When the House is Burning Down...

A change of pace here. From meditation to analysis. From the concrete and close-at-hand to the systemic and abstract. From the home economy of Sunny-side to the simulated fictions of Wall Street. A post on oil:

Amid the river of blather about energy independence, vast shale oil reserves, and all the accompanying malarkey, once in awhile you can sieve out the tiniest little nugget of the real-world, experienced truth. Here's one such nugget from Bloomberg in an article that's mostly about the Gulf spill:

Exxon, BP, Shell, Chevron Corp. and Total SA earned more than $1 trillion in total profit during the past decade, almost all of which has been spent in the search for new pools of oil and natural gas. Since 2004, the five companies have tripled capital spending and their combined output has fallen by 1.4 million barrels a day, according to data compiled by Bloomberg.

Let's just repeat, just to make sure we've got that: since 2004 big oil, at great expense, has been in an increasingly desperate search for new oil. Like a male porn star in search of a penis. Or a bent wheel in search of some pi. Pretty much all their profits have gone toward finding more oil. In fact, they've tripled their spending on exploration and drilling, and what have they gotten for it? Less oil!

Actually, that's old news. Actually the nightmare for them goes deeper than that. Check this out, if you don't mind glazing your eyes a bit.

Lots of boring true information here, which is to say, it's dynamite. Especially about three quarters of the way through to the end, where the good man points out that in the last year or two, the oil majors have been selling OFF leases and cutting BACK on exploration and drilling just to keep the cash flow up and investors satisfied. Now, how long can they keep that up?

Folks, at the risk of stating the obvious, the oil industry is in trouble. Big oil. Little oil. Heavy oil. Tight oil. Natural gas. There's no revolution here, only something like a relentlessly closing door of bonded steel. If you're invested in it in any way, get out. Sure the money, because of speculation, HAS BEEN good. Sure economists are still telling us we're in the middle of a energy revolution or even at the cusp of one. 

Trust a playwright who knows his tragedy: this bubble of the so-called energy revolution's gonna blow. And it's a big one. Probably God himself couldn't tease out the knot of who all's involved. It's property. It's equities. It's heavy equipment. It's honking big banks. It's Mom and Dad in Shalesville, PA. Heck it's even the Norwegians, who in a fairly recent fit of idiocy bought billions in Texas land holdings from Chesapeake, which, by the way, in spite of being the biggest shale energy producer in the US, and in spite of trying for something like 15 years, has never made a PENNY on sale of product. Though by god it has made a profit or two selling the pipe dream.

In a word, this bubble's big.

Again, trust a playwright. Playwrights have a nose for drama around the corner. 

My own feeling too, is that when this thing goes down, there isn't going to be a fix for it--not one that's relevant in our lifetimes anyway. We've done the bailout thing. The US is already something like 150 percent of GDP in debt, which is to say, up our eyeballs. Interest rates are already basically zero. Heck in Europe the rates are negative. How are we going to fix another serious recession? Where's the voltage for more stimulus?

Folks, there's no more fix to fix it with. 

If you're an investor, especially in equities, consider cash. Really. Sure the market could still go up, but the best gamblers know when to stop, especially when they smell the house is burning down. 

HB