Tag: news

FEC Complaint Alleges Hillary, DNC Broke Election Law By Not Disclosing Trump-Russia Dossier Funding

Today the Campaign Legal Center (CLC) filed a complaint with the Federal Election Commission (FEC) alleging the Democratic National Committee (DNC) and Hillary Clinton’s 2016 campaign committee violated campaign finance law by failing to accurately disclose the purpose and recipient of payments for the dossier of research alleging connections between then-candidate Donald Trump and Russia.  The CLC’s complaint asserts that by effectively hiding these payments from public scrutiny the DNC and Clinton “undermined the vital public information role of campaign disclosures.”

On October 24, The Washington Post revealed that the DNC and Hillary for America paid opposition research firm Fusion GPS to dig into Trump’s Russia ties, but routed the money through the law firm Perkins Coie and described the purpose as “legal services” on their FEC reports rather than research. By law, campaign and party committees must disclose the reason money is spent and its recipient.

 

“By filing misleading reports, the DNC and Clinton campaign undermined the vital public information role of campaign disclosures,” said Adav Noti, senior director, trial litigation and strategy at CLC, who previously served as the FEC’s Associate General Counsel for Policy. “Voters need campaign disclosure laws to be enforced so they can hold candidates accountable for how they raise and spend money. The FEC must investigate this apparent violation and take appropriate action.”

 

“Questions about who paid for this dossier are the subject of intense public interest, and this is precisely the information that FEC reports are supposed to provide,” said Brendan Fischer, director, federal and FEC reform at CLC. “Payments by a campaign or party committee to an opposition research firm are legal, as long as those payments are accurately disclosed. But describing payments for opposition research as ‘legal services’ is entirely misleading and subverts the reporting requirements.”

Hillary

While details of the payment arrangements remain scarce, FEC records indicate that the Hillary campaign and the DNC paid a total of $12 million to Perkins Coie for “legal services.”  Marc Elias, a Perkins partner and general counsel for Hillary’s campaign, then used some portion of those funds to turn around an hire Fusion GPS who then contracted with a former British spy, Christopher Steele, to compile the now-infamous dossier.  Per the Daily Caller:

It was revealed on Tuesday that the Clinton campaign and DNC began paying Fusion GPS, the research firm that commissioned the dossier, last April to continue research it was conducting on Trump. The Washington Post reported that Fusion approached lawyers at Perkins Coie, the firm that represented the campaign and DNC, offering to sell its investigative services.

 

Marc Elias, a Perkins Coie partner, and the general counsel for the campaign and DNC, oversaw the operation, according to The Post.

 

It is not clear how much Democrats, through Perkins Coie, paid Fusion for the project, which lasted until early November. Federal Election Commission records show that the campaign and DNC paid the law firm $12 million during the election cycle.

Of course, we have no doubt that Hillary was in the dark about all of these arrangements.

Here is the full complaint filed by CLC:

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Muni Investors Celebrate “Juicy” 3.74% Yield On New Illinois Bonds As State Hurdles Toward Bankruptcy

Muni investors seem to be absolutely elated today by the opportunity to scoop up their fair share of $4.5 billion worth of new Illinois bonds due in 2028 at a “juicy” yield of 3.74%…which makes a ton of sense if you can look beyond the fact that the state looks to be on an inevitable collision course with bankruptcy. 

Be that as it may, Wells Fargo Portfolio Manager Garbriel Diederich insists that the new issue “offers a tremendous amount of yield in a pretty yield-starved environment.” Per Bloomberg: 

As the state marketed $4.5 billion of bonds Wednesday, securities due November 2028 are being offered at a preliminary yield of 3.74 percent, according to four people with knowledge of the pricing who requested anonymity because the yields aren’t final. That’s lower than the 3.78 percent yield for the November 2029 portion of last week’s $1.5 billion deal, even though bond prices have slid since then.

 

Investors said the yields are alluring, with benchmark 11-year tax-exempt debt paying about 2.1 percent.

 

“The issuer still offers a tremendous amount of yield in a pretty yield-starved environment,” said Gabriel Diederich, fixed income portfolio manager at Wells Fargo Asset Management, which holds $41 billion in municipal bonds, including those issued by Illinois. “Outside of this little supply hump here with this deal, there really hasn’t been much muni issuance before this or likely in the weeks ahead.”

Of course, just a few months ago in July, the state of Illinois narrowly avoided a junk bond rating with a last minute budget deal that included a 32% hike in income taxes.  Republican Governor Bruce Rauner vetoed the budget and called it a “disaster,” but both houses of the state legislature voted to override his veto.  Meanwhile, S&P and Moody’s were apparently both convinced that the budget deal was sufficient for the state to remain an investment grade credit and all lived happily ever after…

The deal comes after Illinois avoided becoming the first junk-rated state because lawmakers overrode Governor Bruce Rauner’s veto of tax hikes to end a two-year budget impasse in July. The proceeds from Wednesday’s deal, as well as the borrowing last week, will pay down $16.6 billion of unpaid bills that piled up during the budget stalemate.

 

“Clearly the passage of a budget, the performance of the revenue enhancements with the income-tax, paired with the ability to refinance high-cost payables at much lower levels, is positive for the state,” Diederich said. “But the need for expense and pension reform remains and will be a limiter on this name trading substantially tighter.”

…with bondholders expressing their approval via an insatiable demand for 18-year Illinois risk.

Of course, if all of Illinois’ financial problems were solved via one simple tax hike, then someone is going to have to explain to us why the state’s unpaid payables balance continues to balloon higher with each passing day and now stands at a record $16,559,494,396.60 according the comptroller’s office… 

…which is only a 3-fold increase over the past two years.

Oh, and lets not forget that pesky little $130 billion pension underfunding that will rank pari passu with holders of Illinois’ latest “juicy” bond offering when the state inevitably collapses at some point in the not so distant future…

IL Pension

But sure, 3.74% is a great yield relative to other muni issuers…

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Harvey Weinstein’s Downfall Marks the Rise of Sexual Equality: New at Reason

As disgraced movie mogul Harvey Weinstein half-asses his way through sex-addiction rehab, more and more women, ranging from Oscar winner Lupita Nyong’o to former teen star Molly Ringwald, keep coming forward with stories about his abusive and sometimes criminal behavior. Even his brother and longtime business partner Bob Weinstein has disowned him, calling him “indefensible,” “crazy,” and “remorseless.”

But the Weinstein story is not just about the end of a career. It’s about the end of an era.

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Trolls vs. Velvet Ropers

Stop what you’re doing right now, and look at the political chatter in your Twitter feed. I would put chances near 100 percent that you will soon see examples of both right-of-center trolling, which I’ll loosely define here as saying something designed specifically to irritate and/or outrage the sensibilities of the dominant media/entertainment/Democratic culture; and also left-of-center boundary-drawing, in which a moralist will define virtue or acceptability in such a way that a right-of-center person of interest will inevitably find himself on the outside looking in.

I found these two examples within 60 seconds:

To answer the wags’ questions (hey, they’re just asking ’em!), in order: 1) Transmitting highly classified military secrets in wartime to a murderously expansionist world power while also recruiting other Americans for espionage is indeed considerably worse than whatever Hillary Clinton is being accused of. And 2) here’s a not-hard-to-find CBS News headline: “Jeff Flake says Republicans should speak out on Roy Moore’s past comments.”

But reality-checking such arguments kinda misses the point of 2017 politics. The subtext of these tweets is more important than the text. It is Look at those arrogant hypocrites and He’s not one of us. Responses like mine above can be thus answered with the classic, Musta struck a nerve!

Once you see major-party political discourse as largely a mutually reinforcing game of Trolls vs. Velvet Ropers, you can’t unsee. It’s “deplorables” vs. the “politically correct”; a president who crows that “46% OF PEOPLE BELIEVE MAJOR NATIONAL NEWS ORGS FABRICATE STORIES ABOUT ME,” and media people who almost dutifully overreact with statements like: “That poll result…is perhaps the saddest moment in this tragic administration’s brief and terrible history.” It’s Roy Moore‘s 5,000-pound Ten Commandments courthouse sculpture (one of the heaviest acts of trolling this century) vs. New York Gov. Andrew Cuomo’s exclusionary assertion that “extreme conservatives who are right-to-life, pro-assault-weapon, anti-gay” have “no place” in his state.

The Velvet Rope Left is forever policing the boundary between permissible and disqualifying behavior, language, and political positions (luckily for the likes of Bill Maher, those who are good on the latter are granted leeway on the former, particularly when the usually disqualifying language is used against people with bad politics). The Troll Right is forever treating that boundary like an arbitrage opportunity for selling books at CPAC.

(Both trolling and boundary-drawing are in bountiful supply outside the two-party scrum as well, and very much so within libertarianism, but I’ll set that aside for a future post.)

Like all good tragedies, the activity of both camps contains some logic and even a splash of righteousness. Trolls were absolutely correct to criticize the way Mitt Romney was unfairly declared ungood for having binders full of women and shaggy dog/car stories. Velvet Ropers, meanwhile, were certainly quicker to detect some collective demonization of minorities lurking within the Tea Party movement than I was.

But that has always been the upside in organized political hatreds, in having “the right enemies”—you can get to unpleasant truths quicker than those who are still laboriously sifting through the facts. Less happily (at least for those still troubled by conscience), you will also quickly pile up falsehoods, while dismissing the individualism of whole swaths of humanity. “Why bother with the never ending, genuinely hopeless search for truth,” Václav Havel wrote in a classic 1985 essay, “when a truth can be had so readily, all at once”?

Though the in-group/out-group policework is often attached in the moment to ideology (if rarely with the acknowledgement that the standards of such are constantly shifting), the style at heart ultimately has more to do with temperament. Jeff Flake is not philosophically very far removed from Sen. Ted Cruz (R-Texas), but one’s a bombthrower and the other drinks milk. Sen. Rand Paul (R-Ky.) is in alignment with Flake about the long-term debt crisis and the necessity for new Authorizations for Use of Military Force, but has no qualms backing a sharia-fearing paranoiac as long as he wears the letter “R.” Flake, on the other hand, sent words of encouragement to his own potential Democratic opponent after Arizonans starting hurling anti-Muslim invective in her general direction.

Velvet Ropers, meanwhile, have had a busy 10 days excoriating anyone left of center insufficiently hostile to anti-Trump Republicans such as Flake, Sen. John McCain (R-Ariz.), Sen. Bob Corker (R-Tenn.) and George W. Bush. This Ring of Fire Network headline gets straight to the language-policing point: “Stop Praising Horrible Republicans Just Because They Don’t Like Trump.” It’s as if the anti-Trump left is trying to prove the pro-Trump right’s point: They will hate us no matter what we do.

||| AmazonThe Troll Right in 2016 finally crossed from media success (what is Fox News Channel’s “Fair and Balanced” slogan if not one of modern media history’s most clever trolls?) to political muscle within the GOP. Ann Coulter went from writing bestselling troll jobs like Treason and Demonic to reportedly helping craft Donald Trump’s first big policy white paper. The 32-year-old who helped push through the administration’s historically restrictive new refugee policy reportedly got his political start in high school criticizing Latinos for speaking Spanish and noting their comparative academic deficiencies. The sitting president of the United States was until recently the country’s biggest birther.

That just ain’t Jeff Flake’s style. He criticized birtherism early and often, calling it “ridiculous” and “unfortunate.” He said in June 2016 that Trump “ought to apologize” for his statement that the “Mexican heritage” of Federal Court Judge Gonzalo Curiel is “an inherent conflict of interest.” He was disgusted by the Access Hollywood tape. Some of this lines up with Flake’s real policy differences with Trumpism, such as on immigration, trade, and debt; some of it speaks to his temperamental tendency to criticize his own political team when it goes astray.

But the real dividing line separating Jeff Flake not only from the ascendant Trump/Steve Bannon/populist wing of the Republican Party, but from the purity police in the Democratic Party, may be contained in this sentence last week from George W. Bush: “Too often, we judge other groups by their worst examples while judging ourselves by our best intentions—forgetting the image of God we should see in each other.” Even if Bush had been the perfect messenger—and he most definitely is not—that sentiment these days is in full retreat. Collectivist conflict, in all its belligerent stupidity, is the rule, not the exception. The best that some of us on the sidelines can hope for is that it be as pointless as possible.

I know, I know, Musta struck a nerve!

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Stagnation Nation: Middle Class Wealth Is Locked Up In Housing And Retirement Funds

Authored by Charles Hugh Smith via OfTwoMinds blog,

The majority of middle class wealth is locked up in unproductive assets or assets that only become available upon retirement or death.

One of my points in Why Governments Will Not Ban Bitcoin was to highlight how few families had the financial wherewithal to invest in bitcoin or an alternative hedge such as precious metals.

The limitation on middle class wealth isn't just the total net worth of each family; it's also how their wealth is allocated: the vast majority of most middle class family wealth is locked up in the family home or retirement funds.

This chart provides key insights into the differences between middle class and upper-class wealth. The majority of the wealth held by the bottom 90% of households is in the family home, i.e. the principal residence. Other major assets held include life insurance policies, pension accounts and deposits (savings).

What characterizes the family home, insurance policies and pension/retirement accounts? The wealth is largely locked up in these asset classes.

Yes, the family can borrow against these assets, but then interest accrues and the wealth is siphoned off by the loans. Early withdrawals from retirement funds trigger punishing penalties.

In effect, this wealth is in a lockbox and unavailable for deployment in other assets.

IRAs and 401K retirement accounts can be invested, but company plans come with limitations on where and how the funds can be invested, and the gains (if any) can't be accessed until retirement.

Compare these lockboxes and limitations with the top 1%, which owns the bulk of business equity assets. Business equity means ownership of businesses; ownership of shares in corporations (stocks) is classified as ownership of financial securities.

These two charts add context to the ownership of business equity. Note that despite the recent bounce off a trough, the percentage of families with business equity has declined for the past 25 years. The chart is one of lower highs and lower lows, the classic definition of a downtrend.

The mean value of business equity is concentrated in the top 10% of families. While the value of the top 10%'s biz-equity dropped sharply in the global financial crisis of 2008-09, it has since recovered and reached new heights, while the value of the biz equity held by the bottom 90% has flatlined.

Assets either produce income (i.e. they are productive assets) or they don't (i.e. they are unproductive assets). Businesses either produce net income or they become insolvent and close down. Family homes typically don't produce any income (unless the owners rent out rooms), and whatever income life insurance and retirement funds produce is unavailable.

This is the key difference between financial-elite wealth and middle class wealth: the majority of middle class wealth is locked up in unproductive assets or assets that only become available upon retirement or death.

The income flowing to family-owned businesses can be spent, of course, but it can also be reinvested, piling up additional income streams that then generate even more income to reinvest.

No wonder wealth is increasingly concentrated in the hands of the top 5%: those who own productive assets have the means to acquire more productive assets because they own income streams they can direct and use in the here and now without all the limitations imposed on the primary assets held by the middle class.

*  *  *

If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com. Check out both of my new books, Inequality and the Collapse of Privilege ($3.95 Kindle, $8.95 print) and Why Our Status Quo Failed and Is Beyond Reform ($3.95 Kindle, $8.95 print, $5.95 audiobook) For more, please visit the OTM essentials website.

 

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Senate Votes to End CFPB Arbitration Ban, Trump Insists He Knew Dead Soldier’s Name, Handwritten Einstein Note Sold For $1.5 Million: P.M. Links

  • The Senate voted to end an arbitration ban by the Consumer Finance Protection Bureau, with Vice President Mike Pence casting the tie-breaking vote.
  • President Trump insisted he knew the name of Sgt. La David Johnson, one of the four service members killed in Niger, because he had in a chart in front of him when he talked to Johnson’s widow.
  • The brother of the Las Vegas shooter was arrested on charges of child pornography possession.
  • The foreign minister of North Korea says to take the regime’s warnings of conducting a “most powerful” nuclear bomb test seriously.
  • China President Xi Jinping begins his second term with an eye on staying for a third term.
  • A handwritten note from Albert Einstein about his theory of happiness was sold at auction for $1.5 million after being estimated to fetch between $5,00 and $8,000.
  • Fats Domino has died, aged 89.

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Are Stoned Motorists Driving Amok in Post-Legalization Colorado?

The latest report on marijuana legalization in Colorado from the Rocky Mountain High Intensity Drug Trafficking Area (RMHIDTA), published this month, features all the usual tricks aimed at portraying that policy change as a disastrous mistake, including a misleading presentation of data on traffic fatalities. RMHIDTA, a federally supported anti-drug agency that is determined to paint legalization in a negative light (which it is legally required to do, as NORML’s Paul Armentano points out), wants people to believe Colorado’s roads are full of dangerously stoned drivers, who are maiming and killing people left and right. But the numbers it uses to create that impression are not an accurate measure of the harm caused by marijuana-impaired motorists.

“Marijuana-related traffic deaths when a driver tested positive for marijuana more than doubled from 55 deaths in 2013 to 123 deaths in 2016,” the report says. “Marijuana-related traffic deaths increased 66 percent in the four-year average (2013-2016) since Colorado legalized recreational marijuana compared to the four-year average (2009-2012) prior to legalization.” But contrary to what you might think, “marijuana-related” does not necessarily mean related to marijuana. “This report will cite datasets with terms such as ‘marijuana-related’ or ‘tested positive for marijuana,'” a note at the end of the introduction says. “That does not necessarily prove that marijuana was the cause of the incident.”

In the case of car crashes, drivers who “test positive for marijuana” include people whose blood contains inactive metabolites or THC levels too low to cause impairment. RMHIDTA muddies this point with a quote from a Denver Post story published last August: “In 2016, of the 115 drivers in fatal wrecks who tested positive for marijuana use, 71 were found to have Delta 9 tetrahydrocannabinol, or THC, the psychoactive ingredient in marijuana, in their blood, indicating use within hours, according to state data. Of those, 63 percent were over 5 nanograms per milliliter, the state’s limit for driving.” Another way of putting that: Most of the drivers (61 percent) either had no active THC in their blood or had less than five nanograms per milliliter, which is the level at which Colorado juries may infer that a driver was impaired.

That inference, which is rebuttable, will often be mistaken, as many people are perfectly capable of driving safely at THC blood levels far above Colorado’s arbitrary cutoff. In other words, even the minority of “marijuana-positive” drivers who exceeded the five-nanogram THC threshold were not necessarily impaired at the time of the crash. Because of wide variation in how people respond to marijuana, there is no scientific basis for a rule that equates any particular THC blood level with impairment.

The increase in “marijuana-positive” drivers since 2013 may reflect a genuine threat to public safety, or it may reflect general increases in cannabis consumption. As the number of Coloradans who use marijuana and the frequency with which they use it go up, so will the percentage of drivers whose blood contains traces of marijuana. That includes drivers involved in fatal crashes, even if marijuana played no role in those accidents.

A new review of the research on marijuana and driving by University of Adelaide psychologist Michael White provides further reason to be cautious about making the assumption that RMHIDTA wants us to make. White’s 145-page report focuses on 11 epidemiological studies that used active THC as a measure of marijuana exposure, excluding studies that treated drivers with inactive metabolites in their blood as if they were under the influence. After taking into account various sources of bias and confounding, he concludes “there is no good evidence” to support the hypothesis that marijuana use increases the risk of a car crash. “If cannabis does increase the risk of crashing,” White says, “the increase is unlikely to be more than about 30%.”

By comparison, research indicates that a blood alcohol concentration of 0.10 percent quintuples the risk of a car crash—an increase of 400 percent. White’s upper estimate for the crash risk associated with cannabis consumption is based on a 2016 meta-analysis by Ole Rogeberg and Rune Elvik. He says Rogeberg and Elvik “expos[ed] serious over-estimation biases in two earlier meta-analyses,” although he notes that they erred by describing the subjects in the studies they included as showing evidence of “acute cannabis intoxication,” since some tested positive only for nonpsychoactive cannabinoids and therefore might have used marijuana days or weeks before.

White also considers experimental studies of marijuana and driving, which involve lab tests, simulators, or driving on closed courses, to see if they provide supplementary evidence that cannabis intoxication contributes to crashes. While those studies do indicate that marijuana affects driving-related skills, he says, the impact on crash risk is not clear. White concludes that “modest decrements in the level of driving-related skills that are sometimes found in the laboratories that have studied the effects of cannabis on human performance are of little relevance to road safety.”

White also questions the widespread belief that cannabis compounds alcohol-related impairment, saying the associations found in epidemiological studies can be explained by higher levels of drinking among people who combine pot and alcohol. Looking at the laboratory studies, he finds “the evidence that cannabis exacerbates the impairing effects of alcohol is rather weak.” In particular, White doubts that “standard deviation of lateral position” (SDLP, a measure of weaving within a lane) has “much relevance to road safety as a measure of the exacerbating effect of cannabis on the impairing effects of alcohol.”

Nor is SDLP necessarily a good indicator of marijuana’s impact on crash risk independent of alcohol. A 2015 simulator study, for example, found that a THC blood level of 13.1 nanograms per milliliter had an impact on SDLP similar to a blood alcohol concentration of 0.08 percent, the current DUI threshold in every state. “It is widely acknowledged by researchers in the field that users of cannabis are generally aware of any possible drug-related impairments,” White writes. “It is likely that cannabis users deploy their attention to the main safety-related driving tasks at the expense of keeping strictly in the centre of their lane.”

You may or may not agree with White’s conclusions, but his discussion of the methodological obstacles to measuring marijuana’s impact on road safety clarifies why the subject remains unsettled and contentious. His subtle and sophisticated analysis is a welcome rejoinder to the simpleminded propaganda typified by RMHIDTA’s reports.

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Stocks, Bonds, Dollar, & Credit Dump As VIX Jumps To 6-Week High

Well that escalated quickly…

 

"Not" a record high… Trannies were worst on the day (not off the lows) but Boeing, Goldman, IBM, and Caterpillar weighed on the Dow. NOTE – Dow bounced off unch from Monday.

 

All Implied Vols spiked today (S&P VIX topped 13 – above its 200DMA)…but then it had to finish with a big VIX puke…

 

But the pattern is the same across every major index… a complete decoupling between risk and price…

 

Financials took a dip this afternoon on Gary Cohn headlines (but all S&P sectors ended red)…

 

FANG stocks erased yesterday's bounce…

 

Of course, the big mover of the day was Chipotle… which crashed to its lowest since Jan 2013, costing Bill Ackman a tidy $140 Million…

 

Today certainly had the smell of a Risk-Parity deleveraging day… (RP funds have been down for the last six days – the longest losing streak since July)

 

HY bond prices fell most in a month, finds support (again) at the 50/100DMAs…

 

Treasury yields ended the day higher with early selling pressure giving way to buying as US equities stumbled…

 

The Dollar Index rolled over today…

 

Gold and silver bounced (after an early panic bid through key technical levels), crude and copper dropped…

 

Are copper futures (two gap downs) starting to lose that speculative froth?

 

WTI bounced back above $52 after testing lower on DOE data…

 

Gold ended right at its 100DMA…

 

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U.S. Deepwater Offshore Oil Industry Trainwreck Approaching

SRSrocco

By the SRSrocco Report,

The U.S. Deepwater Offshore Oil Industry is a trainwreck in the making.  The low oil price continues to sack an industry which was booming just a few short years ago.  The days of spending billions of dollars to find and produce some of the most technically challenging deep-water oil deposits may be coming to an end sooner then the market realizes.

Drilling activity in the Gulf of Mexico hit a peak in 2013 when the price of oil was over $100 a barrel.  However, the current number of rigs drilling in the Gulf of Mexico has fallen to only 37% of what it was in 2013.  This is undoubtedly bad news for an industry that fetches upward of $600,000 a day for leasing these massive ultra-deepwater rigs.

One of the largest offshore drilling rig companies in the world is Transocean, headquartered in Switzerland.  They lease ultra-deepwater rigs all over the globe.  When the industry was still strong in 2014, nearly half of Transocean’s fleet of 27 ultra-deepwater rigs were leased in the Gulf of Mexico.  Even though Transocean was quite busy that year, its ultra-deepwater rig utilization was 89% during the first half of 2014, down from an impressive 95% in 1H 2013.

The term utilization represents the total number of working rigs in the fleet.  So, in 2013, Transocean had 95% of its rigs busy drilling oil wells.  But if we look at the following chart, we can see the disaster that has taken place at Transocean since the oil price fell by more than 50%:

Currently, Transocean’s ultra-deepwater rig count has dropped to a low of 12 versus 27 in 2014.  And it’s even worse than that.  Since 2014, Transocean added three more new rigs for a total number of 30.  Thus, Transocean’s ultra-deepwater rig utilization is down to a stunning 37% compared to 95% just four years ago.  So, when a rig isn’t working, it’s not making revenue.

The loss of revenue from these ultra-deepwater drilling rigs seriously hurts the company’s bottom line.  According to Transocean’s Q2 2017 Report, they lost $1.7 billion in one quarter.  However, the majority of that loss was due to a large asset disposal.  Regardless, even if we go by adjusted income and remove the large disposal writeoff, Transocean still only made a whopping $1 million adjusted profit on total revenues of $1.5 billion.

To give you an idea of the size of one of Transocean’s rigs lets takes a look at its Sedco Express ultra-deepwater drilling platform.

The Sedco Express deepwater is semi-submersible that is longer than a football field (364 ft) and weighs 38,000 tons when operating.  The Sedco Express rig has a crew of 184 people and can drill a well 35,000 feet deep.  When these large rigs were in high demand; they were contracted to drill oil and gas wells all over the world.

For example, the Sedco Express was hired by Erin Energy Corp (formerly Camac) to drill oil wells off the coast of Nigeria.  Transocean received $300,000 a day for leasing Sedco Express to drill these wells.  At nearly a $10 million a month, it doesn’t take long for these rigs to earn some serious revenue.

Unfortunately for Sedco Express, its drilling days are numbered.  How numbered?  Actually, its drilling days are over for good.  Why?  Because Sedco Express is now being sent to the junkyard to be “environmentally scrapped.”

You see, Sedco Express is an older rig that is no longer useful or commercially viable, especially in the depressed ultra-deepwater drilling industry.  As I stated above, Sedco Express did receive that $300,000 per day to drill oil wells off the Nigerian coast, but that was back in 2014.  If we take a look at Transocean’s Fleet Status Report, we can see Sedco Express at the bottom:

Here we can see that Sedco Express entered service in 2001.  Thus, Sedco Express is only 16 years old.  Again, if we look at the list above, Transocean had most of its rigs in service at the beginning of 2014.  Furthermore, half of the rigs were leased in the U.S. Gulf of Mexico.  Now, let’s look at a more recent Transocean Fleet Status Report:

Please notice the number of STACKED rigs on the list (right-hand side of the table).  Transocean now has 11 rigs working, 16 stacked and 3 idled.  However, the rigs highlighted in yellow represent the rigs heading to the junkyard.  Transocean is junking these 5 ultra-deepwater rigs plus another deepwater rig called the Transocean Marianas.  Instead of paying the $40,000 a day to warm stack or $15,000 a day to smart stack these rigs, Transocean decided it was a better financial decision just to remove them from their fleet.  I would imagine if Transocean believed the price of oil would recover to $80-$100 quickly, they might have held off this decision.

Unfortunately, mainstream energy analysts do not believe the ultra-deepwater rig industry will recover until at least 2020 or more realistically by 2024.  While the mainstream energy analysts believe the ultra-deepwater drilling rig industry will improve within the next 6-7 years, I don’t think it will ever recover.  Rather, I see a continued disintegration of this HIGH COST, LOW EROI energy industry (EROI – Energy Returned On Investment).

Before we get into the final part of the article, I wanted to explain the highlighted RED rig.  The Discoverer Clear Leader rig leased to Chevron was contracted to end in October 2018.  However, Chevron recently announced an early termination of that contract to end in November 2017.  Chevron will pay Transocean $148 million for contract termination fees.  When this was published in the media, Transocean’s stock fell 5% that day.  Lastly, at its peak of 95% utilization of its ultra-deepwater rig fleet in 2013, Transocean’s stock price was trading in the mid $40’s.  Today is it trading below $10.

The Low EROI Of The Ultra-Deepwater Drilling Rig Industry Is Not Sustainable

An article published in 2011 titled, Ultra-Deepwater Gulf of Mexico Oil and Gas: Energy Return on Financial Investment and a Preliminary Assessment of Energy Return on Energy Investment, stated the following:

The preliminary EROI based on financial costs and subsequent sensitivity analysis using three different energy intensity ratios. ranged from 4:1 to 14:1 for 2009 total GoM ultra deepwater oil production while the EROI for total oil plus natural gas production in the ultra-deepwater GoM in 2009 was slightly higher at 7:1–22:1.

We believe that the lower end of these energy return on invested (EROI) ranges (i.e., 4 to 7:1) is more accurate since these values were derived using energy intensities averaged across the entire domestic oil and gas industry.

The two analysts that put together the study believed that the EROI of Gulf of Mexico ultra-deepwater oil production was at the lower end of the range, 4 to 7:1.  However, this study was done using 2009 data.  For example, they were calculating their Gulf of Mexico EROI values on the following:

The financial cost per barrel of ultra-deepwater oil in the GoM at the well-head ranged from $71/barrel to $86/barrel.

Today, the price of oil trading closer to $50, not the $71 or $86 used in the analysis.  Thus, the lower oil price translates to a lower EROI.  Also, the analysts also made the following important comment:

The EROI values of this study were based on financially-derived energy costs of production at the well-head only, and did not include all of the indirect costs of delivery to end use. Thus, these estimates are conservative.

If all indirect costs were included in the EROI calculations, EROI would decrease.

Moreover, one significant direct cost, such as insurance on the rigs, was not included in the EROI calculation.  Again, according to the study:

In addition, the insurance costs associated with rigs operating in ultra-deepwater were not included but are estimated by market analysts to range between 10–35% of the present value of the rig [50]. For a $500 million dollar rig, that would add between $50–$175 million in insurance costs per year of operation. If all of these costs were included it might decrease the EROI by perhaps 25 percent.

So, not only does the research suggests that the EROI of ultra-deepwater oil production is closer to the lower end of 4-7:1, but its even lower if we include additional indirect and direct costs that were not factored into the analysis.  This is BAD NEWS because our advanced high-tech society needs something north of 10-12:1 EROI of oil to be sustainable.  Here we can see that ultra-deepwater oil production only made sense at much higher oil prices.

As the oil price fell by more than 50%, its impact on Gulf of Mexico ultra-deepwater drilling took its toll.  According to Reuters article in July 2013, the number of oil rigs working in the Gulf of Mexico hit a peak of 57 (43 oil & 14 gas).  Take a look at the ultra-deepwater drilling rig count and location today:

There are only a total of 20 rigs working in the Gulf of Mexico, with 17 drilling for oil and 3 for natural gas.  The BLUE triangles represent rigs drilling for oil, and the ORANGE triangles are for natural gas.  However, we must remember that one of those rigs leased to Chevron will be terminated next month.  So, it will be down to 16 rigs.  Regardless, the Gulf of Mexico ultra-deepwater oil drilling rig count is nearly two-thirds less than it was at its peak in 2013.

While Transocean still has a large backlog of drilling contracts, they could experience more terminations if the oil price takes a noise-dive.  We must remember, the stock market and economy is being propped up by a great deal of Central Bank monetary printing and asset purchases.  When the stock market finally experiences a 20-50% decline, this will take the oil price down with it… and BIG TIME.

We could easily see a $20-$30 oil price during a market melt-down.  Certainly, this would destroy the already weakened ultra-deepwater drilling rig industry.

Lastly, the low EROI of ultra-deepwater oil production is not sustainable for an advanced society that needs something north of 10-12:1.  My best guess is that ultra-deepwater oil EROI is likely closer to 3-5:1 when we factor in all indirect and direct costs.  Compare that to the U.S. oil industry that was producing oil at a 100: 1 EROI  in 1930.  The amount of energy and technology that it took to produce oil in the early days was a fraction of what it is today.

Also, the notion that technology will solve our problems is one of the BIGGEST MYTHS we tell to ourselves.  Technology doesn’t increase the EROI of oil; it lowers it.  Thus, the more technology that is used to drill and extract oil, the more the EROI of that oil is destroyed.   While ultra-deepwater oil production has supplemented our total oil supply, I don’t see it being a long-term sustainable industry… especially after the U.S. and world markets finally crack under the massive amount of debt and derivatives propping it up.

Check back for new articles and updates at the SRSrocco Report.

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Tesla Starts A Whole New Round Of Mass Firings, This Time At SolarCity

Poor Elon Musk really, really can’t catch a break.  Just over the past couple of weeks he’s been forced to push back his Model 3 delivery schedule due to some “production hell” issues (like not knowing how to weld…a fairly critical component of auto manufacturing), got one-upped by Daimler who beat him to the punch by revealing an all electric semi-truck earlier today (several weeks ahead of Elon), was sued by former employees who alleged a “hostile and racist work environment” in his Fremont plant…and the list goes on and on. 

Now, according to a report from CNBC, Tesla’s mass firings have spread to SolarCity, a company which Musk just purchased last year despite warnings from concerned shareholders that it would be nothing more than a distraction.  While it’s unclear how many people have been fired from each division, former employees estimate that some 1,200 people have been let go in total between the various Tesla entities.

Employee dismissals at Tesla are continuing, according to six former and current employees, and have spread from its motor division to SolarCity offices across the U.S.

 

Echoing reports from earlier this month, these SolarCity employees say they were surprised to be told they were fired for performance reasons, claiming Tesla had not conducted performance reviews since acquiring the solar energy business.

 

All the people spoke under condition of anonymity, citing fears of retaliation from Tesla.

 

Tesla had already announced plans to lay off 205 SolarCity employees at its Roseville, California, office by the end of October this year. However, SolarCity employees across the country have been fired in the last two weeks — not just in California, but also in Nevada, Arizona, Utah and beyond, according to these employees.

 

Two former employees told CNBC that the Roseville office was being completely shut down. A Tesla spokesperson said the office will remain open with about 50 full-time employees.

 

The total number of dismissals could not be determined. However, former employees estimate around 1,200 people have been fired in the company’s wave of dismissals at Tesla including SolarCity. That figure does not include previously announced layoffs.

Musk

When asked about the mass firings, Tesla once again reiterated their stance that the 1,200 people in question were being terminated as the result of “performance reviews”… 

“Like all companies, Tesla conducts an annual performance review during which a manager and employee discuss the results that were achieved, as well as how those results were achieved, during the performance period. This includes both constructive feedback and recognition of top performers with additional compensation and equity awards, as well as promotions in many cases. As with any company, especially one of over 33,000 employees, performance reviews also occasionally result in employee departures. Tesla is continuing to grow and hire new employees around the world.”

…which is odd because SolarCity employees, much like those working at the Tesla plant in Fremont, say they were never given performance reviews.

SolarCity employees (like other Tesla employees) then received separation agreements via email. The documents cited “failure to meet performance expectations” as the reason for their terminations, according to excerpts of the documents shared with CNBC by multiple parties.

 

The former SolarCity employees all said performance reviews had not been conducted since Tesla acquired the clean energy business for $2.6 billion in November 2016.

 

Three recently fired SolarCity employees (who worked in disparate city offices, and were contacted separately by CNBC) said they asked HR at Tesla for a copy of their performance reviews. But those never materialized.

 

In some cases, HR never acknowledged their requests but went ahead and sent them separation agreements. These agreements force ex-employees of Tesla into arbitration if they want severance pay. In other words, they have to sign away the rights to sue the company for two weeks’ worth of salary.

Meanwhile, these angry, laid-off employees don’t seem to be buying it.

But it’s ok, they can presumably all re-apply for their positions once Tesla opens it’s new manufacturing facility in China…though it will require a fairly long-distance move and a rather sizeable pay cut.

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