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[Market Alert] The First Domino Just Fell (The Private Credit Crisis)

Updated: 7 days ago

VIDEO




TIMESTAMPS

0:00 - Introduction: Stage 2 of the private credit crisis

0:40 - The 3 stages of a credit crisis explained

1:51 - Blue Owl Capital: The permanent halt on redemptions & the PR spin

4:38 - Bank unrealized losses and the private credit black box

5:41 - Contagion risk and the 2008 Bear Stearns parallel

6:53 - The Fed's private credit warning & the sudden Repo market spike

8:25 - Stock market update: Nvidia earnings and the tech wall

9:11 - Retail buys while "Smart Money" buys crash insurance (VIX & Puts)

10:55 - The massive insider bets on Gold hitting $20,000

12:32 - The Hindenburg Omen: A major warning signal flashes 6 times

13:03 - My 3 S&P 500 scenarios: Best, Base, and Worst case

14:45 - The real danger: A lost decade or a hyperinflation melt-up


SUMMARY AND KEY TAKEAWAYS


Private credit has now entered stage 2 of 3 - the forced selling stage. Just like the 2008 housing crisis impacted you even if you didn't own a home, this $1.8 trillion private credit crisis will impact you even if you are not directly invested in it. This is because of the likely collateral damage to banks, pension funds, the broad economy, and the stock market when panic sets in.


Below is a summary of the data and charts I covered in my latest video update.



Topic 1: Blue Owl Capital & Essential Context for Private Credit















I want to give you the essentials about what just happened in the private credit market, why there are striking similarities with the Bear Stearns collapse in 2007, and why you should stay highly vigilant.










Let’s start with the 3 stages of a credit crisis:

  • Stage 1: This was the past two years. We saw a few concerning issues, but they were contained.

  • Stage 2: This is where we are now. Forced selling starts due to liquidity issues. Funds must sell assets quickly, often under distress.

  • Stage 3: Panic and contagion set in, affecting almost all assets and the broad economy due to a drop in confidence.


Blue Owl Capital, a major alternative asset manager, has been in trouble for months. They recently permanently halted redemptions for a $1.7 billion private credit fund aimed at retail investors.


Their PR spin called this "accelerating the return of capital." But let me translate that into plain English: they froze redemptions, investors revolted over a failed merger, and now the fund will basically turn into a distribution fund. They will sell on their schedule, which can take years, and investors no longer have a say. To fund a partial payout, Blue Owl was forced to sell $1.4 billion in assets. While they claim they sold near 100% of par value, in early Stage 2, managers typically cherry-pick their very best assets to sell first. This leaves the remaining portfolio filled with what some analysts call "toxic waste".


Experts are comparing this to 2007, when BNP Paribas froze three funds due to evaporating liquidity, and with Bear Stearns. Contagion is already spreading, with shares of other private credit giants like Ares and Apollo dropping heavily.


Furthermore, we just saw demand for the Fed's repo facility surge by $30.5 billion. The repo market is the short-term plumbing of the financial system, and a sudden spike like this means liquidity pressures are quietly building beneath the surface.



Topic 2: Stock Market Update & The Reality of "Unusual Bets"


The stock market is currently facing a massive wall, and pushing higher will be extremely difficult without heavy participation from the tech sector, as other sectors are reaching overbought levels.


Interestingly, while retail investors have poured a record $48 billion into US equities in just 21 days, the "smart money" is placing very unusual and expensive bets that a massive shock is coming.


Note: After sending my initial alert to my mailing list, I received some questions suggesting that a $1 million options trade isn't necessarily a big deal and could just be a retail investor. I want to clarify a few important elements regarding my analysis:

  1. The Nature of the Bet: I am not saying a $1M trade in itself is impossible for a retail trader. However, there is a huge difference between investing $1M in stock and betting $1M on a statistically improbable options contract that will almost most likely go to zero within a month - unless a historic shock (like 2008 or 2020) occurs.

  2. The Combination of Factors: Taken separately, a $1M trade or a slightly unusual strike price doesn't mean much. It is the combination of the massive capital size (for a bet) and the extreme nature of the bet (far out-of-the-money with short expirations) that flags these transactions as highly unusual.

  3. The Broader Picture: These specific examples are not the sole justification for my warning that "something big might happen." Rather, they are illustrations of the types of unusual activity I am seeing across the board, which reminds me of past times when the broader market was completely blindsided.


Here is the data I am tracking:

  • VIX 70 Calls: Someone bought $1.2 million worth of VIX calls with a 70 strike. The VIX has only hit the 70 level twice in its history: 2008 and 2020.

  • Major Index Puts: We are seeing millions of dollars spent on near-term "puts" (downside insurance) for major indexes like the Nasdaq (QQQ) and the Russell 2000 (IWM), expiring in early April.

  • Gold at $20,000: Insiders are aggressively buying gold options on the futures market, betting that Gold will reach between $15,000 and $20,000 before the end of 2026.

  • The Hindenburg Omen: This indicator - which tracks when the stock market becomes dangerously fractured - has triggered 6 times in the past month. The last time we saw this specific cluster was February 2020.


When households are piling into stocks at record levels while insiders are buying expensive crash insurance, you have to ask yourself: what do they know that we don’t?



Topic 3: Clarifications Regarding My 3 Scenarios for the S&P 500


To follow up on the questions in my inbox, here is a brief overview of my three scenarios for the S&P 500.

  • Best case scenario (5% probability): The market drops slightly to the February 2025 all-time high of $613 (on the SPY), and then resumes its uptrend.

  • Base case scenario (80% probability): We complete this current wave 3 of 5 between now and the end of April. The market then drops between $570 and $480 (between -18% and -31% from the current all-time high), before starting a final push that could end between $700 and $1000 on the SPY.

  • Worst Case scenario (15% probability): We are completing a 94-year cycle that started in 1933. This would likely trigger a drop between -38% and -60%, but potentially up to -88%.


For the base and worst-case scenarios, if the drop is not sharp because central banks intervene, it could actually be worse for most people. We could see a long, slow bleed - like a lost decade - or a melt-up due to hyperinflation (like Turkey).


If you want to be prepared for whatever comes next, make sure you join my free mailing list to get the signal and skip the noise.


Thanks,


Nico de Bony









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