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Flowing into the cracks


When considering investment options it is important to be aware of the whole picture. John Gilbert, chief investment officer, GR-NEAM uses the production of shale gas to illustrate the pitfalls.

In February 2013 a then-new Federal Reserve governor, Jeremy Stein, gave a talk that changed perceptions—even among his colleagues, which appeared hard to do at the time. In Overheating in Credit Markets: Origins, Measurement, and Policy Responses, Stein addressed the subject of unintended consequences of central bank experiments. He used the apt metaphor that monetary policy “gets in all of the cracks”—in other words, that unintended effects matter. That is particularly true in making investment decisions, since an investor should know if she is buying one of the cracks.

Certain types of cracks are a hot topic at the moment: shale oil and gas. I was reminded of the subject’s complexity when the UK’s prime minister David Cameron declared his government’s policy of, as he put it, “going all out for shale”. His reference was, of course, to the technology of extracting oil and gas from shale rock in the earth’s crust. Shale is common but is stingy in allowing oil and gas to flow. Technical ingenuity combined twotechnologies — horizontal drilling and hydraulic fracturing — to blow the intransigent shale to pieces and allow hydrocarbons to flow into the cracks thus created.

John Gilbert, GR-NEAM, Jeremy Stein, David Cameron, Shale Gas, US Energy Information Administration

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