iBankCoin
18 years in Wall Street, left after finding out it was all horseshit. Founder/ Master and Commander: iBankCoin, finance news and commentary from the future.
Joined Nov 10, 2007
22,274 Blog Posts

Crude Closes Down 4.7%; Every Downtick is a Doom Filled One

Crude down 4.7% isn’t an ordinary day at the office. More than that, it ruins a sector beguiled and hamstrung by a debt load it can no longer service. In order for James Cramer and his band of roving idiots to get erect over the prospects for crude oil stocks again, the commodity needs to sustain $60, a level it has not reached–thus far.

Bear in mind, there is a wall of debt coming due in 2017. Now that we’re in the 2nd half of 2016, investors will begin to price in the horseshit.

Let me explain.

According to Exodus, the amount of distressed debt in the basic resource space is $136 billion. These numbers are based upon companies having access to capital, gauged by their debt/equity ratios. In other words, the higher their stock prices go, the more access to capital they possess. Naturally, the opposite applies to when these stocks are getting hammered lower.

For example, the amount of debt for companies just below distressed, from 2-4.99x debt/eq is a staggering $446 billion. With crude stocks down 6% for the day, you can see how this can snowball quickly, into a problem that will ruin many days and nights for many bankers.

While BREXIT was an important tipping point for the scales of freedom v tyranny, the crux of the issues for this market has always been in the oil and gas space. Aside from the negative rate issue, this is my primary concern for 2017 and beyond.

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13 comments

  1. frog

    Crude is volatile, no doubt. But it will likely just keep trading in a range for a while. It’s not going to fall through the floor. The EU is going to print or whatever it needs to do, to stay afloat. The central banks will do whatever they can to try to keep the plates spinning in the air for a while longer, and to keep at least most of the oil company debt from imploding. I think they’ll succeed for another year or 2 at least.

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    • helicopter ben
      helicopter ben

      Just like with tech stocks and mortgages, right?

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      • frog

        Yes, just like with tech stocks and mortgages. You should know that, since you are Helicopter Ben. Central banks keep the plates spinning in the air for as long as they can– usually at least a couple of years past the time when sensible people first start to get concerned about commodities, tech stocks, or mortgages.

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  2. jakkdaws

    ‘cmon frog… though you may be right that it stays range bound.. your logic b/c the EU is going to print is illogical since crude is priced in USD. USD = safe haven currency = strength + NIRP = deflationary commodity nail in coffin, no?

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    • frog

      The USD is indeed a safe haven currency now. But it’s not going to rise enough to put oil in the coffin. When enough liquidity is sloshing around, people around the world will buy more oil and more other commodities and stuff too. The big deflation isn’t coming just yet.

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      • jakkdaws

        People around the world will buy more oil b/c liquidity is sloshing around? Its been sloshing for sometime and we’re still in a commodity bear market. Furthermore, liquidity is horrendous right now. Not sure what you’re looking at but printing money doesnt = liquid markets.

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        • frog

          The U.S. economy is recovering and will continue to. And people will buy more oil because the economy is going places.

          But don’t take my word for it. Go ahead and sell oil short and hold it for a year, waiting for it to fall through the floor. Be my guest.

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        • jakkdaws

          I dont know what Oil will do, and even agreed with you in that it may stay range bound. Too many factors IMO for a confident call, and it doesn’t matter anyways if you know how to manage risk. I only questioned your rationale around it. Either way, best to you.

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  3. goose20

    Keep talking down stocks as I accumulate debt free, money making stocks for retirement.

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  4. Dr. Fly

    And, by the way, I am not “talking down stocks”. That’s a big misconception. I am merely relaying truth to you that make you uncomfortable because it doesn’t jibe with your way of thinking.

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    • goose20

      Yes it is uncomfortable at times but buying solid companies at discounts is what I try to buy when they are on sale.

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