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Business/Finance See other Business/Finance Articles Title: Innovation in the shale patch? Or Fed-fueled Ponzi finance bubble? You decide… "In some ways," writes Harris Kupperman, "it was just as preposterous as the mad scramble for Internet eyeballs. The only difference is that bankers were able to convince investors that there would eventually be cash flow; hence, these drilling leases could be borrowed against." Kupperman is the CEO of Mongolia Growth Group. His comments were brought to our attention by the inimitable Chris Mayer. He's referring to the mad dash for acreage and hot "plays" of the shale boom. "In the mid-2000s' scramble for yield," Kupperman continues, "investors were only too happy to buy these high-yield junk bonds backed by previously worthless lease rights. A truism in finance is that debt eventually needs cash flow to repay it. [Heh] Has the “great American energy boom” been spurred on by technical innovation and higher oil prices? "Ironically, in the shale space, much of the borrowed money wasn't being spent to drill and produce cash flow. Instead, the shale companies were using debt to acquire more lease rights in the hope that they would continue to appreciate faster than the interest payments went out the door." We've been having a vigorous debate internally over the shale revolution. We're going to invite you to submit your opinion (here)… many readers already have. Here are the questions: Has the "great American energy boom" been spurred on by technical innovation and higher oil prices? Or is it another classic Fed-fueled Ponzi financing bubble? What will the effect of $50 oil be on the investment horizon for diggers and drillers? Was "Peak Oil" just a bull$hit theory after all? Below, Jim Rickards sides with Team Ponzi Finance and shows how those chasing acreage today, like Internet eyeballs circa 1999-2000, have been playing the game. Game over, he implies. Before we get to it, though, a quick peek at Jim's 2015 forecast: "I think the biggest surprise in 2015 is that the Fed does not raise interest rates: "If by March or April -- somewhere in there -- the economic data are weak and the Fed starts to signal they're not going to raise rates, all of a sudden, everything could flip. "That could be very bullish for oil, gold and hard assets. You could also see the euro strengthened and the dollar go down. "Right now, the market is set up for the opposite. We are looking at a strong dollar, weak gold, weak oil. But that's because everyone thinks the Fed is going to raise rates. If they don't, though, which is what I expect, then that trade is going to flip. "If the Fed doesn't raise interest rates -- investors will pile back into Treasuries. That means we could expect our Treasury recommendation, Wasatch-Hoisington U.S. Treasury Fund (WHOSX), to go up even more than it already has. Since we originally recommended it on Nov. 17, it's up almost 8%. "The good news is that even if the Fed raises rates in 2015, the rate hike would crush other risky assets, which would also send investors running to Treasuries. Either way, my pick for playing Treasuries should go up." As Jim explains below, buying in now may be a good move. In keeping with our oil discussion, Jim explains how $50 crude could be the snowflake that triggers the avalanche. According to him, the crisis could dwarf the 2007 subprime meltdown. This "may be time to take a little more defensive posture," he says. "When global financial elites see a catastrophe coming," Jim wrote in November, "the first things they look to buy are U.S. Treasury notes and bonds." Regards, Addison Wiggin The Daily Reckoning P.S. Three days before Christmas, Jim revealed another global elite warning you're not supposed to hear about. The Bank for International Settlements -- "the central banks' bank" -- admitted to a $9 trillion debt bomb hidden in your 401(k). Click here to see what he uncovered. click.dailyreckoning.com/...UwNyZyPU1DJmc9MA./AQ/xKey P.P.S. From Feb. 4-8, I'll be taking a group of readers down to Rancho Santana -- our Nicaraguan coastal development -- with my partner-in-crime Pete Coyne. We hope you'll come -- especially if you're interested in trading some of your fiat dollars for tangible foreign real estate backed by the greatest thinkers in the financial publishing industry. Even if you're not interested in buying, you can still tag along. In fact, the brand-new inn by our clubhouse is now open. Email Marc Brown at marcb@ranchosantana.com for more info. Be sure to tell him Addison from the DR sent you. Hope to see you in February! Post Comment Private Reply Ignore Thread Top • Page Up • Full Thread • Page Down • Bottom/Latest
#1. To: BTP Holdings (#0)
This is called ...shilling... Shalling...is quite different.
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