Be on the Lookout for a Consumer Credit Crisis

The sailors aboard the ARA Libertad never expected to become a bargaining chip...

The battle began more than a decade earlier. In 2001, Argentina defaulted on more than $100 billion in sovereign debt – the largest default in history at the time.

Most creditors accepted restructuring deals that paid out just pennies on the dollar. But not Elliott Investment Management, the hedge fund run by billionaire Paul Singer.

Elliott had bought Argentine bonds at a steep discount. It refused any settlement that paid less than full price.

Instead of taking a loss, Elliott chose a different approach... a legal strategy called "vulture investing." It bought distressed debt and used the courts to demand full repayment, no matter the cost.

Elliott went on a global hunt for anything Argentina owned that could be seized as payment. It tried to freeze Argentina's accounts abroad. It even attempted to seize Argentina's presidential plane.

And on October 2, 2012, it struck what seemed like vulture-investing gold...

The Libertad, an Argentine naval vessel, was docked in Ghana for a routine stop...

The 300-foot training ship carried more than 220 crew members. It was a proud symbol of Argentina's military history.

But within hours, it became something else entirely – collateral in a global debt battle.

Elliott secured a court order arguing that Argentina's government assets were fair game for collection. Ghanaian officials had no choice but to comply.

Local authorities informed the crew that they couldn't leave the ship. They were trapped at port, caught in a financial war they had nothing to do with.

Argentina was outraged. Officials called the seizure "an act of financial piracy." President Cristina Fernández de Kirchner refused to negotiate. The government claimed paying Elliott would set a dangerous precedent.

As the weeks dragged on, the situation turned into a diplomatic crisis...

A judge prohibited the vessel from fueling up while it was under control. Nothing on board worked, including the power generators, running water, refrigeration, and showers.

By the time the United Nations stepped in, more than two months had passed. And while the sailors made it home, the debt battle was far from over...

Elliott's hunt continued until 2016, when a new Argentine administration opened the doors to more productive discussion. After years of legal fights, the company agreed to a $2.4 billion settlement – a massive return on Elliott's initial $117 million investment.

And Singer proved that when it comes to collecting debt... there's always a way to get paid.

Most debt collectors don't chase down warships or ground presidential planes...

But they all operate on the same core principle. They acquire distressed debt for pennies on the dollar and extract as much value as possible.

It's no secret that the U.S. is sitting on a mountain of debt. As of the second quarter of 2025, consumer debt reached $18.4 trillion. That's nearly two-thirds of U.S. GDP.

Most of that hefty number comes from mortgage balances... But credit-card debt has also reached a new high of $1.21 trillion.

And as the mountain grows, more debt is set to fall into collectors' hands.

Debt-collector stocks tend to fall like all the rest during a deep recession. They're busy spending their extra cash on discounted debt.

But after the market starts to stabilize, it's another story. They can actually collect on all that cheap debt. And as business booms for debt collectors, their stocks soar, too.

We're sitting on record debt levels today. But the consumer is holding strong... for now. So we wouldn't recommend entering this corner of the market just yet.

Keep an eye out for a consumer-credit crisis. That's when debt collectors will start aggressively buying.

Once that happens, it shouldn't take long for shares to surge.

Regards,

Joel Litman
October 16, 2025