Crazy Rantings of a True Believer (in economics)

[tonybluegoat]

You don't need to read this.  I'm a lunatic. But I have to write it... because I'm a lunatic.
In 2003 I told my wife "Housing prices are out of whack.  It's a bubble. We need to sell this house and wait a year or two for the bust to occur. Then we can buy a bigger house for the same money."

I was off by 5 years.

In 2008 I told my wife, "Energy production is going to crash.  Prices are going to go up and stay up on gas and electricity.  It will seriously effect the U.S. economy. Let's sell the new house and move to the country."

Then fracking happened and I thought... "Oh, well... I was wrong." P.S. a company paid me $4,000 to extract the natural gas that was under my Suburban LOT size property in Arlington Texas.  I thought, "There's no way they are making money doing that!"

It turns out ... like housing... I was only wrong in time, not in reality.

If you're not paying attention the fracking industry is about to go off a cliff. The money is drying up. They have never made in money.. not in all this time. Not with doubled production per well and lowering costs per well by 40%. They lose money every quarter.  The only way a fracking company creates positive cash flow is by selling either land or stock in the company to create a single quarter of positive cash flow, then it's right back to quarter after quarter of losses.

There are hundreds of billions in outstanding debts that will have to be refinanced in 18 months.  Not gonna happen. CAPEX has fallen off a cliff.  Wall Street has cut them loose.  Then dumped all the bonds from their accounts into public pension accounts (run by idiots) and they are cutting bait.

Almost all of the Tier 1 land .. the best land.. has been used up.  They didn't make any money from tier 1 land... how are they going to make money from tier 2 land??  They won't. West Texas is done. My neighbor's son just got laid off along with thousands of others.  It's not a story yet, but it's a reality now.  Drilling has stopped.  They are pumping what they can with the money they have. Once the money dries up it doesn't matter how much oil is underground. It will stay there.

The last holdout will be the Permian Basin... it still has some Tier 1 land left.  The rest is cooked.

Natural Gas is a by-product of oil fracking. Without oil fracking the natural gas production in the U.S. plummets. That's a problem because fracking brought natural gas prices from near $20 per 1000 cubic feet down to about $2 per 1000 cubic feet.  In West Texas at certain times of the year natural gas is worth less than $0. They have to PAY to have it removed or just flare it off.

Because of this the U.S. electric grid has transitioned from coal to natural gas for electricity production. When natural gas goes from $2 to $10 per 1000 cubic feet.  Electricity goes from 10 cents a kwh to 40 cents per kwh.

When U.S. oil production starts shrinking drastically oil prices go back up to $140 a barrel. The logic is that can't happen because of fracking. Fracking has never made money!  At any price. And investing in fracking, if fracking gets going again, dumps oil prices back down.  So fracking makes no money!  That sounds like a good plan for you and for American oil... but somebody has to pay for it.  Wall Street is done with the fracking industry.  They aren't going to repeat their biggest mistake in the last decade.  Wall street does not care if oil costs $140 per barrel. They will make more money selling oil futures for $150 per barrel then they would dumping another trillion dollars into fracking companies.

So, get ready for 4x oil prices and 4x electricity bills. Plus whatever that does to the economy - which is oil dependent. 18 months.   Sell your SUV now before the rush.  Remember 2008?  You couldn't sell a truck or SUV even with 72 virgins in it. This time it'll be permanent.

End of rant.  Feel free to disagree.  I won't argue with you.  Just wanted to get it out there. Here are a few literally random links.

https://www.eenews.net/stories/1061136849
https://www.youtube.com/watch?v=dhc6vyxVsDs
https://oilprice.com/Energy/Crude-Oil/99-Oil-Rigs-Gone-And-Counting-Rig-Count-Falls-Again.html
https://www.desmogblog.com/2019/01/10/fracking-shale-oil-wells-drying-faster-predicted-wall-street-journal
https://www.wsj.com/articles/frackers-face-harsh-reality-as-wall-street-backs-away-11551009601

[The emperor has no clothes]

In ‘98 I had some cash burning a hole in my pocket from selling a piece on land on the Kenai River. Many of my friends and workers were into the stock market. After seeing them make a bunch of money, I thought I’d give it a try. I quickly turned $11k into $20k. I thought I was a genius. Then it went to 22k. And I got braver. Then the “internet bubble” burst. Within a couple months I was down to 10k. I got out. In the ensuing years my initial 50k lot went to 200k.


It was a valuable lesson. I don’t try to outsmart them guys anymore. I put my 401k into a S&P 500 account and quit looking at it daily, weekly, even monthly. It’s done well for me, without my genius mind screwing it up.

[Tx Bohemian]

In ‘98 I had some cash burning a hole in my pocket from selling a piece on land on the Kenai River. Many of my friends and workers were into the stock market. After seeing them make a bunch of money, I thought I’d give it a try. I quickly turned $11k into $20k. I thought I was a genius. Then it went to 22k. And I got braver. Then the “internet bubble” burst. Within a couple months I was down to 10k. I got out. In the ensuing years my initial 50k lot went to 200k.


It was a valuable lesson. I don’t try to outsmart them guys anymore.

Sounds a lot like my Stock Market "lessons"!

Not as much though (couple K only).

So, yeah, any extra goes into a retirement account and I let the guys that know (supposedly) deal with it!
And so far it's also been doing quite well (fingers crossed it'll continue).

[tonybluegoat]

In ‘98 I had some cash burning a hole in my pocket from selling a piece on land on the Kenai River. Many of my friends and workers were into the stock market. After seeing them make a bunch of money, I thought I’d give it a try. I quickly turned $11k into $20k. I thought I was a genius. Then it went to 22k. And I got braver. Then the “internet bubble” burst. Within a couple months I was down to 10k. I got out. In the ensuing years my initial 50k lot went to 200k.


It was a valuable lesson. I don’t try to outsmart them guys anymore.

Sounds a lot like my Stock Market "lessons"!

Not as much though (couple K only).

So, yeah, any extra goes into a retirement account and I let the guys that know (supposedly) deal with it!
And so far it's also been doing quite well (fingers crossed it'll continue).

They.. the smart guys... are OUT on oil and natural gas.  The stock market has gone from 17,000 to 28,000 since 2014 . up about 60-70%.

At the same time XOM (Exxon Mobil stock) has gone from $95 down to $70.  That's a 25% decline.

Portfolio weighting in the energy sector has gone from 8-10% in 2014 down to 4 % today.  

Inverse correlation between the U.S. Dollar and Commodities.

And it's the perfect hedge.  If I'm wrong there's not much down side.  They are already depressed stocks.  If I'm right then I can pay the extra energy costs with the appreciation from the stocks.

They aren't buying... they are selling... they couldn't want to get farther away from it.  They don't think energy prices are going up.  They don't think oil companies are going to make money.... they think we are heading to peak demand, not peak supply... when it comes to some frackers they are right.  When it comes to Exxon Mobile (who is the biggest holder of natural gas in the U.S. and the world) and when it comes to Aramco (SAR) who has the biggest oil reserves and produces oil at the lowest price... we will see.

I personally bought SAR today at about $25.50.  I'll be buying XOM later this month at $70... And I'll be buying both throughout 2019.   There's a saying... "When there is blood in the streets buy real estate." Right now the energy sector has been shot and left for dead. The shortages that are coming, the washout of shale that's coming, and the drop in natural gas production that is coming means the big holders will be golden.... but I'm a lunatic. Buy what people hate. sell what people love.

May you live in interesting times.

[RDAbull]

Well, I am one of those guys that (supposedly) knows.

I have been managing money for almost 40 years and I can tell you three things:

1. The market is not for amatures
2. The market is not for sissies
3. we have had a ten year non-stop bull market and it will have a 30-50% correction in the next few years.

That is nothing new, there have been three 50% and ten 30% corrections in my career.  I started in 1981 when the Dow stood at 800.  It is 28,279 at this minute.  Is it going to stay there: No.  Is it going to 20,000 or 40,000: Yes.  When: Hell I don't know, but it is.

Dozens of major corporations and thousands of smaller ones have gone bankrupt in the last 40 years so buy and forget will kill you.  Buy and monitor but don't PANIC, that is in selling and buying both.

The main thing I have learned is buy good stuff and monitor and keep it, and never bet against the American Economy--Thanks Warren B.

The S&P 500 index funds will work well but not by themselves.  Diversification is a must.

I usually get paid a lot for this so everybody can now send me a c-note OR buy me a cold brew at IZ.

[The emperor has no clothes]

Roger, cold brew coming your way.  I got chicken a couple months back with my retirement coming closer. I switched out of the S&P 401k into one of our “stable” choices. (I can’t think of what they called right now) But out of curiosity, by diversifying do you you mean different kind of mutual funds in your 401k system ? Such as international, growth, etc.

[RDAbull]

Roger, cold brew coming your way.  I got chicken a couple months back with my retirement coming closer. I switched out of the S&P 401k into one of our “stable” choices. (I can’t think of what they called right now) But out of curiosity, by diversifying do you you mean different kind of mutual funds in your 401k system ? Such as international, growth, etc.

Have to be careful with that one Rob.  You can have 20 different mutual funds and still have most of your money in the same 20 or 30 stocks if the strategy's are the same.  The S&P 500 will give you stock diversification but you have to be careful of the weighting in the portfolio.

By diversification most people in the business would say: stocks, bonds & other fixed income, reits, real estate, insurance, annuities (for some, not all), or mutual funds that represent these classifications.   In each of these categories there are sub-categories--growth vs value stocks ect.

Age is a definite consideration of strategy as is size of portfolio.

Damn, it's hard to put 40 years in a post.

[Oss]

yes RDA exactly

You want energy stocks? Then the institutional investor courses I had to take said

No more than 10% of your portfolio is considered true diversification

That does not mean you can not do more in a category, just maybe consider the risk if not monitored with a standard sell point.

Rob you lost on the dot come because weight was too high on the tech or tech dependent stocks

If you have ever ridden with a trailer, you would not put 50% of the weight on the tongue would you?

[tonybluegoat]

In ‘98 I had some cash burning a hole in my pocket from selling a piece on land on the Kenai River.

I graduated from Chugiak High School just outside of Anchorage on the Eagle River.

[tonybluegoat]

Confuscius Say..

If you have ever ridden with a trailer, you would not put 50% of the weight on the tongue would you?

The student replies - But master shouldn't almost all the weight go into the trailer wheels?

When we moved to the country there was a train that would pass about 4 miles away but it seemed very loud to me at first.  One day I was driving my daughter to school and I said, "These are the tracks that make all the noise."

See calmly said, "Train tracks don't make noise, trains do." And I learned a valuable lesson. 

[The emperor has no clothes]

In ‘98 I had some cash burning a hole in my pocket from selling a piece on land on the Kenai River.

I graduated from Chugiak High School just outside of Anchorage on the Eagle River.

Service High 1976. I lived a couple miles from Chugiak High once.

[The emperor has no clothes]

yes RDA exactly

You want energy stocks? Then the institutional investor courses I had to take said

No more than 10% of your portfolio is considered true diversification

That does not mean you can not do more in a category, just maybe consider the risk if not monitored with a standard sell point.

Rob you lost on the dot come because weight was too high on the tech or tech dependent stocks

If you have ever ridden with a trailer, you would not put 50% of the weight on the tongue would you?

Actually I lost on the dotcom because I was greedy, arrogant, and dumb. But, I hear what you are saying. At this point it doesn’t make much difference. It’s all theoretical for me now. I am more risk averse as I get close to retirement.


Thanks, Roger (a cold brew awaits you)