Last year was a time of fear, confusion, and panic for many investors.
Some of the most popular investments of the previous years went off a cliff. Crypto crashed 70%. SPACs 90%. Some of America’s favorite tech stocks, like Meta, fell 70%.
And this year has seemed like a dream come true.
NVIDIA, the quintessential A.I. hyper stock, has quadrupled off its 2022 lows. Tesla alone is up 53% in the last month! And the average A.I. stock is up 35% this year!
But that dream could be about to turn into a nightmare.
At Wide Moat Research, we can help you protect yourself from economic storms that others don’t see coming.
We also help you protect your savings and portfolios from crazy economies and even crazier markets.
So, today, let me tell you about a major risk barreling toward an unsuspecting market. A market that is not pricing in the economic pain that is about to hit it.
One that could cause a 20% to 35% stock market crash that almost no one sees coming.
I’ll also show you a one-click way to protect yourself from the carnage right around the corner.
Hell Is Coming, and Its Name Is Credit Losses
Deutsche Bank reports that loan losses bottomed at 1.7% during the pandemic and have nearly tripled to 4% today.
In the coming recession, which Deutsche Bank calls a “near 100% probability,” they expect loan losses to nearly triple again to 11%.
The longer rates stay this high, the more companies have to refinance debt at 3x and, in some cases 4x, the rates they were enjoying during the pandemic.
Zombie companies, about 20% of U.S. firms, are going to die at an accelerating rate. They are so unprofitable their pre-tax earnings don’t even cover their interest costs, much less the cost of repaying their loans.
These zombies were kept alive by a decade of free money. What happens when that free money vanishes? So do many of those companies.
S&P Global Rated Bankruptcies This Year
Below is what a normal economy looks like.
S&P Global Rated Bankruptcies In 2022 (Free Money Era)
And these are just S&P Global credit rated companies. There are only about 8,000 of them in the entire world. Most companies don’t even pay for a rating.
Right now, the number of private companies filing for Chapter 11 bankruptcies each month is in the hundreds.
So what does that mean for the economy?
The New York Times has crunched the numbers. It estimates that commercial real estate, the sector most at risk from higher for longer rates, stands to generate $120 billion in bank losses during this recession.
$80 billion of that is for regional banks, which generated $63 billion as an industry in the last 12 months. In other words, from this one sector of the economy alone, the regional banks are potentially facing losses equal to 5 quarters’ worth of profits.
That’s why credit is already drying up and is expected to worsen through the rest of the year.
That’s a problem. Because according to the Fed, 25% of the economy runs on credit. So, when credit contracts, we get recessions. And when we get recessions, earnings fall, and stocks fall with them.
This is what’s facing the stock market that seems so calm right now.
That calm can’t last; it’s just waiting for one or two scary headlines to start a panic out of stocks.
Hell is coming, and its name is loan losses. Get ready.
What You Can Buy to Stay Safe
At Wide Moat Research, we are not doomsday prophets or permabears. Decades of market studies prove that if you miss just a handful of the market’s single-biggest daily gains, you can end up losing money over decades. And 80% of those single-biggest gains come in bear markets.
Even in the darkest times there are safe world-beater blue-chips you can buy and trust with your hard-earned savings.
Today, I want to highlight one of my favorite dividend ETFs.
To get rich in stocks you don’t need to buy the next Apple. You need to buy wonderful companies at reasonable prices.
And this is where Vanguard’s Dividend Appreciation Index Fund ETF (VIG) comes in.
This ETF owns 314 of the world’s best dividend blue-chips. I’m talking dividend aristocrats (25+ year dividend growth streaks), dividend kings (50+ year streaks), future aristocrats, and kings—companies like Apple, Microsoft, Visa, MasterCard, and Johnson & Johnson.
These companies have A, AA and AAA-rated fortress balance sheets (the widest moats in the world) with 25% free cash flow margins. And for context, a company with 5% margins is usually considered a good company.
If you want to know how to sensibly invest at the start of a credit crunch or the start of a recession… VIG is one of the best, prudent, and safe investments you can make today.
Right now, you can own the world’s best companies at a fair price of 17 times forward earnings, a 12% better valuation than the S&P 500.
Higher quality companies, with stronger balance sheets, rivers of cash, and a better price?
Now that’s what I call a no-brainer blue-chip buy.
And VIG isn’t even the best dividend ETF you can buy right now. This is just a taste of the many opportunities we can help you find in this crazy market.
We take a deep dive into even stronger plays that’ll survive this credit loss crisis in our Intelligent Income Investor service.
If you’d like to learn how you can access these plays, learn more here.
Analyst, Intelligent Income Daily
P.S. I provide weekly deep dive video updates to those who invest in my Fortress Portfolio service.
Below is a more detailed summary of the hell that’s coming for those that are not prepared, and why Vanguard Dividend Appreciation Index Fund ETF (VIG) is a great way to protect your portfolio.
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