The Private Credit Mess Wall Street Isn’t Showing You | Chris Whalen

What do you think about this relative game that's happening between the U.S., these other economies, Europe, China? Obviously, this oil crisis has hit certain economies in certain countries harder than others. What does that do for a macro thesis in general for investors who are thinking not only inside the U.S., but also outside of the U.S.? I think first and foremost, a lot of nations are going to go back to a self-sufficiency model. They're going to be looking at ways that they can cushion the impact of the war on their consumers. For example, in Korea, they have slowed down production of things like lubricants and other products so that they can prioritize diesel fuel. Diesel fuel is what runs most global economies. Gasoline is kind of a political issue at the pump. You always talk about that, but it's diesel fuel that moves products and then ripples into the cost structure. So I guess, you know, if you're a global investor and you've been playing economies like China, you have to realize that China itself has been buffeted by the high price of oil. They have gone extraordinary lengths to have alternatives, use electricity, etc. But still, they are impacted by this quite a lot. You see it in their production numbers, their industrial numbers, and then more importantly, their customers around the world have also been impacted very severely. And then you look at the Ukrainians who seem to be getting the upper hand in this ridiculous war, and they just whacked the refinery outside of Moscow again. The ability of Moscow to export both petroleum and refining products is kind of a marginal factor in global energy supplies, but it's still important. It's like if we had taken the Iranians offline permanently, that would have a big impact. So when you're looking at global markets, you got to say to yourself, how has this economy been impacted by the war? And what's it going to look like a year from now? Assuming we have peace. I'm not sure how long this peace is going to last, but we'll see. Why, in your opinion, are these credit spreads so tight? You would imagine in this type of environment with this context, you would see credit spreads kind of blowing out more than they are. Why are credit spreads so tight, in your opinion? It's a fascinating question you asked. Given how rates have tightened and got up, you would think spreads would widen. Natural historical relationship, right? But the difficulty is there's still so much money chasing yield out there. Institutional investors, pension bonds, whatever you want to say. That's, I think, the reason that spreads are so tight. People figured, well, I want to be involved in this and that, or I'll buy distressed assets and put them into a servicer and see if I can get some value out of them. So to me, the inflation is very obvious in the financial markets globally. And that's why spreads are so tight. They're at historic lows right now. And you would think, wait a minute, the AI stocks are trading off. Are spreads going to widen? What's really interesting is that Moody's put out a piece this week talking about how something like two-thirds of all of the distressed situations now in corporates involve private equity and private credit. So that tells you what's going on. The street made a big mess, and they're still not showing us the full totality of this mess. We will see it over time, but it kind of dribbles out in little bits here and there. You don't get a global view because it's private, and the private equity firms lock everybody up under non-disclosure agreements so they can't talk. It's fascinating. How important in terms of a systemic risk factor do you put some of these private equity or private credit instruments? Because like you said, there's this kind of opacity to them in some way. It's hard to tell what's going on, but in a way that also means it's hard to tell what these private credit funds or private equity funds are connected to in public. So how important systemically do you think these are? Are these something that can kind of fail and hey, the investors who are part of them take this haircut without some broader implications? Or do you think that investors should be focusing on the issues happening in private equity and saying, hey, I should make sure that my portfolio is constructed in a way that I'm somewhat hedged against this potential risk? I think you definitely want to ask questions about the assets in your portfolio. You may not get satisfactory answers from the sponsors of these schemes. Systemic events occur when people are surprised, when there's something out there that takes them unawares and all of a sudden they have to scramble and make changes. You saw a little bit of that with Apollo and BlackRock and the rest of them when they had to suspend redemptions on these funds. You may also see that with some of the business development corps which invest in the debt of these private companies. They have limited leverage, but still they're fully exposed to default. Just as there's been a big bid for paper in the corporate market, there's been an enormous bid for people who are willing to take credit risk from other parties. So banks, the more astute banks, have been sellers of credit risk. Other funds have been buyers. They think they're smarter than everybody else. But I do think there's a reset coming. Maybe not a systemic reset, but you could see a substantial sell-off. I've been getting out of most of my tech because I did very well. I had AMD and ARM and a variety of things. I used to cover semiconductor capital equipment when I was a younger man. Now nobody even knows who these companies are. They don't pay any attention to them at all. But the fact of the matter is you have companies that were basically going sideways for five years, suddenly go up tenfold in less than a year. That's probably going to correct at some point. My judgment is Micron worth a trillion dollars. Love the company, by the way. But I don't know. I think in a lot of ways, the reference points that we used to use for judging value have kind of been swept aside by this whole AI thing. I do think it's a bubble though, and I do think it is going to sell off. That's why I'm out. I've been telling my flock to go defensive, and I'm going to amplify that message this week. If you're enjoying this conversation, you'll probably want to check out our 2026 Gold Outlook Report. It's our latest edition, and it covers everything from fundamental prices of gold and silver, basis and co-basis data, as well as our macro outlook for the rest of the year, and our price calls for gold and silver in 2026. 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