For compliance and replay purposes, we’re asking participants to register beforehand (name and email address) for our Zoom webinar on Weds, June 26 at 4p ET, where I’ll be walking through my long vol / tail risk scenarios for 2025.

Registration link in post.

My spidey-sense for major systemic risk has sounded an internal alarm three times in my investment career. Once in Q4 2007 over alt-a and subprime RMBS. Once in Jan/Feb 2020 over Covid. And today.

I’d like to invite all Epsilon Theory Professional subscribers to join me on Wednesday, June 26 at 4pm EST to review the full thesis – the triple systemic risk thesis – and how I’m thinking about trading it.

I continue to feel like it’s 2007 all over again, and I’m looking forward to talking this Friday about how we prepare for the 2008 corollary.

Here’s the question we need to ask in order to evaluate the systemic risks of a fundamental change in the provision of credit to the US economy, from highly regulated commercial banks to less regulated asset managers:

How do non-bank private credit issuers fund themselves?

What’s happening today is not only a war between commercial banks and asset managers over credit provision to large US companies, it’s also a war between bank asset managers and non-bank asset managers over investment flows.

Lots of people are going to be squashed beneath the feet of these behemoths or crushed by the collateral damage of their combat. Let’s work together so that it’s not any of us.

The Fed is looking for an excuse to cut, and as soon as they have that excuse, they will.

There are two possible Narrative excuses, one immediate and one with a slower fuse …

My spidey-sense is no longer tingling like crazy about the overall rise in scale and scope of private credit. It’s a profound shift in the core social function of credit provision to the real economy, but I think it moves systemic risk around rather than creating new systemic risk.

The associated transformation of the insurance industry, on the other hand …

It doesn’t happen often, but every few years there’s a real-world shock that leaves the old narrative structures standing but eliminates all the people who believe strongly in them. These events are like neutron bombs for narrative-world, and that’s how I’d describe Iran’s attack on Israel this weekend.

I think everyone in Washington and on Wall Street is in the bag for nominal growth (ie, number-go-up) by any means necessary through November.

Washington is in the bag because their world ends if they don’t win in November. Wall Street is in the bag because it’s their last chance for a big score before a stagflationary vol event of enormous proportion hits the economy regardless of who wins in November.

That which we call QE by any other name would smell as sweet.

I think if Shakespeare were reincarnated as a Fintwit luminary, that’s how he’d rewrite the Juliet bit about roses, at least if he were thinking about what’s happening in bank regulation today.

This is the privatization of QE and debt monetization.

I got some more color from Rusty on the shift in our Narrative Monitors this month from hawkish to dovish central bank narratives, and I thought it was well worth forwarding to everyone.

Recording of last Friday’s private credit working group call, along with a transcript for those who prefer reading over video.

The main takeaway is that we are increasingly thinking that the expansion in private credit is less of a ‘bubble’ than it is a structural transformation within capital markets.

Once a truthy-sounding explanation for a market crash is widely publicized, the crash stops. It becomes safe to get back in the water.

That’s true for China today just like it was true for Bitcoin a few weeks ago.

We’re starting to pick up the “no landing” macro scenario in The Narrative Machine.

Recording of the private credit working group conference call on Jan 26.

I think that we’re gearing up for Round Two of the Unmooring Trade.

The language FROM central bankers remains hawkish (“slow down on your projected 2024 rate cut schedule”), but the language TO central bankers is not only decidedly dovish but is starting to veer into “we need a Fed put” territory.

We’ve moved from the promise of cutting rates (mission accomplished on inflation and a soft landing, so now the Fed should cut rates by choice rather than by necessity … well done and take a bow, you geniuses!) to the threat of not cutting rates (if the Fed doesn’t cut rates soon, then it will cause a recession … hurry up and cut, you fools!).

Recording of our kick-off call for an ET Professional working group on private credit.