Editor's note: A credit collapse is fast approaching... But you can profit from the pain. Stansberry's Credit Opportunities editor Mike DiBiase has been warning of the coming crisis for more than a year. According to Mike, the Federal Reserve has painted itself into a corner by triggering sky-high inflation with its unprecedented post-pandemic stimulus. And when the collapse hits, a wave of bankruptcies will lead to some of the best investment opportunities you've likely ever seen... Today's essay is the conclusion of a two-part conversation back in May between Mike and Digest editor Corey McLaughlin, originally published in our May 29 Masters Series. Read on to learn why Mike says the coming credit crisis is inevitable... why the Fed is helpless to stop it... and how you can lock in safe gains while the rest of the market is panicking...
What to Buy When the 'Credit Crisis' Strikes An interview with Mike DiBiase, editor, Stansberry's Credit Opportunities Corey McLaughlin: You wrote a Digest [in March] warning about a recession coming later this year, before most other people started talking about the idea. First off, what are your thoughts on that now? And second, should we think the next "credit crisis" will arrive with the next recession, or not necessarily? And what makes you say so? What's your outlook? Mike DiBiase: Corey, I've been trying to warn folks about what's coming for more than a year. There's no avoiding a recession at this point. A recession is simply two consecutive quarters of declining gross domestic product ("GDP"). U.S. GDP shrank 1.5% in the first quarter. We're already halfway there. [Editor's note: U.S. GDP went on to shrink 0.6% in the second quarter, too.] I thought the COVID-19 pandemic was going to cause the next credit crisis in 2020. I was wrong. I didn't foresee the size and scope of the Federal Reserve's response. The Fed injected massive amounts of liquidity into the markets. It even promised to buy corporate bonds for the first time in its history. Its unprecedented measures pulled our country out of a recession after just two months, making it the shortest recession in U.S. history. But the Fed made a big mistake. It left its printing presses on far too long. That caused the U.S. money supply to skyrocket. I saw that it was growing faster than at any other point in history. That's why [in April 2021] – when inflation was still at less than 2% – I called inflation the biggest threat to the markets. Because of the massive increase in the money supply, I knew inflation was headed much higher. It takes time for money-supply increases to make their way into the economy. That's why we didn't see rampant inflation right after the pandemic when the Fed switched its printing presses into overdrive. It's really simple... Big increases in the money supply cause inflation. The late Nobel Prize-winning economist Milton Friedman said it best... "Inflation is always and everywhere a monetary phenomenon." According to Friedman, it doesn't matter whether a country is capitalist, socialist, or communist. Inflation is always caused by the same thing – a more rapid increase in the amount of money than in output of goods and services. In other words, inflation is a printing-press problem. CM: I couldn't agree more. With all the talk about inflation today, you don't hear many politicians talking about the government's role in fueling it. It's always something else... MD: Of course not. Why would they admit it? Folks today don't seem to understand this. They're being fooled by the Fed's smoke and mirrors. The Fed wants you to believe inflation is caused by supply-chain problems... or COVID-19 lockdowns and restrictions... or rising gas prices... or the war in Ukraine. I'm not saying those things have no effect on prices. They do. But they aren't the root cause of the problem. They're just making inflation a bit worse than it would have been. The Fed is a long way from fixing the problem. In fact, it was still increasing money supply at an annual rate of 10% as recently as [March], when it reached nearly $22 trillion. Inflation had been at multidecade highs for months at that point. Let me give you some rough baseline numbers that tell the story... Over the past 60 years, the U.S. money supply has grown at a rate of just under 7% per year. Over that time, inflation has averaged around 3.5%. Inflation lags the growth in the money supply because of increases in output. Our country's real GDP – a measure of output – has grown at an average rate of around 3.1% over this time. Now here are the scary numbers... The Fed has grown the money supply by more than 40% since the start of the pandemic. That's more than 20% annual growth over the past two years. At normal 7% growth, it would have taken until 2025 to reach today's money-supply level. Said another way, the Fed jammed five years' worth of money-supply growth into two years. That's unprecedented and abnormal. The only time the money supply has even approached that pace of growth was from 1975 to 1977, when the money supply grew around 30%. Not surprisingly, right after that, inflation rose to more than 10% and didn't peak until 1980 at nearly 15%. It took Fed Chairman Paul Volcker raising interest rates to 20% to bring it back down. CM: That is a scary comparison... MD: What's more scary is the Fed can't fix the problem without killing our economy. You can forget about a "soft landing." The Fed is now backed into a corner. It's left with two choices... higher interest rates or higher inflation. Both are deadly for our economy. It's a lose-lose situation. That's why I think a recession can't be avoided. And it's also why it will be much worse and much longer than most people think. The Fed is now playing catch-up trying to fix its mistakes. It finally began raising interest rates and reducing the money supply. It should have done those things much sooner. Not only that, it needs to make big, fast moves in order to make a significant dent in inflation. It's not. The moves have been too small and too slow. The Fed knows that if it moves too fast, it will trigger the next credit crisis. Unfortunately, it can't avoid it. Rampant inflation is wrecking the economy. And if the economic pain grows too high, the Fed will face enormous pressure to reverse policy and make credit easy once again. It will do this by lowering interest rates and printing more money. But that will only make things worse. Inflation will soar to new highs. That's exactly what happened in the late 1970s. To put it simply... the Fed is out of bullets. That's why I think we're going to see the next credit crisis very soon. Many companies will go bankrupt and bond prices will plummet. This is the moment we've been waiting for since launching our newsletter in 2015. We'll be able to recommend safe bonds for pennies on the dollar. It will be the kind of opportunity that comes along once in a generation. Don't get me wrong... I don't want to see our economy tank. I'm not looking forward to seeing people in economic pain. But the excesses of the past few decades have led to a ton of bad debt that needs to be cleared. In the long run, it will be good for our economy. We can't defer the pain forever. I want regular investors to know there's a way they can at least profit from the coming crisis. CM: It's always stunning to me – though maybe it shouldn't be – just how many companies can be considered "zombies" today. What's the deal with that? And in a roundabout way, I guess they actually help create the types of opportunities in good businesses that you look for. Is that right? MD: Exactly. About 1 out of every 5 U.S. companies are considered zombies... companies that can't afford the interest on their debt. Even after refinancing much of their debt with record-low interest rates following the pandemic. That's higher than before the last financial crisis and higher than the previous peak of 17%, set back in 2001. These companies are living on borrowed time. There are around $10 trillion of U.S. corporate bonds outstanding today. Around $1.7 trillion, just under 20%, matures in the next two years. Zombies are dependent on creditors who are willing to lend them more money when their debt comes due. The coming recession is going to bury many of them. Zombies are already choking on today's higher interest rates and inflation. An economic downturn will be the final nail in the coffin. And when record numbers of companies suddenly go bankrupt, no one is going to want to own corporate bonds. That's the very best time to buy them. CM: What conditions do you look for in the credit market? You're not necessarily talking about "backing up the truck" to buy corporate bonds just yet, right? MD: Right. This distressed-bond strategy works best during a credit crisis... when there's real fear in the markets. That's when you back up the truck. That's when bonds go on sale. I'm talking deep discounts. Remember, bond prices and returns are inversely related. The lower the bond price, the higher the return. We're not there yet. But we're getting close... You can gauge fear in the credit market by looking at what's called the high-yield credit spread... It's the difference between the average yield of less creditworthy junk bonds and the yield of similar-duration U.S. Treasury notes. It's measured in basis points ("bps"). A spread of 600 bps means that junk bonds yield 6% more than U.S. Treasurys. That's about the average throughout history. Today, the spread is around 500 bps, well below the historical average. [Editor's note: It's around 460 bps today.] At the start of the year, it was around 300 bps. That tells me the credit market is just starting to worry. Still, even during calm markets, there are normally a handful of what we call "outliers" every month... safe bonds that trade for much less than they should. An outlier could be caused by a company getting its credit rating downgraded, a bad quarter, or some other negative news surrounding the company. But no doubt, this strategy works best during crises. We haven't seen a real credit crisis since 2009. But I think we're on the cusp of the next one right now. This is the very best time to add this strategy to your investing toolbox. You'll know it's a real crisis when the spread soars to more than 1,000 bps. During the 2008 financial crisis – which I would call the last true credit crisis – the spread soared to more than 2,000 bps. Like I said, I think we're on the verge of the next credit crisis. I wouldn't be surprised to see the spread challenge that number this time around. CM: So you're saying you want to buy when the next credit crisis hits. That could be counterintuitive to people. Let's give an example... If I recall correctly, during the panic of March 2020 – when the pandemic hit the U.S. – you recommended a lot of positions in a very short period of time. MD: Exactly. When the World Health Organization declared COVID-19 a pandemic in March 2020, the high-yield spread suddenly spiked to more than 1,000 bps. I believed back then that we were headed for another credit crisis. But I suspected it wouldn't last long. We jumped on the opportunity and recommended eight bonds within a span of a few weeks while the spread was wide. The Fed stepped in with unprecedented monetary stimulus and calmed the market. The wave passed almost as quickly as it came and the spread narrowed. The bonds we recommended began trading for more than par value in the months that followed. If someone is willing to pay you more than the contractual amount you're owed, long before maturity, you jump on that. That only increases your returns. We closed all eight bonds for gains by the end of 2020. We sold them all above par value and booked an average return of 18%, holding them just 112 days on average. On an annualized basis, that's a 59% return. And these were all very safe bonds. This is an example of why every investor should consider bonds. I don't know where else you're going to find safe returns like that.
Editor's note: Since the onset of the pandemic, Mike and his colleague Bill McGilton have used their unique distressed-debt strategy to recommend and close 12 positions with an 83% win rate. They've helped subscribers achieve an average return of 13.1%, holding those positions an average of just 144 days. That's a 33.2% annualized return. But Mike believes the COVID-19 crash was only the beginning – and the coming credit crisis will produce a wave of bankruptcies unlike anything we've seen in more than a decade. And as Mike explained in this interview, you'll want to prepare yourself before this moment arrives... That's the experience of one Stansberry reader who used Mike's strategy to retire early at age 52. For this week only, this reader is back sharing his message, and we're resharing the best offer we've ever made for access to Mike's work – with an extra holiday "gift," too. But you must claim it this week. You can do so right here.
Stansberry Research Top 10 Open Recommendations Top 10 highest-returning open positions across all Stansberry Research portfolios | Stock | Buy Date | Return | Publication | Analyst | ADP
Automatic Data | 10/09/08 | 855.0% | Extreme Value | Ferris | MSFT
Microsoft | 11/11/10 | 848.9% | Retirement Millionaire | Doc | MSFT
Microsoft | 02/10/12 | 728.1% | Stansberry's Investment Advisory | Porter | HSY
Hershey | 12/07/07 | 564.7% | Stansberry's Investment Advisory | Porter | ETH/USD
Ethereum | 02/21/20 | 449.6% | Stansberry Innovations Report | Wade | AFG
American Financial | 10/12/12 | 442.9% | Stansberry's Investment Advisory | Porter | BRK.B
Berkshire Hathaway | 04/01/09 | 441.8% | Retirement Millionaire | Doc | WRB
W.R. Berkley | 03/16/12 | 418.4% | Stansberry's Investment Advisory | Porter | ALS-T
Altius Minerals | 02/16/09 | 314.6% | Extreme Value | Ferris | FSMEX
Fidelity Sel Med | 09/03/08 | 299.0% | Retirement Millionaire | Doc | Please note: Securities appearing in the Top 10 are not necessarily recommended buys at current prices. The list reflects the best-performing positions currently in the model portfolio of any Stansberry Research publication. The buy date reflects when the editor recommended the investment in the listed publication, and the return shows its performance since that date. To learn if a security is still a recommended buy today, you must be a subscriber to that publication and refer to the most recent portfolio.
| Top 10 Totals | | 4 | Stansberry's Investment Advisory | Porter | | 3 | Retirement Millionaire | Doc | | 2 | Extreme Value | Ferris | | 1 | Stansberry Innovations Report | Wade |
Top 5 Crypto Capital Open Recommendations Top 5 highest-returning open positions in the Crypto Capital model portfolio | Stock | Buy Date | Return | Publication | Analyst | ETH/USD
Ethereum | 12/07/18 | 1,090.2% | Crypto Capital | Wade | ONE-USD
Harmony | 12/16/19 | 1,056.8% | Crypto Capital | Wade | POLY/USD
Polymath | 05/19/20 | 1,040.1% | Crypto Capital | Wade | MATIC/USD
Polygon | 02/25/21 | 838.1% | Crypto Capital | Wade | TONE/USD
TE-FOOD | 12/17/19 | 379.2% | Crypto Capital | Wade | Please note: Securities appearing in the Top 5 are not necessarily recommended buys at current prices. The list reflects the best-performing positions currently in the Crypto Capital model portfolio. The buy date reflects when the recommendation was made, and the return shows its performance since that date. To learn if it's still a recommended buy today, you must be a subscriber and refer to the most recent portfolio.
Stansberry Research Hall of Fame Top 10 all-time, highest-returning closed positions across all Stansberry portfolios | Investment | Symbol | Duration | Gain | Publication | Analyst | | Nvidia^* | NVDA | 5.96 years | 1,466% | Venture Tech. | Lashmet | | Band Protocol crypto | | 0.32 years | 1,169% | Crypto Capital | Wade | | Terra crypto | | 0.41 years | 1,164% | Crypto Capital | Wade | | Inovio Pharma.^ | INO | 1.01 years | 1,139% | Venture Tech. | Lashmet | | Seabridge Gold^ | SA | 4.20 years | 995% | Sjug Conf. | Sjuggerud | | Frontier crypto | | 0.08 years | 978% | Crypto Capital | Wade | | Binance Coin crypto | | 1.78 years | 963% | Crypto Capital | Wade | | Nvidia^* | NVDA | 4.12 years | 777% | Venture Tech. | Lashmet | | Intellia Therapeutics | NTLA | 1.95 years | 775% | Amer. Moonshots | Root | | Rite Aid 8.5% bond | | 4.97 years | 773% | True Income | Williams | ^ These gains occurred with a partial position in the respective stocks.
* The two partial positions in Nvidia were part of a single recommendation. Editor Dave Lashmet closed the first leg of the position in November 2016 for a gain of about 108%. Then, he closed the second leg in July 2020 for a 777% return. And finally, in May 2022, he booked a 1,466% return on the final leg. Subscribers who followed his advice on Nvidia could've recorded a total weighted average gain of more than 600%. | 
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