The Bond Market Is Approaching an 'Epic Turning Point'
The bond market is approaching an 'epic turning point'... Stansberry's Big Trade is already a winner... A new Big Trade resource you need to see...
The bond market is approaching an "epic turning point"...
This morning, Bloomberg reported that President Obama set a remarkable record during his eight years in office: He issued more new Treasury debt – at lower interest rates – than any other president in history. From the article...
Obama's administration benefited from some unprecedented advantages that helped it grapple with the longest recession since the 1930s. The Federal Reserve kept rates at historically low levels, partly by becoming the single biggest holder of Treasurys. The U.S. could also rely on insatiable demand from international investors, led by China deploying its hoard of reserves. Global buyers added $3 trillion of Treasurys, doubling ownership to a record.
Unfortunately, whichever candidate wins tomorrow is unlikely to be so lucky. As Bloomberg noted, several of those tailwinds are suddenly reversing...
The Fed is telegraphing more hikes at a time when interest costs on the nation's bonds are already the highest in five years. The government's marketable debt has more than doubled under Obama's stewardship, to a record of almost $14 trillion. And the deficit is expanding again, after narrowing for four straight years, just as overseas holdings of Treasurys are shrinking at the fastest pace since 2013.
"We've really got ourselves into a pickle here," said Edward Yardeni, president of Yardeni Research Inc. in New York, who's been following the bond market since the 1970s. "All these years we've been kicking the can down the road, and suddenly we're seeing a brick wall.
"There's been so much borrowing going on that's been enabled by extremely low interest rates, one shudders to think what would happen if rates actually ever did go back to normal," Yardeni said.
Of course, regular readers know Porter and his team think we could soon find out...
They believe we're about to see a dramatic shift in interest rates. And while higher interest rates will be terrible news for our indebted government, they'll be absolutely devastating for America's most-indebted companies. As Porter explained in the October 7 Digest...
In 2017, we'll see the first maturities on the huge amount of junk bonds that were issued in the record issuance cycle between 2010 and 2015.
Roughly $125 billion will be due. The default rate across the sector will approach 10%. It will be much more difficult, and maybe impossible, for companies to refinance these obligations. And it will continue to get worse and worse. In 2018, another $250 billion will come due. In 2019, another $350 billion. And that's before two years of $400 billion or more in junk matures in 2020 and 2021...
The fact is, most of these loans should have never been made. These companies are vastly overleveraged. And their financial condition, as a group, hasn't improved since 2010... It has gotten worse. The huge bubble we've seen in junk bonds has financed massive overcapacity, where these companies simply can't generate enough income to pay back their loans. A reckoning is coming – and it's long overdue.
In short, more and more evidence suggests "the greatest legal transfer of wealth in history" is about to begin.
Stansberry's Big Trade is already a winner...
As you've likely heard by now, we're launching our new Stansberry's Big Trade service to help you protect yourself – and even profit – from this inevitable crisis. As Porter has explained, the idea behind this strategy is as simple as it is powerful...
Our plan is to spend the next five years or so predicting corporate defaults. We want to figure out who is going to default and when. That's not hard to do, but it doesn't create much value for investors if a company's existing rating (and share price) reflects its dire financial condition.
What we're going to do is a little different... and potentially a lot more valuable. We're looking for weak credit where there's still tremendous equity value and an undeserved rating. We've done that work over the last month and put together our list. It's called "The Dirty Thirty."
Our strategy will be to buy long-dated put options on these firms. Then we just have to wait for credit conditions to deteriorate, which we know they will, as access to additional capital is restricted for weak credits like these. When that happens, our put options could end up being worth 10 to 20 times more than we paid for them. We don't even need these companies to file for bankruptcy. We just need the market's perception of their access to additional capital to change. That alone will send these stock prices much, much lower.
While we haven't officially launched the service yet, the gains available to early subscribers have already been impressive...
In just the one month since we published our preliminary "beta" research on "The Dirty Thirty," the options that Porter's team have been monitoring are up an average of more than 17%, including individual gains of as much as 150%.
And yet, we've seen these gains despite relatively small moves in the underlying share prices of these firms. As we noted on Friday, the total equity value of The Dirty Thirty has declined by just 4% since we began tracking them last month.
In other words, the truly massive gains are still ahead.
We can't wait to show you this research.
A new Big Trade resource you need to see...
As we've mentioned, Porter is hosting a free, live presentation next Wednesday, November 16 at 8 p.m. Eastern time to explain it all. If you still haven't reserved your spot, click here to do so now.
When you sign up, you'll also get free, attendee-only access to our dedicated Stansberry's Big Trade website.
There, you'll find everything you need to know to prepare for next week's webinar... including breaking news and exclusive content available nowhere else.
One last note before we sign off tonight...
If you're a fan of Porter's educational Friday Digests, you're in for a treat.
In advance of next week's Stansberry's Big Trade event, Porter will personally be writing the Digest over the next several days. Be sure to tune in tomorrow for the first in this series.
New 52-week highs (as of 11/4/16): none.
In today's mailbag, several subscribers weigh in on Porter's Friday meeting with WikiLeaks founder Julian Assange... another questions our integrity... and one more sends praise (we think) for the latest from P.J. O'Rourke. Send your questions, comments, and intoxicated ramblings to feedback@stansberryresearch.com.
"'Assange's goal of exposing government corruption all around the world is fundamentally a noble endeavor. It's a strange world... and it's getting stranger and stranger. I'm grateful that WikiLeaks is out there shining a light on what's happening behind the scenes in U.S. politics.' YES!" – Paid-up subscriber B. Ellis
"Porter, I have been an intelligence professional for 20 years. I have a Masters in Science & Technology Intelligence and have been working at 'echelons above reality' for over a decade. I am also a libertarian and believe in a free press (I would also like to believe in a fair and honest press, but I might as well believe in the Easter bunny and Santa Claus). To everyone who hates WikiLeaks and Julian Assange and believes they comprised National Security, they must remember it was Bradley Manning and Hillary Clinton that jeopardized National Security... WikiLeaks merely exposed it." – Paid-up subscriber Jim G.
"I'm all for exposing corruption, but some of the supposedly leaked information may be modified by Russian intelligence before being fed to the media. It's very clear that the media (and I include Assange there) are being fed information and disinformation by intelligence agencies on all sides. Obviously not all leaks are from intelligence services, but they are now simply utilizing the leak channels to do classic disinformation. Some of the documents may be genuine, and others not. (And yes, the Clintons are extremely corrupt. Hillary clearly broke national security laws in having beyond top secret information on her home computer.)" – Paid-up subscriber Jeff. C.
"[Last week, you wrote:] Notably, the poll also showed Clinton is now seen by likely voters as less 'honest and trustworthy' than Trump for the first time in this year's campaign. Please end my subscription! Where do you even begin to substantiate this nonsense?" – Paid-up subscriber Richard Lowe
Brill comment: Well, this is awkward, Richard... You see, we sourced that "nonsense" from the Washington Post, which, as you likely know, has officially endorsed Hillary Clinton for president.
"Hey Senor O'Rourke, looking good! [Last] week's piece on how'd I get into this stupid party (you know bad food, warm drinks, gum smacking cosmos from Queens) re the candidates is good stuff. Funny thing is that this very morning, because I couldn't remember voting for either of them, I went into Wicki-Squeaks (also known as the Rat House) to figure it out. That's when I remembered. The thought of voting for this Barnum and Bailey beetle stuffed with guys wearing clown resumes and red noses (imagine what the poor seat cushions are thinking) was too much for me to handle so I voted no with a ball game of some kind and put it out of my mind. So thanks for a very funny piece. You been swinging for base hits since you got back. If I ever said anything unkind, I don't remember that either so we're even. I used to park in the Red Ball Garage, too. That's where I got this lump on my head. That's what they told me anyway." – Paid-up subscriber David
P.J. O'Rourke comment: David, I wonder how many Stansberry Digest readers will remember that the Red Ball Garage was the starting point for Car and Driver's famous 1970s "Cannonball Run" race across America? Anyway, glad to hear from somebody who's getting though this election the same way I am – by drinking!
Regards,
Justin Brill
Baltimore, Maryland
November 7, 2016