Interesting chart here from a presentation by Jeffrey Gundlach of Doubleline Capital (see the complete presentation here):
His thesis is the overproduction of oil in the US may have been driven by all the excess money the Fed pumped into the economy. All this low interest capital was put to work drilling and selling oil. An interesting hypothesis – at first glance it seems to be to unrelated graph lines that happen to correlate, but after thinking about it a bit I have to wonder.
This chart, showing the ratio of North American companies losing money vs the default rate, also sort of supports the theory:
If you assume the oil production companies are backed by investment funds, rather than earnings, this chart would indicate they are still holding themselves up by draining investment funds. But assuming oil prices stay low, the game will be over in a few quarters.
So if you are convinced there is some merit to this theory, then one way to invest on this thesis would be on overweighing international developed markets (EAFE):
Reading this chart (as found in this Goldman Sachs presentation) tells me international developed markets appear to be underpriced, If true, and assuming they have invested less vigorously in the oil production space, they will be helped more by cheap energy prices than the S&P 500. Many of these markets are also in countries where their government is doing some form of QE, pumping money into the economy, which is bullish for stocks. If history is any indicator, these countries will be investing all this low cost money on the next economic bubble.