Guest post: Big oil should exercise capital discipline as prices rise

Traditionally, higher prices tend to be followed by increased investment: management tend to be very reactive in their planning. Given that many companies have cut back budgets by over a third in the past two years, management are likely to find it har…

Traditionally, higher prices tend to be followed by increased investment: management tend to be very reactive in their planning. Given that many companies have cut back budgets by over a third in the past two years, management are likely to find it hard to resist the urge to make up for lost time and pour more money into the ground.

Continue reading: Guest post: Big oil should exercise capital discipline as prices rise

Recalling the OK/TX housing bust of the mid-1980s

Compared to other assets, houses are tough to sell at short notice (unless you’re willing to offer a huge discount), they require constant maintenance to avoid losing value, and they’re extremely exposed to their local economy. Yet many people put the vast majority of their savings into the equity of a single home.

Tax policy, differences between the quality of what you can rent and what you can buy, and the desire to hedge against the risk of rent increases all help justify this seemingly perplexing financial decision. But simple ignorance of the risks must also be a major factor.

We were reminded of this by a recent conversation with Jed Kolko, the chief economist of Indeed and an expert on housing. He pointed out that house prices in much of the oil-producing regions of Texas and Oklahoma have yet to recover from the bust in the mid-1980s.

Continue reading: Recalling the OK/TX housing bust of the mid-1980s

Compared to other assets, houses are tough to sell at short notice (unless you’re willing to offer a huge discount), they require constant maintenance to avoid losing value, and they’re extremely exposed to their local economy. Yet many people put the vast majority of their savings into the equity of a single home.

Tax policy, differences between the quality of what you can rent and what you can buy, and the desire to hedge against the risk of rent increases all help justify this seemingly perplexing financial decision. But simple ignorance of the risks must also be a major factor.

We were reminded of this by a recent conversation with Jed Kolko, the chief economist of Indeed and an expert on housing. He pointed out that house prices in much of the oil-producing regions of Texas and Oklahoma have yet to recover from the bust in the mid-1980s.

Continue reading: Recalling the OK/TX housing bust of the mid-1980s

Of $40 oil and forced SWF selling

You know who doesn’t like a falling oil price? Sovereign wealth funds for countries dependent on high oil prices and in love with their (endangered) petrodollars.
And a risk based on that dislike is a presumption of forced selling and equity market wea…

You know who doesn't like a falling oil price? Sovereign wealth funds for countries dependent on high oil prices and in love with their (endangered) petrodollars.

And a risk based on that dislike is a presumption of forced selling and equity market weakness becoming self-fulfilling as/ if oil prices slide. Stable oil prices means SWFs don't have to suddenly liquidate but the opposite would also seem to be true...

The last time JPM's Flows & Liquidity team looked at this risk they based it on a fall in Brent to an average price of $45 per barrel.

They now assume an average oil price of $40 for 2016 and also note that the "YTD average has already fallen to $42."

Continue reading: Of $40 oil and forced SWF selling