https://www.wsj.com/finance/wall-street-builds-new-tool-to-bet-against-private-credit-bdf8bafa
A report just dropped that should have everyone be more cautious. Major banks (Goldman, BofA, Barclays) are teaming up with S&P Global to launch a Credit-Default Swap (CDS) Index for Private Credit.
If you aren’t familiar with 2008 history, this is essentially the “Big Short” alarm bell. Here’s the breakdown of why this is a massive red flag while the market is sitting at ATHs.
- A CDS Index is basically a giant insurance policy that lets big players bet on a massive wave of company defaults. They don’t build these tools when things are “healthy.” They build them when they see blood in the water. Right now, private credit (loans to mid-sized companies) is starting to rot under the “higher for longer” interest rates.
- Yesterday, Carlyle’s private credit fund got hit with a 15.7% redemption request. That’s more than 3x their normal limit. People are panicking and trying to get their cash out, and the fund is already moving to restrict withdrawals.
- While CNBC is telling you to FOMO into the AI pump, the banks are quietly setting up the infrastructure to profit when the bottom falls out. It’s the classic 2007 move: pump the stock market to retail at the top while buying your own parachutes (the CDS index) behind the scenes.
- When banks start trading “bets” against loans instead of making the loans themselves, liquidity dries up. The companies that power the “real” economy are about to get squeezed. With monthly inflation hitting 0.9% and energy costs exploding due to the Middle East mess, these companies can’t survive a credit freeze.
Don’t even want to talk about the war in Iran that is likely going to have boots on the ground soon as the ceasefire negotiations are not going well at all and Trump is obviously losing his mind on Truth Social. There’s an oil shortage and this should hit the market once reserves run out 1-2months.
TLDR: They are pumping the market to retail right now so they can dump their bags and flip the switch on the “shorting machine” once the credit defaults start hitting. History (2008) says once the vultures build the index, the crash isn’t far behind.
Not trying to doom and gloom. Just be cautious.
Not financial advice. Just following the money.
h/t AngryGranny1992