Saturday, May 5, 2018

Globalization Is Competitive Self-Destruction

The Globalized infinite growth model is heading for the brick wall of finite globe. At full speed ahead. There's a reason why Energy companies are lagging the price of oil - because they've turned into call options on the indefinite status quo...

What is happening in the oil industry is instructive for the failed economics profession to learn about the ways of the poverty trap. Specifically the recycling of cheap poverty capital back into an industry suffering from over-capacity. Conventional economics posits that supply is correlated to price - when price rises, supply rises commensurately. However, in the real world when income - be that corporate, national, or household - is reduced, then supply must rise to offset the drop in price. Think of someone who loses a high paying job now having to work multiple McJobs to make ends meet. Meaning that gluts become larger as price falls. Which is what serial proven idiots didn't learn in 2014...

Because of this "dynamic" most U.S. shale oil will ultimately be produced at a colossal loss, ending in wholesale corporate bankrutpcy.

What is happening in the Energy industry is instructive for what is happening to Globalization as a whole. It's putting itself out of business. 

February 23rd, 2018

"U.S. oil production has topped 10 million barrels per day, approaching exceeding a record set in 1970, but many investors in the companies driving the shale oil revolution are still waiting for their payday.

most U.S. shale producers have failed for years to turn a profit with the increased output, frustrating their financial backers.

This is the Amazon model - a pass on profitability while putting the entire industry out of business:
"A lot of these smaller companies have gotten a pass for outspending cash flow due to their very high growth rates"

Because everyone know that the key to negative profit margins is more output:
Shale output growth continues to outpace forecasts. The U.S. Energy Information Administration this month said United States production could top 11 million barrels per day by the end of 2018, a year earlier than it had expected just a month ago.

A further rise in oil prices, however, could lead investors to take on more risk and penalize more conservative companies..."If oil is $65 by Easter," he said, "investors are going to go to the companies and say, 'Why don't you borrow more money and drill more wells?'"

Due to futures rollover cost (of carry), oil speculators are sitting on asinine cumulative losses

They're buried.

What stock gamblers don't realize is that once debt covenants are breached, shareholders don't own the companies anymore.

Corporate debt / GDP ratio:

Think AIG to understand what is about to take place across the S&P 500

Compliments of stock buybacks: