86 THE BiG DROP
hand to make payments for a while before they actually de-
fault. In the meantime, you can profit.
The bond defaults have not happened yet, but the signs are
already visible in the form of lower oil prices and the strong
dollar. In intelligence analysis, we don’t wait for disasters to
happen. We look at today’s information, what are called “indi-
cations and warnings,” and use inferential techniques such as
inverse probability to see the future.
The strong dollar is deflationary. If it persists, it means oil
prices will likely remain low. This means much of the energy-
sector debt cannot be paid off and will default. The defaults
have not happened yet, but you can see them coming. There is
still an opportunity for you to profit from the coming collapse
in junk bonds, but the time to act is now.■ The Coming Bust
The drop in the price of oil from approximately $100 a barrel
to the $40-60 range roughly constitutes a 40 percent decline
or more. That’s extreme. That’s only happened in that short a
period of time three times in the past seventy years.
Oil and other commodities are volatile, but don’t think
for one minute that this is a normal fluctuation. It’s not. This
would be like the equivalent, if you were talking about Dow
points, of an 8,000 point drop. We’re talking about extreme
territory.
The question, of course, is what are the implications of
that?
Our job is to figure out what they are and figure out what
that means for investors. This is a bit of a shock and no one
expected it, other than maybe a handful of people who were
plotting it behind the scenes.
I think we’re looking at the possibility of a floor, at least a
temporary price range around $60 per barrel.