Best of the Week
Most Popular
1. Five Charts That Show We Are on the Brink of an Unthinkable Financial Crisis- John_Mauldin
2.Bitcoin Parabolic Mania - Zeal_LLC
3.Bitcoin Doesn’t Exist – 2 - Raul_I_Meijer
4.Best Time / Month of Year to BUY a USED Car is DECEMBER, UK Analysis - Nadeem_Walayat
5.Labour Sheffield City Council Election Panic Could Prompt Suspension of Tree Felling's Private Security - N_Walayat
6.War on Gold Intensifies: It Betrays the Elitists’ Panic and Augurs Their Coming Defeat Part2 - Stewart_Dougherty
7.How High Will Gold Go? - Harry_Dent
8.Bitcoin Doesn’t Exist – Forks and Mad Max - Raul_I_Meijer
9.UK Stagflation Risk As Inflation Hits 3.1% and House Prices Fall - GoldCore
10.New EU Rules For Cross-Border Cash, Gold Bullion Movements - GoldCore
Last 7 days
Jim Rickards: Next Financial Panic Will Be the Biggest of All, with Only One Place to Turn… - 20th Jan 18
Macro Trend Changes for Gold in 2018 and Beyond - Empire Club of Canada - 20th Jan 18
Top 5 Trader Information Sources for Timely, Successful Investing - 20th Jan 18
Bond Market Bear Creating Gold Bull Market - 19th Jan 18
Gold Stocks GDX $25 Breakout on Earnings - 19th Jan 18
SPX is Higher But No Breakout - 19th Jan 18
Game Changer for Bitcoin - 19th Jan 18
Upside Risk for Gold in 2018 - 19th Jan 18
Money Minute - A 60-second snapshot of the UK Economy - 19th Jan 18
Discovery Sport Real MPG Fuel Economy Vs Land Rover 53.3 MPG Sales Pitch - 19th Jan 18
For Americans Buying Gold and Silver: Still a Big U.S. Pricing Advantage - 19th Jan 18
5 Maps And Charts That Predict Geopolitical Trends In 2018 - 19th Jan 18
North Korean Quagmire: Part 2. Bombing, Nuclear Threats, and Resolution - 19th Jan 18
Complete Guide On Forex Trading Market - 19th Jan 18
Bitcoin Crash Sees Flight To Physical Gold Coins and Bars - 18th Jan 18
The Interest Rates Are What Matter In This Market - 18th Jan 18
Crude Oil Sweat, Blood and Tears - 18th Jan 18
Land Rover Discovery Sport - Week 3 HSE Black Test Review - 18th Jan 18
The North Korea Quagmire: Part 1, A Contest of Colonialism and Communism - 18th Jan 18
Understand Currency Trade and Make Plenty of Money - 18th Jan 18
Bitcoin Price Crash Below $10,000. What's Next? We have answers… - 18th Jan 18
How to Trade Gold During Second Half of January, Daily Cycle Prediction - 18th Jan 18
More U.S. States Are Knocking Down Gold & Silver Barriers - 18th Jan 18
5 Economic Predictions for 2018 - 18th Jan 18
Land Rover Discovery Sport - What You Need to Know Before Buying - Owning Week 2 - 17th Jan 18
Bitcoin and Stock Prices, Both Symptoms of Speculative Extremes! - 17th Jan 18
So That’s What Stock Market Volatility Looks Like - 17th Jan 18
Tips On Choosing the Right Forex Dealer - 17th Jan 18
Crude Oil is Starting 2018 Strong but there's Undeniable Risk to the Downside - 16th Jan 18
SPX, NDX, INDU and RUT Stock Indices all at Resistance Levels - 16th Jan 18
Silver Prices To Surge – JP Morgan Has Acquired A “Massive Quantity of Physical Silver” - 16th Jan 18
Carillion Bankruptcy and the PFI Sector Spiraling Costs Crisis, Amey, G4S, Balfour Beatty, Serco.... - 16th Jan 18
Artificial Intelligence - Extermination of Humanity - 16th Jan 18
Carillion Goes Bust, as Government Refuses to Bailout PFI Contractors Debt and Pensions Liabilities - 15th Jan 18
What Really Happens in Iran?  - 15th Jan 18
Stock Market Near an Intermediate Top? - 15th Jan 18
The Key Economic Indicator You Should Watch in 2018 - 15th Jan 18
London Property Market Crash Looms As Prices Drop To 2 1/2 Year Low - 15th Jan 18
Some Fascinating Stock Market Fibonacci Relationships... - 15th Jan 18
How to Know If This Stock Market Rally Will Continue for Two More Months? - 14th Jan 18
Everything SMIGGLE from Pencil Cases to Water Bottles, Pens and Springs! - 14th Jan 18
Land Rover Discovery Sport Very Bad MPG Fuel Economy! Real Owner's Review - 14th Jan 18
Gold Miners’ Status Updated - 13th Jan 18
Gold And Silver – Review of Annual, Qrtly, Monthly, Weekly Charts. Reality v Sentiment - 13th Jan 18
Gold GLD ETF Update.. Bear Market Reversal Watch - 13th Jan 18
Stock Market Leadership In 2018 To Come From Oil & Gas - 13th Jan 18
Stock Market Primed for a Reversal - 13th Jan 18
Live Trading Webinar: Discover 3 High-Confidence Trade Set-Ups - 13th Jan 18
Optimum Entry Point for Gold and Silver Stocks - 12th Jan 18
Stock Selloffs Great for Gold - 12th Jan 18
These 3 Facts Show Gold Is Set to Surge in 2018 - 12th Jan 18
How China is Locking Up Critical Resources in the US’s Own Backyard - 12th Jan 18
Stock futures are struggling. May reverse Today - 12th Jan 18
Three Surprising Places You See Cryptocurrency - 12th Jan 18
Semi Seconductor Stocks Canary Still Chirping, But He’s Gonna Croak in 2018 - 12th Jan 18
Land Rover Discovery Sport Panoramic Sunroof Questions Answered - 12th Jan 18
Information About Trading With Alpari And Its Advantages - 12th Jan 18

Market Oracle FREE Newsletter

6 Critical Money Making Rules

The Oil-Fueled Economic Cycle

Commodities / Crude Oil Jan 15, 2015 - 06:31 PM GMT

By: Harry_Dent

Commodities

I’ve been focusing on this fracking and high-yield debt bubble precisely because it’s most likely to become the new trigger that the housing and subprime bubble was to the last global financial crisis in 2008/2009.

Bubbles just go on and on until they either get so extremely high that they burst of their own weight — as with the tech bubble — or more often when something triggers defaults that then cascade through the very debt markets that helped create the bubble.


We have even greater U.S. and global debt levels than in 2008, with unprecedented stimulus and money printing, as if you could cure excessive debt with more debt.

Looking Back

The last crisis was triggered by a subprime crisis that focused in just four states: California, Florida, Arizona and Nevada. The high foreclosure rates are still in these states (along with Detroit and narrow parts of the Midwest that have seen massive job losses and demographic implosion).

Such a global crisis couldn’t occur without everything we’re seeing right now…

Extreme fundamental trends are rapidly affecting demographic spending, the highest public and private debt ratios in the developed countries and the emerging market debt bubble… these are all coming together to bring on the next global debt crisis that will only be greater.

Falling commodity prices, especially oil, will continue to trigger more debt crises, like falling home prices did in the last one. The commodity plunge is already killing countries like Venezuela, Russia, Iran and Iraq.

The first to go will be the U.S. frackers increasingly defaulting on high-yield or junk bond debt. The second will be emerging country companies defaulting on U.S. high-yield bonds and bank loans.

Then the house of cards will fall as it did in 2008 when high-yield or junk bond rates spiked from 7.5% to 23.5%.

Such yields have already spiked from 5% to 7% and higher risk energy bonds from 5.5% to 10%. This time around the junk bond yields overall could spike from 5% to 25% or more!

Just as falling home prices, which no one expected, triggered the subprime crisis; falling oil prices will trigger the fracking and high-yield debt bubble. The high-yield bond market already sank 10% recently with energy-based bonds falling 20%.

And of course, the raging stock markets are largely ignoring this crystal clear peril.

The chart below shows how dominant horizontal drilling (fracking) in red has become in recent years in the U.S.

Note that fracking started to accelerate in 2003, and like traditional vertical oil wells, took a dive in 2008/early 2009 as oil crashed from $147 to $32. All types of rigs boomed simply due to rapidly rising oil prices into late 2007 as you would expect. But vertical wells still dominated at about 75% at the top of the last boom in late 2007. Now it has flopped to the opposite, near 75% from horizontal and fracking. How did that happen?

What changed after 2007 was the quantitative easing (QE) money printing that drove junk bond yields to unprecedented low rates of 5% and this was a huge advantage for fracking. Horizontal wells have high upfront discovery costs and then low pumping costs — but unlike traditional wells, they only last two years on average.

So, you have to keep borrowing and drilling.

This approach depends even more on financing and such cheap borrowing rates made it more profitable and competitive, along with the next rally in oil back to $115. The QE bubble created the fracking bubble and now it’s nearly 75% of oil production and concentrated in two states, Texas and North Dakota.

Now with oil prices plunging again, the entire fracking industry is not competitive unless oil prices get back toward $100 and that ain’t going to happen — mark my words!

Many drillers will not be able to pay back these high-yield bonds and leveraged loans — just like the subprime mortgage borrowers with no down payments when home prices collapsed.

So what am I watching over the coming months? Not Fed policy, I’ll be keeping a close eye on oil prices!

As I have forecast recently, the most likely scenario is a near-term rally back to the $64 to $76 range and then another crash down to as low as $32 where they bottom…

One way or the other, the next oil crash is very likely to trigger the next debt crisis and the stock crash.

Harry

http://economyandmarkets.com

Follow me on Twitter @HarryDentjr

Harry studied economics in college in the ’70s, but found it vague and inconclusive. He became so disillusioned by the state of the profession that he turned his back on it. Instead, he threw himself into the burgeoning New Science of Finance, which married economic research and market research and encompassed identifying and studying demographic trends, business cycles, consumers’ purchasing power and many, many other trends that empowered him to forecast economic and market changes.

Copyright © 2015 Harry Dent- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules