Category Archives: Housing

Can’t Afford A Shanghai Apartment? Try Sleeping In A “Shared Compartment”

(ZeroHedge) Shanghai’s status as an emerging tech hub is bringing with it problems related to overcrowding experienced by US cities like San Francisco and certain parts of New York City – namely out-of-control rents and home prices.

But now, the cities’ mid-tier office drones, some of whom may not have enough cash saved to “commit” to an apartment, have a new low-cost housing alternative. They’re called shared compartments, and they’re are popping up in office buildings around Shanghai. Users pay to sleep in the compartments for a set amount of time. They’re given disposable bedding to make sleeping more comfortable, and the compartments are disinfected automatically by ultraviolet light after each use.

Photos of these compartments have been circulating on Chinese media:

https://i2.wp.com/www.zerohedge.com/sites/default/files/images/user245717/imageroot/2017/2017.07.15Shanghaione_0.JPGPeople can enjoy a rest in the compartment by scanning the QR codes for payment.

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A man experiences a shared compartment in Shanghai…

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The inside of a shared compartment…

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The disposable bedding…

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They have been rising precipitously now for at least a decade, with an average 1,000 square foot apartment in Shanghai going for $725,000, or around five million yuan. Shanghai’s average salary per month is 7,108 yuan ($1,135) or 85,300 yuan a year. That puts local property in Shanghai at about 50 times median salaries in the city, according to Forbes. By comparison, housing prices in New York City are 32 times salaries of average New Yorkers.

With those figures in mind, showering at the company gym doesn’t sound so bad.


Living in a box: The desperate workers forced to live in tiny ‘coffin’ apartments of Tokyo – which still cost up to £400 a month to rent

  • Japanese capital is one of the most crowded cities in the world
  • ‘Geki-sema’ or share houses are mainly used by young professionals
  • No windows and enough room for one person and a few possessions
They are barely large enough for a single person to squeeze into at all, let alone swing a cat.

But incredibly these tiny ‘coffin’ apartments in central Tokyo still command rents of up to £400 a month.

The Japanese capital is one of the most crowded cities in the world, and to cash in on the chronic housing problem, landlords have developed what are known as ‘geki-sema’ or share houses.

https://i2.wp.com/i.dailymail.co.uk/i/pix/2013/02/28/article-0-1859C822000005DC-752_634x356.jpgTight squeeze: A Tokyo local shows a Japanese news crew around her tiny ‘coffin apartment’

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Pokey: People are paying up to £400-a-month to live in the tiny ‘coffin’ apartments

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Party time: The news team somehow manage to all squeeze inside the miniscule apartment

They are little more than cupboards, tiny cubicles stacked on top of each other with just enough room for one person and a few of their possessions.

Definitely not for the claustrophobic, many don’t even have windows and the doors and anyone over 6ft tall would have trouble stretching their legs.

Most are used by young professionals who spend most of their time at work and outdoors, using these tiny accommodations just for sleeping.

The photo’s of the apartments in the Tokyo’s Shibuya district come from a recent Japanese news program showed

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Tight squeeze: A man shows off his tiny Tokyo apartment with just enough room to stretch out and hang his clothes.

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Cosy: The tiny cubicles are often stacked on top of each other and contain just enough room for one person to stretch out

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Entertaining friends: The apartments tend to be used by young professionals who spend most of their time at work and outdoors

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No space like home: Many of the ‘geki-sema’ share houses don’t even have windows

NAR Cites “Housing Emergency” as Starts Unexpectedly Dive 5.5 Percent: NAR “Befuddled”

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The second-quarter economic report misery continues in a major way today with housing starts and permits unexpectedly falling.

The Econoday consensus was was for starts to rise 4.35%. Instead, starts fell 5.5%. Adding insult to injury, April was revised lower by 1.37 percentage points making the consensus estimate off by an amazing 11.22 percentage points.

The bad economic news keeps building, this time in the housing sector. Housing starts fell an unexpected 5.5 percent in May to a far lower-than-expected annualized rate of 1.092 million with permits likewise very weak, down 4.9 percent to a 1.168 million rate.

All components show declines with single-family starts down 3.9 percent to a 794,000 rate and permits down 1.9 percent to 779,000. Multi-family starts fell 9.7 percent to 298,000 with permits down 10.4 percent to 389,000. Total completions did rise 5.6 percent to a 1.164 million rate, which adds supply to a thin market, but homes under construction slipped 0.7 percent to 1.067 million.

Adding to the bad news are downward revisions to starts including April which is now at 1.156 vs an initial 1.172 million. Looking at the quarter-to-quarter comparison, starts have averaged 1.124 million so far in the second quarter, down a very sizable 9.2 percent from 1.238 million in the second quarter. Permits, at an average of 1.198 million, are down 4.9 percent.

Residential investment looks to be yet another negative for second-quarter GDP.

Housing Emergency?

Mortgage News Dailly has some amusing comments by Lawrence Yun, the National Association of Realtors chief economist, in its report Drop in Housing Starts Could Intensify Inventory Issues.

The negative report prompted the following statement from the National Association of Realtor’s Chief Economist Lawrence Yun. “Housing shortages look to intensify and may well turn into a housing emergency if the discrepancy between housing demand and housing supply widens further. The falling housing starts and housing permits in May are befuddling given the lack of homes for sale and the quick pace of selling a newly-constructed homes. Meanwhile, job creations of a consistent 2 million a year will push up housing demand further. One thing that moving up is the housing costs for consumers: higher home prices and higher rents.”

NAR “Befuddled”

Yun is befuddled. That’s hardly surprising given that it does not take much to befuddle economists.

Let me clear up the confusion:

  • People cannot afford homes so they are not buying them.
  • Builders will not purposely build homes to sell at a loss.
  • The alleged demand for new homes is imaginary.

Such analysis is beyond the scope of most economists, so I am happy to help out.

By Mike “Mish” Shedlock

Vancouver House For Sale: Only 2,099 Bitcoin

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In February 2016 we explained, correctly in retrospect, that the reason behind the unprecedented surge in Vancouver home prices was the seemingly constant flood of “hot Chinese money” desperate to park itself as far away from China’s banking system, and into offshore real-estate. This is how we laid out the stylized sequence of events that culminated with Vancouver home prices surging by over 20%:

  1. Chinese investors smuggled out millions in embezzled cash, hot money or perfectly legal funds, bypassing the $50,000/year limit in legal capital outflows.
  2. They make “all cash” purchases, usually sight unseen, using third parties intermediaries to preserve their anonymity, or directly in person, in cities like Vancouver, New York, London or San Francisco.
  3. The house becomes a new “Swiss bank account”, providing the promise of an anonymous store of value and retaining the cash equivalent value of the original capital outflow.
  4. Then the owners disappear, never to be heard from or seen again.

Separately, in mid-2015, when bitcoin was still trading in the low $200s, we also predicted that in an attempt to bypass China’s increasingly more draconian capital controls, Chinese oligarchs and ordinary savers would increasingly turn to what at the time was a largely unregulated medium of exchange: bitcoin.

we would not be surprised to see another push higher in the value of bitcoin: it was earlier this summer when the digital currency, which can bypass capital controls and national borders with the click of a button, surged on Grexit concerns and fears a Drachma return would crush the savings of an entire nation. Since then, BTC has dropped (in no small part as a result of the previously documented “forking” with Bitcoin XT), however if a few hundred million Chinese decide that the time has come to use bitcoin as the capital controls bypassing currency of choice, and decide to invest even a tiny fraction of the $22 trillion in Chinese deposits in bitcoin (whose total market cap at last check was just over $3 billion), sit back and watch as we witness the second coming of the bitcoin bubble, one which could make the previous all time highs in the digital currency, seems like a low print.

With one bitcoin now going for roughly $1,800 – and with the PBOC repeatedly cracking down on all forms of bitcoin cross-border flow – this prediction also turned out to be right.

So putting the two together, at least one enterprising Canadian homeowner has decided to make life for potential Chinese buyers especially easy, and in a posting on the Hong Kong edition of Craigslist, has listed a relatively modest Vancouver house for the price of 2,099 bitcoin.

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At today’s exchange rate of US$1,737 for one bitcoin, the US dollar equivalent price is roughly $3.6 million or C$4.9 million. So what does nearly five million Canadian dollars buy enterprising Chinese investors who are willing to pay up for the convenience of bypassing currency conversion into Canadian dollars altogether? This:

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Source: ZeroHedge

A Look At Our Older Population, Higher Interest Rate Trend

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The United States of America, 2047: The population bumps up against 400 million people, with a full 22 percent of folks aged 65 and older — or 85.8 million seniors. The national debt rises so high that the country spends more money on interest payments than all of its discretionary programs combined, a scenario that’s never been seen in a half-century of tracking such metrics. And that’s all assuming that elected officials even find a way to keep Social Security and Medicare funded at their current levels.

This stark vision comes courtesy of the Congressional Budget Office and its most recent Long-Term Budget Outlook. The nonpartisan CBO looks into its crystal ball and predicts the economic picture for the next 30 years, and the results could prove fascinating for folks who work in financial planning and lending — or, perhaps, send them screaming into the night.

Interest Rates Creep Higher, But Not Historically So

For instance, the CBO joins the chorus of other financial analysts by projecting steady increases in interest rates over the coming decades as the economy improves and the Federal Reserve moves away from the historically low federal funds rates instituted during the depths of the Great Recession. But mirroring the attitudes of many in the reverse mortgage industry after the Fed last hiked its interest rate target back in March, the office also puts these trends in the larger context of recent history, 

“CBO anticipates that interest rates will rise as the economy grows but will still be lower than the average of the past few decades,” the report notes. “Over the long term, interest rates are projected to be consistent with factors such as labor force growth, productivity growth, the demand for investment, and federal deficit.”

As RMD reported at the time, rising interest rates have diverse effects on Home Equity Conversion Mortgage originators and lenders, potentially hampering needs-based borrowers with lower principal limits, but also providing opportunities to market the growing HECM line of credit and strengthening the HECM-backed securities market. 

Though the CBO doesn’t address specific numbers for federal funds rate targets, the office offers projections for the interest rate on 10-year Treasury notes, predicting a rise from 2.1% at the end of last year to 3.6% in 2027 and 4.7% in 2047. That’s still a percentage point below the average of 5.8% recorded between 1990 and 2007, a period that the CBO notes was free of major fiscal crises or spikes in inflation.

The current federal funds rate target of 0.75% to 1% still falls on the historically low side of the spectrum; prior to the economic collapse in the late 2000s, the number sat at 5.25%, and it climbed as 20% during the inflationary malaise days of the Carter and early Reagan administrations.

Rising interest rates could spell bad news for the federal government, however, as they also determine the amount of money that Uncle Sam must pay on his debts. According to the CBO’s estimates, the amount of federal debt held by the public will balloon to 150% of the gross domestic product, up from 77% now — reaching figures never seen in the history of the United States. For reference, the national debt has only ever exceeded GDP during and after World War II, when the government embarked on an unprecedented defense spending spree.

A Changing Population

In the CBO’s estimate, a variety of factors will conspire to expand the American population to about 390 million as compared to around 320 million today — while simultaneously making it grayer.

The net immigration rate, which balances out the amount of people leaving and entering the U.S., is expected to rise ever-so-slightly from 3.2 per 1,000 in 2017 to 3.3 per 1,000 in 2047, while the fertility rate for folks already in America will sit at an average of 1.9 births per woman for the next 30 years, down from the pre-recession level of 2.1.

Couple that with declines in mortality rates and gains in life expectancy, and you’ve got the recipe for an older America: A baby born in 2047 can expect to live an average of 82.8 years according to the CBO’s estimates, compared with 79.2 for children born this year. And good news for readers born in 1982: You can expect an average of 21.5 more years on this mortal coil once you turn 65 in 2047, as compared to 19.4 more years for those celebrating their 65th birthdays by the end of 2017.

The Takeaway

Interestingly, the CBO notes that it bases its entire report on the assumption that the two key pillars of Social Security and Medicare will remain funded “even if their trust funds are exhausted” — a formidable “if” given political realities and the general pitfalls of making assumptions about the future of government from 30 years out.

As Jamie Hopkins, an associate professor of taxation at the American College of Financial Services, recently told a HECM industry event, Social Security and Medicare will remain funded through 2034, and any attempts to make unpopular decisions that could benefit their long-term health — such as raising the retirement age — would spell political disaster for those who attempt a change.

Perhaps none of this comes as a surprise to originators, lenders, and others who work in the reverse mortgage space: Americans as a unit are getting older, the economic outlook remains uncertain, and no one’s really sure what’s going to become of the social safety net. Meanwhile, down on the micro level, this growing crop of seniors will need to figure out ways to remain comfortable and safe in their retirement years.

By Alex Spanko | Reverse Mortgage Daily

L.A. to Worsen Housing Shortage with New Rent Controls

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Los Angeles, home to one of the least affordable housing markets in North America, is now proposing to expand rent control to “fix” its housing problem. 

As with all price control schemes, rent control will serve only to make housing affordable to a small sliver of the population while rendering housing more inaccessible to most. 

Specifically, city activists hope that a new bill in the state legislature, AB1506, will allow local governments, Los Angeles included, to expand the number of units covered by rent control laws while also restricting the extent to which landlords can raise rents. 

Unintended Consequences 

Currently, partial rent control is already in place in Los Angeles and landlords there are limited in how much they can raise rents on current residents. However, according to LA Weeklylandlords are free to raise rents to market levels for a unit once that unit turns over to new residents. 

This creates a situation of perverse incentives that do a disservice to both renters and landlords. Under normal circumstances, landlords want to minimize turnover among renters because it is costly to advertise and fill units, and it’s costly to prepare units for new renters. (Turnover is also costly and inconvenient for renters.) 

By limiting rent growth for ongoing renters, however, this creates an incentive for landlords to break leases with residents — even residents who the landlords may like — just so the landlords can increase rents for new incoming renters in order to cover their costs of building maintenance and improvements. The only upside to this current regime is that at least this partial loophole still allows for some profit to be made, and thus allows for owners to produce and improve housing some of the time

But, if this loophole is closed, as the “affordable housing” activists hope to do, we can look forward to even fewer housing units being built, current units falling into disrepair, and even less availability of housing for residents. 

Why Entrepreneurs Bring Products to Market 

The reason fewer units will be built under a regime of harsher rent control, is because entrepreneurs (i.e., producers) only bring goods and services to market if they can be produced at a cost below the market price. 

Contrary to the myth perpetuated by many anti-capitalists, market prices — in this case, rents are not determined by the cost of producing a good or service. Nor are prices determined by the whims of producers based on how greedy they are or how much profit they’d like to make. 

In fact, producers are at the mercy of the renters who — in the absence of price controls — determine the price level at which entrepreneurs must produce housing before they can expect to make any profit. 

However, when governments dictate that rent levels must be below what would have been market prices — and also below the level at which new units can be produced and maintained — then producers of housing will look elsewhere. 

Henry Hazlitt explains many of the distortions and bizarre incentives that emerge from price control measures: 

The effects of rent control become worse the longer the rent control continues. New housing is not built because there is no incentive to build it. With the increase in building costs (commonly as a result of inflation), the old level of rents will not yield a profit. If, as often happens, the government finally recognizes this and exempts new housing from rent control, there is still not an incentive to as much new building as if older buildings were also free of rent control. Depending on the extent of money depreciation since old rents were legally frozen, rents for new housing might be ten or twenty times as high as rent in equivalent space in the old. (This actually happened in France after World War II, for example.) Under such conditions existing tenants in old buildings are indisposed to move, no matter how much their families grow or their existing accommodations deteriorate.

Thus, 

Rent control … encourages wasteful use of space. It discriminates in favor of those who already occupy houses or apartments in a particular city or region at the expense of those who find themselves on the outside. Permitting rents to rise to the free market level allows all tenants or would-be tenants equal opportunity to bid for space. 

Nor surprisingly, when we look into the current rent-control regime in Los Angeles, we find that newer housing is exempt, just as Hazlitt might have predicted. Unfortunately, housing activists now seek to eliminate even this exemption, and once these expanded rent controls are imposed, those on the outside won’t be able to bid for space in either new or old housing.

Newcomers will be locked out of all rent-controlled units — on which the current residents hold a death grip — and they can’t bid on the units that were never built because rent control made new housing production unprofitable. Thus, as rent control expands, the universe of available units shrinks smaller and smaller. Renters might flee to single-family rental homes where rent increases might still be allowed, or they might have to move to neighboring jurisdictions that might not have rent controls in place. 

In both cases, the effect is to reduce affordability and choice. By pushing new renters toward single-family homes this makes single-family homes relatively more profitable than multi-family dwellings, thus reducing density, and robbing both owners and renters of the benefits of economies of scale that come with higher-density housing. Also, those renters who would prefer the amenities of multi-family communities are prevented from accessing them. Meanwhile, by forcing multi-family production into neighboring jurisdictions, this increases commute times for renters while forcing them into areas they would have preferred not to live in the first place. 

But, then again, for many local governments — and the residents who support them — fewer multi-family units, lower densities, and fewer residents in general, are all to the good. After all, local government routinely prohibit developers from developing more housing through zoning laws, regulation of new construction, parking requirements, and limitations on density. 

And these local ordinances, of course, are the real cause of Los Angeles’s housing crisis. Housing isn’t expensive in Los Angeles because landlords are greedy monsters who try to exploit their residents. Housing is expensive because a large number of renters are competing for a relatively small number of housing units. 

And why are there so few housing units? Because the local governments usually drive up the cost of housing. As this report from UC Berkeley concluded: 

In California, local governments have substantial control over the quantity and type of housing that can be built. Through the local zoning code, cities decide how much housing can theoretically be built, whether it can be built by right or requires significant public review, whether the developer needs to perform a costly environmental review, fees that a developer must pay, parking and retail required on site, and the design of the building, among other regulations. And these factors can be significant – a 2002 study by economists from Harvard and the University of Pennsylvania found strict zoning controls to be the most likely cause of high housing costs in California.

Contrary to what housing activists seem to think, declaring that rents shall be lower will not magically make more housing appear. Put simply, the problem of too little housing — assuming demand remains the same — can be solved with only one strategy: producing more housing

Rent control certainly won’t solve that problem, and if housing advocates need to find a reason why so little housing is being built, they likely will need to look no further than the city council.

By Ryan McMaken | Mises Institute

HUD Audit Reveal BILLIONS In Bookkeeping Discrepancies

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Dr. Ben Carson testifies before a Senate Banking, Housing and Urban Affairs Committee confirmation hearing on his nomination to be Secretary of the U.S. Department of Housing and Urban Development on Capitol Hill in Washington, U.S. January 12, 2017. REUTERS/Kevin Lamarque

Department of Housing and Urban Development’s (HUD’s) financial books are in such bad shape that HUD’s Inspector General (IG) can’t complete an audit even after HUD officials corrected $520 billion in bookkeeping errors, according to a new IG report.

Officials at HUD fixed $3.4 billion in errors from its 2015 books and $516.4 billion in errors from its 2016 books after the IG in December was unable to issue an opinion on either year’s financial statements and highlighted 11 material weaknesses, seven significant deficiencies and five instances of failure to comply with laws and regulations.

These same problems have been reported for three straight years by the IG.

One can only stand aghast at the incompetence on display.  No wonder the government has put us all near the brink of financial ruin.  If this was a private company, you can guarantee people would be going to prison.

So pretty much everything the law requires be done for financial accountability was totally ignored.  Given the deplorable state of his former department, you would think Castro would hang his head in shame.  You would be wrong!  He actually tried to give Ben Carson advice on how not to screw up his department.  What a joke!

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Former HUD Secretary Julian Castro

This department seems to have a great mission, but as usual, Democrats have totally ruined it.  Let’s hope Ben Carson can use some of that brilliance he’s known for to clean this department from top to bottom.  The first thing he should do is fire all the Obama appointees who are doing shady things with our tax dollars.

http://dailycaller.com/2017/03/07/hud-can-fix-520-billion-in-accounting-errors-but-still-cant-document-its-spending/ *** http://readmeeveryday.com/audit-hud-discovers-billions/

Economic Support For Housing Industry In Shale Oil States Has Arrived

How OPEC Lost The War Against US Shale, In One Chart

At the start of March we showed a fascinating chart from Rystad Energy, demonstrating how dramatic the impact of technological efficiency on collapsing US shale production costs has been: in just the past 3 years, the wellhead breakeven price for key shale plays has collapsed from an average of $80 to the mid-$30s…

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.. resulting in drastically lower all-in break evens for most US shale regions.

Today, in a note released by Goldman titled “OPEC: To cut or not to cut, that is the question”, the firm presents a chart which shows just as graphically how exactly OPEC lost the war against US shale: in one word: the cost curve has massively flattened and extended as a result of “shale productivity” driving oil breakeven in the US from $80 to $50-$55, in the process sweeping Saudi Arabia away from the post of global oil price setter to merely inventory manager.

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This is how Goldman explains it:

Shale’s short time to market and ongoing productivity improvements have provided an efficient answer to the industry’s decade-long search for incremental hydrocarbon resources in technically challenging, high cost areas and has kicked off a competition amongst oil producing countries to offer attractive enough contracts and tax terms to attract incremental capital. This is instigating a structural deflationary change in the oil cost curve, as shown in Exhibit 2. This shift has driven low cost OPEC producers to respond by focusing on market share, ramping up production where possible, using their own domestic resources or incentivizing higher activity from the international oil companies through more attractive contract structures and tax regimes. In the rest of the world, projects and countries have to compete for capital, trying to drive costs down to become competitive through deflation, FX and potentially lower tax rates.

The implications of this curve shift are major, all of which are very adverse to the Saudis, who have been relegated from the post of long-term price setter to inventory manager, and thus the loss of leverage. Here are some further thoughts from Goldman:

  • OPEC role: from price setter to inventory manager In the New Oil Order, we believe OPEC’s role has structurally changed from long-term price setter to inventory manager. In the past, large-scale developments required seven years+ from FID to peak production, giving OPEC long-term control over oil prices. US shale oil currently offers large-scale development opportunities with 6-9 months to peak production. This short-cycle opportunity has structurally changed the cost dynamics, eliminating the need for high cost frontier developments and instigating a competition for capital amongst oil producing countries that is lowering and flattening the cost curve through improved contract terms and taxes.
  • OPEC’s November decision had unintended consequences: OPEC’s decision to cut production was rational and fit into the inventory management role. Inventory builds led to an extreme contango in the Brent forward curve, with 2-year fwd Brent trading at a US$5.5/bl (11%) premium to spot. As OPEC countries sell spot, but US E&Ps sell 30%+ of their production forward, this was giving the E&Ps a competitive advantage. Within one month of the OPEC announcement, the contango declined to US$1.1/bl (2%), achieving the cartel’s purpose. However, the unintended consequence was to underwrite shale activity through the credit market.
  • Stability and credit fuel overconfidence and strong activity: A period of stability (1% Brent Coefficient of Variation ytd vs. 6% 3-year average) has allowed E&Ps to hedge (35% of 2017 oil production vs. 21% in November) and access the credit market, with high yield reopen after a 10- month closure (largest issuance in 4Q16 since 3Q14). Successful cost repositioning and abundant funding are boosting a short-cycle revival, with c.85% of oil companies under our coverage increasing capex in 2017.

That said, the new equilibrium only works as long as credit is cheap and plentiful. If and when the Fed’s inevitable rate hikes tighten credit access for shale firms, prompting the need for higher margins and profits, the old status quo will revert. As a reminder, this is how over a year ago Citi explained the dynamic of cheap credit leading to deflation and lower prices:

Easy access to capital was the essential “fuel” of the shale revolution. But too much capital led to too much oil production, and prices crashed.  The shale sector is now being financially stress-tested, exposing shale’s dirty secret: many shale producers depend on capital market injections to fund ongoing activity because they have thus far greatly outspent cash flow.

This is the key ingredient of what Goldman calls the shift to a new “structural deflationary change in the oil cost curve” as shown in chart above. As such, there is the danger that tighter conditions will finally remove the structural pressure for lower prices. However, judging by recent rhetoric by FOMC members, this is hardly an imminent issue, which means Saudi Arabia has only bad options: either cut production, prompting higher prices and even greater shale incursion and market share loss for the Kingdom, or restore the old status quo, sending prices far lower, and in the process collapsing Saudi government revenues potentially unleashing another budget crisis.

Source: ZeroHedge