David Fuller and Eoin Treacy's Comment of the Day
Category - General

    U.S. shale is now cash flow neutral

    This article from Mining.com may be of interest to subscribers. Here is a section:

    Oil prices are probably already high enough to spark a rebound in shale production.

    The IEA says that in the third quarter of 2016, the U.S. shale industry became cash flow neutral for the first time ever. That isn’t a typo. For years, the drilling boom was done with a lot of debt, and the revenues earned from steadily higher levels of output were not enough to cover the cost of drilling, even when oil prices traded above $100 per barrel in the go-go drilling days between 2011 and 2014. Even when U.S. oil production hit a peak at 9.7 million barrels per day in the second quarter of 2015, the industry did not break even. Indeed, shale companies were coming off of one of their worst quarters in terms of cash flow in recent history.

    That all changed around the middle of 2015 when the most indebted and high-cost producers went out of business and consolidation began to take hold. E&P companies began cutting costs, laying off workers, squeezing their suppliers and deferring projects that no longer made sense.

    By 2016, oil companies large and small had shed a lot of that extra fat, running leaner than at any point in the last few years. By the third quarter, oil prices had climbed back to above $40 and traded at around $50 per barrel for some time, replenishing some lost revenue. That was enough to make the industry cash flow neutral for the first time in its history.

     

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    Gleanings

    Thanks to a subscriber for this report from Raymond James which may be of interest. Here is a section:

    Another theme we think is surfacing is inflation driven by Trump's potential fiscal stimulus program. Hence, a return to "real assets," or stuff stocks, should have an increased weighting in portfolios. Verily, the price of real assets, relative to financial assets, is at historic lows. Consequently, investors' mindsets should be focused towards higher inflation, higher interest rates, and reduced disinflation. As an example, China's PPI hooked up in September for the first time since 2012. We believe the same thing is happening here in the U.S. 

    Accordingly, REITs, timber, agriculture, collectibles (wine, art, diamonds, precious metal coins, farmland, etc.), and MLPs should have an increased weighting in portfolios, in our view. To this MLP point, we recently met with one of the savviest MLP-centric portfolio managers on Wall Street, who believes the midstream and downstream MLPs are ripe for a number of good years going forward. He suggests the bad news is in the rearview mirror: the capital markets are wide open for the MLPs; we are consuming an extra 1 million barrels of crude oil per day, and the MLPs traded at around a 30% discount relative to par.

     

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    The bizarre business of intentional product failure: planned obsolescence

    This article from reportsfromearth.com may be of interest to subscribers. Here is a section:

    Today built-in obsolescence is used in many different products. There is, however, the potential backlash of consumers who learn that the manufacturer intentionally make the product obsolete faster. Such consumers might turn to an alternative producer (if any exists) that offers a more durable alternative. In other words, this nasty strategy is not available for small companies who would only lose customers.

    Given today’s tremendous increase of international corporate power and severely reduced competition, planned obsolescence has become an attractive possibility for products than ever in human history.

    Built-in obsolescence was already used in the 1920s and 1930s when global mass production became possible and rigorously optimized. 

     

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    Email of the day on back pain, lifestyle and emotional reserves:

    I had lots of back problems as I was a dancer until I had my operation. 1 fusion and 1 plastic disc that give a little movement. One interesting thing was that they put in synthetic bone of some description for the fusion, and within 6 months, it would all be replaced by growth bone and the synthetic would have disappeared! Yes, key hole if it's just a disc snip!

    And 

    I’ve had the same myself – also see if you can get Bowen Therapy over there. I tried this 3 years ago and I haven’t had a problem since (touch wood). I wish Lily a very speedy recovery. 

    And 

    Add swimming to your wife's list of options for a longterm solution. It is medically recognized as a very effective remedial method and it helped me combat lower back pain (brought on by muscle spasm, not a herniated disc) some years ago. A caveat: avoid breast stroke as it arches the back. Do the crawl or back stroke, instead. Incidentally, even walking lengths of the pool is beneficial.

     

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    Jamie Dimon on Trump, Taxes, and a U.S. Renaissance

    As recently as September, you thought it would be difficult for people on Wall Street to get into the new administration. Now, Donald Trump has tapped several Wall Street figures. What do you think they’re going to bring that’s different?

    Obviously, I was dead wrong about that. But you had a complete upheaval. The Republicans are in charge, and they have not been anti-business the way you’ve seen the Democrats largely be anti-business for years. I think if you are going to be president, you should have the best people sitting around a table. I think it’s a mistake for the American public to constantly be told that if you work for an oil company or you work for a bank, that automatically makes you bad. I think a lot of these people are very qualified people who are patriots. They’re going to want to help the country. They’re not going to try to help their former company. These are people with deep knowledge that will hopefully do a great job.

    I think it’s a reset moment for how businesses are going to be treated: 145 million people work in America; 125 million of them work for private enterprise; 20 million work for government—firemen, sanitation, police, teachers. We hold them in very high regard. But you know, if you didn’t have the 125 you couldn’t pay for the other 20. Business is a huge positive element in society. But for years it’s been beaten down as if we’re terrible people. So I think it’s a good reset.

    Detroit is a perfect example where civil society, not-for-profits, government, business all work together to improve the lives of American citizens. If you can duplicate what they’ve done in Detroit around the country, you’re going to have a huge renaissance.

    What is your diagnosis about what’s going on in this country, this economic angst, the anti-immigrant sentiment?

    It’s not anti-immigration per se. America’s changing too much for that. The core of the frustration and anger were two things. First, middle-class incomes have really not grown for 15 years. Second, the difference between unskilled and skilled has been growing over time. The unskilled really have a hard time having what you would call a living wage.

    There are solutions. Skills training, like they do here in Michigan. I would also greatly expand the earned income tax credit. We only do it for mothers with babies. We don’t do it for single men. So if you’re making $8, $9 an hour, the government will pay you $3 or $4 [as part of your tax refund]. Figure it as negative income tax. If I can give you a job at a living wage, it helps small businesses. It’s not necessarily good for big business, but it’s a wonderful thing to do for society.

    I think fixing corporate taxes, immigration, trade, all done properly will have fast results in America. Unfortunately, a lot of people who talk about fixing those problems, their answer is beating up on business is going to make it better. It’s not.

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    Donald Trump is Holding a Government Casting Call. He is Seeking The Look

    Donald Trump believes that those who aspire to the most visible spots in his administration should not just be able to do the job, but also look the part.

    Given Trump’s own background as a master brander and showman who ran beauty pageants as a sideline, it was probably inevitable that he would be looking beyond their résumés for a certain aesthetic in his supporting players.

    “Presentation is very important because you’re representing America not only on the national stage but also the international stage, depending on the position,” said Trump transition spokesman Jason Miller.

    To lead the Pentagon, Trump chose a rugged combat general, whom he compares to a historic one. At the United Nations, his ambassador will be a poised and elegant Indian American with a compelling immigrant backstory. As secretary of state, Trump tapped a neophyte to international diplomacy, but one whose silvery hair and boardroom bearing project authority.

    The parade of potential job-seekers passing a bank of media cameras to board the elevators at Trump Tower has the feel of a casting call. It is no coincidence that a disproportionate share of the names most mentioned for jobs at the upper echelon of the Trump administration are familiar faces to obsessive viewers of cable news — of whom the president-elect is one.

    “He likes people who present themselves very well, and he’s very impressed when somebody has a background of being good on television because he thinks it’s a very important medium for public policy,” said Chris Ruddy, chief executive of Newsmax Media and a longtime friend of Trump. “Don’t forget, he’s a showbiz guy. He was at the pinnacle of showbiz, and he thinks about showbiz. He sees this as a business that relates to the public.”

    “The look might not necessarily be somebody who should be on the cover of GQ magazine or Vanity Fair,” Ruddy said. “It’s more about the look and the demeanor and the swagger.”

    As Trump formally announced his vice presidential pick in July, he said that Mike Pence’s economic record as Indiana governor was “the primary reason I wanted Mike, other than he looks very good, other than he’s got an incredible family, incredible wife and family.”

    And in picking retired Marine Gen. James Mattis as his nominee for defense, Trump lauded him as “the closest thing to General George Patton that we have.”

    Mattis has a passing physical resemblance to the legendary World War II commander, as well as to the late actor George C. Scott, who won an Academy Award for his portrayal of Patton in the 1970 biopic. Trump also seems particularly enamored with a nickname that Mattis is said to privately dislike.

    “You know he’s known as ‘Mad Dog’ Mattis, right? ‘Mad Dog’ for a reason,” Trump said in a recent interview with the New York Times.

    The president-elect, however, does not mention Mattis’ other sobriquet, which is “Warrior Monk.” Or his call sign: “Chaos.”

    On the other hand, in Trump’s book, not having the right kind of appearance is tantamount to a disqualifier. During the presidential campaign, he stirred a controversy when he pronounced that Democratic nominee Hillary Clinton lacked “a presidential look, and you need a presidential look.”

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    Email of the day 1

    On “Beware of height nervousness”:

    Email of the day 2

    On the UK negotiating trade terms with EU countries pre or post a clean Brexit:

    I have never been impressed by the argument that, because the UK imports more from the EU than it exports to it, the EU has more to lose. In value terms this is true but it is only part of the picture. The percentage of EU exports that come to the UK is much smaller than the percentage of total UK exports that go to the EU. Thus any increase in trade restrictions between the EU and the UK may cost the EU more in absolute value terms but the percentage damage to the UK economy will be much greater than the percentage damage to the EU. Only quoting half the facts is the sort of dishonesty that we were bombarded with by both sides during the referendum campaign.

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    Email of the day 3

    Also on the UK negotiating trade terms with EU countries pre or post a clean Brexit: