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So. How have you frackers been feeling, lately? Just checking. (Photo by docentjoyce/Flickr)
The crash of 2015 has been paused temporarily by a curious circumstance: a brawl among the financial scavengers who by now should have carted away the body parts of the great American fracking boom. Against all logic, financial vultures are fighting with financial jackals for possession of the corpse, and while doing so are pumping transfusions into it even though decomposition is already well under way. Here’s what’s happening:
The Vultures believe the decline of American oil fracking is only temporary, a product of the sudden decline in oil prices that struck last fall, and that with the inevitable return to $100-a-barrel oil, the frackers will return to profitability. Now, this is a curious thing to believe when it is easily determined that the companies involved have had negative cash flows since the very beginning of their revolution, even at $100 a barrel. Nevertheless, the Vultures believe in their scenario so fervently that they have been amassing cash with which to buy up prostrate frackers at the bottom of the market and thus make billions as the market rises, phoenix-like, back to the skies. Private equity firms such as Blackstone, Carlyle Group, Apollo, and KKR, for example, have raised about $30 billion and are just waiting to see the floor to begin their coup. But where’s the floor?
Funny story about that. The Hyenas have a similar strategy but are using different tactics. They are the ones transfusing the corpse with fresh money, buying up junk bonds and penny stocks by the dump truck load so they will be in position for the resurrection — not because they have bought the company but because they have bought into it. Their injections are keeping the corpses alive enough that they are still twitching: the death certificate cannot be signed, and the Vultures cannot land. It’s a scavenger standoff.
This is yet another unforeseen consequence of two serious infections afflicting our financial system (leaving aside, for the moment, the ailments of the fracking boom). One sickness is the enormous amount of cash, the largely unearned wealth of the two per cent, sloshing around in the frantic hands of managers under orders to do something with it, make the clients some decent return on investment, you know, like 20%. The other is the cold dead hand of the Federal Reserve, holding interest rates for all safe investments to around one per cent, forcing the frantic to take their money to a casino somewhere and risk it all in search of the legendary 20%.
The stock-market casino is on fire and it looks like the roof is going to come down any day now, so they’re not going there. They’ve already blown up the housing market, and pretty well saturated the subprime auto-loan bonanza, and have bought up a gazillion foreclosure houses to rent out (and in the process have found out just how much it sucks being a landlord). “Over here!” someone yelled a few months ago, “I found 12%!” And the stampede was on, leading to the current contretemps between buzzards and hyenas.
But the zombie companies that have lured them in to the feast are, in fact, still dead. Bloomberg reports that half of the 41 fracking companies now doing business in the United States will be gone by year’s end. And that Schlumberger Ltd., the world’s largest oilfield services provider, will lay off 11,000 people, the second largest downsizing since the oil-price crisis began (the largest? Schlumberger’s elimination of 9,000 jobs in January). Rig counts are dropping and so is production.
The dispute between the vultures and the hyenas does not make the corpse they are contesting more valuable. It simply delays the disposition of the remains and the resumption of the Crash of 2015. For maybe a week.
Atta way to spot the ‘leading edge’ out there in investment land, Mr. Lewis!
It seems that the more money one has, the more one needs to keep it moving (ostensibly to generate MORE money). The problem is that the whole system is based on FICTION – that these people with the aid of their corporations can continue to steal the commons for themselves, that they can simply pollute rather than treat the waste by-products of their factories and use the ocean and land as their personal DUMP! All these actions have CONSEQUENCES, but the super wealthy just pawn that all off on the complacent public who are tied down by rules and regulations, whereas THEY are decidedly NOT hampered by them – in fact they pay to get the rules and regs written in their favor or to their benefit.
It all looks so simple from the top until they realize that the Earth’s biosphere isn’t going to cooperate with their schemes and that things like atmospheric chemistry and physics cannot be bargained with or worked around. Now that via their business models they’ve ruined the very delicate climate balance that provides our precarious existence, there’s no fixing it! We’ll be going full throttle into the abyss due to the momentum our civilization generates living the way we do.
So much for the “smartest people in the room” nonsense.
Yeah, everything I’ve heard about fracking suggests it’s only slightly less insane than nuclear power.
I’ve always wondered what these “elite” assholes think their endgame is. They expect all the upcoming turmoil to occur outside their bubble of privilege, and that’s probably the biggest reason they act in such insane and irresponsible ways
A couple of days ago, the phone rang, and at the other end of the line was a person with a foreign-sounding accent who said he “represented a group of domestic oil and gas producers”, and wanted to know if I still lived in the town I live in, and if my net worth was $1 million or more outside of any real estate, or $200,000+ annual income – to which I replied that it was none of his business… end of call…
The shale guys must be desperate – they’re running out of money something fierce, and their credit lines are drying up faster than California is running out of water… They’re trying to hit up anybody who can keep the merry-go-round going just a little bit longer.
Amazing story. Thanks.
I guess we should have seen this coming. QE has created a perverse amount of cheap money and you can only pump up the P/E of solid stocks for so long before people start getting suspicious.
I think it will be more than a week, too. Promises of future profitability might be able to sway investors through the summer. Even if a few fail, there are still others. But when they get cold feet… the chain reaction begins.
gwb (Mr. Lewis, anyone else interested):
i pass the time by playing mahjong and for the past few days there have been ads for investing in gas and oil on the side-bar! Oh yeah, and ALL positive – “diversify your portfolio” “limited risk” type horse hockey. i couldn’t believe it. If i figure out how to do a screen-grab, i’ll post it here (if i see it again). Amazing.
Tom, in Windows 7 (maybe other versions) there is an app called “SnippingTool.exe” that will allow you to capture all or any part of your screen and save it as an image file (GIF, JPG, PNG). Also, you can just use the keyboard with [Ctrl]+[Print Screen] (the latter may be labeled [PrtScrn]) which will create a copy of your entire display in the “Clipboard” which you can then “Paste” into MS-Paint or any other image-editor of your choice and modify (“Crop”) it as you deem appropriate. Getting this into a comment may require you to upload the image you created to Photobucket or Imagur or similar site to enable an HTML-tag. I’m not certain about this latter bit, never had a “need.” BTW, I also enjoy Mahjong but prefer it “stand-alone” (i.e., a local app) rather than “online.” If you haven’t tried it, you may also enjoy Minesweeper, both great for keeping the logic circuits tuned. :)
i also heard on TNITM (from 1:20 – 1:47, posted below), that governments and banks are collaborating to “reinvent” money by making it so abstruse that the common person would never understand, and they’d continue to play their money-games electronically into the future (until the next calamity). The war drums are beating loud and clear too (another money maker).
https://www.youtube.com/watch?v=ObW1n1muJpo