A Brand-New Record in Gold

An important week for the markets... A brand-new record in gold... Great news for Stansberry's Credit Opportunities subscribers...

This morning, the financial media trumpeted the news...

Today is the seventh anniversary of the current bull market. U.S. stocks have now officially gone 84 months without a decline of 20% or more (the official definition of a bear market). That makes it the third-longest bull market in history.

This is a remarkable feat...

Regular Digest readers know Porter believes a severe bear market is unavoidable at this point... but he also says it's impossible to predict exactly when it will begin.

This is why we've repeatedly advised you not to get too bearish too soon and sell all your stocks. Even our Bear Market Survival Program recommends keeping a portion of your portfolio long stocks. (If you haven't subscribed to our Bear Market educational series yet, click here to learn more.)

There's simply no way to know when the bull market will finally end and a new bear market will begin. But considering the average bull market has run about 59 months – a little less than five years – history suggests it's long overdue.

This week also marks gold's best start to the year since 1974. Gold is up around 20% – as measured by the SPDR Gold Shares Fund (GLD) – as of midday trading.

Yesterday was also the 40th day in a row that total holdings of gold in exchange-traded funds ("ETFs") like GLD increased. This is reportedly the longest streak of higher gold holdings since ETFs were created. And as financial blog Zero Hedge pointed out, it suggests investors are turning to gold like never before...

It seems, despite exuberant equity bounces, reassurance about the awesomeness of the "jobs" recovery, and Fed confidence-inspiring jawboning, that more than a handful of "goldbugs" are hoarding the pet rock.

As we've discussed recently, gold is due for a breather after its historic rally so far this year.

But we – and several of our Stansberry Research colleagues – believe the biggest gains are still ahead. If you've been looking for a chance to buy more gold, this pullback could be one of your best opportunities in years.

It has also been a great week for subscribers of Stansberry's Credit Opportunities, our new distressed-bond service. Just four short months after the service launched, subscribers already have their first big win...

In the November issue of Stansberry's Credit Opportunities, Porter and his team recommended buying the bonds of Iconix Brand Group, maturing in June.

If you're not familiar, Iconix is a "brand management" company. It owns the rights to 35 brand names – including Candie's, Joe Boxer, London Fog, Mossimo, Ocean Pacific, Danskin, Ecko, The Sharper Image, Zoo York, Umbro, and the comic strip Peanuts, among others – and essentially gets paid royalties for letting other companies use these brands.

At the time of the recommendation in November, shares of Iconix had plunged more than 80% over the previous year, and its bonds were trading for less than $0.90 on the dollar (a 10%-plus discount to par value).

As you might guess, the company had some problems. And many of them could be attributed directly to the company's founder (and recently fired CEO), Neil Cole. From the November issue...

Cole spent most of his life living in the shadow of his brother – world-renowned fashion icon Kenneth Cole. After a few "careers" in fashion, Neil launched Iconix in 2005. For about seven years, things went well for Neil and his new company. But since 2012 or so, Neil has been checking boxes on the "Stuff That Gets CEOs Fired" checklist:

•	Being investigated by the Securities and Exchange Commission ("SEC") for accounting irregularities.
•	Manipulating earnings to maximize stock compensation.
•	Chasing off two chief financial officers and a chief operating officer in a 12-month period.
•	Infuriating shareholders by claiming $38 million in annual compensation.
•	Initiating aggressive debt-fueled buybacks when the stock was at record-high valuations.
•	Selling personal shares right after initiating those aggressive corporate buybacks.
•	Being accused by one brand's iconic namesake of purposely sabotaging his brand.
•	Overpaying for bad brands.
•	Underinvesting in good brands.

Believe it or not, we could go on. But you get the idea... suffice to say, Neil Cole's performance from 2012-2015 stands as a monument to corporate malfeasance. It's not easy to get fired from a company you founded. But Neil Cole managed to do just that three months ago. (Technically, he "left to pursue other business opportunities.")

On top of this, Porter's team noted that the company's core business – collecting licensing revenues – had been slowing since about 2011. It had also recently announced it would have to "restate" its prior-year financial statements... which is typically a huge red flag for would-be investors.

So why on Earth would Porter and his team recommend investing in this company?

To understand, it's important to remember that investing in bonds is much different than investing in stocks. As Porter explained in his five-part Digest series on bonds last fall...

As you know, stock prices bounce around for no apparent reason all the time. Stocks can be hard to value, which means it's possible to pay way too much for them when you buy, and it's possible to sell them for far less than they're worth. Plus, a stock's dividends are far from guaranteed.

Bondholders don't have to worry about their coupon payments being lowered. The coupon is legally required to be paid. Companies have to meet that obligation, or else the bondholders are entitled to certain underlying collateral. Unless they can pay, these companies will default and enter into bankruptcy. This generally wipes out equity holders, so they will avoid default at all costs.

Think of the movie Goodfellas... There's a scene where the lead mobster, Henry Hill, is explaining what happens when people borrow money from the mob. The answer is, no matter what happens, they have to make their interest payments. Or as Henry puts it in the movie, "The guy's gotta come up with Paulie's money every week, no matter what. Business bad? F**k you, pay me. Oh, you had a fire? F**k you, pay me. Place got hit by lightning, huh? F**k you, pay me." When you're holding a bond, you're Paulie. No matter what happens, they have to pay you... or else.

For bond investors, the only question that really matters is, "Can the company pay me?" And in the bond market, even this is relatively easy to figure out. More from Porter's bond series...

Investing in bonds is much easier than investing in stocks because the knowledge that is required is merely basic math. Unlike stocks, bonds are binary. There are only two outcomes. Either both the interest and the principal are paid in full, or they aren't...

This means that for bond investors, none of that long list of problems above really mattered. All that mattered was whether or not the company would be able to pay investors back when those bonds matured this June.

And the answer to that question was clear... At the time, the company did not have the cash or assets available to pay off the $300 million worth of June bonds in full. But in this case, there was another twist to the story. From the November issue of Stansberry's Credit Opportunities...

With all this doom and gloom, you're probably thinking we need our heads examined. But here's the amazing part about this opportunity. Even with the bad trends, bad management, and lowered guidance, this company will still churn out $170 million in cash on just $370 million in revenues in 2015. That's an impressive cash margin of 46%. [Interim CEO Peter] Cuneo is projecting similar numbers for 2016...

So this month, the question isn't, "Can it pay us?"... It's "Can Iconix roll over its debt?"

That won't be a problem. In our experience, companies generating $170 million per year in free cash don't have issues borrowing another $300 million. The company will almost certainly need to pay more than its current 2.5% coupon, but it will get the money.

In fact, the only real question for Iconix investors was whether the company's internal problems – particularly the SEC's investigation and the company's earnings restatement – would make it extremely expensive to refinance its debt. But Porter and his team explained that even this wasn't a concern.

They said a company that earns as much cash as Iconix would have no problem refinancing its debt, even if it had to pay much higher interest rates to do so. But that high-interest rate debt would only be a problem for Iconix shareholders and longer-term bondholders. The bonds in question will mature in June... less than seven months away.

In other words, all that mattered was that the company would be able to refinance... not what the terms of that refinancing were. And the Stansberry's Credit Opportunities team was certain that they would be able to do so.

The situation appeared to worsen late last year...

Iconix missed its original self-imposed December 31 deadline for refinancing its bonds... and the SEC officially raised its inquiry to a full-blown "formal" investigation.

But the Stansberry's Credit Opportunities team still wasn't worried. They reminded subscribers that the only thing that mattered was that the company would be able to refinance. As they wrote in the January issue...

The question keeping [the company's CEO] up at night is not "can I refinance?" (he knows he can)... it's "how harsh will the new terms be?" As owners of the 2016 debt... that's not your problem.

They reaffirmed their original stance, and told subscribers to continue to hold...

The drama of the past six weeks has done nothing to shake our confidence in management's ability to roll over its debt. We expect our bonds to be paid in full.

This week, they were proven exactly right...

On Monday, Iconix announced a new five-year, $300 million loan provided by a member of Fortress Investment Group (FIG). Under the terms of the agreement, the proceeds of the loan must be used to repay the company's bonds maturing this June.

As predicted, the company had to "pay up" to refinance... This new loan carries an interest rate of more than 10%. But again, while this could be a problem for shareholders and longer-duration bondholders, it's not a concern for holders of the June bonds recommended in Stansberry's Credit Opportunities.

The company is expected to let the bond mature on schedule on June 1, meaning Stansberry's Credit Opportunities subscribers are in line to collect an annualized return – or "yield to maturity" – of more than 26%.

That's a heck of a return in the "boring" bond market... and it's a great example of the power and safety of buying the right high-yield bonds at the right price. As Porter explained last fall...

If you knew you could make 16% a year in bonds over the next three or four years (which is probably more than you've made during your life in stocks), despite investing during a period of dramatically rising default rates, why would you ever buy stocks again?

The returns you can make in high-yield bonds are even bigger than what you can make buying stocks. And you can do so with much less risk. Bondholders – even junk bondholders – have far more rights and protections than shareholders.

Kudos to Porter and his team, and congratulations to Stansberry's Credit Opportunities subscribers on the first of what is sure to be many big wins.

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In today's mailbag, we're sharing more fantastic feedback on Porter's Friday Digest. What's on your mind? Let us know at feedback@stansberryresearch.com.

"I've never sent a comment before but your services are top notch and not all the same, so it makes us think and work as investors to match what is right for us. The best thing I ever did was join Stansberry Flex.

"Having said that, there really hasn't been anything to spur me to comment until I read your P.S. to your mother. (If you make me cry again, I'll have to quit.) My mother died 32 years ago and there are too many times to mention when I wanted to pick up the phone and ask for advice or help. So to all of you that have mothers that are even half worth their salt, cherish them, call them, tell them they made you the person you are (unless you're a loser, that's on you) and teach your children to do the same. When your mother is gone, it is too late. And I can assure you, everyone reading this will lose their mother some day. After the grieving, make it be a joyous remembrance, not a regret that you didn't show her the love that she deserved. Thanks Porter." – Paid-up subscriber Dean H.

"I am happy to offer a response to your weekly comments. I would agree that they are among the most valuable information you provide. I believe it is because of the focused education. Your series articles are especially helpful as they offer 4, 5, 6 weeks of review to the previous weeks subject.

"As a long time Stansberry Flex member, I often wonder what my portfolio would look like had I never been introduced to your research company. While I always keep an eye open for information outside of your work, it would be clear to a knowledgeable investor that my investing process is a product of the Stansberry approach. Because of my flex membership I am gaining confidence and producing progress on a weekly basis.

"So thank you veeeery much for all these years of research and education. Thanks again Porter, take good care of yourself, I can't wait to see what you come up with next." – Paid-up subscriber Charles F.

"Porter, without the learning you and your team have helped me accomplish, I wouldn't have had the confidence to make a major decision recently. I took advantage of a voluntary one-time pension buy-out offer from my previous employer. Instead of getting monthly checks, I took the lump-sum payment of $288,000. That's the most money I've ever had at one time. But I knew I could make 7% ($19,960) annually to replace the monthly payments.

"Thanks to your tremendous, comprehensive research and recommendations, I have made 13% in 4 months on only half that capital, matching a full year of previous payments. Now there is over $20,000 of dry powder to use on your Bear Market Program recommendations. You really are making a difference in people's lives, if they will learn, and it benefits their families as well. Thank you so much! It is the type of learning that spawns itself. I find that the possibilities with trading options is amazing. I have read and subscribed to many financial publications for many years, and yours is, without question, the best. Keep up the incredible work and insights you provide, and Thanks again!" – Paid-up subscriber Tom B.

"Porter, I think I've been a subscriber for about 10+ years. I believe my first introduction was through Steve's True Wealth. From that I think I've tried most of what you publish. The most valuable is your lessons to become a better investor. Too bad I didn't have all this info when I started investing 54 years ago. I think I've probably lost money in every way possible during that time from warrants to futures. Now at 85, maybe I can be a much better, smarter investor for my remaining years. Thank you." – Paid-up subscriber H.F. Campbell

Regards,

Justin Brill
Baltimore, Maryland
March 9, 2016