RE:RE:RE:HBOC German Manufacturing PMI: August 2023: 39.1Great question Matt
If shale production in the US were to collapse as Migraine and others here have suggested for various reasons well documented on this Board, then there is a lot less money coming in. Right now, many of the loans for shale producers (especially the independents) are in the subprime or near subprime category. The amount of loans outstanding in this category the last time I checked was much larger than the outstanding subprime loans that precpitated the financial crisis of 2008. The effects are not just limited to bank loans. Shale producers also have about 5 times the size of the banks loans in other debt instruments. At last count, the total of two is around 2 trillion dollars - that is a lot of money!!! When you add in the debt asociated with oil service companies (and so on - multiplier effect), the numbers are a lot higher.
Compared to 2008, there are a couple of significant fundamental differences...
1...in the US, the political situation was such that the Government was able to move quickly to deal with the situation in 2008 and given the current political discord, it will be much more difficult to get the same sort of consensus in the current environment.
2....in 2008, the US Government had the financial capacity to pour money into solving the problem. Due to various reasons and the projected US debt rising about 60% over the next 10 years according to the CBO, the US Government is likely to be financially constrained to deal with a banking crisis.
In 2008, the market fell by 50% during the financial crisis and so with what I have outlined above, it is entirely possible that the impact of a collapse of shale production in the US would have an even bigger effect. 2008 was the biggest downdraft in asset prices since the Great Depression.
In such a scenario, we would likely see a spike in oil prices and associated asset prices and then a collapse in asset prices. If you time it right you could make a lot of short term money investing in oil but if you are too greedy you could lose a lot.
Hope this helps....