The Weekend Edition is pulled from the daily Stansberry Digest.
We've been tracking a huge problem in the credit markets...
In short, over the past decade, companies have taken advantage of record-low interest rates – courtesy of the Federal Reserve's massive stimulus efforts – to borrow an obscene amount of money.
All told, they've racked up more than $13 trillion of debt. This is more money as a share of the economy than any other time in U.S. history. And now, a confluence of critical factors suggests it's just a matter of time before disaster sets in...
You see, a virtual "tidal wave" of this debt is about to come due. In total, a record $4 trillion in corporate debt must be paid off or refinanced over the next four years.
Meanwhile, long-term interest rates are now moving higher for the first time in decades.
And at the same time, the Fed continues to unwind its massive stimulus programs.
This is unprecedented...
Never before has so much debt come due in such a short period of time while credit conditions are tightening significantly.
A huge number of companies – many of which are already struggling to service these massive debt loads – have little hope of refinancing. Defaults will skyrocket. And shareholders at many of these firms are likely to be wiped out in the process.
However, this isn't the only potential credit crisis on the horizon...
And while the timing of this other crisis is less certain, the potential fallout could be far more severe.
It's no secret that the U.S. government has also been on a borrowing binge. Over the last 10 years, total U.S. government debt has nearly doubled from $11.1 trillion to just shy of $22 trillion today. That's roughly equivalent to $67,000 for every man, woman, and child in America.
Yet unlike in previous decades, virtually no politician on either side of the aisle is even talking about this problem today. And of course, this is largely a result of the same Fed manipulation responsible for the excesses in the corporate credit markets. As Stansberry Research founder Porter Stansberry explained on November 25, 2017...
Since this boom began in 2009, almost nobody has paid any attention to this massive increase in federal debt. You haven't heard a word about our deficits from our politicians.
Nobody cares. Why? Because since 2009, these debts haven't caused our country's borrowing costs to rise.
Even though total federal debt outstanding has increased by 126% since 2008, our borrowing costs have fallen. We're still paying about the same amount in interest on this debt as we did back in the early 1990s, when our national debt was only 22% of the size of today's burden.
The thing that matters to policymakers is how much the debt costs to maintain, not how much it costs to repay. That's why you haven't heard anything about it.
But again, this won't be the case indefinitely... The same factors that are likely to create a reckoning in the corporate debt markets – rising interest rates and the withdrawal of central bank stimulus – are already pushing the government's debt service costs higher.
As concerning as this scenario is, it could soon get worse...
You see, under even the rosiest projections, the U.S. government is expected to run annual deficits of more than $1 trillion well into the foreseeable future. If past is prologue, we can expect the actual sums to be significantly higher.
And remember, the Fed is unwinding its quantitative-easing program. The largest single buyer of U.S. Treasury bonds over the past few years has suddenly disappeared. Meanwhile, the White House is engaged in a "trade war" with China, which has been one of the largest foreign buyers of U.S. government debt for decades.
In other words, for the first time in modern history, the government will be required to issue a massive supply of new U.S. Treasury bonds during a period of tightening credit conditions and weakening demand.
This combination could easily trigger a cycle of even higher interest rates and ever-larger deficits that spirals out of control.
Of course, folks have been warning of a U.S. government debt crisis for decades now...
And frankly, to date, they've all been wrong. But here, too, we could now be witnessing the first "cracks" emerging in the U.S. Treasury market. As news service Bloomberg reported recently...
Of the $2.4 trillion of notes and bonds the Treasury Department offered last year, investors submitted bids for just 2.6 times that amount, data compiled by Bloomberg show. That's less than any year since 2008. The bid-to-cover ratio, as it's known, fell even as benchmark Treasury yields soared to multi-year highs in October, before falling back to their lows last month...
he drop-off is an early warning that demand for Treasuries may not keep up as the U.S. goes deeper into the red. Debt supply jumped in 2018 largely because of the Trump administration's tax cuts. Forecasts show the deficit could soon swell past a trillion dollars and stay that way for years to come.
The weakness "doesn't matter until it suddenly does," says Torsten Slok, Deutsche Bank's chief international economist. "A declining bid-to-cover ratio increases the vulnerability and probability that investors suddenly will begin to think that a falling bid-to-cover ratio is important. Put differently, all fiscal crises begin with a declining bid-to-cover ratio."
Again, we're not predicting that either of these crises are imminent...
But we think it's important that readers are aware of these risks.
You see, whether stocks head lower immediately... or Steve Sjuggerud is correct and the Melt Up resumes before we see further weakness... we believe one thing is certain: When the next bear market does arrive, it's likely to be one for the ages.
Folks who aren't prepared could suffer huge losses. And those who are retired or near-retirement – folks who simply don't have time to "make up" for another huge drawdown in their portfolios – could be ruined.
Our colleague Dr. David "Doc" Eifrig has recently become more concerned as well...
This is particularly noteworthy for a few reasons...
First, Doc's resume speaks for itself. He spent more than a decade working for some of the top firms on Wall Street before returning to school to become a medical doctor. All told, he has been studying the financial markets closely for more than 30 years now.
Second, along with Steve, Doc has been among the most consistently bullish Stansberry Research analysts over the past 10 years. Time and again, he told his readers not to worry about a bear market in stocks.
And lastly, Doc is as conservative and "no nonsense" as they come. He detests fearmongering and hyperbole. If he tells you he's getting worried, you can bet he has good reason for it.
But you don't have to take our word for it...
You can hear it from directly from Doc himself, during a special online briefing next Wednesday, January 23, at 8 p.m. Eastern time.
Because he believes this message is so important, he has decided to share it with every interested Stansberry Research reader, and not just his paid subscribers.
This event is absolutely free to attend. Click here to reserve your spot.
Editor's note: For the first time since this bull market began, Doc believes the downside risks in many stocks now outweigh the potential upside. He believes that most folks – particularly those who can't afford to take big losses – need to get defensive immediately. To make sure as many people as possible are prepared, Doc is hosting a FREE online briefing Wednesday, January 23, at 8 p.m. Eastern time. Save your spot right here.