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This is just a gut feeling, but with all the schlitz hitting the fan in the credit market lately, I have some doubts about the financing of the energy boom in Colorado.
Does anybody else have some thoughts on the matter?
I think you may be looking in the wrong direction...I think credit availability isn't going to be nearly as big an impact as cliff-diving oil prices due to global demand destruction.
I'm not super-conversant with the numbers in this sector, but my gut feel is that prices well above $100/bbl are what fueled the latest spike in the energy boom. Knowing where the industry break-even lies would be a hugely important data point in any investment decision...
Bob makes a good point. My personal opinion is that oil and natural gas prices have already dropped because of rapid demand destruction to levels lower than is sustainable over the long term . If we have a cold winter nationally, or if the economy picks up at all, energy prices will spike back upward--the fundamentals of rising production costs and diminishing cheap reserves (especially in the US) haven't gone away. All of that said, the current dropping prices have got to have producers rethinking their drilling and exploration plans--at least for the short term. That could bode some very bad things for the one sector of the Colorado economy that actually still has some potential life in it.
The biggest problem in the economy, nationally and in Colorado, remains the drunken debt and speculation binge we have been on for nearly two decades now--almost all of it squandered on suburban sprawl and other non-productive "investments". The ill-designed "bailout" package that just passed is tantamount to treating a complete drunk by giving him a great big slug of the "hair-of-the-dog." It will have the same effect, as well. The drunk (and the economy) may feel better--albeit very temporarily--but the end result will still be a crash, followed by a massive (in the case of the economy, probably decades-long) hangover. I give kudos to Colorado Representatives Marilyn Musgrave, Doug Lamborn, Mark Udall, and John Salazar who had the courage--despite undoubtedly huge political pressure--to vote against this piece of crap legislation. The ONLY redeeming feature in the bailout bill was the addition to increase FDIC insurance amounts on bank accounts to $250,000 for one year. That will, at least at some level, help protect the money in banks belonging to people who actually manage to save rather than being debt up to their eyeballs.
PS--The state of California--that state that Colorado constantly seems to fervently wish to emulate in everything from sprawling automobile-dependent suburban crap to its easily-amended State Constitution--is now functionally broke. Maybe Colorado--finally--may come to realize that the "California model" of sprawl, automobile dependency, giving the developers free reign, etc., etc. is--in addition to its egregious negative effects on quality of life--also a model for fiscal disaster and governmental bankruptcy (in spite of high taxation of its citizens).
Mister Jazzy said: "I give kudos to Colorado Representatives Marilyn Musgrave, Doug Lamborn, Mark Udall, and John Salazar who had the courage--despite undoubtedly huge political pressure--to vote against this piece of crap legislation."
Yes, indeed. Did these four also vote against the Bailout Redux that just passed on Friday?
Surely this Bailout is the boondoggle of our times! And not only that, it's really starting to look like the markets and everybody with a functioning brain has figured out that the economy is gonna keep tanking for a while now regardless of this Bailout. It's really a shame now to witness this stuff all coming to some kind of horrible fruition....
Mister Jazzy said: "I give kudos to Colorado Representatives Marilyn Musgrave, Doug Lamborn, Mark Udall, and John Salazar who had the courage--despite undoubtedly huge political pressure--to vote against this piece of crap legislation."
Yes, indeed. Did these four also vote against the Bailout Redux that just passed on Friday?
Yes, they did vote against it--that second vote is what I am referring to.
Bob makes a good point. My personal opinion is that oil and natural gas prices have already dropped because of rapid demand destruction to levels lower than is sustainable over the long term . If we have a cold winter nationally, or if the economy picks up at all, energy prices will spike back upward--the fundamentals of rising production costs and diminishing cheap reserves (especially in the US) haven't gone away.
Thanks for the input Jazz. I was just thinking out loud when I asked that question. If Denver is having to pay 12% for its DIA bonds, you would think that something as speculative as drilling a well would need to pay a significant premium over that amount. Unless Denver is in worse shape than I think it is, 12% would seem to be very a nice ROI with an almost guaranteed payback.
Another question that I don't have data to answer:
Did China decide to slow down their overheated economy by slowing ours down? They had to know what they were doing when they drove the price of oil through the roof "stocking up for the olympics". The funny part is that they didn't start buying again after the olympics.
If Denver is having to pay 12% for its DIA bonds, you would think that something as speculative as drilling a well would need to pay a significant premium over that amount. Unless Denver is in worse shape than I think it is, 12% would seem to be very a nice ROI with an almost guaranteed payback.
I honestly have not looked at the DIA bonds. If they are General Obligation bonds (payback assured by the full faith and credit of the City of Denver), they would be pretty safe. If they are Revenue bonds, tied to revenues associated with DIA itself, they could be risky. DIA is a last dinosaur built to memorialize the era of cheap fuel and affordable air travel for the masses. I personally don't think it has a very bright long-term future. I wouldn't want to own a long-term bond tied to future revenues from the airport alone.
The ill-designed "bailout" package that just passed is tantamount to treating a complete drunk by giving him a great big slug of the "hair-of-the-dog." It will have the same effect, as well. The drunk (and the economy) may feel better--albeit very temporarily--but the end result will still be a crash, followed by a massive (in the case of the economy, probably decades-long) hangover.
Thank you for pointing this out. The "solution" that they've come up with, as far as putting the burden on taxpayers to inject more capital into the system in order to free up the system and enable once again the free flow of credit, is like pouring gasoline on a forest fire.
Let's see, we got into this mess how? By too many people borrowing more than they could afford, buying depreciating overpriced and self-indulgent crap with it, then not paying the money they owed back. So now their solution is to inject more capital into the market, free up the credit crunch, and thereby enable the citizens of our already-broke society to borrow more money once again? And in so doing, print more money and deflate the already-devastated dollar even further? That's not a solution, it's flagrant idiocy.
A pertinent question at this juncture: What was Colorado like during the depression of the '30s? Is there anyone on the forum with that long a memory?
I can give you a short answer (on my lunch hour at the moment). While I wasn't born until well after the Depression, I've studied that period of Colorado history pretty extensively and have interviewed quite a few people who lived through it.
The Great Depression in Colorado, as in most places, was no easy time. In some ways, it was less traumatic in Colorado because a huge chunk of the Colorado economy had never really recovered from the Silver Panic of 1893--times had been pretty bad for years, and the Depression just extended that trend.
The Eastern Plains of Colorado suffered terribly from the combination of the Depression and the Dust Bowl. The decline there was dramatic--many towns virtually disappeared, and many started declining in population and wealth in a trend that has not really reversed since.
The mountain areas fared badly, as well. Mining never had really recovered from the Silver Panic, and it didn't do much during the Depression. The few jobs available were in the relatively small number of operating mines. The work was hard and dirty--and many miners suffered from things like "Miner's lung" that shortened their lives. Food was expensive in the mountain towns, and many a family survived on poached deer and elk. The game wardens often looked the other way because some children might have suffered malnutrition or starved in the mountain towns without poached wild game.
Many hundreds of miles of the state's railroad infrastructure were abandoned during the Depression (and after WWII, as well). It was a crushing blow to much of the rural areas of the state, as roads were still pretty primitive in many areas.
The "metro" areas, such as they were, pretty much were stagnant during the Depression. They were very much trade centers for the surrounding hinterlands, and--to the extent that those hinterlands were devastated economically--the pain of that was transferred to the cities. Unlike today, Colorado actually had some manufacturing base in the 1930's, and those industries, while hurt severely by the Depression, still produced some needed products--much of it sold locallly and regionally.
Government "New Deal" programs like the CCC, WPA, etc. injected some economic activity into Colorado--and often were the only jobs available for some people, especially the young or unskilled.
Not a fun time, and one that I think that we are about to repeat--probably even more traumatically.
The Fed Reserve Board's consumer credit report for Aug 08 shows an unexpected (by the FRB anyway) and dramatic pullback in consumer credit...$7.9 Bn for an annuallized rate of contraction of 3.7% Not gonna be a very Merry Christmas in retailville. Especially anywhere near a new car lot.
We are hurtling into a major deflationary "event." There are already reports of EU merchants refusing to take credit cards from British banks, and the varying and inconsistent positions being taken by the governments of europe towards protection of deposits is causing a terrific rift that could scuttle the Euro and maybe even the EU as a meaningful construct.
I know we're in Colorado and not europe...but what is Joe Sixpack going to do when he's in line at King Soopers the day they hang a sign that says "Due to circumstances beyond our control we cannot accept checks or credit cards until further notice" ??
The Dow has now lost over a third of its "value" since its peak a year ago. Just as in the NASDAQ crash of 1999-2000, the talking heads on bubblevision are doing their best to talk the sheeple into staying in line to the meat packing house. "A bottom must be near with valuations so low," I heard today on TV. I heard the same kind of words after the NASDAQ had fallen 30% in 2000...but a bottom was not near...it had almost 60% more to fall. And today, the NASDAQ still sits at about 65% below the high it reached 9 years ago.
The financial carnage will continue so long as the government permits the banking pigmen to hide the ugly truth of what's on their books. The bad players must be culled out--in fact they inevitably will be culled out--the question is whether the public is willing to be go down the cull chute along with them by not demanding that their lawmakers force the pigmen to stop the lies. We have institutionalized deceit and dishonesty as acceptable means to turn a profit. Until there's integrity and the major actors can trust one another again, the system will reel from one failure to the next, as none of the players are willing to cooperate lest they end up standing when the music stops again.
This is Enron on a national scale, and our political leaders think the solution is to pay off the people who caused this (with our money), slink out of Washington like thieves in the night, and go home to campaign.
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