Canary?
Doug Nolan
It might have been subtle, but it was reminiscent of early April.
During Tuesday and Wednesday trading, KKR’s stock suffered a 6.1% drop – the largest two-day downdraft since April 10/11.
Fellow “private-Credit” players Apollo fell 4.7%, Blackstone 4.1%, and Ares Management 7.6%.
AI behemoth Nvidia suffered a 3.6% drop, correlation with the “private-Credit” stocks that recalled April’s market swoon.
Oracle dropped 6.0% and the MAG7 index declined 1.3% over two sessions.
For the week, KKR sank 10.0%, Ares Management 7.6%, Blackstone 6.6%, and Apollo 4.7% - for the most part the largest weekly declines since April’s “liberation day” losses.
Leveraged loan prices slipped 0.15% this week, the largest weekly decline since late July (week ended 8/1) – and ended the week at the lowest level since June 29th.
Nvidia sank 14.6% during April 3rd and 4th market mayhem, as KKR cratered 23.3%, Apollo 23.2%, Blackstone 15.3%, and Areas 23.6%.
Markets were in near panic.
A fledgling bout of de-risking/deleveraging was at the cusp of wreaking bloody havoc, starting with the piercing of tightly intertwined AI and “private-Credit” Bubbles.
But President Trump backed down.
His tariff “pause” triggered a powerful short-squeeze and reversal of hedges, a liquidity onslaught that unleashed FOMO, manic speculative excess, and a major shot in the arm for AI and “private-Credit” excess.
Bubble inflation went into high gear.
September 26 – Bloomberg (Gowri Gurumurthy):
“New bond sales in the US junk bond market soared past $48b this month to make it the busiest September ever, surpassing September 2020’s $47b.
Issuers have priced $17.5b so far this week, the busiest week in five years.
The last time the market was more active was the $18.3b notched in the week ended Sept. 18, 2020…
This has also been the busiest month overall for issuance since April 2021.”
September 24 – Bloomberg (Caleb Mutua and Victor Swezey):
“From tech behemoths to power producers, companies have pushed US corporate-bond sales to historically high levels this month as firms capitalize on falling borrowing costs and unquenched investor demand.
Amid Oracle Corp.’s $18 billion deal Wednesday, investment-grade issuance has topped $190 billion for just the seventh month ever in September…
The high-grade market on Tuesday set an issuance record for September, typically one of the busiest months of the year, as average spreads last week hit their tightest level in nearly three decades.”
September 25 – Wall Street Journal (Eliot Brown and Robbie Whelan):
“The windswept town of Ellendale, N.D., population 1,100, has two motels, a Dollar General, a Pentecostal Bible college—and a half-built AI factory bigger than 10 Home Depots.
Its more than $15 billion price tag is equivalent to a quarter of the state’s annual economic output.
The artificial-intelligence boom has ushered in one of the costliest building sprees in world history.
Over the past three years, leading tech firms have committed more toward AI data centers like the one in Ellendale, plus chips and energy, than it cost to build the interstate highway system over four decades, when adjusted for inflation.
AI proponents liken the effort to the Industrial Revolution.
A big problem: No one is sure how they will get their investment back—or when.
The building rush is effectively a mega-speculative bet that the technology will rapidly improve, transform the economy and start producing steady profits.”
September 22 – Bloomberg (Saritha Rai):
“Artificial intelligence companies like OpenAI have been quick to unveil plans for spending hundreds of billions of dollars on data centers, but they have been slower to show how they will pull in revenue to cover all those expenses.
Now, the consulting firm Bain & Co. is estimating the shortfall could be far larger than previously understood.
By 2030, AI companies will need $2 trillion in combined annual revenue to fund the computing power needed to meet projected demand, Bain said in its annual Global Technology Report...
Yet their revenue is likely to fall $800 billion short of that mark as efforts to monetize services like ChatGPT trail the spending requirements for data centers and related infrastructure, Bain predicted.”
AI borrowing requirements will be without precedent.
It’s a replay of the late-nineties Internet infrastructure buildout – times (at least) a hundred.
We can only hope the underlying Credit fuel is not akin to hundreds of Worldcoms, Global Crossings, and Lucent Technologies.
Years of high-risk lending and speculative leveraging had created extraordinary Credit system fragility – even before the historic high-risk AI Credit onslaught.
September 23 – Financial Times (Toby Nangle):
“Private equity investors know that not every portfolio company will double or triple in value.
And for really good PE funds, outsized returns from their winners will more than carry the remainder that turn out to be either a bit meh, or a totally urgh. But private creditors who lend money to portfolio companies couldn’t give a monkey’s if the firms they lend to double or triple in value.
All they want to know is whether they’ll get their money back.
As such, they care a lot whether companies bomb so badly that they’re unable to repay their loans.
Alphaville isn’t sure quite what proportion of private credit direct lending ends up financing private equity portfolio companies.
So we had a go sampling the Blackstone Private Credit Fund’s massive $71bn portfolio of borrowers, sorting alphabetically the 713 entities to which they lend money and then looking up how they are classified by PitchBook.
After the first 100 we got bored, but noted that 90% of the non-CLO borrowers were classified as ‘Private Equity-Backed’.”
Analogous to private equity, AI equity and debt investors have distinctly different priorities.
And the crazier the equities mania and spending arms race, the greater the risk to lenders.
The manic AI bull case assumption of unlimited cheap finance will prove terribly misguided.
September 24 – Yahoo Finance (Jennifer Schonberger):
“Treasury Secretary Scott Bessent said… the Trump administration is looking for someone with an ‘open mind’ to be the next chair of the Federal Reserve as he interviews 11 candidates to replace Jerome Powell.
‘Everyone asks me what am I looking for when I interview potential Federal Reserve chairs, and it’s just someone with an open mind, who’s not looking in the rearview mirror, who’s looking forward,’ Bessent said…
Bessent expects to complete the first round of interviews by the first week in October…
The new comments are the latest indication that Bessent is widening his scope…”
Secretary Bessent’s “someone with an open mind” comment calls to mind his recent interview of Blackrock’s Rick Rieder:
“Whoever ends up being the Fed chair, there’s so many innovative things… how to use the balance sheet, how to use liquidity, where the yield curve is.”
There’s no mystery behind the markets’ extraordinary complacency with respect to the administration’s assault on Fed independence (and general mayhem).
Sharply lower rates and market yields, along with a grander “MAGA Fed Put.”
A virtual speculators’ dream come true.
September 23 – Bloomberg (Neil Callanan):
“Marathon Asset Management’s Chairman Bruce Richards sees the next Fed chair cutting rates after they start in May.
‘They are going to bring rates almost immediately down to the neutral rate of 3%, but I believe it goes more than that,’ he said...
‘I think the next Fed chair is going to do probably QE with a twist and the twist is buying long-term Treasuries to bring those rates down.’
Leveraged buyout and private debt will be among beneficiaries of lower rates.
‘It’s going to be a bonanza looking forward, not looking back,’ he said.
Private equity will overpay for certain companies but toughest times are behind for LBOs and there can be no bubble in the space as they pay lower multiples.
Sees $3 trillion spend needed on data centers, half of it debt.”
What might undo Financial Nirvana?
An upside inflation surprise and hawkish Fed are not a bad place to start.
Market pricing for the Fed policy rate out one year (9/16/26) jumped 14 bps this week to 3.16% - and is now 22 bps higher than lows from September 17th (day preceding Fed statement and Powell press conference).
Powell this Tuesday:
“If we ease too aggressively, we could leave the inflation job unfinished and need to reverse course later…”
Atlanta Fed president Raphael Bostic:
“I am concerned about the inflation that has been too high for a long time… And so I today would not be moving or in favor of [another 2025 cut]…”
Chicago Fed president Austan Goolsbee:
“I’m uncomfortable with overly frontloading a lot of rate cuts on the presumption that [inflation] will probably just be transitory and go away…”
Cleveland Fed President Beth Hammack:
“I think that we should be very cautious in removing monetary policy restriction.
It worries me that if we remove that restriction from the economy, things could start overheating again.’”
Monthly employment (JOLTS, Challenger Job Cuts, ADP, and Non-Farm Payrolls) updates come next week.
A well-timed Wall Street narrative of economic weakness worthy of aggressive rate cuts held through the Fed meeting.
Leaks were springing this week.
Q2 GDP was revised up to 3.8% from 3.3%, with Personal Consumption revised to 2.5% from 1.6%.
The Services (53.9) and Manufacturing (52) PMI indices were solid.
August Durable Goods Orders (2.8%) were much stronger than expected (negative 0.3%).
Initial Jobless Claims dropped to a two-month low of 218k (expected 233k).
August New Home Sales (800k) blew away forecasts (650k).
Notably, August Personal Income was reported at a stronger-than-expected 0.4%, with only two of the past 12 months reporting below 0.4%.
Confirming strong Retail Sales numbers, Personal Spending increased a stronger-than-expected 0.6% for the August.
August’s strong reading followed solid 0.5% gains for both June and July. Bottom line: Loose conditions are working their magic.
The Atlanta Fed GDPNow Forecast has jumped to 3.90%.
September 22 – Reuters (Howard Schneider and Michael S. Derby):
“New Federal Reserve Governor Stephen Miran said… the Fed is misreading how tight it has set monetary policy and will put the job market at risk without aggressive rate cuts, a view countered in remarks by three of his colleagues who feel the central bank needs to remain cautious about inflation…
‘The upshot is that monetary policy is well into restrictive territory.
Leaving short-term interest rates roughly two percentage points too tight risks unnecessary layoffs and higher unemployment,’ Miran said.
‘Insufficiently accounting for the strong downward pressure on the neutral rate resulting from changes in border and fiscal policies is leading some to believe policy is less restrictive than it actually is.’”
Stephen Miran’s (and the administration's) central banker credibility is off to a rather rocky start.
Miran’s call for another 125 bps of cuts this year is at odds with ongoing loose conditions, economic resilience, elevated inflation, and highly speculative markets.
It’s perfectly consistent with the administration’s agenda.
September 26 – Bloomberg (Lauren Dezenski, Madison Muller and Jennifer A. Dlouhy):
“President Donald Trump announced a fresh round of tariffs on pharmaceuticals, heavy trucks and furniture, including a 100% duty on patented drugs unless the producer is building a manufacturing plant in the US.
‘Starting October 1st, 2025, we will be imposing a 100% Tariff on any branded or patented Pharmaceutical Product, unless a Company IS BUILDING their Pharmaceutical Manufacturing Plant in America,’ Trump posted…”
September 26 – Reuters (Paul Arnold):
“Swiss companies Roche and Novartis on Friday flagged they did not expect to be hit by President Donald Trump’s latest pharmaceutical tariff announcement because they are in the process of building new U.S. sites and investing there.”
It’s a novel approach – certainly leaving no stone unturned.
Structure tariffs to incentivize an investment boom ahead of the midterms – and beyond.
While the timing of capital investment projects is unclear, “Japan’s finance ministry said on Friday that it will set up an investment facility at a state-owned development bank to support a $550 billion investment package agreed in Tokyo’s tariff deal with Washington (Reuters)”.
“Donald Trump has said South Korea’s pledge to invest $350 billion in the US under a bilateral trade accord must be paid ‘up front,’ as tensions rise over the structure of the deal, while Washington signals it could push Seoul for even more (Korea Economic Daily).”
Overheating risks are mounting.
Ten-year Treasury yields rose five bps this week to a four-week high of 4.18% - with five-year yields up nine bps to a one-month high of 3.77%.
Meanwhile, global bonds continue to indicate vulnerability.
UK 10-year gilt yields traded to 4.77% in early Friday trading (closed week at 4.75%), within only 12 bps from the highest yield back to 2008.
Japanese JGB yield added a basis point this week to 1.65%, the high since 2008.
French yields traded Thursday at the highest yield (3.61%) since the 2011 European debt crisis.
Australian yields jumped 15 bps this week to 4.39%.
I refer to the “government finance Bubble” for good reason.
Especially since the great 2008 crisis reflation, U.S. Bubble Dynamics have taken firm hold throughout international policymaking, markets, and economies.
Credit and liquidity excesses are global phenomena.
Derivatives command all corners of global finance.
Leveraged speculation and speculative Bubbles are almost universal.
The AI mania and arms race are international sensations.
September 25 – Bloomberg (Hannah Benjamin-Cook):
“Issuance in Europe’s public debt market has set a new September record as borrowers from sovereigns to high-yield companies make the most of favorable conditions.
Marketwide sales of euro, sterling and dollar reg S debt has reached €208.9b ($244bn) this month, topping a previous record of €200.78b set in 2021…
Issuance in the region has been on a tear all year, with sovereigns, supranationals and agencies leading the charge as nations such as the UK and France wrangle with sizable budget deficits.”
September 18 – Bloomberg:
“Just as China’s long bull run for bonds is fading, the nation’s banks have loaded up on government debt at the fastest pace since 2019.
In each of the past two months, commercial banks such as China Construction Bank Corp. raised their overall central and local government debt holdings by more than 20% year-over-year, reaching 72 trillion yuan ($10 trillion) by August…
That will add to woes for banks that are already struggling with a growing pile of bad loans and record low margins, as well as threaten the government’s ability to push through more stimulus to boost the economy.
‘Banks had to increase bond investments, even though the recent selloff due to booming stocks and a lack of monetary easing was a pain,’ said Liao Zhiming, an analyst at Huayuan Securities Co…
China had about 9 trillion yuan of government debt at the end of July, and commercial banks held about 70% of such debt in the interbank market…
That demand, to some extent, ensures that China can effectively carry out a proactive fiscal policy and keep financing costs low.”
September 24 – Bloomberg:
“Quantitative hedge funds are expanding rapidly in China…
Registration of quant funds rose 100% year on year to over 3,500 in the first eight months of this year, accounting for 45% of all new private funds...”
Chinese bank assets surged another $3.2 TN during the first half, or 10% annualized, to $65.5 TN.
And from the above Bloomberg article, we know that China’s banking system now holds $10 TN of government debt, after having “loaded up on government debt at the fastest pace since 2019… by more than 20% year-over-year…”
This is crazy monetization and leveraging, rivaling Japan’s recklessness.
Latent fragility is a global phenomenon.
To be sure, perilous global finance explains gold’s $75 jump this week to a record $3,760, boosting y-t-d gains to 43%, with silver’s 7% surge powering 2025’s advance to 59%.
Prone to turbulence, the fourth quarter starts next week.
I doubt we get to year-end without another bout of market instability, with the potential to unleash de-risking/deleveraging.
Bonds are increasingly vulnerable to overheating risks.
A surprise backup in yields would place myriad speculative Bubbles in harm’s way.
The AI mania and arms race are acutely vulnerable to deleveraging and associated liquidity issues.
Are the “private Credit” stocks a canary?
And with the Trump administration increasingly unhinged and the geopolitical backdrop deteriorating by the week, there are ample potential crisis catalysts.
For Posterity:
“Pam: I have reviewed over 30 statements and posts saying that, essentially, “same old story as last time, all talk, no action.
Nothing is being done.
What about Comey, Adam ‘Shifty’ Schiff, Leticia???
They’re all guilty as hell, but nothing is going to be done.”
Then we almost put in a Democrat supported U.S. Attorney, in Virginia, with a really bad Republican past.
A Woke RINO, who was never going to do his job.
That’s why two of the worst Dem Senators PUSHED him so hard.
He even lied to the media and said he quit, and that we had no case.
No, I fired him, and there is a GREAT CASE, and many lawyers, and legal pundits, say so.
Lindsey Halligan is a really good lawyer, and likes you, a lot.
We can’t delay any longer, it’s killing our reputation and credibility.
They impeached me twice, and indicted me (5 times!), OVER NOTHING. JUSTICE MUST BE SERVED, NOW!!!
President DJT” (September 20, 2025)
“After getting to know and fully understand the Ukraine/Russia Military and Economic situation and, after seeing the Economic trouble it is causing Russia, I think Ukraine, with the support of the European Union, is in a position to fight and WIN all of Ukraine back in its original form.
With time, patience, and the financial support of Europe and, in particular, NATO, the original Borders from where this War started, is very much an option.
Why not?
Russia has been fighting aimlessly for three and a half years a War that should have taken a Real Military Power less than a week to win.
This is not distinguishing Russia.
In fact, it is very much making them look like ‘a paper tiger.’
When the people living in Moscow, and all of the Great Cities, Towns, and Districts all throughout Russia, find out what is really going on with this War, the fact that it’s almost impossible for them to get Gasoline through the long lines that are being formed, and all of the other things that are taking place in their War Economy, where most of their money is being spent on fighting Ukraine, which has Great Spirit, and only getting better, Ukraine would be able to take back their Country in its original form and, who knows, maybe even go further than that!
Putin and Russia are in BIG Economic trouble, and this is the time for Ukraine to act.
In any event, I wish both Countries well.
We will continue to supply weapons to NATO for NATO to do what they want with them.
Good luck to all!
DONALD J. TRUMP, PRESIDENT OF THE UNITED STATES OF AMERICA” (September 23, 2025)
September 25 – Axios (Dave Lawler and Barak Ravid):
“Ukrainian President Volodymyr Zelensky told ‘The Axios Show’ that if Russia won’t end the war, officials working in the Kremlin should make sure they know where the nearest bomb shelter is.
Zelensky said he had President Trump’s explicit backing to hit Russian targets like energy infrastructure and arms factories.
And he said that if Ukraine gets additional long-range weaponry from the U.S., ‘we will use it.’”
September 25 – NewsNation (Taylor Delandro):
“Russia‘s former president said Americans should remember ‘that Russia can use weapons a bomb shelter won’t protect against.’
In a post on X…, Dmitry Medvedev, now deputy chair of the Russian security council…
‘The Kiev drug addict said the Kremlin should know where a bomb shelter is so its occupants can hide when he uses long-range American weapons…
What the freak needs to know is that Russia can use weapons a bomb shelter won’t protect against.
Americans should also keep this in mind.’”
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