MESSAGE FOR MATERIALISTIC TBP READERS

41 comments

Posted on 28th November 2014 by Administrator in Economy |Politics |Social Issues

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I know this site attracts the most frugal, tightwad, non-materialistic curmudgeons on the entire planet. But, if you are so inclined to buy something this Christmas and don’t want to get run over by the obese hoards roaming the malls across zombieland, you can just click the Amazon button on the top right hand side of the page and order the shit you don’t need with the the money you don’t have while sitting at your computer.

I will receive 6% of every purchase and it won’t cost you a dime more. Think of it as sticking it to multi-billionaire Jeff Bezos, who will lose even more money on every sale.

You’d be surprised what you can buy through Amazon. I’ve seen junk silver, ammo, survival gear, and even red dildos (you know who you are ladies) bought through my Amazon button.

So enjoy your holiday season by never having to interact with the ignorant masses, while keeping TBP alive and fighting.

Here is the button in case you are too lazy to look for it on the side.

FERGUSON or BLACK FRIDAY?

0 comments

Posted on 28th November 2014 by Administrator in Economy |Politics |Social Issues

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Happy Black Friday

PERSONAL RESPONSIBILITY

3 comments

Posted on 28th November 2014 by Administrator in Economy |Politics |Social Issues

FRIDAY FAIL

0 comments

Posted on 28th November 2014 by Administrator in Economy |Politics |Social Issues

But THIS Bag Was Locally Made With Organic Materials!

Beware the Kitty-Fu!

Somebody Didn't Get the Memo on What an Acronym is

"Thanks for Taking My Picture, Dad!"

That Glass Must be So Clean!

Now to Hope There Isn't a Good Gust Today...

In the Most Canadian News Story Ever, a Driver Runs Into a Restaurant, Buys a Round of Wings on the House to Apologize

Via CBCNews:

None of the customers at the Shoal Harbour Drive restaurant were seated at the centre tables when the truck crashed through the front window into the dining area.

The apologetic driver bought wings for the startled customers who were in the restaurant at the time.

A spokesperson with the company said there was no structural damage to the building, just broken windows and damaged furniture.

Every Dude Who's Had a Long Night Drinking Understands This Feeling

Get Cheesed Upon, Son!

The Hard Hat and Tool Belt Says He's a Professional

Santa is Expecting a Present This Year...

Mmmm... That Snap, Though...

Breaking News: Our Cameraman Needs Surgery

Drop the Beat AND Some Letters

Mr. Turkey, the Thanksgiving... "Cake"

Please Tell Us That's Not the Case

After Hours of Intense Ritual, the Truck Has Accepted the Sports Car as its Mate

That's Right, No One Will Steal This Bike Lock!

Pizza Made by a Cold-Hearted Machine, Just Like the Old Country!

Didn't Know You Could "Double Buckle" With Car Parking

Oh Hey, Ollie into Facesmack

Mixed Messages, Much?

The Judges Say You Need to Work on Your Form

Nobody Compliments the Personal Brand Quite Like That, Thanks!

See more at the Fail Blog

Fergusons in Perpetuity

24 comments

Posted on 28th November 2014 by Administrator in Economy |Politics |Social Issues

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Guest Post by Fred Reed

Thoughts on the Unfixable

 

Two questions, methinks, arise from Ferguson’s latest outburst. The first, political, is “Why does the country tolerate it?” The second, more anthropologically interesting, is “Why the eerie incapacity of underclass blacks to understand evidence, or law, or much of anything?” Of the countless explanations given for the poor performance and poor behavior of blacks in the US, one of them dares not speak its name: Low intelligence.

Yet it fits all the evidence. It explains why Africa never built cities, why it did not invent writing, why there was no African Fifth-Century Athens. It explains why Rhodesia, prosperous and an exporter of food when run by whites, fell immediately into hunger and barbarism when whites left. It explains the dysfunction of black societies from Africa to Haiti to Detroit. It explains why blacks invariably score far below whites and Asians on tests of IQ, on the SATs, GREs, on entrance and promotion exams for fire and police departments.

It explains the need for affirmative action and for departments of Black Studies in universities when black students can’t handle real courses. It explains why the gap in academic achievement never closes. It explains the criminality, the violence, the poor impulse control, the dependency on welfare, the unemployment, and the inability to integrate themselves into a high-tech society. It explains the constant scandals involving teachers in black schools giving students the answers on standardized tests.

Further, it explains why none of the programs intended to raise performance of blacks in the schools ever work. Head Start didn’t work. Integrated schools didn’t work, nor segregated schools, nor black schools with white teachers nor black schools with black teachers. Expensive laboratories and free computers didn’t work. Schools run entirely by blacks with very high per-student expenditure (Washington, DC for example) didn’t work. There is no indication that anything at all will ever work. Low intelligence is the obvious explanation. There is precious little counterevidence.

Endless evasions seek to avoid the unavoidable. Tests are biased, all tests without exception. Africa is primitive because of colonialism, or for geographic reasons, or because the natives liked hunting and gathering. Detroit is largely illiterate because of slavery, or low self-esteem, or  institutional racism, which seems to mean undetectable racism. On and on.

If the consequences didn’t affect others, it would be needless, even cruel, to mention cognitive deficits. But they do affect society, very damagingly. They result in the enstuipidation of schools to which the bright go, and cripple the high-end brains upon which the prosperity of the United States depends. They result in Fergusons.

Among people who study intelligence, the racial disparity is not debated. It is evident, accepted. I suspect that it is evident also to many thoughtful liberals who fear the question: If we admit the obvious, what now? And would they be invited to any more cocktail parties of the politically correct?

And so, if psychometrists state the truth publicly, they are shouted down and said to be racists, bigots, and “pseudo-scientists.” They are not. Rather they are highly intelligent and competent statisticians, far more aware than the public of possible sources of error. The achievements of blacks closely fit the predictions that come out of psychometrics.

These scholars are worth reading. Try  Social consequences of group differences in cognitive ability, by Linda Gottfredson of the University of Delaware, long but comprehensive. Daniel Seligman is short and clear.

Unfortunately, understanding their writings (should one want to) requires some faint memory of eighth-grade algebra, such as what a curve means, and some mathematics barely beyond arithmetic. This eliminates most of those who dispute the evidence.

A glance at the data reveals that there will be a small number of very smart blacks and a larger number of fairly smart blacks. This we see.  They are engineers and lprogrammers. They appear on television as well-educated talking-heads speaking good English. To whites who never see any other blacks, this gives the impression that, since these blacks are like white people, all would be if it weren’t for discrimination. Would that it were so. It isn’t.

What are the implications?

First, we will see a continuation of hostility by blacks toward whites. This often amounts to outright hatred, as seen in the intermittent riots that never cease, and in the frequent, though carefully under-reported, racial attacks on whites. If blacks cannot rise, and it seems they cannot, they will remain angry in perpetuity. Then what?

If you believe the hostiility does not exist, or is not intense, read rap lyrics. Many examples could be adduced. Here is one:

“Niggas in the church say: kill whitey all night long … the white man is the devil … the CRIPS and Bloods are soldiers I’m recruiting with no dispute; drive-by shooting on this white genetic mutant … let’s go and kill some rednecks … Menace Clan ain’t afraid … I got the .380; the homies think I’m crazy because I shot a white baby; I said; I said; I said: kill whitey all night long … a nigga dumping on your white ass; fuck this rap shit, nigga, I’m gonna blast … I beat a white boy to the motherfucking ground….””

(“Kill Whitey”; Menace Clan, Da Hood, 1995, Rap-A-Lot Records, Noo Trybe Records, subsidiaries of what was called Thorn EMI and now is called The EMI Group, United Kingdom.)

Not encouraging.

Second, things will get—are getting—worse. First-world countries are brain-intensive. Automation eats rapidly away at the low-end jobs for which blacks are usually qualified. So do Mexicans. In a technological society, people at the bottom at some point become economically unnecessary, unemployable for anything at any wage. This happens now to blacks, and soon will  to unintelligent whites. The unnecessary will need, do need, to be kept in custodial care, however disguised. The alternative is starvation.

Third, serious conflict is likely between blacks and Hispanics. There is no love between the two. Today when Latinos move into a neighborhood, they tend to drive blacks out. They are brighter and work harder. For the moment blacks hold the political upper-hand, but Latinos grow in number and in their proportion of voters. A train-wreck is on the way.

Fourth, the danger will grow of serious conflict between whites and blacks. I suspect that even now only heavy federal pressure and dissimulation by the media keep the cork in the bottle. Among whites a large proportion loathe affirmative action, degraded educational standards, toleration of crime, and compulsory integration.

As the economy declines and jobs become scarcer, the likelihood grows that jobless whites will rebel against racial preferences. The hidden rock in the current is that if affirmative action were eliminated, blacks would almost disappear except in sports and entertainment. There will be hell to pay, though in what currency is not clear.

What in god’s name to do?

Arguably the best we can do is to continue as now, regard affirmative action as a tax on efficiency, tolerate the racial attacks as preferable to the riots that would follow on not tolerating them, and clean up after the riots that happen anyway. Temporize, hold the lid on, and let other people worry about it later. This is certainly the course that the feds and the major media will advocate. The question is whether they can make it stick.

Another approach, conceivable but barely so, is quietly to institute segregation in the more combustible areas of society. One of these is law-enforcement. If none but black policemen worked in black regions, fewer cities would burn. The schools are another sensitive spot. If segregated schools were allowed, and blacks given more money per student than whites to avoid complaints about unequal resources, each race could teach its young, or not teach them, as it saw fit. Finally, letting people live where they like would reduce friction. These measures, though stop-gaps, might work, for a while.

The third—“solution” isn’t exactly the word, but maybe “possibility” fits—is carefully called “civil unrest” when what is meant is “race war.” Black extremists have often called for it, thoughtful blacks have worried about it, and a lot of whites think “bring it on.” (Read Black Mobs and the Coming Race War, a column by Thomas Sowell. Also The Coming Race War in America, a bookd by the (deceased) black columnist Carl Rowan.)

The big media outlets have little idea of what is going on. Their reporters live in a bubble of political correctness, policing each other stringently, and have little contact with the black underclass or with America outside the Beltway. Books (e.g. Face to Face with Race) detail the underclass, but few read them.)

Such a race “war” would be a spontaneous and simultaneous, though uncoordinated, burning of many cities. Blacks would quickly lose. Whites are much more numerous, food comes not from Safeway but from remote farms belonging to whites, welfare checks do not materialize magically in post-offfice boxes, and so on. The danger is that blacks, accustomed to intimidating whites, may push too far and find that they have made a very serious mistake.

Afterward, what? Blacks as Palestinians and whites as Israelis? The country would never recover.

Never Ever Show A Copf*k Your Banana

4 comments

Posted on 28th November 2014 by Stucky in Economy

This is Nathan Channing, 27 years old, from Fruitvale, CO. He was arrested last Sunday and is facing a life-ruining  FELONY MENACING charge.

DOMESTIC TERRORIST !!!!

 

This is a man pointing his banana.

Is that a banana in your pants, or are you just happy to see me?

 

According to an arrest affidavit, Mesa County deputies Joshua Bunch and Donald Love said Channing pointed the fruit at them while crossing a street.

The dumber-than-a-box-of-chickenshit deputies said they “feared for their lives” even though they saw that the object was yellow

Yup … the the man accused of pointing a banana at police is from Fruitvale, and one of the copfuks who “feared for his life” is named Bunch. You can’t make this shit up.

This is one of the saddest videos you’ll ever see.  Last week there was a shooting on the Florida State University.  Look at these people … cowering in fear like a bunch of scared mice … waiting for copfuks to “save” them, where seconds count copfuks are minutes late …. when all it takes is a few armed citizens to stop this shit.  But, noooo, we can’t allow people to protect themselves, can we?

 

 

 

Guys …. Would You Boink This Jap?

9 comments

Posted on 28th November 2014 by Stucky in Economy |Politics |Social Issues

Source: http://www.thedailysheeple.com/the-future-of-relationships-soon-millions-of-men-will-be-having-sex-with-incredibly-life-like-female-robots_112014

 

It’s a SERIOUS question. Before you answer, watch the video. Keep this in mind while watching; the manufacturer states that the skin texture is “indistinguishable from the real thing”…

 

What’s not to like, right? Never gets a headache. Never complains about the size of your package. Doesn’t care that it only takes you 20 seconds. And, you don’t have to cuddle afterwards!! So, guys (and, bb) … which ones here would do the deed?

Oh … I can just see the ladies here saying “OH MY GOD, STUCKY, HAVE YOU LOST IT!!!???”

First, I didn’t say I would do it, did I?

Secondly, the sex toy industry racks up FIFTEEN BILLION obamabucks annually …. most of that to, women!!! heh heh So, when the male Jap robot arrives to market, the sex toy market is expected to grow to $30 billion, in the first month. heh heh

 

sex toys per capita

Cuz real men are HARD to find!!

Outside the Box: Stray Reflection​s

2 comments

Posted on 28th November 2014 by Administrator in Economy |Politics |Social Issues

Outside the Box: Stray Reflections

By John Mauldin

 

Today’s Outside the Box is special, because I’m about to give you a preview of things to come at Mauldin Economics. For months now I have been saying to my partners that we need to develop a service for the professionals who read me – the financial advisors, portfolio managers, family offices… you know who you are. And I’m excited to tell you that we are very close to making this service a reality. It will be called Mauldin Pro, and it will feature global macro and geopolitical research and analysis, portfolio recommendations, monthly interviews with some of the best talent in the business, and quarterly seminars to help you improve your game.

It will also feature a global macro analysis and investment letter that has created quite a buzz in the industry. Stray Reflections is written by Jawad Mian, a former portfolio manager who lives in the UAE. Born in Pakistan and educated in Canada, Jawad managed $250 million in proprietary funds before turning his attention to his real passion: writing about the macro themes that should be on every investor’s mind, and constructing a theme-based global macro investment portfolio. His audience includes some of the most-respected portfolio managers in the world.

He’ll bring his fantastic letter to Mauldin Pro in the coming weeks. If you are interested in learning more and you are a professional market participant, give us your email address, and we’ll contact you when the service is ready to go.

Regardless of who you are or how you make your living, you’ll enjoy this piece from Jawad, taken from the November edition of his Stray Reflections. It deals with his view on oil, which has been the focus of the market lately. Can we say Peak Demand?

I will be braving the crowds at Central Market in a few hours, stocking up for Thanksgiving. I am normally not much of a grocery shopper and try to relegate the task to someone with more patience and time. But today, I look forward to spending the time, selecting each ingredient that I will be using with care, choosing fresh spices, chatting with the other shoppers, and just getting into the whole cooking thing, always on the lookout for something new and different.

I will be cooking banana nut cake this evening, as that was my mother’s specialty, and it just isn’t Thanksgiving without banana nut cake, at least for my family. And maybe a carrot cake if I get ambitious. Starting the soups to cook overnight, making the thick glaze for the prime, getting up very early to start the prime, as it takes almost 6 hours (and sometimes more!) to cook, since I cook on very low heat. That really helps the meat stay moist and tender. And the fried turkeys and the mushrooms!

Have a great week with your family and friends. Remember to take some time to catalog the probably long list of things you should be thankful for. High on my list will be you, whose gracious allocation of time and attention, two of the most valuable commodities in the world, makes my world even possible. I am truly grateful.

I finish this note after a long workout, trying to get ready for the Thursday marathon (although I have been told on good authority that calories do not count on Thanksgiving Day). The Beast has changed up the workout routine from lighter weights and many repetitions to “maxing out” the last few days. To my utter surprise, at the end of the workout I bench-pressed 205 pounds, 10 more than my previous max (which was 10 years ago). Who knew that 65 was such a good age for working out?

Your deep into the creativity of the kitchen analyst,

John Mauldin, Editor
Outside the Box
[email protected]

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Stray Reflections (November 2014)

By Jawad Mian

Investment Observations

The precipitous decline in the price of oil is perhaps one of the most bearish macro developments this year. We believe we are entering a “new oil normal,” where oil prices stay lower for longer. While we highlighted the risk of a near-term decline in the oil price in our July newsletter, we failed to adjust our portfolio sufficiently to reflect such a scenario. This month we identify the major implications of our revised energy thesis.

The reason oil prices started sliding in June can be explained by record growth in US production, sputtering demand from Europe and China, and an unwind of the Middle East geopolitical risk premium. The world oil market, which consumes 92 million barrels a day, currently has one million barrels more than it needs. US pumped 8.97 million barrels a day by the end of October (the highest since 1985) thanks partly to increases in shale-oil output which accounts for 5 million barrels per day. Libya’s production has recovered from 200,000 barrels a day in April to 900,000 barrels a day, while war hasn’t stopped production in Iraq and output there has risen to an all-time high level of 3.3 million barrels per day. The IMF, meanwhile, has cut its projection for global growth in 2014 for the third time this year to 3.3%. Next year, it still expects growth to pick up again, but only slightly.

Everyone believes that the oil-price decline is temporary. It is assumed that once oil prices plummet, the process is much more likely to be self-stabilizing than destabilizing. As the theory goes, once demand drops, price follows, and leveraged high-cost producers shut production. Eventually, supply falls to match demand and price stabilizes. When demand recovers, so does price, and marginal production returns to meet rising demand. Prices then stabilize at a higher level as supply and demand become more balanced. It has been well-said that: “In theory, there is no difference between theory and practice. But, in practice, there is.” For the classic model to hold true in oil’s case, the market must correctly anticipate the equilibrating role of price in the presence of supply/demand imbalances.

By 2020, we see oil demand realistically rising to no more than 96 million barrels a day. North American oil consumption has been in a structural decline, whereas the European economy is expected to remain lacklustre. Risks to the Chinese economy are tilted to the downside and we find no reason to anticipate a positive growth surprise. This limits the potential for growth in oil demand and leads us to believe global oil prices will struggle to rebound to their previous levels. The International Energy Agency says we could soon hit “peak oil demand”, due to cheaper fuel alternatives, environmental concerns, and improving oil efficiency.

The oil market will remain well supplied, even at lower prices. We believe incremental oil demand through 2020 can be met with rising output in Libya, Iraq and Iran. We expect production in Libya to return to the level prior to the civil war, adding at least 600,000 barrels a day to world supply. Big investments in Iraq’s oil industry should pay-off too with production rising an extra 1.5-2 million barrels a day over the next five years. We also believe the American-Iranian détente is serious, and that sooner or later both parties will agree to terms and reach a definitive agreement. This will eventually lead to more oil supply coming to the market from Iran, further depressing prices in the “new oil normal”. Iranian oil production has fallen from 4 million barrels a day in 2008 to 2.8 million today, which we would expect to fully recover once international relations normalize. In sum, we see the potential for supply to increase by nearly 4 million barrels a day at the lowest marginal cost, which should be enough to offset output cuts from marginal players in a sluggish world economy.

Our analysis leads us to conclude that the price of oil is unlikely to average $100 again for the remaining decade. We will use an oil rebound to gradually adjust our portfolio to reflect this new reality.

From 1976 to 2000, oil consolidated in a wide price range between $12 and $40. We think the next five years will see a similar trading range develop in oil with prices oscillating between $55 and $85. If the US dollar embarks on a mega uptrend (not our central view), then we can even see oil sustain a drop below $60 eventually.


Source: Bloomberg

Normally, falling oil prices would be expected to boost global growth. Ed Morse of Citigroup estimates lower oil prices provide a stimulus of as much as $1.1 trillion to global economies by lowering the cost of fuels and other commodities. Per-capita oil consumption in the US is among the highest in the world so the fall in energy prices raises purchasing power compared to most other major economies. The US consumer stands to benefit from cheaper heating oil and materially lower gasoline prices. It is estimated that the average household consumes 1,200 gallons of gasoline a year, which translates to annual savings of $120 for every 10-cent drop in the price of gasoline. According to Ethan Harris of Bank of America Merrill Lynch: “Consumers will likely respond quickly to the saving in energy costs. Many families live “hand to mouth”, spending whatever income is available. The Survey of Consumer Finances found that 47% of families had no savings in 2013, up from 44% in the more healthy 2004 economy. Over time, energy costs have become a much bigger part of budgets for low income families. In 2012, families with income below $50,000 spent an average of 21.4% of their income on energy. This is almost double the share in 2001, and it is almost triple the share for families with income above $50,000.” The “new oil normal” will see a wealth transfer from Middle East sovereigns (savers) to leveraged US consumers (spenders).

The consumer windfall from lower oil prices is more than offset by the loss to oil producers in our view. Even though the price of oil has plummeted, the cost of finding it has certainly not. The oil industry has moved into a higher-cost paradigm and continues to spend significantly more money every year without any meaningful growth in total production. Global crude-only output seems to have plateaud in the mid-70 million barrels a day range. The production capacity of 75% of the world’s oilfields is declining by around 6% per year, so the industry requires up to 4 million barrels per day of new capacity just to hold production steady. This has proven to be very difficult. Analysts at consulting firm EY estimate that out of the 163 upstream megaprojects currently being bankrolled (worth a combined $1.1 trillion), a majority are over budget and behind schedule.

Large energy companies are sitting on a great deal of cash which cushions the blow from a weak pricing environment in the short-term. It is still important to keep in mind, however, that most big oil projects have been planned around the notion that oil would stay above $100, which no longer seems likely. The Economist reports that: “The industry is cutting back on some megaprojects, particularly those in the Arctic region, deepwater prospects and others that present technical challenges. Shell recently said it would again delay its Alaska exploration project, thanks to a combination of regulatory hurdles and technological challenges. The $10 billion Rosebank project in Britain’s North Sea, a joint venture between Chevron of the United States and OMV of Austria, is on hold and set to stay that way unless prices recover. And BP says it is “reviewing” its plans for Mad Dog Phase 2, a deepwater exploration project in the Gulf of Mexico.  Statoil’s vast Johan Castberg project in the Barents Sea is in limbo as the Norwegian firm and its partners try to rein in spiralling costs; Statoil is expected to cut up to 1,500 jobs this year. And then there is Kazakhstan’s giant Kashagan project, which thanks to huge cost overruns, lengthy delays and weak oil prices may not be viable for years. Even before the latest fall in oil prices, Shell said its capital spending would be about 20% lower this year than last; Hess will spend about 15% less; and Exxon Mobil and Chevron are making cuts of 5-6%.”

About 1/3rd of the S&P500 capex is done by the energy sector. Based on analysis by Steven Kopits of Douglas-Westwood: “The vast majority of public oil and gas companies require oil prices of over $100 to achieve positive free cash flow under current capex and dividend programs. Nearly half of the industry needs more than $120. The 4th quartile, where most US E&Ps cluster, needs $130 or more.”

As energy companies have gotten used to Brent averaging $110 for the last three years, we believe management teams will be very slow to adjust to the “new oil normal”. They will start by cutting capital spending (the quickest and easiest decision to take), then divesting non-core assets (as access to cheap financing becomes more difficult), and eventually, be forced to take write-downs on assets and projects that are no longer feasible. The whole adjustment process could take two years or longer, and will accelerate only once CEOs stop thinking the price of oil is going to go back up. A similar phenomenon happened in North America’s natural gas market a couple of years ago.

This has vast implications for America’s shale industry. The past five years have seen the budding energy renaissance attract billions of dollars in fixed investment and generate tens of thousands of high-paying jobs. The success of shale has been a major tailwind for the US economy, and its output has been a significant contributor to the improvement in the trade deficit. We believe a sustained drop in the price of oil will slow US shale investment and production growth rates. As much as 50% of shale oil is uneconomic at current prices, and the big unknown factor is the amount of debt that has been incurred by cashflow negative companies to develop resources which will soon become unprofitable at much lower prices (or once their hedges run out). Energy bonds make up nearly 16% of the $1.3 trillion junk bond market and the total debt of the US independent E&P sector is estimated at over $200 billion.

Robert McNally, a White House adviser to former President George W. Bush and president of the Rapidan Group energy consultancy, told Reuters that Saudi Arabia “will accept a price decline necessary to sweat whatever supply cuts are needed to balance the market out of the US shale oil sector.” Even legendary oil man T. Boone Pickens believes Saudi Arabia is in a stand-off with US drillers and frackers to “see how the shale boys are going to stand up to a cheaper price.” This has happened once before. By the mid-1980’s, as oil output from Alaska’s North Slope and the North Sea came on line (combined production of around 5-6 million barrels a day), OPEC set off a price war to compete for market share. As a result, the price of oil sank from around $40 to just under $10 a barrel by 1986.

In the current cycle, though, prices will have to decline much further from current levels to curb new investment and discourage US production of shale oil. Most of the growth in shale is in lower-cost plays (Eagle Ford, Permian and the Bakken) and the breakeven point has been falling as productivity per well is improving and companies have refined their fracking techniques. The median North American shale development needs an oil price of $57 to breakeven today, compared to $70 last year according to research firm IHS


Source: WoodMackenzie, Barclays Research

While we don’t believe Saudi Arabia engineered the latest swoon in oil prices, it would be foolish not to expect them to take advantage of the new market reality. If we are entering a “new oil normal” where the oil price range may move structurally lower in the coming years, wouldn’t you want to maximise your profits today, when prices are still elevated? If, at the same time, you can drive out fringe production sources from the market, and tip the balance in MENA geopolitics (by hurting Russia and Iran), wouldn’t it be worth it? The Kingdom has a long history of using oil to meet political and economic ends.

We don’t see any signs of meaningful OPEC restraint at the group’s 166th meeting on November 27th in Vienna. The cartel has agreed to cut crude production only a handful of times in the past decade, with December 2008 being the most recent instance. Based on our assessment, the only members with enough flexibility to reduce oil output voluntarily are the United Arab Emirates, Kuwait and Saudi Arabia. OPEC countries have constructed their domestic policy based on the assumption that oil prices will remain perpetually high and most members are not in a strong enough financial position to take production offline. Once all the costs of subsidies and social programs are factored-in, most OPEC countries require oil above $100 to balance their budgets. This raises longer-run issues on the sustainability of the fiscal stance in a low-oil price environment. On the one hand, you have rising domestic oil consumption because there is no price discipline, which leaves less oil for the lucrative export market, and on the other hand, you require more money now than ever before to support generous budgetary spending.

How will this be resolved?

And with a much slower rate of petrodollar accumulation, what will be the implication for global financial markets, given the non-negligible retraction in liquidity?

The current oil decline has potentially cost OPEC $250 billion of its recent earnings of $1 trillion. Thus, it is not surprising to see OPEC production – relative to its 30 million barrels a day quota – rising from virtual compliance to one where the cartel is producing above its agreed production allocation. Output rose to 30.974 million barrels per day in October, a 14-month high led by gains in Iraq, Saudi Arabia and Libya. So, it can be grasped that the lower the price of oil falls, the greater the need to compensate for lower revenues with higher production, which paradoxically pushes oil prices even lower.

We believe the “new oil normal” will alter relative economic and political fortunes of most countries, with income redistributing from oil exporters (GCC, Russia) to oil importers (India, Turkey). We therefore exited our long position in the WisdomTree Middle East Dividend Fund (GULF) at a 14.4% gain.

Those nations with abundant oil tend to suffer from the “resource curse”. With no other ready sources of income, the non-oil economy atrophies due to the extraordinary wealth produced by the oil sector. OPEC countries are some of the least diversified economies in the world.

In an article titled “When The Petrodollars Run Out”, economist Daniel Altman wrote for the Foreign Policy magazine as follows: “Twenty countries depend on petroleum for at least half of their government revenue, and another 10 are between half and a quarter. These countries are clearly vulnerable to big changes in the price and quantity of oil and gas that they might sell…So what can these countries do to bolster themselves for the future? For one thing, they might try to use their petroleum revenues to diversify their economies. Yet there’s little precedent for that actually happening. In the three decades from 1983 to 2012, no country that ever got 20 percent of its GDP from oil and gas – according to the World Bank’s figures – substantially reduced those resources’ share of its economy. The shares typically rose and fell with prices; there were no long-term reductions.”


Source: Foreign Policy

Saudi Arabia appears to be comfortable with much lower oil prices for an extended period of time. The House of Saud is equipped with sufficient government assets to easily withstand three years at the current oil price by dipping into their $750 billion of net foreign assets. Saudi Arabia bolstered output by 100,000 barrels a day recently to 9.75 million, and cut its prices for Asian delivery for November – the fourth month in a row that it has cut official selling prices to shore up its global market share. With American imports from OPEC almost cut by half and given weak European demand, most oil-producing countries are now engaged in a price war in Asia. The Kingdom generates over 80% of its total revenue from oil sales so it may not remain immune in the “new oil normal” for long. According to HSBC research, Saudi Arabia would face a budget shortfall approaching 10% of GDP at $70 oil and at $50, the deficit could exceed 15% of GDP.

Russia and Saudi Arabia have opposing agendas in the Middle East. We believe Russia would like to see Middle East burn. This would shore up the cost of oil and keep America from geopolitically deleveraging from the region, thus allowing more room for Putin to outmaneuver his opponents in Europe. It was reported last year that the Saudis offered Russia a deal to carve up global oil and gas markets, but only if Russia stopped support of Syria’s Assad regime. No agreement was reached. It now seems the Saudis are turning to the oil market to affect an outcome.

With global energy prices at multi-year lows, Russia is facing a persistent low growth environment and an endemic outflow of capital. The $30 drop in the Brent price translates into an annual loss in crude oil revenues of over $100 billion. According to Lubomir Mitov, Russia’s financing gap has reached 3% of GDP, and they have to repay $150 billion in principal to foreign creditors over the next 12 months. Even with $400 billion in foreign currency reserves and the Russian central bank raising its official interest rate by 150 basis points to 9.5% last month, the ruble is down 38% from its June high making foreign liabilities a lot more onerous. As per Faisal Islam, political editor of Sky News, “financial markets have punished Russia far quicker than Western governments.”

“It took two years for crumbling oil prices to bring the Soviet Union to its knees in the mid-1980s, and another two years of stagnation to break the Bolshevik empire altogether…” writes Ambrose Evans-Pritchard in The Daily Telegraph. “…Russian ex-premier Yegor Gaidar famously dated the moment to September 1985, when Saudi Arabia stopped trying to defend the crude market, cranking up output instead.” It is estimated the Soviet Union lost $20 billion per year, money without which the country simply could not survive.

Could we see a repeat of events?

In the past, higher resource prices increased the occasions for military conflicts as nations would scramble to secure necessary supplies. Going forward, however, we firmly believe lower oil prices pose a greater risk of escalating current geopolitical challenges.

Putin is a determined and ambitious leader who wants to expand Russia’s power and influence. Since he rose to dominance in 1999, he advocated development of Russia’s resource sector to resurrect Russian wealth. In his doctoral thesis, he equated economic strength with geopolitical influence. Today, Russia needs an oil price in excess of $100 a barrel to support the state and preserve its national security. Consequently, there is no question Putin will try to resist lower oil prices either through outright warfare or more covert economic sabotage.

Russia is the world’s 8th-largest economy, but its military spending trails only the US and China. Putin increased the military budget 31% from 2008 to 2013, overtaking UK and Saudi Arabia, as reported by the International Institute of Strategic Studies. Russia also has plans to become the world’s largest arms exporter by more than tripling military exports by 2020 to $50 billion annually. We are convinced Putin would like to see a bull-market in international tensions. This is the biggest threat to our “new oil normal” theme.


Source: Cagle Cartoons

Turkey is a big beneficiary of lower oil prices, which provides much needed relief to the large current account deficit. As external imbalances correct and the inflation outlook gradually improves, we expect a significant shift in sentiment towards the country. Turkish stocks should do reasonably well going forward and we aim to buy the iShares MSCI Turkey ETF (TUR) on additional weakness. In our opinion, India will also continue to outperform many of its emerging market peers. Medium-term growth prospects have strenghtened due to credibility of policymakers and external windfalls from lower oil and gold prices. We will initiate a position in Indian equities once the election exuberance dissipates. The market is up 23% since Modi’s win.

Solar stocks have fallen 18% since oil peaked in June. It is assumed the fall in oil spells terrible news for the development of alternative energy sources, especially solar. We don’t agree with this conclusion as we see the world moving toward a more sustainable economy. We expect solar to gradually become more mainstream and less sensitive to fluctuations in the oil price. According to a Deutsche Bank research report, solar electricity may be as cheap or cheaper than average electricity-bill prices in 47 US states by 2016. Even if the tax credit drops to 10% (if Congress allows the federal tax credit for rooftop solar systems to expire at the end of 2016), solar will soon reach price parity with conventional electricity in well over half the nation. Solar has already reached grid parity in 10 states which are responsible for 90% of US solar electricity production. We own the Guggenheim Solar ETF (TAN) as a strategic long-term holding.

According to Nordea Research, markets are pricing in a 40% chance for an interest rate cut at the Norges Bank meeting in December. This has pushed the Norwegian kroner (NOK) nearly 7% weaker than the Norges Bank’s forecast for June of next year. We think markets have gone too far with an overreaction in NOK because of the Brent decline. The oil-sensitive Norwegian economy remains relatively more competitive with an average cash cost of $43 a barrel across the whole industry. We sold our NOK/SEK position for a 6.9% profit earlier and plan on re-buying the pair from lower levels. The cross-rate is the cheapest in two decades on a PPP basis and Sweden’s Riksbank cut its key interest rate to zero in October as it battles deflation.

In terms of other opportunities, we are also long the Mexican peso (MXN) versus the Colombian peso (COP). Mexico’s oil exports as a percent of GDP are 4% versus 8.5% in the case of Colombia. Our position is up 4.7% so far.

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Important Disclosures

The article Outside the Box: Stray Reflections was originally published at mauldineconomics.com.

Stop The War On Your Light Switch

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Posted on 28th November 2014 by Administrator in Economy |Politics |Social Issues

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Guest Post by Karl Denninger

Obama is trying to make your light switch inoperative — by killing the electricity at its source!

The Wednesday before Thanksgiving, the Environmental Protection Agency released a 626-page proposal (plus a 575-page appendix) to regulate ozone. Like so many other such rules, this one twists decades-old air pollution laws to restructure the U.S. energy industry and gradually ban fossil-fuel-fired power. Coal is the first target but natural gas is next.

Yep.

The EPA’s proposals would leave virtually all of the nation out of compliance with their re-written “rules”; a bastardized “interpretation” of an old law that was never contemplated when the law was written and passed.

Nonetheless, should the EPA succeed and the court challenges fail it would ban essentially all coal and natural-gas fired powerplants.  Note that the latter make up nearly all of what are known as “peaking” plants and keep the lights on during periods of high demand.

The reason is that unlike baseload plants such as nuclear power a gas-fired turbine can be spun up quickly and respond to surge demand loads very quickly — baseload plants cannot.

As a result these plants are a key component in keeping the power flowing during times of extraordinary demand — such as during the mid-day heat of summer when everyone wants their air conditioner going.

Make sure you thank Obama for this — after all, he did state that he wants electricity costs to rise dramatically, and yet he was not only elected with this on the table he was re-elected after making clear that this was his intention.

The Price Of Oil Exposes The True State Of The Economy

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Posted on 28th November 2014 by Administrator in Economy |Politics |Social Issues

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Submitted by Raul Ilargi Meijer via The Automatice Earth blog,


Jack Delano Cafe at truck drivers’ service station on U.S. 1, Washington DC Jun 1940
We should be glad the price of oil has fallen the way it has (losing another 6% today as we write this). Not because it makes the gas in our cars a bit cheaper, that’s nothing compared to the other service the price slump provides. That is, it allows us to see how the economy is really doing, without the multilayered veil of propaganda, spin, fixed data and bailouts and handouts for the banking system.

It shows us the huge extent to which consumer spending is falling, how much poorer people have become as stock markets set records. It also shows us how desperate producing nations have become, who have seen a third of their often principal source of revenue fall away in a few months’ time. Nigeria was first in line to devalue its currency, others will follow suit.

OPEC today decided not to cut production, but whatever decision they would have come to, nothing would have made one iota of difference. The fact that prices only started falling again after the decision was made public shows you how senseless financial markets have become, dumbed down by easy money for which no working neurons are required.

OPEC has become a theater piece, and the real world out there is getting colder. Oil producing nations can’t afford to cut their output in some vague attempt, with very uncertain outcome, to raise prices. The only way to make up for their losses is to increase production when and where they can. And some can’t even do that.

Saudi Arabia increased production in 1986 to bring down prices. All it has to do today to achieve the same thing is to not cut production. But the Saudi’s have lost a lot of clout, along with OPEC, it’s not 1986 anymore. That is due to an extent to American shale oil, but the global financial crisis is a much more important factor.

We are only now truly even just beginning to see how hard that crisis has already hit the Chinese export miracle, and its demand for resources, a major reason behind the oil crash. The US this year imported less oil from OPEC members than it has in 30 years, while Americans drive far less miles per capita and shale has its debt-financed temporary jump. Now, all oil producers, not just shale drillers, turn into Red Queens, trying ever harder just to make up for losses.

The American shale industry, meanwhile, is a driverless truck, with brakes missing and fueled by on cheap speculative capital. The main question underlying US shale is no longer about what’s feasible to drill today, it’s about what can still be financed tomorrow. And the press are really only now waking up to the Ponzi character of the industry.

In a pretty solid piece last week, the Financial Times’ John Dizard concluded with:

Even long-time energy industry people cannot remember an overinvestment cycle lasting as long as the one in unconventional US resources. It is not just the hydrocarbon engineers who have created this bubble; there are the financial engineers who came up with new ways to pay for it.

While Reuters on November 10 (h/t Yves at NC) talked about giant equity fund KKR’s shale troubles:

KKR, which led the acquisition of oil and gas producer Samson for $7.2 billion in 2011 and has already sold almost half its acreage to cope with lower energy prices, plans to sell its North Dakota Bakken oil deposit worth less than $500 million as part of an ongoing downsizing plan.

 

Samson’s bonds are trading around 70 cents on the dollar, indicating that KKR and its partners’ equity in the company would probably be wiped out were the whole company to be sold now. Samson’s financial woes underscore how private equity’s love affair with North America’s shale revolution comes with risks. The stakes are especially high for KKR, which saw a $45 billion bet on natural gas prices go sour when Texas power utility Energy Future Holdings filed for bankruptcy this year.

And today, Tracy Alloway at FT mentions major banks and their energy-related losses:

Banks including Barclays and Wells Fargo are facing potentially heavy losses on an $850 million loan made to two oil and gas companies, in a sign of how the dramatic slide in the price of oil is beginning to reverberate through the wider economy. [..] if Barclays and Wells attempted to syndicate the $850m loan now, it could go for as little as 60 cents on the dollar.

That’s just one loan. At 60 cents on the dollar, a $340 million loss. Who knows how many similar, and bigger, loans are out there? Put together, these stories slowly seeping out of the juncture of energy and finance gives the good and willing listener an inkling of an idea of the losses being incurred throughout the global economy, and by the large financiers. There’s a bloodbath brewing in the shadows. Countries can see their revenues cut by a third and move on, perhaps with new leaders, but many companies can’t lose that much income and keep on going, certainly not when they’re heavily leveraged.

The Saudi’s refuse to cut output and say: let America cut. But American oil producers can’t cut even if they would want to, it would blow their debt laden enterprises out of the water, and out of existence. Besides, that energy independence thing plays a big role of course. But with prices continuing to fall, much of that industry will go belly up because credit gets withdrawn.

The amount of money lost in the ‘overinvestment cycle’ will be stupendous, and you don’t need to ask who’s going to end up paying. Pointing to past oil bubbles risks missing the point that the kind of leverage and cheap credit heaped upon shale oil and gas, as Dizard also says, is unprecedented. As Wolf Richter wrote earlier this year, the industry has bled over $100 billion in losses for three years running.

Not because they weren’t selling, but because the costs were – and are – so formidable. There’s more debt going into the ground then there’s oil coming out. Shale was a losing proposition even at $100. But that remained hidden behind the wagers backed by 0.5% loans that fed the land speculation it was based on from the start. WTI fell below $70 today. You can let your 3-year old do the math from there.

I wonder how many people will scratch their heads as they’re filling up their tanks this week and wonder how much of a mixed blessing that cheap gas is. They should. They should ask themselves how and why and how much the plummeting gas price is a reflection of the real state of the global economy, and what that says about their futures.