Coming Soon To Your Local Economy: Oil Rout Hits Houston’s Rich

To be sure, oil executives are not alone in feeling the pain. Many blue collar jobs in oilfield equipment production have disappeared. So have thousands of middle management jobs in oil exploration and production. A regular Uber customer is likely at some point to ride with a former energy industry professional. – Reuters article on Houston economy

The effect of the collapse in energy is starting to exert its force on the financial system and economy. JP Morgan warned last week that it will need to reserve more against its energy assets. These “assets” are loans that the bank was unable to “syndicate,” meaning JPM was stuck with these loans because it was unable to sell these loans to other banks or investment funds. Thousands of energy sector jobs have been cut with likely 10’s of thousands more to come. These are the “direct” job losses. “Indirect” job loss will occur as the wide swathe of economic loss in the energy sector begins to reverberate widely through the economy, especially in the housing, auto and service sectors.

A colleague of mine who is an energy banker told me that the President of a major regional bank in Houston confessed that full force of economic damage from the collapse in the energy sector is just now beginning to pummel the greater Texas economy. I am certain the same can be said for all other energy-producing regions of the country.  – excerpt from the Feb 28 issue of the Short Seller’s Journal

The jobs bloodbath is just getting started.  Morgan Stanley announced that it is cutting 25% of fixed income operations;  several other big Wall Street firms have announced plans for large job cuts this year;  major U.S. retail chains have announced the closing of 6,000 stores nationwide.  Outplacement firm Challenger-Gray reported a couple weeks ago that, according to its job-cut data, layoffs in January jumped 200% from December.

It’s been estimated that at least a third of the 175 oil producing companies in the U.S. are at risk of slipping into bankruptcy this year. At some point banks are going to have to start foreclosing on defaulted loans and many companies will be forced to liquidate. Shell Oil announced this past week that it is exiting its North American shale operations. The writing is on the wall. This is going to inflict a significant amount of damage to the U.S. economy – an amount of damage that is not yet being anticipated by investors or by the policymakers.  – Short Seller’s Journal

This week’s issue of the Short Seller’s Journal features an extraordinarily overvalued restaurant industry stock that is aggressively issuing debt to buyback shares so insiders can dump their restricted stock units. This company has a huge negative book value.  The issue also features a homebuilder short that has, minimally, another 65% of downside ahead of it in the next 12-18 months.  Insiders are dumping shares of this company likeNewSSJ Graphic there’s no tomorrow.   There have been zero open market purchases of this Company’s stock by insiders over the last 12 months.  The Company has more inventory and more debt than it did at the peak of the housing bubble but its revenues and number of units delivered are running about 2/3’s of what they were at the bubble peak.  Finally, the issue features  a silver mining company which is now a big silver mine plus two potentially highly prolific gold mines plus some ideas for using puts to replicate shorting AMZN, which I think is ready to roll over again and head lower.

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