Don't Get Too Bearish Now

A critical update on the 'death of retail'… Our warnings have gone mainstream… Don't get too bearish now... An event unlike any other in the history of Stansberry Research...


Once again, the mainstream financial media are finally catching on...

They're now reporting something Stansberry Research subscribers have known for years: The "death of retail" is a much bigger – and much more important – trend than most folks realize.

You see, it isn't just about the growth of online retail. And it isn't just about changing consumer tastes.

Sure, those things have played a significant role. But there are two other critical problems driving this trend. As Bloomberg reported this morning (emphasis added)...

The so-called retail apocalypse has become so ingrained in the U.S. that it now has the distinction of its own Wikipedia entry...

The reason isn't as simple as Amazon.com taking market share or twenty-somethings spending more on experiences than things. The root cause is that many of these long-standing chains are overloaded with debt often from leveraged buyouts led by private equity firms. There are billions in borrowings on the balance sheets of troubled retailers, and sustaining that load is only going to become harder – even for healthy chains.

The debt coming due, along with America's over-stored suburbs... has all the makings of a disaster. The spillover will likely flow far and wide across the U.S. economy. There will be displaced low-income workers, shrinking local tax bases and investor losses on stocks, bonds and real estate. If today is considered a retail apocalypse, then what's coming next could truly be scary.

Massive debts and vast overcapacity...

The problems faced by many "brick and mortar" retailers should sound familiar to longtime Digest readers. We've been warning about them for years. (In fact, Porter and his team first warned about the problems facing large department stores back in 2014.)

Regular readers should also be familiar with the reasons these problems suddenly came to a head earlier this year... The credit markets are beginning to tighten for the first time in years. Bloomberg continued (emphasis added)...

Until this year, struggling retailers have largely been able to avoid bankruptcy by refinancing to buy more time. But the market has shifted, with the negative view on retail pushing investors to reconsider lending to them. Toys "R" Us Inc. served as an early sign of what might lie ahead. It surprised investors in September by filing for bankruptcy – the third-largest retail bankruptcy in U.S. history – after struggling to refinance just $400 million of its $5 billion in debt. And its results were mostly stable, with profitability increasing amid a small drop in sales.

Making matters more difficult is the explosive amount of risky debt owed by retail coming due over the next five years... Just $100 million of high-yield retail borrowings were set to mature this year, but that will increase to $1.9 billion in 2018, according to Fitch Ratings. And from 2019 to 2025, it will balloon to an annual average of almost $5 billion. The amount of retail debt considered risky is also rising...

Even worse, this will hit as a record $1 trillion in high-yield debt for all industries comes due over the next five years, according to Moody's. The surge in demand for refinancing is also likely to come just as credit markets tighten and become much less accommodating to distressed borrowers.

Bloomberg also noted that retailers are being hurt by another familiar trend...

Slowly but surely, the consumer-credit markets are beginning to tighten, too. Delinquencies and losses on credit cards are now beginning to tick higher. And they're likely to soar along with retail bankruptcies over the next several years. More from the report...

Store credit cards pose additional worries. Synchrony Financial, the largest private-label card issuer, has already had to increase reserves to help cover loan losses this year. And Citigroup, the world's largest card issuer, said collection rates on its retail portfolio are declining...

The ripple effect could also be a direct hit to the industry that is the largest employer of Americans at the low end of the income scale. The most recent government statistics show that salespeople and cashiers in the industry total 8 million.

In the end, the report comes to the same conclusion you've read many times in these pages...

Despite the carnage so far, the death of retail has just begun.

Worse, it has started with consumer confidence near all-time highs, unemployment near all-time lows, and U.S. economic growth at its best levels in years... which means it's likely to get much worse before it gets better.

But this news concerns us for another reason...

Regular readers also know we believe this trend is due for a breather.

As we often preach in the Digest, it pays to be a contrarian. Whenever the crowd is leaning heavily in one direction, it's often a good time to take the other side of that bet.

And in recent months, investors have become extremely bearish on retailers. As we noted in the September 14 Digest...

As you can see in the following chart, multi-line retailers – the most troubled of the bunch, including department stores and other non-specialty retailers – have been a one-way bet of late. They've plunged nearly 50% over the last few years, and more than 30% this year alone...

But notice the light blue line...

It shows short interest, a measure of how bearish investors are toward these stocks. It is expressed as a percentage of "float," or how many shares are actually available for trading in the market.

As you can see, short interest has more than doubled, from around 12% of float early this year to more than 25% today. This is higher than the previous peak of a little more than 20% in late 2008.

In other words, investors are more bearish on retailers today than they were during the peak of the financial crisis.

As contrarians, today's super-bearish report only strengthens our view.

Again, this doesn't mean a retail rally is imminent...

And we're certainly not recommending you go out and buy most retail stocks.

But when everyone is bearish on retail today – and investors are betting heavily on a continued decline in these stocks – even the slightest hint of good news could send them rushing to cover their shorts and push prices higher.

Don't be surprised to see a sharp rally in the near term.

One quick note before we sign off today...

If you've been with us for long, you know our goal at Stansberry Research is simple: We strive to give you the information we would want if our roles were reversed.

Naturally, this information is usually focused on building and protecting your wealth. But next week, we're going to share something different...

Our colleagues David Lashmet and Dr. David "Doc" Eifrig are preparing a special presentation that isn't designed to help you make money (though, as you'll see, you could have the chance to make a fortune). Instead, it's designed to show you how to protect yourself from one of the most devastating diseases on the planet today.

You see, Dave and Doc will be sharing the details on an incredible new cancer treatment that could revolutionize health care as we know it... and potentially save the lives of hundreds of thousands of Americans every year.

They believe it is going to change medicine forever... And you can be among the first to learn about this astonishing new treatment.

Click here to learn more and reserve your spot now.

Editor's note: Today, we're featuring the latest installment of our "Chart of the Moment," a weekly feature from our colleagues C. Scott Garliss, Greg Diamond, and John Gillin of the Stansberry NewsWire team. In the Chart of the Moment, they share the most important idea, trend, or opportunity they're following each week. We hope you enjoy it... And please let us know what you think at feedback@stansberryresearch.com.


Chart of the Moment

Today, I (Greg) am looking at price divergence between the NYSE Arca Airline Index ("XAL") and the S&P 500 Index. Airlines are a good indicator of economic growth. And since 2009, the XAL has forewarned every major correction in the current bull market.

As you can see from the following chart, the XAL makes new highs and starts to correct while the S&P 500 continues to make new highs. The XAL will rally with the S&P 500 a second time but fail to make new highs, creating a price divergence.

The time frames range anywhere from three to six months on average for the price divergence to appear... But when they do, stocks move lower. In 2011, the S&P 500 fell 30%. It fell 10% in 2014, and 17% from late 2015 through the start of 2016.

The XAL topped out this past July while stocks are racing to new highs. The XAL's second attempt to keep pace with the S&P 500 failed and has once again created price divergence. Take another look at the chart. You can see how steep the downtrend line is forming in the XAL – much steeper than previous moves. Its second attempt to reach new highs was extremely weak.

This is a relationship worth watching. Once again, airlines are forewarning about volatility ahead. Caveat emptor.

– Greg Diamond, Stansberry NewsWire


Editor's note: Stansberry NewsWire is your source for real-time, actionable financial news and analysis. You'll receive up-to-the-minute news and market research, expert commentary, and trading ideas typically reserved for Wall Street professionals and the wealthiest individual investors... absolutely FREE. Click here to sign up now.

New 52-week highs (as of 11/7/17): Apple (AAPL), Amazon (AMZN), Boeing (BA), Alibaba (BABA), CBRE Group (CBG), WisdomTree Japan Hedged Equity Fund (DXJ), WisdomTree Japan Hedged SmallCap Equity Fund (DXJS), iShares MSCI Japan Fund (EWJ), iShares China Large-Cap Fund (FXI), Corning (GLW), Alphabet (GOOGL), KraneShares Bosera MSCI China A Fund (KBA), McDonald's (MCD), iShares MSCI China Index Fund (MCHI), Nvidia (NVDA), Sabine Royalty Trust (SBR), Tencent (TCEHY), ProShares Ultra FTSE China 50 Fund (XPP), Direxion Daily FTSE China Bull 3X Fund (YINN), short position in Sprint (S), and short position in Interpublic Group of Companies (IPG).

Another quiet day in the mailbag... Has the "Melt Up" lulled everyone to sleep? Let us know how you're doing at feedback@stansberryresearch.com.

"I am very much interested in getting into [bitcoin]. BUT, there's a big question that comes up. My broker, UBS, won't let me trade them out of my 401K plan. Of course, they won't let me trade options in my 401K either. With the kinds of return on investment people are getting, I don't want to trade them in a tax account or worse personal account since the income would be ordinary capital gains and fully taxable. What's your best advice on how to make the bitcoin/options trading become available? Change brokers???" – Paid-up subscriber Rob K.

Brill comment: Unfortunately, it's not a matter of finding the right broker or getting the right permissions as it is with options trading. There simply aren't any good ways to buy bitcoin or other cryptocurrencies through any brokerage account today, taxable or otherwise.

As we've discussed, several exchanges will be launching bitcoin futures soon, which could be an option for experienced traders. And eventually, we expect regulators will approve bitcoin and "crypto" exchange-traded funds ("ETFs").

But neither of those exist right now, and the one vehicle that does exist has some serious problems. For now, your best bet is to buy cryptos directly through an exchange.

Again, if you're interested in learning more about maximizing your profits in these digital assets, we urge you to check out our colleague Tama Churchouse's brand-new Crypto Capital advisory. But don't delay... This service will only be accepting new subscribers for a couple more days. Click here for the details.

Regards,

Justin Brill
Baltimore, Maryland
November 8, 2017