

And the ad's! Hahahaha. Freaking radio! Everytime I turn the thing on its one used car ad after another. I just turn it off for a few minutes hoping to actually hear music when I turn it back on again. 80% of the time, NOT.

 

gregga777's picture

That to date (23 July 2016) a cumulative $13 trillion in government, sovereign and corporate bonds trade at negative interest rate means that bond investors, unless they are all terminally stupid, foresee contracting money supply and contracting economic activity. In other words, bond investors are forecasting deflation now and for years into the future.

hendrik1730's picture

Deflation will only boost the collapse rate : the outstanding debt ( public as well as corporate of private ) will become even harder to sustain. It's a gimmick : the only purpose is to allow the ongoing Ponzi scheme to last another ( shortening ) period of time. If interest rates would rise by say 5%, most debt would become "non performing", meaning bankruptcies all over the place.The translation of zero-interest rate is hyperinflation and I say why : if in 1980, you had 1 million US$ in savings, a certrain Paul Volckers ( at the time the FED president ) gave you 20% on your capital versus an inflation rate of say 15%. So in the end you gained "something" ( 50.000 US$ ). How much money does one need to have to get those 200.000 US$ interests of "then" today? Well, calculate. 2% on treasuries, 30 years maturity, makes 10 MILLION US$. And this is not including the real inflation rate of 8% ( shadowstats ). In reality, the US$ is at present WORTHLESS. That's where the real inflation rate is hidden : zero interest rate.

ajkreider's picture

Boo!

Really, another sky is falling article.  Energy did lose about 250k jobs.  And now they're adding back jobs.  Please see the rig count.

Yes, there's lot's of subprime auto out there.  It's also true that household balance sheets are as good as they've been in a long long time, as is evidenced by the ridiculously low diliquency rates.  Citi's cards were 90 DPD at .6%.  

Yes, there's lots of housing bubbles out there.  It's also true that these mostly aren't on balloon payment schedules, and instead locked in at 30 year rates of 3.75%.

Did Trump write this scare-mongering drivel?

AGuy's picture

"Really, another sky is falling article. Energy did lose about 250k jobs. And now they're adding back jobs. Please see the rig count."

No, Oil companies are still laying off. Only a handful of rigs were added. Two articles in the past week with large layoffs. there are dozens more.

https://www.today.ng/business/156745/schlumberger-lays-8000-workers&rct=...

"After firing 8,000 in the first quarter, Schlumberger just laid off another 8,000 workers"

 

http://www.wsj.com/articles/conocophillips-to-lay-off-another-1-000-ener...

"ConocoPhillips to Lay Off Another 1,000 Energy Workers"

 

Power companies are also laying off workers as they shutdown Coal and Nuclear plants due to lack of industrial demand.

 

"t's also true that household balance sheets are as good as they've been in a long long time"

Nope. if you go to the FED charts, Consumer debt is higher than ever built upon soaring Student Loan Debt, CC Debt, Auto Loans.

 

"locked in at 30 year rates of 3.75%."

Nope, very very few people have 3.75% rates with 30 year Mortgages. Plus you forgetting the other costs associated with homes: Insurance (Mortgage, home owners insurances) and soaring property taxes. Property taxes are going nuts just about everywhere as Gov't employee Pension outlays begin to explode. People are also neglecting home maintanence. I see hundreds of homes in my area that haven't been painted in years.

 

 

 

Iam_Silverman's picture

His first line says it all:

"The U.S. financial system continues to disintegrate even though most Americans hardly notice."

This drives the movers and shakers in the financial world crazy. Yes, most Americans don't give a crap about your artificial markets and phony bond schemes. They are far too busy just eking out another week and making their payments. Your kubuki theater does not move them in the least. We are comforted by our cold beer and Nascar!

I remember growing up. Just the "rich people" owned stocks. Only folks with enough idle income available for speculation played in the markets. Then, the government decided to do us all a favor and convince companies to do away with the defined benefit retirement plan, and instead push us all into the financial markets with the invention of the 401K accounts. Yup, let's push the peasants into our killing fields. Wonderful bunch, those lawmakers - bought and paid for by Wall Street.

max2205's picture

Stuff it, bury it withdraw it....it doesn't matter.  All money will be destroyed the next time....metals....too  no one will have money to buy it...GLTA 

True Blue's picture

metals....too

LOL

Like I'd 'sell' metals for fiat. The things that will 'buy' metals are things like bullets and bread.

I am Jobe's picture

The Housing market in Central Texas is so bad folks are living in their cars. I guess soon the bubble will burst. 

Iam_Silverman's picture

"The Housing market in Central Texas is so bad folks are living in their cars. I guess soon the bubble will burst"

Could you expand on that statement?  I don't see it that bad in Somervell, Erath, Bosque or Hamilton counties.  I try not to pay too much attention when I drive into Waco or Temple to see the doctors.

foxmuldar's picture

You know the Housing bubble is back when you have those housing swappers holding dinner meetings to push their house swapping scheme on you. Wasn't that what was taking place prior to the last bubble? Folks buying homes and selling them for a higher price days later. 

swmnguy's picture

The role of the finance fiat Ponzi on energy is very interesting.  At a certain point, the need for actual energy will outweigh the convoluted nonsense of a fake finance system.  The trouble is, if the rules of finance no longer apply due to shenanigans, it's very difficult to analyze what is going on, and to distinguish cause from effect.

You wouldn't think we'd let our society collapse over the complications from inherent internal contradictions in our finance system.  We've turned money and finance into completely abstract human constructions we can and do change the rules of all the time.  So you'd think we'd change to rules to avert collapse, once it really came to that.

On the other hand, somebody on Easter Island had to realize if they were to cut down all the trees they wouldn't be able to keep living there, and they went ahead and did that, too.

new game's picture

totalitarian rule will be the ultimate human culler. works every tyme. so, which country after venz? brazil?

culling the plebs...lol, tried crying first...

wft can one do? cept the ad nausiem survival discuss..

wait for the lid to pop and join in, i guess...

interesting tymes await us all.

Handful of Dust's picture

But the guest on NPR this morning said "Everything is awesome!" and the recovery is "strong."

But I must agree with the article since what I see first hand shows 80% of the USA economy is tanking badly and some sectors [like energy] are a complete disaster with over 250,000 oil & gas engineers thrown out of work. The ripple effect of that has been profound but silently side-stepped by MSM.

LowerSlowerDelaware_LSD's picture
LowerSlowerDelaware_LSD (not verified) Handful of Dust Jul 23, 2016 12:48 PM

OK... I've go to ask (pardon me if I raise my voice).  What the HELL are you doing listening to NPR?!?!?!  I quit listening to the non-taxpayer funded "news"/Central Planning propaganda broadcasts a long time ago.  NPR is much worse than them.

Mazzy's picture

NPR is Israeli owned mass media.

And to think that some suckers actually "DONATE" to them!?!?!

-I am not a Pawn-

Vendetta's picture

Exactly.  I quite listening to them after some time struggling to bear it when they had a 'debate' whether insider trading was good for the economy and the pro insider trading ass was 'winning' according to the broadcast... that was the last straw

Phoenix Pilgrim's picture

Have to keep up on the disinformation being downloaded into the Zombies, Silly Rabbit!

LowerSlowerDelaware_LSD's picture
LowerSlowerDelaware_LSD (not verified) Phoenix Pilgrim Jul 23, 2016 1:52 PM

But what a painful way to do it:  Listening to NPR.

Never One Roach's picture

Painful as it is not a bad idea to listen to an arm of the Ministry of Truth to understand how they distort and lie as a method of brainwashing the sheeple and gruberized Americans.

LowerSlowerDelaware_LSD's picture
LowerSlowerDelaware_LSD (not verified) Jul 23, 2016 10:54 AM

Are we all gonna die?...

ConnectingTheDots's picture

You forgot to mention the student debt load that will not be repaid if good paying jobs are not available.

JailBanksters's picture

Didn't aunty Janet recently say the Murket is Fwine and the Econome is impwooving and

the jobs are holding et yadda yadda yadda purcent and we will hold orf until the murket impwooves

more before we waise interwest wates furthar.

cowdiddly's picture

Great article Mr Rocco. Im glad someone finally gets what a Ponzi scheme US shale oil really is.

And on top of subprime Autos, housing and energy, we currently have a 1.4 Trillion with a T student loan debt bubble blowing. This in my opinion is the most subprime of all subprime as most of these students have never even had a decent income job yet and only a hope that they will find employment in their chosen fields. Around 20% of these loans are non preforming NOW.  If we recall, the housing bubble of 08 was a mere 800 billion in comparision that brought this nation to its knees.

29% of ALL energy producer loans are now bad and are being ignored. With fractional reserve lending there is NO BANK in the US with this kind of exposure to this subprime fiasco of these 4 things even remotely solvent in any stretch of the imagination even with say 10% held in loan loss reserves which most are nowhere near.

They all ALL BANKRUPT and being allowed to function as going concerns when it is mathematically impossible to loan or grow their way out of this   especially in a low or no interest envirionment without a hyperinflation, huge writedowns, shutdowns restructurings or other fairly radical treatments and ignoring  the problem it only gets  bigger by the day.

fattail's picture

Debt is an act in which you pull forward future aggregate demand for current consumption.  With all the easy money out there, it is quite simple to see the gigantic whole in the economy that is just over the horizon when rates, the dollar, monetrary policy, or fiscal policy become just the slightest bit less accommodative.  My bet is the dollar will be the trigger that blows up exports and the GDP as all the other major economies i.e., EU, China, Japan, are racing to the bottom of the currency war.

CheapBastard's picture

I read another significant devaluation is imminent by China. These nations are alomost forced to do it since a revolution in some of these nations is very possible if there is too much unrest so they are forced to stimulate the economy in some way and choose devaluation.

 

In the USA devaluation was forced on us not to prevent a revolution but to indirectly bauil out the fed's debt so they pay back the Trillions of USA debt with cheaper money like they did after WWII where the real devaluation of the dollar was 12%/year I read somewhere. I wish I could find that article.

Handful of Dust's picture

Despite the sick economy and massive student loans, my guess is 90% of the students will still vote Democrat.

 

Yet it does not seem to bother them they can look forward to fewer jobs in the futre and heavy debt weighing them down for years to come if they vote for "More of The Same Hillery"...or Worse.  It's no wonder the suicide rate among whites is soaring.

joego1's picture

They paid good money for their progressive indoctrinations.

ebworthen's picture

And just wait until the earthquakes come, and perhaps more importantly the poisoned water and ruined aquifers.

Firepower's picture

did wells fargo recent buttthump occur bc they put all their chips in "subprime shale?"

Aquarius's picture

"The individual has always had to struggle to keep from being overwhelmed by the tribe. If you try it, you will be lonely often, and sometimes frightened. But no price is too high to pay for the privilege of owning yourself." - Friederich Nietzsche

"They must find it difficult...those who have taken authority as the truth, rather than truth as the authority." - Gerald Massey

Governments Are Authoritarian Monopolies That Cannot Encourage Social Creativity

Old forms of government finally grow so oppressive, that they must be thrown off even at the risk of reigns of terror. - Herbert Spencer

When unlimited and unrestricted by individual rights, a government is men’s deadliest enemy. - Ayn Rand

 

https://verbewarp.blogspot.com.au/2015/03/fiat-currency-and-human-behavi...

Ho hum

Bubbette's picture

"Life is nasty, brutish and short."

Hobbes

Phoenix Pilgrim's picture

Great quotes, as always. Glad to see you back posting. You have been scarce of late.

philipat's picture

When you have a Subprime consumer in an economy which can only grow through higher consumption because it comprises 70% PCE, this is the inevitable conclusion? Until it collapses.

Handful of Dust's picture

Subprime leadership is one of the main causes.

 

The middle class American consumer is dead. All the jobs have been sent overseas and only bankers and wall street received the BUsh/Obama Banker Bailouts.

CheapBastard's picture

Edward Bernays, Freud's daughter Anna, et al were happy to help corporations and the government use subtle psychological persuasion to turn American "citizens" into American "consumers" to stimulate the economy as well as fatten the pockets of big corporations. They were very successful as we can see.

 

If you have time watch Century of Self, by David Lessig, an excellent video free on Youtube:

 

https://www.youtube.com/watch?v=eJ3RzGoQC4s&list=FLpXK7sqYYq6EBBDaG9H6wl...