Best of the Week
Most Popular
1.Stock Market in DANGER of Strangling the Bears to Death - Nadeem_Walayat
2. Germany Pivoting East, Exit US Dollar, Enter Gold Standard - Jim_Willie_CB
3.Flight MH17 – Kiev Flash Mob's Last False Flag? - Andrew_McKillop
4.Stock Market Crash Nightmare! - Nadeem_Walayat
5.Gold - The Million DOLLAR Question... - Rambus_Chartology
6.Gold And Silver – BRICS And Germany Will Pave The Way - Michael_Noonan
7.The Jewish Selfish Gene, People Chosen by God, Everyone Else is Goyim to Kill - Nadeem_Walayat
8.The Israeli Promised Land Dream - The Criminal Roadmap Towards “Greater Israel”? - Felicity Arbuthnot
9.Which Way is Inflation Blowing? Watch Commodities - Gary_Dorsch
10.U.S. Economy Quarterly Review and Implications for 2014-2015 - Lacy Hunt
Last 5 days
Gaza Death Cloud Hangs Over Sheffield Eid Festival 2014 at Millhouses Park - 1st Aug 14
Israels Final Solution of Turning Gaza Concentration Camp into a Grave Yard - 31st July 14
US Failure: Unintended Consequence - 31st July 14
Stock Market Breakdown! - 31st July 14
Echoes Of The Great War – Only An Echo In The Elite Mind - 31st July 14
This is Bad News for U.S. Economy and Stock Markets - 31st July 14
The Important Impact of This “Secret” Gold Agreement - 31st July 14
The Something For Nothing Society Death Spiral - 31st July 14
The Social Memory Dump, Shredding Society - 31st July 14
How Safe Are Unallocated Gold Bullion Accounts? - 31st July 14
USDJPY Big Bear Market - 31st July 14
No More School in Gaza Because All the Children are Dead Chant Israel's Jewish Fundementalists - 31st July 14
The Iron Dome Inside The Heads of Israel’s Leaders - 31st July 14
You Know a Politician or Talking Head is Clueless When….. - 31st July 14
Don't Get Married to Your Gold Stocks—It's a Performance-Based Relationship - 31st July 14
Stock Market Parabolic Collapse - Sowing the Seeds of the Next Depression - 30th July 14
How to Profit from the Russia Ukraine Conflict - 30th July 14
Greenspan: U.S. Economy Running Out of Buffer; Stock Market to See Significant Correction - 30th July 14
Rogue States And Loony Tunes - 30th July 14
Anne Elk’s Theory On Brontosauruses - 30th July 14
Our Totalitarian Future - Totalitarianism NOW! - 30th July 14
Stocks Bear Market Formation Revealed - 30th July 14
We Just Found “The Future” - 30th July 14
What the “Steak Bandit” Says About Asset Values - 30th July 14
Designer War By Default - Seven Types of Elite Madness - 30th July 14
Death of the U.S. Dollar? Gold an Inflation Hedge? Really? - 29th July 14
We’re Ready to Profit in the Coming Gold Price Correction—Are You? - 29th July 14
Their Economy Will Collapse, Including Ours - 29th July 14
Silver Prices – Megaphone Patterns - 29th July 14
Real U.S. Interest Rates - Fed Exit a Blue Pill? - 29th July 14
Why Israel Should NOT Exist, Just Like Any Other Rogue State - 29th July 14
Gold Still Looking Good - 29th July 14
Silver Price Set To Star - 29th July 14
Our Population Growth Totalitarian Future - 29th July 14
World War 1 Cause and Consequences - The Planned Destruction of Christendom - 29th July 14
Will Crashing Commodities Crash the Stock Market? - 29th July 14
Ukraine MH17 - Washington Thinks Americans Are Fools - 29th July 14
Stock Market Bubble Warning - 29th July 14
Gold Price and U.S. Dollar’s July Rally - 28th July 14
Second Quarter Corporate Earnings: Marching Toward a Strong Economic Recovery - 28th July 14
Time to Put a New Economic Tool in the Box - 28th July 14
Mossad in Gaza, Ukraine and the Cult Of The All-Powerful Elite - 28th July 14
Elliott Wave Gold Price Projection Since 1970 - 28th July 14
Investors Remain Uncertain As Stock Fluctuate Near Long-Term Highs - Will The Uptrend Extend? - 28th July 14
The Mass Psychology Of Decline - 28th July 14
Will the US Destroy the World? - Don’t Expect to Live Much Longer - 28th July 14
GDM and GDXJ Gold Stocks In-depth Look - 28th July 14
Stock Market One FINAL High? - 28th July 14
What It Means - Paradigm Collapse And Culture Crisis - 27th July 14
Wall Street Shadow Banking: You Can’t Taper a Ponzi Scheme: “Time to Reboot” - 27th July 14
6 Tips for Picking Winning Gold Mining Stocks - 27th July 14
Israel's War on Children, Exterminating the Palestinians Future - 27th July 14
Guilt By Insinuation - How American Propaganda Works - 26th July 14
Surprise Nuclear Attack On Russia To Liberate Ukraine - 26th July 14
Use "Magic" Of Gold/Silver Ratio To Greatly Increase Your Physical Holdings - 26th July 14
Derivatives Market Species Origins - Abuse, Props and Risks - 26th July 14
Stock Market Manipulation and Technical Analysis - 26th July 14
China’s Stock Market Finally Looks Like A Buy - 26th July 14
Ed Milliband Fears Israel Jewish Fundamentalist Gaza War Massacres Backlash - 26th July 14
The Big Energy = Power Battle Is Coming - 25th July 14
USrael - Zionists in Control of America's Goyim Brainwashed Second Coming Slaves - 25th July 14
More Weakness Ahead for Gold Miners - 25th July 14
Gold Price Strong Season Starts - 25th July 14
Geopolitics and Markets Red Flags Raised by the Fed and the BIS on Risk-taking - 25th July 14
Gold Lockdown Until Options Expiry - New Singapore Gold Contract Threatens Price Manipulation - 25th July 14
The Bond Markets, Black Swans, and the Tiny Spirit of Santo - 25th July 14
No Road Map For Avoiding The Future - 25th July 14
Israeli War Machine Concentrating Women and Children into UN Schools Before Killing Them - C4News - 25th July 14
Israeli Government Paying Jewish Fundamentalist Students to Post Facebook Gaza War Propaganda - 25th July 14
Why the Stock Market Is Heading For A Fall - This Time Is Not Different - 25th July 14
An Economic “Nuclear Strike” on Moscow, A “War of Degrees” - 25th July 14
BBC, Western Media Working for Israeli Agenda of Perpetual War to Steal Arab Land - 25th July 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The Biggest lie in Stock Market History Revealed

The Boy In The Bubble

Stock-Markets / Financial Markets 2014 Apr 30, 2014 - 06:28 PM GMT

By: Raul_I_Meijer

Stock-Markets

That’s how I feel these days, or I should say these years. Since the name of this site comes from Paul Simon’s song by that title, it comes easily. Funny enough, I watched one of the Making of Graceland docs on Sunday night, and then on Monday morning read that the grand small 70-year old songwriter has been arrested because his wife’s mother had called 911 for a domestic disturbance situation. Given that Edie Brickell is about a foot taller than Simon, that made me smile. All the more so because in the documentary he’s talking about how he’s not good at writing angry songs, and that’s why Graceland came out the way it did, instead of being filled with loud protests against the injustices of South Africa. But, he said, outside of my songs, I’m very capable of expressing my anger, and I do get angry. Got ya, Paul.


Personally, I perhaps find it harder to not get angry all the time, and try to channel it into expressing amazement at what I see around me in this bubble I find myself in. For instance, I’ve seen more than one person claim this week alone that London real estate is not in a bubble – because there’s just so much demand -. And then I read that the average price of a 3-bedroom house in London’s plushest neighborhoods has gone up in “value” by $8000 per week, $1150 per day, over the past year, which represents a 20% rise overall. But I’m supposed to believe that that’s not a bubble. That all those buyers who owe their fortunes to Russia’s energy bubble and China’s $14 trillion stimulus bubble somehow represent the new normal. Let’s see what lifelong Londoners have to say about that who are getting pushed out ever further from the city center.

And in the US, to my utter bewilderment, there’s a second Enron, 12 years after the demise of the first one. the ghost of Kenny-Boy haunts the hallways of Wall Street. I’d say there were quite a few faces outside of Kenny Lay and Jeffrey Skilling, like amongst regulators, who should have been looked at at the end of 2001. But to let it happen again?! TXU slash Energy Future Holdings goes broke with a $40 billion debt. And Bernie Madoff is still in jail?! It’s not always easy to define what exactly is wrong with America, but whatever it is, it’s huge. The largest leveraged buy-out in history gambled on gas prices, and they lost. Investors thought they’d make a killing and got killed. Check your pension fund, I’d say. If only because Energy Future CEO John Young had this comment: “We are pleased to have the support of our key financial stakeholders for a consensual restructuring .. [..] We fully expect to continue normal business operations during the reorganization.” These guys lost $40 billion at the crap table, and they’re allowed to restructure, stiff junior investors, and get more loans? Where’s this going?

In the energy corner, there’s shale. Automatic Earth readers have known for a long time what shale is really about: land speculation. But how many other people realize that? The entire industry runs on junk debt, and you know what the collateral is? Land. Which is supposed to deliver enormous profits through the resources underneath it. But never quite does. I’ve asked it before: why do you think Shell and Exxon quit shale to the extent that they did, two companies who would kill their CEO’s grandma’s for some proven reserves? Bloomberg spells it out neatly:

Shale Drillers Feast on Junk Debt to Stay on Treadmill (Bloomberg)

The U.S. drive for energy independence is backed by a surge in junk-rated borrowing that’s been as vital as the technological breakthroughs that enabled the drilling spree. While the high-yield debt market has doubled in size since the end of 2004, the amount issued by exploration and production companies has grown nine-fold, according to Barclays.

That’s what keeps the shale revolution going even as companies spend money faster than they make it. “There’s a lot of Kool-Aid that’s being drunk now by investors,” said Tim Gramatovich, who helps manage more than $800 million as chief investment officer of Peritus Asset Management.

“People lose their discipline. They stop doing the math. They stop doing the accounting. They’re just dreaming the dream, and that’s what’s happening with the shale boom.” Rice Energy was able to borrow so easily because of the quality of its assets, which are in some of the best areas of the Marcellus, a shale formation beneath western Pennsylvania and West Virginia, and the company’s drilling success there, said Gray Lisenby, Rice’s chief financial officer. [..]

“Who can, or will want to, fund the drilling of millions of acres and hundreds of thousands of wells at an ongoing loss?” Ivan Sandrea, a research associate at the Oxford Institute for Energy Studies in England, wrote in a report last month. “The benevolence of the U.S. capital markets cannot last forever.” The spending never stops, said Virendra Chauhan, an oil analyst with Energy Aspects in London. Since output from shale wells drops sharply in the first year, producers have to keep drilling more and more wells to maintain production. That means selling off assets and borrowing more money. “The whole boom in shale is really a treadmill of capital spending and debt,” Chauhan said.

“It’s a perfect set-up for investors to lose a lot of money,” Gramatovich said. “The model is unsustainable.”

Not a bubble? I’m not a vindictive person, but sometimes I think people deserve what they get. Serves them right for not reading The Automatic Earth. Shell has written off billions in its investments in shale, this morning it announced a drop in net profit of -45%, and you still think Shell wouldn’t be all over this if it could find a way to make a buck? At least you must admit this article makes the claims of exporting US oil and gas look even funnier than they already did. And like with Enron and TXU, you should wonder who the people in government are that allow for this kind of trickery to happen.

And then, timely ahead of Fed announcements later today, David Stockman tells it like it is:

The Fed Is Fueling The Century’s ‘Greatest Bubble’

The Fed is “a posse of academic zealots and unreconstructed Keynesians who think debt is the magic elixir, and they won’t stop printing money and putting their foot on the floorboard until they really blow something up …” At this point, his biggest concern is the impact that the Fed’s stimulative policies have had on equities. “I think the Fed is now inflating the greatest and third bubble yet of this century [..] The Russell 2000, even though it’s come off a little bit, is still trading at 80 time trailing earnings. That’s crazy, and you can say that about many other sectors of the market.” “What we need to do is get the Fed out of there, free interest rates, let the money market find the natural balance and purge some of this enormous speculation …”

There are people who know a bubble when they see one. But not everyone does, and it’s not in everyone’s interest either. Politicians can be made to look good inside a bubble, and businessmen can make a lot of money off the public purse. And you yourself get to feel for a fleeting moment in time as if you’re richer than you actually are. Because make no mistake about it, when this bubble bursts, it’s going to hurt. A lot worse than the last one. A comment in the Guardian on the “benefits” of austerity said: “… how does the logic of austerity sound in Britain? The country is richer, but its people are poorer. This now counts as a recovery.” That is a nice way to put it. Except that the country, too, will be poorer after the bubble pops, and a lot. And that will, of course, make the people poorer too. A lot.

There are lots of you, probably most, who like to live in a bubble. As long as you don’t feel forced to see it for what it is. It’s like the Truman Show. Exactly like that. But I know full well I live in a bubble. And I want to get out. It’s suffocating. Because I know what’s going to happen once it bursts, and it will, and the longer that takes, the worse the outcome will be. For the man in the street. Who I care more for than for those who seek only money or power. That, after all, is why there’s an Automatic Earth. Unlike the original boy in the bubble, you and I are not going to drop dead as soon as the bubble bursts. But just like him, the bubble keeps us from experiencing real human contact. That’s a huge price to pay. It’s not all that great to be a boy in a bubble. I should know.

By Raul Ilargi Meijer
Website: http://theautomaticearth.com (provides unique analysis of economics, finance, politics and social dynamics in the context of Complexity Theory)

© 2014 Copyright Raul I Meijer - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
Raul Ilargi Meijer Archive

© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014