This is my last report from the good old “twenty-teens”.
In some respects, they didn’t turn out at all like I thought they would. But in many others, exactly as predicted.
I badly underestimated the system’s ability to perpetuate obvious frauds and swindles without causing a social rebellion. And worse, to watch so many otherwise intelligent people participate with glee.
Negative Interest Rates
Back in 2008 when The Crash Course first came out, you would have never convinced me that we’d be sitting here at the cusp of 2020 with $11 trillion of “negative yielding debt.”
I have to place that phrase in quotation marks, because, although I can write those words, I haven’t a clue what they actually mean in a world where money is supposed to be a store of value. How can money in the future be worth less than money today?
Perhaps Pablo Escobar could help us here, as he reputedly factored in a 10% loss on all his buried cash due to rats, water damage, mold, or forgetting where he placed it.
Thee twenty-teens saw the extinguishment of bond vigilantes leaving nobody to seriously push back on the abomination of negative rates. Only speculators are left these days, perfectly happy to place the bet that they’ll be able to sell their negative yielding bonds to a greater fool at a higher price.
There’s no such thing as a bond vigilante anymore, only speculators perfectly happy to pull on a slot machine lever in the hopes of selling their negative yielding bonds to some other punter later on at a higher price.
Paying any government to lend it money is a swindle. Buying Greek national debt with a lower rate of return than US Treasury debt is a swindle.
These and a thousand others completely obvious swindles, and yet here we are with the vast machinery of state and corporate journalism aligned to tell you how good and right they all are.
I also underestimated the longevity of the recent shale oil “boom”.
I studied it intently early on, concluded it was a money-losing enterprise, and then patiently waited for investors to wake up to that reality.
This realization has been slow to dawn on them, but it’s finally becoming understood. Slowly, grudgingly. However, that’s after 10 years of massive losses for hapless investors in the shale oil space.
Shale company bond and equity holders have been slaughtered, though those vast losses are yet to be recognized.
While the capital raised from bond sales and equity offerings has already been spent, so are the wells that were drilled with that money. They’re played out.
Raising new capital merely obscures that any money that has not already been returned to investors can’t be and won’t be because of this dynamic:
What does the above chart tell us? Only that the very best shale operator in the world operating in the very best shale play in the world sees an 82% decline rate in average well output in the first year.
Which means that if that well has not entirely paid itself back within that first year, it probably won’t generate *any* returns for bond or shareholders to enjoy. Ever.
It also means that all the debt and equity capital poured into the ground between 2008-2017 is now “invested” in wells that are, effectively, depleted.
Bluntly, if the returns have not already happened on those monies, they probably never will. How could they? The wells are mostly drained.
The table below shows the equity losses for a small sampling of afflicted companies. Hundreds of other shale companies have already gone completely bankrupt with similar staggering bond losses to “investors”:
It still doesn’t make sense to me that the obvious cash-destroying financial math of shale oil has proven so difficult to explain that an entire decade has passed before the media and Wall Street have started to catch on. It’s truly a mystery. Usually people with money are more alert than this. I chalk it up to the insanity stoked by the Fed in their “yield starved” captive audiences.
Old Barnum – There’s a sucker born every minute.
New Barnum – Investors are the best suckers there are.
More amazingly, there has been such a rush to rip the shale oil out of the ground that horrifying amounts of associated natural gas has been (and continues to be) simply burned off into the night sky. All that lost fossil energy will never be used constructively to build anything useful to our future.
It’s like a beacon into the universe telegraphing how moronically wasteful we’re being with a precious resource. A multi-county sized neon advertisement for wastefulness.
As a Dec 24, 2019 Bloomberg article put it:
Producers in the Permian are already flaring record levels of natural gas. The Texas Railroad Commission, which oversees the oil and gas industry in the state, has granted nearly 6,000 permits allowing explorers to flare or vent natural gas this year . That’s more than 40 times as many permits granted at the start of the supply boom a decade ago.
That was 6,000 opportunities to not be moronic. And we passed on every single one.
There will come a time in the not-too-distant future when people will look back, shake their heads, and pass harsh judgment on the generations involved with wasting so much precious energy.
In Dr. Seuss’ book The Lorax, the hero warns of the self-destructive impacts of industrial and consumer exploitation of the natural world and its denizens.
The book ends with a final warning; Unless.
“Unless” our destructive practices are halted and reversed, much of the natural world will disappear forever, never to return. Gone is gone, man.
The distressing trends in the environment warned of in The Lorax and in The Crash Course have sadly only become gotten predictably worse over this past decade. I hate being right about those.
Meanwhile, I see a lot of people fretting about if/how various carbon emission targets are going to be met. Let me alleviate the suspense; they’re not.
Every single economically-retrievable lump of coal and molecule of oil and gas is going to be extracted and burnt before we give up our addiction to fossil fuel.
Because without energy ,nothing is possible. Especially our ridiculously comfortable lives of massive over-consumption. And fossil fuels remain unmatched in their net-energy returns compared to today’s alternatives.
Even Australia’s current shattering of all its heat records, with growing swaths of the continent literally aflame, hasn’t managed to trip any alarms in the skull of the Australian PM Scott Morrison, whose single major policy initiative on the matter was to enact harsh new penalties on any Australians who might protest against the coal industry.
No one cares until you threaten to dampen corporate profits. Or impede the unchecked march of break-neck resource extraction. If you do, then you’re branded a threat, a terrorist, or “indulgent and selfish” in the words of Mr. Morrison.
After all, what could be more ‘indulgent and selfish’ than advising we proceed with caution, so as to protect society’s future prospects?
In a post-peak world, we’re probably not going to be seeing too many bananas way up north (where I live) in January. And I’m pretty sure the current ones individually wrapped in plastic won’t be available any more:
There’s something so offensive about an individually-wrapped banana that it strikes like a closed fist. It’s a shining reminder that we’re accelerating down a slippery slope, while blithely spraying Astroglide ahead of us.
Maybe we should preserve one of these plastic-wrapped bananas to place in a future Buzzfeed-sponsored Smithsonian display titled “You won’t believe these 10 stupid things your ancestors did.”
Meanwhile, as you can plainly see below, innumerable science-based summits, conferences and accords held over the past decade have really done their work on mounting CO2 levels.
I’ve helpfully mapped the size of the possible solution set below that.
Marine life is in deep trouble, soils continue to erode, species are disappearing, and weather events are getting more and more chaotic.
Only a fool would build (or re-build as the case often is) in a 500-year flood plain. We can now count on those to be routinely swamped.
Yet as a completely non-sensical counter to all this, the central banks of the world, led by the Fed, have mounted a particularly spirited effort to make the wealthy insanely wealthier and by every measure they have not only succeeded, but are determined to top their former high scores.
One thing I never, ever, not once, EVER foresaw was the markets being A-OK with the massive distortions the world central banking cartel has saddled the world with over the past decade.
$15 Trillion in new currency printed from thin-air. The cramming of interest rates to 5,000 year lows. Negative interest rates. The complete perversion of price discovery.
All in the service of making a very, very few wealthy people even wealthier.
All while absolutely screwing the (former) middle classes, slow-roasting pensions, and destroying the retirement dreams of millions living on a fixed income.
Despite the fact the 99.9% of all journalists are decidedly not in the camp of the “winners” here, they nonetheless take pains to never ask a single tricky question of the Fed, nor ask anything about its stated policy of robbing from the many to give to the few.
Here’s a still shot of the media over the past ten years engaging with the Fed.
After ten years of non-stop interventions, the central banks have created the worst asset price bubble in history and are now trapped.
To try to keep it from popping, they’re being forced to use increasingly desperate measures not seen since the hairy depths of the worst moments of the Great Financial Crisis:
Over the past decade, the markets morphed into “markets” which then metastasized into ““markets”” . They are now so perversified that they are well and truly “““markets””” ,signifying that they lack any resemblance to a place where honest participants set honest prices.
Collectively, the world’s central banks have undertaken more emergency ‘easing’ than at any point in time, since… ever.
Global central banks have cut interest rates roughly 90 times over the past year, the largest cumulative easing since the financial crisis, according to Canadian Imperial Bank of Commerce data.
While the Fed accounted for three of those, taking its policy rate down to a range of 1.5% to 1.75%, that’s still higher than much of the rest of the developed world, including Japan and Europe, where rates are near or even below zero.
“It’s very hard for the average foreign investor to survive — we’re still at a point now where it’s max desperation,”
How about that? Feeling better yet?
I certainly don’t. But don’t tell the stock “““markets,””” which are now wholly-owned subsidiaries of the central banks and the governments of the world that protect this cartel:
They perform a utility function — but instead of delivering electricity to your home, they siphon wealth from the many to give to the few. If Robin Hood’s evil twin operated a utility, he’d operate the US equity markets.
While the average household in the US slips farther and farther behind, going deeper and deeper into debt, the Fed congratulates its efforts, believing it’s doing “God’s work”.
Again, here’s the media on all this:
At this point you really ought to be asking yourself, “why exactly are the world’s central banks, led by the Fed, freaking out so badly right now?”
As we close out the ‘twenty-teens’, all I can say is, you’d better start working on providing the basics for yourself and your family, because when this credit cycle finally ends, it’s going to be horrible.
Which is precisely what the central bankers know, too.
While you and I may share in that knowledge, it remains unacceptable to talk about in public.
The Overton Window does not allow for such talk anywhere and certainly never in the mainstream media, which is on track to close out the twenty-teens having failed in its Fourth Estate duties more comprehensively than any other press cohort in history.
The End Of ‘Magnificent Folly’
There’s a great emergency happening right now, but society is not acknowledging it.
The social mood is darkening Fourth Turning-style and people are protesting and risking life, career, and limb to express their anxiety and frustration with the policies of Team Elite™. But don’t expect to hear about that on the nightly news or in the mainstream press.
The economy is doing so “great” that central banks are applying record-breaking amounts of funny-money stimulus to counter…something. Or, more accurately, to avoid something.
I hold the view that people are organisms and that we’re wired to know when our nest is getting fouled. Our instincts, honed over millions of years of evolution, are to migrate to a new, less polluted or played-out home.
That only makes sense. But the problem is that now there’s nowhere new to go. No next valleys. No unpolluted corner to wander off to and inhabit for a while.
So those of us who are ‘of an age’ and remember when a porch light left on for an August night would attract a Zootopia of strange and wonderful insects to our screen doors. How many of you are now deeply anxious, as I am, at the creepily barren screens we now wake up to?
It’s as if the Rapture happened only – surprise! – God took the insects. Because they didn’t have any clothes to leave behind, nobody noticed.
But we’ll soon notice the ramifications of knocking out them and other key pillars of the food chain on which we depend.
As I look forward, I sincerely hope we can do a lot better in the 2020’s. The bar is current set depressingly low.
But we probably won’t. That’s the reality.
What will the 2020’s hold?
More of the same likely, though also some very sharp differences because the effects of a lot of our current bad decisions will come home to roost very soon.
My simplified view of the 2020’s is this: you better be working on your garden’s soil, developing a tight and close trust network, and be emotionally prepared to adapt quickly to new situations and circumstances.
In Part 2: The Coming Decade Will See The End Of Today’s ‘Magnificent Folly’, we explain why, given today’s systemic distortions and deformations, predicting the events of the next ten years will be much easier than it was for the twenty-teens. Largely because there’s little room left down the road to kick the can further.
Conflict, contraction and consequences will define the coming decade. It will be a time of loss, scarcity and pain for many.
But it need not be for you. Not if you use the time we have remaining wisely.
Click here to read Part 2 of this report (free executive summary, enrollment required for full access).