by John Ward
Across all the members of the alternative corporate State, no community is more ever-present than the Texas oil business. Did Trump fire the tomahawks at Assad to protect US access to oil…..or to disrupt access, and help Texas out? The Slog looks at means and motive.
Here are a few things to think about.
First, the general view across the piece of those without a brokerage business to run, highly leveraged valuations, or hopeless fiscal targets to reach is that the expected reflation in the West just isn’t there: it’s run out of steam in the US, and never got off the ground in the eurozone. There is no ‘pent up’ demand in the pipeline (not that I ever thought there was) because (a) far too much of what there is depends on credit, and (b) real wages have been steadily falling for two decades.
But second, if you think dependence on credit is falling, think again. The US Fed Reserve released data last week showing domestic credit card debt in the U.S. had reached $1 trillion for the first time. So, even bashing the plastic like there was no tomorrow still isn’t enough to get growth anywhere near the 3% being touted.
Now third – rewind the tape to 2010, when I said that starving comfortable seniors of investment income through the adoption of Zirp was nuts, when with that income they could help stave off recession by buying stuff without resort to credit. This chicken has now also come home to roost: credit-card and car loan debt for people aged 60+ have risen faster than any other age demographic since 2008.
But fourth, younger consumers are hooked on the convenience factor allowing EFTPOS credit cards to be used for smaller and smaller purchases these days: under 40s use of them for this purpose has risen 70% since 2008.
However – fifth – remember that despite the lowest borrowing rates for the longest period in recorded financial history, only now is the US housing market growing again – and the majority of pundits say that, with rising rates and jittery confidence, a top-out and then fall in prices is very likely in 2017-18. Now hear this: there has never been a full economic recovery in the United States without a property boom.
Sixth, see Janet Yellen do two interest rate rises and talk gaily of another two (at least) this year….despite the foregoing evidence. See Janet falling flat on face, and not knowing what to do next. See equities confidence take a big knock.
Seventh, look back to the era of easy money we’ve just been through. This enabled larger businesses to borrow money in order to cut margins and then, when the profit numbers didn’t look so good, sweeten the shareholder pill with money borrowed to pay dividends…and promises to cut headcount. Not terribly good for either employment, or realistic market capitalisations. (Further news on Tesla: as of this morning CET, it is now worth more than any other US car company. Insane.)
Thus we now have some very highly valued publicly quoted companies, with anaemic wage recovery and falling overall ‘real’ employment levels. Anyone think that sneaky side-door shuffle is going to remain open in a 2017 blessed with 5 rate rises? In your dreams.
Eighth, the biggest regional corporate borrowing-binge problem is Asia. You can’t overestimate the importance of this, because Asia has been by far the largest contributor to such global growth as there has been over the last three years. In China, total non-Sovereign debt China’s total debt topped 255% of the economy’s size in 2016, and the vast majority of it is corporate: state-owned ‘zombie firms’ have had the IMF warning for some time now that China needs to deal with company debt as a major priority if it is to avoid unpleasantness.
Now take one hot-news Asian example: Toshiba announced today that without some kind of help, it’s huge losses across a number of sectors “threaten the company’s continued existence”. Toshiba is a Japanese company. The country with the longest record of ultra-low interest rates is…..Japan. Imagine the outcome of more US Fed rate rises there, where they can only get by on negative rates.
So taking those eight palpitating factors forward, go back to my last major post on this topic, and note that the starting point for that piece was an oil price returning to one that is justified….as opposed to hyped to the point of desperate attempts to create a rally. Also bearing in mind the corporate debt thing – and the recent exacerbation of oil over-supply – read this extract from Houston’s very own oil house mag, Oilfix – datelined 4th April 2017:
‘A study by Dallas law firm Haynes & Boone released on Tuesday showed energy and financial professionals believe 76 percent of U.S. oil producers will soon get a lift in the amount of debt they can borrow from certain corporate loans. It’s a big pivot after banks cut oil-company borrowing bases last year amid falling oil prices. Borrowing bases are amounts oil companies can draw from revolving credit lines from which they can borrow, pay back and borrow again.’
It’s the kind of spirits-raising pr bollocks you’d expect the Texas Tea business to put out. But it reflects something we don’t debate enough: Texan oil companies are hard up. In the long-term, the US needs confident access to oil. But in the short term, Texas oil needs a disruption in oil supply to keep prices well over $50.
Seventy two hours later, after the “gas attack” in Idlib, Syria – Donald Trump targeted the Shayrat air base in central Syria with 59 Tomahawk cruise missiles….completely reversing his policies on both Syria and Russia.
Go to all the Business tv stations today, and you will see them featuring talking heads dutifully talking up an increase in the price of crude.
Given the power of the Alternative State now, nobody should dismiss the warped thinking of those who could risk a nuclear exchange to get their ends. And as we have seen on and off since November 1963, what Texas and its allies want its what it gets.
Oil and water may not mix. But oyerrrl and munnneeeeee go together just dandy.
And on this occasion, both Trump and Texas needed a war. It bears thinking about.
Hoping Trump didn’t jump the shark…