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Two Outs in the Bottom of the Ninth
Two Outs in the Bottom of the Ninth
The housing market peaked in 2005 and proceeded to crash over the next five years, with existing home sales falling 50%, new home sales falling 75%, and national home prices falling 30%. A funny thing happened after the peak. Wall Street banks accelerated the issuance of subprime mortgages to hyper-speed. The executives of these banks knew housing had peaked, but insatiable greed consumed them as they purposely doled out billions in no-doc liar loans as a necessary ingredient in their CDOs of mass destruction.
The millions in upfront fees, along with their lack of conscience in bribing Moody’s and S&P to get AAA ratings on toxic waste, while selling the derivatives to clients and shorting them at the same time, in order to enrich executives with multi-million dollar compensation packages, overrode any thoughts of risk management, consequences, or the impact on homeowners, investors, or taxpayers. The housing boom began as a natural reaction to the Federal Reserve suppressing interest rates to, at the time, ridiculously low levels from 2001 through 2004 (child’s play compared to the last six years).
Greenspan created the atmosphere for the greatest mal-investment in world history. As he raised rates from 2004 through 2006, the titans of finance on Wall Street should have scaled back their risk taking and prepared for the inevitable bursting of the bubble. Instead, they were blinded by unadulterated greed, as the legitimate home buyer pool dried up, and they purposely peddled “exotic” mortgages to dupes who weren’t capable of making the first payment. This is what happens at the end of Fed induced bubbles. Irrationality, insanity, recklessness, delusion, and willful disregard for reason, common sense, historical data and truth lead to tremendous pain, suffering, and financial losses.
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Once Burned, Twice Shy? Utica Shale Touted to Investors As Shale Drillers Continue Posting Losses
For the past several weeks, the drilling industry — hammered by bad financial results — has begun promoting its next big thing: the Utica shale, generating the sort of headlines you might have seen five years ago, when the shale drilling rush was gaining speed. “Utica Shale Holds 20 Times More Gas Than Previous Estimates”, read one headline. “Utica Bigger Than Marcellus”, proclaimed another.
The reason for the excitement was a study, published by West Virginia University, that concluded the Utica contains more shale gas than many estimates for the Marcellus shale, a staggering 782 trillion cubic feet.
“This is a landmark study that demonstrates the vast potential of the Utica as a resource to complement – and go beyond – what the Marcellus has already proven to be,” Brian Anderson, director of West Virginia University’s Energy Institute, told the Associated Press.
But those considering investments based on the Utica’s potential may want to pause and consider the shale industry’s long history of circulating impressive predictions, later quietly downgraded, while spending far more than they earn.
“The industry has not been generating enough money to cover its capital spending and dividends,” Fidelity Investments energy fund manager John Dowd told Barrons.
Indeed, while it is clear that the shale drilling rush has produced large amounts of oil and gas, (alongside wastewater and other environmental impacts), the financial prosperity promised by its backers has not seemed to materialize.
Burning Through Cash
Companies like Chesapeake Energy, the nation’s second largest producer of natural gas and one of the most aggressive advocates of the shale rush nationwide, have been hammered hard by low oil prices and high costs in 2015.
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