Ian Welsh

The horizon is not so far as we can see, but as far as we can imagine

Category: Financial Crisis Page 1 of 14

Monday Morning Econ Blues

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On April 6, 2026

7 Comments

~by Sean Paul Kelley

The looming financial crisis and the news that keeps emerging is getting so bad that it’s growing harder for me to set aside my rage and discuss it coherently.

But I’m going to try.

I’ll continue to use the framework of the credit cycle, as I hope y’all have been able to digest it. That said there are some events that are happening outside of a normal cycle, not unpredictable, but defintely wild cards and spoilers; chief among them would be the closure of the Straits of Hormuz and its cascading effects on the by-products from gasoline refining. This will lead to a commodity price spike everywhere.

I noted nearly two weeks ago, “The end of this credit cycle is going to include the following macro events: a credit crisis, a housing crisis, an energy shock, with the potential for . . . famine on a biblical scale [in the developing world], at least one Too Big To Fail failing, as Lehman Bros and AIG did in 2008, and the AI bubble bust.”

We are very deep into phase 2 of the credit cycle. We are closer to the end than we are the beginning.

By way of not so new but newly disclosed developments FDIC insured banks are exposed to private credit and/or equity to the tune of $1.4 trillion.

That makes up 11% of total FDIC insured bank lending. This is why I call private credit, shadow credit. And that shadow credit is money that you, dear taxpayer, are on the hook for when the excrement hits the fan.

Moreover, the private credit/equity crisis is much, much worse than I initially thought. I went full Alice down the rabbit hole this weekend. Never in my wildest dreams might I envision the inept deployment of so much capital in so many catastrophically stupid ways.

Here’s that canary, Blue Owl, I’ve been talking about. It’s getting worse for them. Much, much worse: there is a term for 41% redemption demands: a run on the mother-fucking bank. Blue Owl–as I have mentioned many times before–is linked at the hip with Oracle and its hyperscaling of datacenters. Oracle is trying to back door a Federal backstop, justifying it as a necessary AI upgrade to Fed databases, which is bullshit, but it might work.

Fun fact: all planned data-centers for 2026 are either delayed or cancelled. But we’ll get to that later.

The real problem right now is the dilemma, of which I already spoke, facing central bankers from the ECB, Japan and the Fed. I’ll spell it out again.

First, they are facing an inflationary energy shock. They are staring at commodity prices rising coupled with higher inflation expectations from consumers. Inflation is likely to jump. This places enormous pressure on central bankers to tighten credit by raising interest rates.

On the other side of the dilemma is the growing realization, at least I hope they are aware, of just how bad a credit crisis we’re waltzing into.

Housing is in free-fall, too.

The employment numbers are a joke. Sure, the BLS reported 178,000 non-farm payroll jobs added in March. Unemployment fell a bit as well. Except, the way the BLS calculates unemployment is a farce. Consider that 400,000 people exited the labor force during the same month. How does that translate into job growth? (Hint: it doesn’t.)

Unemployment is calculated using U3, meaning people who are actively seeking work and have done so in the past four weeks. A more meaningful, but politically inexpedient measure is U6. U6 “includes U-3, plus discouraged workers, those marginally attached to the workforce, and people working part-time who want full-time work.”

See where I’m going with this?

At the same time BLS was championing these great numbers, they issued an under-the-table revision of the February numbers downwards -133,000. Yup, you read that correctly. Add all the downward revisions over the last two years and employment numbers have cratered downwards to the tune of millions.

Millions.

All this data gives the Fed a bad case of whiplash: raise rates in fear of inflation or lower them, anticipating a credit crisis?

Should I stay or should I go?

Here’s the kicker that magnifies this dilemma: the signal WTI long-term futures (and treasuries and TIPS) are giving off. Take a look at this chart of WTI:

You can clearly see the near term spike. That’s the inflationary pressure central bankers are worrying about. Brent Crude is even uglier at $140. So, at present WTI is at $111 for April 2026 contracts. But take a look at the futures a year later. The chart doesn’t go that low, but the futures are priced at below $60 a barrel. That’s a $51 spread.

WTI long term futures are predicting serious oil demand destruction over the next 12-months and longer.

What, say you, is demand destruction?

Demand destruction happens when shrinking economic activity across the board globally reduces the need for energy. US Treasuries and TIPS are signaling identical developments.

Shorter version: less economic activity globally means less demand for oil. But my bet is that central bankers will raise rates at first, only to realize the trap they fell into.

Anyone want to take the over/under?

So what does this all mean? Well, EndGameMacro succinctly describes how bad it will probably get: “Unemployment rises roughly 5.5 points to a peak near 10%, equities fall roughly 55% to 58%, home prices drop about 30%, and commercial real estate takes a 39% to 40% hit.”

Personally, I think it’ll get worse. The size of the private equity/credit catastrophe has me questioning whether the Fed can really backstop a crisis this time around, especially when you add the massively irresponsible budget just proposed by Trump.

Finally, a quick word on AI: this post just confirmed my hunch that the AI craze is nothing more than a huge ponzi-scheme and will never truly amound to a hill of beans. Here is a taste of the post:

“So it is with great regret that I announce that the next person to talk about rolling out AI is going to receive a complimentary chiropractic adjustment in the style of Dr. Bourne, i.e, I am going to fucking break your neck. I am truly, deeply, sorry.“

Give it a read. You’ll enjoy it and learn a lot.

What’s it all mean?

Easy, our elites are strip-mining our economy while we’re too busy fucking around on Tik-Tok to care.

You Better Start Swimming, Because Drowning Is Bad For Your Health

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On March 31, 2026

42 Comments

~by Sean Paul Kelley

Headwinds: “a headwind blows against the direction of travel of an object . . . decreases the object’s speed and increases the time required to reach its destination.”

Rip Tide: “A rip is a strong, localized, and narrow current of water that moves directly away from the shore, cutting through the lines of breaking waves, like a river flowing out to sea. The force of the current in a rip is strongest and fastest next to the surface of the water. . . Swimmers who are caught in a rip current and who do not understand what is happening, or who may not have the necessary water skills, may panic, or they may exhaust themselves by trying to swim directly against the flow of water.”

Last week I wrote this about our current credit cycle:

The end of this credit cycle is going to include the following macro events: a credit crisis, a housing crisis, an energy shock, with the potential for massive failed deliveries necessary to third world nations creating famine on a biblical scale, at least one Too Big To Fail failing, as Lehman Bros and AIG did in 2008, and the AI bubble bust. All of these will happen. Locked in. Fixed. No way out.

Since then there, as is the way of the world, some things have changed. When facts change, I re-assess ideas and opinions.

First, the Fed, and the ECB, are caught between Scylla and Charybdis (I should not have to explain that reference to this readership, should I?): an imminent credit crisis necessitates monetary easing, whereas a looming energy shock necessitates rate hikes to forestall inflation. Right?

It’s the mother of all dilemmas for a Central Banker.

I think the Fed and ECB as per their dual remits—price stability— will hike rates fearing inflation more (and with some cogent reasons to do so, e.g., the ripple effects of skyrocketing diesel prices) and ignore the massive and imminent credit destruction—the notional value of all global private/shadow credit is about $4 trillion, yes, you read that right—that will force insurers and pensions funds into severe liquidity/solvency crisises that are both overexposed to the private credit shops and locked out of redemptions. That freeze in liquidity will cause morphine-necessary levels of pain on Wall Street, but Main Street won’t even get a Tylenol, granny won’t get her annuity payment and uncle Joe won’t get his county pension, auntie-Mae might even miss her teacher’s pension.

Meanwhile, diesel driven costs will surge through the real economy like a tsunami, destroying purchasing power more forcefully than we have ever seen. We could be looking at a real decline in economic order of 4-7% YoY.

BTW: doesn’t just in time delivery look like an idiot’s fucking fever dream right now?

Bond rates rolled over yesterday. Oil prices remain sticky. Repo fails are surging: $379 billion week as of March 18. Repos, repurchase agreements are the highest quality, safest corporate invetments in existence. Rising repo failures are a clear indicator that, although systemic liquidity exists, confidence is collapsing. Repo failures often have cascading effects on other corporate parties who cannot find the necessary funding for short-term obligations their cash flow is unable to support. Moreover, private credit redemption halts are increasing exponentially. Employment is cratering. Diesel prices are skyrocketing. Housing is in a nationwide free-fall. Systemic liquidity is perilously close to freezing up.

Folks, I hate to say it, but our economy isn’t facing headwinds, it’s facing riptides.

Headwinds are manageable. Riptides kill.

The domestic shocks are enough to call it plain: we’re in a recession. Of course, do not expect accurate or honest economic numbers from Trump’s government. The damage could be limited domestically except for the exogenous shocks resulting from Trump’s Iranian catastrophe.

The global effects are almost incomprehensible.

Consider the damage done to Gulf petrol infrastructure. When refineries get blown-up AVGAS, diesel, helium, urea and fertilizer become impossible to buy. Who cares if it can or cannot make it out of the Straits of Hormuz? If they don’t exist, whatcha going to do? These products are known as petroleum distillates. They are by-products of gasoline refining.

I can’t even begin to comprehend how deleterious and long-term this destruction will be and what kind of follow-on, cascading effects it will have. Consider that helium is essential in making chips. No one, and I mean not a single fucking Wall Street analyst I know of, is factoring in the loss of distillates from destroyed refineries yet. That it bodes very, very ill for the entire world economy is an understatement. It’s not hyperbole to say the economies of the Rules Based Order are in deep peril. Japan and South Korea are in deep kimchi too.

And India’s Green Revolution? Oh man, the carnage might be biblical in scale without access to Persian Gulf fertilizer. It could be like the impact of two failed monsoons. The human exodus? Of all that is holy, it makes me want to curl up in the fetal position.

Not a one of us–including myself–has any true inkling how dependent the modern industrialized and developing world is on petroleum and its by-products. Nor do we have any idea of the catastrophe unfolding in places like South East Asia in regards to food. For example, gas for cooking shortages have lead many people in South East Asia’s mega-cities to abandon the cities for rural home regions where cooking with biomass, primarily animal dung and wood, is practicable. Ponder that for a moment. Then consider the deforestation cascading consequences of those mega-populations reverting to 13th century feeding practices?

If you need it spelled out for you in brutal detail read this utterly demoralizing essay. We are well along the road to ruin.

I’m an historian and confess to a complete lack of a historical framework/reference to analyze and/or opine in any meaningful manner on how epic the shitstorm Trump’s war on Iran will turn out, except I know bone-deep that the Rules Based Order will collapse. The remainder of the world?

Gotterdammerung. Google it if you need explication. I’m too tired, too fucking sick with grief and too enraged to continue.

What Phase Three of the Credit Cycle Looks Like: the Ponzi Scheme Visualized

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On March 25, 2026

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~by Sean Paul Kelley

Courtest my alma mater Morgan Stanley, we have this graphic that perfectly depicts what the AI-Ponzi scheme looks like and just how incestuous it truly is:

Is any other comment necessary?

America’s Economic Future: Imminent Pain and Dislocation Not Seen Since the ’30s

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On March 23, 2026

20 Comments

~by Sean Paul Kelley

The end of this credit cycle is going to include the following macro events: a credit crisis, a housing crisis, an energy shock, with the potential for massive failed deliveries necessary to third world nations creating famine on a biblical scale, at least one Too Big To Fail failing, as Lehman Bros and AIG did in 2008, and the AI bubble bust. All of these will happen. Locked in. Fixed. No way out.

In a previous post I outlined the order in which the financial catastrophe barreling down on us like oncoming freight will occur. I’ve simply included one new variable: the energy shock.

Here’s how it’ll go down.

First, there is an expansion. Stocks rise. At some point the rise becomes divorced from realistic earnings expectations. This is when intense speculation drives equities into bubble territory. After all, Nvidia’s market cap is just shy of ($4.2trillion) the annual GDP of India ($4.4trillion) as of Monday March 23, 2026. Simultaneously, US Treasury buyers, ‘prudent’ investors, qualified investors (people with more than $5 million in net worth), pension funds, insurance and re-insurance companies and good old orphans and widows, as they always do, got a bit jealous and so reached for yield. They wanted safety with high returns. But in this world you can have safe or you can have high returns. You’re a fool to think you can get both at the same time; alas we have a superabundance of fools these days.

So just like in 2007-08, the shadow banking system, ie. the issuers of supposedly safe and high yielding assets, called subprime loans, experienced serious losses, that lead to the unwinding phase of the financial crisis. The 2008 fin crisis started on a lovely summer day in NYC, June 22 2007—I think the Yankees won that day—when two Bear Stearns subprime hedge funs went belly up. This was 2008’s canary in the coal mine.

This time around it isn’t subprime that has precipitated the unwind but the dominance of private equity/private credit shadow banks, such as Blue Owl, Blackstone, Blackrock, and others.

As previously noted, the current crisis’ canary in the coal mine was Blue Owl. Their very rude wake up call arrived in the form of $1.4 bn in redemption demands, which forced Blue Owl to sell assets to meet redemption needs. It was a catastrophe for Blue Owl, in every way a fire sale in which every Wall Street trader exacted his pound of flesh. It also led to a very ugly unravelling of contracts with Oracle. Oracle’ stock plummeted.

Many others have followed in the weeks since Blue Owl burped up a massive fur ball. The specifics can be found in this post and are beyond the scope of this discussion. They are pertinent, but listing them would make this a Tolstoyian endeavor. The upshot is this: normally, an enormous amount of credit destruction (read, debt) has to happen until we get to phase three of the credit cycle. One counterintuitive effect: a stronger dollar. We’re already seeing this versus the other major fiat currencies.

Moving on to one of the other developments I outlined in the first paragraph: a housing crisis. Home building has long been the foundation of the American economy. It’s in serious stress right now. As I mentioned before, last month saw a full -17.6% collapse in the purchase of new homes. In the Northeast it was an epic cow patty catastrophe: -44%. In my hometown, sellers outstrip buyers buy a full 114%. This in the heart of the ‘Texas miracle.’ I honestly don’t know how a collapse in homebuilding will effect this economy coupled with the headwinds it’s facing. I know it won’t be salutary and will exacerbate already dangerous liquidity and solvency issues caused by the private credit/private debt unwind. What else? “Cannot say. Saying, I would know. Do not know, so cannot say.” Five bucks to whoever gets that reference.

Will the Fed be able to contain both? FuckifIknow?

Adding to fierce headwinds, Trump’s war against Iran has had a similar effect on the global economy as Odysseus ill-timed opening of Aeolus’s wind bag: it’s blown us on a completely fucktarded vector, beyond any rational goal, that will take five years-at a minimum-to recover from if we stop now. Plenty of us predicted this but we’re just dipshits sitting in the basement wearing our jammies. If the Israeli’s continue their wanton destruction of everything, there is no telling how Iran will respond. And I’m not even pondering nukes here.

The effects the closure of the Straits of Hormuz are and will continue to have on the global economy, rather the effects faced by the Rules Based Order the West imposed on much of the globe will be make the European energy crisis look like a night out with Sidney Sweeney.

One effect: potential famine in those third world countries-on a biblical scale-unable to import desperately needed fertilizer from the Persian Gulf at reasonable prices.

Second, no helium. Helium is a gas essential to modern industrial life, everywhere.

Third, my best friend in Denmark joked, “hell, we might soon be back on bikes eating only porridge for dinner.” He also rued the demise of Nordstream and said, unequivocally that Danish renewables won’t be enough. This from the one European nation with the largest sector of renewables. Imagine the second order effects cascading out across the globe?

And what about the cost of transport? Not just everywhere, but especially here in the US? Anyone given any thought to just how super human stupid just in time delivery looks now? I’ve always warned about this. You know: chickens, roosting; shit like that.

Fuck it. I’ve got more than ten years of Wall Street experience so what the hell do I know?

Well, I know this as I know the sun rises in the East and sets in the West: the exogenous shock waves rippling towards the US economy are bad. Vewwy, vewwy bad. And there is no double-slilt experiement available to cancel out the oncoming waves.

What next?

Oh yeah: Too Big To Fail. Nope. Stress test? Are you Dave Chapelle?

Just ask Lehman Bros or AIG. This time around one of the Too Big To Fail institutions will fail. Maybe more than one. If I had my choice it would be Goldman, but if I am being realistic I’d put odds on Wells Fargo and/or Citigroup. Why? Well, Wells Fargo has a history of laundering tons of cartel cash, so no real culture of compliance/risk management. Citigroup has brazenly challenged the SEC to regulate them on multiple occasions. Those would be my two choices.

Finally, I’ll recap phase three of the credit cycle: the Ponzi unwind. As I wrote here,

“Crypto will be the first big Ponzi unwind. And it will take a lot of suckers with it. Plus, a damn lot of fools who worked for investment, commercial banks and private credit/equity shops. Crypto is bullshit, wrapped in dead fish skin that’s been perfumed by Chanel. No matter how good it smells, it’s rotten to the core. Crypto is to this financial crisis as CDOs and synthetic CDOs were to 2008.”

Moroever,

“The AI-hyperscalers will suffer as well, during the Ponzi unwind. Why? They are in essence engaging in a similar sort of vendor financing like CISCO and Juniper Networks did in the dot-com bubble. Nvidia is giving chips to AI-hyperscalers as collateral for loans. Never mind the chips will depreciate long before the earnings are solid enough for the AI-hyperscalers to payback the “loans.”

It’s accounting legerdemain in extremis.

So, to be clear: multiple endogenous-domestic-headwinds coupled with very ugly exogenous-international-shocks, real and potential, increase the odds, hourly, that we’re nearing financial armageddon.

To recount what to expect: a housing crisis, a credit crisis, an energy-shock, fertilizer shortages leading to potential famine, one or two Too Big To Fail, failing and the AI bubble bursting. All at the same time. Same time. Boom. Boom. Boom.

This ain’t gonna resemble your daddy’s financial crisis. In the words of Grunge’s greatest lyricist, Chris Cornell, “I’m feeling California, but looking Minnesota.”

The Credit Cycle: Phase Two Accelerating

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On March 19, 2026

18 Comments

~by Sean Paul Kelley

Here are today’s Phase Two developments. Many are ominous. Things not looky so goody.

The smartest guys in the room, i.e., Goldman Sachs had this to say about AI: “Massive investment in AI contributed basically zero to US economic growth last year.” What will they predict next? An oil price spike if we go to war with Iran? Oh wait. 

Dario notes that the liquidity crisis is going global: “Middle East liquidity crisis in the financial system is surfacing.”

He cites Rashid ben Saeed who elaborates: “Citi and Standard Chartered literally evacuated their offices this week. Told staff go home, work remote. HSBC closed their Qatar branches. Hedge funds are in “contingency mode.” That’s a polite way of saying they’re bricking it. Analysts are saying customers could pull out $307 BILLION if this goes on another month.” 

First Squawk writes that both JP Morgan and Goldman are offering Hedge Funds ways to short private credit. That’s just weird.

Ripplebrain conveys just how devastating the attack on QatarEnergy’s LNG production is: “17% of QatarEnergy’s production is 3.4% of the world’s LNG production.” Ending ominously saying, that it’s “gone in the blink of an eye, perhaps for years.”

The irrepressible Matt Stoller highlights a video that highlights “straightforward market manipulation.” He also points our attention to the #2 story at the Wall Street Journal: “U.S. Regulators Propose More Lenient Capital Rules for Big Banks.” This kind of proposal is in direct contravention to the ‘stress test’ rules put in place after the 2008 Financial Crisis. It also clearly foreshadows liquidity and/or solvency issues that the commericial banks will soon face. 

In another clear phase two clusterfuck is this story from the WSJ, cited by Unicus Research. The upshot: “Stone Ridge’s LENDX fund just told investors it would honor only 11% of redemption requests.” The post on X also includes what kind of garbage is in the fund. Go take a look. It’ll engender a ton of schadenfruede. Enjoy! 

As pending crises morph into full blown disasters investment banks often prepare by enacting the following policies. First, they raise production quotas for their employees while simultaneously cutting their commission payouts. It’s a cut-throat business. Payout cuts are painful. I’ve lived it. And they always cut payouts right before or during bear markets. I endured this twice at Morgan Stanley. Guess what: Goldman has begun that process, as First Squawk reports: “Goldman plans performance-based job cuts in late April.” This we can infer two important factoids from this: Goldman is worried about cash-flow. You don’t plan to run employees off if you’re flush with cash. Two: timing, Goldman clearly sees this credit cycle accelerating rapidly with an April inflection point.

Shashank Joshi catches an excellent highlight from the Economist: “Average prices of petrol and diesel have reached $3.88 and $5.09 a gallon, compared with $3.11 and $3.72 at Mr Trump’s inauguration. Republican support for the war is strong, but softening.”

More Perfect Union informs us “the cost of vegetables jumped 49% last month as inflation hit hard and companies raised prices.” Its source is BLS data. Now I know, some will dispute how the CPI is computed. I thinks it full of balderdash and male bovine excrement. So does Ian. So I post and you decide. 

Sohrab Ahmari notes, unconfirmed but entirely plausible, that “force majeur [has been declared] on Qatari LNG contracts for up to five years.” Five years? That’s going to pile Pelion atop the already messa Ossa of the energy markets globaly. 

CORRECTION: according to EarlyGray the video below does not say anything about Japan buying Russian oil. Mea culpa. I regret the error. SPK

Richard posts a video and apparently translates it. If true, it’s a bombshell: “Japan is now openly buying Russian oil with the yuan.” Why not with JPY? I would imagine that China has already set up a Yuan based transaction system for buying and selling oil to steadily chip, chip, chip away at dollar hegemony. Yeah, Japan has said it publically and officialy. That’s pretty much like pissing on the petrodollar. Our closest North East Asian Ally. That’s fuckery on an hitherto unseen level. 

Meanwhile, to Japan’s northwest, South Korea is considering resuming imports of Russian oil.

And I make the observation, in utterly obscene Russian fashion that “with these high oil prices the Russian Treasury has certainly Как бога за яйца поймал.” Translated idiomatically: Russia is in the catbird seat. Translated directly:they got God by the balls.

Rory Johnston notes just how high Dubai crude prices have risen: “Cash Dubai crude (balance of the month) just broke above $170 per barrel.”

Here’s what I’ve previously written on this credit cycle. I stand by it all. The only comment I’ll add at present is this: if the exogenous shocks to the US economy continue and the energy shock intensifies, all bets are off on the proximate cause of the end of dollar hegemony.

 

Every Credit Cycle Is Different, Just Like This One

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On March 11, 2026

29 Comments

~by Sean Paul Kelley

Every credit cycle is different: they don’t repeat, but they do rhyme at the end.

Phase One: the Expansion

The credit cycle begins when intense speculation drives asset prices into bubble territory. This time around AI is the prime mover.  AI stocks have clearly inflated, irrationally, and dangerously market averages. Nvidia’s market cap ($4.9 trillion) is larger than India’s annual GDP ($4.5 trillion).

As Barton Biggs, a mentor-of-sorts when I was at Morgan Stanley, said about the dot-com bubble, “things that cannot go on forever, don’t.”

That rule applies to the 10 Horsemen of the AI-pocalypse.

The bubble will deflate, jus not the way you think.

It won’t go “boom” and pop all of a sudden. As Kathleen Tyson, a commenter as qualified as any to opine on this market, notes, “credit bubbles collapse from the periphery toward the centre [just as empires do]. Always. Overextension creates a vulnerable, unstable margin at the extremes.”

The bubble is here and it’s collapsing from the outside, just like a balloon does. Wrap your hands around an imaginary balloon and feel it lose gas. You can see it now, yeah?

So what does this mean? Well, it means we’ve reached the end of the beginning of the first part of this credit cycle. Part two is up next and it’ll be a like a rodeo-clown getting gored by a ten-tonne bull.

Phase Two: The Big Unwind

Phase two of the credit cycle is the credit unwind, read credit destruction, linked to insolvency concerns, similar to what FSK KKR is undergoing:

“FSK’s portfolio was hit by large markdowns in the fourth quarter on debt extended to software companies. The fund’s holdings in debt tied to janitorial services groups, and so-called roll-ups of dental clinics, veterinarians groups and defence contractors also saw markdowns.” 

Other private credit shops that have taken some heavy markdowns and/or halted redemptions, as I disucss below. But seriously, if you know the private-equity model, you should be appalled their taking over janitorial serivices, dental clinics and veterinarians. Mom and pop shops par excellence. And they are now having the profitable assets stripped and the rest is larder with tons of debt and left out in the world to go bankrupt. I have a cousin in private equity and I’ve lost all respect for him. It’s probably mutual. I’m no role model.

But I digress . . .

The real kicker is our Bearn Stearns moment: an analog to the precise moment the 2008 Financial Crisis became inevitable. Recall summer 2007 when two Bear Stearns hedge funds met the guillotine. Blue Owl and it’s recent woes are this crisis’ first canary in the coal mine. Blue Owl, essentially an SPE/SPV for AI-hyperscalers to offload debt from their balance sheet, is ground zero for Oracle’s recent woes. SPE/SPVs, for those of you who don’t remember, are what killed Enron and destroyed AIG. Blue Owl vis-a-vis Oracle signals the end of the inflating bubble and beginning of the credit unwind.

“So who’s unwinding and why, you ask?”

The first-comer was Blue Owl. They got a rude wake up call when investors demanded $1.4 bn in redemptions, which forced Blue Owl to sell assets to meet redemption needs, in essence a fire sale. Every trader on the street worth his salt knew who was selling and what. It was brutal, as I’ve heard it told from some old Wall Street pals of mine.

Then Blackstone gets hammered with $1.7bln in redemptions and halts all redemptions. Blue Owl is a shadow lending facility for corporations, not individuals. But the next examples affect the money of individuals, billionaires that is.

So here comes Blackrock, sideswiped by $1.2bn in redemption requests, of which they honored only half of them. Resulting in a bunch of high net worth investors got sucker punched.

This ongoing and accelerating unwind in private credit is canary number two of our next credit crunch/crisis all the while the Fed is, unsuccessfully trying to backstop the slippery-slide of private credit into insolvent credit: on February 17th they injected $17.8bn into the debt markets via overnight repos.

So a lot of credit destruction has to happen—and will—before we get to the third and final phase.

We are a closing in, accelerating for sure. In fact, the appraoching crisis, because the mass fuckery of private credit does not have to legally disclose holdings, will make 2008 look like a Roman Holiday. No candles included.

Added at 9:30 AM Central Time: Teachers’ Pension Reportedly Loses $7 Billion in Private Equity Bets in 2025

“Ontario Teachers’ Posts First Private Equity Loss Since 2009”

If you run a pension fund and you invest the funds money with private equity you are shit. You are giving money to the very people that are strip mining this country’s middle class businesses. Regardless, the contagion is on. This thing is getting perilously close to becoming uncontainable. Remember that catchphrase form 2007-08? “It’s contained!”

Phase Three: the grand finalé.

Where credit cycles rhyme, as I said above, are how they end: on the last two syllables. Can you say it with me: Ponzi? In the end the ponzi finance bubble always collapses.

I suspect Crypto will be the first big Ponzi unwind. And it will take a lot of suckers with it. Plus, a damn lot of fools who worked for investment, commercial banks and private credit/equity shops. Crypto is bullshit, wrapped in dead fish skin that’s been perfumed by Chanel. No matter how good it smells, it’s rotten to the core. Crypto is to this financial crisis as CDOs and synthetic CDOs were to 2008.

The AI-hyperscalers will suffer as well, during the Ponzi unwind.

Why?

They are in essence engaging in a similar sort of vendor financing like CISCO and Juniper Networks did in the dot-com bubble. Nvidia is giving chips to AI-hyperscalers as collateral for loans. Never mind the chips will depreciate long before the earnings are solid enough for the AI-hyperscalers to payback the “loans.”

Once the AI driving stock bubble bursts, all hell breaks loose. One or two investment banks will go bust this time around. Maybe Morgan Stanley? Maybe Goldman? (I doubt Goldman goes bust, they’re too politically well connected.)

Note, as I and Ian have both said, this will be the final financial crisis the Fed is willing to backstop. Broad political support for a bailout hasn’t eroded completely.

But the next one? It’ll be unstoppable. Not only will the political will have evaporated, but so will have the resources to do so.

As we say down here in Texas, cowboy up, ride’s about to get real.

Nota bene: Phase Two of this credit cycle is accelerating: JPMorgan Restricts Private Credit Lending After Loan Markdowns. (Hey, Dimon can be a putz, but he’s a careful, shrewd banker.)

Key takeaway from my post at X: “JPMorgan Chase & Co. is restricting some lending to private credit funds after marking down the value of certain loans in their portfolios, according to a person familiar with the matter, in the latest sign of stress in the $1.8 trillion industry.” Morgan took a $22 billion haircut. 

And this: “L&G’s solvency ratio — a measure of its ability to meet long-term financial obligations — declined to 203 per cent for 2025, down from 232 per cent in the previous year and below a Visible Alpha consensus of 217 per cent.” h/t for both stories go to Ventzu.

That’s some special fuckery there, folks.

Nota bene, bene: Good Morning from Germany, where today’s 10y govt bond auction technically failed.

Nota benissima: Well fuck, Cliffwater is the next domino to fall. First, huge redemption demands-to the tune of $33bn–at Cliffwater, LLC, force the private equity shop into a firesale a lá Blue Owl. So Cliffwater, LLC is a twofer!

And JPMorgan is dealing with some collateral stress issues. Whatever the fuck that means. When banksters make up words, be careful, you’re about to get screwed.

Even PIMCO piles on saying that they see “a crisis in bad underwriting in private credit.” Christian Stracke, president of PIMCO reiterated the headline news, “[this news] is the result of years of sloppy underwriting standards in lending.” Basically calling out the private credit/shadow credit industry for engaging in the 2007 equivalent NINJA–No income, no job–loans to any company that want cash. He also added, “there is a reckoning going on right now. . . . It’s not just a crisis of confidence, it’s a crisis of really bad underwriting.” Makes one wonder just how many cockroaches are going to come out of the dark, dank Wall Street kitchen this time around once the lights come on?

Phase Two of the credit crisis has arrived, and it came heavy.

Saturday Morning Grab Bag Of Baddies and Goodies

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On March 7, 2026

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~by Sean Paul Kelley

I’ll begin, as usual, with the economy. JP Morgan lays odds for a global recession at 60% now. Causes? According to JPMorgan it’s threefold: the conflict in Iran, the tariffs and AI. But JP Morgan is forgetting another huge variable, the private credit/shadow credit unwind happening in real time. Blackrock halted redemptions from its flagship debt fund to the tune of $1.2bn. Blackrock to investors: fuck off. Blackrock’s fuckery marks the third private credit shop in the last three months to shut investor redemptions down: first Blue Owl, then Blackstone and now Blackrock. 

As Dario intones ruefully, “Mark my words, the damage to the financial system the private credit space will cause will be greater by many orders of magnitude than the one subprime caused in 2008.” I’m pretty well convinced he’s right. That said, the political will to backstop another financial crisis has not eroded totally, so the emerging credit crunch will be the last one backstopped by the Fed and/or Congress. 

Another variable JP Morgan doesn’t address is the most recent (un)employment numbers. If the first reported, non-revised numbers of a -92,000 jobs is any indication, once the numbers are revised, February’s numbers are likely to resemble a catastrophe. 

On the ugly, catastrophe side of things, Dubai has only ten days of fresh food remaining if the Straits remain closed. I suppose they can eat dates, no? 

Also of note, The Reptile, aka Peter Thiel (yes, it’s a real anagram, google it if you donnae believe me!), dumped 2 million shares of Palantir. It’s a bright flashing red light, a semaphore both unmistakable and of serious consequence, when top execs dump shares of the corps they run. They are cashing out, leaving the equity collapse in the hands of suckers, ermm, retail investors, widows and orphans-like. 

If you want a fuller understanding of the logic logic behind Iran’s attacks on the region’s infrastructure, read here. Speaking of oil, one can’t fix stupid. Shorting oil in this kind of risk environment is nucking futs.

Maintaining our focus on petroleum for a bit longer, I have to note, if oil breaks bad to the north, past say $120, the resulting global recession will have deleterious effects on commodities, especially gold and silver. But more gold than silver, as the silver supply-demand equation has been so structurally out of whack for so long, the recession would have to be almost depression-like to impose enough demand destruction for the price to sink below the mid $70s.

Sticking with petrol it appears the Euros might come a begging to Czar Pootie-poot for gas and oil the longer the Straits remain inaccesible. Apparently Czar Vladimir has already hinted the Euros can, in Russian, “пошел нахуй.” I’m sure you can suss the meaning out of that one. If true, this volte face by the Euros is staggering in its hyprocrisy and implications. But it is far from surprising. Anyone with a halfway decent brain on their head could have seen this ugly denouement coming a mile away. Wait, a kilometer and some change. Yeah, ‘Muricans can do metric!

In genuinely good news, Indonesia has enacted a total and complete ban on the riding of elephants. When I traveled in South East Asia I refused to ride any elephants, they are too sensitive emotionally and very much deserving of my respect. As I note on X: 

This is supremely welcome humane news. The limbic system in elephants is so extensive and well developed it creates “profound emotional intelligence, long-term memory, and social bonds [in elephants.] [Their] brain structure allows for intense empathy, mourning, [and] social cohesion,” making them closer to humans in social development than any other class of animals than primates and ceteceans.

Check out the photo of an elephant getting frisky with me. Suprised me to no end, you can see it in my face. This news makes me smile and happy. Somewhere somebody is doing something right. Faith in humanity remains unrestored, but a credit has been added to the depleted account of faith, nonetheless. One of my finest memories is seeing a herd of wild elephants emerging out of the bush about sixty miles south of Mysore, India in 2009. Wild effing elephants. How cool is that? Portions of my life have been truly charmed and I’m grateful.

Speaking of memories, I was only five years old when Nadia Comaneci stuck 7 perfecf tens at the 1976 Summer Olympics in Montreal, but even then I knew I was witnessing something very special. My view hasn’t changed in 50 years. And her performance is as elegant and perfect as it was then.

How about some music on this fine March Saturday morning? I’ll note in brief the quiet but powerful resurgence of political and human vitality to American music. As I post regarding Tyler Childers:

Tyler Childers’ song, “White House Road”, written in 2017, paints a generalized portrait of American misfortune and hardship, but uses the patois of the Appalachian South in particular to stoke the emotions of the listener. And it’s why Childer’s imagery works no matter where you live in the US-hell, it’s almost Dickensian and could be anywhere. The tune’s poignance is just that brutally authentic and powerfully magnetic.

Don’t, for a second, confuse this with C&W. It ain’t that. This is threadbare roots Americana. If this doesn’t stir your heart, you don’t have one. 

The raw explosive emotion of Childer’s lyricism propels a simple 3-chord song (E-D-A) across the ragged, tragic and increasingly impoverished tableau of a decomposing America. Childers tells an old rural story, but ‘makes it new’ as Ezra Pound frequently exhorted young writers and poets. Indeed, there is a touch of Chris Whitley’s muse to this song.
 
Childers voice is a beacon of distress, masquerading as joy, “a damn good feeling to run these roads.” He sings.”Get me drinkin’ that moonshine/Get me higher than the grocery bill/Take my troubles to the highwall/Throw’em in the river and get your fill.”

His distress is amplified by his vocal register; and his range acts like the kinetic tension in an unsprung faucet, Schrodinger-like: at once blowing in a soft mountain drawl, only to tornado-up into a raspy hard emotional sucker punch landing on your solar-plexus and leaving you breathless. 
 
Tyler is proof that there are only two types of music: good music and bad music.
 
I dare you to listen and not stomp your feet.

More to the point, Jack White has single-handedly reinvented and fused Delta blues, Chicago blues and rock music right back into political and cultural relevance. One example is the global adoption of his anthemic Seven Nation Army.

His appearance on SNL in 2020 is another solid proof of concept.

Honorable mention goes to the Stone Foxes and their fantastic and criminally underrated retelling of the death of Delta Blues legend Robert Johnson, “I killed Robert Johnson.” The song is 15 years old. So what, it’s aged well.

While you’re at it, this lovely morning, check out this music here and rock out to this and this. The last two are representitive of a new breed of American rock bands. You won’t hear ’em on the radio, but rock is alive. And that’s a good thing, like this cover of Dancing in the Street, by the Struts.

Who ever talks about modern dance, or takes an interest in it ought give this video a solid once over: the choreogrpahy on display is a stuning blend of traditonal renaissance era galliard or volta, early Appalachian line dancing and urban American break dance, yeah, break dancing, for a tune straight out of my Scotch-Irish heritage

While you’re at it, check out this Ryan Adams cover of the Iron Maiden classic, Wasted Years.

Last one, I promise, this Band of Heathens song, “Hanging Tree,” eeriely echoes old-timey Protestant hymns sung by a choir, except it’s about infideltiy and damn near a murder ballad. It’s about 15 years old, as well, but it has aged like a fine Irish whiskey. Lastly, I have rarely in life coveted anything. And I use the word ‘covet’ purposefully. But that Dobro he’s playing in the video: me want one something fierce. But I’m left handed and those cost upwards of $1500. Ouch!

More if it happens. Maybe.

Nota bene: Apparently Kuwait Oil has declared force majeure on oil sales. That’s not confirmed, but plausible and bad news if true. As one commenter in the X thread linked wryly noted, “You know shit has hit the fan when you have to start using French terms.”

LMFAO.

Too Big To Fail Fails In China

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On December 5, 2025

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Roughly speaking there are two types of corporations in China. State owned (SOE) and private. During the policy driven real-estate bust, the countries biggest builder, Evergrande, went under.

But there was an assumption that the government would bail out real-estate SOEs.

Well the largest one, Vanke, is going under, and the central government is going to let it. Moreover, Shenzen’s (China’s Silicon Valley, but on steroids) has repeatedly bailed it out and that means that not only is the central government not bailing out a SOE, they’re letting a municipal government (arguably the most important in the country) take a huge hit. That will send a message to all other municipal and provincial governments.

The biggest mistake of the US financial collapse was the bailout of participants. Every firm which had financialized should have been allowed to go under. The few that were truly necessary should have been put back on their feet AFTER the shareholders and bondholders took their hits, and after being broken up. Collateral damage (those companies not responsible, but simply getting hit by the backwash, such as GM, could receive bailouts in exchange for a government stake.)

Capitalism has issues even when run properly, but it is a simple proposition at heart: people who allocate resources well should be rewarded with more resources to manage, and those who allocate resources badly should lose their ability to allocate resources. Every participant in over-financialization had made bad allocations of resources. For the American economy to operate, they needed to no longer be participants.

Take over the banks and brokerages, and either shut them down, or break them up. That included the bond rating agencies like Moodys.

The failure to do this meant that decision makers know (or believe) they can make risky bets that cause systemic economic issues, bets that damage the economy as a whole and expect to be bailed out rather than be required to take their lumps. (And, ideally, be investigated for fraud, which most of them were guilty of.)

An economy where economic decision makers are incentivized to take big risks which hold the entire economy hostage (because they might not be bailed out if the risk isn’t systemic) cannot work and doesn’t. The US economy requires a backstop that amounts to the full expectation that the Fed will print trillions on demand to bail out bad actors. (The current main bad actors are the AI cartel.)

China is, oddly, the only major economy in the world that runs markets more or less right. (Though they let their own real estate casino run for too long.)

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