Thursday, February 14, 2013

Rule of acquisition #109: Dignity and an empty sack is worth the sack.

Chris Martenson has written an excellent summation of 'The Real Reason The Economy Is Broken (and Will Stay That Way)'. Albertan's, Alberta's industries, and the Alberta Government itself should read it carefully.

Economic Sinkholes

This leads us back to Gail Tverberg's piece on economic sinkholes.  Her main point in that piece was that in times past, higher investment led to higher output.  That is, spending led to economic growth, especially investment spending.

Carefully buried within higher oil prices are higher prices for every single economic activity that uses them.  Along with diminishing ore yields come incrementally higher costs to simply, extract, and refine those ores, let alone fashion them into something useful.

Gail writes:
All types of mineral extraction, but particularly oil, eventually reach the situation where it takes an increasing amount of investment (money, energy products, and often water) to extract a given amount of resource. This situation arises because companies extract the cheapest to extract resources first, and move on to the more expensive to extract resources later.

As consumers, we recognize the situation through rising commodity prices. There is generally a real issue behind the rising prices -- not enough resource available in readily accessible locations -- so we need to dig deeper, or apply more “high tech” solutions. These high tech solutions indirectly require more investment and more energy, as well.

While we don’t stop to think about what is happening, the reality is that increasingly less oil (or other product such as natural gas, coal, gold, or copper) is being produced, for the same investment dollar. As long as the price of the product keeps rising sufficiently to cover the higher cost of extraction, the investor is happy, even if the cost of the resource is becoming unbearably high for consumers.
The summary here is that it takes more and more to achieve less and less.  The old form of economic growth is no longer with us, but the Fed still doesn't get it.  It still has its eyes firmly trained on economic indicators and equations, having not yet raised its gaze into the real world where limits are being reached.

As Gail nicely encapsulates, many of those limits are carefully hidden from view as a slightly but steadily reducing net energy for oil seeps into every nook and cranny of our complex economy.
Alberta's whole economy is one giant economic sink hole, and by extension Canada which is putting all of it's eggs into Alberta's basket (or at least energy price tends to be the federal budget excuse too) is getting sucked into it as well.

Cenovus posts Q4 loss
CALGARY - Cenovus Energy Inc. (TSX:CVE) posted net and operating losses in the fourth quarter as well as an 18 per cent drop in cash flow compared with the year-earlier period.

The Calgary-based oil producer had a net loss of $118 million or 16 cents per share, a big turnaround from the year-earlier profit of $266 million or 35 cents per share.

It also had an operating loss of $189 million or 25 cents per share, compared with the profit of $332 million or 44 cents per share in the fourth quarter of 2011.
In Alberta we have a high amount of regard and dignity in our oil sands. Oil is pretty much a part of Alberta's identity. However, as the Ferengi say: "dignity and an empty sack is worth the sack".

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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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