Editor's note: For generations, department-store chain Sears ruled America...

You probably recall the huge crowds around the holidays at one of its thousands of stores across the U.S. Or maybe you remember flipping through the "Big Book" for the latest styles.

The memories remain, but not much else... Sears filed for bankruptcy about nine months ago. It followed the death of giant toy retailer Toys "R" Us roughly a year earlier.

In today's Masters Series – adapted from a brand-new special report – Stansberry's Credit Opportunities editor Mike DiBiase explains that these two dominoes are just the beginning of a coming crisis. But the good news is, you don't have to be a victim...

The Deaths of These Two American Icons Are Just the Beginning

By Mike DiBiase, editor, Stansberry's Credit Opportunities

Imagine turning on your TV and seeing this bold headline flashing across the screen...

AMAZON FILES FOR BANKRUPTCY

No matter how old you are, you probably don't believe that will happen in your lifetime.

The thought of online-retail giant Amazon (AMZN) going out of business seems almost impossible today. After all, the company has revolutionized the way we shop... Amazon's sales have grown exponentially larger, year after year, for more than two decades.

But not long ago, people probably thought the same about another innovative retailer...

Sears, Roebuck and Company.

For decades, Sears reigned as the most dominant retailer in the U.S. As recently as 1990, it was still the largest retailer in the country. No one thought it could possibly go bankrupt.

Like Amazon, Sears revolutionized the way Americans shopped...

The company's mail-order catalogs offered folks a new way to shop from the convenience of their own homes. And for those who liked to shop in person, Sears built large department stores outside of cities that attracted masses of shoppers in America's growing suburbs.

You could buy just about every product imaginable from Sears... clothing, furniture, towels, mattresses, sewing machines, dinnerware, lawnmowers, tools, and refrigerators and ranges. It was a one-stop shopping experience. But over the years, the rise of more efficient retailers – like discount powerhouse Walmart (WMT), and later, Amazon – spelled doom.

Sears' long demise ended on October 15, 2018. That's the day the former retail juggernaut filed for Chapter 11 bankruptcy protection.

Its bankruptcy surprised no one. For years, it was obvious the obsolete, debt-ridden retailer was doomed. But Sears isn't the only iconic American business that recently met this fate...

About a year earlier, Toys "R" Us – once the world's largest toy retailer – went bankrupt. Not too long ago, you could barely get through the crowds inside its stores during the height of the holiday season. But like Sears, it couldn't survive the weight of its massive debt.

At first glance, the demise of Sears and the death Toys "R" Us may not seem important to the broader market. You might think they're just a couple of retailers that never completely adapted to the Internet age. But it's much more important than that...

These are not isolated events. Sears and Toys "R" Us are just the beginning for corporate America. They're just two of the early, prominent dominoes to fall in the biggest wave of corporate bankruptcies in American history.

This wave will lead to a massive decline in the stock market...

Worst of all, most investors aren't prepared. They could see huge portions of their wealth wiped out in a short period. Some investors could lose everything in the years ahead.

Fortunately, you don't have to be one of the victims...

You see, not every bankrupt company will go out of business. Instead, these companies will simply have their equity "reset"... Old stockholders will be wiped out and new stockholders will take control of them. The only thing that will change is who owns the assets... That's why Porter says this event will be the greatest legal transfer of wealth in history.

More important, the wave of bankruptcies will open the door to tremendous opportunities...

When investors panic – as they always do at some point – even great companies will sell off. If you're prepared, you could make a killing.

Some of the world's greatest investors wait for moments like this...

I'm talking about billionaires like Warren Buffett... John Paulson... Paul Singer... Andy Beal... Sam Zell... and Wilbur Ross. These guys do the exact opposite of most investors.

While everyone else is chasing prices higher in the euphoria of the late stages of a bull market, these billionaires are busy raising cash.

Then, when the crisis unfolds, they pounce. They use a little-known type of investment to make more money than you ever thought possible. It's a sophisticated type of investment that most folks know nothing about...

The world's best and richest investors have been using this type of investment to grow their wealth for decades. It's a way to boost your profits completely outside of stocks... with the potential for equity-like capital gains... and with far, far less risk than individual stocks.

This "secret" investment is a type of corporate bond called a distressed bond...

These bonds are different from the "bonds" in your 401(k). They have nothing to do with "bond" mutual funds... U.S. Treasury bonds... or bonds issued by blue-chip companies like Apple (AAPL), which are little more than a way to park money and earn 2% interest.

But before we get into distressed bonds, we must cover the basics about corporate bonds...

Corporate bonds are debt instruments issued to the public by companies. They're typically issued in increments of $1,000, known as the "par value" or "principal" of the bond.

Unlike a share of stock, a bond is a legal contract between the issuer (company) and buyer of the bond. That makes them much safer than stocks. The buyer is legally entitled to collect the full $1,000 par value on the stated maturity date of the bond.

Along the way, the buyer is also entitled to receive regular interest payments (usually every six months) for lending the money. The company doesn't have a choice... It has to pay you.

That's how most bonds work. And most bonds are pretty ordinary investments... They yield between 2% and 5%, on average, per year – almost exclusively from the interest.

Bonds are much simpler and easier to analyze than stocks. That's because they're binary.

With corporate bonds, you only have two possible outcomes: The company either pays you what it owes you, or it doesn't. That's it... You can completely ignore daily fluctuations in the price of the bond after you've bought it.

If the company pays you all of your interest and principal, you know exactly what return you'll make on your investment at the time you buy the bond. And if the company doesn't pay, it's considered to be in "default" on its debt and lenders can force it into bankruptcy.

So when buying a corporate bond, the only question is: Will the company stay in business and pay you all of your interest and principal through maturity?

It's really that simple.

Now, distressed bonds are different from most corporate bonds in one critical way...

They trade for a fraction of their contractual value.

Most bonds, once issued, trade regularly on the secondary market. Their prices are determined by supply and demand. But the thing is... you can sometimes buy bonds at discounts from par value ($1,000) ranging from 10% to more than 70%.

Here's what's important to remember... Regardless of what you pay for the bond, your legal right to collect interest payments and the $1,000 principal at maturity doesn't change. Despite their lower prices when you buy them, these distressed bonds work the same way...

The companies that issued these bonds have the same obligation to pay you $1,000 at maturity, even though you only pay a fraction of the usual $1,000 cost. That enables you to earn large, equity-like capital gains with a much safer investment than stocks. Plus, you collect interest payments that can be up to 20% per year of the amount you invested.

Most people don't know that it's possible to buy this type of bond as an individual investor... The key to this strategy is knowing which bonds will pay you, and which ones won't.

And finding truly great, safe distressed bonds with extraordinary returns is possible in rare moments of crisis... like the one we're about to enter. The coming crisis will make it possible to buy high-quality bonds for $0.60... $0.50... even as little as $0.30 on the dollar.

That's partially because of investors' herd-like mentality...

Just like stocks, bonds trade in a public market that is heavily influenced by emotions and liquidity. When enough investors become fearful, panic sets in... And everyone starts to sell.

But there's another major reason that the bond market reacts violently in times of a crisis...

You see, most corporate bonds are not held by individual investors. Instead, they're held by big institutions like mutual funds, pension funds, and insurance companies. These institutions have policies that require their holdings to be rated "investment grade."

Credit-ratings agencies assign a rating to most bonds, depending on how safe they believe the bonds to be. Ratings range from "AAA" (safest) all the way down to "CCC" (riskiest).

The lowest rung on the "investment grade" ladder is "BBB." When a bond with a "BBB" rating gets downgraded, it gets moved into "noninvestment grade" – or "junk" – status ("BB" or lower). Then, big institutional investors are forced to sell their positions.

This is important because roughly half of all investment-grade bonds today are rated "BBB." That number has quadrupled over the past decade. That's because companies are much more heavily indebted today. Many can barely afford their interest payments.

In the coming years, we believe many of these bonds will be downgraded to junk status...

Companies downgraded from investment-grade to junk are known as "fallen angels." Fallen angels are a fertile ground for finding good distressed-debt opportunities...

Thousands of portfolio managers will be forced to sell their safe bonds for no other reason than they've been downgraded by the credit agencies. And since the bond market is much less liquid than the stock market, there aren't enough buyers to absorb the increased supply.

Massive selling will force prices much, much lower... And these safe bonds will trade for pennies on the dollar. That's when we'll be ready to strike – and earn massive profits.

The good news is, it's possible to earn huge, safe returns even before a crisis...

From time to time, severe inefficiencies in the bond market cause the price of certain bonds to trade at much lower prices than they should. In turn, the yields of these bonds soar much higher than they should, based on their risk. We call these bonds "outliers."

It's only possible to identify these outliers by doing your homework... understanding where they sit in the company's debt structure and whether they'll be paid in full.

That's where my colleague Bill McGilton and I come in. We do all the work identifying these types of bonds for our subscribers in Stansberry's Credit Opportunities.

Tomorrow, I'll share the key questions we ask to determine whether these bonds are safe.

Regards,

Mike DiBiase

Editor's note: Anyone can use this strategy... To prove it, we handed the "mic" over to an ordinary paid-up subscriber for the first time ever. He revealed exactly how this strategy helped him retire at age 52. But that isn't all... As part of the deal, we've agreed to offer Stansberry's Credit Opportunities at its lowest price ever. Get all the details right here.