The Credit Crisis is Beginning.

There is talk about a 30 to 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 taco

going on or as Robbo Bank is now calling

Zako. That's because Xiinping always

chickens out as well. Apparently, you've

got Donald Trump likely tacoing. He's

already extending the trade deal with

Mexico. Uh my son just handed me a

trillion dollar credit card uh because

he says money is basically worthless. So

now he's giving me a credit card

denominated in trillions of dollars. And

we uh it's bad. You know what's bad?

when your seven-year-old says money is

basically worthless. I'm like, "Hey,

I'll pay you uh you know, to do this

chore." And he's like, "Well, you know,

am I going to get paid in cash?" Cuz cuz

that's basically worthless. Yeah. He

wants to be paid in other ways. He wants

real assets. [laughter] He's going to

start demanding Bitcoin or gold here or

deeds to real estate. But uh but anyway,

uh 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. Uh 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 uh that's written by this

private credit attorney. I I wanted to

check to see if they were like a hedge

fund or something shortening 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 uh 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 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 Tricoler 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

AAA 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 just happened with First Brands.

The auditor for First Brands 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,

which happens to be audited by the

company they lend money to. Certainly

makes you scratch your head a little bit

and go, hm, 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 lean

protections." And this credit attorney

says, "These lean protections are now

skyrocketing." He says, "This happened

in 2007. This happened in the dot

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 because he's like, "Look,

Wall Street's public narrative is the

economy is resilient, inflation is

cooling, credit uh 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 lean subordination,

basically a simple way of saying, "Hey,

uh, if you go bankrupt, I want first

dibs." It signals a system stealing

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 beaver curve, beverage curve,

whatever is basically when layoffs

spike, the unemployment rate skyrockets

really, really fast because 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

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 was a comment that I just saw on my

Amazon layoff video. If you haven't

watched it yet, it's a really good

video. Uh, I think there's a lot of

detail on 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." Uh, and then

somebody else uh, you know, write 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 uh 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 have if you

spend a dollar uh 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. Uh, 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 whomever else does not cut

workers then Amazon's margins might go

up where the other ones 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 because

their margins are about 10%. It's going

to be different obviously at different

companies. You know, Microsoft has

higher margins, right? Uh and then of

course you don't want to affect growth.

That's why Amazon's cutting at human

resources and not at 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 a

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 eight cents of every

dollar, right? So it would take them

somewhere around a hundredx 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 10x multiple, even

if a 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 uh

SOFR market. This is the sofur market.

This is the secured overnight uh funding

rate uh market. basically the the

overnight market for cash. Hedge funds,

banks, they go there uh they could uh

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's

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 trap 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 Tricoler 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 uh you know

financial system for stocks tanked. UBS

and Jeff 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 to put. 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 go to 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 could 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 Meet 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 two-month stocks or

day trade stocks, right? We try to be

very clear with the difference between

those. Well, 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 cues,

which is awesome. you know, Tesla jumped

right off 414 and now off 443 uh 433

rather uh which we talked about also in

our alpha reports both of those lines.

Uh 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. The question is when it rolls it

tends to roll fast. It's just when does

that happen? And that's where all we

could 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 pe I think

that's one of the reasons uh we're

seeing such a surge in funding at house

hack uh 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

sofur rates. Uh how, you know, the Fed

never design 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-doopsy 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 102

yield spread on the China talk, uh, it

literally just fell below 50, which is

great. It still puts us really close to

shockprone, 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 poor 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 uh

you would need 10 times you would need

Yeah. You would need a 100 attorneys

each doing 10, right? Uh that would be a

thousand trust documents that you

completed. Well, if with AI, an attorney

can now do a 100 trust documents, now

you don't need a 100 attorneys anymore.

You only need 10. You're still producing

1,000 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 a

thousand 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 10,000 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 because

we could 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 6 or 7%

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'll 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. Uh, the hardest part is

sitting around and doing nothing.

Where was it? I can't remember where it

was, but 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 Mer 2012.

Waiting. [laughter]

Kind of interesting. And I personally

think that credit attorney guy,

it doesn't surprise me. Like I'm not

reading this credit uh attorney's

article going, "Oh my gosh, this is the

it to me it's like I saw this coming."

Well, like when we heard aboutricolor

and first brands, if you go back to

watch my videos, I'm not like making

this up in the past. You 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 insulates and the party

keeps going? Of course. But there is

cause for caution in this market. And I

think if you go to meet Kevin.com/data,

I do my best to update my Bearbull 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,

uh, here, let me show you. If you go to

meet kevvin.com, this is the pitch on

the alpha report here. Just skip past

that. Go to data, type in meet.com/data.

And I mean, I obviously encourage you to

join the alpha report. We've been

killing it. And we've got like 4,000

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. Uh 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 could

get the daily wealth in there as well.

Uh I think it's really useful and I send

out the daily wealth every day uh as an

email or you could get it in the app

through the Meet Kevin app, whatever you

want. Uh and I would highly encourage

checking that out. Uh it's 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, um so some thoughts there, but a

little scary I will say on private

credit.

>> Why not advertise these things that you

told us here? I feel like nobody else

knows about this.

>> We'll we'll try a little advertising and

see how it goes.

>> Congratulations, man. You have [music]

done so much. People love you. People

look up to you.

>> Kevin Praath there, financial analyst

and YouTuber. Meet Kevin. Always great

to get [music] your take.