Paul B. Farrell, MarketWatch: “Big Oil investors beware: “The day of the huge international oil company is drawing to a close,” warned the Economist last year. Since then, Big Oil sell signals have gotten louder, more frequent, confirming fears of a crash in Big Oil, in the entire energy industry, rippling through Wall Street stocks, the global economy.”
“When? Before the new president is elected, in 2016. Scenario like 2008, when McCain lost.
Yes, the overhyped shale boom was supposed to make America energy independent, investors happy. Wrong. Risks are rocketing, volatility increasing. Why? Big Oil is vulnerable, they’re running scared, making bigger, costlier, deadlier and dumber bets that threaten the global economy. Worse, Big Oil is in denial about their high-risk, self-destructive gambles.
Main Street’s also in denial. Yes, we’re in a rare historical event now. Two bulls back-to-back, with no bear market in between. Makes investors feel it’ll go forever, like 1999. True, stocks have been roaring since March 2009 when the bottom hit at 6,547 on the Dow after a 54% drop from the October 2007 high of 14,164. Since, a steady climb to a recent DJIA record at 17,279, with gains over 250%. But now our Double Bull has stopped roaring.
Market cycles follow well-known patterns: As Investors Business Daily publisher Bill O’Neil explained in his classic, “How to Make Money in Stocks,” for the past century the bull cycle runs for an average of 3.75 years. Then falls into a bear an average of nine months. Yes, the pattern skipped 2013, creating today’s Double Bull.
But market giants are warning, bye-bye bull. Jeremy Grantham, founder of the $117 billion GMO money-management firm, predicts another megatrillion dollar crash, repeating the bears of 2000 and again in 2008. Wall Street lost roughly $10 trillion each time. Grantham says the next bear will hit around election time 2016. The third $10 trillion stock crash early in this new 21st century. Listen to the 15 sell warnings targeting the energy industry:
1. Revenues dropping: “Global oil glut, prices plunging.” Wall Street Journal
2. Costs rising: “Price of oil tumbling, cost of finding it is not.” The Economist
3. Drillers lying: “73 shale drillers telling investors reserves are 163.5 bbl, about five times the 33 bbl the drillers are actually reporting to the SEC.” Bloomberg News
4. Investors selling: “Rockefeller oil heirs abandoning fossil fuels, along with 180 other philanthropies, pension funds, and hundreds of wealthy individuals.” New York Times:
5. Government hurting: “Facing tough state budget, West Virginia needed revenue, letting oil and gas companies frack 14 miles under Ohio River.” Fox Business News
6. Earthquakes fracking: Next door in the “State of Ohio, a study warns that shale-oil fracking has triggered 400 earthquakes.” NBC News Network
7. Risks rising: “Top 20 oil projects put $91 billion of investors money at risk.” Carbon Tracker Initiative
8. Pipelines spilling: “North Dakota took a year to report a pipeline spill of 840,000 gallons of crude into a wheat field. Owner Tesoro blames lightning.” ClimateProgress
9. Big Oil cutting: “Cutbacks in the 163 exploration megaprojects each over $1 billion, while Big Oil is trying to sell $300 billion of assets.” The Economist
10. Christians running: “Half billion members no longer supporting fossil fuels.” World Council of Christians
11. Billionaires gambling:”‘Next big company to put U.S. economy at risk may not be a bank but a trading giant like the Koch Empire.” Rolling Stone magazine
12. GOP pretending: “Climate change; Politicians who say ‘I’m not a scientist’ but offer advice on Ebola.” ClimateProgress.org
13. History repeating: “In China, they say, ‘pollute first, clean up later.’ History is repeating itself,’ Mother Jones
14. Masses revolting: “Coming Collapse of Gulf Monarchies; declining fossil fuel reserves, fiscally unsustainable social pacts, restive Shiite populations, alienated youth, and the impact of the Arab uprisings’ within five years.” Foreign Affairs
15. Drill-baby-drilling: Exxon Mobil CEO in a Charlie Rose interview: “My philosophy is to make money. If I can drill and make money, then that’s what I want to do to make investments for our shareholders,” spending $37 billion a year digging for future reserves. BusinessWeek
Yes, the Big Oil stock sell signals are getting louder and louder and lot more frequent Big Oil stocks aren’t as safe as you think. Sounds crazy, with the world’s seemingly endless demand for more oil to energize and feed a world population predicted to add three billion more, all demanding bigger cars, more wealth, better lifestyles.
Sell? Yes, think long term. Main Street investors, especially boomers and retirees in Big Oil stocks, you are not as safe as you think. Yes, Big Oil creates 9 million jobs. Yes, the industry generates about $1 trillion in annual revenue. Yes, Vanguard Funds owns over $15 billion of Exxon Mobil across 170 funds and 20 million shareholders. Yes, the federal government just keeps giving Big Oil $4 billion a year of your tax dollars.
But all this is just an illusion of safety, nothing but self-inflicted delusion. Meanwhile, the Economist is warning all Big Oil investors: A global downsizing trend dead ahead because “spending heavily on replacing reserves to keep investors happy is not working.” Moreover, costlier reserves “hardly counts as a long-term growth strategy? They even warn Big Oil: You “might do better to slim down.”
Crash dead ahead as oil profits peak, and global economy collapses
Yes, this future is scary: “Even with the most optimistic set of assumptions — the ending of deforestation, a halving of emissions associated with food production, global emissions peaking in 2020 and then falling by 3% a year for a few decades.”
Even in that best case scenario “we have no chance of preventing emissions rising well above a number of critical tipping points that will spark uncontrollable climate change,” warns Clive Hamilton, Australian economist in “Requiem for a Species: Why We Resist the Truth about Climate Change.” Soon “the Earth’s climate will enter a chaotic era” … and “one thing seems certain: there will be far fewer of us”.”