We’ve talked about the massive Debt Supercycle and why it can only end in the market crash I’m now predicting. (If you want a refresher, download my “Super Crash Report.”)
But there’s one connection we haven’t made yet.
The same thing just happened in the energy market.
The 50% collapse in WTI crude oil spot prices over the second half of 2014 caught most investors by surprise. It wiped out billions of dollars of value from the accounts of investors who owned energy stocks and junk bonds. But if you knew the reality of the debt situation in energy, the outcome was clear as day.
This is one of the reasons my institutional and high net worth clients didn’t own a single energy stock or bond at that time. We’re going to be, of course – there’s a window approaching where we can make a killing in energy, and I’ll show you when – but 2014-2015 was not a good time to be long in a highly speculative and leveraged energy market.
And it’s about to happen again.
Today I want to show you exactly how debt crashed the energy market. It’s a story few investors understand, and it’ll really put this whole “Debt Supercycle” concept in sharp relief for you.
And then get ready. First thing next week you’ll get my immediate profit protection plays… the key indicator to tell when oil has hit bottom… and see how we could make 300% riding it back up.
Energy companies comprise about 17% of the U.S. high-yield bond market (roughly $200 billion face amount of debt). In the summer of 2014, the average yield on the energy sector of the Barclays High Yield Bond Index was roughly 5% but by the end of the year, the yield had moved above 10% for the first year and it is now higher. Many bonds dropped by more than 50% and thus far at least eight companies have filed for bankruptcy.
But believe me, there is going to be much more blood in the water.
Oil Is Likely to Fall Another 50% from Here
Right now bankers are reviewing the loans secured by oil and gas assets, something they do twice a year. With oil prices back down at their January lows, banks are likely to limit the amount they are willing to lend to the industry. Even worse, regulators are breathing down the necks of bankers in a well-intended but misguided attempt to substitute their judgment in determining how much credit to extend to energy companies in the current environment. The Office of the Comptroller of the Currency is unqualified to make such decisions yet has the power to prevent banks from extending additional credit to energy companies and is aggressively asserting that power. The result is likely to be to push companies that could survive into bankruptcy unnecessarily, which will put further downward pressure on oil prices.
The price of oil (WTI) is likely to drop into the $20s before the current cycle ends.
And that’s when we pounce.
I’ll be back with you Monday. Don’t miss this one.