By Justin Spittler, editor, Casey Daily Dispatch
Paul Singer is stockpiling ammo.
A month ago, the world-class investor raised $5 billion in under 24 hours.
That’s right. $5 billion in one day. There aren’t many people on Wall Street who could pull this off. But Singer is practically in a league of his own.
From 1977 to 2008, his hedge fund Elliott Management generated average annual returns of nearly 15%. The S&P 500 gained just 10.8% over the same period.
Singer crushed the market by specializing in “distressed debt.” In other words, he buys debt from struggling companies and countries at huge discounts. He then squeezes these borrowers for every penny he can.
This is why many people call Singer a “vulture capitalist.” But we don’t think Singer is doing anything wrong.
After all, Singer is merely turning crises into opportunities to make a lot of money. He’s a crisis investor. And right now, he sees a major crisis on the horizon.
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• Singer made a startling warning two weeks ago…
In a letter to his investors, he said policymakers have taken a “whatever it takes” approach to prevent another stock market crash.
They’ve created trillions of dollars out of thin air. And they’ve held interest rates near zero for close to a decade.
These “stimulus” measures have done little for the global economy. (The United States, Japan, and Europe are all barely growing.) But they have pushed stocks and bonds to record highs.
According to Singer, it’s now only a matter of time before this “levitation magic act” wears off. When it does, he says “all hell will break loose.”
Singer doesn’t know when this will happen…or what hell on earth will look like. But he’s not taking any chances…
• Singer has created a massive rainy day fund…
He did this because he thinks the next crash will set up a “possibly large opportunity.”
This opportunity will appear when “investor confidence is impaired, recent correlations and assumptions don’t work, and prices are changing rapidly.” In other words, it will follow a huge crash.
Singer says that the only way to take advantage of this is to have ready access to capital. That’s why he raised $5 billion in a day.
This is almost unprecedented. It tells us a couple of things…
Number one, Singer’s confident that a crash is coming. Number two, this crash could happen very soon.
• Singer isn’t just stockpiling cash ahead of this crash, either…
He also hired a team of distressed-credit specialists.
According to the Financial Times, Singer did this to position himself for “a possible wave of restructuring.” In other words, he thinks we could soon see a huge surge in corporate bankruptcies.
Singer’s warning surprised most investors. But not Dispatch readers.
That’s because I’ve been pointing out soft spots in the credit market for months.
In February, I explained why the U.S. was “on the edge of a full-fledged credit crisis.”
A month later, I showed how the bond market was starting to unravel. Not only that, I told you how to prepare for the coming credit crisis.
If you took my advice, good for you. You’re in a much better position than most investors. If you haven’t “shock proofed” your portfolio yet, don’t worry. There’s still time to prepare.
I’ll explain how at the end of this essay. But let’s first look at why it’s so important to take action today.
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• The U.S. stock market is entering nosebleed territory…
Just look at the S&P 500’s cyclically adjusted price-to-earnings (CAPE) ratio.
This ratio is the cousin of the popular price-to-earnings (P/E) ratio. The only difference is that it uses 10 years’ worth of data instead of one.
And right now, the CAPE for the S&P 500 is at 29.9. That means U.S. stocks are 78% more expensive than their historical average.
CAPE isn’t the only metric screaming “bubble!” either. According to Bank of America, stocks in the S&P 500 are overvalued based on 18 of the 20 valuation metrics it tracks.
At this point, Singer says the markets are now like “a coiled spring.” The slightest shock could bring the whole thing crashing down.
• Of course, U.S. stocks have been expensive for years…
And all they’ve done is keep climbing.
Why wouldn’t today be any different, you ask? Well, according to Singer, the “business cycle” is finally starting to turn.
The business cycle tracks the fluctuations of an economy. It has two main phases: expansion and contraction.
The U.S. economy, as you probably know, has been expanding since 2009. But Singer doesn’t think the good times will last much longer. And that’s because a few of the economy’s key pillars are starting to buckle.
Business Insider reported on May 25:
“The number of cars sold has started to come off its historical highs, the financing terms for cars have been increasingly eased and lengthened (accelerating current purchases but building in a deeper falloff for the future), subprime auto loan defaults are rising, and used vehicle prices are falling,” the fund [Elliot Management] said.
• If this sounds familiar, it’s because I’ve been writing about the auto crisis for months…
In April, I told you that the auto market had peaked. A month later, I showed you proof that the industry is in the early innings of a major crisis.
Not only that, I warned that problems in the auto industry could spread to other parts of the economy. Now, one of the world’s best investors is saying the same exact thing.
• And yet, U.S. stocks continue to trade at record highs…
According to Singer, this is happening because of Donald Trump.
You see, a lot of investors think Trump will eventually cut taxes, peel back regulations, and pass laws that put American businesses first.
In other words, they’re betting that his “pro-growth” policies will fuel an economic boom.
There’s just one problem: Trump hasn’t done much yet.
If he can’t deliver soon, Singer says investors will have no choice but to adjust their expectations. And that could trigger a huge crash. So, here’s what to do if you have money in U.S. stocks…
Hold more cash than usual. This simple step will help you avoid big losses should “all hell break loose.” This will also give you ammo to buy stocks when they get cheap again.
Put together a shopping list. Like Singer said, the next crash should create a huge buying opportunity. We could even get the chance to buy world-class companies at huge discounts.
Unfortunately, most investors won’t take advantage of this. They’ll be paralyzed by fear. But you can prepare by putting together a shopping list. Here are three companies to put on your shopping list today…
Kimberly-Clark (KMB)—This company sells toilet paper, paper towels, and diapers. It currently pays an annual dividend yield of 2.9%. For comparison, the S&P 500 yields just 2%.
The Clorox Company (CLX)—This company sells bleach, charcoal, and cat litter. Its dividend currently yields 2.3%.
Procter & Gamble (PG)—This company sells laundry detergent, toothpaste, and shampoo. Its dividend currently yields 3.1%.
Regards,
Justin Spittler
Delray Beach, Florida
June 5, 2017
P.S. I encourage you to watch this presentation Doug Casey and his team recently put together. It explains other ways to flip this crisis into huge gains. Watch this free video to see how.
P.P.S. Also, make sure to read Wednesday’s Dispatch. As you’ll see, Singer isn’t the only world-class investor who sees a major crisis on the horizon…