An Illusion of Liquidity
The Calgary Sun reports from Canada. “The oil price crash is helping whip up a perfect storm that’ll dramatically devalue Calgary’s housing prices, a senior real estate analyst said. Ross Kay said an already wilting housing scenario will be further undermined by what’s expected to be a protracted oil price slump. ‘Where there’s a perfect storm, I hate to say it, it’s Calgary right now,’ he said. ‘Calgary’s going to be worse than anywhere in Canada.’
“He made the comments the same day a Bank of Canada report stated housing prices in Canada were overvalued by up to 30%. Kay said the turnaround in its fortunes began last July and showed up in earnest last week, while home buyers were still falsely pinning their hopes on an appreciating asset. ‘The contractions are hitting at a time when you’ve got these other issues on board and there’s no way for that to be reversed,’ he said, adding buyers have been overpaying for homes sure to lose value. ‘In the next 12 months, you’re going to lose a lot of realtors.’”
The CBC in Canada. “A realty analyst is urging caution to Calgarians who are thinking about putting their homes on the market. Ross Kay said the market is already shifting and it might be wise for homeowners to hold off listing their properties. He said the numbers show many people who have bought a new home have not been able to sell their old one. Any time oil prices fall there are other adjustments on the economy, said ATB Financial chief economist Todd Hirsch. ‘There could well be individuals in Calgary in 2015 who find themselves with a house valued at less than what they paid for,’ he said.”
Mondo Visione on Russia. “Russia consumer sentiment fell to the lowest level on record in November as stubbornly high inflation put extreme pressure on household finances while confidence in the real estate market collapsed to a record low. The housing market was also hit hard in November as weakness in overall consumer sentiment coupled with the high level of interest rates reduced respondents’ willingness to purchase a house to the lowest level on record.”
“Commenting on the latest survey, Philip Uglow, Chief Economist of MNI Indicators said, ‘Things went from bad-to-worse in November with sentiment falling sharply to an all-time low as respondents became increasingly concerned about their household finances, business conditions and the housing market. The slide in the price of oil and significant weakening in the rouble suggest confidence could fall even further over the coming months. Moreover, it is becoming more likely that the Bank of Russia will have little option but to tighten monetary policy further, causing additional pain to an economy on the brink of collapse.’”
The Arab News on Saudi Arabia. “The sharp drop in oil prices across global markets has caused panic among contractors in the Kingdom fearing the negative impact on the government’s financial budget. The Kingdom’s vast construction market is being driven by increased government spending, which depends on high oil prices, according to a Global Investment House report. ‘It is important for the government to have enough oil-based income to finance the mega infrastructural projects currently under way and in various stages of completion,’ said Farouq Al-Khateeb, an economics professor at King Abdul Aziz University.”
“He added that the growing Saudi population was creating pressure on the government to meet their needs through spending on various projects, especially the housing sector. ‘Most construction firms do not have precautionary measures or a safety net to deal with low finances in the backdrop of the spiraling oil prices,’ Mustafa Al-Shalwai, CEO of Al-Monsour Group for construction and Development said.”
From WDAZ in North Dakota. “Falling oil prices are on the minds of many in North Dakota, where the industry has brought unprecedented wealth and state revenue. Ron Ness, president of the North Dakota Petroleum Council, said companies are already trying to lower their operating costs. He said there could be an impact on oil exploration. ‘If you’ve drilled a well, you’ve put your money into that well already and you’re going to produce it,’ he said.”
“Ness hopes that wider effects on infrastructure investment in North Dakota that has been made possible by the energy boom can be avoided. ‘We have, after many, many years, been able to attract investors into infrastructure and to build housing,’ Ness said.”
The Houston Chronicle in Texas. “In The Woodlands, one of the hottest markets thanks to the construction of a massive Exxon Mobil campus expected to bring upward of 10,000 workers, activity could be much more moderate next spring than in 2014. Beth Ferester, a real estate agent with Coldwell Banker United, Realtors there, recalls the ‘panic buying’ earlier this year when buyers frequently paid more than the asking price and some committed to houses sight unseen.”
“‘I just think that we all need to look at this upcoming market as being a little more tentative than it was last year and watch our prices and don’t get too confident about these over-market prices coming in this year,’ Ferester said.”
“Talk of a looming downturn surprised one local couple who just sold their house on the east side and bought a recently remodeled mid-century modern that sits on nearly an acre in Glenbrook Valley. Matt Fugate said it’s hard for him to imagine the market falling. He and his partner bought their new house in a private sale and the one they sold went quickly. ‘Quality homes aren’t staying on the market very long,’ Fugate said, ‘and homes ripe to remodel and flip are being snatched up just as quickly.’”
From Forbes. “Portfolio manager Thomas Atteberry hates losing money. ‘I lost $50,000 on the first house I ever owned,’ he laments. That was in Dallas in the 1980s, when oil dropped to $10 a barrel from $32 and the housing market crashed.”
“FPA New Income has missed the huge rally in junk bonds since 2009, the primary reason it returned just 2.9% that year compared to 19% for the average fund in its category. But missing bubbly rallies is par for the course for New Income and a big reason why it is considered one of the lowest-risk bond funds around. As profitmaking parties spring up along the fixed-income landscape, FPA sticks to its knitting.”
“As for safe-haven Treasurys, Atteberry doesn’t consider them safe at all. For him the pitiful yields available are a no-fly zone for his fund. He also refuses to make a directional bet on rates. It’s all about avoiding the crowd and buying assets at a discount, especially when sellers are running for the exits. Cautions Atteberry, ‘There is an illusion of liquidity out there. It’s making things look more attractive than they really are.’”
About: Realtors
“My wife has scheduled us to move out of our house in 2036, when we’re 75 years old. That means I have 22 years to make up a handful of lies I can tell about our home—unless we hire a Realtor and let her tell them for us. What’s one more fib to a Realtor? They’re already in trouble with God as it is.”
http://www.indianapolismonthly.com/back-home-again/phil-gulley-house-lies/
No need to lie. Just hire a realtor to lie for you.
Portfolio manager Thomas Atteberry hates losing money. ‘I lost $50,000 on the first house I ever owned,’ he laments. That was in Dallas in the 1980s, when oil dropped to $10 a barrel from $32 and the housing market crashed.”
Reminds me that I recently had a look at oil prices over time and was surprised they were near $10 as recently as 1998. Is there at least some chance the present episode will retest those levels? I seem to recall a booming U.S. economy around 1998, so it wouldn’t necessarily be a bad development.
We’ve never seen deflation of the magnitude that is possible now after the biggest credit expansion ever.
The price of corn has rolled over. I hope to see this trend cascade into lower grocery prices. That, and lower gas prices for the boat will absolutely sweeten my retirement budget.
“A realty analyst is urging caution to Calgarians who are thinking about putting their homes on the market. Ross Kay said the market is already shifting and it might be wise for homeowners to hold off listing their properties. He said the numbers show many people who have bought a new home have not been able to sell their old one…”
Run!! Hurry, before all of the remaining suckers are used up! RUN FOR THE EXITS!! He who sells first, sells for the most!! RUUUUUUUNNNNN!!!
There’s nothing worse for your financial health than having a millstone around your neck like a dead, depreciating asset.
I only buy appreciating assets! Like my 1969 Datsun 2000.
Another loss for you Lolacado.
“A realty analyst”
There’s an oxymoron.
The logical advice would be to sell sooner rather than later.
“He said the numbers show many people who have bought a new home have not been able to sell their old one…”
You see a lot of this if you watch a select group of houses closely. All you need is an MLS public interface which shows when listings change status to and from “contingent”. Where I watch, usually about 10-15% of the active listings are contingent at any given time. Many stay that way for months and months, some indefinitely. You know why. Some donkey agrees to a ridiculously high asking price, assuming (and depending upon) some other donkey meeting the price that he “has to get” for his house, before anything more can happen. Oops.
Why is it that people completely miss the fact that, if their house has gone up in price, every other house has, too? They’re no better off, if anything they’re worse off at the very least for property tax assessment increases and insurance increases.
“property tax assessment increases and insurance increases…”
Overpaying for a house is a trifecta.
“Falling oil prices are on the minds of many in North Dakota, where the industry has brought unprecedented wealth and state revenue.”
Translation: Money from Somewhere Else used to flood into North Dakota, but now this flood of money is drastically being slowed.
“Ron Ness, president of the North Dakota Petroleum Council, said companies are already trying to lower their operating costs.”
Translation: They are cutting back on spending, which means those who depend on this spending - DIRECTLY OR INDIRECTLY - are hosed.
“Ness hopes that wider effects on infrastructure investment in North Dakota that has been made possible by the energy boom can be avoided. ‘We have, after many, many years, been able to attract investors into infrastructure and to build housing,’ Ness said.”
But this building of housing and this infrastructure is dependent on high oil prices because high oil prices attract money into the area, money that comes FROM SOMEWHERE ELSE.
Bottom line: High oil process draw in money from Somewhere Else because money flows into places that will generate high returns, and the money that flows into these areas of high returns GETS SPENT in the areas that it flows into and this spending sets up and fuels an economy that grows dependent on this money continuing - forever continuing - to flow in from Somewhere Else.
Which means if the money flow from Somewhere Else stops then the economy that grew dependent on this money flows also stops and if you are directly OR INDIRECTLY dependent on this money flow that stops then you re hosed.
“High oil process draw in money” = High oil prices draw in money”
“Ness hopes that wider effects on infrastructure investment in North Dakota that has been made possible by the energy boom can be avoided. ‘We have, after many, many years, been able to attract investors into infrastructure and to build housing,’ Ness said.”
This is the mentality that drove China to build ghost cities, a mentality that boils down to “Build them and (maybe) they will come.”
And they will come if there is a reason to come, and there used to be - USED TO BE - a reason for them to come and this reason was tied directly to high oil prices. But high oil prices vanished and it took the reason for them to come along with it.
‘Oil prices are at a five-year low and oil companies are cutting spending. Falling prices are expected to slow production in western North Dakota’s Bakken oil fields and put the squeeze on some companies.’
‘But no one’s expecting producers to start pulling out.’
‘Companies in the Bakken have spent millions of dollars in the current boom on new technology and techniques like horizontal drilling and fracking that bring crude out of the ground in new ways. Some experts believe those sunken costs — a single well can cost $10 million — will be enough to keep the Bakken from busting.’
“Nobody’s going to shut down wells, at least not at $48″ a barrel, said North Dakota Petroleum Council President Ron Ness. “You get a little lower and you might start thinking, ‘Well, let’s see, do I want to produce this oil today at $25′? But you still have to service your debt. You’ve got to remember that, you’ve got to service your debt.”
“Nobody’s going to shut down wells, at least not at $48″ a barrel, said North Dakota Petroleum Council President Ron Ness. “You get a little lower and you might start thinking, ‘Well, let’s see, do I want to produce this oil today at $25′? But you still have to service your debt. You’ve got to remember that, you’ve got to service your debt.”
Much like housing, the public has no idea how little it costs to develop a well and start pumping.
HA,
Actually, for a conventional well that may be true, but to drill a well in a tight shale formation such as the Bakken, it costs quite a bit of money to drill those wells. No only that, the rate of production decline on each well is much faster than from a conventional (non fracked) well, requiring many more wells to be drilled, at considerable expense, just to maintain production.
Considering the oil companies drilling in the Bakken, as well as Eagle Ford and all of the other shale plays that have recently come on line have taken on huge amounts to debt to fund their operations (and even then, with oil previously at 110 + dollars per barrel) were still not making money, what you had in effect was a huge Ponzi scheme, not all that different from what we witnessed in the housing bubble, both pre 2008 and now the 2.0 version.
In short, like the man said in the earlier article, those guys are hosed.
Pete
Pete
I agree with most of what you say. Tight play wells today encompass much more area with many fewer wells than previous, thereby costing millions vs thousands.
Serviced life could be reduced by over pumping, but today we have much better management based on improved data.
Eg, Bakken, is now settling down to an even production rate.
I am more worried about the really high cost tar sands - we are going below the replacement costs.
“Nobody’s going to shut down wells, at least not at $48.″
Maybe so, but you’re not going to drill any new ones either.
I’m not an oil guy, but it seems to me that the drilling of wells is what’s enormously costly, not the operating of wells that have already been drilled.
fracked oil needs $70+ otherwise it’s cap city
Finding it and drilling in the correct location is the cost.
And servicing the debt. Let’s not forget about servicing the debt. Did I remember to remind you about servicing the debt?
Seems like the guys at most risk are the guys who just fracked their first wells.
There is a massive reduction in production after the first 12 months, so the economics of fracking must be that the debt is repaid pretty quickly, and the profit comes from the latter years of production.
So, if you’ve been at the fracking game for a while, you probably have a lot of wells that have gotten well past their peak production (and debt repayment from drilling those wells), but are still oozing oil that could be used to supplement debt service on newer wells.
If you are new to the game, you don’t have those legacy wells that are still producing (but at a lower rate), and so you are in much bigger trouble.
I predict consolidation of the players. Those with more oil/cash flow bail out/buy those who are overleveraged, but with good mineral rights.
It’ll be interesting to see play out.
“And servicing the debt. Let’s not forget about servicing the debt. Did I remember to remind you about servicing the debt?”
Maybe you shouldn’t have paid an inflated price and then doubled down on the losses and borrowed.
I was in a JV to drill a horizontal shale well in Oklahoma. Fracking is terrible for the environment and upfront capital needed is ENORMOUS. ROI is only achievable if you drill/invest LOTS of wells. On one visit to the site I often thought the old fashioned way of living is not only better for your body but the land as well.
Most wells turn into a stripper within 2 years or less. Low to non-existent profit.
The money in shale oil was always with drillers not the oil companies. Just like the California gold rush where people selling the picks and shovels made the money. Many of the shale oil companies borrowed at high rates and will need to conserve their cash to make the payments.
‘Remember when OPEC was a cartel that attempted to stabilize oil prices by manipulating its production? No longer.’
‘Saudi Arabian Minister of Petroleum Ali Al-Naimi made a surprising statement at a UN climate-change meeting in Lima, Peru. “Why should I cut production? You know what a market does for any commodity. It goes up and down and up and down,” Al-Naimi said, according to Bloomberg.’
Ben -
My point from a couple of days ago in reflecting on the oil crater in the mid-80’s from Calgary to Houston through Denver and the WY wild catting oil patch at the time -
Oil as I recall dropped on the NY spot market from + or - 50.00 pbl to around half that in a matter of a few months - this after all the arabs could not agree on oil price at the Vienna ‘accords’. Their internal bickering let the market price oil rather than the shylocks in the mid-east.
The result - lights out along the Rockies to the Gulf - it was really ugly in Denver and many including me lost jobs to this cratering - much work at the time was based on 50.00 pbl oil in an economy based almost purely on oil.
I have a sense that history is repeating itself here.
I have a sense that history is repeating itself here.
“What has happened before will happen again.” - Ecclesiastes 1:9
So….you being there in the Columbine State what does this portend for the near 56k of new residents planning on moving there per a post from HBB yesterday?
and +1 on Ecclesiastes. As Solomon said - There is NOTHING new under the sun.
Those that can’t find work will just move on, I suppose.
Pulled this bit from Art Cashin of UBS this morning.
Oil As A Weapon – The incomparable Don Coxe, one of the very best observers and analysts of global
commodities recently wrote this:
……. Most observers thought the Organization of Petroleum Exporting Countries (OPEC) would cut its production to protect its members’ incomes and slash frackers’ profits. If these were ordinary times in the Mideast, that forecast would have been accurate.
But this has been a year of major geopolitical crises in the region, and the Sunni Arab oil states have found themselves facing grim challenges.
By October, it was becoming clear to us and others that Saudi Arabia and its Gulf Emirate allies could not afford to continue petro-pricing business as usual with sectarian wars exploding out of control,
threatening the entire region. In particular, they were infuriated that the Shia regime in Syria was being propped up by Iran and Russia.
Moreover, Iran seemed to be getting closer to becoming a nuclear power with each month. Amid the chaos, the Islamic State terrorists had suddenly become a formidable challenge to the entire region, and
they were getting increasing revenues from oil properties they had seized.
The Saudis had long since concluded that U.S. President Barack Obama was a weak reed – at best. So, we believe they felt forced to stop the cash flows to Syria, Iran and the Islamic State and deter Russia. They decided to keep pumping oil, allegedly to fight fracking, but also to weaken their regional foes. No one knows how long this strategy will continue. The Gulf States have trillions in sovereign wealth funds to back their budgets.
Our pal Bob Hardy, who writes the invaluable Geostrat blog has been talking about oil as a weapon for a longtime – going back to a meeting between Prince Bandar and President Putin late last year. While the meeting was private, sources say the meeting turned contentious when Putin refused to ease back on support for Syria and Iran in exchange for Saudi “help” in maintaining or even boosting the oil price. The reason the Saudis didn’t move earlier may have been “market conditions”. They needed U.S. fracking supplies to build to a level that would make destabilizing the equilibrium very easy and not require a large and obvious production boost.
Great article. Of course, I agree.
BTW, I did say either yesterday or the day before, if Russia agreed to remove Assad, the price of oil would be back up to $100 a barrel within days. That is why this is not the mid-eighties or the late nineties. It is a political decision not an economic condition that has lead to the decline.
You seem really stuck on the notion of $100 oil.
Can’t you see that it is more likely to touch a level below $20 before moving back up to $100?
‘A new report forecasts that housing prices will register modest gains in most Canadian cities next year, disappointing homeowners in Toronto, Calgary and Vancouver that have been riding a property value surge.’
‘Calgary Realtors say their city is more than just oil and gas but that the real estate market is not as frantic.’
“What we are noticing is that the intensity is off a little bit, but the interest is not,” said Lowell Martens, owner of Calgary-based Re/Max Real Estate (Mountain View). “Some of my agents are experiencing buyers that don’t seem to be in as big a rush as they were a little while ago. … I don’t think there is any fear out there that everything is going to hell in a handbasket.”
‘as big a rush as they were a little while ago’
‘After several years of declines, active MLS listings in the City of Calgary are on the rebound, according to the monthly report from the Calgary Real Estate Board (CREB). New listings in November outpaced sales, resulting in a 22% increase in active listings but, even with the gain, listings remain below long-term averages, says Bill Kirk, CREB president.’
“Over the past year, inventories have been low in the city, limiting some of the choice for consumers,” says Kirk. “While availability in specific segments and price ranges vary, on the whole, the recent rise in inventories will be welcome news for many buyers.”
“Tight market conditions earlier in the year caused significant aggregate price gains,” says CREB chief economist Ann-Marie Lurie. “It also resulted in a rise in new listings, supporting gains in inventory levels and a push towards more balanced levels. This has helped ease the upward growth pressure on prices. While Calgary’s price gains have garnered a significant amount of national attention, several indicators are pointing toward more stable conditions, easing risk associated with an overheating market.”
Zillow reports Ferguson still on for a good year
BAaaahhh
Ferguson Home Prices & Values
Zillow Home Value Index
None
None 1-year change
None 1-year forecast
‘More than a million retired and current truck drivers, construction workers and other union workers could see their pension benefits cut if Congress passes a proposal aimed at shoring up some of the nation’s biggest pensions.’
‘Lawmakers are attempting to tack on the proposal to the government spending bill, which is expected to be voted on this week — although backlash over other add-ons could delay the bill’s passage.’
‘The Congressional proposal would allow plans that are projected to run out of money in the next 10 to 20 years to cut the benefits they pay to both current and future retirees. Benefits would not be cut for disabled pensioners or those 80 years and older, while cuts would be lessened for those between 75 and 80.’
‘The PBGC projects that more than 10% of the roughly 1,400 multiemployer pension plans, which cover more than 1 million workers and retirees, currently meet this criteria. Under current law, cutting the benefits of those who are already retired is off-limits. Instead, troubled multiemployer plans can take other actions, like reducing the benefits employees earn going forward and raising employee and employer contributions to the plan.’
‘If the Congressional plan passes, cuts would require participant and government approval first, although the largest troubled plans could slash benefits even if retirees vote against it.’
‘Retired truck driver Glenn Nicodemus, 64, receives his pension checks from the Central States Southeast and Southwest Areas Pension Fund, which is struggling to cover more than 300,000 retirees, widows and others. Under the Congressional proposal, Nicodemus could see his annual benefits plummet from around $40,000 a year to as little as $15,000.’
“I am disappointed in the fact that such an important matter is being done is such an underhanded way with little or no discussion of the consequences to millions who will be effected,” he said.’
Don’t worry Glenn, Senator Warren would never let you down.
gov workers will get theirs
you won’t even keep your 401k
see
hungary,poland,artg,Portugal for results
Wall St. won’t allow 401Ks to be raided. Clinton tried that and got smacked down.
Also, in our local school district, new hires don’t get pensions anymore. Muni and state pensions are also on the chopping block. As long as the Feds have a bottomless credit card their employees will get their pensions.
‘As long as the Feds have a bottomless credit card’
If you think about that statement, it has “should have seen it coming” written all over it.
That goes without saying.
tx- got a link?
I guess VA better get on pot soon so we can acquire some horse sense
retire 55 here and from 1983-2010 no contributions were required !
How is it that the Fed could come up with $4 trillion dollars to bail out every bank in the Western world, yet there isn’t enough money in the system to provide the relative pittance it would cost to shore up the pension system?
Our financial system doesn’t seem to allocate printing press money very equitably.
Illannoy = crater
Read that story myself this morning and have been expecting the PBGC to implode for years, saw predictions of that on various blogs way back before Bubble 1.0 popped. Partly because of that I cashed out my pension when I retired in 2012 and thanks to the lunacy of QE and artificially low interest rates got waaay more than I would have in a normal economy.
‘The Canadian dollar continues to decline as the price of oil falls, adversely affecting export profits. CurrencyShares Canadian Dollar Trust is down over 7% since July as oil prices have broadly declined.’
‘Canada’s dependence on oil for revenue is explained below: “The oil sands in Alberta require high oil prices for the extraction of oil to be feasible. A fall in oil prices may make the production of oil in Alberta economically unfeasible. This may force the oil producers to reduce their production levels.”
“While large producers would be able to sustain the low oil prices and the resultant lower revenue and profit, small producers may face serious problems in sustaining themselves when exposed to low oil prices. The adverse effect on the oil industry may have a multiplier effect on Alberta’s economy.”
“Other industries like retail, banking or the housing industry may suffer from dampened demand due to the slowdown in the major industry, oil. This may lead to lower GDP growth and higher unemployment in the oil-rich province,” according to the Huffington Post Canada.’
‘With the oil prices plunging, the oil producing GCC nations may face the fiscal policy challenges, a top goverment official said. They have to promote diversification into non-oil sectors in order to reduce dependence on hydrocarbon-related revenues.’
“This is made possible through investments in infrastructure projects, which are critical to fuel expansions in vital sectors of the non-oil economy, including tourism, transport, manufacturing, finance, services and trade,” said Hamad Al Hurr Al Suwaidi, chairman Department of Finance Abu Dhabi.’
“There are other key challenges that must be tackled. It is inevitable that a large portion of budget expenditure is allocated to the social sector, given the growing youth population, and the need to generate employment, meet rising housing demands and deal with food inflation, means that addressing social challenges in all forms is a key priority. Additionally, a large part of the spending should be allocated to sectors such as education, healthcare, infrastructure and housing,” the chairman said.’
Ah, the solution to lower income is to spend more.
‘The limits for federal home loans in seven western North Dakota counties have been increased to reflect the region’s soaring housing costs. U.S. Sen. Heidi Heitkamp on Wednesday said the higher Federal Housing Administration loan limits will allow more low-to-middle income families, first-time home buyers and seniors to afford a home.’
‘A housing shortage in the state’s oil patch has led to skyrocketing rents. Williams County, for example, has seen a 135 percent increase in median rent for a two-bedroom apartment over the past six years. Heitkamp says the higher loan limits will go into effect in January.’
‘Houston home sales surged in November toward a record-setting year, but the Houston Association of Realtors warns that falling oil prices will bring a slowdown in 2015. The Houston Association of Realtors is predicting that home sales activity will drop 10 to 12 percent over the next year.’
‘It’s all about jobs. Falling oil prices could reduce job creation in Houston next year to only 65,000 new jobs — nearly a mere half of the 120,000 new jobs Houston gained in 2014.’
‘HAR Chair Chaille Ralph with Heritage Texas Properties said: “I have been asked whether falling oil prices could impact housing in 2015, and Stewart Title Chief Economist and former HAR Chairman Ted C. Jones, Ph.D., has forecast a 10 to 12 percent decline in home sales in the next 12 months, with about a 6.0 percent increase in prices.”
‘On a positive note, the low-end of the housing market will be getting a boost from relaxed lending standards. In recent years, the National Association of Realtors had voiced concerns that overly tight lending guidelines were preventing young people from being able to buy a home.’
‘But new rules just established by the government-chartered Fannie Mae and Freddie Mac will allow some buyers to get a mortgage with only 3 percent down payment. The first wave of those new rules will go into effect this weekend, said Houston mortgage lender Gail Evans of On Q Financial.’
‘Houston home sales have been stampeding ahead in a bull market for several years, showing amazing gains in sales velocity and prices. The question has been: “How long can it last?”
‘It appears the bull run in Houston housing is about over. Nobody can predict oil prices and they could rise again in 2015. But 2014 will be the strongest year ever for Houston and the records set this year may not be broken for years.’
‘The Danish government on Thursday slashed its growth outlook for this year and the next, citing weak eurozone demand for exports and stagnant household spending.’
‘In 2015, it would be “almost 1.5 percent”, also lower than an earlier estimate of 2.0 percent.
“The weaker growth in demand from abroad has contributed to weaker growth in Denmark and Danish companies and households have been more reluctant to invest and consume,” the Ministry of Economic Affairs and the Interior said in a statement.’
‘Consumption has slumped since Danes began paying down a heavy debt burden in the wake of a burst housing bubble, but the government said household finances were now becoming more “balanced”.
‘Sydbank analyst Peter Bojsen Jakobsen said the new growth forecast was more “realistic” than before, but added that future revenue from North Sea oil was most likely overstated since it was based on an oil price of $85 per barrel, compared with a current price of around $64. “Disregarding the government’s view on the oil price, the forecast is in line with our view of the Danish economy,” he said.’
Dang, this thing is everywhere:
‘“Growth prospects for the Norwegian economy have weakened,” Norges bank says in a statement, Thursday. The quarter of a percentage point cut comes at the end of a year that has seen oil industry cutbacks and redundancies.’
‘As reported yesterday, austerity measures, which include delaying projects and cancelling drilling assignments, have meant that some 10,000 oil service industry jobs have disappeared this year. “Activity in the petroleum industry is softening and the sharp fall in oil prices is likely to amplify this tendency. This will have spillover effects on the wider economy and unemployment may edge up ahead,” states the Bank.’
‘House prices are now 6.8 per cent higher than a year ago. It is likely that 2015 will bring bid battles on normal family homes.’
“For 2015 we can probably expect an inflation rate of about four percent nationwide, even when taking into consideration that housing prices in Stavanger will fall moderately,” Jan L. Andreassen, chief economist at banking company Eika Gruppen tells business daily Dagens Næringsliv.’
‘So-termed “used house price statistics” compiled by Eiendomsverdi for Real Estate Norway, the national association for Norwegian realtor brokerages, show that seasonally adjusted house prices have risen 12 months in a row this year. At the same time, household debt is still rising somewhat faster than household income, according to Norges Bank.’
Norway, Canada, North Dakota and Russia shared in the spoils of the oil boom, and now they will share the pain of the ensuing bust.
When the easy oil money flows, it’s party time. I saw it in Mexico in the late 70’s, the government was hiring like gangbusters, paying better wages and benefits than the private sector, which it could do as it spent all of government owned PEMEX’s profits on goodies.
Then the oil bust hit and the good times ended. The Peso collapsed, quickly tumbling from 22 pesos to 1 USD to 300 to 1 in less than a year (it eventually reached 9000 pesos to 1 USD). Capital flight became so bad that it was briefly illegal to possess foreign currency.
‘Southeast Asian stock markets retreated on Thursday as investors cut positions in energy shares after global oil prices tumbled, sending the Thai benchmark to a more than six-week low and the Malaysian index down from the previous day’s rebound.’
‘The Thai SET index traded about 2 per cent lower at 1,527.48, the lowest since October 22. Shares of the country’s top energy firm PTT fell 3 per cent and explorer PTT Exploration and Production dropped 5 per cent to the lowest since May 2009 after oil prices tumbled as much as 5 per cent on Wednesday.’
“More downside could be in store for Thai stocks today amid external pressures, further slides in crude oil prices and heavy foreign sell-offs in both equities and futures last Tuesday,’’ strategists at broker Phillip Securities wrote in a report.’
‘Energy shares led among the losers on regional indexes after staging a rebound on the previous trading day. In Kuala Lumpur, shares of Petronas Dagangan and Petronas Gas each dropped about 4 per cent, with Malaysia’s key stock index edging down 0.5 per cent after a 1.6 per cent rise on Wednesday.’
‘In Singapore, shares of Keppel Corp and Sembcorp Industries reversed the gains made on Wednesday and were among the top percentage underperformers on the key Straits Times Index.’
‘Broker NRA Capital expected more market weakness. “Though many consider the selling to be overdone, the lack of support and buying interest will likely exaggerate the falls,’’ it said in a report.’
‘While gasoline prices are falling across Canada, the end result of the price reductions could impact the Canadian and American economies. BP Petroleum is cutting workers, and staff pointing at the price of oil. The fall from about $115 per barrel in July 2014 to prices in the $65 price range are hitting the company.’
‘Against this backdrop is moderately accelerating global growth, offset by the very real threat of deflation outside the U.S., particularly in Europe. The BofA Merrill Lynch Global Research team made the following 10 macro calls for the year ahead.’
‘Credit markets under pressure. We expect next year to bring an end to an unprecedented five-year reach for yield trade as investment grade credit spreads widen to 140 basis points with total returns close to zero. A paradigm shift in U.S. high-yield outlook should occur in 2015 with returns in the low single-digit range, as investors demand a higher premium for liquidity. Defaults should rise moderately to about 2.0-2.5 percent. IG and HY Issuance is expected to decline by 10-15 percent next year on less refinancing activity.’
‘The fall from about $115 per barrel in July 2014 to prices in the $65 price range are hitting the company.’
Now at $59.40 according to MarketWatch — yet another 8%+ off $65…
I’m all in on Lending Club
do people pay you back?
‘This Time Is The Same: Like The Housing Bubble, The Fed Is Ignoring The Shale Bubble In Plain Sight’
‘We are now far advanced into the third central bank generated bubble of the last two decades, but our monetary politburo has taken no notice whatsoever of its self-evident leading wave. Namely, the massive malinvestments and debt mania in the shale patch. Call them monetary bourbons. It is no exaggeration to say that inhabitants of the Eccles Building deserve every single word of Talleyrand’s famous epithet: “They learned nothing and forgot nothing.”
‘To wit, during the last cycle they claimed to be fostering the Great Moderation and permanent full employment prosperity. It didn’t work. When the housing and credit bubble blew-up, it washed out all the phony gains from the Greenspan/Bernanke printing spree. By the time the liquidation was finished in early 2010, there were 2 million fewer payroll jobs than there had been at the turn of the century.’
‘Never mind. The Fed simply doubled-down. Instead of expanding its balance sheet by 50%, as happened during the eight years between 2000 and 2008, it went into monetary warp drive, ballooning its made-from-thin-air liabilities by 5X in only six years. Yet even after Friday’s ballyhooed jobs report there were three million fewer full-time breadwinner jobs in November 2014 than there were in the early 2000s.’
‘Russia’s central bank on Thursday jacked up its key lending rate again in a bid to stem the ruble’s rapid slide and slow rising prices but the currency swiftly sank to fresh lows.’
‘Investors are expected to pull out a total of $240 billion from Russia this and next year, the central bank said, with Russians alone dumping $20 billion worth of their own currency this year. Just minutes after the bank announced its fifth rate hike this year — this time from 9.5 percent to 10.5 percent — the ruble sank to new lows against the euro and the dollar.’
‘Although Western sanctions have contributed to unsettling investors, it is the 40 percent plunge in crude prices since June that has hit Russia particularly hard, as half of the country’s revenues stem from energy exports.’
‘One of the hottest trades of the year is breaking down. Tesla shares have fallen eight of the last nine trading sessions and are down 26 percent from recent highs in September. The stock has fallen in tandem with other momentum names, but the ferocity of the December selloff has some traders reaching for the emergency brake.’
‘Gibbs said Tesla’s earnings are expected to grow 374 percent in the coming year. However, she believes they could fall due to lower gas prices which could in turn make SUVs more attractive to Tesla customers as an alternative. Add to that possible recession in Europe and Asia, and 2015 may not look as rosy as anticipated.’
“Any disappointment in sales could really push this stock down,” she said. “I wouldn’t consider this a value unless we hit around the $165 mark.”
The drop in value of Tesla’s stock alone far exceeds what people have saved on gasoline.
This is based on the drop in market cap since the plunge in oil. Now, if gasoline stays down for a whole year, the savings will probably be six times greater but good luck with that.
Bloomberg is now only a year or two behind this blog:
‘The danger of stimulus-induced bubbles is starting to play out in the market for energy-company debt. Since early 2010, energy producers have raised $550 billion of new bonds and loans as the Federal Reserve held borrowing costs near zero, according to Deutsche Bank AG. With oil prices plunging, investors are questioning the ability of some issuers to meet their debt obligations. Research firm CreditSights Inc. predicts the default rate for energy junk bonds will double to eight percent next year.’
“Anything that becomes a mania — it ends badly,” said Tim Gramatovich, who helps manage more than $800 million as chief investment officer of Santa Barbara, California-based Peritus Asset Management. “And this is a mania.”
‘The Fed’s decision to keep benchmark interest rates at record lows for six years has encouraged investors to funnel cash into speculative-grade securities to generate returns, raising concern that risks were being overlooked. A report from Moody’s Investors Service this week found that investor protections in corporate debt are at an all-time low, while average yields on junk bonds were recently lower than what investment-grade companies were paying before the credit crisis.’
http://finance.yahoo.com/news/fed-helped-cause-550-billion-143354747.html
How many of you have actually done any drilling? Anyone? Hello?
HA
Drilling is such a small function within the energy market. Leases, taxes, age of formation, access rights, royalty (if any), financing, partnerships, earn ins, government policies, aboriginal’s rights, collector pipe routing, “fish studies”, thumpers, data analysis - well you get the picture. Well servicing, mechanical, etc. Then downstream.
There have been so many advances in drilling in the last ten years, but it has been more of a partnership with other disciplines. Smart.
Sounds like you have been around Oklahoma or Pennslyvania.
As I said alluded above, finding the correct location is where the cost is.