Cop Asks Driver: ‘Why Is It That Everyone Who Plays Frisbee Golf Smokes Weed?’

After a routine traffic stop involving a busted headlight, an
Ankeny, Iowa, police officer asked the car’s driver if he liked to
play frisbee golf. The driver responded in the affirmative.

Then the cop asked, “Answer me this question, why is it that
everyone who plays Frisbee golf smokes weed?”

Things quickly went downhill from there. The officer followed up
his question with a number of confusing statements and half-hearted
attempts to trick the driver into consenting to a search of the
vehicle (“You can’t tell me you’ve never smoked weed before,” “How
much weed do you have in the car tonight?”). The stunned but savvy
driver, keenly aware of what the cop was doing, maintained that he
had no drugs on him but would not be consenting to any searches
based on the habits of other frisbee golf players.

“Just because I have a disc golf bag does not mean that every
disc golfer does have weed,” said the driver.

After a two-minute interrogation, the officer left without
performing a search.

“Oh my fucking gosh,” said the driver’s passenger after the
encounter had ended.

Oh my fucking gosh, indeed.

A video of the incident was posted to
Youtube
. Local news channel
KCCI.com
followed up with the Ankeny police department; Chief
Gary Mikulec apologized for the officer’s line of questioning and
said the matter would be investigated.

Watch out, frisbee golfers. Video below.

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“Financial Markets Are Artificially Priced: What Do You Do?” – Bill Gross’ First Janus Capital Letter

From Bill Gross at JanusCapital

Dear Friends,

Dancing, or better yet as the beginning of my Investment Outlook suggests, being asked to dance, seems to have become an important part of my life over the past month or so. Having first been asked by my wonderful wife, Sue, and now by Dick Weil and Janus from a business standpoint, I write to you today from my desk in a new Janus office in Newport Beach, California. I am excited to be here and to begin a new chapter of my career. Before I get on with the main business of markets and investing in the attached Investment Outlook, I am of course aware that my change of employment has raised a lot of questions. I hope that you will understand that I cannot answer all of your questions, but here is what I can share with you.

Let me address the most obvious question first: Why did I leave PIMCO? Had there been a reasonable way to continue there, I would have stayed to my last breath. I was honored by the trust of the millions of clients and thousands of employees over decades. They have been the center of my life’s work. I am very proud of my record there for more than 40 years. PIMCO is a great firm with lots of great people, and Allianz was a fine owner for many years. But slowly and with great hesitation, I came to understand that it was time for me to leave. It happens sometimes to founders! But that is water under the bridge, as they say. I don’t plan to address it further. Now let’s talk about the future.

The second question on your minds may be “Why Janus?” My first professional loves were markets, investing and competing in that framework. I want to return to a simpler role, completely focused on markets, investment performance and serving my clients. It seems like a good time to turn away from the complexity of helping to run a huge firm. I have had a 20-year relationship with Janus CEO Dick Weil (10 of which include his working for me as PIMCO’s Chief Operating Officer). When I asked him whether Janus might provide me with that simple opportunity, he responded with a very enthusiastic “yes” let’s dance together. I am excited to work in a true partnership environment with people I trust. I want to help this team succeed. Most importantly, I want to continue to help clients achieve their goals. I am not ready to retire, so here I am.

I am focused on looking ahead. I have met some wonderful people at Janus, and I see great opportunities for the Janus Global Unconstrained Bond strategy. As a brand new strategy it is tiny, certainly compared to anything I have been used to in recent decades. But that opens the door to a lot of new strategies and opportunities to generate outperformance for my new (and hopefully many continuing) clients. I am also looking forward to working with my old friend and Nobel-laureate Myron Scholes on asset allocation and with the existing Janus fundamental, credit-based fixed income team. It is exciting for me, and I hope for you as well.
Although these changes are significant, the most important things have not and will not change. I am competitive as ever, and I expect to win for my clients. You can count on me to deliver my usual global macro insights and hopefully excellent portfolio management in the years ahead. So that’s it. I look forward to serving you from my new seat at Janus.

Now, on to my first Janus Investment Outlook.

Sincerely,

William H. Gross

You Only Dance Twice

No marriage ever seems totally complete. There is a missing link in almost all of them. Picture perfection belongs only in fairy tales and when it happens it almost always comes at the end of the story, when the princess kisses her frog prince and they live happily ever after. My 30-year marriage with Sue has been one of those – me the frog and she the princess – but never one of ultimate completion or fulfillment – until now. Happy as we were for all those years, there was always something missing, a trivial last puzzle piece to be sure, but a noticeable one nonetheless, at least to me:

We had never danced!

Although we had figuratively waltzed through those three decades, I had from time to time wondered about the actual dancing. Oh, there had been the perfunctory wedding box-step in front of a gawking audience of 40 or so, but nothing much ever since. Blame it on me or Sue, or both of our reluctances to make fools of ourselves. Yet every so often Sue had hinted of her “disco” years before we had met – the flowing skirts, the Travolta “Stayin’ Alive” twirl – and somehow I felt that the missing link must somehow be me. Young Bill, as I explained to her during frequent missed dancing opportunities through the years, had taken ballroom dancing in the fifth grade and had learned to do a pretty fancy “bop” step as well. Yet somehow I never took the final step, the one where you ask your partner to dance!
That all changed on September 2, 2014 – the day Sue asked me to dance! Maybe it was that extra vodka martini on her side of the table, maybe, as she said later that night, it was my “fluffy hair” or maybe it was just the fated last piece of a puzzle coming together on the perimeter of what to me has been a uniquely wonderful marriage. Whatever. We danced!

I must tell you though that this was no ordinary dance. She – the ex-Disco Queen – and I the young student of Arthur Murray, strutted, boogied, discoed with moves that neither of us thought we could ever do – sober or even mildly inebriated. We dipped, we twirled, I even did a bop or two. Travolta would have been proud. We were “Stayin’ Alive!” Most of all, however we smiled! Not the perfunctory smile of our self-conscious wedding dance three decades before, but big, huge, free-flowing grins of having fun – real fun on a dance floor!

Midnight came as it does in most fairy tales, but I wondered no more what I had missed in the years before we had met and the 30 years since. My puzzle was complete. Sue had asked me to dance, and it turned out to be just like a fairy tale. Picture perfect.

Picture perfection or fairy tale endings do not describe the global economy or even its financial markets more than five years after its Minsky/Lehman moment. While U.S. bond and equity markets have been thrust into a seemingly safe outer orbit, the same cannot be said for other developed and developing nations. Many economies in turn have entered or are bordering on recessions with limited monetary firepower remaining to promote real growth. The dancing has begun to resemble the last stages of a 1920s marathon with partners clinging to each other in a desperate attempt to keep from falling down. The Charleston is a faded memory from yesteryear and the long ago apparition of the “Great Moderation.” What are policy makers, and more to the point, investors to do?

I have the following tough love advice – somewhat resembling the counsel given to me in recent weeks: there is a new financial era. Accept it and modify your behavior accordingly, so that your future is safe, secure, and you look forward to a brighter tomorrow. I will explain.

Financial markets are artificially priced. In the bond market, there is nothing normal about a three year German Bund yielding a “minus” 10 basis points. Similarly, UK Gilts and U.S. Treasurys have in recent years never experienced such low yields and therefore high prices. The same comparison can be applied to stocks. While profits in many cases are at record highs, the discounting of future profit streams by an artificially low interest rate results in corresponding high P/E ratios. Real estate cap rates, which help to price homes and commercial shopping centers, are affected in the same way. While monetary policy with its Quantitative Easing and forward guidance for low future interest rates have salvaged a semblance of growth and job gains – especially in the U.S. – they have brought prosperity forward in the financial markets. If yields can’t go much lower, then bond market capital gains are limited. The same logic applies in other asset categories. We have had our Biblical seven years of fat. We must look forward, almost by mathematical necessity, to seven figurative years of leaner: Bonds – 3% to 4% at best, stocks – 5% to 6% on the outside. That may not be enough for your retirement or your kid’s college education. It certainly isn’t for many private and public pension funds that still have a fairy tale belief in an average 7% to 8% return for the next 10 to 20 years! What do you do?

Well the obvious advice on a personal level: Retire later, save more, accept a revised standard of living. But the financial advice varies with your age and willingness to take risk. Younger investors with a Texas Hold’em “all in” attitude could push all of their chips onto the equity table. Boomers nearing retirement probably cannot afford to. A lengthy bear market could force them permanently out of the game. So, one size does not fit all here. It never has.

What might be applicable for most generations, however, is an “unconstrained strategy” that I managed well for the past few years at PIMCO and which now provides me the opportunity for 100% of my time at Janus. An unconstrained strategy sounds very open-ended, and it is. But it allows a professional and experienced investment firm like Janus to select the most attractive alternatives across many asset categories while hopefully diminishing the risk of bond and stock bear markets. The strategy seeks to protect principal while providing an acceptable return in this low yielding, low returning world that I have just described. Unconstrained investors should expect a shorter average maturity for bonds; an ability to profit from currency movements currently taking place with the euro and the yen fits the description as well; taking advantage of what is known as “optionality” and investing in what I have successfully applied in the past with what is called “structured alpha,” would be an important component too. The simple explanation of an unconstrained strategy:

Take your best ideas within the context of a low duration/short maturity portfolio and try to help investors achieve what they consider to be an acceptable return. Watch the fees as well.

Whatever your risk/return persuasion, whether it be stocks, bonds, unconstrained, real estate, or “other,” an “intelligent investor” (as initially described by Benjamin Graham in the late 1940s) should be aware that returns almost necessarily cannot equal the magnificent prior decades that some of you might have experienced during my days at PIMCO. But I/we look forward, with the same intensity and “client comes first” attitude that led to my second marriage at Janus. James Bond famously said that “you only live twice.” I hope to emulate Mr. Bond as Janus Denver and Janus Newport Beach link hands and ideas to improve your financial balance sheet, and ultimately provide a better life for you and your family. Perhaps you only dance twice too. Sue and I would like that.
-William H. Gross




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Is 4th Time The Charm For Stocks Today?

With S&P futures liquidity at near record lows (but what about the HFT liquidity-providers?), it seems the major stock indices are extremely sensitive to any and every headline or JPY twitch. For the 4th time today (and Nth time this week), stocks have decoupled higher from a less exuberant bond market… every other time, stocks have recooupled lower… Fool me once, shame on you… Fool me 4 times, I am Gartman…

 

Liquidity remains non-existent…

 

 

And stocks keep jerking higher in the hopes of starting something that bonds will finish…




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Texas Prosecutor Wants to Send Adrian Peterson to Jail Because He Admitted to Smoking a “Little Weed”

Adrian PetersonVikings running back Adrian
Peterson, who was charged with felony child abuse after a doctor
found bruises along his four-year-old child’s leg, submitted to
drug testing as part of his $15,000 bond, and reportedly admitted
to an employee at the drug testing agency that he “smoked a little
weed.”

Now the prosecutor in Montgomery County, Texas, wants to revoke
Peterson’s bond and send him to jail because of his admission.
USA Today
reports
:

“In light of this statement, and the fact that it was made
during the urinalysis testing process, and the term ‘weed’ is a
common slang term for marijuana, the state argues that the
defendant has smoked marijuana while free on bond for the current
offense,” the Montgomery County District Attorney’s office
wrote.

Peterson is on the Exempt/Commissoner’s Permission list, meaning
he’s supposed to “remain away from all team activities” and
wouldn’t have to take any tests for the NFL, which prohibits
marijuana use for its players. More than 30 players have been
suspended from the NFL for non-steroid substance use in 2014, about
half of which are for performance enhancing drugs.

Drug testing is a common condition for being released under
state supervision. Peterson’s trial is scheduled for December 1 but
may be postponed if a judge recuses himself for calling members of
the media “attention
whores
.”

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How Everyone Can Win in the New Culture Wars—and How They Can Lose

You should all read
my friend Alyssa Rosenberg’s long and smartly written piece
in
The Washington Post on
the evolution of the culture wars
. Rosenberg, a culture
blogger who frequently writes about the intersection of politics
and pop entertainment, traces the evolution the culture wars from
80s-era right-wing concerns about morality and decency—think:
congressional
hearings about violent video games
, schools banning Bart
Simpson shirts, Vice President Dan Quayle criticizing the Murphy
Brown for deciding to become a single mother—to the culture wars of
today, which often feature left-wing critics concerned about
political messages in media—concerns about fair or proportional
representation of minorities, about art’s willingness and duty to
depict patriotism, about how sports interact with ideas about
violence and gender. Understood this way, the two culture wars, the
one on the right and the one of the left, are in some sense really
just one big culture war, with today’s left-leaning activists
replacing yesterday’s conservative concerns.

What connects all of these new skirmishes, in particular, is
that fundamentally they are about self-identification and
individual expression: People increasingly want to see
themselves—or at least more people who look, think, act, and live
like themselves and their communities—represented in media, both as
creators and as characters.

Rosenberg reviews several of the fronts in the new culture war,
noting its multiple strands and the way they have split
apart.  “As the new culture war has widened,” she writes, “it
has also fragmented, turning less into a clash of great powers than
into a series of intractable guerrilla conflicts, marked by
shifting alliances and the rapid emergence of new players.”

It’s that fragmentation that is in some sense the key to making
peace with the culture wars, and to understanding that there’s a
path to victory for all sides. Thanks to the incredible profusion
of creative outlets for storytelling, and the incredible
niche-ification of media—Rosenberg cites a Variety report noting
that scripted television series on cable alone have increased by
1000 percent (!) since 1999—there are opportunities for everyone to
see themselves and their interests depicted in more or less
whatever way they would like to see themselves and their own worlds
represented on screen and in stories. Politicization of media and
pop-culture storytelling might bother some viewers, but in a
niche-driven business, it can also be a market-differentiation
strategy. The incredible expansion of choice, and the ability for
content with relatively small audiences to survive and profit,
means that both interests, and all sorts of subtle variations in
between, can be satisfied.

Part of what I like about Rosenberg’s piece is that her
conclusion—that more choice, and a healthy private market that
supports that choice, can make us all winners—is an essentially
libertarian one. Indeed, it’s not too far off from the argument
that many libertarian types tended to rely on in response to the
first generation of culture wars, when conservative
decency crusaders were leading the charge: Don’t like it? That’s
fine. Don’t watch it—and if you want to see something else, go
create it, and find an audience to support it. But don’t go begging
the federal government to intervene and resolve these issues in
your favor.

What that means, of course, is
that the culture wars themselves—the criticisms and complaints, the
protest movements and consumer activism—are in some sense a
necessary part of the process. Those public debates, conducted in
seemingly endless blog posts and comments sections and press
releases and panel discussions, can  feel exhausting (I’ve
declined to write on the GamerGate fracas so far in part because I
find the entire uproar too frustrating, in too many ways, to dwell
on it at length), but they are vital to the healthy evolution of
these debates about we want culture and politics to be, and what it
should be, and how it is.

The flip side to that, of course, is that you need these debates
to be allowed to continue without intervention from on high. And
when these cultural conflicts get taken to powerful authorities,
especially to government authorities like the FCC, that’s generally
not what happens: That’s a process of shutting down the debate and
putting a stop to that process, which, yes, can be long and
tiresome, but is also the mechanism by which these things are best
resolved. 

I looked at the explosion of TV choice
in my own recent print-edition feature
on the evolution of
television, setting the expansion of choice and the explosion of
smart programming in the context of the general mediocrity of
television for television for so many years before. And as I noted,
when FCC Chairman Newton Minow gave his infamous “vast wasteland”
speech in 1961, television producers, fearing the agency’s wrath,
explicitly designed shows to his taste—taste one show packager
described as “generally antiseptic, somewhat
didactic, slightly dull, offensive to no one, and above all
else ‘justifiable.’” For decades, even after Minow left, the agency
would exert a dulling influence on television programming, which
was extremely cautious about upsetting its federal overseers.

That’s how everyone loses in the culture wars. What Rosenberg
does so well is show not only how the multitude of market offerings
lets everyone (or at least more people than ever before) win, but
how the culture wars themselves can help shape those victories, by
pushing both creators and industry executives to respond with even
more choice and variety. 

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On Brittany Maynard, or the Right to Die is the Right to Be Free

Brittany FundA
few years ago, while checking up on the older members of my
extended family, I asked a relative if he had made any plans for
long-term care in case his health went south on him. He looked at
me and said, “I have a .357 Magnum.” Messy, I thought, but
effective. He’s still going strong, and whatever I believe about a
related need for long-term carpet-cleaning plans to match, I
respect his decision to assert control over the time and terms of
hs own demise.

That conversation came back to me this week amid the discussion,

noted by Zach Weissmuller
, over 29-year-old Brittany Maynard’s
(pictured) decision to move to Oregon from California to take
advantage of that
state’s law
allowing terminally ill residents access to
medications specifically intended to end their lives. Providing a
much neater option than that contemplated by my relative, that law
makes it easier for somebody like Maynard, facing a painful,
lingering death from  brain cancer, to go out instead in a
manner of her choosing.

Well-spoken and obviously thoughful, Brittany Maynard has
literally become the poster child—and video child
(s below)—of the movement dedicated to expanding options available
to people otherwise facing an unpleasant end. Specifically, this
works out as the ability to seek medical assistance free of legal
penalties for those who offer help. In Oregon, the
Death with Dignity Act
, enacted in 1997, “allows terminally-ill
Oregonians to end their lives through the voluntary
self-administration of lethal medications, expressly prescribed by
a physician for that purpose.” Doctors participate only at their
own choosing—they’re not compelled to help patients end their
lives.

Which is to say, this is about the final choice that anybody can
make, and freeing others to choose to offer asistance in achieving
the chosen goal. That’s about as libertarian as it gets.

Nobody has an obligation to check out early, and many of us are
more concerned about expanding
options for extending our lives
than ending them. But we all
have a right to end our lives if we please, and the vagaries of
health have been known to throw good reasons our way to do so for
those of us who are inclined to exercise control in that arena.
Allowing us to cooperate with others over the matter of freely
chosen time and manner death respects our rights and expands our
liberty.

It also may be just a bit easier on the carpet.

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Little Girl Points Crayon at Classmate, School Makes Her Sign Contract Promising Not to Kill Anyone

Suicide contractStories
of public schools dishing out ridiculous punishments to students
who did absolutely nothing wrong generally fail to shock me at this
point. They have to clear a very high bar of absurdity to be even
noteworthy, given how common they are.

Okay, brace yourselves.

A Mobile County, Alabama, 5-year-old allegedly pointed her
crayon at a fellow kindergartner and said something like, “pew,
pew.” (That’s the sound some guns make when fired, I suppose,
although for obvious reasons I don’t know what noise imaginary guns
make when fired.) School officials at E.R. Dickson Elementary
responded with what is perhaps the most uniquely crazy punishment I
have ever heard of: They made the girl sign a contract promising
not to kill anyone, including herself. According to
NBC News and Rare
:

Without her permission, [the girl’s mother] says her
five-year-old was then given this Mobile County Public Schools
safety contract to sign, stating that she wouldn’t kill herself or
others.

“While I was in the lobby waiting, they had my five-year-old
sign a contact about suicide and homicide,” she said.

NBC News notes that the contract is not legally binding, since
the kindergartner was about 14 years shy of the age of
adulthood.

The little girl was also forced to take a psychological
evaluation to gauge her likelihood of suicide. Unsurprisingly, she
didn’t even know what the word meant:

“My child interrupted us and said, ‘what is suicide? Mommy,
daddy, what is suicide?'”

At least she learned something at school today? District
officials did not respond to NBC News. If I have better luck, I
will post an update.


Hat tip
: Rare

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As Fracking Enters A Bear Market, A Question Emerges: Is The Shale Boom Built On A Sea Of Lies?

One of, if not the biggest contributors to the improving US trade deficit and thus GDP (not to mention labor market in select states) over the past several years, has been the shale revolution taking place on US soil, which has led to unthinkable: the US is now the biggest producer of oil in the world, surpassing Saudi Arabia and Russia. Which is great today, but what about tomorrow?

It is here that problems emerge according to Bloomberg’s snapshot of the shale industry. In “We‘re Sitting on 10 Billion Barrels of Oil! OK, Two“, the authors look at the two-tiers of reporting when it comes to deposits that America’s fracking corporations allegedly sit on, and find something unpleasant:

Lee Tillman, chief executive officer of Marathon Oil Corp., told investors last month that the company was potentially sitting on the equivalent of 4.3 billion barrels in its U.S. shale acreage. That number was 5.5 times higher than the proved reserves Marathon reported to federal regulators.

 

Such discrepancies are rife in the U.S. shale industry. Drillers use bigger forecasts to sell the hydraulic fracturing boom to investors and to persuade lawmakers to lift the 39-year-old ban on crude exports. Sixty-two of 73 U.S. shale drillers reported one estimate in mandatory filings with the Securities and Exchange Commission while citing higher potential figures to the public, according to data compiled by Bloomberg. Pioneer Natural Resources (PXD) Co.’s estimate was 13 times higher. Goodrich Petroleum Corp.’s was 19 times. For Rice Energy Inc., it was almost 27-fold.

Fracking 101: “Predicting how much oil can be pumped out of shale has been controversial since the boom began about a decade ago. Companies combined horizontal drilling with fracking, or hydraulic fracturing. Fracking involves blasting water, sand and chemicals into deep underground layers of shale rock to free hydrocarbons. Innovators such as Oklahoma City-based Chesapeake Energy Corp. (CHK) said that drilling vast expanses of oil-soaked rock formations is more predictable than the traditional, straight-down method of exploration. Regulators agreed and requirements were loosened starting in 2010.”

Furthermore, as tech companies have non-GAAP to hide all the nasty “expense” stuff, energy companies rely on probable and possible.

Energy companies also lobbied the SEC to let them file more speculative estimates, known as probable reserves and possible reserves. Only three companies take that option, according to data compiled by Bloomberg. The rest report only proved reserves to the SEC and save their other estimates for public presentations, which the SEC doesn’t supervise.

Now the discrepancy between the two estimation methodologies is hardly new: every serious investors in the E&P space has known about the two-tier bookkeeping system for years. The problem, however, is well laid out by John Lee, one of University of Houston petroleum engineering professors for hire: “They’re running a great risk of litigation when they don’t end up producing anything like that. If I were an ambulance-chasing lawyer, I’d get into this.”

The reason why no ambulances were chased for the past 6 years, ever since the shale boom truly took off, is that this roughly corresponds to the time when the Fed unleashed its QE on the world, and boosted stock prices to record levels across the board, including those of shale plays. As a result, since fracking investors saw their stocks also rise to record highs, they had no reason for complain, even if the surge in market cap may have had little to do with the actual underlying fundamentals, among which level of reserves, and everything to do with a very different type of liquidity, that emerging from the Fed’s printer.

But now things are rapidly changing, the commodity space is getting, pun intended, fracked, E&P companies across the board are sliding, and as of today, the shale space just entered a bear market.

 

And since investors take to losses with far less enthusiasm and stoic patience than paper profits, artificial as they may have been, they will soon start looking for scapegoats. They will find these were right in front of their eyes. To wit:

 

Additionally, here is what the abovementioned ambulance chasers will be closely looking at in the coming weeks and months unless the shale stock plunge doesn’t reverse quickly.

Marathon’s Tillman, who was speaking at the Barclays Plc CEO Energy-Power Conference in New York on Sept. 3, said there are “risk and uncertainties that could cause actual results to differ materially from those expressed or implied by” his comments. Many company presentations remind investors that publicly announced estimates are more speculative than the numbers the drillers file with the SEC.

 

Figures the company executives cite during presentations “are used in the capital allocation process, and are a standard tool the investment community understands and relies on in assessing a company’s performance and value,” said Lisa Singhania, a Marathon spokeswoman. The Houston-based company’s shares have risen 1.6 percent in the last year.

 

The SEC requires drillers to provide an annual accounting of how much oil and gas their properties will produce, a measurement called proved reserves, and company executives must certify that the reports are accurate.

 

No such rules apply to appraisals that drillers pitch to the public, sometimes called resource potential. In public presentations, unregulated estimates included wells that would lose money, prospects that have never been drilled, acreage that won’t be tapped for decades and projects whose likelihood of success is less than 10 percent, according to data compiled by Bloomberg. The result is a case for U.S. energy self-sufficiency that’s based more on hope than fact.

The SEC is keeping mum, realizing very well that it is suddenly sitting on the next powder keg:

Judy Burns, a spokeswoman for the SEC, declined to comment on what drillers say during investor presentations.

And this is where companies have gotten into hot water:

Many of the companies use their own variation of resource potential, often with little explanation of what the number includes, how long it will take to drill or how much it will cost. The average estimate of resource potential was 6.6 times higher than the proved reserves reported to the SEC, the data compiled by Bloomberg News show.

This is the E&P equivalent of annualized, pro-forma, adjusted EBITDA, a metric that is fully made up on the spot to exclude anything and everything and make the subject look more attractive. In other words, lipstick on a pig.

It is also known as the “Bill Gross effect”: everything was great as long as he was making money. And then things all hell broke loose.

More:

Several companies, including Sanchez Energy Corp. (SN), don’t provide a total estimate. Instead, they publish variables such as the number of well locations and the estimated output from each one. Analysts often use these figures to independently compute the total. Even though Sanchez Energy provides the variables for analysts to calculate its resource potential, the Houston-based company doesn’t publish a total estimate. Executives debated whether to include one and decided against it, said Gleeson Van Riet, senior vice president for capital markets and investor relations.

In practical terms, the discrepancies are quite glaring:

The investor presentation by Canonsburg, Pennsylvania-based Rice Energy shows 2.7 billion barrels. Rice, which went public in January, reported 100 million barrels to the SEC in March, records show.

 

At Pioneer Natural Resources, the number they cite to potential investors has increased by 2 billion barrels a year in each of the last five years — even as the proved reserves it files with the SEC have declined.

 

The rising number is “a game changer for this company,” said Sheffield, the CEO. “It’s a game changer for this country.”

Curiously, just like in the great Herbalife soa opera, the politicians are involved for one simple reason: they can collect lots of money to give their stamp of approval even if they really have no understanding or idea what they are vouching for.

Pioneer’s numbers aren’t misleading; they’re conservative, Sheffield said. He said he’s shared them with Senators Mary Landrieu of Louisiana and Lisa Murkowski of Alaska, the Democratic chair and Republican ranking member, respectively, of the Senate energy committee.

“Obviously it’s helped us in regard to making headway on convincing people to lift the export ban,” Sheffield said. “We want to convince them that we have this great resource. We don’t want it trapped here in the U.S. That’s for the public, the administration and Congress. So if we’ve got this great resource, why don’t you allow us to export it?”

The message is getting through. While Landrieu said she favors more study, Murkowski said she supports ending the ban.

The one message that is not getting through, however, is that no matter if Obama endorses one reserve estimation metric or another, if and when the P&L crash comes, nobody will be able to stop the onslaught of lawsuits that will immediately hone in on the weakest link, which in this case is clearly the ambiguous and two-tiered public data.

Some are already getting a sense of which way the wind is blowing:

In August, Lee led a workshop in Houston on the best practices of reserves estimation. The audience in the ballroom of the Hotel Derek included engineers for shale drillers such as Marathon, Continental and Rice. Pamela Allen, a senior reserves coordinator for Marathon, raised her hand and told Lee that she was worried that using outsized forecasts in public presentations would run afoul of the SEC and “come back to haunt us.”

 

Singhania, the Marathon spokeswoman, said she was unable to comment on Allen’s remarks without seeing a transcript.

 

“If a lot of people get burned — and I think a lot of people can and will be burned — by these numbers in the investor presentations, there may be a push by investors to get the SEC to do something about it,” Lee said during the workshop.

Actually, considering the gross incompetence of the SEC, the corrupt, co-opted regulator (for hire) may do something… in just about a decade. In the meantime, the most vibrant US industry may go from boom to bust in a heartbeat, as soon as its is mired in litigation once shareholders realize that the stock gains of the past half-decade will not continue in perpetuity. One look at the shale index chart above and the alarm bells should be going off.




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Steven Greenhut: ‘Power Drunk’ Agency Slams Small Winery

In a story reported widely in northern
California last month, agents from the Department of
Industrial Relations showed up unannounced at the
tiny Westover Winery, in Castro Valley, and slapped its owners
with more than $115,000 in fines and assessments for using
volunteer workers. Westover is a typical hobby winery. A big winery
no doubt spills more than this East Bay winery produces. Its annual
profits are $11,000. Steven Greenhut talked to three of Westover’s
former volunteers. Volunteers typically are well-heeled retirees
with plenty of health insurance. “I have so much fun out here, I
should actually have to pay Bill,” said Ken Tatum, a retired
superintendent at the San Francisco shipyards. Unfortunately, owner
Bill Smyth tells Greenhut that he is financially well off and is
doing this for fun, so he’s decided to shut down rather than face
the not-so-fun prospect of fighting the state.

View this article.

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Martin Armstrong Warns “A Mad Max Event Is Possible”

Excerpted from Armstrong Economics,

We are at a crossroads. The tree has been cut. Which way will it fall – authoritarian or democracy? We can make a difference.

Step one is understanding what is the problem. At least then we can address a solution with some reasonable game plan.

mad-max
 
We have a great convergence coming. It is nothing to be afraid of and it is nothing we can ignore. Yes a Mad Max event is possible.
 
The average person depends upon government tremendously – even those not on welfare. There are pensions and Social Security that people really believe they are “entitled” to and thus these benefits will exist. What happens when they realize they do not?
 
Socialism has even changed the historic bounds of family. You had 4 to 6 kids for that was your retirement. The kids knew they had the responsibility of taking care of their parents. Today – that’s government’s job. Everything has been changed to depend upon government that never tells the truth and they will defend to the very last drop of your blood.
 
Marriage-Medeval
 
Marriages were ARRANGED! The age difference was typically 25% during the 19th century. To sell movies, Hollywood turned lust into love at first sight. They painted the image of happily-ever-after. I spoke with film makers and they all said people did not want to leave a movie feeling depressed. They glorified marriage and set unrealistic standards. Consequently, the age difference collapsed and the divorce rate rose to 60%+ because of unrealistic expectations.
Pensions began as the marriage contract. The man had to first establish himself and then propose. The Dowry was all about ensuring the wife would be secure – the pension. It was not about “love at first sight” yet according to things like Match.COM, 70% of people dating expect love-at-first-sight. So many people have the wrong expectation of marriage and are thus doomed from the start.
 
Even the Black family was stronger than the white family before welfare. When you paid women not to be married and to have children, you change the family structure. Socialism has significantly altered the behavior of every race all based upon expectations of government.
 
MA-FeedingBird
 
Free food changes behavior be it people or animals. Being compassionate is to be human. To give a man a free fish and you feed him for a day. Teach him how to fish and your feed him for a lifetime. Government adopted the first strategy to create dependency upon the political system.
 
They tell you do not feed the bears in Yellowstone National Park because they then look for free food and no longer hunt. Humans are no different. What happens when government collapses and people are totally unprepared because they never thought government collapses?




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