Transcript of F**K Systemic Risk Is EXPLODING In Financial Markets
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0:00Credit spreads are widening. Private0:03credit fears are growing. Does this mean0:06we're due for a collapse? Been doom and0:09gloom pain.0:11Let's put some reality onto this. Okay.0:14The first thing that's happening is0:16there's a lot of talk about, once again,0:19withdrawals getting limited at companies0:22like Blue Owl, once again capping0:25withdrawals of two business development0:27corporations after massive withdrawal0:29requests. Basically, they're saying,0:30"Hey, we'll let people take 5% of their0:32money out even though people want 39%0:36out." And so, they basically limit it to0:385% per quarter so they can stem the flow0:41and they don't have to sell the0:43underlying assets at bargain basement0:44prices.0:46There are some explanations for what's0:48going on and it's useful to look at some0:51charts for what's going on because then0:52we can understand how big of a deal0:54systemically is0:56this rise in credit default swaps, so1:00protection for1:03some form of default in private credit,1:06but also where do we sit on credit1:08spreads in general? So, first, you have1:11to know1:12that there are two things going on here.1:14There are credit spreads and then there1:17are the actual yields that are being1:20paid right now. Both of these are1:22showing an increase on the right side of1:25the charts, which makes for good kind of1:28TV when when people pull these up and1:30go, "Oh my gosh, you know, we're we're1:32seeing the spread over here." Okay. So,1:35this top panel right here, this is the1:38spread. Okay, this is basically how many1:41extra basis points are investors1:44demanding1:46to hold high yield. When you hear high1:48yield, think like junk bonds, right?1:51Versus1:52a broader1:55a1:55of either government bonds or just the1:58straight-up risk-free rate.2:00Generally, what we argue is that when2:03this line is stable, and so we're we're2:05demanding, let's say, 2.7% above the2:08risk-free rate. So, if the risk-free2:10rate is 5%,2:12draw this out just to to make this2:14really simple. So,2:15I think this always helps. If the2:17risk-free rate, and we call it risk-free2:19because we make the argument that the US2:21government will never default,2:23if people are demanding 250 basis points2:26above that, it means they're demanding2:287.5%2:30for uh2:32junk, basically. Also known as HY, or2:35high yield.2:37Okay? As people's concerns about the2:40economy go up or underlying businesses2:42being able to afford these, they demand2:45more2:46here. So, they might say, "You know2:48what? Right now, we want Let's see, it's2:50up at 325. We want 325 basis points."2:54Okay? Well, that means we no longer want2:567 and 1/2, we want 8.25%.2:59That's what we want to be compensated to3:02lend this business money.3:04And so, that's what you see when this3:06top line goes up.3:09The bottom panel uh indicates the3:13average yield that companies are paying3:16right now uh for triple C-rated bonds.3:21And uh this is this is written as just a3:23straight percentage.3:25So, if you're a C-grade company, you're3:27basically paying 10% right now. I mean,3:29this is kind of like where CoreWeave3:31sits.3:32And so, there are a few important things3:34that we can take away just from these3:36charts alone that tell us a little bit3:38about the private market and stress, and3:41some things that they really don't tell3:43us.3:44The first thing that we know3:46is that one of the reasons this is3:48rising so much,3:50especially this little hockey stick3:52portion right here3:54is because3:55overall yields have skyrocketed. The3:5910-year Treasury has hockey stick just4:01in the last 2 weeks, 3 weeks from 4.9 to4:05like 5.27,4:08which is what I'm calling peak. I could4:10be wrong about that, but the point is4:12some of this rise right here is just4:14straight mechanical around4:17rates are going up.4:19But, that doesn't explain the spread4:21going up. So, in fairness, the spread is4:24also going up. Now, why could the spread4:26be going up? Because there's a greater4:28risk that when companies have to pay4:29higher rates, this does affect4:31artificial intelligence as well. This is4:33where it shows up. When a company like4:35CoreWeave has to pay more in interest,4:36or a company like Enphase has to pay4:38higher interest when they go public and4:40they're losing money,4:42the risk is that those companies are4:44more likely to not be able to pay their4:46bills, and then they need to get bailout4:48financing, and then people worry,4:51"Uh-oh, the AI trade is about to4:53collapse and the whole economy is going4:55to go to poopy dupes."4:58Which, in fairness, if the AI trade5:00collapses, the whole economy is going to5:03go to poopy dupes. It will be very bad.5:06The New York Times actually had a piece5:08talking about how AI accounted for a5:09hefty chunk of the economy per Mark5:11Zandi over at Moody's Analytics,5:13estimating that 0.6 to 0.7 percentage5:16points, or about 30% of uh5:18inflation-adjusted growth, comes from5:20AI.5:21I actually think that's understated.5:23I actually think that GDP is almost5:26entirely growing because of artificial5:28intelligence. It's just harder to5:30segment out. And so, a company that's5:32growing because its health insurance5:33premiums are going up or whatever,5:35uh they might not call that AI, but it5:37could be because of AI, and they can get5:38more pricing power because who knows?5:40They're able to raise prices better5:42because AI is helping them raise prices5:43better. I don't know. But, the point is5:45I think there are ways that the economy5:47can grow that doesn't get captured as AI5:49growth even though it's actually growing5:51because of AI.5:52Uh and so in their article here in the5:54Times, they make it very clear, look5:56right now earnings are rising faster5:58than stocks are.6:00Uh we have now seen PE ratios come down6:04because over the past 3 months earnings6:06expectations for S&P 500 companies have6:09grown more than 29%6:12in just 3 months.6:14Maybe it's all a bubble that's forming,6:16but that is actually really conducive to6:18cheap stock market valuations. You know,6:21we've been making this call that the6:23Nasdaq 100's going to get to $750 and uh6:26by uh next Friday, which would be the6:299th, October 9th. We've already hit it.6:32And we have another call for the end of6:34the year. And spoiler alert, we're very6:35very bullish on the economy. But we are6:38also very aware that the whole thing can6:40go to crap. Now, I'm going to take a6:42quick moment just to say that if you6:44want all of my calls, short, medium,6:47long-term calls, come join us over at6:49meetkevin.com. So go to meetkevin.com,6:51it'll redirect you here to our reinvest6:53rest blah6:55can't even say it right today. Reinvest6:57one membership where you get every7:00product we offer for life in one7:04bundle. Lifetime subscription to the7:06Alpha membership we do every morning,7:08those short, medium, long-term calls. We7:10sent a trade alert this morning on a7:12sold put. Well, I think we did great on7:14that option. Uh you get those trade7:16alerts as well. Uh you get the Reinvest7:19Terminal that's coming out, the entire7:21stock rewrite that we've got coming7:23towards the end of the year, which is7:24really exciting. You got the Reinvest7:27Homes platform. You've got all nine7:29courses, the course member live stream,7:31the blue business blueprint launching in7:34Q1.7:35Man, you've got a whole lot of stuff.7:38Lifetime access to that. Go to7:40meetkevin.com and join us there. If you7:41join us there before the end of the7:43year, you will never have to pay any7:44kind of recurring7:56for this product, rather than locking in7:58lifetime access. So, consider that over8:01at meetkevin.com. Now,8:02uh right now,8:04the stock market, I actually think does8:06offer quite a few inexpensive deals. And8:09we talk a lot about these over in the8:11Alpha membership, but just an example,8:13I've been calling for a breakout on8:14Nvidia over 227. It's finally at8:17all-time highs here, slightly above8:19only, but I still think there's plenty8:21of an opportunity in Nvidia. It trades8:23for just a 0.7 PEG right now. So, I8:26think The New York Times is right when8:27they say that companies are actually8:30getting cheaper, not more expensive8:32right now. But, there are risks because8:34a sharp decline in the market would8:36damage the broader economy due to the8:38wealth effect going in reverse,8:40essentially.8:41I agree with this. Uh but, my take is8:44that you don't hedge by shorting the8:45market, you hedge by paying off debt.8:49But, I do not think that what we are8:51seeing in private credit stress right8:52now is that bad. Because when you look8:56at uh this chart that we've just marked8:58up and we zoom into this chart uh right9:01here, a lot of this on this side can be9:04explained9:05by rates going up on the broader9:07economy, which does add more pressure to9:11especially triple-C rated junk bond9:13companies that may go bankrupt through9:15this.9:16Credit stress does go up, especially9:18when you break over 50 on the 10-29:20curve. We're at like 44 right now. We've9:22gone up a lot, but we're not quite at9:24the shock territory yet. In fact, you9:26can see that here. Spreads are not as9:28high as they were back when uh we9:31started our war with Iran.9:33Credit spreads are nowhere near as high9:35as where they were over here in 2025.9:39So yes, they're rising, but if you only9:41look at this and you don't look compared9:43to what we survived in 2025, we're doing9:46fine.9:47You know, that's when we really had peak9:49private credit fears was last year. I9:52mean, you zoom in on or zoom out rather9:55to the five-year chart for high yield9:58credit spreads. Come on, man. Come on.10:03People are freaking out like little10:05weenie babies about the number on the10:06right side of the chart. And I get it,10:09some people they don't want to read this10:11crap. That's fine. That's why I make10:14these videos. That's why we put together10:16our alpha reports. That's why we put10:17together our bottom lines. Because I10:20believe this is not a big deal. And you10:23get in a wrong deal, that hockey stick10:25on the right is going to come straight10:26back down because people are going to10:28see the overall levels of rates come10:30down, and therefore credit stress on10:32these companies comes down. To me, it is10:35not a big deal. I actually think that10:36generates a buying opportunity. Now yes,10:39then I know people are like, "Oh, but10:41Cavit, what about credit default swaps10:45on Oracle? The credit default swaps on10:48Oracle, they keep going higher." Well,10:51you have to remember that credit default10:53swaps are more than just a sign that,10:56"Oh, we think this company's going to go10:57bankrupt." CDSs are a tool for hedge11:00funds to hedge. So if you have a lot of11:03exposure to data centers,11:06of course you want some protection if11:09you're a hedge fund, cuz it's in the11:11damn name.11:12You're a hedge11:15fund.11:16>> [laughter]11:17>> Like people forget that as hedge funds11:20try to make more money on artificial11:22intelligence, the demand for11:25Imagine.11:27Hedges goes up. So yes,11:31that doesn't necessarily that Oracle is11:34going to zero. Yes, the CDS is on Oracle11:38up. I know.11:40But there's a point for that. Actually,11:42we looked at the fundamentals of Oracle11:43the other day.11:45I have to say11:47they are not as bad as they were last11:50year. I actually think they are in a11:52bottoming process around this this 13911:55line. This is roughly where they sit11:56right now. I actually think they're in a11:58bottoming process. We did a deep dive12:00fundy on this in the course member live12:01stream and the PEG ratio they have right12:03now in the balance sheet12:05man, you ought to look at.12:06Go look it up. You know, when you join,12:08you can literally sort by the stocks and12:10then when we last talked about them. And12:11we did the same thing with Nike in our12:13Alpha membership. We looked at Nike a12:15year ago.12:17A year ago and we're like, this is a12:19disaster. They have no pricing power.12:21And then we did an update in December12:23and we're like, guys,12:25this is even worse than we thought.12:29And look at what Nike's done since then.12:32From October, it was at $70.12:35In December, it was $60. It's now at12:38$33. It just keeps getting worse.12:43The fundamentals do tell you stories and12:45if you don't do the fundamental12:47analysis, then at least come read ours12:49or listen to ours.12:50I remember that's at meetkevin.com. But12:52anyway, to me this private credit stuff,12:55uh especially with, you know, this talk12:57right here about the Blue Owl12:59redemptions, I get it, but I feel like13:02it's a smaller part of the market. It is13:04a problem if the whole thing rolls over.13:06You know, there's over a trillion13:08dollars out in private credit.13:10But uh I think right now the levels that13:12we're seeing are a little bit overblown13:15in terms of fear.13:16And these redemptions that are13:18happening, I think are people saying,13:19"Look, I'd rather rather than being in13:20your stupid private credit fund exposed13:23to some of these triple C companies or13:25whatever,13:26I'd rather have exposure to Nvidia13:28because I could get a cheaper and safer13:30deal.13:32Which makes sense to me. Or maybe people13:34want to take their money out of this and13:36invest in House Hack, reinvest. Now, you13:38can't you can't right now. We don't have13:40a fund raise. But I'm just13:42I'm being facetious. Okay, dear SEC,13:44this is not a fund raise. This is not13:46I'm not pitching anything.13:48>> [laughter]13:49>> I ain't pitching you buy Reinvest one. I13:51think that's pretty cool.13:52Uh but uh13:54as far as uh13:56as far as market opportunities out13:58there, yeah, I think there are a lot of13:59market opportunities where people will14:00be like, "Why why why? Why do I want to14:02be sandbagged into that when I can get a14:04good deal on something else right now?"14:06Uh and so I think that's why you're14:07seeing a lot of this private credit14:09flight. Uh and to me, it's a [music]14:11little over done right now.14:13But hey, you know what you know what may14:16maybe you're one of those people that14:17that sees a deal in private credit and14:22uh you know what you end up saying is14:24>> Here we go. Come on. Push it. Buy the14:26[music] dip. Buy the dip. Here we go.14:28Come on. Push it. Buy the dip. Buy the14:31>> If you like that video, check this one14:32out. I think you're going to love it.14:34>> Why not advertise these things that you14:36told us here? I feel like nobody else14:38knows about this.14:38>> We'll we'll try a little advertising and14:40see how it goes.14:40>> Congratulations, [music] man. You have14:42done so much. People love you. People14:43look up to you.14:44>> Kevin O'Leary, Pat Bet-David, financial14:46analyst and YouTuber. Meet Kevin. Always14:48great to get your take.
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