• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Energy

A Take on High Yield

They are alright as long as the economy doesn't slump.
By BOB LANG
Sep 26, 2014 | 01:30 PM EDT
Stocks quotes in this article: ACI, WLT, ANR, BTU, CLF

When I managed the Sunkist pension fund in the late 90s, we had several really good distressed debt managers in our portfolio. I personally selected each one after a few very rigorous interviews because I wanted to make sure they were the right fit. Patience is a common quality of these managers. They performed exceptionally well during a time of high growth and some instability. The destabilizing events included the rise of the Internet, Long-Term Capital Management, a Russian crisis, an Asian market crisis, Y2K fears, and the dot.com bubble.

There is a general belief that bets on high yield come after a recession is over, and the worst time to bet on distressed debt is going into a recession. It is highly unlikely our economy is heading toward a train wreck, but if the Fed growth estimates for 2015 are too high, then it may feel like one.

The destruction of an entire industry, which has a slew of high yield debt, is taking its toll. I am talking about the coal industry. Patriot Coal (PCXCQ) and James River Coal (JRCCQ) went bankrupt. Arch Coal (ACI), Walter Energy (WLT) and Alpha Natural Resources (ANR) are on death watch. Peabody Energy (BTU) and Cliffs Natural Resources (CLF) are making new multi-year lows. The Environmental Protection Agency and the current White House have their eyes set on eliminating this important energy resource for whatever reason. Many of these companies are selling paper at $0.30 to $0.50 on the dollar, ripe for the picking of distressed managers, if these companies do come back around.

For the most part, high yield debt has been a great place to get return over the last few years. It has been a 'safe haven,' as long as the economy stays upright. If something changes, and things cool off too much, then these bets will not seem all that easy. The charts and technical indicators are not yet a reason for concern, but a further drop is going to raise some worries.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Lang held short and long puts in WLT.

TAGS: Fixed income | Investing | Rates and Bonds | Markets | Energy

More from Energy

See That Down the Road? It's the Big 'Green' Bubble, Ready to Pop

Jim Collins
Jun 24, 2022 1:30 PM EDT

Environmental, social, and corporate governance has created a monster and gullible investors should hit the brakes on their EVs and run from the Washington technocrats while they have the chance.

Weber's Rally Was Cooked Up By the Shorts and Something I Experienced First Hand

Jonathan Heller
Jun 24, 2022 10:00 AM EDT

It should be an interesting ride from here.

Will This Year's Energy and Commodity Trades Become Last Year's Tumbling Tech?

Helene Meisler
Jun 24, 2022 6:00 AM EDT

I can't remember the last time anyone asked me about Apple. No one cares.

Here's What You Need to Know About Investing in Energy

Jim Collins
Jun 23, 2022 1:00 PM EDT

The rudderlessness in DC has created an environment that's downright hostile to domestic exploitation of hydrocarbons.

Occidental Petroleum Could See Its Charts Improve as Buffett Ups His Stake

Bruce Kamich
Jun 23, 2022 8:03 AM EDT

The stock of the oil giant has been sliding of late but should receive a boost as the Oracle of Omaha buys more Oxy shares.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 12:10 AM EDT PAUL PRICE

    More Insider Buying in American Woodmark (AMWD)

    American Woodmark , which I've discussed here fr...
  • 08:55 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    The 10 personality traits of successful traders an...
  • 12:08 PM EDT STEPHEN GUILFOYLE

    Stocks Under $10

    As a Portfolio Name Agrees to a Merger, Here's Our...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login