What's going on with the US/Global economies?

[Astronuc]

The Dow 30 are getting hammered during the first three weeks of 2016.

Dec 31, 2015 Close 17425.03

Jan 20, 2016  Open 15,989.45
              Low  15,450.56
            Close  15,766.74 Down 249.28(1.56%)

It was down about 2000 points from the closing on Dec 31, 2015, before recovering about 250 pts this afternoon.

China is buying less commodities. The world is saturated with oil. There are fewer places to store oil that is produced, and oil prices have plummeted to lows seen in 2003.

So, all as well and normal. There has to be bargains out there.Coal Companies Are Hurting. But the Coal Industry Is Not Dying.
http://www.slate.com/articles/busin...awks_should_not_be_too_gleeful_about_the.html

Coal equities are down much more than the demand for coal. Some companies took on too much debt, and subsequently (and perhaps consequently) declared bankruptcy.

 

[Borg]

I have been watching as many others. The oil stocks are really low right now but, with Iran coming on to the market, they will be headed even lower. I didn't think that I would see $20 oil but it's looking like that will be the bottom.

 

[m k]

I've read that $10 is the bottom.

China has guite a lump of infra that is not paid yet.
They are also shifting towards a consumer society.

Maybe we get our jobs back.

 

[Sophia]

To sum it up.
Neoclassical economics or modern capitalism (which is not really based on the original capitalist ideas, btw) is based on permanent growth that never ends. But our planet= resources, number of people and their needs are NOT eternal and cannot increase all the time.
Inevitable results= current system is doomed to failure and something else needs to be invented.
I won't even start writing about moral dimensions of the current system that calls itself capitalism.
The end :)

 

[Astronuc]

China shares tumble again, taking 2016 losses to $2 trillion
http://finance.yahoo.com/news/china-shares-struggle-global-markets-020228777.html

That's a lot for one month, which is not yet over.

Gu Yongtai, analyst at Cinda Securities, said the prospect of investors having to sell stocks they bought with borrowed money in order to cover margin calls has also hurt sentiment.

Ya think?!"In the first six months of 2014, $26 billion left China."
http://finance.yahoo.com/news/not-even-darkest-minds-imagined-192833192.html

 

[Hornbein]

The China bubble had to pop sometime. Building all those office buildings that stood empty. Those sort of things never end well.

A photo of a potato sold for one million plus in Silicon Valley. Crash ahead.

 

[Astronuc]

For Mining Chiefs, Doomsday Scenarios Could Become Reality
http://www.msn.com/en-us/money/companies/for-mining-chiefs-doomsday-scenarios-could-become-reality/ar-BBoQt5f

From the commodities side, things are looking somewhat bleak. In addition to a surplus of oil, there is a surplus of iron ore and copper, so some mines are being shutdown and new projects deferred.

Meanwhile in coal country -
U.S. Coal Company Alpha Natural Resources Files For Bankruptcy
http://www.forbes.com/sites/nathanv...iles-for-bankruptcy/#2715e4857a0b6f1aaedb443c

Coal Companies Are Hurting. But the Coal Industry Is Not Dying
http://www.slate.com/articles/busin...awks_should_not_be_too_gleeful_about_the.html

Patriot Coal in August announced a prospective deal whereby the Virginia Conservation Legacy Fund, a nonprofit that works on sustainability issues, would acquire some of Patriot’s West Virginia mines. The fund would keep operating the mines while simultaneously reclaiming and reforesting land. If it could lash together carbon credits it receives for reforestation with coal production, the VCLF says it could create a form of coal that utilities could burn while still complying with new emission standards.

http://www.conservationlegacyfund.org/

I've been wondering for a while now if the production of CO₂ could be offset by reforestation. It would seem that forestry/lumber companies could encourage reforestation projects especially in heavily harvested areas. It would be slow at first since saplings take time to grow to where they are capturing large quantities of CO₂. I often reflect on an oak tree on my property. I was growing in the shadow of a fir tree (likely a squirrel had buried an acorn under the cover of the fir tree) that was knocked down in a storm. Once the oak tree got sun and rain, without competition, its growth took off. Sadly, I had to remove it, since it was too close to the well and garage.

 

[Astronuc]

Natural gas futures for April were trading at $1.64 per million BTUs Thursday, the lowest level since late February 1999.
https://finance.yahoo.com/news/shale-gale-crushing-natural-gas-192108995.html

Halliburton is laying off 5000 people (8% of workforce) in latest round. They have laid off 22,000 (25% of workforce) since 2014.
http://www.cnbc.com/2016/02/25/halliburton-to-cut-5000-jobs-in-new-round-of-layoffs.html

Looking back to September 2015 - just 6 months ago, it was looking bad then, and it only go worse. Then Halliburton had only laid off 12.5 K. Now it's 22K.
http://money.cnn.com/2015/09/03/investing/cheap-oil-job-cuts/

Not a good time to be looking for a job in oil or gas.

 

[mheslep]

I've been wondering for a while now if the production of CO₂ could be offset by reforestation...

Plant some Azolla in the pond. Azolla might have gobbled up some 3000 ppm of CO2 once upon a time.

https://en.m.wikipedia.org/wiki/Azolla_event

 

[Derek Francis]

Stocks go up and down, but the news generally only reports when they're going down, creating the illusion that the market is getting worse and worse.

For the past few years, the numbers have stayed around the same ballpark.

 

[Astronuc]

US Energy sector deep in debt will struggle to pay interest on debt.

For most of the last decade, interest payments were in the 10 to 20% of operating income. In 2015, the interest jumped to about 50% of operating income, and in 2016, interest payments have soared to about 86% of operating income.

Fracking is capital intensive, and the over-production has caused prices to drop, which mean debt is consuming more of the operating income.

https://finance.yahoo.com/news/oil-debt-interest-payments-122155505.html

Unless prices recover, or folks refinance, one may expect a surge of bankruptcies in 2017, or perhaps starting in the second half of 2016.

 

[mheslep]

Started.

...Some 77 North American energy companies have declared bankruptcy since the start of 2015...This year, 175 oil-and-gas producers around the world are in danger of declaring bankruptcy...

http://www.wsj.com/articles/sandridge-energy-files-for-bankruptcy-protection-1463404621

Oil and gas development is capital intensive in general, but I don't think it is correct any longer to say that fracking shale is more expensive than traditional reservoir exploration.

 

[jim hardy]

Unless prices recover, or folks refinance, one may expect a surge of bankruptcies in 2017, or perhaps starting in the second half of 2016.

I watched a documentary the other day on Rockefeller and his oil empire.Those old guys played a rough game !
Makes me wonder if the cheap oil is an OPEC ploy to snuff out US competitors .
Or maybe a joint US-Saudi ploy to bankrupt Putin .

I bought Peabody Coal on the way down . Stock Tip of the day - watch me and do the opposite.

 

[mheslep]

I watched a documentary the other day on Rockefeller and his oil empire.Those old guys played a rough game !
Makes me wonder if the cheap oil is an OPEC ploy to snuff out US competitors ...

I don't think there is any need for secret Saudi plan; OPEC was losing huge US market share to US domestic production. Soon the US was going to start exporting crude (and now has done so); the US was already exporting gasoline. So they did what any producer would do, they cut the price (by keeping production high).

But it's too late. The Saudis will never again export oil to the US at the levels of 10 years ago. Yes many over extended US frackers have or will declare bankruptcy, but the remaining companies have become extraordinarily efficient, tripling the production rate from a well today over one drilled 3 or 4 years or go, while continually lowering the cost to drill. As the price slowly recovers, there will be no lag to increasing production due to the time to explore offshore and build some enormous offshore platform as the past, all subject to blessing from federal regulators. A bankrupt oil company doesn't mean their drilling rigs are necessarily sold for scrap metal, nor their land leases forgotten.

 

[SteamKing]

Rumors of crude oil's demise have been greatly exaggerated.

While crude hit bottom at about $26 / barrel as recently as February 2016, the price currently has rebounded to $48.31 a barrel for West Texas Intermediate and $49.28 for Brent crude as of May 17, 2016. The general expectation is that crude prices will climb to about $55 a barrel in a year's time. The anticipated $10 per barrel floor was never quite reached.

http://www.oil-price.net/

A lot of the drilling equipment and rigs are durable goods which can be stacked until crude prices reach higher levels. Some older rigs are going to be scrapped anyway because it is no longer economical to keep them in operation even if crude prices were higher. Some new rigs which were planned during the last oil price spike will not be built, as the owners cancel construction contracts with the shipyards.

Other drillers which are in better shape financially can go bargain hunting as companies with high debt accumulations on their books go to sell surplus equipment, either voluntarily or as a result of a bankruptcy auction. One drilling company picked up a 5 year old drill ship at a bankruptcy auction recently for $65 million cash. The vessel was built for an estimated $600-$700 million.

http://gcaptain.com/ocean-rig-pays-just-65-million-for-ultra-deepwater-drillship-at-auction/

The Saudis and the rest of OPEC, not to mention independent producers like Russia, are in a major economic jam. They have grown dependent on being able to set and get the price of their crude on the world market, and this has fueled an extravagant lifestyle for those living in the Gulf states which cannot be sustained for long when crude oil prices drop and remain low for an extended period. Other states (Venezuela) squandered their oil revenues in ill-advised forays into setting up a socialist economy, so much so that this particular country has needed to import oil to sustain what industry and utility infrastructure which hasn't been nationalized or shut down completely as their economy shrinks to typically flat-lined socialist growth levels.

 

[1oldman2]

I watched a documentary the other day on Rockefeller and his oil empire.Those old guys played a rough game !
Makes me wonder if the cheap oil is an OPEC ploy to snuff out US competitors .
Or maybe a joint US-Saudi ploy to bankrupt Putin .

Are you familiar with "The Age of Oil" ? Highly recommended and relevant as well.
http://www.abc-clio.com/ABC-CLIOCorporate/product.aspx?pc=C1498C

 

[russ_watters]

Are you familiar with "The Age of Oil" ? Highly recommended and relevant as well.
http://www.abc-clio.com/ABC-CLIOCorporate/product.aspx?pc=C1498C

That book was published in 2006, before the fracking revolution took hold. Does it need to be updated?

 

[1oldman2]

That book was published in 2006, before the fracking revolution took hold. Does it need to be updated?

It's more concerned with the history of petroleum altogether, fracking does get mentioned but only as an up and coming technology. The book explains in great detail the boom/bust cycles as well as the politics and economics of oil, One other thing that sets it apart from other pieces I've read on petroleum is the authors credentials, he really knows his subject being VP of one of the worlds larger oil companies. Very informative reading. (I would love to get an updated copy though)

 

[nikkkom]

To sum it up.
Neoclassical economics or modern capitalism (which is not really based on the original capitalist ideas, btw) is based on permanent growth that never ends.

Not true.

 

[256bits]

Not true.

why not? Population growth?

 

[nikkkom]

why not? Population growth?

Capitalism as a system does not require permanent growth.
Only those people who hope that shares of all companies, on average, are always gaining in value, need permanent growth.

 

[Monsterboy]

Capitalism as a system does not require permanent growth.
Only those people who hope that shares of all companies, on average, are always gaining in value, need permanent growth.

Who is going to invest in shares if their value is not increasing ? If all the shares reach a hypothetical maximum value and remain there how will it affect investors and the companies and jobs ? Will they all collapse ?

 

[Vanadium 50]

Who is going to invest in shares if their value is not increasing ?

One word: dividends.

 

[russ_watters]

Who is going to invest in shares if their value is not increasing ?

Your response doesn't quite match what you were quoting, but implies something wrong. The quote said "shares of all companies". Obviously, as an investor you would try to invest in shares of companies that are rising and not all companies need to be rising in order to make money in the stock market. And you should note that the most vulnerable companies are small companies: companies don't make it to a stock market unless they've already shown growth.

If all the shares reach a hypothetical maximum value and remain there how will it affect investors

As V50 says: dividends. The other reason to own part of a company is to share in the company's profits.

...and the companies and jobs ? Will they all collapse ?

No...why would they? Stagnation and collapse are very different things.

In either case, none of this directly relates to capitalism. Capitalism is a system for organizing and managing an economy. There aren't any economic systems that I'm aware of that have a growth requirement as part of their structure, but people in most systems prefer to have growth if they can get it. It has been my perception that this usually comes from a fallacy about a fatal flaw in capitalism that doesn't exist in socialism/communism. Most people in socialist/communist countries prefer growth too.

 

[Astronuc]

In a twist - China to levy anti-dumping duties on EU, Japanese, S.Korean electric steel products: Xinhua
https://www.yahoo.com/finance/news/china-levy-anti-dumping-duties-114403720.html

"China, accused of flooding world markets with cheap steel, has started levying anti-dumping duties" on electric steel imported from EU, Japan and S Korea.

One the other hand, "China's huge steel sector has turned to overseas markets to try to ease a huge supply surplus, with product exports reaching a record 112 million tonnes in 2015 . . . .".

It would seem implausible for the EU, Japan and S. Korea steel industries to undercut prices in China. I imagine they would be losing a lot of money.

 

[nikkkom]

Who is going to invest in shares if their value is not increasing ? If all the shares reach a hypothetical maximum value and remain there how will it affect investors and the companies and jobs ? Will they all collapse ?

Of course, that is not what's happening. *Some shares* rise in value, others fall. Shares are the manifestation of (perceived) value of the business. For example, Tesla shares rose in value, but all the physical assets of the company are only a small fraction of total price of all shares. The rest is the (perceived) value of the *business* of Tesla, of what products/services it is expected to create and sell.

So, some shares rise in value, others fall. People who invest in shares are effectively trying to find businesses which are worthy of financing because they will be useful to society in some way and thus profitable.

Nowhere in this picture is a requirement that total price of all shares must be rising all the time.

 

[EnumaElish]

To be sure capitalism does not require growth. And the explanation is *future* (expected) dividends. But there's an empirical gap there. The historical S&P500 return has been 7% in real terms. Actual dividends can explain *maybe* half of that, generously speaking:

The majority of the companies in the S&P 500 index feature a yield between 1% and 2%.

http://www.dividend.com/how-to-invest/the-sp-500-a-dividend-overview/

The remaining portion has to be expected growth.

 

[russ_watters]

To be sure capitalism does not require growth. And the explanation is *future* (expected) dividends. But there's an empirical gap there. The historical S&P500 return has been 7% in real terms. Actual dividends can explain *maybe* half of that, generously speaking:
http://www.dividend.com/how-to-invest/the-sp-500-a-dividend-overview/

The remaining portion has to be expected growth.

*None* of the 7% includes dividends. That's just the growth of the value of the companies. Dividends are an additional/separate revenue stream.

The real question or "gap" is in how much stock S&P growth outstrips economic growth. The US GDP averages something like 3% per year, but I don't have any idea how much of their earnings are in the US or how to weigh in the GDP growth rates in other countries.

In any case, the fact that the US economy has always grown is not the same as saying capitalism requires growth.

 

[EnumaElish]

*None* of the 7% includes dividends.

That depends on whether the 7% is based on an index value adjusted for distributions. If it is then you are correct.

Even though capitalism as a purely economic system does not require growth; politically, economic growth is the surest way to minimize political strife (distributional conflict) and to win elections. It is as if the political system incentivizes treating the economy as a growth stock rather than a value stock.

What is somewhat worrying is the flattening (if not decrease) of total international trade, as @Astronuc suggested in the OP.

 

[russ_watters]

*None* of the 7% includes dividends. That's just the growth of the value of the companies. Dividends are an additional/separate revenue stream.

That depends on whether the 7% is based on an index value adjusted for distributions. If it is then you are correct.

Oops, I just looked it up and I did actually have it wrong. Bottom of the page here:
http://www.simplestockinvesting.com/SP500-historical-real-total-returns.htm
The 7% is actually slightly more than half dividends! I've had that one wrong for a while!

 

[jim hardy]

https://ca.news.yahoo.com/global-central-bankers-stuck-zero-unite-plea-help-123135496--business.html

Mired in a world of low growth, low inflation and low interest rates, officials from the Federal Reserve, Bank of Japan and the European Central Bank said their efforts to bolster the economy through monetary policy may falter unless elected leaders stepped forward with bold measures. These would range from immigration reform in Japan to structural changes to boost productivity and growth in the U.S. and Europe.....
...
In a lunch address by Princeton University economist Christopher Sims, policymakers were told that it may take a massive program, large enough even to shock taxpayers into a different, inflationary view of the future.

"Fiscal expansion can replace ineffective monetary policy at the zero lower bound," Sims said. "It requires deficits aimed at, and conditioned on, generating inflation. The deficits must be seen as financed by future inflation, not future taxes or spending cuts."

doh.
How'd that work out in Weimar republic?

 

[1oldman2]

doh.

Yup.

 

[EnumaElish]

Obviously capitalism prefers growth. Except under rather artificial assumptions, growth is a corollary of technological advancement. A technological plateau is usually a precondition for low growth. Currently there's technological change going on, but iPhone would get you growing only so far. And I don't mean this sarcastically -- iphone is a technological marvel. But the scale of technological advancement that may be necessary to push capitalism into the next long cycle is easily in the order of a space train program plus the largerest particle collider plus genetic everything plus all the green technology one can throw a dart at. And that's probably an underestimate.

 

[russ_watters]

Obviously capitalism prefers growth.

Is there a system that doesn't? For example:

Except under rather artificial assumptions, growth is a corollary of technological advancement.

Yes, and that was a big component of Communist Russia's economic philosophy too.

But the scale of technological advancement that may be necessary to push capitalism into the next long cycle is...

Yes, there may be a limit and technological advancement may slow or become more expensive instead of less expensive...which it appears to me is already happening with medicine. That isn't awesome for capitalism -- or any other system that I know of either.

Again, the statement "capitalism requires growth" is the premise of a flawed line of logic that leads to "therefore we will need a new system when growth slows". It is caused by tunnel vision leading people to wrongly believe that what exists today (capitalism with growth) are required to go together.

Changing the premise to "capitalism prefers growth" makes the premise true, but it doesn't eliminate the tunnel vision problem and doesn't make the conclusion correct.

 

[jim hardy]

Changing the premise to "capitalism prefers growth" makes the premise true, but it doesn't eliminate the tunnel vision problem and doesn't make the conclusion correct.

Unlimited growth is the philosophy of the cancer cell . In time it destroys its host.

It's easier to build new than to maintain.
One day we'll have to switch from 'growth based throwaway' to 'maintenance based conserve' economy. That readjustment might be part of today's social strife.

A Hoffer aphorism or quote that I particularly like is "The sign of a good society and a good government is not in what it builds, but in what it maintains." Hoffer went on to explain that good maintenance applies to big and small things alike, from securing the intent of the Constitution and the Bill of Rights to assuring that our roads are smooth and that public bathrooms are clean.

It's already started at the grassroots level.
http://www.usatoday.com/story/driveon/2013/08/06/old-cars-polk/2621713/

Despite booming sales of new vehicles in the past year, the average age of America's auto fleet has hit another record.

The average age of all cars and trucks now stands at 11.4 years, up from 11.2 years last year, says research firm Polk. A decade ago it was 9.7 years.

Drivers put off buying new cars during the recession, nursing their jalopies through to better times. But in the last year, they have returned to showrooms in droves not only to buy cars likely to last them longer, but to trade in for models that will get better gas mileage.

While the number of vehicles between 6 and 11 years decreased, it was offset by an increase in the number of vehicles older than 12 years.

My newest vehicle is a 2003.