Financial Bubbles | timiacono.com - Part 3

Credit Crunch for Shale Drillers

Bloomberg reports on the long-awaited (yet still painfully slow) comeuppance for shale oil companies and the big U.S. banks who have lent to them. Of course, freakishly low interest rates that were too low for too long are in no way related to any of this.

This seems to be the new normal (that is, unless we get a huge rebound in oil prices):

Chesapeake Energy Corp., the deeply indebted shale producer, said that it can hang on to its $4 billion bank line as long as it posts just about everything it owns as collateral.

Outlooks, Education, and Income

From a recent item at Pew Research via this Wall Street Journal story today come the two related charts below that go a long way in explaining the rise of presidential candidate Donald Trump who, not long ago, proclaimed “I love the poorly educated”.

One would think that if you factor in the gargantuan student loan debt that now comes along with many of those college degrees and income gains shown above for the millennial set, those blue and gray curves would adjusted downward, probably by a lot.

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Yellen: “Not a bubble economy”

It’s hard (for someone like me at least) not to think that Ms. Yellen’s opening comments in the video below will come back to haunt her someday:

This is an economy on a solid course – not a bubble economy…

It could be right up there with Greenspan’s “irrational exuberance” comments back when they could have cooled the late-1990s internet/stock market bubble and, of course, Bernanke’s assurance that “troubles in the subprime sector on the broader housing market will be limited” (and not “limited to planet earth” as Jim Grant once quipped).

It doesn’t appear there are any similar offerings for Volcker.

Yellen and Global Uncertainty

Federal Reserve Chair Janet Yellen appears to have said everything that folks on Wall Street were wanting to hear yesterday as she basically green-lighted a little more asset price inflation at the cost of lower interest rates for just a little bit longer.

Like previous Fed chairs Bernanke and Greenspan, “too low for too long” is not really much of a concern. See also:

Unrelenting Oil Supply

They say a picture’s worth a thousand words and that axiom is demonstrated nicely by the blue bars in the chart below from this iMFdirect story about global oil supply.

As recently as 2014, OPEC nations seemed happy to reduce oil supply to support prices and, of course, back during the financial crisis, output was slashed before, during, and after the oil price bottomed out, but things are quite different now.

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