The shale oil industry was scam by the big private equity funds who took a flier on the shale business because the bond market gave them access to dirt cheap capital thanks to the Fed’s ZIRP.
When the history books are written, the shale oil “boom” will be looked back upon as one of the bigger scams executed beautifully by Wall Street. Right now several oil shale development companies are in various stages of insolvency or headed toward insolvency. While the bond market in general has become relatively illiquid, the corporate junk bond market is now largely trading in “step function” prices for anything larger than “one-sies and two-sies” ($1 to $ 2 million bond trades).
Every junk bond fund under the sun is completely mismarked and overvalued because the “mark to market” pricing mechanism that has morphed into “mark to quote.” But I know from talking to contacts on Wall Street that anyone who wants a bid for something more the a very small size of bonds had better be prepared to accept a much lower price than where their position is marked. Conversely, don’t stick a bid on anything unless you really want to buy it.
Oil Bonds Lose Investors $7 Billion in 10 Days – Investors lured back into junk-rated energy bonds by their juicy yields are getting burned. Oil prices have fallen more than 15 percent since March 4 to a six-year low of $42.3, wiping out $7 billion of market value of high-yield debt issued by energy companies. (LINK).
If true mark to mark were imposed on the junk bond market, that $7 billion loss could easily turn into a $21 billion loss.
Anyone reading this who has investments in high yield bond funds should get out now. The next big event that triggers a big sell-off in the junk market will cut the value of a lot of these junk bond mutual funds down by one-third to a half. You can exploit the fraudulent bond price-marks in all of these funds by redeeming your investment ahead of the pack. Pigs are greedy and hogs get slaughtered. The yield-hog investors are on their way to the meat packing house…