Desperate Times Yield Fantastic Opportunities

Thursday's ECB announcement from Mario Draghi gave everyone in the stock market continued hope - with 60b Euros of bond buying power, the stock markets both across the pond and here reacted positively. We'll see even lower rates than already exist in Europe (even if German Bonds already have negative yields).

For the oil complex, the move had a predictable negative impact - a bigger than expected QE program from Europe sent the dollar again soaring, driving oil prices lower and with them, shares in oil companies.

We see another expected reaction to another of the 5 inputs to oil price that I isolated, four of which have no reason to turn around anytime soon. Oil prices will continue to lag under $60 a barrel, and most likely hover near $50 for the next 4-6 months.

So what the heck are we supposed to do? We know, as well as the CEOs in Davos, that oil prices under $60 are totally unsustainable and ridiculous - ridiculous in that 6-8 million barrels a day of oil production is unprofitable at that price. Given enough time, those barrels will come out of the supply chain, although the irony is of course that no company wants to be on the list of those that stop producing. Every single one of them is eyeing someone else while watching their cash flow disintegrate. Can I last longer than XYZ resources? They all ask.

And here's where the first big opportunity must be for investors - in finding those who will sell assets, restructure - sell their souls - in order to be around for the next oil boom.

Of course, that boom is also so obviously coming. As the CEO of Italian oil giant ENI noted in Davos, the slashing of capex will be followed by a distinct drop in current production, but also potential FUTURE production. Yes, Virginia, demand is still increasing, in spite of often quoted - and wrong - ideas of slowing demand. Move that 6-8m b/d of oil to the sidelines and you've got a fantastic shortage on your hands in 2017 or sooner and no way to reinvest in new barrels.

So, three ways to play this, as I see it. The long-term and safe play is to find the production companies that will survive no matter where the bottom of oil is and how long it lasts. I've given you my best picks here and they won't change: Cimarex (XEC) and EOG Resources (EOG). The other long-term play is to bet on the vultures - those that have the cash to pick up the pieces of the fallen and wait for the next boom to monetize them: Exxon Mobil (XOM), Blackstone (BX), perhaps BHP Billiton (BHP); even Richard Kinder (KMI) with his buy of Continental Resources' (CLR) Bakken pipelines for $3B is an example of this.

And finally, the losers - the ones who will need to sell. Inside of these are some very interesting corporate debt opportunities as outlined by Carlyle Group's David Rubenstein and Oaktree's Howard Marks. Many of these notes are selling for 60-70 cents on the dollar, but the underlying companies still own assets that are very compelling to the vultures. And they'll have to make the bondholders whole to get them. Some names I've been looking at include Halcon Resources (HK) and Northern Oil and Gas (NOG), both with triple-C paper that matures in the early 2020's. The risk also always looms that nobody takes on the debt and your bonds are worth as much as the common shares - nothing.

These bond investments, while speculative in the extreme, are the first place I'm looking for value here as the 'shale boom turns bust' goes into phase two. Because we're going to be here, with very low oil prices, for quite a while yet.