"It's time to buy this sector
," Martin Fridson proclaimed in late 2002...
Nobody knows more about this sector than Mr. Fridson. So I listened... I told my readers to buy it.
I told my readers to buy one fund in particular... I told them I was looking for "a total return of about 47% over the next 12 months
The fund I recommended returned 47% in exactly 12 months after I recommended it (including dividends). Thank you, Mr. Fridson! (You can read my original write-up right here
. It's a great background for today's story.)
In short, Marty Fridson REALLY knows this sector... and he is not afraid to say "BUY!" when the time is right.
Unfortunately, the time is not right...
Mr. Fridson is known as the "dean" of high-yield bonds. And today, he says the outlook for them is terrible...
Last week, he spoke at the Grant's spring conference. His speech was titled: "You ain't seen nothing yet: The next junk-bond implosion
." My colleagues Porter Stansberry, Sean Goldsmith, and Dan Ferris were in the audience.
He told the crowd that the coming junk-bond implosion will be worse than it was in "The Great Recession" in 2008. Specifically, he's forecasting about $1.6 trillion dollars in global bond defaults from 2016-2019. (Yes, that's trillion with a "t".) He says three times as many companies will default compared with the number that defaulted in the Great Recession.
So what's happening?
First off, according to Fridson, junk bonds are extremely overvalued right now – they haven't been this overvalued since mid-2008 – right before Lehman Brothers collapsed...
The reason junk bonds are extremely overvalued is that investors everywhere are searching for "yield" wherever they can find it. Junk bonds are the highest-paying U.S. bonds today because they're the riskiest bonds. So people are buying them for their yield.
Individual investors haven't been hurt, yet, so they think they're safe. That illusion of safety leads to complacency, Fridson said in an interview last week: "there's a general complacency that things will remain steady with no worries, and of course that usually goes the other way
Fridson says we have time... He doesn't think the picture will start getting ugly until next year.
I am no expert on high-yield ("junk") bonds. But Marty Fridson is...
If he says the next junk-bond implosion is just around the corner, then I'm listening...
He has made my subscribers money in the past, as I showed. And now, he's saving us from losing money looking ahead.
When Marty Fridson speaks, I listen.
And what he's saying is, avoid junk bonds
... for a while...
Point taken. Thank you, again, Mr. Fridson.