Tag Archives: shale oil

Oil Bonds Are Blowing A Big Hole In The Bond Market

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…


Black Swan Sighting: Sub-$50 Oil Prices Seen In Bakken Shale Region

I opined the other day that perhaps the crashing price of oil would be the “black swan” that no one saw coming.  Bloomberg is now reporting that Bakken region well-head oil is being sold for under $50:  Sub-$50 Oil Surfaces In North Dakota.   Too be sure, shale-derived oil sells at a discount to standard West Texas Crude for a few reasons.  But the shale-oil model rests on $100 oil.

Wall Street has pump and dumped the shale oil/fracking industry onto the public in a major way.  Of course, now that the Justice Department new enforcement policy – spearheaded by Obama and his corrupted clan of Covington Burling attorneys (see Eric Holder’s resume) – is that Wall Street is too big to prosecute, we’ll never know the true degree of the fraud-laced hot air pumped into the oil shale bubble.

But rest assured, your pension funds and IRAs will suffer the consequences, as semi-retarded institutional money managers herded investor money into these deals.   The fall-out from this will resemble the collapse of the mortgage/housing bubble.  But this time the big Wall Street banks are protected – for now – by the $2.5 trillion in cash (excess reserves) pumped into their balance sheets by Helicopter Ben and Grandma Yellen.

Most of the oil shale/fracking stocks that went  public over the past few years have come crashing down – even harder than junior mining companies.  The difference between the two sectors:  gold is real money, shale oil is fool’s gold.   Gold mining stocks will do a moonshot once the Fed loses it’s ability to suppress the price of real with gold with paper gold.  If you have any exposure in your investment portfolios to oil shale/fracking – any exposure whatsoever – get out now before it all goes to zero.