We've seen some red flags in consumer debt in recent months...
Put simply, credit-card debt among Americans is at record-high levels. Delinquencies are now at their highest level since 2011. And with interest rates higher than they've been in about 15 years, all this points to trouble brewing for consumers.
Today, though, we're looking at a few indicators on the corporate-debt side – starting with "zombie companies"...
Zombie companies don't make enough in profit to cover the interest expense on their debt. And according to data from Apollo Global Management and Bloomberg, as of October, 43% of the small-cap Russell 2000 Index had run at a loss over the previous 12 months.
Outside of the COVID-19 pandemic, that's the highest share since at least 1995. So this is a big deal. If companies can't turn a profit, they can't service their debt. That will lead to delinquency or even defaults.
Nearly half of smaller companies are in danger of this fate.
That brings us to our next red flag...
In mid-February, the Financial Times reported that U.S. businesses were at least one month late on more than $28 billion in debt payments at the end of 2024. That was $5.4 billion higher than at the end of 2023.
You can think of this as the corporate equivalent of falling behind on your monthly credit-card or mortgage payment.
These are big numbers we're talking about. And a rise in delinquencies leads to defaults and bankruptcies.
The U.S. high-yield default rate measures the number of companies with weak credit that defaulted on their debt...
According to credit-ratings agency Standard & Poor's, the U.S. high-yield default rate rose to 5.1% in December. That's the highest level since 2016. And nearly 700 U.S. companies went bankrupt last year... the highest number since 2010 in the aftermath of the last financial crisis.
During a "credit crisis" – when fear grips the market and credit suddenly tightens – the default rate soars past 10%.
So, things can get a lot worse. The trend indicates that we're headed in that direction. As our colleague and Stansberry's Credit Opportunities editor Mike DiBiase says, we are in the early stages of the next major credit crisis.
When investors get worried, they flee to safety...
For many, that means buying U.S. Treasury bonds to generate a safe yield. But increasingly, the government's finances are being put under a microscope.
Uncle Sam has spent $840 billion more than it has brought in so far in the 2025 fiscal year. And its debt load has ballooned to more than $36 trillion. This has led investors to question the government's ability to pay its debts... one of the reasons the concept of the Department of Government Efficiency ("DOGE") is so popular.
After all, two of the three major credit-ratings agencies have downgraded U.S. debt (though both still have it as the second-highest rating). The dollar is still the king of global currencies.
But more and more people are talking about "safe haven" alternatives to U.S. debt.
For example, analysts from DoubleLine Capital – the investment firm founded by bond king Jeffrey Gundlach – recently wondered whether there are corporate bonds that are "safer" than government debt.
Specifically, in a paper published last month, these analysts suggested that software giant Microsoft (MSFT) may have a better balance sheet than the U.S...
The company has $45 billion in long-term debt, which could be paid off completely by the $68 billion in cash the company is now expected to earn in the 2025 fiscal year.
And Microsoft doesn't have to pay off its debt all at once. With regular interest payments, Microsoft has enough cash to pay its annual interest more than 50 times over, according to DoubleLine.
Compare that with the government, which runs at a massive and growing deficit. Its annual interest is set to be its third-largest expenditure.
The credit-ratings agencies agree with DoubleLine...
Microsoft is one of two companies with a higher debt rating than the U.S. government. The other is consumer-goods giant Johnson & Johnson (JNJ).
We've seen some red flags in consumer debt in recent months...
