Editor's note: The corporate-debt bubble is popping...

No matter what "magic" the Federal Reserve performs, it can't reverse the damage already done to the economy. And the longer the shutdown lasts, the worse it will be.

Much of the damage remains hidden for now. But that doesn't mean that we're in the clear. The good news is, it's not too late to prevent yourself from becoming a victim...

The second part of this weekend's Masters Series is adapted and updated from several sources, including the January 2016 issue of Stansberry's Credit Opportunities.

In it, editor Mike DiBiase explains how one of the world's best investors waits for times of crisis – like the one we're about to see – to generate massive returns. And more importantly, Mike explains how everyday folks can employ the same strategy today...

How You Can Make a Fortune in the Coming Credit Crisis

By Mike DiBiase, editor, Stansberry's Credit Opportunities

Howard Marks is the world's greatest distressed-debt investor...

Working for Citibank, Marks started the world's first institutional distressed-debt fund back in 1978. He made the bank a ton of money. Then, in 1995, Marks set up his own shop, Oaktree Capital, that focused on distressed-debt investing... Over the past 25 years, Marks' high-yield bond funds produced remarkable average annualized returns of around 19% (after fees).

Distressed debt simply refers to when the loans made to companies (corporate bonds) trade for much less than the initially borrowed amount. The initial borrowed amount is known as the principal or "par value" of the bond... And it's typically $1,000 per bond.

Marks' strategy is simple... He buys bonds issued by struggling companies whose prices have collapsed. When the bonds eventually pay off their principal in full, he makes a killing.

Marks' strategy also includes buying debt of companies he knows are going bankrupt. He then takes control of the companies in restructurings and eventually makes his money back when they emerge from bankruptcy. You need to be what's considered an "accredited investor" to employ that strategy.

As Marks once said, "Success in investing is not a function of what you buy. It's a function of what you pay." And Marks knows that what you pay is often dictated by market cycles, something he understands better than anyone...

They swing like a pendulum, he says, between euphoria and depression... between celebrating positive developments and obsessing over negatives. That leads to assets swinging between being overpriced and underpriced.

The key to making great investment returns is knowing where you are in the cycle. And Marks' timing is impeccable...

For example, between 2007 and 2008, Marks' Oaktree Capital raised $14.5 billion to invest in distressed debt. At the time, it was the largest distressed-debt fund ever. And Marks raised most of this amount – more than $10 billion – in a single month in March 2008.

Of course, as longtime investors know, just six months later – on September 15, 2008 – investment bank Lehman Brothers collapsed. And it took the debt and equity markets down with it. That's when Marks went to work...

From mid-September to the end of 2008, Marks deployed around $75 million a day... gobbling up the best assets for pennies on the dollar. By 2012, Marks returned the full principal and promised returns to his investors, including an 80% return for his biggest fund.

And today, Marks is back at it again...

When the high-yield credit spread – the difference between the average yield of so-called "junk" bonds and the yield of similar-duration U.S. Treasury notes – spiked last month to more than 1,000 basis points (bps), Marks' firm invested $1.9 billion in corporate debt. That marked Oaktree's biggest one-month deployment since October 2008.

Since then, the high-yield credit spread has narrowed to about 735 bps. But Marks doesn't expect it to stay low for long. And he is far from done...

In fact, Oaktree Capital is looking to raise $15 billion for a new distressed-debt fund. It would be his biggest distressed-debt fund ever. According to Bloomberg, in a recent investor presentation, Marks wrote...

Companies around the world borrowed heavily in the lead-up to the current crisis. The firewood had been stacked, and the coronavirus was the igniter.

Marks sees even more opportunities this time than the last financial crisis. You can sense his excitement while reading his memos to clients, which he publishes on his website.

He's famous for dispensing investing wisdom in these memos. A lot of smart investors read every one, including billionaire investor Warren Buffett, who once gushed, "When I see memos from Howard Marks in my mail, they're the first thing I open and read." I encourage you to read them, too.

Marks usually pens around four or five memos each year. So far, just four and a half months into 2020, he has written six... including a record four in the month of March.

It's clear that Marks sees a credit crisis coming. And as I explained yesterday... so do I.

My colleague Bill McGilton and I having been waiting for the next credit crisis. We employ Marks' strategy in our monthly newsletter Stansberry's Credit Opportunities. We look for safe, distressed bonds that earn stock-like returns. And we do all of the work for you...

Bill is a former corporate lawyer who analyzes all of the important bond documents. We only recommend bonds that we've researched thoroughly and determine will pay us in full and on time.

Since launching the newsletter in November 2015, we've closed 26 bond positions. More than 80% have been winners. The average annualized return of all of our closed positions is 16.6%. That's more than double the 7% return you would have earned if you invested in the overall junk-bond market, as measured by the iShares iBoxx High Yield Corporate Bond Fund (HYG).

We've even beaten the stock market... You would have earned 15.4% in that span if you had instead invested in stocks, as measured by the SPDR S&P 500 ETF Trust (SPY).

Many investors are unaware that you can buy corporate bonds, just like shares of stock. And the thing is... these investments are much safer and easier to understand than stocks.

That's because they're legally protected. The borrower has to pay you all of your interest and the full par value of the principal at the scheduled maturity of the bond, or it will be forced into bankruptcy.

It doesn't matter what price you pay for the bond... The company that issued it has to pay you the full $1,000 par value at maturity. And with distressed bonds, you get paid fat interest payments (twice a year), but you also earn capital gains... the difference between par value and what you paid.

You either get paid in full, or the company goes bankrupt. Those are the only two outcomes.

With bonds, you know exactly what your return will be when you buy the bond. That's the complete opposite of owning stocks. With stocks, you only know your return when you sell them. The less you pay for a bond, the higher its potential return.

You can see why Marks loves a credit crisis.

You don't even have to love a company or think it has a rosy future to invest in its bonds. You don't need to come up with estimates of what you think the company is worth. All you need to understand is whether you'll get paid what you're contractually owed.

And even if the company goes bankrupt, you're almost always better off... Stockholders are wiped out in bankruptcies. Bondholders typically recover some portion of their principal.

That's why, unlike stocks, bonds are actually safer as their prices get cheaper.

I urge you to consider investing in bonds today if you haven't done it before. And there's never been a better time to do it...

As Howard Marks knows, the best time to invest in corporate bonds is in a crisis. That's when the credit spread is highest and the bonds are cheaper than ever.

The chart below shows the average returns of our closed positions in Stansberry's Credit Opportunities since we launched the newsletter in November 2015...

Back then, the high-yield credit spread was around 600 bps... And it was rising. It briefly spiked at nearly 900 bps in February 2016, before falling to less than 600 bps a few months later.

Now, take another look at the previous chart, focusing on the shaded area from November 2015 to April 2016... In that span, the high-yield credit spread averaged around 700 bps.

During that time, we recommended five positions that we've since closed. Their annualized returns averaged 36%... tripling the 12% annualized return of the junk-bond market (as measured by HYG) in the same span.

Through February of this year, the spread averaged a little more than 400 bps. And as you would expect in tighter conditions, our returns on closed positions since then have been lower...

The average annualized return of the 21 closed positions recommended after April 2016 is 10%. Although that return is much lower than the five positions we recommended when the spread was higher, it's still double the 5% annualized return of HYG in that span.

And again, since February, the spread has been much higher... It blew out to 1,100 bps on March 23. Since then, it has narrowed to around 735 bps. But I expect it will soar much higher in the months ahead as the number of companies defaulting on their debt increases.

Investors will once again sell off risky bonds... even ones that are safe.

We expect to have many attractive distressed-debt opportunities in the months ahead. And they'll be some of the best opportunities we've ever seen. We hope you'll join us.

Regards,

Mike DiBiase

Editor's note: One paid-up subscriber used the type of research Mike does in Stansberry's Credit Opportunities to retire early at age 52. And now, he's weathering the coronavirus crisis without losing any sleep. This subscriber is under orders to "shelter in place"... so he revealed all the details about this strategy from his own living room. Watch the video here.