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Old 11-25-2018, 04:49 AM
Danny B Danny B is offline
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Join Date: Oct 2012
Location: L.A. Ca.
Posts: 4,735
Capital abandoning fracking

"expects to see a flood of troubled credits topping $1 trillion as rising interest rates overwhelm low-quality loans and bonds", the one question left is how much of this BBB paper is likely to be downgraded?"
The asset most at risk right now is the oil industry. This shouldn't come as a surprise.
This Federal Policy Enabled the Fracking Industry's $280 Billion Loss ...

Oil Is Above $70, but Frackers Still Struggle to Make Money - WSJ
May 17, 2018

"Crude is breaking down after the double top, which suggests in time it could test rising channel support at the $39 level at (3)."

New Energy Institute Report Finds that U.S. Could Lose Nearly 15 ...
... that U.S. Could Lose Nearly 15 Million Jobs If Hydraulic Fracturing is Banned
Just like China, we run expensive jobs programs to keep people working.
The problem is that investors are starting to run away. Nov 23
"Despite this being a low-volume holiday week, crude oil continues to plunge. West Texas Intermediate (WTI) crude oil is down $3.69 or 6.75% and Brent crude oil is down $3.60 or 5.75% today alone, which further confirms the concerns I had when when I wrote the article “Is A Crude Oil Liquidation Event Ahead?” on November 6th. In that piece, I warned that WTI crude oil’s technical breakdown below its key $65 level would likely lead to even more bearish action, which could then cause speculators or the “dumb money” to violently liquidate their large bullish position of nearly 500,000 net futures contracts. "

"WTI crude oil keeps slicing below important technical levels: $60, $55, and the uptrend line that began in early-2016, which represents a very important and concerning technical breakdown. The next major support level to watch is $50; if WTI crude oil breaks below $50 in a convincing manner, it will likely try to gun for $40, then $30, and so on."

"As I’ve been pointing out since the start of this year, crude oil futures speculators or the “dumb money” (the red line under the chart) have built a massive long position in WTI crude oil of just under 500,000 net futures contracts. There is a very real risk that these speculators will be forced to liquidate if the sell-off continues, which would greatly exacerbate the sell-off."
Global recession risk;
“Readings above 70 have found us in recession 92.11% of the time (1970 to present). Several months ago, the model score stood at 61.3. It has just moved to 80.04. Expect a global recession. It either has begun or will begin shortly. "
"U.S. shale energy boom/energy junk bonds: This boom/bubble is closely related to the corporate debt bubble discussed above. Extracting oil and gas from shale via fracking is extremely capital-intensive and would not be feasible in a normal interest rate environment. Thanks to the artificially low interest rate environment since the Great Recession, the shale energy industry’s net debt surged to $200 billion in 2015 – a 300% increase from 2005. Rising interest rates and the bursting of the corporate debt/junk bond bubble will cause a major bust in the shale energy industry."

"the Fed would raise rates “until something breaks.” There is a good chance that one of the first things that broke and continues to break is crude oil prices and the shale energy bubble. This has very serious implications because it is one of the most important drivers of economic activity and job creation in the U.S. since the Great Recession. "

Goldman Sachs may be going down in flames.

11/24 This sell-off is just one step in a methodical unwind of stock prices – Wolf Street
11/24 Yet another plunge in crude: down 7 straight weeks and negative from year ago – Mish

1/2 million contracts that investors will try to dump.
So, as oil slips, the exodus grows. As the exodus grows, the bbb bonds financing fracking are reclassified to junk. Institutional investors are forced by their charter to unload the junk. That depresses the price and, the frackers have no capital. Along the way, there will be huge margin calls.
When you get a margin call in a falling market, you sell what you can, NOT what you want. Good assets and gold sell first. Judging by the severity of the fall so far, I suspect that it has quite a ways to go.

Ford sales in China dropped 43 percent in September -
Ford Motor's Credit Rating Was Cut to One Notch Above Junk ...
There is speculation of a collapse of Ford setting off a huge fall in markets.
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