Tuesday Aug 4, 2015
The new poll of 1,000 adults was conducted July 26-30 It found Americans in a darker mood than when the last Journal NBC News poll was conducted unnamed June.65% say the country is on the wrong track.
That is about the same percent as 1992 when Perot ran (71%) and in Sept 2007 (63%). The lesson was that both times the incumbent,first George H and then son George W was defeated.
Now to the next bombshell to drop. The solution to the 2008 financial crisis,brought on by excess debt,was, yep,more debt.Some $550 billion has been loaned to Shale Producers. Now read Energy Debt Stings Investors. We study bonds in ACCT 3312/3304. IN this article we learn that bonds previously issued by Energy XII are now trading at 30 cents on the dollar.
So to prevent that from happening (it has) Franklin Funds and Oaktree, already the largest holders of such debt, have, how did you guess, agreed to buy half of another bond offering. Energy XXI $1.45 billion in March.
So how is that working out for Energy XXI stockholders? Well it's Back to the Future!
Energy XXI
For EXXI it is 2009 all over again. EXXI is trading at 18% of book value. Debt to equity is 506 to one.
Does this sound familiar,can we say sub prime mortgage leveraging all over again? How many millions will Franklin and Oaktree commit to save the original 'investment?'
In 2008 Lehman,Merrill,Bear all borrowed heavily to buy sub prime bonds.They borrowed short term via commercial paper to borrow 10x into long term junk debt.When the junk stopped paying,the commercial paper could not pay and the crisis was full blown.
As the price of oil continues to fall such companies fall below break even and cannot pay their debt. In the next few months we will find out just where that line in the oil shale sands lie.
Professor Elam 
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