Jump to content

The domino is starting to fall.


bookie71
 Share

Recommended Posts

  • Replies 103
  • Created
  • Last Reply

Top Posters In This Topic

Ripples?  North Dakota will cool off a wee bit, but what does it amount to in the grand scheme of things?

 

The more important factor will be the $750/family fuel savings that will apply to all american families.  That's like a $75 billion stimulus package, as most of those families will spend their $750 on any number of goods and services.  Party on!

 

 

SJ

Link to comment
Share on other sites

Ripples?  North Dakota will cool off a wee bit, but what does it amount to in the grand scheme of things?

 

The more important factor will be the $750/family fuel savings that will apply to all american families.  That's like a $75 billion stimulus package, as most of those families will spend their $750 on any number of goods and services.  Party on!

 

 

SJ

 

I'd opine that there already is more going on than North Dakota cooling off a wee bit. 

 

http://blog.chron.com/primeproperty/2015/01/amid-low-oil-whos-moving-forward-with-houstons-big-real-estate-deals/#21137103=0&30039101=0

 

Thanks,

Lance

Link to comment
Share on other sites

How do you determine whether the money saved from lower fuel prices will be spent vs. used to pay off debt or saved?

 

 

Well, if the U.S. didn't have a spending culture, then debt repayment or savings would be a real prospect....but, saving money and paying off debt seems to be downright un-American!  ;D

 

Party on!

 

SJ

Link to comment
Share on other sites

Ripples?  North Dakota will cool off a wee bit, but what does it amount to in the grand scheme of things?

 

The more important factor will be the $750/family fuel savings that will apply to all american families.  That's like a $75 billion stimulus package, as most of those families will spend their $750 on any number of goods and services.  Party on!

 

 

SJ

 

I'd opine that there already is more going on than North Dakota cooling off a wee bit. 

 

http://blog.chron.com/primeproperty/2015/01/amid-low-oil-whos-moving-forward-with-houstons-big-real-estate-deals/#21137103=0&30039101=0

 

Thanks,

Lance-

 

Okay, fair enough.  So what does it mean? 

 

I'd say it means that oil exploration will be held in abeyance until prices firm up.  So all that sector of the economy dries up.  But, the existing wells still need to be serviced for the remainder of their useful life, so there'll still be some level of employment in ND's petroleum sector.  There'll be a healthy reduction in royalties for owners of mineral rights, which will affect local communities....and there will be reduced profitability for the companies operating in the patch, which will be dispersed throughout the broader capital sector.  So what's the upshot?  A state with like 1 million people will hit an air-pocket. 

 

 

But the other 300 million Americans?  Extra money!  Party on!

 

 

SJ

 

Link to comment
Share on other sites

Check out what's happened to some of the Texas bank stocks - FFIN, PB, TCBI.  Also, Halliburton and Schlumberger are laying people off.  I have a hard time buying treasuries here, but I think yields are

going lower.  Interesting times.

 

Thanks,

Lance

 

Link to comment
Share on other sites

Ripples?  North Dakota will cool off a wee bit, but what does it amount to in the grand scheme of things?

 

The more important factor will be the $750/family fuel savings that will apply to all american families.  That's like a $75 billion stimulus package, as most of those families will spend their $750 on any number of goods and services.  Party on!

 

 

SJ

 

I'd opine that there already is more going on than North Dakota cooling off a wee bit. 

 

http://blog.chron.com/primeproperty/2015/01/amid-low-oil-whos-moving-forward-with-houstons-big-real-estate-deals/#21137103=0&30039101=0

 

Thanks,

Lance-

 

Okay, fair enough.  So what does it mean? 

 

I'd say it means that oil exploration will be held in abeyance until prices firm up.  So all that sector of the economy dries up.  But, the existing wells still need to be serviced for the remainder of their useful life, so there'll still be some level of employment in ND's petroleum sector.  There'll be a healthy reduction in royalties for owners of mineral rights, which will affect local communities....and there will be reduced profitability for the companies operating in the patch, which will be dispersed throughout the broader capital sector.  So what's the upshot?  A state with like 1 million people will hit an air-pocket. 

 

 

But the other 300 million Americans?  Extra money!  Party on!

 

 

SJ

 

There will be a lot of localized loan defaults for a slightly higher loan coverage rate nationally, the net benefit may not be as high as expected.

Link to comment
Share on other sites

People are foolish to believe that the steep oil price decline won`t hurt America. The shale boom was a huge driver of economic growth over the last 5 years and not just for oil producing States. Go ask GE or Caterpilar for example. These were all high paying jobs impacting a myriad of other businesses.

 

Moreover, the oil decline was accompanied by a very sharp move up in the USD which will hurt multi-nationals earnings. This is now very apparent in the earnings that were published today. Also, how are these companies going to be able to predict their earnings with any kind of certainty when you have such fast and unpredictable moves in currencies as we have had lately?

 

Expect sharp revisions downward to S&P earnings and potentially lower targets or with a lower multiple since they will be much hard to predict than they were.

 

Cardboard

Link to comment
Share on other sites

People are foolish to believe that the steep oil price decline won`t hurt America. The shale boom was a huge driver of economic growth over the last 5 years and not just for oil producing States. Go ask GE or Caterpilar for example. These were all high paying jobs impacting a myriad of other businesses.

 

Moreover, the oil decline was accompanied by a very sharp move up in the USD which will hurt multi-nationals earnings. This is now very apparent in the earnings that were published today. Also, how are these companies going to be able to predict their earnings with any kind of certainty when you have such fast and unpredictable moves in currencies as we have had lately?

 

Expect sharp revisions downward to S&P earnings and potentially lower targets or with a lower multiple since they will be much hard to predict than they were.

 

Cardboard

 

Cardboard,

 

When a key input cost to the economy declines, I would think the benefits would far outweigh the loss to the oil producers. In the short run (6 months or so), I can see your point but not over the long run, when the benefits of lower prices start translating into more jobs.

 

Stephen Roach (when he was at Morgan Stanley) used to pound the table in the early 2000's that oil going above $50 would cause a recession as it always did.

 

I keep thinking of this essay, anytime, I see arguments to the contrary.

 

http://bastiat.org/en/petition.html

 

Vinod

Link to comment
Share on other sites

What is good for the oil states is bad for the country and what is good for the country is bad for the oil  states. If you are in an oil state be careful of the banks as the value of their collateral can become almost nil.  IF lots of home are repo'ed then the value goes down and loan reserves are not large enough. It took Alaska almost 10-15 years before real estate prices came back to pre crash times.  Hopefully with our savings account and permanent fund it won't be as bad this time, BUT I don't trust our politicians.

Link to comment
Share on other sites

I think it's a case of diffuse interest vs concentrated interest (similar to the situation with farming subsidies).

 

Those who benefit from high oil prices are very visible (high paying jobs, boom towns, etc). Those who are harmed by high oil prices are diffuses, a few hundred dollars here and there spread over billions of people.

 

But what matters is the aggregate number, and it seems like it should be a net positive for the economy over time.

Link to comment
Share on other sites

A lot of oil wells will run dry (not just the shale ones) within 6months - 2 years. A lot of investments are probably not made to drill new ones with oil at <60$? Right now supply exceeds demand because drillers need to pay their bills, and stopping would be more costly. Some are even ramping up production to not go broke. Despite never getting their original investment back.

 

So what happens if oil stays low for a while, and new investments aren't made in new wells world wide? You could see a drop off of 8-9 million barrels a day on the ~90-92 million barrels of consumption every day if that doesn't happen.

 

Unless ofcourse all the producers are foreseeing this, and still investing in exploration and new wells, despite the fact that they would lose money on those investments if oil doesn't go to at least 70-80$.

 

So there are three scenario's,

 

1. they are all foreseeing this, and investments in new wells are still made, speculating others will not make these investments. Keeping the price down.

2. Some producers are doing this, causing maybe a small supply shock, and oil goes to 70-80$ again (this is the version where the oil market is relatively efficient).

3. Investment dries up over the next 1-2 years, and you will see a huge supply shock, with oil spiking up to well above 100$, because suddenly demand cannot be met as adequate investments at those low oil prices were not made.

 

To add, someone posted a link of a Saudi saying that 100$ oil will not happen again. They have a huge interest in scenario 3, so they want to scare off as much investment as  possible. So you should probably take everything the Saudi's say with a huge grain of salt.

Link to comment
Share on other sites

Honestly, I may be totally wrong on the direct oil price impact on the U.S. economy. However, I think that some do not remember how much of a saving grace this was to U.S. employment after 08-09. These jobs were not come back jobs but, totally new ones. It was even called the industrial revolution for a while. GE is one company that benefited tremendously from that trend and invested heavily to produce the equipment necessary for oil & gas. Steel producers benefited. All these plants are not located in the producing States. Rail roads such as Burlington got really busy because of the oil boom. I don't think that people realize how big this is. It did not exist before 08.

 

High oil prices used to be really bad for the U.S. when it was importing almost all of it. It was obvious. But, now that it is producing it and the kind of capital being spent to drill, collect, maintain and transport it, how big of an impact is it to the economy?

 

On the other hand, I am certain that the high USD will be a large drag on S&P earnings. If earnings forecasts are down along with uncertainty due to unpredictable currency movements and you have a recipe for a big down year. Then it hurts pension accounts, the rich, etc., confidence goes down and the economy suffers.

 

Cardboard

Link to comment
Share on other sites

Honestly, I may be totally wrong on the direct oil price impact on the U.S. economy. However, I think that some do not remember how much of a saving grace this was to U.S. employment after 08-09. These jobs were not come back jobs but, totally new ones. It was even called the industrial revolution for a while. GE is one company that benefited tremendously from that trend and invested heavily to produce the equipment necessary for oil & gas. Steel producers benefited. All these plants are not located in the producing States. Rail roads such as Burlington got really busy because of the oil boom. I don't think that people realize how big this is. It did not exist before 08.

 

High oil prices used to be really bad for the U.S. when it was importing almost all of it. It was obvious. But, now that it is producing it and the kind of capital being spent to drill, collect, maintain and transport it, how big of an impact is it to the economy?

 

On the other hand, I am certain that the high USD will be a large drag on S&P earnings. If earnings forecasts are down along with uncertainty due to unpredictable currency movements and you have a recipe for a big down year. Then it hurts pension accounts, the rich, etc., confidence goes down and the economy suffers.

 

Cardboard

 

The countervailing point that I tried to point out earlier is that you have to compare oil & gas jobs to jobs that come out of increased consumer spending because of oil & gas savings.

 

I suspect that the economic multiplier effect is much higher for the latter than the former.

Link to comment
Share on other sites

I am solidly in the Jeremy Grantham camp on this one.  At the moment oil is the driver of the world economy.  The worst recessions have always occurred after a huge run up in oil prices (mid 70s, early 80s, and 2008 till now).  Up until Christmas the major economies of the world have been flirting with recession more or less continuously since 2007. 

 

The only bright spot was the United States and it wasn't exactly bright, just sort of less dim.  I think the US was helped by the shale boom, but I dont necessarily think that the shale boom is necessary to the overall health of the US economy. 

 

I think that the lower oil and nat. gas prices will finally pull the EU out of recession.  I think it will help alot of the rest of the world as well.  The US dollar is going up as a flight to safety reaction.  Ultimately, with other economies improving, the flight to safety will be less pronounced, bringing the US dollar in check. 

 

It hasn't done much for PWT.  Taught me a lesson though.  I am just going to stay out of commodity value plays forever now.  I have been stung in the P&P industry, and now the oil industry.  Thats enough.  Fortunately, I have always had the wherewithal to never go near miners. 

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
 Share




×
×
  • Create New...