The Federal Reserve is set to meet next week, and Bianco Research’s Jim Bianco has some ideas on how it should proceed heading into 2020. Here is a direct video link.
Here’s what the Fed should do in 2020, top expert Jim Bianco says from CNBC.
This is a complex question, but as we consider benefits that flowed to the public and how to apportion cost responsibility between producers and taxpayers, it’s worth noting that oil and gas production doubled in Alberta since 1980 but royalty revenues to the province fell 90% and corporate taxes from producers are down 51% since 2006. Profits were booked without sufficient security deposits and full-cost accounting, so now clean up costs are urged on the public purse. As more companies get into financial trouble, this tab is only getting started. Full-cost accounting is imperative as we move forward with cost-benefit analysis around energy and infrastructure development.
Listen to CBC’s Alberta at Noon with Judy Aldous – Nov. 27, 2019: Orphan wells for insight on this issue.
Also, see What do rural landowners need to know about inactive and orphaned wells:
Increasingly, Albertans have heard about the number of oil and gas wells that sit inactive, neglected, or potentially orphaned in this province. Inactive and orphaned well numbers are growing in parallel with a prolonged energy recession in Alberta since 2014. Often this issue is discussed in an abstract way, mainly focusing on the financial implications for the province or referencing liabilities that companies do not have the funds to properly care for, which raises questions about whether some of these wells will be cleaned up at all.
At the end of the day, rural landowners are the ones who have this infrastructure on their land and have to live with these uncertainties. With support from the Alberta Real Estate Foundation, the Pembina Institute has published the Landowner’s primer: what you need to know about unreclaimed oil and gas wells to help those who are most impacted.
Lest we kid ourselves, stocks today are everything but attractive investments. In terms of Buffett’s self-proclaimed favourite value indicator, as shown below, the S&P 500 is now priced at 144% of US GDP, far above the 2007 top, and near the short-lived highest-ever valuations in history at the tech wreck peak in 2000.
While the market capitalization (price x number of shares) of the S&P 500 has been ‘bought up’ on cheap credit and corporate buybacks to a record $25.6 trillion, S&P 500 revenues have grown at a nominal rate of just 4.1% annually over the last 15 years. As a result, US stocks are now trading at 2.25 x revenues in 2019—the most extreme multiple of corporate revenues in history, and compares with 1.77x in December 2000, 1.47x as the 20-year median, and .80 at the market low in March 2009.
Why does this matter? ‘Cause there’s no free lunch! As shown below, the present level of extreme over-valuation in equities (market cap to GDP on lower axis) is very rare and has historically meant negative annualized returns (upper axis) for at least the next 10 years thereafter (see red diamond below).
All of this is real-life relevant for a North American population that has 10,000 people reaching age 65 every day and tens of millions hoping to cease working by that age and earlier. Most spent the bulk of the last decade just growing back capital losses from the 2008 meltdown and have only recently begun making positive headway again.
A decade of negative returns going forward will be brutal on capital shortfalls and the millions that are already retired or hoping to be so. Studies show that capital losses later in life are hard to recover and tend to have a lasting negative impact on one’s life plan and happiness thereafter. This time is unlikely to be different. Prudent financial management is generous to those who elect patience and obscene risk-avoidance. Present circumstances suggest no other rational course.
