저자: Kevin · 외국인
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사모신용 시장의 레버리지·담보 조건 강화 신호와 연준의 QT 과도 긴축 우려를 근거로 신용위기 가능성을 경고. 노동시장은 Beveridge 곡선 이탈로 해고 확산 위험 제기. 단 단기적으로는 금리인하·QT 종료 등 강세 촉매가 있어 시장은 강세 국면이나 마진부채 1.1조달러(사상 최고) 등으로 경계 필요. 사모신용·레버리지 리스크 관리(부채 상환·분산) 권고.
다듬은 글
There is talk about a 30-50 % crash in stocks in addition to terribly brewing risks and enlarging risk in the private credit market that nobody is paying attention to today. I'm going to break down both of these takes because right now things don't seem that bearish. In fact, think about it. We've got a taco going on or as Rabobank is now calling Zaco.
That's because Xi Jinping always chickens out as well. Apparently, you've got Donald Trump likely tacoing. He's already extending the trade deal with Mexico. My son just handed me a trillion-dollar credit card because he says money's basically worthless. So Now he's giving me a credit card denominated in trillions of dollars.
And we you know it's bad when your 7-year-old says money's basically worthless. I'm like, "Hey, I'll pay you you know to do this chore." And he's like, "Well, you know, am am I going to get paid in cash cuz cuz that's basically worthless." You know, he wants to be paid in other ways. He wants real assets.
He's going to start demanding Bitcoin or gold here or deeds to real estate. But but anyway, so you know, you've got the Zaco or the taco going on this Thursday. You've got the Fed setting up for a rate cut on Wednesday with potentially or likely the end of quantitative tightening. But then you've also got these fears about a credit crisis.
And that's actually where I want to start right now is there's this op-ed that's written by this private credit credit attorney. I wanted to check to see if they were like a hedge fund or something shorting the market or whatever because they seem pretty bearish. But anyway, it's apparently this private credit attorney.
And he says that lenders are quietly rewriting their collateral rules. And so basically what he does is he goes in and says, "Everything looks great at the headline." Like it looks like deal values are skyrocketing. You're seeing more credit deals being done. Earnings are beating at banks. Credit spreads are tight.
Everything's Gucci, right?" And he says, "Not so fast." What happened historically in like the dot-com bubble and in 2008 is that quote sophisticated investors start seeing warning signs. And some of them start quote fortifying against a downturn. Not all of them because there are also a lot right now that get blindsided by these you know credit blowups like what we saw at Tricolor or First Brands where they're like, "Wait, what?
Those assets weren't really as high quality as we thought? But the rating agencies say they were worth a triple-A rating. Oh my gosh, what the rating agencies lied again? What? Wait, you mean somebody who's financing the very auditors who are covering up the fraud might be pulling out credit default swaps against the potential default of these debts?
What? By the way, exactly what jus had a bunch of financing from Apollo. Apollo sees that you know, the auditor somehow they get their hands on financials. Oh yeah, come invest this or whatever. These are toxic. And then they take out credit default swaps against the bankruptcy of First Brands which happens to happen happens to be audited by the company they lend money to.
Certainly makes you scratch your head a little bit and go, "Hmm, seems a little shady." But whatever. Somebody always knows. And that's the thing. Not everybody does, but that's what makes it scary. And this attorney is suggesting that lenders are starting to actually change some of the covenants which are basically the rules or the conditions of their loans to be a lot more stringent.
They say that lenders are quote actively preparing for what happens when bankruptcy is inevitable. In other words, they're no longer trying to prevent borrowers from going into bankruptcy. They're basically saying we're now switching our credit covenants from forget about you going bankrupt. We actually just want to be first in line with what are called lien protections.
And this credit attorney says these lien protections are now skyrocketing. He says this happened in 2007. This happened in the dot-com bubble. Don't confuse the headlines that nobody like that there are no credit risks or that the credit risks are just idiosyncratic and all that stuff. Says, "Don't actually believe that stuff." Now I don't know, maybe this guy's unnecessarily bearish, but it's very interesting cuz he's like, "Look, Wall Street's public narrative is the economy is resilient.
Inflation is cooling. Credit consumer credit remains stable." That may all be true on the surface, but the legal architecture of credit markets tells a different story. When lenders quietly rewrite the rules of engagement or demand all for one consent before lien subordination, basically a simple way of saying, "Hey, if you go bankrupt, I want first dibs." It signals a system steeling itself for impact, hardening itself for impact.
The foundations of credit protections are shifting fast. When it happens, it is never an accident. It's the market whispering what the headlines have not caught up to yet. The next phase of the credit cycle may have already begun. Okay, that's an eerie way to finish an op-ed mostly because it's also eerie that Jerome Powell told us in his last meeting that maybe the normalization of the beverage curve has already begun.
That's like almost the same exact line. Which is kind of scary because remember the Beveridge curve beverage curve whatever is basically when layoffs spike, the unemployment rate skyrockets really really fast. Cuz you're supposed to have a normal downward sloping curve, but we're in a place that's way off to the side on the curve because job openings are really really low which means the unemployment rate should be high.
Because it's not implies that as soon as we get layoffs, we skyrocket on the unemployment curve and and the unemployment rate skyrockets. Which Amazon just laid off 30,000 folks. We saw the Target layoffs. We've seen the other you know, we've we've seen a lot of layoffs and we expect a lot more of them to come.
This is why Jerome Powell warns that we may just be at the beginning of them. Now, I mean, here is a comment that I just saw on my Amazon layoff video. If you haven't watched it yet, it's a really good video. I think there's a lot of detail in this. The 30,000 Amazon job cuts are just an early warning I wrote.
And somebody here wrote, "It's crazy because my wife just got fired. Never told her why or even gave her an email. She just woke up and was no longer an Amazon worker. It's crazy how they just cut us from jobs and treat us like toys they are tired of using." And then somebody else you know, writes here, "What happens when all these companies fire everyone for AI and nobody has money to purchase their their products?" Which is fair.
This is actually a really good point. And that's where we talked about game theory. And so I'm going to pull up the little game theory we did because I think it's really interesting. And it kind of relates to this credit market stress because the credit market stress is really just banks and lenders starting to go, "Oh my god, we might have been lied to by these credit agencies again.
Double-check the books. Get things ready. If nothing breaks, fine. We got protected. But if poop hits the fan, we don't want to be the last one off the ship so to speak, right?" That's the same game theory that goes into laying off people. I hate to say it. But understand this. If you'd have if you spend a dollar at Amazon, Amazon gets about 10 cents.
Okay? If Amazon cuts a dollar of expenses, they replace 10 of my dollars, right? Because if I spend $10, Amazon nets a dollar. Or if they cut a dollar, they also net a dollar, right? So cutting a dollar is like getting $10 worth of revenue. So cutting a dollar is huge for their bottom line. They like cutting a dollar.
But then you also have to understand the game theory of this. Because understand this. If you have two companies, we game theory this out. If you have two companies and both companies do not cut and the economy keeps going then what ends up happening is margin compresses at both of these companies through typical capitalistic deflation or disinflation.
And you kind of split the upside. You know, so Amazon gets a little bit of a benefit. Another company gets a little upside. Great. If instead you have let's say company Amazon that cuts workers and company B, let's say I don't know, Microsoft or whoever else does not cut workers, then Amazon's margins might go up.
Where the other one's doesn't. The other company's margins don't go up, right? And so one company could get go up and get more recession resilience and appear stronger in the good times, but also be stronger in the bad times. So therefore company B is actually incentivized to cut. And so from a game theory point of view, as a company, you should almost always cut because you're going to save so much money.
You're saving $10 basically of revenue by cutting $1 of profit at Amazon cuz their margins are about 10%. It's going to be different obviously at different companies. You know, Microsoft has higher margins, right? And then of course you don't want to affect growth. That's why Amazon's cutting at human resources and not in their growth drivers.
But anyway, the point is the default scenario here is if you can cut without affecting growth the default game theory is you should do it because it protects you in the event of recession and it makes you more competitive or at least equally competitive to the company B. Right? And then that's where we said like for every $1 of Amazon uh every every $1 of salary Amazon cuts, that's basically $10 of revenue.
And how much of that $1 of salary is actually going to go back to Amazon? Maybe 5 to 8 cents of every dollar, right? So, it would take them somewhere around 100 X basically. They'd have to make like $100 or they'd have to lose $100 of revenue to even make a difference to what they're cutting in salaries.
Because that specific salary isn't purely going to go back to Amazon entirely anyway. And even if it did, there's a 10 X multiple. Even if 100% of all that salary went back. Which none of that really matters. Like just skip to the bottom line on all of that. The point is if a company can cut without affecting growth, they're going to do it in this economy.
So, now try to put these pieces of the puzzle together for a moment. You've got uh a few things going on. Let's write this down right here. Number one, really bullish catalyst, a new Fed chair coming in May. Bullish May. We've got rate cuts, okay? That's bullish October through December. We've got the end of quantitative tightening.
That's bullish October. We've got TACO. That's bullish now. This is a euphoric or the start uh this is either euphoria or the start of euphoria. Like everything's great, right? But underneath the surface, you have those private credit concerns and then that labor market. That's it. And so it sounds like companies are starting to prepare at least on the credit side for a potential rollover in those private credit markets.
And that's where you're also starting to see some quote strains in the funding market. Now, this is really interesting. The New York Times was just talking about this. But not only was the New York Times talking about this, you've got a lot of institutions now talking about the the FOMC basically being clueless because of these spikes or dislocations in the SOFR market.
This is the SOFR market. This is the secured overnight funding rate market. Basically the the overnight market for cash. Hedge funds, banks, they go there. They can you know, pay off debts and borrow money or whatever to cover bills or whatever in an overnight basis. It for a normal human being, like a normal you and me, this doesn't make any sense.
It doesn't matter. Like we don't borrow overnight. This is crazy. But these massive institutions, they do. Because even, you know, five bips on a billion dollars is a big deal, you know? It it pays for people's salaries. So, it makes sense to have humans move this money around. The problem is when these numbers go up, like when this chart goes up, it means there's less cash available.
That's why they write over here this part stable, this is a mess. Okay. How do you know the Fed has gone too far with cutting uh the size of their balance sheet? When you start getting this kind of mess. That's why Jerome Powell a couple weeks ago comes out and is like, "Bro, we have a problem here.
We may have gone too far. It's time to maybe stop. We need to turn the vacuum cleaner off." Now, the uh uh Bear Trapp report that's what this is called. They say the Fed actually being late could be one of the factors uh that ends up hurting our bull thesis. But in addition to the Fed being too late, private credit deteriorating could lead this $1.3 trillion private credit industry to cut exposure, take losses, default on loans, and cause a cascade through high yield bank loans and credits.
See, a lot of people think that, "Oh, it's not going to be banks that get hurt. It's just going to end up being private credit markets. It doesn't matter. The credit crisis, private credit will just get hurt. It'll be individual companies that'll go bankrupt. Nobody else." Yeah, doesn't really work that way.
Because what we just saw with Tricolor and First Brands was investment banks, which technically aren't banks, but big investment firms, which have big public stocks, which affect the entire uh you know, financial system for stocks, tanked. UBS and Jefferies got hit very hard. But it wasn't just them with exposure.
It was also companies like JP Morgan. They had to lick their wounds on like $170 million of losses. There were also banks out of Japan that had to lick their wounds on billions of dollars of losses because of just those two small companies, you know, relative to the whole financial system, going kaput.
So, then it sort of makes you start scratching your head go, "Crap. If that private credit market rolls over, it is a big deal." So, from a game theory point of view, private credit wants to insulate and companies want to insulate. So, to me those firings and this sort of tightening in the private credit market, they're more like little early warning signs that people are kind of putting blankets around themselves.
Like get ready for the winter. Winter is coming. People are starting to hoard blankets. And it's kind of like we're in summer right now. We're in we're in late summer and everybody's kind of partying with their bathing suits or whatever. And that's great. But what happens uh when all of a sudden the cold front comes in and people didn't get prepared?
Well, that's when we start getting nervous about where we sit with margin debt today. I mean, if you got a FINRA margin statistics, it's scary. We've never seen margin this high before. $1.1 trillion in margin debt. And it frankly this is the highest level we have ever seen. Like if you go back to historic data and you download these spreadsheets, you can go all the way back to 2021.
We didn't see a trillion dollars of margin debt. We were in the 900 billion range. But markets usually always top out when margin tops out. That doesn't mean that we're about to top out soon. Remember, I mean, look at the catalyst. We do have bullish catalysts ahead of us. You know, this is the kind of stuff that we we plan for in the Meat Kevin report in the Alpha report every day.
We talk about short, medium, and long-term catalysts. And we try to position, you know, 10-year stocks versus like 2-month stocks or day trade stocks, right? We try to be very clear with the difference between those. But you've got to evaluate that right now we're running high on all these bullish catalysts.
It makes you wonder, okay, like how much of the Fed cutting or how much of the Fed pausing the vacuum cleaner is already priced in? How much TACO or ZACO or euphoria is already priced in? The market's killing it right now. You know, we broke my 615 price target, which I had on the Qs, which is awesome.
You know, Tesla jumped right off 414 and now off 443 433 rather, which we talked about also in our Alpha reports, both of those lines. Uh it's so it's a it's a remarkable environment for risk and it seems like the Fed cutting is just going to keep introducing more risk-onism. And it's true. And the question is when it rolls, it tends to roll fast.
It's just when does that happen? And that's where all we can do right now is look at some of the early warning signs and be prepared that, hey, you know, either, you know, you start limiting some debt or you diversify. I know a lot of people I think that's one of the reasons we're seeing such a surge in funding at House Hack and Reinvest, same company, is people are are wanting to diversify.
But anyway, uh you have warning signs flashing in financial markets about worries that the Fed waited too long. And this has to do with the plumbing of the financial system, the spike in the SOFR rates, uh how, you know, the Fed never defined what ample reserves are. And even though they wanted to get back to ample reserves because they never defined it, they might have actually inadvertently set up for an oopsie-doopsie crisis.
And so now the goal is, "Hey, they should stop vacuum cleaning and stop creating the risks because they could end up creating a severe market disruption." And so once you have people starting to hoard cash and the financing stops and the the party stops, that's where you're going to have a big problem.
That's why now you're seeing big bets that we're going to see QT basically come to an end on Wednesday. Now again, so far on the surface, things seem very calm. The 10-2 yield spread on the China talk literally just fell below 50, which is great. It still puts us really close to shock prone, but we just didn't get a a real shock.
You can see we never really broke out of 50 to 60. Which is kind of bullish. I mean, that's sort of like what you saw in the 1995 soft landing. And I have to say so much of this feels very eerily similar to what you saw in 2011, where everybody was worried about a double dip recession that never ended up coming.
But there are serious concerns inside the market that, hey, at the very least pay attention to the risks rather than try to, you know, ignore the risks. And I always think it's entertaining because when I talk about people ignoring the risks, I see things uh like I I see what I call pretty wild rationalizations.
Like here's basically a person saying, "Oh, well, we're going to have a productivity boom with all this AI." Okay, that is in my opinion a very generic argument. Everybody makes the argument that, "Oh, well, productivity will boom." Sure. But does that mean net outcomes are going to go higher? Productivity per worker may go up, but does that mean net economic output will go up?
Not necessarily. See, for example, I say like I always make this example. Let's say in a market, you have 1,000 trust documents that need to be made in a certain zip code. Okay? An attorney without AI can do 10 of those trust documents per week. So, to do all 1,000 in a week, you would need 100 you would need 10 you would need you would need 100 attorneys each doing 10 right that would be 1000 trust documents that you completed.
Well if with AI an attorney can now do 100 trust documents now you don't need 100 attorneys anymore you only need 10 you're still producing 1000 trust documents so even though each of the 10 attorneys with AI can be so much more productive the real question is do you need that many more trust documents if you only need 1000 trust documents just because the economy is booming doesn't mean all of a sudden you need 10 times as many trust documents you don't all of a sudden need 10000 trust documents.
The time it takes to actually put those other people to work who lose their jobs that could take decades. To actually net net increase the amount of economic aggregate demand for people to fulfill those services in. So that's the problem so the productivity argument is an oversimplification yes on net each individual human can be more productive but does that mean there's more work to do no.
That's why Amazon and Target are firing people in human resources. Cuz we can get the same work done with fewer people. It's not because they're trying to be evil it's because they don't need the people anymore because of AI. And that's unfortunate like for this person's you know wife or whatever who who got fired here.
Uh this is terrible and it it all it does is increase the wealth gap and I'm not here to shill for these large companies. I actually think I was put on this earth to help you say to yourself okay. Maybe you're killing it in the stock market or you're tempted to buy at all time highs and my argument is look if you got debt just think about paying down a little bit make yourself resilient to that recession.
Pay down margin pay down credit cards if you got a six or seven percent personal loan or higher or mortgage there's no harm in paying down a little bit you could all the only harm is FOMO. But you never go bankrupt protecting yourself. Right you only go bankrupt not protecting yourself. Uh and that's where I think like that Warren Buffett quote comes in where the hardest part I think it was actually in this article the hardest part is sitting around and doing nothing.
Where was it I can't remember where it was but it basically there was this this article uh and they quoted oh here it is here it is especially for a young guy there I found it. Larry as a young man testosterone is your greatest enemy the hardest thing to do is stare at the screen all day and do nothing it's all in the waiting.
Charlie Munger 2012. Waiting. Kind of interesting and I personally think that credit attorney guy it doesn't surprise me like I'm not reading this credit attorneys article going oh my gosh this is it to me it's like I saw this coming what like when we heard about tricolor and first brands if you go back to watch my videos I'm not like making this up in the past go back and watch my videos I said the biggest risk now is that all these companies start going crap we need to take a second look at our lending guidelines.
And then what happens is you get a Nike swoosh that turns to euphoria right the Nike swoosh goes into the euphoric cliff. That's the part you have to be scared about the euphoric cliff. Uh and so you know these strains we're starting to see now they say we're at a turning point. Can we possibly get through it where everybody insulate and the party keeps going of course.
But there is cause for caution in this market and I think if you go to meetkevin.com/data I do my best to update my bear bull scale there all the time and I encourage you if you haven't yet signed up to get the daily wealth it's totally free. But here let me show you if you go to meetkevin.com this is the pitch on the alpha report here just skip past that go to data type in meetkevin.com/data.
Yeah I mean I obviously encourage you to join the alpha report we've been killing it and we've got like 4000 members every morning who who watch the alpha report and many more who don't even watch the videos they just read the alpha report so you know a lot of members here love the alpha report I encourage you to be part of it.
But if you scroll down on the data page uh you'll see the bear bull scale the taco scale sign up for this the daily wealth or the meet Kevin app you can get the daily wealth in there as well I think it's really useful and I send out the daily wealth every day as an email or you can get it in the app through the meet Kevin app whatever you want.
Uh and I would highly encourage checking that out it's very cool so and that's totally free for free or totally complimentary I don't know whatever you want to call it anyway so some thoughts there but a little scary I will say on private cred ffrath .
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