The S&P 500, the Dow industrials, the tech-heavy Nasdaq, and the small-cap Russell 2000 just hit new highs.
And if you tune in to CNBC… or President Trump’s Twitter feed… you’d be forgiven for thinking the good times will keep rolling forever.
So it probably sounds strange to see us warning about market crashes.
But our mission is to show you what’s really going on behind the headlines… even if it’s a deeply out-of-consensus point of view.
And as you’ll see today, the media hype about record highs in stocks is drowning out some urgent warnings.
In fact, one of the world’s most successful investors is warning that another crash is coming. And when it strikes, it could be even bigger than the 2008 global financial crisis.
The good news is there’s still time to prepare. But as you’ll see today, you need to start now… before it’s too late. (More on how at the end of today’s dispatch.)
I (Chris) am talking about Jeffrey Gundlach…
He’s a longtime bond trader. He’s also the founder and chief investment officer of mutual fund company DoubleLine Capital. It manages more than $140 billion in assets.
And according to Forbes, he’s built a personal net worth of $2.1 billion.
Gundlach is also one of a handful of investors who correctly predicted the subprime mortgage meltdown in 2007… which triggered the 2008 crash.
Now, he says there’s a 75% chance of the U.S. falling into a recession before the next presidential election in November 2020.
And when that happens, he warns that a new type of subprime crisis is waiting to happen.
So pay extra close attention to today’s dispatch. As Gundlach warns…
It doesn’t matter whether it [the next downturn] comes in one year or four. If you don’t start preparing now, you will maybe do better while the economy continues to do okay, but whatever gain you get from that will be overwhelmed by problems with your investments in the downturn.
We’ll get to the “new subprime” Gundlach is warning about in a moment. First, I want to deal with the obvious objection a lot of folks will have to his warning.
I get it. I really do. With stocks soaring, there’s a strong fear of missing out if the market keeps moving higher.
But that’s a dangerous way to invest. Take the last crash investors went through – in 2008.
October 9, 2007, the S&P 500 closed at a record high of 1,565.
Two months later, the U.S. plunged into recession.
And in 2008, the S&P 500 plunged 38.5%… its worst yearly percentage loss.
So ask yourself, “Would I be okay with my portfolio being cut nearly in half?”
If the answer is no, keep reading…
In 2008, it was bonds backed by subprime mortgages. This time, Gundlach warns it will be subprime corporate bonds.
And thanks to the Fed’s cheap lending rates, the U.S. corporate bond market has doubled in size since 2009.
Right now, there are roughly $10 trillion of corporate bonds outstanding.
That’s about half the size of the U.S. economy. And it’s more than three times the size of the subprime mortgage market at its peak.
And as Gundlach warns, this massive debt market is in trouble…
The corporate bond market in the United States is rated higher than it deserves to be. Kind of like securitized mortgages were rated way too high before the global financial crisis [in 2008]. Corporate credit is the thing that should be watched for big trouble in the next recession.
The subprime bubble blew up in 2007 because ratings agencies – Moody’s, Standard & Poor’s, and Fitch – gave securitized mortgages a higher rating than they deserved.
In other words, they told investors that these bonds were safer than they really were.
And despite nearly crashing the world economy a decade ago, the ratings agencies haven’t learned their lesson.
According to the folks at Morgan Stanley, 38% of U.S. corporate bonds that are today rated as “investment-grade” should be rated as junk.
That’s roughly $4 trillion worth of corporate bonds that should be junk-rated… but isn’t.
Pension funds are the biggest buyers of corporate bonds. But they’re allowed to buy only investment-grade bonds.
Regulators don’t allow them to hold junk-rated bonds.
And right now, U.S. pension funds hold more than $2 trillion worth of bonds. Much of that is corporate bonds.
What happens when the truth comes out – as it did in 2007 – and those bonds get downgraded to junk status? It won’t be pretty.
Pension funds will be forced to emergency-sell hundreds of billions in bonds with no ready buyers on hand.
And just like we saw in 2007 with subprime mortgage debt – the whole market will seize up.
As colleague Teeka Tiwari made clear in yesterday’s dispatch, the most important step you can take to safeguard your wealth in the next downturn is to diversify your investment strategies.
Remember, the more diversified you are, the less any single event can hurt you financially.
Most people buy stocks… maybe some bonds… and some real estate.
But Teeka has taken diversification to a new level. That’s why he has five investment advisories – each focused on a different strategy.
For example, at Palm Beach Confidential, Teeka recommends speculating on cryptos. And he’s given his readers a chance to book gains of more than 11,000% and 14,000%.
At The Palm Beach Letter, Teeka and his chief analyst, Grant Wasylik, have recommended everything from collectibles, to venture-capital-style deals, to annuities.
And since launching April 2011, their model portfolio has averaged annualized returns of 107.5%. That compares with an average annualized gain of 11.8% for the S&P 500 over the same time.
Meanwhile, at our Alpha Edge advisory, Teeka has partnered with crack options trader William Mikula. William doesn’t care if stocks are going up or down. He can profit either way using options contracts.
And over the past six years, he’s had a 97.5% win rate, with a current win streak of 133 profitable trades in a row.
Teeka and his team and have spent two years poring through the background, track record, and professional reputation of one of the greatest moneymakers he’s ever met.
I can’t reveal the details here…
But it’s a method of investing I can virtually guarantee you’ve never had access to before.
Teeka will be revealing all in a presentation next week.
It kicks off on Wednesday, November 13 at 8 p.m. ET. And it’s free to attend.
November 6, 2019