Another huge corporation just went bankrupt.
It was one of the biggest bankruptcies of the year. But it certainly won’t be the last. In fact, we think this is a trend that could soon level the global economy…
Some folks will call us alarmists for saying this. But, as you’ll discover by the end of today’s Dispatch, this prediction isn’t as bold as it sounds.
Today, we’ll take a deeper look into this growing crisis…and we’ll show you what you can do today to protect your wealth.
• On Monday, Brazilian telecom giant Oi SA filed bankruptcy…
The company went bankrupt after its $19.3 billion debt became too much to bear. It was the largest bankruptcy in Brazil’s history.
Like many companies these days, it borrowed too much money. MarketWatch reported yesterday:
Since 2009, Brazil’s fourth-largest telecom company has accumulated a huge amount of debt to complete two mergers, first with Brasil Telecom and later with Portuguese company Portugal Telecom. Those deals failed to generate enough cash flow to fund the company’s investment needs.
Last week, the company said it was burning through cash. It warned that it desperately needed to restructure its debt. But, according to Fortune, it “ran out of time.”
• Many folks thought Oi SA would become one of the world’s top telecom companies…
That’s because Brazil was a rising star of the global economy not that long ago.
From 2000 to 2011, its economy more than quadrupled in size. Brazil was even the “B” in “BRICS,” a Wall Street acronym for five emerging markets with big growth potential.
It didn’t live up to the promise.
• Brazil is in its worst downturn since the Great Depression…
Its economy has been shrinking for two straight years.
Unemployment and inflation are both at their highest levels in years and climbing. The country’s main stock market index, the Bovespa, has plunged 70% since 2010. And Brazil’s currency, the real, has lost 34% of its value over the past two years.
• Thousands of Brazilian companies have failed…
Last year, 1,287 Brazilian companies went bankrupt. That was a record high, but it might not stand long.
According to Reuters, 571 Brazilian companies filed bankruptcy between January and April. That’s twice as many filings as there were over the first four months of last year.
• Brazil’s government is a big reason why the country’s economy is unraveling…
This won’t surprise longtime readers. As we’ve shown you countless times, almost every major financial crisis begins because of bad government policies. That’s because governments don’t create economic value. They only steal, hurt, and destroy it.
Brazil’s socialist president, Dilma Rousseff, has destroyed the economy. She took the country from a 2.3% government surplus to a 10.3% deficit in just five years.
Rousseff is still running the show right now. But she may not be for long. She’s currently standing trial for impeachment. Many folks believe a new government could turn things around.
• Nick Giambruno, editor of Crisis Investing, is watching Brazil’s economic crisis closely…
Nick says it will take more than a new government to fix Brazil. In the April issue of Crisis Investing, he said things will get worse in Brazil before they get better:
Replacing one corrupt government with another is not going to fix these problems. The worst is yet to come in Brazil. It’s shaping up to be a lovely train wreck.
I believe soon, one (or a combination) of these things will trigger a full-blown crisis in Brazil. It will thrust Brazil onto the front pages of First World newspapers…and get Wall Street to say, “Sell anything Brazilian.”
• Nick thinks Brazil’s currency will collapse…
Brazil’s had five currency crises over the past 75 years. That’s one every 15 years. Its last one was in 1994.
If Brazil’s currency collapses, its stock market will collapse too…
Nick says this would create one of the best buying opportunities in years.
You see, most folks don’t realize that a crisis is actually an opportunity. In some cases, a crisis will give you the chance to buy a dollar’s worth of assets for a dime. That’s why we’ve called buying during crises “the world’s most powerful wealth-building secret.”
Legendary investors like Warren Buffett and Sir John Templeton used it to become some of the richest men on the planet. Casey Research founder Doug Casey also used this strategy to make millions.
Nick is an experienced crisis investor. In 2013, he made huge gains crisis investing in the tiny European island of Cyprus. The country just had a horrible banking crisis. Its stock market was down 98%. It was one of the world’s most hated markets.
Nick recommended eight dirt-cheap Cyprus stocks to his readers. Three of those stocks more than doubled in under two years. Another gained 97%. Just one of the eight picks lost money, and the loss was small.
• Nick says Brazil’s economic crisis presents a similar opportunity…
But he’s not ready to buy Brazilian stocks yet. He’s waiting for the crisis to become the front-page story on newspapers around the world.
That’s when he’ll invest in the world-class Brazilian company he’s been “stalking.”
This company dominates its industry. It’s highly efficient. And it’s been steadily growing its profits despite Brazil’s economic struggles. Nick will let his Crisis Investing readers know when it’s time to pull the trigger.
You can learn how to access Nick’s best investing ideas by watching this free presentation. We encourage you to watch this video even if you don’t plan on investing in Brazil. That’s because you’ll learn about a much bigger crisis that will affect you no matter where you live in the world…
• The global financial system is more fragile today than it was in 2008…
International Business Times reported last month:
Corporate debt across the world has reached extreme levels, warned the Institute of International Finance (IIF), a trade group of financial institutions. The global banking watchdog added that it far exceeded the pre-Lehman financial bubble.
According to International Business Times, it’s not just countries like Brazil that you need to be worried about. The entire global economy is drowning in debt:
It said there was a double threat. While emerging markets had seen a five-fold increase in corporate debt to $25tn (£17.32tn, €21.91tn) over the last 10 years, developed markets such as the US and Europe were seeing record junk bond issuance.
Referring to the US, the IIF said companies were borrowing as if there was no tomorrow even though their profits began to decline in 2014. It said the ratio of net debt to earnings (EBITDA) for companies was at 1.4. This had doubled since the 2007 subprime bubble.
A rising debt-to-EBITDA ratio is a serious problem. It means companies have borrowed more money than they’re making.
• If you’re nervous about the global financial system, we encourage you to take action today…
We recommend you start by owning physical gold.
As we often say, gold is real money. It’s held its value for centuries because it has a rare set of qualities: It’s durable, easy to transport, and easily divisible. No matter where you go in the world, folks recognize its intrinsic value.
Unlike many paper currencies, gold has survived every stock market meltdown, economic depression, and currency collapse in history. During many periods of economic turmoil, gold’s value skyrocketed.
You can learn other ways to protect your wealth by watching this short presentation. We encourage all Casey readers to watch it.
As you’ll see, an implosion of the debt market will likely spark a crisis that could impact every person on the planet. It won’t matter where you’ve put your money.
You’ll also learn how to turn the global debt crisis into a money-making opportunity. Click here to watch this free video.
Chart of the Day
U.S. corporations are light on cash and high on debt…
Today’s chart shows the cash-to-debt ratio for 2,000 nonfinancial U.S. corporations. A cash-to-debt ratio measures how much cash a company has compared to its debt. The higher the ratio, the better.
You can see this key ratio has been plunging since 2013. It’s now at the lowest level since the 2008 financial crisis.
It only gets worse when you dive into the details. As we recently explained, U.S. corporations have a record $1.84 trillion cash on their books. But more than half of that cash belongs to just 25 companies, or 1% of Corporate America.
When you remove these cash-rich companies from the equation, the cash-to-debt ratio plunges to 12%. In other words, the bottom 99% of U.S. corporations have just $0.12 of cash for every dollar of debt.
U.S. corporate balance sheets are weaker today than they were before the last financial crisis. And they continue to weaken.
Again, you can learn how to protect yourself by watching this free presentation.
Delray Beach, Florida
June 22, 2016