"LIQUIDATION" IS COMING

The coupon code for the alpha report.

Schumar Siesta ends tonight at meet.com.

>> Jeffrey Gunlock, legendary bond

investor, has some real warnings for the

market, especially private credit, and

tells us to keep some money in cash.

>> But we like and then I would have about

15% in cash right now because [music] I

I really think things are at a very

aggressive level, not just gold, but

which is certainly was at 4,400. But I I

certainly think that uh you know the a

stock market which is very narrow in

breath. I know it's better than it was

before but when I started following the

stock market it was in the early '7s. I

was you know 12 years old but you know

they called it the nifty50 and that was

that pre preceded a pretty big

correction down a pretty big drop in

1974 but now we have the nifty 7. Uh so

I know it's a little bit broader than

that now but we you know there's a huge

difference. feel it sometimes. You know,

>> part of that is probably because of the

concern about cockroaches. Let's listen

to Jeffrey's take on the cockroaches.

>> You've had some of the issues around

subprime auto obviously that we've all

been focused on wondering because of

what Jamie Diamond said, there's never

just one cockroach. You told me like 13

months ago that you were concerned and

this was out at Future Proof out in

Huntington Beach. If you recall the

conversation we had then where I asked

you as everybody was talking about the

prospects of a private credit bubble. Um

you you said you saw one. I'm wondering

whether you now see the first cracks in

it.

>> Well there sometimes is one cockroach. I

mean that's that that Silicon Valley

bank that was sort of a one cockroach

situation. A lot of people thought that

was the beginning of something.

>> I mean First Republic went down too. I

thought it might be contained and turned

out that was the case. But there there

>> yeah cuz the Fed bailed everything out.

>> Weaker weaker activity in parts of the

lower tiers of the credit market. And

there's been more than one sort of write

down or or default scenario that's

already occurring. And they seem to be

occurring kind of in a cluster. It's not

like there's one and then 6 months goes

by and then you get another another

write down somewhere. they seem to be

happening in a cluster kind of like the

layoffs are starting to happen in a

cluster. So I I just I I I I think that

uh private markets broadly have stopped

outperforming public markets. That's

certainly been the case in in recent

times with the public markets doing so

well. I I just think that there's going

to be a uh liquidation that will occur

in the next significant uh economic

weakness period that is going to be

surprising to people how uh much selling

and uh unwinding there's going to be of

what I think is an overinvestment in

these private markets both private

equity and private credit. We're all

>> That doesn't sound very bullish that

there'll be a liquidation in private

markets because of an overinvestment

into some of these private leverage

deals. What he's referencing is a lot of

these are highly leveraged private

credit funds in arcane financial

instruments where people don't even know

anymore what they're investing in.

they're just investing in some kind of

random product cuz it's like, "Oh yeah,

some banker told us we were going to get

some, you know, really good return on

our money." Sometimes I feel like people

don't even know that their money is in

these products. It's kind of scary. And

so this is where Jeff is like, "Hey, if

you're in some of these arcane assets,

maybe it's time to diversify out." You

know, that's personally what like I look

at this, I mean, he's kind of right.

Equity valuations, like asset valuations

everywhere are kind of high. is one of

the reasons I love so much what we're

doing with House I can reinvest because

we're you know our valuation is based on

August 2024 as just a real estate

company and now here we are coming out

with an AI product uh you know in in the

next few weeks that's not in our

valuation at all. So we think we're a

real estatebacked AI opportunity that's

trading at old valuations

whereas everything else is mega high and

here's Jeffrey going get out a private

credit private these private debt uh you

know opportunities

the bankers are pitching we saw what

happened withricolor let's see exactly

what he says so I think he's got some

interesting insight and uh I I think he

s suggests there could be a rush for the

exits here

>> major asset pools that have got

themselves ves into illlquid positioning

because of significant investment in

private markets and they don't have any

money. Uh you know that was famously

Harvard University back when they were

getting uh re you know their donors were

pulling back cuz it was going on on c on

campus. Uh, I think Yale's been talking

about liquidating some of their private

equity interests and the like and that's

usually the sign of overinvestment and

the the liquidity will dry up and it

will turn into sort of a liquidation

cycle. That's that's my map. I don't

think it has to happen this week, you

know, but it's it's been a process

that's been developing over the course

of this year, but I think that's going

to be at the foundations of the next

kind of financial problem that we have

in the United States. And perhaps beyond

the United States borders, but certainly

Oh, it'll ripple in that category. So, I

I I caution investors. I think if you

have liquidity options, it uh some some

some funds, they allow a liquidity

option, they'll give you a mark

periodically on their private credit

book. And if they allow a partial

redemption and you don't see any

degradation in the marks on the private

uh on the private pools, I would I would

take advantage of that liquidity

function because I think getting out at

a better level than you' be able to get

out at in in future quarters.

>> So I'm very I'm very uh focused on

private credit being an issue.

>> Okay. And we'll follow that. Um you

know, there's certainly a lot of focus

on it. uh you've given our viewers a lot

to think about today and plenty of

actionable ideas.

>> And the the the fact of the matter is

with these private credit profiles,

these are often funds that you can get

into. And what they do is they allow a

certain amount of liquidity per quarter.

When you're investing in in a fund as

opposed to like a company, right? So you

invest in a public stock, you just swipe

up or you know, whatever to to buy or

sell a stock. You invest in a private

company, you might be buying shares or

like convertible bonds in a private

company. Uh but you're choosing that

company so you know the assets that

company has the balance sheets that

company has whatever like you know house

for example we don't have any bank debt

you can see our public balance sheet

whatever go to reinvest.co you read the

offering circular houseack.com whatever

it's the same company but these private

credit funds what happens with them is

usually you'll have windows where you

can exit a private opportunity uh but

they'll only allow a certain amount of

liquidation per quarter. So, we saw this

uh or or we regularly see this anytime

there's a crisis where you'll say like,

you know, Black Rockck or Blackstone or

whatever. They'll say, "Oh, okay. We're

we're at max redemptions for the

quarter." So, if you're trying to get

out, you're going to have to wait for

the next quarter and you have to wait

for the next quarter. And they do that

to butter out redemptions, but it has

some serious potential risk factors

because what happens if you then get

stuck holding the bag? And as Jeffrey

Gonlock says, what happens when you know

people see or start getting more nervous

about other cockroaches? Then liquidity

dries up. Remember, you can't sell if

there's no buyer. That's why sometimes

order books can get destroyed so

quickly. People think that these stock

prices or crypto prices are stable.

They're not. They're entirely based on

somebody else being willing to buy. Why

does Fiserve go down 44%? because a lot

of people got spooked and there just

weren't buyers lined up. So, what

happens? The order book gets chewed

through. It's the same reason why when

things start going down, uh, alts like

altcoins, uh, you know, certain

cryptocurrencies or tokens plummet

because there just aren't that many

buyers in a crisis who are going to go

buy Fartcoin or, you know, whatever it

is. So the the smaller or more arcane

the product is, the more rapid the

unwinding. Like who wakes up in the

morning and goes, "Yeah, I'm going to go

invest in Ferve." Sure, they might be a

big core financial plumbing, you know,

uh, participant. But that doesn't mean

they're such a big participant in the

economy that people wake up and go, I

want to buy the dip on that stock. you

know, almost any other stock that we

have up on screen, whether it's, you

know, you know, a favorite of ours like

Axon or whether, uh, you know, somebody

wants to go buy the dip on the Q's or

Meta or Microsoft or Google. Uh,

Google's actually up 5% or whatever,

they're joining the FOMO in on Google,

whatever it is, you have buyers ready to

buy because these are such household

names. When there are no buyers and

people are wanting to sell, the

valuations collapse really, really

rapidly. And I think that's why we look

at that IMF report and I certainly

scratch my head at that IMF report

because the IMF report tells us I mean

the whole foundation of this report is

the global financial stability report

and they talk about the shifting ground

beneath the comm and they take a lot of

time to discuss the problem with private

credit markets and and how much money

has now been exposed to private credit.

Uh but not only that, they also talk

about the market basically ignoring the

potential effects of tariffs on

inflation

and growth. I suppose it could also be

an eitheror and that sort of ignoring

is a potential red flag. Uh not only

that, but then you've got fiscal

deficits at governments, which is

another crucial sign. You know, there

are three things are tariffs, fiscal

deficits, and then private credit.

Private credit, by the way, this

non-financial intermediaries, NBFIs,

that being the particularly scary one

where they say 90% of the lending to

these non-financial intermediaries is

from big banks, but big banks are

globally

uh and systemically important. you know,

we call them the GIPS, which if they are

the ones that are

throwing money, let's say, at these

non-bank financial intermediaries,

uh, and you know, we now have high

allocations to assets that might have

really bad collateral support. So, in

other words, the underlying value of the

the bonds or debts go to poop. then you

could have quote unquote severe

dislocations.

And maybe the reason we haven't seen

that, you know, during liberation was

because it was such a short period of

time that we got liberated compared to,

let's say, March of 2020 when where we

had many more weeks of of pain.

But non-financial or non-bank

financialist intermediaries could

amplify market stress from the side of

leverage funds that so far was limited

in April of 2025, but basically could

become an issue again over time,

especially when we look at banks and we

see, wow, you know, banks are

increasingly lending to private credit

funds because these loans offer higher

returns on equity than traditional

commercial and industrial lending.

Five large fund managers account for

onethird of aggregate loan commitments.

Banks lend to a variety of these and

bank exposure is pretty large at 9% of

bank portfolios totaling $4.5 trillion.

So what happens when that $4.5 trillion

people to go look at the underlying

assets and they're like oh wow it's just

you know a first brands like the

underlying collateral is absolute trash.

Well, you know, then you have big poopsy

dupsies. So, while large banks serve as

primary lenders to non-bank financial uh

intermediaries, accounting for 90% of

all lending to these exposure

concentration is more large among large

or is more severe amongst large regional

banks and those with assets under 100

bill. And they go as far as suggesting

that some of these companies might not

be able to actually fund the amount of

withdrawals that could come to these

banks that as many as 4% of US banks

might not have enough liquid assets to

actually pay people's outflows. So you

could end up having Silicon Valley style

stresses hit again. and stress tests

aren't actually

monitoring these correctly because first

of all the IMF isn't even going to

consider what happens if banks

potentially go bankrupt. They literally

say we don't even consider the solveny

of these banks. But a lot of banks

do not have the uh reserve ratios in the

event we end up going into some kind of

liquidity crisis because of this private

credit cockroach situation. So people

think the banking system is sound and

resilient because that's what you know

Jerome Powell always tells us. Uh and

you know

that might be wrong. So kind of a crazy

environment we're in. And so I think

Jeffrey's kind of right to think about

you know check where your money is. If

your money is sitting with some bankers

and you don't really know what's backing

up your assets, uh maybe it's time to

diversify a little bit into at least

where you know or sort of trust the

underlying assets.

>> Why not advertise [music] 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, [music] man. You have

done so much. People love you. People

look up to you.

>> Kevin Praat there, financial analyst and

YouTuber. Meet Kevin. Always great to

get [music] your take.