When Wall Street is holding its breath for tech giant Nvidia’s quarterly earnings report, and Nvidia plans to publish it after the stock market closes, you know that the bubble is close to bursting. As of the time of this writing, Wall Street is still open and television talking heads are warning that a slower growth of earnings could unleash a sellout of AI stocks, which can spread contagion to other sections of the $2 quadrillion Everything Bubble.
More and more financial investors are issuing warnings on the two bubbles ready to burst: AI and the so-called private credit market. While the rise of Wall Street in the past months has been driven by tech companies involved in AI, private credit, with $1-$3 trillion, is larger today than the subprime bubble in 2008, estimated at $1.3 trillion. Nobody can say how much private credit has a subprime ("garbage") quality, because of its opacity. However, more and more cases are coming out of firms with a sub-subprime debt to assets ratio, financed with private credit. We have reported the case of First Brands, the U.S. automotive supplier. “Bond King” Jeffrey Gundlach cited the case of home renovation business, Renovo, which went into Chapter 7 bankruptcy after issuing $150 million in private credit. The company listed liabilities between $100 million and $500 million, while listing assets as less than $50,000. Gundlach questioned how private firms could have marked this asset at 100 only weeks prior when the massive disparity between liabilities and assets was evident.
(Private credit as an asset class is debt financed by money funds, hedge funds etc. which do not have the same capital to assets requirement as banks. However, banks often lend money to those players, to leverage investments.)
