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…


6 thoughts on “Oil Bonds Are Blowing A Big Hole In The Bond Market

  1. Good points Dave. It’s gratifying to think many ruthless venture/vulture capital funds, hedge funds, pension funds, mutual funds, on ad nauseum, in oil and housing (much “industry”) finance, can’t escape high and dry in this wash and rinse debt cycle. As a tsunami of legal, monetary and financial claims and counterclaims rises to chase off all assumptions girding the status quo, defecting market insiders and more western alliance nations gallop off in fear.
    Rapid receding volume of shipping, retail trade, capital investment, even shares and bond market participation prevails over media hype and official censors.
    Illiquidity, triple digit, gamed volatility in the Dow Industrials and historic Forex instability are other omens.
    Beside competetive currency devaluation in countries like Switzerland, Japan, ECB, US etc., much disorderly exiting and repositioning, along with margin calls and anomolous cash outs are rising signs of unsustainable derivatives, leveraged finance and fascist damage control, all obfuscated, censored and politically psy-oped.

  2. There is too much speculation about a V-shaped recovery in oil prices that will drive prices in the end much lower. Too much BS in the energy community why the oil price has to go up from here and can’t by no way go any lower. Many more will burn their little fingers. It’s a process that can take easily two years and a oil price with a 10 handle is not unthinkable at all. Can you imagine the amount of money destroyed in this process? The FED can’t make that up no matter how much money they will print in the future. Too much debt in the system – esp. the junky flavor – will make deflation act like a black hole.

      1. Maybe Jerry means that 7 trillion of debt in EMs will shrink to basically nothing! Something like that. Different train station though.

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