VRA Update: Oil Has Dropped 40% in 5 Months - Bankruptcy and Calamity Awaits

I've received a number of questions about the recent 40% collapse in oil prices....most asking if this is the time to buy, and if so, what specific companies, ETF's or options would I recommend.

First, let me be clear. Oil prices are headed much lower before they find a bottom. My best guess is that we are headed into the low to mid-50's minimum....and they could easily break $50/barrel. This is going to get really ugly for the higher priced producers...which by the way, includes just about all of the shale, unconventional E&P companies that have also been responsible for the majority of US job growth over the last 5 years (a point that almost everyone is missing).

Importantly, most experts are forgetting the primary reason that oil prices started their slide in June. To understand this is to also understand where oil prices are headed going forward. The primary culprit? The end of QE by the Federal Reserve. Sure...QE officially ended in October...but because the markets anticipate 3-6 months out, oils decline began in advance in June, as the smart money understood exactly what was about to take place.

Of course, OPEC's decision not to cut production, and the global economic slowdown are playing their roles as well...just know that anticipation of the end of QE by the FED was the primary instigator of lower oil prices. I've written many times over the years that oil has also become a pseudo currency by the largest shadow banks and hedge funds globally, and of course, they know the FED's actions long before they announce them to the sheeple public.

Going forward, anyone interested in making money in the energy space must also understand the personality of a bursting bubble. Remember the dot-com crash in 2000....or how about the real estate crash of 2008? These two recent examples give us a solid playbook for the crash in the oil patch. Namely, when a bubble bursts, prices almost always fall further than they should....just as they rose higher than they should have in the first place. And...a "real" recovery can take years...in fact, it almost always does. Another case in point? The correction in gold/silver/mining stock prices over the last 3 years...something the VRA (and Subscribers) remembers all too well.

My biggest concern going forward is the following; None of the so-called experts on Wall Street are freaking out over this massive collapse in oil prices...and this level of total complacency should be a huge red flag to anyone really paying attention. Know this; if oil prices trade in the $50-60 range for more than 1-2 months (and we are at $62 this morning), the level of bankruptcy announcements from the oil patch will be staggering. And remember, as much as 40% of ALL high yield debt that's been issued in the past 3-5 years has been issued by, guess who....these same highly aggressive, highly indebted, shale gas/oil explorers and producers. Hundreds of billions in junk bonds are at risk of default...anyone that tells you otherwise is clueless to what I believe could a major economic event just around the corner.

By the way, if you're looking for another outlier as to why precious metals and PM miners are beginning to ramp higher, these coming bankruptcies in energy are absolutely a contributor. In fact, the next banking crisis could be just around the corner, as bankrupt energy co's put massive pressure on banks balance sheets, which could easily result in the next wave of calls for taxpayer funded bank bailouts (and yes, I want to puke at the thought of this as well). 

Folks...this is exactly why gold has been the only true currency for 6000 years...funny money (all global fiat currencies) has a perfect, 100% track record of default...something you will NEVER hear on CNBC or other MSM outlets.

Bottom line; it's nowhere close to time to buy oil and gas stocks (outside of my stock of the century). However, if we can get a panic sell-off in this group...ideally just prior to the coming massive QE from overseas...we could get an incredible buying opportunity in specific names in the oil patch within the next 1-2 months. Only time will tell...just know that I will be watching...and waiting.

In the meantime....got gold/silver/mining stocks?? They are up big again this morning...while the overall market is getting clocked. Talk about "another" major reason to be bullish...

Until next time, thanks again for reading.

Kip    

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