The 'Smart Money' Is Preparing for a Crisis
Millions of Americans are just months from disaster… One in four has no savings at all… The 'tide' is accelerating… The 'smart money' is preparing for a crisis… Huge opportunities are coming…
It's not news to Digest readers, but it's disturbing all the same...
Despite a "goldilocks" economy and booming stock market, a new study shows a huge number of Americans are still living paycheck to paycheck. As Bloomberg reported last week...
Almost a quarter of Americans said they still have no emergency savings, according to an annual Bankrate.com report released Wednesday.
The number of Americans who said they have no money readily available in either a checking, savings or money market account fell to a seven-year low of 23%, down from 24% last year, the study found...
The percentage of Americans with some savings, but not enough to cover three months' worth of expenses, rose to 22% from 20% last year, the report said. And the percentage with enough to cover expenses for three to five months ticked up to 18%, from 17% last year.
In other words, a mind-boggling 71% of Americans don't have enough savings to cover even six months of normal expenses...
And nearly half the country couldn't make it even three months.
These results are consistent with a similar study published by the Federal Reserve earlier this year. And like the Fed's study, this one also shows many Americans remain largely unconcerned about these problems today. More from the report...
The majority of Americans don't seem to be worried about their financial situation. Sixty-two percent say they are somewhat or very comfortable with their emergency savings. Shockingly, about one in five Americans with no emergency savings at all said they felt comfortable, too.
[Bankrate.com chief financial analyst Greg] McBride said they are kidding themselves. "In some cases, it's just denial. They've never been out of work, had a big medical expense or experienced a significant event that threatened their emergency savings."
We've said it before, and we'll say it again: This will not end well.
The "tide" is rolling out... The Federal Reserve is now raising rates and unwinding its massive stimulus program. Credit is tightening, slowly but surely.
It's only a matter of time before the economy rolls over and the next recession begins. And given the unprecedented excesses during this boom, the bust could be one for the ages.
Speaking of the 'tide,' it's about to become even more powerful...
As we've discussed, the Fed has been allowing its $4 trillion-plus balance sheet to "run off" since last October. Its balance sheet has shrunk by more than $110 billion to date.
But more than half of this reduction has occurred in just the last few months. You see, the Fed has been gradually increasing the rate of this run-off each quarter. It started at $10 billion per month last October, jumped to $20 billion per month in January, and then to $30 billion per month in April.
Now, it's about to jump again to $40 billion per month in July, followed by one final increase to $50 billion per month in October.
All told, the Fed is scheduled to run off $420 billion – or approximately 10% of its entire balance sheet – before year-end...
And this will be followed by at least another $600 billion in 2019.
For years now, Wall Street has lived by the mantra, "Don't fight the Fed." The implications were simple (and correct): The Fed had slashed interest rates to zero and unleashed massive stimulus to push asset prices higher, so you might as well go along for the ride.
But now the Fed has reversed course. It is raising interest rates and unwinding this stimulus at an accelerating pace.
We can't help but wonder... How long until "Don't fight the Fed" means something entirely different?
In the meantime, the 'smart money' isn't waiting around to find out...
Regular readers should be familiar with the story of legendary distressed-debt investor Howard Marks. As our colleague Brett Aitken noted in the Digest this past spring...
Around the Stansberry Research office, Marks is considered the maestro of distressed debt. He got his start in high-yield debt markets back in 1978. He has made his funds' investors average annualized gains of 19% over the past 25 years. Few investors can make those returns in a year, let alone average it for more than a quarter of a century.
Around 25% of the funds Marks runs are normal, open-end funds that anyone can buy through a brokerage account. But his specialty is buying debt when it's selling at liquidation prices. In 2007, he launched a special fund to take advantage of the massive bubble he saw in the financial markets. By mid-2008, he had raised $10 billion... just before the meltdown at Lehman. At the time, it was the largest distressed-debt fund ever.
When Lehman filed for bankruptcy in September 2008, the bond and stock markets crashed. That's when Marks started buying debt for pennies on the dollar. By the end of the year, he had invested about $7.5 billion. Then... he sat tight.
Four years later, Marks returned every penny of the $10 billion to his investors, plus an additional 25%. Even if investors had the nerve to buy and hold stocks at the time – and most didn't – the returns were about flat as stocks drifted sideways over the same period. Marks went on to more than double his investors' money... all through distressed debt.
Today, Marks is preparing to do it again...
Like us, he believes a crisis is coming... And he has spent the past couple of years building another huge fund to take advantage of it. But he's not alone. A handful of other distressed-debt firms have also been quietly raising cash this year. As the Financial Times reported last week...
A growing number of U.S. hedge funds specializing in distressed debt are raising money in anticipation that the next economic downturn will punish companies that have borrowed record amounts since the financial crisis.
Jason Mudrick, founder of $1.9 billion Mudrick Capital, is marketing a second distressed investment fund, according to people with knowledge of the matter... "This economy is roaring right now," said Mr Mudrick... "It's rocking and rolling. But that's just not sustainable... My job is not to predict exactly when [the turn in the cycle] happens but to have the platform ready when it does."
Of course, this is exactly why we launched our own distressed-debt service two years ago...
Porter and his team of analysts built Stansberry's Credit Opportunities from the ground up to give individual investors access to these same kinds of low-risk, high-upside opportunities for the first time.
The returns to date have been impressive... Porter and his team have made more than two dozen recommendations since November 2015, for an average annualized of gain more than 20% so far. But this strategy will really begin to shine once the credit default cycle kicks off.
Stick with us... Huge opportunities are coming.
New 52-week highs (as of 6/22/18): Quest Diagnostics (DGX), Eagle Bulk Shipping (EGLE), and New York Times (NYT).
In today's mailbag: One reader shares his success with our Stansberry Alpha strategy... another weighs in on the auto industry... and a third has a question about the Stansberry Terminal. What's on your mind? Let us know at feedback@stansberryresearch.com.
"I started as a Flex Alliance member before upgrading to the full Alliance. Before Flex I had signed on to Retirement Trader and quickly upgraded to Flex. When a Flex member, I read religiously Stansberry Alpha. I've had great success with the recommendations; however, more important I've LEARNED the strategy. I'm now able to apply it to my own ideas or other Stansberry recommendations. I liked the RL recommendation in [Stansberry's Investment Advisory] (published before the Alpha recommendation) I immediately went looking for an Alpha trade. As such I entered a $85 Jan 19 Put and $100 Jan 19 Call. I received about 13% on margin opening credit and closed out the other day for a total return on margin of 259%. Thanks for the education." – Paid-up Stansberry Alliance member Chris P.
"Porter, I have been watching the offers from GMC ever since your publication about the auto industry. The discounts are now at 26% off MSRP." – Paid-up subscriber A.D.
"What happened to the Stansberry Terminal?" – Paid-up subscriber Neal S.
Porter comment: We launched our "beta" version on June 20 to a group of about 50 of our Alliance members with a background in software development. I anticipate offering the system to all Alliance members in the next 90 days or so... and a full commercial launch early in 2019.
Regards,
Justin Brill
Baltimore, Maryland
June 25, 2018