Distressed Debt and the Presidential Election

In today's Masters Series, adapted from the September 26 issue of Distressed Investing at Porter & Co., Martin analyzes past distressed-debt data to determine whether it actually matters who wins the election... [Stansberry Research Logo] Delivering World-Class Financial Research Since 1999 [Stansberry Master Series] Editor's note: Don't let the presidential election noise distract you... With most investors concerned about how the outcome of the election will impact the financial markets, many people are unsure about what to do with their money right now. But according to Martin Fridson – senior analyst for Porter's company, Porter & Co. – you must continue searching for ways to profit no matter what happens on November 5. In today's Masters Series, adapted from the September 26 issue of Distressed Investing at Porter & Co., Martin analyzes past distressed-debt data to determine whether it actually matters who wins the election... --------------------------------------------------------------- Distressed Debt and the Presidential Election By Martin Fridson, senior analyst, Porter & Co. Given the level of interest in how the outcome of the U.S. presidential election will play out in the markets, it makes sense to address the topic from the standpoint of distressed debt and our Distressed Investing portfolio. In short, the premises of our recommendations do not depend on former President Donald Trump or Vice President Kamala Harris winning the election. When we contend that a struggling company has the necessary resources to pay interest and fully redeem a bond that matures a few years from now, we make sure there's enough cushion in the coffer to withstand possible damage from a shift in federal economic policy. But how about the overall distressed-debt market? --------------------------------------------------------------- Recommended Link: [BREAKING POINT 2024]( Legendary financial analyst Porter Stansberry has an urgent new election warning for all investors (which he's calling one of the biggest and most consequential of his 25-year career). It involves both a historic crisis and a shocking twist that nobody sees coming but could forever reshape the American financial system. To get the full details of Porter's new election warning, [click here now before it's too late](. --------------------------------------------------------------- The table below covers all presidential election-year Novembers since the inception of the ICE BofA U.S. High Yield Distressed Index. It shows the one-month price gain (+) or loss (-) following each election day. Anyone hoping to extract practical investment wisdom from the results of this small sample faces a tough challenge. In the month following presidential elections since 2000, half the time the distressed-debt market went up and half the time it went down. Democratic victories preceded the biggest loss but also the biggest gain. The first-term elections of both Republican George W. Bush and Democrat Barack Obama were followed by negative-return months, while both of their reelections were followed by positive-return months. Did distressed-debt investors for some reason like their proposed second-term policies more than their proposed first-term policies? The more likely explanation is that distressed-debt returns in all of those one-month periods were driven by factors other than how the election turned out. The next chart displays the distressed index's total returns over each four-year presidential term beginning in 1997. In an echo of the first chart, both Bush and Obama had one positive-return term and one negative-return term. Obama enjoyed the highest return, while his fellow Democrat Bill Clinton suffered the lowest. All in all, it's difficult, if not impossible, to establish any coherent connection between the political scene and distressed-debt returns. So does a president's policies and managerial effectiveness not sway investment performance – at least in this asset class? Perhaps the real answer is that microeconomic and macroeconomic stuff happens outside of the control of the leader of the free world, while he is making policy and trying to manage events. Consider an example from the equity market that involves two presidents' contrasting views on alternative energy. Trump derides wind power, calling it "the most expensive energy." Biden labels climate change an "existential threat" and has sought to promote the use of alternative energy. So you might logically think the iShares Global Clean Energy Fund (ICLN) performed better under Biden than under Trump. In reality, it returned an annualized 41.9% during Trump's presidency compared with negative 18.6% (through August 31, 2024) during Biden's. Based on the two presidents' statements, you also might have predicted that the fossil-fuel proxy SPDR S&P Oil & Gas Exploration & Production Fund (XOP) would have prospered during Trump's term and faltered during Biden's. But just the opposite happened. The annualized return was negative 19.2% under Trump and (positive) 21.0% under Biden (so far). None of this suggests that the outcome of the upcoming election won't matter. It does matter for international relations, for social issues, and, yes, for the economy. But the returns on distressed bonds will also be influenced by numerous events outside the political realm. At Distressed Investing, we'll leave the election handicapping to others more skilled in that area. Our goal will continue to be finding beaten-down securities that are very likely to pay all scheduled interest and principal as promised, or else, in a debt restructuring, handsomely reward those who bought at knockdown prices, regardless of who occupies the White House after the inauguration on January 20, 2025. Regards, Martin Fridson --------------------------------------------------------------- Editor's note: The race for the White House could result in a financial divide that rips our country in two. But our founder Porter Stansberry stresses you don't have to be a victim of this market shift. He says this is your chance to be on the winning side... That's why he recently went on camera to reveal how you can set yourself up for potentially the most profitable four years of your life – including his No. 1 investment to prepare now. [Catch up on the full details here](... --------------------------------------------------------------- Recommended Link: ['The Wheels Are Falling Off' the U.S. Stock Market]( Today, analyst Dan Ferris is back issuing a new warning. He says what's coming next to the U.S. economy could be much worse than anything he has predicted before. And this time, he says, "The trouble is coming straight for Nvidia and the AI market." [Click here to see why](. --------------------------------------------------------------- You have received this e-mail as part of your subscription to Stansberry Digest. 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