The system-wide credit default cycle is now unavoidable

Edited by J. Reeves | December 11, 2015 | Delray Beach, Fla.   If you only read one of our 1,274 emails this year, make it this one [URGENT] Editor’s Note: The numbers are in—last night’s emergency market briefing had the highest attendance in PBRG history. We’re pleased so many of you participated and received Tom’s free, personal crisis blueprint. It comes not a moment too soon... Below, you’ll find some of the top stories on the world economy today. As we march toward next week’s interest rate hike, keep an eye out for further deterioration in these “flashpoints.” They’re the issues Tom’s been preparing us for...   The system-wide credit default cycle is now unavoidable The “perfect storm” for a cascading bond and stock market crash is here. Zero Hedge reports the credit default crisis—which started in the oil and gas space—has “metastasized” across the entire U.S. high-yield (HY) bond market. At the same time, portfolio managers are holding the largest percentage of corporate bonds in history (35.8% of their total holdings). Figure 1 below shows how distress (bonds trading over 1,000 basis points) has been spreading across the HY space. From its starting point in energy a year ago, it has now reached other commodity-sensitive areas such as transportation, materials, capital goods, and commercial services. But it did not stop here and is also visible in places like retail, gaming, media, consumer staples, and technology—all areas that were widely expected to be insulated from low oil prices, if not even benefiting from them. Bottom line: Change the word from “energy” to “housing,” and you’ve got last decade’s debt-fueled bust looming all over again... Recommended Link Last Chance: Claim $60,000 in Social Security Benefits—Or Lose it Forever The US government just changed the rules on Social Security. Over 32 million Americans are going to lose as much as $60,000 in benefits. And you could be one of them. You have a very short deadline to claim these benefits or lose them forever. But the clock is ticking...   Almost 70% of U.S. stocks are trading below their 200-day moving averages NorthmanTrader reports 68.2% of all New York Stock Exchange (NYSE) shares are trading below their 200-day moving averages (200 DMA). And 52.4% of the S&P 500—the largest companies in the U.S. stock market—lie below their 200 DMA. The 200-day moving average represents the average share price over the past 40 weeks. Traders view the measure as a major line of support—or resistance—for share prices. In this case, it’s resistance to prices moving higher. Bottom line: Two out of three U.S. companies trade below a line of steep resistance. That presents a strong headwind to stocks’ continued move higher.   Global defaults surge to their highest level since the Great Recession U.S. companies have defaulted on $78 billion in debt so far in 2015. That’s the highest number since the wake of the financial crisis in 2009. Bloomberg reports the trend will continue upward in 2016... as increased borrowing costs make it more difficult to service their debts. “The oil and gas sector accounted for 113 of the 361 issues in the distress ratio, because drops in oil prices affected profitability for oil and gas companies, where spreads have widened considerably, and had a spillover effect to the broader speculative-grade spectrum,” Diane Vazza, head of Standard & Poor’s Global Fixed Income Research Group, said in a report. The distress ratio, along with other economic, financial and credit conditions, indicates “growing pressure” that the number of defaults might rise, according to the report. Bottom line: The rates of both distressed and defaulted junk bond debts rose in 2015... and are set to grow even higher in 2016. The higher these numbers go, the more fragile the entire financial system becomes.   The central banks’ central bank warns: Uneasy market calm masks a “debt time bomb” The Telegraph reports the Bank of International Settlements (BIS)—the central bank of the world’s central banks—warns the risk for global financial contagion from rising interest rates in America is spiking. The central bank watchdog said emerging market households and businesses reliant on cheap debt faced a credit crunch that could trigger panic in a world of evaporating liquidity and fewer market makers. Public and private debt in the developed world has risen 36% since the 2008-2009 crisis. It’s now 265% of gross domestic product (GDP). Bottom line: As rates rise, the dollar will grow even stronger against other currencies. That makes foreign markets’ debts much harder to pay... and could lead to a chain reaction of defaults.   The tipping point: The U.S. middle class is now a minority NPR reports 2015 marks the first year under half the U.S. population is considered middle class. The U.S. now has 120.8 million middle-class adults. That’s less than the 121.3 million in the upper- or lower-class brackets. And the trend’s not slowing down... “The hollowing of the middle has proceeded steadily for the past four decades,” Pew concluded. Middle-income Americans not only have shrunk as a share of the population but have fallen further behind financially, with their median income down 4 percent compared with the year 2000, Pew said. Bottom line: Middle-class incomes are still lower than they were almost 16 years ago... with no relief in sight. Folks, it’s just not safe out there right now. That doesn’t mean you should panic, sell everything, and move out to the hills. But you must take care to protect your wealth right now. If you missed our emergency market briefing, you’ve got one last opportunity. Tom’s instructed us to replay the briefing for anyone who wants access to his personal crisis-investing blueprint. Tomorrow will be your last chance to participate. Click here to reserve your spot.   Readers share their crisis strategies in today’s interesting mailbag... Reeves’ Comment: Last week we asked our subscribers to share how they’re preparing for the Fed’s interest rate hike... and its ensuing volatility. Here are some of their responses (the feedback was anonymous): “Stop losses on all stocks.” “I’m holding very few equities... lots of precious metals... and a solid group of put options.” “I hold the Guggenheim inverse U.S. bond long fund.” “Asset allocation is key! Here’s mine: gold, real estate, and Legacy stocks. No REITs, telecoms, or bond funds.” “I’ve raised cash in my accounts to cover my anticipated expenses over the next year. I’m also investigating Income for Life (IFL) as a way to get out of the market completely. I like that I can use it to save and invest outside of the stock and bond markets.” “I need to purchase gold and silver. But I’m a sitting duck with my 401(k) and TD Ameritrade accounts. Not sure if I’m in the right investments...” “I’m keeping one-third cash, one-third precious metals, and one-third stocks.” “Trailing stops. I’m not buying much right now. I’ve got 40% in cash.” “I’d like to invest in Income for Life, as you recommend.” It’s encouraging to read these comments. It sounds like a lot of our advice on risk management and diverse asset allocation has been sinking in. That’ll help offset a lot of market volatility. Palm Beach Research Group Edited by J. Reeves | December 11, 2015 | Delray Beach, Fla.