Juggling Dynamite

US oil production (along with global oil production) has continued to ramp over the past year as lower prices prompt over-levered players to pump more in order to grab the necessary life-blood of solvency–cash flow.

Their poker face seemed to convince some traders and hopefuls in March, that the bottom might be in for oil and energy company shares.  Since April however, crude prices have flat-lined and energy shares (XEG Index below) have relapsed, suggesting that the cyclical rebound in the energy sector that led the North American economy out of the 2008 recession, is now behind us and more mean reversion (lower green band area) room lies ahead.

This week in 1933, Congress passed The Glass-Steagall Act, also known as the Banking Act of 1933 (48 Stat. 162) prohibiting commercial banks from engaging in the investment business (ie., underwriting, trading, speculating and selling risk products while calling it “financial advice” and having the assurance of tax-payer bailouts when players implode.)

The Banking Act of 1933 was enacted in response to the reckless practices that led to the financial bubble and crash of 1929, the failure of nearly 5,000 banks, and the Great Depression that followed. Similar legislation was then replicated in most developed countries around the world. The legal separation between risk selling, lending and financial advice, set the world on a path toward greater stability that lasted for over 60 years, until relentless lobbying from the banks finally overturned the legislation in 1999. The global economy has paid the price ever since with increasing, cumulative costs in a series of financial bubbles and collapse.

We will be cleaning up the financial mess from these decisions for years to come. But if we are to make lasting progress and actually heal, we must first stop the bleeding and re-break up the banking cartel once more plaguing the world.  A new bipartisan 21st Century Glass Steagall Act has already been proposed and must be passed in all civilized nations.  You can read it here.  Spread the word.

There is no free lunch. Those who have been most risk-exposed during the past 3 years of QE-induced financial mania have garnered the most paper returns, but also stand to lose the most in the mean reversion phase. Worse, even with the extraordinary bounce back in equity prices, the most touted stock market in the world–the S&P 500–has still returned just 4% a year over the 15 years since this secular bear began off reckless valuations in 2000. In other words, stocks have gained less than T-bills while offering heart-stopping risk and volatility. And now that financial markets have achieved the most over-valued levels in human history on many historically reliable metrics, the rational question is, what next?

In today’s under-saved, over-indebted, over-leveraged world, only the foolish or willfully blind are feeling comfortable or confident about financial risk exposure at this point in the cycle.  The few people who do have savings amassed at this point, have the most to lose in this environment.  See: Even millionaires are living paycheck to paycheck:

One in five respondents with investable assets of $100,000 to $1 million, and 1 in 10 with investable assets of $1 million up to $10 million believe they have too much debt and are living paycheck to paycheck, according to a poll taken by MaritzCX.

Among the 1,044 investors surveyed in November and December, 45% are worried they won’t have enough income to last through retirement. And 30% believe they will have to work during that period of their lives.

There are now 17 million millionaire households worldwide, with 2 million added last year. CNBC’s Robert Frank reports. Here is a direct video link.