Something about learning nothing from history

It’s incredibly cliché, but the truth of it can’t be argued: what we learn from history is that we don’t learn from history… or something to that effect. In yet another follow-up to what has unintentionally turned into an ongoing series (here, here, and here) about the decline in oil prices, I’ve started to notice that things are feeling very reminiscent of the lead up to the mortgage crisis.

Prior to the mortgage crisis, we had a real estate industry high on years of asset appreciation and believing that nearly any investment in real estate, no matter how crass, would automatically be a winner because real estate prices could do nothing but rise for the foreseeable future. This widespread mentality lead to banks giving mortgages to people who had no business borrowing the amounts of money they were receiving. The banks didn’t care, because real estate prices could only go up, so their risk exposure was zero – or so went the belief. Then one day, as everyone and their mother was flooding the market with flipped houses they were sure to make a fortune on, the unthinkable happened: real estate prices began to decline. One would think that the impending meltdown of the industry would only affect the industry itself – not so in the Wall Street Casino States of America. Greedy Wall St. folks behind the scenes wanted to cash in on this “can’t lose” real estate boom too. So they made these extremely marginal mortgages into complex financial instruments and they sold insurance against defaults on these mortgages, with all these decisions being made under the assumption that real estate prices would continue rising for near eternity so no holder of these investments would ever take loses even if people did default on their mortgages. So when that fantasy scenario didn’t play out, it didn’t only crush the physical owners of real estate, but the entire first-world’s financial system.

The current situation with oil is looking frighteningly similar (albeit on a smaller scale). Once again we have a market that people almost unanimously believed to be headed skyward for eternity. Much in the same way people jumped into houses they couldn’t actually afford assuming rapid value appreciation of the house, drilling companies have spent the last 2-3 years diving head-first into extremely marginal projects involving very low oil reserves and exceedingly high drilling costs – all under the assumption that high-priced oil was here to stay and would only continue higher. Then it didn’t.

No worries though. There’s no systemic risk this time. The oil price crash will clean up the market, the poorly planned projects will take their drills and go home, prices will stabilize somewhere higher again, and we’ll be back to business as usual. Wrong. Just as with the mortgage crisis, this would be a terribly naive assumption. Whenever there is easy money to be had and a bubble is inflating, count on Wall St. to be there making reckless investments.

Rice Energy Inc. (RICE), a natural gas producer with risky credit, raised $900 million in three days this month, $150 million more than it originally sought.

Not bad for the Canonsburg, Pennsylvania-based company’s first bond issue after going public in January. Especially since it has lost money three years in a row, has drilled fewer than 50 wells — most named after superheroes and monster trucks — and said it will spend $4.09 for every $1 it earns in 2014.

That’s right, almost a billion dollars invested into a company that has a proven track record of hemorraging money for the past three years. What kind of insanity is that? The same type we saw pre-2007 collapse. There are very large amounts of money in the bond market backing these extremely marginal drill projects. Just as in real estate, these poor investments looked tolerable when oil prices were sky-high and on the rise. Now, with a >50% decline in WIT crude per barrel price, suddenly we’re on the verge of a meltdown. Energy companies make up over 15% of the entire US junk bond market:

cotd-high-yield-energy

Just like the mortgage derivatives and credit swaps, these bonds are spread throughout the financial system as assets of bond funds, retirement accounts, and the like. They’re owned by people who don’t even know they own them. So what’s the risk? How many of the main US drill areas remain profitable at the current (as of this writing) $55/barrel WIT price? Turns out… almost none of them.

cotd-shale-breakevens

So let’s recap what we have here: A market in which wild and reckless investments were made under the assumption that the underlying commodity price would always rise, massive outstanding liabilities to bond holders, and a plunge in the underlying commodity price that just put the bond default risk on these already flighty investments through the roof.

Yup, things are looking just like they did minutes before the mortgage meltdown. Who will be on the hook for all the Wall St. trading losses this time? You will – thanks to that nice Cromnibus bill that passed with the Citigroup written Dodd-Frank repeal.

 

 

Change of pace

Believe it or not, even I occasionally need to tune out whatever atrocities America is engaging in today and instead focus on something cheerful… or at the very least something less morose. It keeps me sane and prevents my brain from melting due to the necessary reading of and reflection on rampant ignorance required during the writing of most of my posts. During this brief intermission (and while trapped at my desk on Christmas Eve) I browsed WordPress for something not related to social justice issues, politics, or economics. Finding something in my Reader feed not related to one of those is no small task. Of course there’s the religious blogs out there. Those don’t fall into the off-limits categories. But alas, I can’t have that either or I’ll end up writing a comment that’s a ten paragraph tirade with five source citations explaining why religion is horse shit. There’s also the crafty, Pinterest style blogs, but those just don’t interest me. The 2,000+ word long reads don’t really do it for me either. If I wanted a book I would have picked one up.

Eventually I fell down one of those link clicking wormholes and landed at the Little Things blog. This blog is written by a teenage (I’m guessing) girl named Akvilė (I can’t pronounce it either) from Lithuania, who appears to be from a fairly well-off family. It is a very picture heavy blog, mostly involving her recounting family vacations around the world and giving fashion reviews of clothing/accessories. The picture quality and photography are excellent. In my tradition of finding profundity were most people would not, I was blown away by this blog. English is clearly not her first language, but yet she is well-versed enough to write skillfully. This results in an interesting tone and delivery. She speaks with a level of honesty and straight-forwardness normally only seen in young children.

Hello! I always wanted to write my own blog, so today I decided to start doing it.

Compare this to the agonizingly long 1,000+ world introductory post for my own blog which ultimately said the same thing, and I feel embarrassed. That’s what I wanted to say too. Why didn’t I just say it? Why the extra 990 words of justifications and disclaimers? Whose approval was I trying to win? She wanted a blog so she made a blog. I wanted a blog… so I came up with a load of disclaimers in case it flopped and then wrote a small story book to justify something I owed no justification for. That’s embarrassing.

The more of her posts I read, the more I realized how tired I was of reading blogs of a more typical nature. WordPress, especially the “Freshly Pressed” section is full of self-identified philosophers who use as many words as possible to ultimate say nothing. I’ve had enough of reading grossly verbose and flowery language used to embellish the most mundane of events and stories. Many people believe that to be skilled writing. I’ve changed my mind. There’s something to be said for honesty and simplicity. While much of WordPress is busy recounting their terminally boring lives in the most disgustingly exaggerated, flowery speech imaginable, this girl shares experiences that are genuinely incredible with the same honesty and simplicity that a 1st grader would use to tell you about their experience at the playground.

One evening we decided to go on a Safari. And it was really amazing because we went there while the sun was setting. So the sun was really beautiful, when you looked to the one side you could see the desert and on the other side huge mountains. You can imagine how amazing it looked

As a matter of fact, yes, I can. And I didn’t need ten metaphors and an entire thesaurus worth of adjectives to imagine it either.

This manner of writing has an effect that I found profound. Akvilė recounts travels and experiences that 99% of her followers will never be fortunate enough to experience, but she makes no mention of this – quite the opposite in fact. She talks about things like having tea in the desert with Bedouins in Egypt or taking a yacht out to swim off islands in the Red Sea as if these are normal vacation activities for everyone. Where typical bloggers of these topics tend to be condescending or at least distant from their followers, speaking to them of things they’ll never be able to experience first-hand, nearly all of Akvilė’s posts implore all her 2,000+ followers to go experience what she experienced. There is no doubt that these suggestions are 100% genuine and that she seems to believe they are within the reach of her readers, and when taken with the straight-forward and simple nature of her writing, you too will end up thinking, even if only for a second, that maybe it is possible for you to have the same experiences. This seeming nativity and innocence gives you get the vibe that she is a genuinely good and caring person, recounting experiences because she really wants people to share in them.

So in addition to my mood being lightened up with beautiful scenery pictures from around the world and the writing of a girl that is a genuinely sweet person, I learned something today: be clear, concise, straight-forward, and don’t patronize your readers. With that lesson learned, I’d like to say, as simply as possible… Akvilė, I really like your blog, but I still can’t pronounce your name.

PSA: The application of law in feudal America – know your place

It’s no revelation that the majority of America is asleep at the wheel (both figuratively and literally). I get it. People are really busy taking the kids to soccer, sitting glued to American Idol, and buying up $300 pairs of Nikes manufactured in Vietnam for $1.68/each. No one has the time or energy to care about trivial things like the killing of 5,000+ Americans or heads of state breaking international law. The common folks are just too preoccupied to realize that they’re paying multi-billion dollar companies welfare, all while complaining about “ghetto queens” buying a $3 Red Bull with an EBT card. I feel for these people whose few spare moments are consumed with the socially necessary memorization of sports statistics and analysis of who sportsed the hardest at sports this week. It is because of this empathy that I felt compelled to write a summary public service announcement which will inform people on proper behavior in our newly transformed society. I’m calling it…

Know Your Place

If you are a member of the ruling class or their protectors you may:

If you are a member of the underclass you may:

Of course, in the grand scheme of things, these are merely a drop in the bucket, but they should be sufficient to give folks a general idea of where each group stands in the eyes of the American injustice system. Please, tell me again about how we should only be worried about racist cops. Tell me again how it’s mayor De Blasio’s fault for people being angry at the police. Tell me again how this double standard is just some kind of false narrative put forth by the evil media. What’s that line in the pledge of allegiance? “With liberty and justice for all” Hardly.

The first victim falls

For those that missed it, I had written previously on my idea that OPEC’s November 27th meeting would result in them agreeing to not bolster oil prices with supply cuts, but rather facilitate the price decline to trim the fat of high-cost Western production which has been slowly nibbling at their market share (original post here). That scenario played out as predicted. In November alone, we’ve already seen a 40% decline in Texas and North Dakota drilling. Now, less than a month later, with Brent Crude over $10/barrel lower than it was at the time of my original post, cheap oil has claimed its first high-profile victim.

Chevron Corp is putting a plan to drill for oil in the Beaufort Sea in Canada’s Arctic on hold indefinitely because of what it called “economic uncertainty in the industry” as oil prices fall.

In a letter to Canada’s National Energy Board on Wednesday, the company withdrew from a hearing on Arctic drilling rules because it has walked away from plans to drill in the EL 481 block

With January Brent seeming to be finally settling around the $60/barrel range, it’ll be interesting to watch where the oil industry goes from here.

 

 

A list of creative ways to be killed by the cops

If only cops feeling up OWS girls were the worst of our problems…

First off, this is not a violation of my blog’s foundational rules. This post merely contains a list. It is not a “list post”.

My previous post that pointed out the destructive-to-the-cause nature of turning “all lives matter” into “black lives matter” ended up being quite controversial. Of course, it must be noted that “the cause” refers to the desire that many of us have to end America’s police state and hold police to the same standards they hold the public. If your cause is to divide people, then this “black lives matter” narrowing of the issue is doing that beautifully. The latter holds true for an unfortunately large number of people who are fully convinced that police brutality and police state America are solely black community issues and white people should mind their own business because these things don’t affect them. Then of course there’s this other large group of people, the “cops are just doing their jobs” and “being a cop is so stressful” and “there isn’t actually a problem, it’s being blown out of proportion” people. I wanted to do something for both these groups of people, to help them see reality, to help them see the absurdity of their positions, and to reinforce my previous post.  Both groups are doing harm to a cause that is ultimately going to decide whether future America will be a free country or not. They need to get back in touch with reality. So, without further adieu, I give you my list…

 

Things that cops in America will shoot you to death for holding/doing:

Of course, these are just the most ridiculous cases. There are many, many more. Still think the American police state doesn’t affect anyone other than black people? Still think the police state isn’t an issue at all? The police in this country will kill anyone for doing anything, as they see fit – and most of the time they won’t face any consequences. That’s the real problem. Not racism. Not white people. Not bias in the justice system (aside from a prosecutorial pro-cop bias). Just out of control, above the law brothers-in-blue that are allowed to kill anyone with impunity.

#alllivesmatter

 

UPDATE: 

This list growing as people bring new events to my attention. If you know of an event that is not included, please leave a link in the comments. Thank you for contributing to getting the truth out there.