Wednesday, December 12, 2012

A Financial "Brain" Aneurysm

I haven't written a post in awhile as I've been busy creating a new system for myself and a select few twitter friends to better manage our massive twitter link collections. This blog post is the first to put the results of this endeavour to the test and so far I am quite pleased. Using this new system I am able to quickly recall the links I've been tweeting about where as before I was referring back in to my time line trying to find this link or that, what a time saver! I should now be able to fill my blog posts with all sorts of back story for the curious mind.

Unfortunately the timing I chose to develop this system coincided with ground shaking events in the world, and as such this post isn't going to have much in the way of focus, I've got a lot of ground to cover and my patience with writing wears thin by the minute. Lets get started.

World's oil industry won't be the same in the wake of shale
As I have previously mentioned, the world's economic speed limit will rise if oil supplies expand because of the shale boom, as the oil price will rise less aggressively in response to rising demand. By extending the supply-side, shale oil also changes the peak oil equation and arguably militates against alternative energy: is shale oil production already balancing declining production from established ''peak oil'' fields?

Shale is also going to produce a new pecking order in the oil industry as the economics of oil production move against conventional oil, and the petroleum multinationals that control it, and towards new unconventional producers including Australia's BHP Billiton.

Shale oil isn't cheap to produce, certainly not as cheap to produce as conventional well once was, but it's commercial at the current oil price range of $US86 and $US108 a barrel (West Texas Intermediate oil and North Sea Brent, respectively), and likely to become less expensive and higher-yielding as the boom ramps up. Cash returns from the conventional fields that are owned predominantly by the world's multinational petroleum giants, meanwhile, are falling.

The majors have bought into the shale boom: but heavy exposure to old fields that cost progressively more to maintain and produce progressively less oil means they are becoming less profitable than independent producers more heavily exposed to ''new oil''.

According to Goldman Sachs, cash returns from conventional fields have fallen by 28 per cent from a peak in 2005, despite a doubling in the oil price.
Goldman estimates conventional producers need $US116 a barrel or more to generate free cash - that's the cash left after the company pays bills, funds capital expenditure and declares dividends for shareholders. OPEC nations need $US90 a barrel for the same reasons, and they also have declining returns.

It's the shale "boom"! Of course "boom" is really a strange word to be using as the world sinks back further into recession, the U.S. announces more stimulus measures, and the 'historic inversion' in shadow banking completes. This is by far the most lack luster "boom" I've ever witnessed, wouldn't you say? Probably because it's not a boom at all. Articles like the one quoted above are quite amusing, as they question the models established by peak oil activists, say that the "equation has changed", and then go on to describe how we are losing all of the surplus profit from conventional energy production while simultaneously admitting "extreme energy" is more expensive.

Where the author gets the idea the U.S. will be able to climb out of a debt that is established on conventional energy spending patterns and production is beyond me. Maybe central banks will start printing hard currency (lol). If you have ever studied peak oil, and the assumed effects peak oil would have - then you know that shale boom or no shale boom, the external factors and issues haven't changed and are unfolding exactly as has been predicted. Shale oil will not be able to compensate for exponential growth, especially at the high end of the exponential curve (as we are now), if you think it will -- well, you're an idiot, seriously. Go back to basic math: Less new returns + less old returns = less returns. It's really not hard to figure out where this is going in the long term.

This supposed shale oil "boom" really pisses me off, because like the oilsands, much of the world governments and corporations - being provided with a (temporarily) cheaper energy solution than other renewable oil derivatives - will simply pigeon-hole us further down the road, when we don't have any oil, and shale is too expensive and depleting. Changing an energy infrastructure requires massive forward looking investment and time. It must be done before the crisis hits, not afterwards. A lot of the "profit" corporations and people have been making today wasn't really profit at all but rather the excess capital returned from cheap energy which should have been put towards the investment of the next generation of energy production. Instead we put it into mortgage backed securities and blew up the global economy. Seriously, even Daniel Yergin knows this is true.

Use of torture-derived information by CSIS slammed as ‘not decent’

There's just "terrorists" everywhere, isn't there? Notice how more and more the "terrorism" is centering on people here at home? This was always the long term goal with this propaganda exercise. The term terrorist has now been normalized in our culture, people actually use this term, in a serious context, as if it has some sort of definitive meaning. It doesn't. This is the method chosen to slowly demolish the traditional rule of law and fair trials here at home.

'Terrorism' is the alternative system for law and order, just as alternative non-democratic systems for budgets and finance as well as trade and resources are being implemented. In the near future you will see "terrorism" more broadly used to describe those who protest or are involved in dissent against the other treasonous policies either already in place or being put in place now.

Everyone always wants to go and tell the government how displeased they are with the actions they are doing, but folks, they already know - and that's why in anticipating a response from you (beyond angry letters) they are pre-emptively preparing for civil unrest and to normalize without question the labelling of dissenters as terrorists. They know you don't like their actions folks, but your displeasure isn't going to stop the actions from occurring because they already knew, from the founding of this agenda, that you wouldn't be happy with it. You're not meant to be happy with it, you're meant to submit to it like the good peasants they want you to be.

Bank of Canada warns of risks of low rates

You have got to love when the bank is warning about the risks of their own policies eh?
The Bank of Canada says low interest policies that it and other central banks have put in place are adding another layer of risk to the already stressed global financial system.
So yet, they persist with the insanity anyway. (Insanity = doing the same thing over and over expecting different results)
The council says central banks have kept interest rates low because the alternative is worse — that is increasing the cost of borrowing and undermining an already weak recovery.
Of course it will be worse, because we've set the stage for it to be worse. This is called full-spectrum dominance. As I pointed out in my last post, our entire "financial plan" rests on consumer spending which is being completely fuelled by borrowing. For those who say "well we're nothing like the U.S." - Our central bank is warning about it's own policies and priorities, while our banks rake in record profits (due to consumer spending), and while banks give out massive bonuses for the "job well done". Yea, doesn't sound like the U.S. at all now does it? But let's just keep pretending we're somehow superior, it's a good narrative and Canadians do love to stroke their ego.

However, while Canada's (and the world's) self-congratulatory pity party continues, the real economy continues to show itself in force.
Rotating teacher strikes have begun and one local school board is among the first to walk out. The Avon-Maitland School Board started the rotation.

Hundreds of teachers walked the picket line in nine locations in Stratford. By Christmas public elementary school teachers across the province, will have walked off the job for one day.
Like most other countries, bankers, and so-called "policy brains" - it apparently hasn't clued into them that the one big wrench in their economic stimulus fantasy banking gears are 'the people'. Greece's experiment with "austerity" provides a great example at this lack of foresight, or rather - lack of caring. Just like here, and in the U.S. - Greece put in the effort to prepare where it counted (for those in control): brutal, thuggish, dumbed down, "riot" police forces. Although, I would propose we stop referring to these thugs as "riot" police, as they are rarely, if ever actually used to control "riots". I suggest referring to them as 'Political Police'. They are not being armed and prepared to control riots - they are being armed and prepared to control you, because some day - perhaps not today, but someday - you will probably decide to speak out. Hopefully you'll do so sooner than later.

Canada’s job growth smashes economists’ expectations
There were more people working in the accommodation and food services industry in November, as well as in retail and wholesale trade. The agricultural sector also added jobs. Manufacturing, however, shed 19,600 positions after stable employment in the previous five months.
A "booming" service sector is exactly what I would expect to see in an economy based on consumer spending and borrowing, where low borrowing costs are seen as "essential". They are essential because we're not producing enough actual wealth to cover our standard of living. Real basic stuff here, but in the world of financial media spin: bad news is better than worse news.

Ottawa won't pay to fix crumbling Cape Breton seawall

To conclude for today, Canada's 'hidden deficit' is on course to "catch us by surprise" in a few years. The infrastructure investment goes hand in hand with energy investment. We've squandered our energy surplus and with an infrastructure mostly designed and priced in the 70s, the amount of energy required today to upkeep it just isn't available. (energy becomes visible in our society as cost). The 'conventional oil boom' saw the construction of super-highways, the introduction of the automobile, assembly lines, and all sorts of "innovation" come into the market field. The "shale boom" will see the destruction of these great undertakings as the excess capital doesn't exist and is never going to exist. Our infrastructure deficit is going to be more damaging and destructive than anyone can imagine, and hardly anyone sees it coming.

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Richard Fantin is a self-taught software developer who has mostly throughout his career focused on financial applications and high frequency trading. He currently works for CenturyLink

Nazayh Zanidean is a Project Coordinator for a mid-sized construction contractor in Calgary, Alberta. He enjoys writing as a hobby on topics that include foreign policy, international human rights, security and systemic media bias.

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