I was surprised to find that I wrote another piece with the same title — 8.5 years ago, before the housing bubble crashed.  It was a short piece (with dead links).  Here it is:

I had a cc post over at RealMoney called Too Many Vultures, Too Little Carrion . The idea was that there's too much money ready to rescue dud assets at present. Yesterday, Cramer had his own blog entry suggesting that the absorption of subprime assets at relatively high prices implied that the depositary financial sector is a sound place to invest. I disagree. In the early phases of any secular change, there are market players who snap up distressed assets, and later they find out that they could have gotten a better bargain had they waited.

The good sale prices for subprime portfolios is not a sign of strength, but a sign that there is a lot of vulture capital looking for deals. The true problems will surface when the vulture capital gets burned through or scared away.

Photo Credit: TexasEagle || A: Do you see any prey? B: No, I don't. Do *you* see any prey?

That last paragraph is the “money shot.”  When there is too much vulture capital waiting to invest in distressed securities, marginal business concepts don't get destroyed, clearing the way for a reduction in capacity, and healthy firms pick up the pieces.  At such a time, you have to wait until the distressed players get hosed, or get smart.

Today's topic is the debt and equity of companies producing energy, or providing services to them, all of which get hurt by a lower oil price.  In the recent past, you have had marginal energy companies able to get financing amid decreasing opportunities for decent profits.  Thus the article at the Wall Street Journal talking about hedge funds losing money on recently placed bets on energy.

Aiding the financing of marginal companies can pay off if the companies will be profitable within a reasonable window of time, or, if you are trying to buy assets cheap for a reorganization.  But if there is too much capacity, and thus low prices for products, the profits after financing may never emerge, and the value of the assets may sag.