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Here Comes The Housing Bust “Reverse Wealth Effect,” Australia Edition

October 27, 2018

Here Comes The Housing Bust “Reverse Wealth Effect,” Australia Edition

For the past few years, homeowners just about everywhere have been able to finesse life’s problems by thinking “at least my house is going up.” This home equity accretion allowed them to buy stuff on credit, safe in the knowledge that even as they maxed out yet another credit card their net worth continued to rise. They felt smart and confident, in other words, and so continued to behave in ways that the modern world defines as normal and natural.

But now that’s ending. Home prices have stopped rising in many places and in a few canaries in the financial coal mine have begun to plunge. Here’s what “plunge” means for Australians:

House prices ‘falling by over $1,000 a week’ in Sydney and Melbourne, Deloitte says

The boom time is over and we’re now officially experiencing the “house price fall we had to have”, according to Deloitte Access Economics’s latest business outlook.

It has found what many had been predicting: prices are dipping as interest rates are rising, with our biggest cities feeling the winds of change most keenly.

“Our house prices here in Australia had streaked past anything sensible by way of valuation,” said Deloitte partner Chris Richardson.
“Now, finally gravity has caught up with that stupidity and prices are falling.

“In Sydney and Melbourne, housing prices are falling by over $1,000 a week.”

Prices had surged across the country over the past five years as historically low interest rates have driven Australians to load up on debt, while investors had also cashed in.

Not if, but by how much
Housing forecasts have gone from disagreement over whether home prices will fall to debates about how much they’ll decline.

…click on the above link to read the rest of the article…

Catastrophic Cyberattacks Threaten Big Oil

May 2, 2018

Catastrophic Cyberattacks Threaten Big Oil

Servers

There are over a million oil and gas wells in the United States. There are also several hundred thousand miles of pipelines. Digitization is on the rise in the notoriously conservative oil and gas industry as companies wake up to the cost and operational efficiency boost that sensors and algorithms can offer them. Meanwhile, cybercriminals are keeping ahead of the learning curve, but oil and gas is largely pretending not to notice them.

Energy companies—including E&Ps, pipeline operators, and utilities—spend less than 0.2 percent of their revenues on cybersecurity, two security consulting firms have calculated. This compares with three times this portion of revenues spent on cybersecurity by financial services providers and banks.

True, banks and their likes deal directly with people’s money, so it would make sense to be extra careful. Also, the financial services industry has been under growing pressure from alternative service providers, so it has had to become flexible and open to new tech to stay ahead of the competition.

Oil and gas producers, on the other hand, don’t seem to see themselves a likely target of a cyberattack even though such attacks against the industry have been growing in frequency. Symantec, according to Bloomberg, is tracking as many as 140 cybercriminal groups that target the energy industry. That’s up from 87 in 2015.

Last year, Deloitte reported that the energy industry was the second most popular target for cyberattacks in 2016. Almost three-quarters of U.S. oil and gas companies, the consultancy said, had a cyber incident in that year, yet only a tiny majority cited cyber risk as a major concern in their annual reports. This is what makes the cybersecurity situation in oil and gas very worrying.

…click on the above link to read the rest of the article…

“It’s Not only Carillion that’s Built on Sand, it’s our Whole System of Corporate Accountability”

February 26, 2018

“It’s Not only Carillion that’s Built on Sand, it’s our Whole System of Corporate Accountability”

The construction & services giant collapsed even as KPMG signed off on its financial statements; now they deny any responsibility.

The Big Four accountancy firms — PricewaterhouseCoopers, Ernst & Young, KPMG, and Deloitte — reported combined annual revenues of $134 billion in 2017. In the global audit arena, they are virtually unassailable. In the US, the Big Four audit 497 of the S&P 500 companies. In the UK, they audit 99 of the FTSE 100 companies. In Spain there’s not a single firm listed on the IBEX 35 whose accounts are not audited by one of the Big Four.

But what are the Big Four firms actually good for?

Given the oligopolistic structure of the global audit industry as well as the potential conflicts of interest that can arise between the auditors’ myriad roles, this is a vital question — and one that is finally being asked by British lawmakers following the epic crash-and-burn of the services and construction giant Carillion.

In recent years, the external and internal auditors of Carillion, KPMG and Deloitte, pocketed a combined £40 million for their services. Yet they abjectly failed to discover, and warn investors of, the company’s precarious condition that caused it to collapse in spectacular fashion in January. Many other market players, including major investors, pension covenant assessors, and hedge funds shorting Carillion stocks on the markets — some with access to the accounts, others without — saw warning signs long before its demise. So, why didn’t the auditors make sure that the company discloses those problem to investors?

Carillion’s external auditor, Dutch-seated KPMG, signed off on its accounts without fail to the very bitter end, even though it was clear that Carillion had wafer-thin profit margins and was dangerously overloaded with debt, including some £2.6 billion worth of pension liabilities, and that between 2012 and 2016 it ran up debts and sold assets just to continue paying out dividends to shareholders.

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We Could Be Witnessing the Death of the Fossil Fuel Industry—Will It Take the Rest of the Economy Down With It?

April 22, 2016

We Could Be Witnessing the Death of the Fossil Fuel Industry—Will It Take the Rest of the Economy Down With It?

In just two decades, the total value of the energy being produced via fossil fuel extraction has plummeted by more than half. Now $3 trillion of debt is at risk.

Photo Credit: Pixabay

It’s not looking good for the global fossil fuel industry. Although the world remains heavily dependent on oil, coal and natural gas—which today supply around 80 percent of our primary energy needs—the industry is rapidly crumbling.

This is not merely a temporary blip, but a symptom of a deeper, long-term process related to global capitalism’s escalating overconsumption of planetary resources and raw materials.

New scientific research shows that the growing crisis of profitability facing fossil fuel industries is part of an inevitable period of transition to a post-carbon era.

But ongoing denialism has led powerful vested interests to continue clinging blindly to their faith in fossil fuels, with increasingly devastating and unpredictable consequences for the environment.

Bankruptcy epidemic

In February, the financial services firm Deloitte predicted that over 35 percent of independent oil companies worldwide are likely to declare bankruptcy, potentially followed by a further 30 percent next year—a total of 65 percent of oil firms around the world. Since early last year, already 50 North American oil and gas producers have filed bankruptcy.

The cause of the crisis is the dramatic drop in oil prices—down by two-thirds since 2014—which are so low that oil companies are finding it difficult to generate enough revenue to cover the high costs of production, while also repaying their loans.

Oil and gas companies most at risk are those with the largest debt burden. And that burden is huge—as much as $2.5 trillion, according to The Economist. The real figure is probably higher.

…click on the above link to read the rest of the article…

One Third Of Energy Companies Could Go Bankrupt Deloitte Warns As Credit Risk Hits Record High

February 16, 2016

One Third Of Energy Companies Could Go Bankrupt Deloitte Warns As Credit Risk Hits Record High

 At 1600bps, the extra yield investors are demanding to take on US energy credit risk has never been higher. However, if a new report from Deloitte proves true, this is far from enough as they forecast roughly a third of oil producers are at high risk of slipping into bankruptcy this year as low commodity prices crimp their access to cash and ability to cut debt.

Record high US Energy credit risk…

The report, as Reuters reports, based on a review of more than 500 publicly traded oil and natural gas exploration and production companies across the globe, highlights the deep unease permeating the energy sector as crude prices sit near their lowest levels in more than a decade, eroding margins, forcing budget cuts and thousands of layoffs.

The roughly 175 companies at risk of bankruptcy have more than $150 billion in debt, with the slipping value of secondary stock offerings and asset sales further hindering their ability to generate cash, Deloitte said in the report, released Tuesday.

“These companies have kicked the can down the road as long as they can and now they’re in danger of kicking the bucket,” said William Snyder, head of corporate restructuring at Deloitte, in an interview. “It’s all about liquidity.”

Some oil producers are also choosing to liquidate hedges for a quick infusion of cash, a risky bet.

“2016 is the year of hard decisions, where it will all come to a head,” John England, vice chairman of Deloitte, said in an interview.

For now, however, there is a corner of the market that offers perhaps a smidge of saefty…

…click on the above link to read the rest of the article…

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