Wall Street firms that bankrolled oil boom are hurting

Banks brace for defaults

The American energy boom of the past decade was fueled by a wave of cheap credit from big banks. But now cracks have begun to emerge in that boom because oil prices have plunged from around $100 last year to below $50 today.

Wells Fargo (WFC) on Wednesday said it was forced to set aside more cash to cushion against potential commercial defaults due to the "deterioration in the energy sector."

Bank of America (BAC) reported it may need to set aside an additional 15% to deal with troubled commercial loans, specifically in its oil and gas portfolio.

JPMorgan Chase (JPM) too boosted its oil and gas loan-loss reserves by about $160 million last quarter. The increase was driven by the sentiment that "oil prices will remain low for longer," Marianne Lake, JPMorgan's chief financial officer, told reporters during a conference call.

Once dem gat Soup Kitchens I am fine.

401ks and IRAs should not be affected unless you are working for an oil company and you are heavily invested in the industry.  I want to believe most 401ks are diversified so if there is a shift in capital from the loss of oil revenue it won't matter.  The big banks are already cushioned for this loss. They know markets have booms and busts.  Maybe when Jamie Dimon's girl log in here tonight she can give us the scoop!!!

There are other companies that get affected...the ripple effect...some of these investments have bank stocks which get affected...

Riffee - this is earnings reports for the big banks released this morning on Reuters.

By David Henry and Sweta Singh

(Reuters) - Citigroup Inc (C.N), the No.3 U.S. bank by assets, reported a 51 percent jump in quarterly profit as lower costs more than made up for a fall in revenue amid increased market volatility and uncertainty about the timing of a U.S. interest rate hike.

U.S. banks including Citi, JPMorgan Chase & Co (JPM.N) and Bank of America Corp (BAC.N) are cutting costs to boost earnings as overnight fund rates stay near zero and fixed-income trading, long a source of revenue growth, shows no sign of picking up.

Citi's shares rose 3 percent to $52.32 in premarket trading on Thursday.

Now is the time to invest in an energy fund (mutual fund or ETF). I believe this market is at the bottom or very close to the bottom. Don't miss out this opportunity. You can easily make a 40% - 50% in the next two years.

Might be a good time to buy an energy fund and keep it for a while.  You won't see that kind of return in two years though.  And not at such a high rate.  The recession is looming and will keep down markets in all the sectors.

Why do you forecast a recession?

The Wall Street pundits have been predicting a recession for a few months now.  The Dow Jones, S&P 500, and other major indices are down for the year.  Except for technology, I think all the other sectors have lost value so far this year.  Plus the market is due for a correction from the boom.  Energy and China are going to keep pulling the market down.  China has already declared that they are in a recession and economies tend to trend where the largest economy is going. 

The Saudi's will do something at some point to stop the bleeding. They are out to eliminate competition by flooding the market with oil. Very soon they will work with OPEC to cut production to increase the price of oil. If oil jumps to $70 barrel that would translate to a return of 40%.  Invest now and make money later.