danomarcus

So banks now know that these junk bonds are eventually going to go bad. Look, inventories have risen for 6 straight weeks and a supply cut isn't happening. So they want to get as far away as possible from these companies while getting as much as they can back from these loans as possible. They are essentially propping up the energy sector long enough for the affected companies to sell equity and repay secured debt.

For example, let's look at Weatherford International. In Q4 2015 Weatherford had cash of $467 million and debt of $7.5 billion. Of that debt, $967 million of it was revolving credit facility that JP Morgan was the syndicate of. What's insane is that 2 weeks ago JP Morgan was the lead underwriter for an equity offering. With current market conditions and the debt strain on Weatherford, this scenario really doesn't make sense. The only plausible reason for JP Morgan to risk its reputation like this is for them to have Weatherford use the funds to repay debt the company already owes them. This arrangement allows JP Morgan to get its money out prior to the ship sinking.

For those of you who thought the pain was over and oil is back are going to be horribly disappointed. I've never seen market conditions like this and I believe this just the start to a massive slide in oil in the following months to come.

I'd be careful if I were ya'll. What this looks like is a short squeeze of massive proportions. The last time we saw a short-covering rally near this magnitude it didn't end well.