We're still assuming 4% defaults within energy, I see.

The sector's price is down 19% since June, with most of that cliff occurring in the last month.



We'll see what the Fed does with interest rates next week. Those on the optimistic side of 4% defaults better hope they stay microscopically low. For now, I guess we'll just agree to disagree.

But overall production is bound to take a massive hit in the next couple years. And when the market wakes up to that reality, there'll be a lot more than $70B HY risk to worry about.

Im taking your numbers at face value. 16% of HY being energy*40% of energy defaults and assume zero recovery (which is too pessimistic) gets to 4% loss on high yield debt.

There is tons of distressed money out there that's been spending the last three years looking for stuff at discounts with near-term catalysts and they love cyclical plays like this. A lot of these guys are going to get recapitalized under new ownership, at least initially.

As someone who actually deals in high yield bonds and has for years, it is comical to see you post these charts. You have no idea how these bonds trade. I think you will see defaults, hell that's why they are high yield bonds, because defaults are EXPECTED. But you are compensated for defaults through higher yields. Do you not get this? Jiggs, how many more years of you bring wrong and broke will it take for you to admit defeat?

LOL... Cool ... more soul reading. I'm doing just fine, thanks.

But "defeat" regarding what, exactly?

I do love when a cultist of finance falls back on "I do this stuff, and you wouldn't understand. So lol!" Convincing stuff, there. ... I guess you're unwilling to flesh that out a bit. The WSJ, Bloomberg and others all admit the energy junk bond risk is worrisome and is already starting to permeate. But I guess you know better, so you champion your cause here on 2+2.

Tell us how higher-yield "compensation" works, so we can all understand how hedging ever greater risk in a ripe-for-recession market covers all bases.

But once you do school us on the fine art of accounting tricks, then let us know how U.S. shale oil production can keep rising even though you've conceded there will be at least some measure of defaults on investment.

Yes, I understand that's the optimistic equation. (Even though JP Morgan has energy making up closer to 18% of all HY, but I digress)

It likely assumes production can keep growing though it all. ... I'm saying I believe it will be considerably worse than 4% if oil stays under $70 well into 2015.

But far more important, I'm also saying that the inevitable slowing of production growth will affect far more than mere energy sector derivatives. I think most of us would agree on that.

In the end, I see prices rising swiftly again when markets get the slightest whiff that 91.5M bpd is suddenly in considerable jeopardy. The question is, when prices rise again (yet still not enough), will the investment capital be there next time around now that the spotlight has been shined on what a doomed industry the U.S. shale revolution actually has turned out to be?

So when prices jump back up to levels where you say that shale oil becomes profitable again that shows that US shale oil is a doomed industry?

You don't understand. Jiggs believes prices will only go up a bit and so nobody will develop new oil sources. But also we're all doomed because there won't be enough oil.

Still having trouble with a basic concept of this discussion, some 5-6 years in, huh Keed? The contention is that prices have never been high enough to make this relative ecocidal energy sink "profitable." ... And even if they did get up around $125, the world has shown it couldn't afford it at $100 anyway. It's called the "bumpy plateau" for a reason.

It's interesting that no one has disputed that: My contention that, ultimately, the global price of oil is determined by what the buyer is willing and able to pay. That's the reality -- the global economy isn't nearly as strong as some people insist, ... and that's because annual energy price is still historically high.

The simplistic answer to the last question is yes, at least this go round, still plenty of believers with capital

Except the oil prices of the past few years were enough to make shale oil profitable? Which is why oil prices fell so much, because US oil producers were more successful than anticipated in producing oil?

and then, of course, there's this

New York Bans Fracking After Health Report
by Reuters|Edward McAllister & Daniel Wiessner|Wednesday, December 17, 2014

ALBANY, NY/NEW YORK, Dec 17 (Reuters) - New York state will ban hydraulic fracturing after a long-awaited report concluded that the oil and gas extraction method poses health risks, Governor Andrew Cuomo's administration said on Wednesday.

hopefully, at some point, we can cover the environmental side of why this "revolution" is doomed ... but then, to some, pollution is someone else's problem, and certainly not a "cost input" when it comes to determining a well's "profitability."

With tremendous subsidy and cash injection, anyway. The charts on post #36 seem to disagree with your idea of what's "profitable."

More like because the world can't pay any more.

"If we can afford to pay $150 per barrel, we could certainly produce more given a few years of lead time for new developments, but it would break economies again."
- Dr. Richard G. Miller, former senior BP petroleum geologist

I'm sure privatization of clean-up efforts will expand GDP further... win-win!!

No Easy Answers When Disposing of Oil and Gas Wastewater

Leaks sometimes occur from storage tanks at UIC wells.

Other challenges include: inadequate investigations in some jurisdictions of the surrounding disposal area to make sure no unplugged wells or natural faults allow wastewater to migrate into water supplies; not always assuring that pressures during injection are held low enough to avoid breaks in caprock that protect aquifers; failing to make sure that injection is always limited to permitted intervals; and responding to the increasing number of small and medium size earthquakes that are linked to injections.

Underfunding of regulatory programs compounds the problem, making it harder to provide the public with assurance that their water quality is protected from oil and gas development.

If a geologist doesn't understand macro economics, who does?

hahaha

WHAT YOU GUYS ARE MISSING IS THAT THIS CHART MEANS IT'S HAPPENING.

Does anyone know industry wide how much of the debt is unhedged or how much future production wasn't sold forward?

Bad debt is nothing new. And unlike the housing bubble there is no (with maybe a few exceptions) AAA energy debt. But if a lot of this money, even the less speculative, was loaned based on completely false geological estimates does this approximate a corrupt rating function (not a gotcha question- I don't know the answer)?

Following up, this same analyst published a piece that said in part that HY energy bonds are the best opportunity in years if you have locked up capital and can stand volatility and that the bad news was basically priced into high yield at this point.

Can anyone translate this for me? Is this an attempt at an analogy to the collapse of MBS when the housing bubble burst? Any comparison of MBS and corporate debt is at best silly and at worst completely ignorant.

I'm gonna go with the latter option given the author in question

Yeah...now...at this point. So what?

this far in, I'm fairly certain Row Coach knows this thread exists

I'm guessing he's embarrassed about being over-confident lower prices musta meant Jiggs was always wrong. That's the extent of his understanding of the topic.

Happy Holidays, all. I'll respond to those with open responses to me when there is more time.

It is interesting that no one had a comment re: New York.

50/barrel.... more evidence of PEAK EARL and looming catastrophe.

Indeed it is. Glad you're finally reading the thread and no longer grunching.

Good little troll.