Fracking “Revolution” continues to be a disaster for investors and more

❝ Steve Schlotterbeck, who led drilling company EQT as it expanded to become the nation’s largest producer of natural gas in 2017, arrived at a petrochemical industry conference in Pittsburgh…with a blunt message about shale gas drilling and fracking.

“The shale gas revolution has frankly been an unmitigated disaster for any buy-and-hold investor in the shale gas industry with very few limited exceptions,” Schlotterbeck, who left the helm of EQT last year, continued. “In fact, I’m not aware of another case of a disruptive technological change that has done so much harm to the industry that created the change.”

“While hundreds of billions of dollars of benefits have accrued to hundreds of millions of people, the amount of shareholder value destruction registers in the hundreds of billions of dollars,” he said. “The industry is self-destructive.” [emphasis added]…

❝ “The technological advancements developed by the industry have been the weapon of its own suicide,” Schlotterbeck added, referring to the financial impacts of shale gas drilling on shale gas drillers. “And unfortunately, the industry still has not fully realized how it’s killing itself. Since 2015, there’s been 172 E&P company bankruptcies involving nearly a hundred billion dollars of debt.”

❝ “In a little more than a decade, most of these companies just destroyed a very large percentage of their companies’ value that they had at the beginning of the shale revolution,” he said. “It’s frankly hard to imagine the scope of the value destruction that has occurred. And it continues.”

Our fake president wants to make it easier for this clown show to borrow even more money. When this paper edifice crashes and burns – what do you think will be the effect on the nation’s economy?

In China, Slower Growth Is Acceptable to Tackle Debt, Smog


Click to enlargeChinatopix

China can achieve a goal of doubling the size of its economy by 2020 even if annual expansion slows to 6.3 percent, according to a senior Communist Party official, signaling a greater willingness to tackle debt and pollution at the expense of growth…

In its blueprint for 2016 to 2020, China set a minimum annual growth target of 6.5 percent for the five-year period to achieve the goal of doubling gross domestic product from 2010 levels…Over the weekend, Yang Weimin, an official from the Communist Party committee overseeing economic policy, said annualized growth of 6.3 percent in 2018-2020 would do.

Based on current economic performance, the 2020 target won’t be a “huge barrier,”…China is seen growing 6.8 percent this year and 6.5 percent in 2018, according to economist estimates compiled by Bloomberg…

Yang’s remark is “a heads up on how the new thought will be implemented,” said Zhu Ning, deputy director of the National Institute of Financial Research at Tsinghua University in Beijing.

There have been times when the United States was governed and advised by technocrats, economists and, yes, even politicians who understood the value of adjusting the course of government to benefit most of the people. Not just the moneybags who could afford to belong to the Fake President’s country club.

Our #1 Export is Debt — Fewer foreigners are willing to buy


Mandel Ngan/AFP/Getty Images

❝ Since he first hit the campaign trail, Trump has been squarely focused on boosting domestic production by limiting cheap imports from places like China and Mexico and replacing them with homegrown offerings. Much more rarely has he talked about selling those homegrown offerings — be they Ford Explorers or Boeing 747s — to the rest of the world.

It’s a curious state of affairs, like encouraging people to cook by banning restaurants. Disconcertingly, Trump’s brand of import substitution is now playing out in the world’s biggest debt market.

❝ Debt is, without a doubt, the U.S.’s biggest export. The U.S. Treasury market is not just worth trillions ($13.9 trillion, to be exact), but also represents the “risk-free” rate against which other financial assets are judged, if not fully pegged. To overstate its importance is difficult: It is huge, big-league — one of the few markets to which Trump’s brand of hyperbole might actually apply.

And yet U.S. Treasuries have been finding far fewer foreign buyers in recent months — a trend that has so far been offset by higher domestic demand. U.S. investors have been buying longer-term government debt at a record pace since June, while recent data shows Japanese buyers, the biggest owners of U.S. Treasuries, have reduced their holdings for two consecutive months…

❝ Adversaries of import substitution have long argued that the strategy boosts short-term growth at the expense of longer-term health. It flies in the face of comparative advantage — a central tenet of classical economic theory — and precludes economies from enjoying all of the benefits that come with specialization, including lower prices.

A similar dynamic applies to the transformation of the U.S. Treasury market. While a pickup in domestic demand can initially help offset selling by foreign investors — such as the People’s Bank of China attempting to stabilize the yuan or Saudi Arabia reducing reserves to deal with lower oil prices — it may well leave the market more fragile over the longer term.

❝ U.S. pension funds, banks and insurance companies can opt to “Buy American” with Treasuries, but there are limits and there are risks. Those risks became painfully clear during the eurozone debt crisis, when troubled European Union members used central bank liquidity facilities to buy their own debt after foreign buyers went on strike. The move helped them weather the worst of the crisis, but it also became a pressure point as investors fretted over a “feedback loop” of codependency and negative sentiment between banks and bonds.

❝ Perhaps more relevant to Trump’s ambitions are the self-apparent limits that a domestically funded budget will put on his growth plans. The president wants to boost fiscal stimulus while cutting taxes — a plan that will only work as long as the U.S. is able to issue and sell its debt. Few think that foreigners will stop purchasing U.S. debt altogether, but the loss of a significant pool of players will by definition place a cap on the market.

Sad.

This is an opinion piece at Bloomberg — by Tracy Alloway. She is one of the sharpest people on that payroll – witness her current role as co-host on Bloomberg TV Middle East from Abu Dhabi as well as a managing editor at Bloomberg Markets.

Millennials are not owned by credit cards

saupload_hello_kitty_credit_card

Data from the Federal Reserve indicates that the percentage of Americans under 35 who hold credit card debt has fallen to its lowest level since 1989, when the Fed began collecting data in a standardized way…

Some older Americans have also been shedding credit card debt since the financial crisis that began in 2008. But for no other age group has the decline in the proportion holding credit card debt been more rapid than it has been for young Americans…the data from the Survey of Consumer Finances shows.

Their reluctance could have lasting repercussions for millennials, as well as for the financial system and the economy. Early use of credit cards has, in the past, helped young Americans develop a comfort level with credit that can last a lifetime and lead to a succession of big purchases financed by debt. Without a substantial credit history, it is much harder to take out a home mortgage, for example…

The resurgence of overall credit card use in the United States over the last year or two has been driven largely by subprime borrowers, according to the Federal Reserve…

But it is clear to economists who study payment patterns that millennials are gravitating toward payment methods that skirt both cash and credit. Why carry cash when you can whip out a debit card for the smallest transaction — a sandwich or a bottle of soda — or use an app like Venmo or an online payment service like PayPal? All of those typically draw funds directly from a bank account…

Recent data has also suggested that millennials are using credit cards less than people of a similar age did in the past — and that they are taking on fewer auto loans and mortgage loans than people of similar age did before the financial crisis.

Many young people carry burdensome loads of student debt, making it hard for them to take on any more debt — and giving them a sour taste in their mouths when it comes to credit of any sort. The average American under 35 now has $17,200 of student debt, 182 percent more than Americans of the same age had in 1995…

Then there are the young professionals who are able to get a card, but have seen the strain that debt put on their families and friends during the financial crisis.

There just may be another quality involved. I have no study at hand to prove it – but, I’m beginning to believe in what I call the George Carlin effect. That is, lots of young people already feel they have enough “stuff” without owning a car or a house.

Guess I’ll have to suggest the question to someone reliable – like the Pew Foundation. Maybe they’re already asking the question?

The truth about the deficit


This is reblogged from The Big Picture, Barry Ritzholtz’s blog

…If you are truly concerned about deficit, then what you must do is (eventually) raise taxes and cut spending — that is how you balance the budget.

Current deficit is now ~$550B, down from over $1T. Ian Shepherdson, the chief economist of Pantheon Macroeconomics, wrote “We are baffled by the idea that the pace of deficit reduction needs to be increased, given how rapidly the picture is improving already.”

If the tax cuts from 2001, 2003 were repealed, half of that deficit goes away.

If the FICA cap is lifted from $113k and allowed to rise to $250k or $500k, SS is solvent for 75 years…

Want to fix the deficit? Then make the hard choices to cut spending and raise taxes (even if you implement this in later years).

Sitting here in a family with at least one Recovering Republican who left that benighted party after 50 years of loyalty – it’s a treat to read my favorite RR, Barry Ritholtz. He’s one of the few financial analysts who actually understands how social security functions as an insurance program. There is nothing about SSA that contributes to debt or deficit. It is well enough self-funded that the creeps in Congress steal from it as often as they can get away with it.

The most recent survey that the NY TIMES did resulted in 76% of respondents in favor of eliminating the existing cap – which is around an income of $113K/year. Doing so would guarantee solvency well into the next century. You can’t do much better than that.

Danes propose scrapping military service


The winds of change

Compulsory military service may be suspended in order to help the Ministry of Defence find the 2.7 billion kroner of cuts it has promised to make.

The news comes ahead of the start of negotiations today between the government and the parties that voted in favour of the last defence budget that expires in two years time.

Compulsory military service is written into the Danish constitution, making it difficult to abolish. That is why the government has instead proposed to suspend the tradition…

Reports suggest that the preliminary negotiations seem to have found about two billion kroner of cuts, while suspending military service is hoped to save an additional 500 million kroner a year.

Almost all 18-year-old Danish men – and a small number of women – serve at least four months of military service once they complete upper secondary school.

The tradition started in the middle of the 19th century and is now considered a rite of passage for most men while also providing the Danish military with a large recruitment ground for its professional army.

As a result, right-wing parties the Konservative (K) and Dansk Folkeparti (DF) are against suspending it.

DF’s defence spokesperson, Maria Krarup…and K’s defence spokesperson, Lene Espersen…said blah, blah, blah!

Opposition party Liberal Alliance (LA) is for getting rid of it though.

National service belongs to the past,” LA’s defence spokesperson Villum Christensen told Ritzau. “It’s a very expensive way to educate soldiers. We would rather have a professional army.”

Overdue. Of course, even having such a discussion is beyond the comprehension of the slurry of Cold Warriors and spineless hacks we have in Congress.

Buffett challenges Congressional Republicans: You pay – so will I


C’mon, Mitch – put up or shut up!
Daylife/Getty Images used by permission

Warren Buffett is willing to put his money where his mouth is, if only congressional Republicans would join him.

The billionaire investor, in the new issue of Time magazine, says he will donate $1 to paying down the national debt for every dollar donated by a Republican in Congress. The only exception is Senate Republican leader Mitch McConnell – for whom Buffett said he would go $3-to-$1.

The idea stems from a New York Times opinion piece Buffett wrote last August in which he said the rich ought to pay more taxes. It sparked an instant controversy, with some Washington conservatives calling on the 81-year-old “Oracle of Omaha” to voluntarily pay extra…

He went on to tell the magazine that what the country needed was a system that favored people who were not born investors.

“We need a tax system that takes very good care of people who just really aren’t as well adapted to the market system, and to capitalism, but are nevertheless just as good citizens, and are doing things that are of use in society,” he said.

Republicans will do anything to help their cause – except help the country.

Think Greece can escape debts, responsibility, a national crash?

Greece would be in much better shape now if it had never joined the euro zone, or if it had been kicked out in 2004 when it admitted that it had lied about its finances to join the club. So would the rest of Europe.

So why not get out now?

One answer is the same one that was given when Greece’s cheating was revealed: Legally, there is no way out. The euro was designed to be the Roach Motel of currencies. Once you enter, you can never leave. There is no provision for departure.

The sophistry in this article is that the lies, the cheating, was “revealed”. Hogwash. Everyone knew what was going on. Including the Greek politicians who stood in line to gobble up the Euro dole.

But, of course, there is a way out. It would be messy, and perhaps disastrous. But no one is going to send an army to Athens to force it to keep the euro.

If Greece were to follow the example set by Argentina nearly a decade ago, it would simply convert its debts from euros into its old currency, the drachma, at the old exchange rate of 340.75 drachmas to one euro. It could also convert euro currency in the country at the same rate. So if you owned one million euros in Greek bonds, they would be converted to bonds with a face value of 340.75 million drachmas.

With a printing press available, Greece could meet those obligations. Of course the drachma would soon be worth a lot less — perhaps 1,000 to the euro. So bondholders would have lost two-thirds of face value…Greece would suddenly be forced to run a balanced budget, or to borrow from its own citizens, whose savings would have lost much, if not most, of their value.

For Greece to pull that off, it would probably have to do it over a weekend, without leaks of what it was planning. If people got wind of what might be coming, there would be an immediate run on Greek banks…

Think there are any Euro politicians who could keep that kind of secret?

…Greece remains woefully uncompetitive in export markets, and there is no credible plan to get its economy growing. The rest of Europe uses the threat of cutting off funds to force more and more austerity on the Greek government.

The message from Greece now may be summarized as, “I’m small. I’ve suffered. You can afford to rescue me. If you don’t, I can create chaos for all of you.”

Part of the earlier spring agreement Greece agreed to included – eventually – a replacement rate of 1 for 10 as civil servants retired. Some of the hacks on board before the government began the hiring tsunami that followed EU membership. Well, 18-20,000 retired who should have been replaced by 2,000 tops. The government hired 24,000.