'Danger ahead'...

'Danger ahead'... Carl Icahn echoes our warnings... How to raise cash... Why you can't wait until tomorrow... How many corporate bonds do you own?...

Today... Even though it's not Friday, I (Porter) wanted to reach out to every subscriber directly. There's something very serious I need to discuss with you. The forces and factors I've been warning you about for several months are gathering momentum.

Please... stop what you're doing. Read the following very carefully. Don't go to bed tonight until you understand the main points I'm making below. Don't go to bed tonight until you've adjusted your affairs accordingly.

There's no such thing as teaching... but I'm going to do my best below to show you what's going to happen, why it has to happen... and what it means for you and for our country as a whole.

We're approaching a critical point in the markets... a crisis that will lead to the greatest legal transfer of wealth in history. Millions of people are about to be wiped out. But you don't have to be one of them.

First, let me tell you about Carl Icahn.

You've probably heard his name several times in the financial news. After Warren Buffett, he's probably the most famous money manager in America... or even the world. As you might have seen, he recently released a short video titled "Danger Ahead," warning about a coming crisis in the markets.

Interestingly, this video in both its content and style is very reminiscent of the video we produced earlier this year starring Dr. Ron Paul. But... to really understand Icahn's message, you need to know who Icahn is, and what he has done for the last 50 years.

You see, Icahn isn't just a money manager. He isn't merely Buffett's closest rival. Icahn is a 79-year-old investing legend. No one else in the entire history of capitalism – not Buffett, not J.P. Morgan, not David Rockefeller – has been involved in buying and fixing more troubled companies.

More important, Icahn is an expert in understanding the credit markets. (We'll come back to this later.) He knows more about how companies end up in trouble with debt – and how to save them – than anyone else in the world.

In terms of troubled companies and troubled debt markets, Icahn has seen it all. He started investing professionally in 1961. And he started buying entire companies in 1978. He has been deeply involved in every major industry – from media (Netflix) to biotech (ImClone) to real estate (Fairmont Hotels) to energy (Phillips Petroleum) to retail (Marshall Field's).

But the most important part of Icahn's career – the thing that makes him unique – is that he has always invested across the entire capital structure of businesses... from stock... to preferred stock... to convertible bonds... to senior bonds... to junk bonds.

This ability to see "vertically" across the markets is his greatest advantage as an investor. As you may have noticed, it's something we do, too. When we analyze a business, we start with the balance sheet and the market for that company's debt. We understand its entire capital structure, not just the "trading range" for its stock price.

Right now, this perspective is more important than ever, because the high-yield credit markets, commodity stocks, energy stocks, biotech stocks, and transportation stocks have shown significant weakness. But the real trouble lies within the credit markets...

The U.S. corporate-bond market has a total market size of $39 trillion. That's about 1.5 times bigger than the stock market. That's one reason we start our investment process by studying a company's balance sheet and its debt obligations. That's where Icahn focuses, too.

Trouble in the credit market is different from trouble in the stock market because credit trouble is "contagious." Generally speaking, most public companies don't invest in other companies' shares – at least, not broadly. But the opposite is true of bonds: Most companies invest widely across a range of debt instruments.

That's how credit distress can spread... And believe me, because of the Fed-engineered boom in bonds, the trouble is going to spread. Today, for the first time ever, more than half of the cash held by U.S. corporations is invested in other corporate bonds.

Here's the most important warning I can give: If you own any high-yield bonds through mutual funds or exchange-traded funds (ETFs), sell right now. Do not wait.

There's going to be a massive crisis because the liquidity profiles of ETFs and mutual funds don't match their underlying assets. It can take weeks or even months to sell a bond that's under distress. Meanwhile, these funds must provide daily liquidity to their investors. (Redemptions must be paid within seven days.)

Where's that money going to come from? The Wall Street Journal recently conducted a simple survey of several major bond funds run by institutional investors like BlackRock, Dodge & Cox, and Vanguard. It found plenty of examples of these funds holding bonds that would take nearly a year to sell – and even some bonds that nobody can sell right now.

For example, Dodge & Cox still holds $500 million worth of Petrobras bonds (which I warned about a couple weeks ago). The Brazilian oil company's bonds have been downgraded to "junk" status and which investment-grade managers can no longer purchase. Selling these bonds is likely impossible right now – at least, at any reasonable price.

And more downgrades could be coming…

Three companies canceled bond offerings on Monday, citing weak demand. All three companies currently carry "investment-grade" ratings, but were unable to borrow at reasonable costs. As one bond trader told the Journal, "I have never seen the investment-grade primary markets this schizophrenic before… One day the window is open, the next it's slammed shut."

So... when the real panic starts in the bond market, there's going to be a huge problem, far bigger than anyone yet realizes. Investors will be trying to sell, but there won't be any liquidity. No one will be able to get out of the market... and that will send prices down far lower than anyone can imagine.

This is how terrible financial accidents happen. This is how people lose everything. Just remember... It doesn't have to be bad news for you.

All you have to do is understand what is happening and why it's happening. If you do, you'll be ready to act when the panic arrives. Instead of selling, you'll be buying.

To help, I'm relaunching our distressed-debt newsletter. It used to be called True Income. We shut it down in 2013 because high-yield bonds were all trading above par and there was nothing we felt comfortable recommending.

That situation has changed. And we're approaching a once-in-a-generation opportunity in corporate bonds. Going forward (and based on your suggestions) we're going to call this publication Stansberry Distressed Credit Opportunity.

I bet the first time you heard me say that the coming crisis would be "the greatest legal transfer of wealth in history," you thought I was grossly exaggerating. Just typical newsletter hyperbole.

No. I'm dead serious. And Icahn agrees. Here's what he says about the situation...

[High-yield bonds] are being sold en masse to the public, just as the mortgage-backed securities were... We don't know what's going to happen. You don't know how bad the end of this is going to be. You do know, though, that when you did it a few years ago, it caused a catastrophe. It caused [2008]... "High-yield" really stands for "junk" bonds. People are buying these not really understanding what they're buying. And if you just look at the numbers, they are amazingly risky. You have $2.2 trillion in junk bonds, up $1 trillion [from five years ago]. That's a helluva lot... I will tell you this... I've seen this before a number of times. I've been around a long time. I saw it in '69, '74, '79, '87, and then 2000 wasn't pretty. And I think a time is coming that might make some of those times look pretty good. It's just déjà vu. The public got screwed in 2008. They're going to get screwed again. I think it was Santayana [the Spanish philosopher] who said: "Those who do not learn from history are doomed to repeat it." And I am afraid we are going down that road.

I hope you'll take the time to watch his entire video. Fair warning... the first five minutes or so are mostly an advertisement for Donald Trump. So depending on your political views, that'll either make you turn it off or turn it up.

If you're tempted to turn it off, just skip ahead. Make sure you listen to the following segments. These are all topics you've seen us address repeatedly: foreign retained earnings (3:35), the uselessness of Wall Street's "adjusted" earnings (as we explained about Tesla in the June 2014 issue of my Investment Advisory) (6:10), aggressive, value-destroying share buybacks (6:50), how the Fed's no-interest policy is causing a massive bubble in bonds, real estate, and the art market (8:11), excesses in the mergers and acquisitions market (9:20), the massive bubble in high-yield debt (10:20), and the mirage of liquidity in the debt market (12:36).

Based on last Friday's Digest, in which I broke down the troubles in the credit markets into more detail, I've gotten hundreds of questions about what to do.

Strangely, the most common question I got was, "How do I hold cash?" I don't mean to insult anyone. But I'm serious when I say this: If you don't know what cash is, you probably shouldn't be reading investment newsletters. And you definitely shouldn't be managing your own money. But since I was asked, I will give an answer...

Cash, for most of our readers, means U.S. dollars. To raise cash, you sell other financial assets. Cash will then be deposited into your brokerage account. You can wire the money into your bank account.

I'm not paranoid. I don't believe the government is going to let the banks fail. Your cash will be safe in a major U.S. bank. But if you prefer, you can take your cash out of the bank and put it into a safe. Or you can wire some to a foreign bank.

I don't recommend burying it. Too many things can go wrong. Nor do I recommend keeping a safe in your home. (That's a great way to inspire violence against yourself.) I'd recommend bolting the safe to the floor at an anonymous self-storage unit and putting it behind a bunch of old books and clothes. Nobody will bother it.

I always keep plenty of cash (and a lot of gold bullion) outside the banking system. I have several different safes, including one that's bolted to the top of my boat's fuel tank. The tank holds 2,000 gallons of fuel. If someone tries to break that safe open, they're going to get what they deserve.

Now, again... I'm not paranoid. I don't expect I'll ever need any of this "head for the hills" money. But it feels good to know that I'm not relying on anyone else to take care of me and my family. No matter what happens – even if there's a zombie apocalypse – I believe I have the resources I need to start over anywhere in the world.

The real reason to hold a lot of cash right now isn't that you're scared. It's that you know (like I do) that a huge opportunity is coming...

If you're talking about a lot of money – more than half a million dollars, for example – then I'd recommend selling financial assets and putting the money into short-term U.S. Treasury bonds, known as "Treasury bills" or "T-bills." This is simply for convenience and safety. You don't want to deal with having six different bank accounts or worrying about if your bank will fail.

Most people consider 90-day T-bills to be the gold standard of liquidity. If you don't know how to buy them, just ask your broker. Important: I wouldn't hold any type of Treasury fund. Buy them directly.

I wouldn't own any kind of money-market fund or any other kind of derivative product, either. Cash only counts if you can put your hands on it immediately and if you legally and directly own it. Besides, if you have enough money to worry about buying Treasury bills, you can easily afford to own them directly.

How much cash should you raise? That depends on your situation, of course. I'd want to have at least enough cash to maintain my current standard of living for a year at a minimum.

I recently raised a significant amount of cash by selling some property I bought back in 2011. I'd estimate that roughly 30% of my net worth is in cash today, which means nearly all of my liquid assets are in cash. That's probably more than most people would want, but I prefer to buy stuff when it's really, really cheap. Absurdly cheap. And I think I'm going to get that opportunity in the next 36 months. If I'm wrong, I haven't sold anything I can't live happily without.

I'd also recommend holding gold bullion as a hedge against inflation. These Treasury bills aren't going to pay any interest. That makes them vulnerable to inflation. Sooner or later, the U.S. government will have to significantly weaken the dollar. Trust me, that's going to happen. When that happens, your gold will protect you against the loss of purchasing power.

I'd also recommend you continue to hold high-quality stocks, especially if they pay cash dividends and/or are well-managed and disciplined with their share buybacks.

This may sound counterintuitive, but the simple fact is that these businesses are the best hedge of all against a crisis. Bought at sensible prices and paying cash dividends, these companies will protect you against inflation and will be more liquid than bonds in a crisis.

In addition to the companies we've recommended in my newsletter, I also shared a simple list of possible companies to buy at various points during the crisis in the August 28 Digest.

For more ideas about super high-quality businesses that can help you preserve your wealth during a crisis, please see our Stansberry International Global Elite Monitor, our Trophy Asset Monitor (in Stansberry Data), and, perhaps best of all, see our Capital Efficiency Monitor(also in Stansberry Data, and published earlier today).

If you're a platinum-level subscriber to my newsletter, you already have access to all of this information. Just visit the website to access it, or look in your e-mail inbox.

If you're not yet a platinum-level subscriber to my newsletter, well... I'm sure you don't want to be told that you should buy something extra. But becoming a platinum-level subscriber gets you our complete data services – which are updated weekly – and access to our monthly roundtable podcast.

I can only assure you that the value of these additional services dwarfs what we charge for them. I personally designed our data-research services to allow me to do a much better job as an analyst and an investor. And I'll tell you a secret... Most of the time, you probably don't need all of this extra stuff. But in times like these, these products are essential. Just take a look. If you don't agree, we'll happily refund your money. Click here to learn more.

That said, this doesn't mean I'd be buying stocks right now. You may have noticed that we've been trimming our portfolio in Stansberry's Investment Advisory since June 2013.

Oh, believe me, we heard about it plenty from our critics when stocks didn't fall immediately after we started selling more than two years ago. But we knew a crisis was coming and we wanted to make sure that we had cash ready when it arrived.

Likewise, we've also been closely following our trailing stops, even selling shares in businesses we believe have bright futures. Nobody knows exactly what the market will do. Using sensible position sizing (no more than 5% in any one stock) and trailing stops allows you to invest with humility. And that's the only way to survive for long.

A great example is our energy-related investments... Over the past three years, we've made good money buying export-centric energy-transportation firms like Chicago Bridge & Iron (CBI), Targa Resources (TRGP), and Energy Transfer Equity (ETE). But we stopped out of all of these names.

And I'm glad we did: ETE fell more than 10% yesterday! I believe these stocks will eventually bounce back, but I'm happy to hold cash now so we have a chance to buy at lower prices in the future. I hope you've done the same.

Finally, I'd recommend adding a short position or two to hedge the stocks you continue to hold.

Even a small number of well-chosen shorts can make a big difference to your portfolio in a bear market. In my Investment Advisory, we've been recommending short sales specifically related to these problems.

Our most recent short-sale recommendation was one of the three companies I mentioned earlier. This company had to pull a $1 billion bond offering because of weak demand yesterday. We predicted last month that its borrowing costs would rise, seriously hurting its operating margins. That scenario is already playing out.

If you haven't taken our advice to short it yet, it's still a great opportunity. Subscribers will certainly recognize the company, but here's a hint: It makes loans to subprime borrowers...

What's happening right now – and what's going to continue to get worse – is a natural market process. There is a regular credit cycle. Every six to eight years, there's a "house cleaning" when corporations tend to all go bust together.

This time, however, it's going to be far worse than normal. Businesses and people who were not creditworthy borrowed way too much money. This was done to "save" the economy between 2010 and 2014. Now, that bill is coming due. And guess what? The money isn't going to be repaid.

This will cause huge losses for investors, many of whom don't know they own any "dodgy" debt, because so many of these bad loans have been securitized or hidden in other packages of debt. That's part of the reason these losses will prove far more "contagious" than normal, too.

Here's a great example of how "contagious" a problem in the debt markets can become and the incredible complexity of modern finance. In his video, Icahn only mentions one specific security directly. He gives a warning about the high-yield debt ETF that BlackRock owns – and says that BlackRock is a "dangerous" business. That's not news to our readers. We've been warning about that high-yield ETF (HYG) since 2013.

But consider this: Nearly 1% of that fund's holdings are the bonds of Icahn's own holding company, Icahn Enterprises (IEP). In other words, if there's a panic or a crash or a rush to the exits among investors in this fund – and we believe there will be – Icahn's company will be hurt as its bond prices fall and its borrowing costs rise. If even Icahn is at risk, you know this is going to be a huge problem for most investors.

As a result, the only way to be safe and to be prepared for the opportunities that will emerge is to raise cash right now.

Once you've done so, all you'll have to do is keep a close eye on the debt markets for opportunities. If you do these things and you do them right now, there's nothing to fear. You can watch CNBC and laugh like I do. And over the coming weeks and months, you'll have the opportunity to make some of the best investments of your entire life.

In closing... I don't know what motivates you to take action or responsibility. I don't know what to tell you to "wake you up" out of your normal state.

I know that most warnings like this are wrong. And I know that most of the time, when you do nothing, everything ends up fine.

But at the very least, do this: Find out exactly how much money you hold in corporate bonds. Ask your insurance company what percentage of your policy is backed by corporate debt. Ask what percentage is backed by car loans. Figure out how much of your 401(k) is tied to corporate debt or securitized loans.

Understand your exact financial exposure to the risks Carl Icahn and I are warning about. And then, once you're informed, decide what you're going to do about it.

Whatever you do, though, make sure to do something.

In the weeks and months ahead, you're either going to be a victim or an opportunist. It's what you do right now that decides which one you'll be. And as I've told you since May 2013, here's the key chart to watch...

New 52-week highs (as of 9/28/15): National Beverage (FIZZ) and short position in iShares MSCI Canada Index Fund (EWC).

Let me know if you think I've lost my mind – and why you think I'm wrong – by e-mailing us at feedback@stansberryresearch.com.

Regards,

Porter Stansberry
Baltimore, Maryland
September 29, 2015