It's A Game Of Confidence

Frontline is all over the place in this one.

Asymmetry

Instability

Moral Hazard

The big players get overly aggressive and win - they pocket the proceeds.

The big players get overly aggressive and lose - they get bailed out. Again.

The big burst of over-exuberance is usually the bellwether of a crash. Which forces the questions:

• What does that burst look like?
• Will we recognize it?
• Are we seeing it now?

And of course, when the slump hits - and it will - are we going to allow the big players to panic us into another "solution" that will almost certainly be almost literally nothing more than Trickle Down rebranded?

We have to get back to where we have a national economic overview.

Not a blueprint - and not a central plan - but something like general common-sense good-government guidelines not based in a plutocratic agenda - something that looks to re-establish a better (ie: fairer) balance between capital and labor.

If the point is to kill off everybody else in an attempt to be King Of The Hill, then there is no fucking point to any of this at all.

A Big Reveal

I'm not a silver linings kinda guy. If it's good, it's good, even though there's always a cost.


But if it's bad, it doesn't mean we're looking at a cost, and we can then shoehorn some fucking blessing into it.

Sometimes bad is bad.

But sometimes, we get something really bad, and it forces us to see some truth.

(That's not a silver lining - that's some shit we should've seen before but we missed it because some asshole sold us on the benefits of choosing to be blind to it)

Anyway - here we go again.

NYT:

Ever since the oil shocks of the 1970s, the idea of energy independence, which in its grandest incarnation meant freedom from the world’s oil-rich trouble spots, has been a dream for Democrats and Republicans alike. It once seemed utterly unattainable — until the advent of fracking, which unleashed a torrent of oil. By early 2019, America was the world’s largest producer of crude oil, surpassing both Saudi Arabia and Russia. And President Trump reveled in the rhetoric: We hadn’t merely achieved independence, his administration said, but rather “energy dominance.”

Then came Covid-19, and, on March 8, the sudden and vicious end to the truce between Saudi Arabia and Russia, under which both countries limited production to prop up prices. On March 9, the price of oil plunged by almost a third, its steepest one-day drop in almost 30 years.

As a result, the stocks that make up the S&P 500 energy sector fell 20 percent, marking the sector’s largest drop on record. There were rumblings that shale companies would seek a federal lifeline. Whiting Petroleum, whose stock once traded for $150 a share, filed for bankruptcy. Tens of thousands of Texans are being laid off in the Permian basin and other parts of the state, and the whole industry is bracing for worse.

On the surface, it appears that two unforeseeable and random shocks are threatening our dream.

In reality, the dream was always an illusion, and its collapse was already underway. That’s because oil fracking has never been financially viable. America’s energy independence was built on an industry that is the very definition of dependent — dependent on investors to keep pouring billions upon billions in capital into money-losing companies to fund their drilling. Investors were willing to do this only as long as oil prices, which are not under America’s control, were high — and when they believed that one day, profits would materialize.

(ed note: think this might have something to do with 45* asking his pal MBS to boost oil prices a week or so ago?)

Even before the coronavirus crisis, the spigot was drying up. Now, it has been shut off.

The industry’s lack of profits wasn’t exactly a secret. In early 2015, the hedge fund manager David Einhorn announced at an investment conference that he had looked at the financial statements of 16 publicly traded shale producers and found that from 2006 to 2014, they spent $80 billion more than they received from selling oil. The basic reason is that the amount of oil coming out of a fracked well declines steeply after the first year — more than 50 percent in year two. To keep growing, companies have to keep plowing billions back into the ground.

The industry’s boosters argue that technological gains, such as drilling ever bigger wells, and clustering wells more tightly together to reduce the cost of moving equipment, eventually would lead to a gusher of profits. Fracking, they said, was just manufacturing, in which process and human intelligence could reduce costs and conquer geology.

Signal Hill CA ca 1920s or 30s

Actually, no. The key issue is the “parent child problem.” When wells are clustered tightly together, with so-called child wells drilled around the parent, the wells interfere with each other, resulting in less oil, not more. (This may not surprise anyone who is attempting to be productive while working in close quarters with their children.)

The promised profits haven’t materialized. In the first half of 2019, when oil was around $55 a barrel, only a few top-tier companies were profitable. “By now, it should be abundantly clear that the current shale oil business model does not work — even for the very best companies in the industry,” the investment firm SailingStone Capital Partners explained in a recent note.

Policymakers who wanted to tout energy independence disregarded all this, even as investors were starting to lose patience. As early as 2018, some investors had begun to tell companies that they wanted to see free cash flow, and that they were tired of compensation models that rewarded executives with rich paydays for increasing production, but failed to take profits into account. As a result, fracking stocks badly underperformed the market.

But with super-low interest rates, investors in search of yield were still willing to buy debt. Over the past 10 years, the entire energy industry has issued over $400 billion in high-yield debt. “They subprimed the American energy ecosystem,” says a long time energy market observer.

Even as the public equity and debt markets grew cautious, drilling continued. That’s because one big source of funding didn’t dry up: private equity. And why not? Private equity financiers typically get a 2 percent management fee on funds they can raise, so they are incentivized to take all the money that pension funds, desperate for returns to shore up their promises to retirees, have been willing to give them.

In the Haynesville and the Utica Shales, two major natural gas plays, over half of the drilling is being done by private equity-backed companies; in the oil-rich Permian basin, it’s about a quarter of the drilling. From 2015 through 2019, private equity firms raised almost $80 billion in funds focused mostly on shale production, according to Barclays.

Until the capital markets began to get suspicious, private equity investors could flip companies they had funded to larger, public companies, making a profitable exit regardless of whether or not the underlying business was making money.

That too is ending, as investors in such funds have become disillusioned.

You can see how all of this is playing out by looking at Occidental Petroleum. In 2019, Oxy, as it’s known, topped a competing bid from Chevron and paid $38 billion to take over Anadarko Petroleum, which is one of the major shale companies. Since that time, Oxy’s stock has plummeted almost 80 percent in part due to fears that the Anadarko acquisition is going to prove so wildly unprofitable that it sinks the company.

On March 10, the company announced that it would slash its dividend for the first time since the early 1990’s, when Saddam Hussein’s invasion of Kuwait sent oil prices plummeting.

Occidental is just one piece of the puzzle. In April, the Energy Information Administration cut its forecast for U.S. oil production, estimating that it will fall both this year and next — suggesting that the days of huge growth in production from shale are over.

On March 10, Scott Sheffield, the chief executive of Pioneer Natural Resources, a major driller in the Permian Basin, told Bloomberg that U.S. oil output could fall by more than two million barrels per day by next year if prices remain where they are today.

“This is late ’80s bad,” a close observer of the industry says.

After the United States engaged in a high-stakes negotiation with Russia and Saudi Arabia to curtail production, a tentative deal was struck on Thursday. Certainly, President Trump, who has staked so much on the American shale industry, wants to save it. “We really need Trump to do something or he’s going to lose all the energy states in this election,” Mr. Sheffield told CNBC in late March.

A deal, and higher oil prices, might help the industry. But they won’t fix its fundamental problem with profitability. Energy independence was a fever dream, fed by cheap debt and frothy capital markets.

All that’s left to tally is the environmental and financial damage. In the five years ending in April, there were 215 bankruptcies for oil and gas companies, involving $130 billion in debt, according to the law firm Haynes and Boone. Moody’s, the rating agency, said that in the third quarter of 2019, 91 percent of defaulted U.S. corporate debt was due to oil and gas companies. And North American oil and gas drillers have almost $100 billion of debt that is set to mature in the next four years.It’s still unclear where most of this debt is held. Some of it has been packaged into so-called collateralized loan obligations, pieces of which are held by hedge funds. Some of it may be on bank balance sheets. Investors in the equity of these companies have already seen the value of their holdings decimated. Pension funds that have poured money into private equity firms may take a hit soon, too. All we know for sure is that fracking company executives and private equity financiers have made a fortune by touting the myth of energy independence — and they won’t be the ones who have to pick up the pieces.

No Small Thing

Hillary alone stands between America and the most unstable, unfit president in US history https://t.co/2HmqGre2AS writes Dorothy Rabinowitz

— WSJ Editorial Page (@WSJopinion) September 30, 2016

It's not a ringing endorsement, but when the Rupert Street Journal Editorial Page puts up anything that isn't easily recognizable as slagging "The Libruls", it means something; it's important. 

Meet The New Bubble

...same as the old bubble - more or less.

The ticks on Wall Street work really hard (gotta give 'em that much).  Unfortunately, the hard work and long hours they put in are in service to finding new and exciting ways of picking the bones of whatever's left of the American Middle Class.

From Mother Jones:

Over the last two years, private equity firms and hedge funds have amassed an unprecedented real estate empire, snapping up Spanish revivals in Phoenix, adobes in Los Angeles, Queen Anne Victorians in Atlanta, and brick-faced bungalows in Chicago. In total, Wall Street investors have bought more than 200,000 cheap, mostly foreclosed houses in some of the cities hardest hit by the economic meltdown. But they're not simply flipping these houses. Instead, they've started bundling some of them into a new kind of financial product that could blow up the housing market all over again.

--and--

As of November, Blackstone had acquired 40,000 houses, most of them foreclosures, worth $7.5 billion. Today, it is the largest owner of single-family rental homes in the nation.

Blackstone's deep pockets—$248 billion in assets under management and a $3.6 billion credit line arranged by Deutsche Bank for buying houses—allow it to outbid individual buyers, driving up local real estate prices and pushing families out of the market. "You can't compete with a company that's betting on speculative future value when they're playing with cash," says Alston. "Institutional investors are siphoning the wealth and the ability for wealth accumulation out of underserved communities," adds Henry Wade, cofounder of the Arizona Association of Real Estate Brokers.

and it just gets better and better:

But buying houses cheap and then waiting for them to appreciate isn't the only way Blackstone is making money on these deals. It wants your rent check, too. In November, after many months of hype, the firm released the first-ever rated bond backed by securitized rental payments. Joining forces with Credit Suisse, Deutsche Bank, and JPMorgan (whichrecently paid a record $13 billion fine to settle accusations of ripping off mortgage investors), Blackstone has bundled the rental payments from more than 3,200 single-family houses, offering investors its mortgages on the underlying properties as collateral. After investors tripped over themselves to buy into the $479 million bond, Blackstone's competitors announced that they, too, would develop similar securities.

 A bond backed by Securitized Rent Payments.  What could possibly go wrong?

That Warren Woman

Not long ago, Scott Brown was busy losing his Senate seat and decided his best course of action was to say stupidly offensive things about Elizabeth Warren as he tried to turn Adolescent Mocking into a viable campaign strategy.

Any time one side decides to concentrate on their opponent's status or comportment or  "tone" - you know their policy argument's a total loser.

From Pam Martens at Wall Street On Parade:

Senator Warren said to the audience: “Who would have thought five years ago, after we witnessed firsthand the dangers of an overly concentrated financial system, that the Too Big to Fail problem would only have gotten worse? There are many who say, ‘Sure, Too Big to Fail isn’t over yet, but Congress should wait to act further because the agencies still have to issue a bunch of Dodd-Frank’s required rules.’ True, there are rules left to be written, but that’s because the agencies have missed more than 60 percent of Dodd-Frank’s rulemaking deadlines. I don’t understand the logic. Since when does Congress set deadlines, watch regulators miss most of them, and then take that failure as a reason not to act? I thought that if the regulators failed, it was time for Congress to step in. That’s what oversight means. And that’s certainly a principle that would have served our country well prior to the crisis.”

Warren makes way too much sense - she must be destroyed.

Torches And Pitch Forks

...coming soon to a gated community near you.

Wall Street On Parade (10-23-13):

Yesterday, the Bureau of Labor Statistics reported a very weak jobs number: just 148,000 new nonfarm jobs had been added by employers in September. To the rational mind, an appropriate reaction in the stock market would have been to sell off on the basis that the economy remains weak. Instead, the Standard and Poor’s 500 hit a new record, closing at an all time high of 1,754.67.

The general thesis to explain this reaction is that today’s Wall Street is running a racket similar to Lance Armstrong. It’s on a heavy doping regimen in the form of the $85 billion a month that the Federal Reserve is funneling into the markets through the purchase from Wall Street of U.S. Treasurys and mortgage-backed securities. When the Fed buys those instruments, it forces $85 billion of cash each month into the hands of traders to deploy into higher risk assets – stocks, exchange-traded funds (ETFs), stock futures and what have you, artificially forcing the market higher.

--and--

The 401(k) is the mechanism that created the subliminal mindset that what’s good for Wall Street is good for Main Street. The hard reality is that the top 5 percent of the wealthiest Americans own 60 percent of stocks.

More and more people being left with less and less, will eventually understand they have nothing to lose by storming the barricades and taking whatever they want.

Today's Reading Assignment

(hat tip = Charlie Pierce)

Matt Taibbi at Rolling Stone:

This is the third act in an improbable triple-fucking of ordinary people that Wall Street is seeking to pull off as a shocker epilogue to the crisis era. Five years ago this fall, an epidemic of fraud and thievery in the financial-services industry triggered the collapse of our economy. The resultant loss of tax revenue plunged states everywhere into spiraling fiscal crises, and local governments suffered huge losses in their retirement portfolios – remember, these public pension funds were some of the most frequently targeted suckers upon whom Wall Street dumped its fraud-riddled mortgage-backed securities in the pre-crash years.

Today, the same Wall Street crowd that caused the crash is not merely rolling in money again but aggressively counterattacking on the public-relations front. The battle increasingly centers around public funds like state and municipal pensions. This war isn't just about money. Crucially, in ways invisible to most Americans, it's also about blame. In state after state, politicians are following the Rhode Island playbook, using scare tactics and lavishly funded PR campaigns to cast teachers, firefighters and cops – not bankers – as the budget-devouring boogeymen responsible for the mounting fiscal problems of America's states and cities.

And nobody makes it easier to understand than Victor Juhasz:

Well Well Well

Maybe this one should be filed under: About Fuckin' Time, Dude.

via The Agonist, a story out of New York's Office of the AG with the beginnings of details on pending prosecution of some of the crooks at JP Morgan:

Earlier this year, JPMorgan’s reckless trading strategy cost investors $5.8 billion. The embarrassment from investor losses was compounded by Morgan’s vast understatement of the original amount of the losses.. Chairman Dimon commented, “We learned a lot. I can tell you this has shaken our company to the core.” Apparently, there’s a prosecutorial learning curve in place regarding the broad pattern of civil and potentially criminal violations by JPMorgan and the other made men of The Money Party.

A recent survey of trust in financial institutions showed just 23% of the public trusted the big banks like Morgan and only 15% had any trust in the stock market. Schneiderman should have a favorable audience with just about any jury he chooses. The low opinion of big banks and the latent anger at the lack of prosecutions for those who caused the financial collapse will explode given the slightest opportunity.

Even before this indictment, Janet Novack of Forbes characterized the most recent culprit in the title of her Forbes article, America’s Trust in Banks Falling: Thank You, JPMorgan.” JPMorgan’s record and reputation precede the firm into any court.

Another distinct advantage for the AG is the law used to prosecute Morgan.

And remember that these high-level prosecutors almost never bet on anything that isn't real close to a sure thing.

Chase

Why is Jamie Dimon not being dragged thru the streets by his heels?  And when will any of these fuckin' crooks be held to account?

Crooks and Liars

The JPMorgan Chase story is also the story behind the financial crisis that has thrown millions of people out of work. It's the story behind our ever-growing wealth inequity. It's the story behind Washington's inability to prosecute criminal bankers, regulate reckless ones, and propose the economic solutions the rest of us urgently need.

Predictably, the pundits who aid and abet people like Jamie Dimon are dismissing this story's importance, pointing out that $2 billion (it could become much more) pales against the $19 billion in profit Chase reported last year.

But it was potentially $2 billion earned through crime. And more importantly, this story isn't just about Chase's errors and crimes. It's much bigger than that.

WTF, Mr Holder?

Hey, rednecks.  You guys are always goin' on about how the death penalty is a good idea, and a useful tool for preventing crime - how 'bout we hang a few of these Bankster pricks and see what kinda hurry their shit gets straight.

60 Minutes via YouTube - part 1   part 2

Wall Street Leeches

From The Agonist
There are dozens and dozens of companies like Dollar General that were taken private by leveraged buy-out firms during the market frenzy that peaked in 2007. They were all bought with little cash and enormous amounts of debts, and they are sitting like time bombs on the balance sheets of the leveraged buy-out firms that misjudged the market. As the months go by and the buy-out firms watch their fees from their investors get eaten up by high interest costs, they are getting more and more desperate to dump these companies back on to the public markets and naïve individual investors.

Larry Summers Speaks

Sounds a lot like he's warming up to do battle with Wall Street.  Should be interesting to see if he calls for any specifics.

From The Agonist.