ISSUE I

POVERTY IS A CHOICE

ISSUE II

THE WEALTH SECRET

ISSUE III

A PERFECT WINDOW

ISSUE IV

EX-WIFE v GIRLFRIEND

ISSUE V

DOLLARS FOR CENTS

ISSUE VI

A DRUG STORY

The Great Wealth Transfer Issue #1:

POVERTY IS A CHOICE

  • Why most investors never build real wealth.
  • ​How investors made more than 7x their money on Rite Aid, plus double-digit annual interest payments.
  • ​The best investment opportunity we’ve ever seen in our collective careers at Porter & Co. 
  • ​How the coming debt crisis may have set off a ticking time bomb in your portfolio…

If you live in America, you have a choice to be rich or poor.

That might not be politically correct these days. But it’s true.

How do I know? Because I was poor. I drove a beat-up car with the bumper hanging off. I slept on friends' couches. I started my first company with a borrowed laptop.

Then I got rich.

Because I chose to.

And worked damn hard at it.

I also know poverty is a choice.

You see, for years I’ve done everything in my power to convince my readers to take advantage of one incredibly effective wealth-building opportunity.

A method that’s often less risky than investing in equities... yet can deliver far greater returns with the added benefit of your investment being legally protected.

Yet, no matter how hard I pound the table, 99% of my readers ignore me.

It’s boring, confusing, too different, they say.

Fine. 

If you don’t want to make money, hide behind these excuses. 

Because I know that the people who do listen to me have the opportunity to potentially see annualized returns of 99%, 113%, 335%, even 700%+.

Now, it’s time to do it all over again…

A rare market opportunity that only opens once a decade or so is here. 

So once again, I'm about to beat my head against the wall in attempt to convince you to take advantage of it.

I know from experience most people will ignore me.

But I believe if you take my advice and act on the information I share, you have the opportunity to generate market-crushing returns, with a fraction of the risk of stocks and other investments.

In this bonus series for paid-up members of The Big Secret on Wall Street, I’ll detail how the doors have just opened to “the greatest legal transfer of wealth in history…”

… and how to make sure you’re on the right side of it.

The world’s economy is on the precipice of a debt crisis unlike any that’s ever happened before. 

Because of soaring inflation, the world’s central banks can no longer deliver the stability that markets have gotten used to.

The economy now faces a complete reset of interest rates, sovereign debt loads, and corporate debt loads without the “cushion” of central bank largesse to soften the collapse.

And… while that opens the door to a potential market meltdown… it also means a tremendous amount of money will be changing hands.

Okay, so what’s the opportunity?

Assuming you’re one of the few people who will make the choice to grow wealthy this time around… your biggest and best chance to build permanent wealth will be in distressed debt.

Specifically, distressed corporate bonds.

I can already hear the "clicks" as many of you close out of this essay and go on with your lives.

I don't blame you at all. You can lead a full and happy life without any knowledge of the bond market and without ever buying a single bond.

However, let me suggest that very, very few people can remain wealthy unless they know at least something about bonds.

And with what I will teach you throughout this series, I'm confident that anyone with a reasonable amount of intelligence and discipline can become wealthy investing only in bonds.

I also believe that given the unique market environment we are about to enter, this could be one of the greatest wealth-building windows in several decades.

Better yet, you can do it with less risk than stocks.

Here's the story:

The economy is headed straight toward a once-in-a-lifetime credit crisis. 

And few investors realize we are about to see a completely unprecedented collapse in investment-grade bonds…

You see, much like mortgage-backed securities in the 2000s, Wall Street has long regarded investment-grade bonds as a completely safe asset.

The previous peak default rate, in the 1970s, was only 1%. 

Meaning, much like what happened a decade and a half ago with real estate, huge amounts of leverage have been piled on top of these assets…

The result could be stunning losses across the entire investment horizon – unlike anything ever seen before in the market for corporate debt…

The carnage as the corporate debt bubble unwinds could unleash incredible investment opportunities…for investors who understand how to safely invest with bonds.

We’re talking opportunities on par with those that came out of the 2008 financial crisis, when high-quality stocks were crushed along with everything else.

When today’s corporate debt bubble bursts, waves of forced selling could punish bond prices across the board…

Prices could plunge to levels far below any reasonable estimate of fair value. And there are fortunes to be made by those who can separate the wheat from the chaff.

And in this detailed course, we’re going to show you how to do just that.

During past credit cycles, I recommended investments like a Rite Aid convertible bond that generated total returns in excess of 700%, while paying out double-digit annual coupons…

I’ve recommended dozens of other bonds that generated far more total returns than average stock market returns, and that also paid high coupons and offered far less risk than stocks.

We’ll talk about a few of those soon.

I’ll also show you how to make extra money on distressed equity – which is another underappreciated segment of the market that most investors overlook.

I’ll reveal for you why we like bonds better than nearly all stocks in this market… and how you can take full advantage of this historic moment, even if you’ve never bought or sold a bond before.

Everything will be detailed for you, step-by-step.

In fact, we can get started right now with some insights into just how we got into our current debt crisis – and how this crisis may have started a ticking time bomb in your portfolio…

AN ECONOMIC HURRICANE IS COMING

There are really only two things you have to understand about the crisis that’s going to unfold in 2023 and beyond…

First, the amount of money that American corporations have borrowed is unprecedented. As in, more debt than ever before in history.

And second: As with any other kind of credit market, the more money that people borrow, the lower the quality of the lending becomes. It’s inevitable.

You can see this clearly in the data…

The big three credit ratings agencies, Moody’s, Fitch and S&P Global, assign different grades to corporate bonds. 

These grades are based on key metrics like total debt and interest expense relative to profits.

The highest-rated debt classification is AAA, reserved for the most pristine balance sheets. Companies with high debt loads and interest expense relative to profits fall on the opposite end of the spectrum, with grades of CCC or below.

And in between these two extremes, there’s a critical demarcation line between “investment grade” and “non-investment grade” bonds. The lowest rung on the ladder of investment grade bonds are “triple-B” (BBB)-rated bonds, as shown below:

The triple-B class of bonds was the single biggest beneficiary of the corporate credit bubble of the last decade. 

From 2007 through 2021, the amount of triple-B debt outstanding in the U.S. surged from roughly $700 billion, to a record high of over $3 trillion today.

This explosion in issuance made triple-B debt the single biggest segment of the corporate bond market, which is now a record 58% of the investment grade universe:

Meanwhile, the quality of investment grade deteriorated as ratings agencies have over the past decade become laxer in providing their stamp of approval. 

The chart below shows how the leverage ratios of the investment grade debt universe roughly doubled from 1.5 times in 2007 to 3 times today:

The explosive growth, and deteriorating quality, of the “investment grade” bond universe will play a major role in the coming corporate debt crisis. 

Many of today’s investment grade bonds will be downgraded into non-investment status… and that’s a big problem for millions of American retirement accounts.

If you have a fixed income allocation in your 401(k) or IRA, chances are that you might own some of these bonds.

THE TICKING TIME BOMB IN U.S. RETIREMENT PORTFOLIOS

By cutting interest rates to zero over the last decade, the Federal Reserve – and central banks around the world – pushed investors everywhere to reach for yield. 

Retirees were hit especially hard, as the Fed removed the ability to earn safe yields from the traditional retirement income vehicle – Treasuries.

So, millions of retirees and other yield-starved investors found an alternative source of yield in corporate debt. That’s in part how the volume of corporate bonds held in mutual funds more than tripled since rates hit zero in 2009.

Similarly, the reach for yield fueled an explosion in assets among corporate bond exchange traded funds (ETFs).

As regulators clamped down on reckless real estate lending in the wake of 2008, the credit created over the previous decade migrated. 

Its new home was corporate bonds.

And instead of going through the banks, this credit was funneled through alternative avenues, like mutual funds and ETFs.

The vast majority of mutual funds and ETFs that own corporate bonds are passively managed. 

That means there’s no human investment manager calling the shots. Instead, the buy and sell decisions are on autopilot, dictated by a series of rules. 

One of these rules says that if a bond loses its investment grade rating it must be sold. No debate, no discussion, no questions asked.

And bond ratings are dynamic. A bond rated “investment grade” today could easily get downgraded to “non-investment grade” tomorrow.

What could trigger such a downgrade? 

A decline in earnings, as a result of the recession, is one trigger.

Another trigger is rising interest rates. In each case, the debt burden and interest expense relative to earnings deteriorates, exceeding the threshold for an investment grade rating.

A one-two punch of a sharp recession, caused by higher interest rates, would be the ultimate disaster scenario. And that’s precisely the scenario we see coming…

Given the massive growth in investment grade bonds sitting at the lowest rung of the ratings ladder, this would trigger an avalanche of downgrades into non-investment grade status.

And that means one thing – fire sales. 

Billions of dollars in sell orders coming from passively managed mutual fund and ETF that owns investment grade corporate bonds.

As we said above – huge sums of money will be changing hands. And there’s a reason why this “Greatest Legal Transfer of Wealth” will move more cash than ever before…

Now, a fire sale in the highly-liquid stock market is one thing. But it’s a whole different story in the corporate bond market, where the average corporate bond trades about once a month.

The problem is, the mutual funds and ETFs holding these illiquid bonds create the illusion of liquidity. That’s because these mutual funds and ETFs are set up to allow for unlimited volumes of daily trading by individual investors. 

But the underlying instruments in these funds – corporate bonds – do not have sufficient liquidity to process large sell orders.

This liquidity mismatch is a ticking time bomb waiting to go off if investors ever lose faith in their bond holdings and rush for the exits. 

Or, if a rash of downgrades forces the fund to dump bonds that no longer fit its investment mandate.

Bank of England Governor Mark Carney once explained this fatal flaw…

“These funds are built on a lie, which is that you can have daily liquidity, and that for assets that fundamentally aren’t liquid.”

We had a preview of what the coming fire sale in corporate bonds will look like back in March 2020. The high-grade corporate bond exchange traded fund (ETF) collapsed by 22% in nine trading days:

The situation became so dire that for the first time ever, the Fed stepped in to buy corporate bonds. But this merely inflated the bubble further. 

After the Fed’s intervention, U.S. corporations issued a record $300 billion in debt in April 2020. With inflation running out of control, this kind of intervention is now off the table. 

The coming fire sale will make March 2020 look like a picnic. 

The smart money knows what’s coming, and that’s why they’re selling first and asking questions later…

Which, for us, opens the door to the world’s best-kept wealth secret.

And in our next issue we’ll show you why we like bonds better than nearly all stocks in this market… and why you should too!

Also, if you have any questions or comments about this series as we go, you can drop us a line at AskPorter@PortersWarning.com

We of course can’t reply with individualized investment advice, but we’ll certainly tackle any and all recurring questions as we go. We’d love to hear from you!

Sincerely,

Porter Stansberry

ISSUE I

POVERTY IS A CHOICE

ISSUE II

THE WEALTH SECRET

ISSUE III

A PERFECT WINDOW

ISSUE IV

EX-WIFE v GIRLFRIEND

ISSUE V

DOLLARS FOR CENTS

ISSUE VI

A DRUG STORY

Legal Notices:  DISCLOSURES ABOUT OUR BUSINESS contains critical information that will help you use our work appropriately and give you a far better understanding of how our business works - both the benefits it might offer you and the inevitable limitations of our products. Although this is not a part of our "Disclosures and Details" page, you can view our company's privacy policy here.

© Copyright 2023 Porter & Co.