My grandparents had these joke coasters at their cottage. Produced from wood and illustrated in ink, each coaster (the type for that glass of booze) were built with a pithy drink- or sex-related joke etched about it, which gave the look of the wisdom in the ages for an eight-year-old. Among my favourites read: “I’m not drinking anymore- however, I’m not drinking less!”
Canada’s banks may be expected to raise equity, cut dividends if oil prices keep sinking, Moody’s warns
In the severe stress scenario, banks’ losses in consumer lending would exceed historic peaks and capital markets activity might be significantly crimped
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Ah, childhood memories.
Anyway, this specific bad joke sprang in your mind the other day, when Saudi Arabia and Russia (along with Venezuela and Qatar) announced a preliminary deal to “potentially” freeze oil production at current levels.
Which is similar to saying, “We’re not over-producing anymore- however, we are really not over-producing less!”
Markets responded with justified skepticism.
For something, the “deal” fixes production at January levels, but production was already outpacing demand.
Then there’s the problem of compliance. Russia makes similar undertakings to limit production in co-operation with OPEC in the past, then continued to improve output.
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As well, seven in the world’s 10 largest oil producers aren’t participating. Iran, for starters, won’t quit share of the market after being held out by sanctions for thus long. Iraq needs the cash, and sometimes it means selling oil at bargain-basement prices. You need to numerous smaller oil-producing countries, in addition to a great deal of U.S. shale oil producers who’ve to fulfill their financial budget.
Long story short, we simply cannot expect this deal to own much effect on oil prices, and thus far it hasn’t. Meanwhile, U.S. oil and gasoline inventories reach record levels, based on data released the other day with the U.S. Energy Information Administration.
For oil investors, this can be now a well-recognized story. Despite prices decreasing greater than 70 % since December 2014, production is constantly on the outpace demand, as market participants generally are a) scrambling for share or b) in desperate necessity of revenue regardless of what, simply because they have bills to cover. In financing circles, the old saying “oil zombies” continues to be bandied about.
The more worrying thing is, this is not just an oil story, nor merely a commodities story.
On the weekend, Chinese officials held a much-publicized conference where they organized their purports to cleanup the economy and stimulate consumption, inside an obvious attempt to restore confidence in their capacity to engineer growth.
Besides firing the most effective in the securities commission, Xiao Gang – who, following the debacle of circuit breakers plus a volume of failed stock market interventions, must have been relieved – the mandarins also reasserted their persistence for ridding the economy of so-called “zombie factories.”
No you can tell what number of these you will find in China – the us government appears like it’s counting them – but everyone knows what they are: factories that still generate things that there isn’t interest in, propped up by easy borrowing terms.
Beijing really wants to cleanse the system of those things, and that’s good. The problem here’s, badly since they’re, the zombies employ people, generate revenue and extend the pretense banks that loaned on their behalf can get repaid eventually.
Japan remains saddled with “zombie companies” for many years now, supported not simply by banks but by government bailouts. The payoff for that government is jobs and economic “stability.” The price, though, are high – in taxpayer dollars, market oversupply, as well as the suppression of competition.
Let’s not feel too comfy the next in Canada, either, as our authorities contemplates yet more corporate bailouts – Bombardier Inc., anyone? – and our mining sector struggles with reasonable prices.
Investors typically takes peace of mind in the idea that, within the rational economy, these zombies wouldn’t be forever. But because Japan demonstrates, eliminating them while policymakers focus on jobs and stability (not to mention votes) could be a tall order. Moreover, situations that created them – years of quick money and government intervention – continue to be in play.
Zombies, it appears, are appearing everywhere. Even though the earth proceeds the road of “not overproducing less,” they just may be not going anywhere soon.
