Energy

Energy debt trouble raises recession risk: Yusko

Yusko's bold calls for 2016
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Yusko's bold calls for 2016

Morgan Creek Capital Management chief Mark Yusko said Monday he's on the same page with Carl Icahn when the billionaire investor says there's danger ahead in credit markets.

Yusko, who last year correctly forecast crude oil would fall to $30 a barrel by the end of 2015, said trouble in the energy industry, which accounts for roughly 15 to 20 percent of high-yield debt, will seriously impact credit markets.

"We haven't even seen the beginning of bankruptcies in the oil patch," he told CNBC's "Squawk Box."

"I think capex is going to drop off quite dramatically later this year, drilling activity is going to slow, a lot of companies are going to go [bankrupt], and I think that's going to lead to some really bad numbers economically," he added.

A worker for an oilfield service company works at a drilling site in the Permian Basin oil field in the oil town of Andrews, Texas, Jan. 20, 2016.
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Morgan Creek, with about $3.7 billion in assets under management, is primarily a hedge fund allocator, which means it invests in other funds on behalf of clients. The firm also makes its own bets on certain stocks.

In a list of 10 predictions for 2016, Morgan Creek listed as number 10 credit market deterioration due to excess central bank liquidity that resulted in a bond bubble. That sets up "abundant opportunities to short credit in emerging markets, high yield (energy) during this new distressed debt cycle."

It also leads into Morgan Creek's first prediction for the year, Yusko said. The firm sees slowing economic growth resulting in a recession in one or more of the major developed economies: the United States, Europe and Japan.

Energy companies have canceled or postponed $380 billion worth of projects in 2014, the year the oil price rout began, according to energy consultant Wood Mackenzie.

Yusko currently sees a 75 percent chance of recession sometime in the next 12 months based on recent economic data.

"I think there's a lot of things we should be worried about. Not calamitous, but just concerned," he said.

The $20-to-$30 per barrel range is where oil prices clear much of the market, Yusko said. By the end of the year, he sees oil prices at roughly $40 per barrel but said it would take some time for U.S. crude production to fall enough to stabilize prices.

The U.S. Energy Information Administration forecasts U.S. oil production will fall to an average of 8.7 million barrels per day this year from 9.4 million in 2015.