It's Time to Prepare for a 'Credit Event'

Is this your last chance to see a movie at the local theater?... When even management doesn't think you should buy its stock... The 'apes' are running out of money... A real, rip-roaring, hootenanny of a crisis is coming... Expect more defaults in the months ahead... It's time to prepare for a 'credit event'... [Stansberry Research Logo] Delivering World-Class Financial Research Since 1999 [Stansberry Digest] Is this your last chance to see a movie at the local theater?... When even management doesn't think you should buy its stock... The 'apes' are running out of money... A real, rip-roaring, hootenanny of a crisis is coming... Expect more defaults in the months ahead... It's time to prepare for a 'credit event'... --------------------------------------------------------------- If you're bored this weekend, go catch a flick at the local theater... After all, that theater is living on borrowed time if AMC Entertainment (AMC) owns it. On Wednesday, AMC filed a prospectus supplement with the U.S. Securities and Exchange Commission ("SEC"). The company hopes to sell up to 40 million new common shares. If they're all issued, AMC's share count would climb 25% to about 198 million. Since October 2020, the company's share count has already risen 27-fold. And that figure would jump to 34-fold if the latest plan plays out the way AMC's management team hopes. More importantly, the release of this new plan tells us one thing about the company... The death of AMC is fast approaching. OK, I (Dan Ferris) know that's not breaking news. No one will mistake me as a "meme stock" loyalist. And I've been warning Digest readers about this moment [since June 2021](. Back then, I started with a Wall Street adage about feeding the ducks when they quack... And I said that AMC's shareholders "might be the most well-fed ducks in market history." Phew, these ducks have eaten a lot over the past two-plus years. In my June 2021 Digest, I also talked about AMC management's advice to potential shareholders... In short, management warned folks to not buy shares. Here's what it wrote clearly in an SEC filing while trying to sell up to a now-rather-mundane 11.55 million new shares... We believe that the recent volatility and our current market prices reflect market and trading dynamics unrelated to our underlying business, or macro or industry fundamentals, and we do not know how long these dynamics will last. Under the circumstances, we caution you against investing in our Class A common stock, unless you are prepared to incur the risk of losing all or a substantial portion of your investment. When the people running a company openly admit that, it's smart to at least entertain the idea of listening. And yet, two years later, management is still giving the same warning... Yes, that's right. In the prospectus supplement this week, management wrote the same message again... Within the last seven business days, the market price of our Class A common stock has fluctuated from an intra-day low on the [New York Stock Exchange] of $10.72 on August 29, 2023 to an intra-day high of $16.60 on August 24, 2023. We have made no disclosure regarding a change to our underlying business during that period. Under the circumstances, we caution you against investing in our Class A common stock, unless you are prepared to incur the risk of losing all or a substantial portion of your investment. If nothing else, at least we know "copy and paste" works on the management team's laptops. Because it's clear that AMC's shareholders aren't listening to the warnings. The ducks – [uh, I mean "apes"]( – keep eating what the company feeds them. So why does the latest share offering really signal the death of AMC this time? Well, despite all the smoke and mirrors from AMC, it has been slowly dying this whole time. The stock is down an incredible 98% from its June 2021 peak. On Wednesday, the stock fell 37% after the news of the new share offering broke. The market is finally acknowledging what I've been telling you over and over again... AMC is as doomed as doomed can be. It's just a matter of time until it goes bankrupt. Here's the kicker... The apes – AMC's poor, uninformed shareholders – are running out of money to soak up all the new shares. Management admitted as much in its latest SEC filing, too (my bold emphasis added this time)... Some of our retail investors have referred to themselves as "Apes" on social media and in other forums. Self-proclaimed "Apes" are widely viewed as playing a significant role in the market dynamics that have resulted in substantial increases and volatility in the market prices of AMC's Class A common stock and other so-called "meme" stocks... while AMC's retail stockholder base has been credited favorably with assisting AMC in raising significant capital in the past, there is no guarantee that AMC will be able to continue to benefit from support from its retail stockholder base in the future. The apes looked smart for about five minutes in 2021... Back then, AMC's share price ran from around (a split-adjusted) $55 per share on May 6 to a peak of about $387 per share on June 2. It was the glory days of the "mother of all short squeezes" that the meme-stockers aim to exploit. But sadly, I bet almost none of those folks made a dime from AMC's five minutes in the spotlight. The least-experienced investors tend to buy, not sell, at the tops of such episodes. Many apes have posted things like "#tothemoon" and "#notleaving" on social media over the past two years. In other words, they plan to hold until the next massive short squeeze. The next massive short squeeze is never coming. Despite a few blistering rallies along the way, AMC's stock is stuck in a death spiral. It's not coming back. It's still heading rapidly toward its true value (zero). And I'm sure that many of AMC's most loyal apes have hung on the entire time – and lost nearly all their money. Does this look like a stock that's heading to the moon anytime soon? Before we move on, I feel compelled to make one thing clear... There's no difference between the new shares that AMC plans to issue and the roughly 158.4 million already outstanding shares. And nobody should buy any AMC shares unless they're willing to lose every penny. Of course, if you think AMC isn't a big deal at this point, I'd have to agree... This stock certainly won't singlehandedly crash the market. A few folks will lose their shirts – but then we'll all move on. We've mostly done that already anyway. And I suspect the latest offering will be the last time AMC can raise any money in the financial markets. In general, a small group of uninformed shareholders taking some big losses won't cause a crisis... AMC has plenty of debt – $9.5 billion, if you're counting. But it's just one company. [And as I've said before]( its bonds have traded at distressed valuations for much of the past year. That's not enough to cause a real, rip-roaring, hootenanny of a crisis. To get that, you need problems that can take out big swaths of the debt markets. Authors and economists Carmen Reinhart and Kenneth Rogoff made this point in the preface to their must-read book, This Time is Different: Eight Centuries of Financial Folly... If there is one common theme to the vast range of crises we consider in this book, it is that the excessive debt accumulation, whether it be by the government, banks, corporations, or consumers, often poses greater systemic risks than it seems during a boom... Debt-fueled booms all too often provide false affirmation of a government's policies, a financial institution's ability to make outsized profits, or a country's standard of living. Most of these booms end badly. I won't bother telling you how much debt the world has accumulated. You can Google it. But I will tell you that holding interest rates at zero for as long as the Federal Reserve did was like "a shot of adrenaline every morning for 13 years." That's how investor and author Howard Marks described it in a Bloomberg interview earlier this week. And he continued... When you go through a period when it's super easy to raise money for any purpose or no purpose, and you go into a period when it's difficult to raise money even for a good purpose, clearly many more companies are going to founder. It was super easy to raise money for no purpose whatsoever in 2020 and 2021... After all, one type of security's sole purpose is to raise money for no purpose whatsoever... I'm talking about special purpose acquisition companies ("SPACs"). These "blank check" companies raise money with a promise to use it to acquire a business in the future (usually within two years). But they don't have a specific purpose to start. In 2020 and 2021, 861 SPACs went public. That was nearly four times as many as the previous 11 years combined. And in those two years, they raised a total of $601.3 million – again, for no definite purpose at the time. Of course, none of the SPAC management teams will say that. In their public filings, they'll say something like, "We're raising money to buy a company in XYZ industry." Whatever their intentions, easy money always finds a bad home. And over the past 14 years, the results have been awful for SPAC investors... The SPACInsider website tracks the returns for all sorts of industries and companies. Since 2009, the median return of companies with less than $300 million in equity value at the time of their merger with a SPAC is a 96% loss. According to SPACInsider, companies with more than $5 billion in equity value have fared the best – if you can call it that. Their median performance since 2009 is only a 68.8% loss. The worst-performing industry among companies that merged with SPACs during that period is cannabis. The median return for those companies is a 96.2% loss. The best-performing industry since 2009 is industrials. Its median return is a 4% loss. In most industries, the median return was a significant loss – ranging between 50% and 90%. SPACs were the best way for easy money with no purpose to find a bad home. But the worst way for easy money to find a bad home in a zero-interest-rate environment is borrowing... In recent years, far too many companies borrowed far too much money. And frankly, they probably shouldn't have borrowed at all. That's where Marks believes we'll see the biggest problems moving forward. While talking about his recent interview, Bloomberg also reported... Marks said he expects more companies to default on their debt as higher interest rates make it harder for struggling companies to raise capital. As Marks likely knows, the Wall Street Journal previously reported 82 bankruptcies of businesses with at least $100 million in debt or assets through June. That's a lot higher than the 29 bankruptcies over the same period in 2022 (and 43 over the same period in 2021). The Journal also published a list of 18 companies with more than $1 billion in liabilities that declared bankruptcy in 2023. The list includes a couple familiar names for regular Digest readers – [Bed Bath & Beyond]( and [SVB Financial]( the parent company of Silicon Valley Bank. Corporations aren't the only ones feeling the pinch these days... In early August, the New York Fed reported that credit-card debt has exceeded $1 trillion for the first time ever. And on Monday, credit-reporting agency Equifax said that credit-card and car-loan defaults are now at their highest levels since the financial crisis. We also got a peek into car buyers' finances this week. Off Lease Only, a Florida-based used-car company, announced that it's closing its doors. And in a leaked memo, it said... Elevated pricing and rising interest rates have further deteriorated conditions in the automotive retail market, weakening consumer demand and affordability. Industry headwinds coupled with the decreased affordability of used cars has put us in an incredibly difficult position that we must start winding down our operations. Bullish stock investors will tell you that inflation is behind us. But a lot of these folks forget that interest rates are the most important prices in the world... When they go up, everything gets more expensive – especially big-ticket items like cars. According to the Consumer Price Index, used-car prices have been falling since last November. And yet, Off Lease Only's woes prove that they're still unaffordable to a lot of U.S. consumers. So it sounds like some serious downside remains in used-car prices. I'm scheduled to talk about this entire dynamic in a Twitter Spaces – [sorry, I guess I mean X Spaces]( – conversation with investor Michael Gayed on September 19. When I chatted with Gayed on the [January 17 episode of the Stansberry Investor Hour podcast]( he expected two things to happen this year – a stock market "melt up" and a "credit event." By 'credit event,' he means something like a new series of bank failures... Or maybe a crisis in an important sovereign debt market... Or perhaps a wave of new, large bankruptcies... Or possibly just one large company going bankrupt and wrecking a huge chunk of the bond market. I don't blame Gayed for not being more specific. He's doing something I like to do. He's assessing the conditions and sources of risk based on where we are in the economic and financial cycles. And it makes all the sense in the world to expect serious credit issues to erupt in the wake of the fastest rate-hiking cycle since 1980... A zero-interest-rate environment is like a massive party. Then, when you take rates from 0% to 5.5% like the Fed has done since March 2022, it's like yanking the punch bowl away and turning all the lights on and telling everyone to get out and go home. It just brings all the fun to an instant, jarring halt. For example, without the Fed's rapid rate hikes and the accompanying dive in bond-market values, we likely wouldn't have experienced three of the four biggest bank failures in U.S. history this year. They'd still all be drinking the punch and partying on cheap money. I don't hear folks talk about it much, but the bear market in bonds looks a lot worse than the stock market... Bond prices peaked in mid-2020. Then, they fell through all of 2021... all of 2022... and the first eight-plus months in 2023. You can see this brutal, unprecedented action in the chart of the 10-year U.S. Treasury yield. (Remember, bond prices go down when yields go up.) Take a look... The 10-year Treasury is a long-term bond, so it's considered riskier than a short-term bond. But it's backed by the gosh darn U.S. Treasury. It's considered the safest debt on Earth. And yet, these bonds are clearly in a major bear market. The 10-year Treasury's highest yield in this cycle happened last month at 4.34%. It hasn't been that high since 2007. In other words, the stock market bottomed in the final months of 2022. But the 10-year Treasury's latest bottom just happened in August. The bond market is still in a freefall. The idea of a major credit event seems a lot more plausible when you realize that the 10-year Treasury yield is the most important price in the world. The entire bond market looks at it as the key benchmark for pricing risk. And today, the 10-year Treasury yield is saying that risk is near 16-year highs and rising... If Gayed is right and a major credit event occurs in the next few weeks, I bet that it will once again keep the stock market from making new all-time highs. The S&P 500 Index was less than 5% from a new all-time high on July 31, when it closed at 4,588. And on July 19, the tech-heavy Nasdaq Composite Index was less than 12% from a new all-time high when it closed at 14,358. But since then, the S&P 500 is down about 3%. And the Nasdaq is down roughly 4%. That's not a huge decline. In fact, I wouldn't even be talking about it today if I didn't see the 10-year Treasury yield moving up and the other signs of distress in the debt markets that I've noted in this Digest. But if the 10-year Treasury yield keeps rising and investors keep hating the trend, some of the companies Marks mentioned might be unable to keep rolling over their debt. If that happens, these companies could be left with no choice but to declare bankruptcy – maybe several at once. Or maybe we'll finally see all that distressed commercial real estate debt wreak havoc on regional banks' balance sheets. We know these issues are lurking in the financial markets. And they'll need to work themselves out at some point. Historically, things tend to go wrong in the markets in September and October. And as we sit here in early September, the credit markets are showing real signs of distress. I won't make any predictions. That's not my thing. But if there was ever a time to prepare... This is it. Hold cash and precious metals. Cut down on your spending. And get ready for a wild fall. --------------------------------------------------------------- Recommended Links: [September 12 Will Change Everything]( If you missed the artificial-intelligence rally earlier this year, you can't overlook this new prediction about what will happen NEXT to U.S. stocks. Two top experts say it could be a turning point for millions of Americans. But if you know what's coming, you could potentially make 10 times your money or more, 10 different times, without touching options or cryptos. [Click here for the details](. --------------------------------------------------------------- [His System Isolated Nvidia – Here's His NEXT Buy]( Marc Chaikin's stock-picking system isolated Nvidia before its massive bull run this year. Now, his system just flashed "BUY" on a new artificial-intelligence company that no one is talking about yet. It's not a household name... but Marc predicts it could quickly double or triple from here. [Click here for the name and ticker](. --------------------------------------------------------------- New 52-week highs (as of 9/7/23): CBOE Global Markets (CBOE), Comfort Systems USA (FIX), Intel (INTC), Intuit (INTU), Eli Lilly (LLY), Novo Nordisk (NVO), Phillips 66 (PSX), Verisk Analytics (VRSK), and Walmart (WMT). In today's mailbag, a subscriber writes in about Stansberry NewsWire editor Kevin Sanford's morning briefing today [on the Chinese economy](. We mentioned Kevin and the NewsWire in [yesterday's Digest]( regarding rising oil prices. And as you can see, he covers a variety of topics each day. Every morning, Kevin updates NewsWire readers with his analysis and the latest headlines that are moving the markets. If you don't receive our free daily news service, you're missing out. [You can sign up for free right here](. And as always, you can keep sending your thoughts, comments, and observations to feedback@stansberryresearch.com. "What an interesting article! Thanks for your great insights. I am hoping there will be a Part II, including how you see China's fall affecting the rest of the world." – Stansberry Alliance member Janet Q. Good investing, Dan Ferris Eagle Point, Oregon September 8, 2023 --------------------------------------------------------------- Stansberry Research Top 10 Open Recommendations Top 10 highest-returning open positions across all Stansberry Research portfolios Stock Buy Date Return Publication Analyst MSFT Microsoft 11/11/10 1,199.9% Retirement Millionaire Doc MSFT Microsoft 02/10/12 1,036.8% Stansberry's Investment Advisory Porter ADP Automatic Data Processing 10/09/08 897.1% Extreme Value Ferris wstETH Wrapped Staked Ethereum 02/21/20 683.4% Stansberry Innovations Report Wade WRB W.R. Berkley 03/16/12 545.4% Stansberry's Investment Advisory Porter BRK.B Berkshire Hathaway 04/01/09 541.5% Retirement Millionaire Doc HSY Hershey 12/07/07 506.8% Stansberry's Investment Advisory Porter AFG American Financial 10/12/12 388.5% Stansberry's Investment Advisory Porter TTD The Trade Desk 10/17/19 341.4% Stansberry Innovations Report Engel ALS-T Altius Minerals 02/16/09 303.6% Extreme Value Ferris Please note: Securities appearing in the Top 10 are not necessarily recommended buys at current prices. The list reflects the best-performing positions currently in the model portfolio of any Stansberry Research publication. The buy date reflects when the editor recommended the investment in the listed publication, and the return shows its performance since that date. To learn if a security is still a recommended buy today, you must be a subscriber to that publication and refer to the most recent portfolio. --------------------------------------------------------------- Top 10 Totals 4 Stansberry's Investment Advisory Porter 2 Extreme Value Ferris 2 Retirement Millionaire Doc 2 Stansberry Innovations Report Engel/Wade --------------------------------------------------------------- Top 5 Crypto Capital Open Recommendations Top 5 highest-returning open positions in the Crypto Capital model portfolio Stock Buy Date Return Publication Analyst wstETH Wrapped Staked Ethereum 12/07/18 1,572.4% Crypto Capital Wade ONE-USD Harmony 12/16/19 1,043.3% Crypto Capital Wade POLY/USD Polymath 05/19/20 1,028.2% Crypto Capital Wade MATIC/USD Polygon 02/25/21 769.3% Crypto Capital Wade BTC/USD Bitcoin 11/27/18 598.4% Crypto Capital Wade Please note: Securities appearing in the Top 5 are not necessarily recommended buys at current prices. The list reflects the best-performing positions currently in the Crypto Capital model portfolio. The buy date reflects when the recommendation was made, and the return shows its performance since that date. To learn if it's still a recommended buy today, you must be a subscriber and refer to the most recent portfolio. --------------------------------------------------------------- Stansberry Research Hall of Fame Top 10 all-time, highest-returning closed positions across all Stansberry portfolios Investment Symbol Duration Gain Publication Analyst Nvidia^* NVDA 5.96 years 1,466% Venture Tech. Lashmet Microsoft^ MSFT 12.74 years 1,185% Retirement Millionaire Doc Band Protocol crypto 0.32 years 1,169% Crypto Capital Wade Terra crypto 0.41 years 1,164% Crypto Capital Wade Inovio Pharma.^ INO 1.01 years 1,139% Venture Tech. Lashmet Seabridge Gold^ SA 4.20 years 995% Sjug Conf. Sjuggerud Frontier crypto 0.08 years 978% Crypto Capital Wade Binance Coin crypto 1.78 years 963% Crypto Capital Wade Nvidia^* NVDA 4.12 years 777% Venture Tech. Lashmet Intellia Therapeutics NTLA 1.95 years 775% Amer. Moonshots Root ^ These gains occurred with a partial position in the respective stocks. * The two partial positions in Nvidia were part of a single recommendation. Editor Dave Lashmet closed the first leg of the position in November 2016 for a gain of about 108%. Then, he closed the second leg in July 2020 for a 777% return. And finally, in May 2022, he booked a 1,466% return on the final leg. Subscribers who followed his advice on Nvidia could've recorded a total weighted average gain of more than 600%. You have received this e-mail as part of your subscription to Stansberry Digest. If you no longer want to receive e-mails from Stansberry Digest [click here](. Published by Stansberry Research. You’re receiving this e-mail at {EMAIL}. 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