Going bust in the oil business.

WP had this story on one company.

Now if I said, let's take out some big loans to get in on some action (speculative), and we'll be all set when the big money starts rolling in that would actually be a risky gambling plan. Because if the action doesn't happen the way we think the loans still have to be paid.

But a big business can operate that way. Except when it gets into trouble -- through a bubble in the industry and deflated prices.

https://www.washingtonpost.com/news/wonk/wp/2016/03/25/the-big-bust-in-the-oil-fields/

Was just at a presentation on the current bust. This is #7 since the modern oil era started in 1973. It will come back, oil always does. I've read my article limit but from the post looks like he was smart and used OPM.

I've been trying for decades to understand why very low oil prices are bad for the overall stock market. Yes, I can see how oil companies would be hurting. However, just about every other business that consumes energy should be loving it. Let's say that somebody discovers a nearly free and clean source of power. Wouldn't that overall be a good thing for the world, the economy, and the stock market? If so, why would this not be true on a lesser scale with just cheaper oil?

Quote: Wizard

I've been trying for decades to understand why very low oil prices are bad for the overall stock market. Yes, I can see how oil companies would be hurting. However, just about every other business that consumes energy should be loving it. Let's say that somebody discovers a nearly free and clean source of power. Wouldn't that overall be a good thing for the world, the economy, and the stock market? If so, why would this not be true on a lesser scale with just cheaper oil?

As always, it's complicated. Oil companies drive other things. Upstream at the wellhead to downstream at the gas pump. Energy is over 8% of the economy, and it is concentrated in a few places. Anytime that much of the economy goes down you have broader problems.

To the later question, it would of course be good on one level. But it would leave many losers as well. Consider a parallel, would it be a boon if we could eliminate more and more labor with robots?

Quote: AZDuffman

Consider a parallel, would it be a boon if we could eliminate more and more labor with robots?

Yes! Bring on the robots. There is still plenty of work to be done in all over the economy that can't be replaced by robots. However, to draw an extreme example, where robots could do anything, then let them! We can all retire and let robots do all the work.

To tie the point back to oil, I will concede that trouble in any one segment of the economy can cause short-term disruption. However, I still say it should be an overall positive.

Quote: Wizard

Yes! Bring on the robots. There is still plenty of work to be done in all over the economy that can't be replaced by robots. However, to draw an extreme example, where robots could do anything, then let them! We can all retire and let robots do all the work.

Robots are tricky. Allows some people to earn more but others earn less. I'll just say be careful what you wish for.

Quote:

To tie the point back to oil, I will concede that trouble in any one segment of the economy can cause short-term disruption. However, I still say it should be an overall positive.

Well, this is among the first times that the market has acted this way, going down in sync with oil instead of rising when oil falls. But problems can come. The S&L crisis was made worse because of falling oil prices hitting Texas real estate. It gets complicated, and we are in a juiced market to begin with from years of easy fed policy. Currently I do not see much upside in stocks in general.

Big deal.
Look at the poor fishing boats who decide to dump their catch rather than pay diesel fuel costs to get it to market just to sell it at a loss.
You can go way back to The Depression with farmers dumping milk onto the dirt rather than truck it to a city to sell it at a loss.

I mentioned how an Oil Services worker left Texas and Oklahoma and moved to Los Angeles to go on welfare. All he knew was oil services and who needed anyone to service an oil derrick when it was cheaper to leave the oil in the ground than pump it out and sell it at a loss. Destroy the efficient companies in the industry, force the survivors to be inefficient and speculative operating at high costs and ever slimmer margins as base market prices fall.

This was not unforeseen..... the bankers were touting the oil companies to investors while the bankers were themselves taking massively short positions in the oil companies. Float a bond issue to the Widows, Orphans and Pension Funds, but the bankers buy the bonds on the cheap and wait for the formal collapse.

Norway is losing its oil cushion, Alaska residents are worrying about their Permanent Fund ..... Saudi Arabia and Putin are flooding the world with oil and US Frackers are pumping oil today and promising water cleanup "tomorrow"....Prices are so low only the Russian Mafia will remain.

Robots?
Do you think the unions will buy robots or employees will sell their jobs to buy robots?
The companies will fire the burger flippers and buy one robot.

Similar to the sixties where companies hired zillions of low level 'burster decollators' to tend the printers while firing middle managers.

Quote: rxwine

WP had this story on one company.

Now if I said, let's take out some big loans to get in on some action (speculative), and we'll be all set when the big money starts rolling in that would actually be a risky gambling plan. Because if the action doesn't happen the way we think the loans still have to be paid.

But a big business can operate that way. Except when it gets into trouble -- through a bubble in the industry and deflated prices.

https://www.washingtonpost.com/news/wonk/wp/2016/03/25/the-big-bust-in-the-oil-fields/

It isn't real. It is geo political and the ptb are playing the long game according to Brezinski's grand chessboard.

The stock market ceased being a price discovery mechanism, at least by 08. In a real world non manipulated banking system, where investment banks [hedge funds] were separated from from S&L's, the tbtf banks would never have loaned that amount of money to "wildcatters" without the standards of good collateral and sound repayment strategy's.

<Swift realized he’d gone too far, this was his debt: $1.349 billion.>
<ensnared in an industry-wide craze of dangerous debt.>
<This new wave of bad loans isn’t the same magnitude of the housing bust, but it reflects similar behaviors. Borrowers feasted on what Bloomberg estimates was $237 billion of easy money without scrutinizing whether the loans could endure a drastic downturn.>
< Banks are bracing for tens of billions of dollars of defaults, >

The banks always knew, but the systemically to important to fail banks can borrow from the fed. knowing that if they make bad loans and the loans go sour, the tax payers will bail them out again. Meanwhile ceo's like Jamie Dimon [JP Morgan] and Loyd Blankfein [Goldman Sachs] make ten's of millions per year.

<That decision, multiplied across hundreds of producers, has caused U.S. oil production to nearly double since 2007.>

The ptb put on a show, to OPEC and Russia, we wanted them to think that the US could be energy self reliant. Maybe they can or can't? But American oil company's crashing is just collateral damage in the geo strategic move, being carried out by our Ally, Saudi Arabia in an attempt to bend Russia to the globalist's will.

<Swift Energy issued three separate packages of bonds worth $875 million. It also had a credit line of $500 million from JPMorgan. >
<The company’s lender, JPMorgan, began tightening the funds Swift Energy could withdraw. The company’s stock — above $40 per share in 2011 — dipped below $1, and then below 25 cents.>

This is the problem with fiat money, it isn't even fractional reserve lending anymore. Morgan creates over a billion for this one company alone, and strangles them when oil goes down, causing them to go under, then the hedge fund picks up this 110 year old company for literally pennies on the dollar. The shale oil plays in the Bakken and Texas, the same with Tar Sands in Canada were never viable plays at this pace without market manipulating the price of everything [oil], and the fed pumping trillions into the tbtf banks who had nothing else to do with the money.

Now recently congress passed a law that oil producers can export oil. It is a great big grand chessboard of geo strategic warfare coupled with competitive currency debasement by central banks against the brics, now including Iran. WW3 has already begun. Shifting all these Islamic thugs into Europe is part of the plan to destabilize Europe and conquer Russia.

If we didn't like 4$ gas, we will hate 10$ gas.