Editor's note: Don't let inflation fears prevent you from profiting... With rampant inflation weighing on stocks, many investors have hidden their money on the sidelines throughout this bear market. But according to Stansberry's Credit Opportunities editor Mike DiBiase, a massive wave of bankruptcies is approaching – one that will lead to some of the best distressed-debt opportunities you've likely ever seen... That's why he believes it's critical for investors to start preparing immediately in order to avoid missing out on huge gains. In today's Masters Series, originally from the April 26 Digest, Mike details why you shouldn't listen to the consensus to understand what's ahead for our economy... explains why things are about to get much worse in our economy... and reveals how you can use this knowledge to profit...
Wrong, Wrong, and Wrong Again... By Mike DiBiase, editor, Stansberry's Credit Opportunities The folks we're supposed to trust get it so wrong, so often... "Inflation will be transitory"... Wrong. "Inflation won't soar"... Wrong. "The Fed will start cutting interest rates soon"... Wrong. "Our economy is headed for 'no landing'"... "OK, make that a soft landing"... "OK, it might be a hard landing, but we'll avoid a recession"... Wrong, wrong, and wrong. Federal Reserve economists now think we should expect a "mild recession." The central bank will be wrong once again. As I (Mike DiBiase) have been warning in the Digest since last September, things are about to get much worse for our economy... Apparently, most investors don't agree... Since mid-October, the S&P 500 Index is up 26%. The Nasdaq Composite Index is up 33%. Some say we're in a new bull market. The optimism in the markets today astounds me...
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Investors are ignoring enormous, obvious warning signs we're headed for a deep recession. Many have been discussed in the Digest before... The 2-10 yield curve – the difference between the yield on 2-year Treasurys and 10-year Treasurys – is the most inverted it has been in more than 40 years. And the Fed's preferred yield curve – the 3-month/10-year yield spread – is the most inverted it has ever been. The Conference Board Leading Economic Index, which is a composite of various economic indicators, has been signaling a recession for months. It has declined for 14 consecutive months. Economists at Wells Fargo said it's time to "brace for impact." These are reliable recession predictors. But you don't even have to know about them to see what's coming – that is, if you're paying attention... Corporate debt has ballooned to a record $13 trillion today... That's nearly double what it was at the peak of the last financial crisis. Household debt is now more than $17 trillion, also a record. Combine those massive debt numbers with the fact that interest rates have soared over the past two years... and you have a recipe for disaster. The interest rate companies have to pay has more than doubled since early 2021. Keep in mind, even before they shot up, about one out of every five companies was a "zombie" – meaning these companies could barely afford the interest on their debt. Thanks to today's higher rates, many zombies are going to finally collapse starting this year. Households are getting crushed, too... Credit-card interest rates now average 21%, the highest they've ever been. That's a punishing number when you consider that credit-card debt hit $1 trillion last quarter, a new record. Mortgage rates have more than doubled since early 2021. Homes today are less affordable than they've ever been. Add that to the fact that the price of everything from groceries to gas has soared over the past two years. There are lots of signs consumers are about to tap out... Americans' ability to spend is now stretched to its limit. U.S. retail sales have fallen for two straight months. Nearly 60% of all Americans are living paycheck to paycheck. Folks are having trouble making their loan payments. You'll be reading more and more in the months ahead about rising auto-loan and credit-card delinquencies (late payments) and defaults (loans going bad). Core Consumer Price Index ("CPI") – which excludes "more volatile" food and energy prices – is the Fed's preferred inflation measure. It rose 5.3% in May, still more than double the Fed's 2% target. And when you dig into the numbers, it gets even worse... The headline CPI number has only been falling because of falling energy prices. Almost everything else was up big... like food prices (up 6.7%) and shelter (up 8%). Transportation services – a category that includes car repairs, maintenance, insurance, and air travel – rose 10.2%. In other words, no matter how hard government officials and bullish investors wish it, inflation isn't going away anytime soon. The only thing that will bring inflation down is a recession. Unless the Fed starts easing again (which would be really, really bad because it would lead to even longer-lasting, higher inflation), we're headed for a deep, prolonged recession. We can't afford the higher interest rates needed to bring persistent inflation down. We simply have too much debt. As lead editor of our corporate-bond newsletter, Stansberry's Credit Opportunities, I pay a lot of attention to debt and the credit market. This brings me to another thing investors are getting wrong... The bank crisis is not over... The combination of higher interest rates and record debt has finally begun to "break" things in our economy. Two of the largest bank collapses in U.S. history struck in March. This was one of the first cracks to appear in the proverbial dam. But it won't be the last. The government rushed in and plugged the hole to prevent more bank failures, but other holes will soon appear in other places. The leveraged-loan market may be the next victim. Or the commercial real estate market could collapse. Regional banks hold around three-quarters of the $3.1 trillion in outstanding U.S. commercial real estate loans. This includes loans on apartments, offices, warehouses, hotels, and retail properties. Here's why this is a big problem... Regional banks are already dealing with the flight of deposits to bigger banks and money-market funds. Soon, they'll be forced to deal with commercial-loan defaults. According to Bloomberg, $1.5 trillion of U.S. commercial real estate loans is coming due by the end of 2025. These loans need to be refinanced at much higher interest rates. That makes them much more expensive for borrowers who are already struggling with empty office space. Downtown office-vacancy rates have nearly doubled since the pandemic to almost 20%. It's much higher in some cities like San Francisco. The earnings of these properties determine their value... With higher interest rates and vacancies, commercial real estate earnings and valuations have plunged. The defaults have already started. Columbia Property Trust recently defaulted on $1.7 billion in commercial real estate loans on buildings in New York, San Francisco, Boston, and Jersey City, New Jersey. Regional banks are going to have to raise capital and sell risky assets like commercial real estate loans to meet regulatory capital requirements. They'll continue to tighten credit, especially to risky borrowers, at a time when credit is needed most. Fed Chairman Jerome Powell even admitted this at the Fed's meeting in March. He warned that the banking crisis will likely lead to tighter credit conditions. And that's exactly what has happened. Credit continues to tighten. It is now tighter than at any time since the last financial crisis... That's bad news for the economy. When credit gets tougher to get, weak companies begin to die. Bankruptcies are already rising faster than any time since 2010. The thing is, as I've written here before, this is a normal part of the credit cycle. Periods of excess always lead to periods of tightening credit. And tightening credit always leads to recessions, with waves of defaults and bankruptcies. Our economy is contracting. Businesses' sales and profits are falling. This is exactly what I predicted would happen. Corporate earnings have fallen in each of the past two quarters. Coming into the year, investors were betting corporate profits would rise 7% this year and another 9% in 2024. Investors are asleep. During recessions, corporate earnings always fall hard... Over the past five recessions since 1980, corporate earnings fell by an average of 25%. Here's what's even more important to remember... The stock market doesn't bottom before recessions... It bottoms during or after recessions. We're not even in an official recession yet. Most are predicting it won't start until later this year. That means the stock market bottom is still in front of us. Remember, despite all of the investor optimism I'm seeing, I believe we're still in a bear market. And bear markets don't end quickly or without a lot of pain. But there is a silver lining to these dark clouds... You don't have to be a victim. Like I said, credit cycles are normal, but how people respond to them is not... You can use this knowledge I've shared today to make a lot of money when the markets are crashing. I expect the bond market to crash along with the stock market, creating a huge opportunity to make money that most everyday investors will overlook. When the bond market crashes, you'll be able to earn equity-like returns with investments that are far safer than stocks... corporate bonds. That's because these bonds offer bigger returns the cheaper they get. And they come with guaranteed income and legal protections that stocks simply don't have. Here's the thing most people don't understand... In this next crash, the perfectly safe corporate bonds we recommend – which many folks simply don't know about or how to buy – will sell off to absurd, distressed prices. This includes bonds of good companies that will survive a recession. This is the time my colleague Bill McGilton and I have been waiting for in Stansberry's Credit Opportunities. Buying safe corporate bonds when they're cheap in times of crisis is what many of the world's wealthiest and best investors do... And owning corporate bonds is another "tool" every investor should have in his or her toolbox. If you haven't already, I urge you to consider it... There's no reason you can't do it. You just have to know which bonds are safe. In Credit Opportunities, Bill and I do the work and identify these investments for you. And you can buy them much like stocks. The last time the bond market crashed was a brief period following the pandemic. Since then, Bill and I have recommended and closed 24 positions, of which 22 were winners. The average annualized return of the 24 recommendations was 37%. That's nearly three times the 13% return of the high-yield bond market since then. And it even beats the 35% return of the stock market over the same time frames. If you're like me and think a recession is ahead, then the markets are likely in for more trouble. Preparing now is essential so that when the next credit crisis comes, you'll be ready to pounce and scoop up bonds of good companies at the cheapest prices we'll have seen in more than a decade. Good investing, Mike DiBiase
Editor's note: This slew of bankruptcies marks the beginning of a crisis that could cause catastrophic losses for investors who aren't prepared. But Mike has been preparing for this exact moment... Mike believes this credit crisis will give investors the chance to buy world-class bonds at a discount – earning massive gains with legal protections. Click here to get the full details... | 
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