The Best Investment for the Coming Catastrophe

2024 is going to be the year of reckoning... I've warned you before... Soaring debt and record interest rates... The math no longer works... Pay attention to this one number... The best investment for 2024...

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Get ready...

There's no way to sugarcoat it... 2024 is going to be the year of reckoning. And I (Mike DiBiase) want you to be prepared.

As editor of Stansberry Research's corporate bond newsletter, Stansberry's Credit Opportunities, I pay close attention to the debt and credit markets. And I'm here to tell you... I don't like what I see.

Before I get started, I'll warn you... you're going to see a lot of charts today.

A single chart can tell an entire story. Today's Digest is going to be filled with stories. And they're all spinning the same gloomy tale.

I believe we're going to see a deep recession and a new bear market in 2024. And we'll see the first true credit crisis since 2008.

Granted, not everyone agrees. There are lots of folks who still think we're in the early stages of a new bull market.

So... why should you listen to me?

Well, for one, my past unpopular predictions have come true...

In April 2021, I warned that inflation was going to soar...

Back then, no one was worried about inflation. The latest published inflation figure was 1.7%, as measured by the consumer price index ("CPI").

Here in the Digest, I predicted inflation was headed much higher than anyone believed. As you know now, inflation started surging in the months that followed. But most folks still believed Federal Reserve Chair Jerome Powell that it was "transitory." Instead, the CPI reached nearly 9% by June 2022.

Later that year, I predicted that 2022 was going to be the year the markets crashed...

In December 2021, I wrote another warning in the Digest that both the stock and bond markets would crash in 2022.

Very few agreed with me back then. The stock market was hitting record high after record high at the end of 2021. Most investors were still drunk on post-pandemic stimulus and thought the good times would keep rolling.

They didn't...

The S&P 500 Index plunged 25% in 2022. And the largest high-yield corporate-bond index, the iShares iBoxx High Yield Corporate Bond Fund (HYG), plunged nearly 20%.

Then in a March 2022 Digest, I predicted that we wouldn't be able to avoid a recession...

Once again, I was right.

It happened even faster than I expected. U.S. real gross domestic product ("GDP") declined in both the first and second quarter that year, meeting the textbook definition of a recession. (Many, including the government, argued that the economy wasn't really in a recession because of a low unemployment rate. I disagree.)

Since then, stocks have entered a new bull market. And GDP has grown every quarter, including 4.9% in the third quarter of 2023. So why do I believe the worst isn't over?

It's simple math...

We have far too much debt to afford today's higher interest rates...

I'm talking about debt across the entire U.S. economy... from consumer debt to corporate debt to government debt. All have soared to record levels over the past decade.

Take U.S. household debt, which includes mortgages, car loans, credit-card debt, and student loans. It now tops $17 trillion, an increase of 52% over the past 10 years.

And the increase isn't just from home mortgages. Auto-loan debt has nearly doubled. Credit-card debt is up 54% to more than $1 trillion, a new record.

Now consider the average credit-card interest rate on this growing pile of debt is also a record high − nearly 23%.

This next chart is really scary...

It shows interest payments paid by households across all types of loans. As you can see, these interest payments have skyrocketed as interest rates have risen.

Americans paid a record $540 billion in interest in September. That's not just a little bit higher than the previous record. It shattered the record. Interest payments are 50% higher than pre-pandemic levels.

This will trigger a consumer-led recession. Americans' savings have been nearly depleted and are still contracting.

Many folks are running up credit-card balances just to pay the bills. This is a game that can't go on for long. We're already seeing auto and credit-card delinquencies rising at the fastest pace since the last financial crisis. I predict delinquencies and defaults will soar next year.

It's the same sad story in corporate America...

U.S. corporate debt has increased even faster than household debt over the past decade. Take a look...

If you thought corporate America had a debt problem before the last financial crisis, you haven't seen anything yet. Corporate debt has nearly doubled since then. It now tops $13 trillion.

Keep in mind, even before the Fed began hiking interest rates, about one out of every five corporate borrowers could barely afford the interest on its debt.

With interest rates now five percentage points higher over the last two years, we're going to see a wave of defaults like never before.

As this debt comes due, interest costs will now double or more for most borrowers. That is, if they can find anyone willing to lend them money.

Bank credit is now tighter than any time since 2008 (except for a brief period following the onset of the pandemic). Credit this tight always precedes recessions.

Banks are tightening because depositors are fleeing to higher-yielding Treasurys and funds. So there's less money to lend. And banks are sitting on billions of dollars' worth of unrealized losses in long-term Treasurys and commercial real estate loans. They can't liquidate these loans to free up capital. If they do, they'll have to record the losses, which would likely trigger bank runs.

Given these conditions, it shouldn't surprise you that corporate bankruptcies are rising fast. More than 560 companies have gone belly up through October of this year. That's nearly double the number in 2022.

But the worst debt offender of all is our government...

U.S. federal debt has nearly doubled over the past decade to more than $32 trillion.

This debt is growing larger by the day. The budget deficit is expected to explode to $2 trillion this year. Our government has lost control of its finances. It has no hope of paying it down with tax dollars. The only option is to borrow or print more money.

Which brings me to the most important chart in this Digest...

If you believe inflation is under control − or will be soon − you need to understand this next chart.

To understand inflation, I always turn to the man who understood it best, the late Nobel-Prize-winning economist Milton Friedman.

Friedman explained that inflation is always caused by one thing and one thing only... a more rapid increase in the money supply than in the output of goods and services. It's as simple as that.

Inflation is not caused by an imbalance of supply and demand. And it is not caused by greedy businesses raising prices. Higher prices are simply a symptom of inflation.

The U.S. money supply has increased by around 6.5% a year since 1960. And our country's output (as measured by real GDP) has grown by an average of around 3%. It's not a coincidence that inflation has averaged 3.5% per year since 1960, the difference between money-supply growth and GDP growth.

As long as the money-supply growth doesn't get too far ahead of GDP, inflation isn't a problem. And that had been the case since the 1970s until early 2020.

But everything changed following the COVID-19 pandemic. The money supply exploded 40% higher in a little more than two years.

Never before in history have we seen that kind of explosive growth. Not during World War II... not during the Vietnam War and the expansion of social programs during the 1960s and 1970s... and not following the 2008 financial crisis.

This is how I was able to predict inflation was going to soar before nearly anyone else.

You may have read headlines that inflation is under control now thanks to a contracting money supply. But as you can see in the chart below, M2 money supply – which includes money in checking accounts, savings deposits, and money market funds – still has a long way to go before it gets close to its long-term historical 6.5% growth rate.

This tells me we're much more likely to see another spike in inflation – like we did in the 1970s – than see inflation anywhere near the Fed's 2% target.

After all, the Fed won't be able to keep its fingers off the money printer for much longer.

Soon, the Fed will be forced to "rescue" the economy once again and pump more money into the system... even as our government is running massive budget deficits that are only growing larger.

I predict both the stock and bond market will crash again in 2024...

Don't be fooled by a Santa Claus rally in the stock market to close out the year.

The financial year of reckoning is coming in 2024.

Higher inflation, and therefore higher interest rates, are here to stay. We aren't going back to near-zero interest rates again. Most folks haven't fully grasped this new reality.

In this new reality, the math no longer works.

We have far too much debt to afford today's higher interest rates. Much of this debt simply cannot and will not be repaid. The only way to get rid of it is through bankruptcy.

All of the things you'd expect to see before a recession and credit crisis are already happening. Corporate profits have shrunk over the past three quarters. Delinquencies, defaults, and bankruptcies are rising... and rising at the fastest pace since the last financial crisis.

Every single recession indicator is screaming the same thing... We're headed for a recession. There's no avoiding it.

And remember, the stock market doesn't bottom before recessions. It always bottoms during or after recessions. (Note: In the below chart, gray shaded areas are recessions, including the 2022 one few acknowledged.)

That's why I predict the next bear market and credit crisis will begin in 2024.

How will you know when it has arrived?

Pay close attention to one number... the high-yield credit spread...

The spread is simply the difference between the average yield of high-yield corporate bonds and similar-duration so-called "risk free" U.S. Treasury bonds. The Fed publishes it every day here.

I pay close attention to this number. The spread measures fear in the bond market. When bond investors begin to worry about whether they'll get paid (credit risk), the spread rises.

The high-yield spread has averaged around 550 basis points over the past 25 years. But it spends most of its time below that number. When the spread rises above 550 basis points – and stays above this number − it means investors are starting to panic.

You won't want to be in stocks when the spread spikes above and stays above 550 basis points. It always spells trouble for stocks.

And it will signal that a full-scale credit crisis is imminent. The spread can quickly soar to more than 1,000 basis points or more when true panic takes hold.

That may sound gloomy, but there's a silver lining in these dark clouds...

You don't have to fear what's coming.

The coming crisis will create some of the best opportunities in our lifetime as it unfolds. You can profit while most others are watching their portfolios collapse.

There is one type of investment you'll want to load up on when the credit crisis unfolds.

I'm talking about high-yield corporate bonds...

Corporate bonds are the safest and best way to prosper from a credit crisis. As I said earlier, this is the area I focus on in our Credit Opportunities newsletter. I believe corporate bonds will be the best investment of 2024.

Let me show you what I mean...

Since launching Credit Opportunities in November 2015, we've closed 63 positions with a win rate of 81%. The average annualized return of all closed positions is 10%. That's not a bad return from "boring" investments that are much safer than stocks.

But we've really shined when the high-yield spread spikes. That happened twice... once right after we launched our bond newsletter in 2015 and again during the first few months of the pandemic.

The next chart shows our average annualized returns in Stansberry's Credit Opportunities (SCO) during those periods versus our benchmark, the iShares iBoxx High Yield Corporate Bond Fund (HYG)...

We booked an average annualized return of 36% on five recommendations when the spread spiked in 2015. All were winners.

And we booked an average annualized return of 59% on eight recommendations when the spread spiked during the onset of the pandemic. All were winners.

And we've done pretty well since then too. We closed another 17 positions for an average annualized return of 29% versus just 5% for the overall high-yield bond market.

But here's what's important...

My colleague Bill McGilton and I expect to do even better during the coming credit crisis.

I expect the high-yield spread to blow out much higher and for much longer than we've seen the past two times. We could be facing something similar to what we saw in 2008 when the spread rose to more than 2,000 basis points.

The corporate-bond market is larger but much less liquid than the stock market. When the crisis unfolds, corporate bonds will go on deep discount.

You'll be able to buy many bonds for pennies on the dollar. Bonds offer bigger returns the cheaper they get. And they come with guaranteed income and legal protections that stocks simply don't have.

Some of the world's top investors will be putting this strategy to work in the next credit crisis, just like they have in the past.

The key is knowing which bonds are safe and which are not...

There's a good reason that corporate bonds sell off during a credit crisis... Many companies won't survive to repay their debts. But the panic takes good companies' bonds down with them.

In Credit Opportunities, Bill (a former corporate lawyer who scrutinizes all the legal documents) and I do the work for you and identify the best investments.

This is the time Bill and I have been waiting for since launching our newsletter. If you've never considered investing in corporate bonds before, now is the time to do it. It might turn out to be the best investing decision you make for the next decade.

Buying corporate bonds might sound complicated. But Bill and I have shown thousands of subscribers how to do it over the years, much like you would buy shares of a stock.

I believe 2024 is going to be a catastrophic year for many portfolios. But it doesn't have to be for yours. Don't let the fear of the unknown get in the way of a chance to earn safe yet enormous returns and potentially save your portfolio in the process.

Click here to learn more, starting with a story of how one of our subscribers used this strategy to retire early at age 52... and why he says that, because of it, he won't be worried about another market crash ever again.

New 52-week highs (as of 11/24/23): Amazon (AMZN), Cencora (COR), Cintas (CTAS), CyberArk Software (CYBR), W.W. Grainger (GWW), Ingersoll Rand (IR), iShares U.S. Aerospace & Defense Fund (ITA), Kinross Gold (KGC), Linde (LIN), Cheniere Energy (LNG), London Stock Exchange Group (LNSTY), Motorola Solutions (MSI), Novo Nordisk (NVO), Palo Alto Networks (PANW), Parker-Hannifin (PH), Ryder System (R), Spotify Technology (SPOT), Sprott Physical Uranium Trust (U-U.TO), Sprott Uranium Miners Fund (URNM), and Visa (V).

In today's mailbag, feedback for Stansberry's Credit Opportunities editor Mike DiBiase and Extreme Value editor Dan Ferris... and thoughts on Wednesday's Digest about "wisdom from our guests" on the Stansberry Investor Hour... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"Thank you to both Mike and Dan, [for] introducing Howard [Marks of Oaktree Capital Management, who has a reputation for investing in corporate bonds]. I've been thinking of bonds for a while now and his insights are confirming." – Subscriber Jim C.

"I enjoyed your article, particularly about a having positive outlook.

"I would like to share a conversation I had 36 years ago with someone much older than me that forever changed my outlook on life. I learned to [put] matters into perspective, how situations can change suddenly, and how things are often much better than they seem.

"In 1987 I was in Germany on a business trip and I was taken by a German businessman to see the fence line between East and West Germany, near Hanover. A chilling experience. I asked him if he thought the fence would ever come down and Germany be reunified. He replied that the reunification of Germany was written into the West German constitution. I said my question was 'Did HE think it would ever come down?' He replied, 'In a verd, No!' A common view at the time.

"It came down two years later.

"Now this gentleman, much older than me, had been drafted at the age of 14 into the 'Hitler Youth' to fight the Russians on the Eastern Front. He was injured and lost the use of one leg. My visit was in late October 1987, just after Black Monday on 19 October when the DJIA fell 22.6% in a single day. Over lunch, we were discussing the state of the world. I said I thought that the world was in a real mess. He replied, 'Ya, Ian maybe, but it is f**k**g better zan it was in 1945!'

"As well as the Berlin Wall coming down in 1989, the DJIA reached record highs." – Subscriber Ian B.

Regards,

Mike DiBiase
Atlanta, Georgia
November 27, 2023