Overpiped

5 Oct

The recent shortage of takeaway capacity in the Permian Basin has led to a surfeit of proposed new pipeline capacity coming onboard all throughout 2019. One industry insider has even suggested that the region will become “overpiped” after the most recent conversions and build-outs become reality. We suggest that this term could be best used to describe the entire global financial system as it stands today.  If you indulge our plumbing metaphor further, the problems in any given sector of the financial market are a direct result of the mis-pricing of risk, or too much capital flow given the existing needs. Think housing pre-crisis, a phenomenal amount of piping (credit and credit structures) were built  solely to feed liquidity to a market that was clearly not financially  able to support it. The clogging and backing up of  said dubious piping led to a backing up into the entire global financial system, and you know the rest. This overpiping is seen in the retail landscape as well. Liquidity continues to flow into traditional retailers and traditional retail real estate despite all evidence that the old paradigm of shopping has changed dramatically. That marginal strip mall probably doesn’t need to get built, but as long as credit is available, expect to continue to see new currency exchanges and vape shops. As with all plumbing however, the system breaks down when either clogs occur or a pipe bursts, such occurrences often the result of a sudden re-pricing of risk.

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