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Uh, well, I don't think we're worse off except for of course the people who have lost their lives and wartime being a horrible thing. Uh, but in terms of how the future will play out, I don't think if this regime somehow manages to hold on that the world be will be that much different. So, I guess we're looking at status quo or a big surprise in terms of growth and innovation on the upside of expectations.
So, that's Iran. Private credit is the other worry today. There's about 1.8 trillion dollars in private credit today and a lot of it is in interval funds and funds that don't allow full redemption at any time. They might allow inflows but not redemptions. And I think because of a few bankruptcies highly For months, tension has been quietly mounting in the private loan market, one of the fastest-growing financial sectors.
The once niche alternative to bank lending has grown into a 1.8 trillion-dollar sector driven by institutional demand and rich investors seeking greater profits. However, rapid development has created an unstable system based on illiquid, opaque loans that are hard to unwind when investors want their money back.
Last Friday, those tensions surfaced. A rush of redemption demands forced BlackRock, the world's largest asset manager, to limit withdrawals from one of its iconic private credit funds. Investors requested more than 9% of the fund's assets, but the firm banned withdrawals at 5%, preventing many from withdrawing.
Meanwhile, similar funds throughout the industry faced rising redemption pressure, shaking private credit giants and selling asset manager stocks. For many, the events sparked unsettling questions. Can funds with illiquid loans withstand high redemption demands? In a nearly two-trillion-dollar market, what does that mean for the financial system if they can't?
ARK Invest CEO and CIO Cathie Wood explains what's occurring behind the scenes in this video. She explains why private credit market stress has been building for months, how recent bankruptcies and mounting uncertainty have rocked investor confidence. And why the latest developments may be an early warning sign for the global economy.
Watch the whole video to grasp what this abrupt private credit shock means and what could happen to the markets. Enjoy detailed macro breakdowns like this. Like the video, subscribe to the channel, and comment below. to $90. It has soared about 50% since this conflagration started. And we could see it going down below $50 per barrel.
Right now, as I said, it's $90 per barrel. Below $50 per barrel and and perhaps much lower over the next 5 to 10 years. The Middle East, which has the largest oil reserves, knows this. And so, they've been diversifying into really technology-based disruptive innovation. And so, it's becoming a very interesting region from that point of view.
Of course, if something goes wrong, well, I don't think we're worse off except for of course the people who have lost their lives and wartime being a horrible thing. But in terms of how the future will play out, I don't think if this regime somehow manages to hold on that the world be will be that much different.
So, I guess we're looking at status quo or a big surprise in terms of growth and innovation on the upside of expectations. So, that's Iran. Private credit is the other worry today. There's about 1.8 trillion dollars in private credit today and a lot of it is in interval funds and funds that don't allow full redemption at any time.
They might allow inflows but not redemptions. And I think because of a few bankruptcies, highly publicized bankruptcies, one clearly related to fraud, this market has become unsettled. Just today, BlackRock decided not to satisfy the 7.9% in redemptions from its largest private credit fund. It only allowed 5%.
I might be wrong on that 7.9%. There may have been requests for 9.3. In fact, I think that's right. 9.3%. They only allowed 5%. So, roughly half. So, there are a lot of nervous individuals who thought they were buying funds that were guaranteeing dividends in the 10 to 12% range and they just felt safe.
It was bond-like. But whenever you see outsized guarantees like that, 10, 11% dividend yields when the treasury yield out there is 4%, you have to you have to know you're taking some kind of risk. And the risk here is bankruptcies. Now, these companies have been used to adjustable rates. These interest rates go up with the Fed funds rate.
But I think the problem now, since many of these companies started and or were funded around COVID, we're now in the the 5 to 7-year window where they'll want to roll over the debt and that's not going to be possible in this new world. Many of these companies are being disrupted by technology. SaaS is the a great example.
A lot of private credit and private equity firms started buying SaaS companies. Well, guess what? SaaS is being disrupted by the frontier models out there right now and by platform-as-a-service companies like Palantir. So, 11 to 12% dividend yields, those were not risk-free at all. And so, here we're learning again an important lesson.
Now, one of the things we have to ask as far as private credit goes is could there be a systemic problem? Systemic usually involves the banking system, the highly leveraged banking system. And what we're learning is the banks are not, at least as far as we know so far, highly exposed to this area of the market.
We can see this in the market as well from credit default swaps on individual banks. They have remained very low. So, credit default swaps are insurance policies against something going really wrong with these banks. And I'll show you in a chart in a few minutes that CDSs are very well-behaved in the banking sector.
And in the high-yield world, so this is junk bonds. If you look at the spreads of those those yields relative to treasury yields, those are also very well-behaved. And given the amount of drama taking place out there, you would think if there was if there were to be a systemic problem that those CDSs and the high yields would pick up on it.
So, we're feeling pretty good about that. And then before we get to the charts, I'll just talk a little bit about an aha moment we had this week here in St. Petersburg. We had our offsite. So, we had partners from around the world, Japan, Taiwan, Korea, Australia, I think was represented. Many countries in Europe, the UK, and our partners here in the US come to visit us so that they could be steeped in in our research.
And as we were walking around and and intro making introductions, it was very clear that there was I call it a PC moment. In 1980, when IBM put out its first PC and Apple put out Lisa, many people probably don't even know about Lisa, there was this this kind of a moment where everybody in the firm gathered around a desk to see what this was and you know, to marvel at it at what it could do.
And back then, all it could do was really addition and subtraction and very low-level things and look where we are now. Well, we had the same moment with a cloud the cloud I think it's cloud cloud work or cloud code work where someone on our finance team was just blown away by how quickly he was able to automate all of these automation projects that he had lined up over the past 6 months.
We're on Palantir and so we're certainly going to integrate all of that with Palantir but he was able to do this individually and he was shocked and everyone around him was shocked at how beautiful the the graphics were the tables and how perfect they were and even cross-checking the numbers with some manual addition subtractions percentages they were correct.
So another another PC like moment and that PC like moment was 45 46 years ago. So technology disruptive innovation we've been waiting we've been waiting for many many years slowly slowly then all at once for these technologies that we've been focusing on the seeds of which were planted in the 20 years that started with the PC and ended with the tech and telecom bubble and and bust those seeds were planted they weren't ready to flourish they've been germinating we got the cloud in 06 we got the first really big breakthrough in AI in decades so deep learning image net we got the an even more provocative breakthrough with transformer architecture in 2017 and now that slowly slowly is turning to all at once not only because the technologies are ready but because they are converging with one another.
So it's a pretty exciting time and we got some interesting news today. It seems as though because of the talks impending talks and we don't know what's going on behind the scenes between China and the US and it may even be President Xi Jinping and President Trump. Boeing got an order today for 500 planes.
Now that speaks volumes to us. Why? Because we know that there is what some have called the axis of evil and so it's Russia North Korea Iran and China but look what just happened. We are negotiating and doing business with China when one of its biggest allies or at least part of that axis is under attack.
I I think that says that the negotiations between China and the US are going along much better than anyone knew. So so that's also very interesting in terms of understanding why the stock market and the various bond markets are not they've been a little volatile over the last week but they haven't they haven't capitulated that you have a down day and an up day and so it's it's it's because this kind of news is leaking out and I think it's very positive.
So now before we go into the charts what I'd like to do is it is employment Friday and to be honest the the government's employment statistics are becoming pretty useless. So it's kind of hilarious that we started doing this because of employment Friday. Nonetheless they affect the markets and over time I think that that impact will diminish because these numbers are revised down or up but mostly recently down.
Now what's so interesting is non-farm payroll employment dropped 92,000. It was supposed to be up 55,000 based on all of the other employment indicators out there which are all pointing up. So the ISM index employment indicators for both the manufacturing and service sectors initial claims are quiescent and just ADP reports have come now they're reporting weekly and they've been up every week and so this Bureau of Labor Statistics report
Cathy Wood's analysis shows two distinct market pressures while areas of stress like private credit are disclosing the risks that piled up during the cheap money era. Firms that borrowed heavily during the pandemic now face refinancing issues in a higher rate world. However, Wood claims that technological disruption is boosting productivity making the economic outlook stronger than it appears.
That tendency might keep inflation under control and keep markets rising as investors manage macro uncertainty. The latest comments from Real Vision founder Raoul Pal a long-standing macro investor who analyzes global liquidity flows make the macro picture even more interesting. Pal wrote on X that macro drivers driving risk assets may be improving despite crypto market gloom.
Here's his explanation. I get how depressed everyone is about crypto and pure charts say it's over but I disagree. Global liquidity is the most important macro element ever correlated 90% to Bitcoin and 97% to NDX since 2012. It grows 10% annually and isn't slowing. GMI finances lead by 6 months they're easing.
US overall liquidity was cut by the closure creating the air pocket. It's 3 months ahead of crypto and rising from its bottom. The business cycle drives earnings and risk it accelerates. Banks can improve liquidity by issuing credit and absorbing treasury through the ESLR. Rising liquidity will accelerate.
Credit creation and liquidity increase with tax returns on bank balance sheets. Pal is underlining that liquidity which underpins risk assets is expanding again across many channels. Several variables are quietly increasing financial system money flow including easing financial conditions bank balance sheet dynamics and seasonal considerations like tax returns.
Bitcoin and the tech-heavy Nasdaq 100 have historically performed well when liquidity grows. Pal thinks the narrative continues. He lists various catalysts that could boost liquidity and risk-taking in the coming months in the second half of his piece. China's balance sheet is growing. More US rate cuts will increase discretionary income and risk-taking.
Clarity Act may be passed and improve flows. This bill solves the massive demand for this technology from banks and asset managers. Issued stablecoins increased 50% last year and are accelerating. Trillion-dollar volumes are rising. Long-term liquidity puts Bitcoin in the midst of its naked market. Bitcoin usually goes sideways and rallies at resistance after quick downward flushes like ours.
Formation of bull trap. Woo's view reveals a key market aspect. Liquidity indicators and macro signals may be improving but investors like Raoul Pal believe the market structure needs time to reset. Bitcoin has often witnessed rapid sell-offs followed by recovery rallies that test resistance levels before the trend becomes obvious.
Investor flows have stabilized which Woo believes could underpin a comeback to crucial levels. But that doesn't mean the greater correction is complete. This market moment is noteworthy because of the discrepancy between opinions. Macro investors say increased global liquidity better financial conditions and rapid technology innovation are tailwinds for risk assets.
In contrast on-chain analysts warn traders that market structure liquidity cycles and investor positioning often take time to unwind. The main question today is are we seeing the beginning of the next significant move higher or just a short rebound before the market bottoms? Share your thoughts in the comments.
Would you rather believe Raoul Pal's liquidity-driven bullish view or Willy Woo's warning that the bear market may not be over? If you like this breakdown like the video subscribe to the channel and switch on notifications to not miss the next deep dive into Bitcoin macro markets and crypto's future.
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