Oct. 2 at 1:10 PM
$SPY $QQQ $SMH $SOXX $SOXQ
SOMETHING TO THINK ABOUT?
Please note I am NOT short any of these stocks. I am simply posting something for investors to consider.
Seasoned investors understand that credit leads everything. Just think about what happened between ORCL NVDA and OpenAI over the past week or so.
NVDA invests
$100B in OpenAI so that Open AI can buy NVDA's chips...and ORCL's guidance hinges on OpenAI able to raise
$300B and ORCL ability to raise
$100B. If credit suddenly dries up then what happens to these plans?
Again, I am not predicting anything specific and this post is NOT intended to be doom and gloom. I am just an older guy who has seen these type of things transpire before.
Along those lines, below is from a post on X that I believe is worth a read. Simply stated, it is important that investors stay informed:
"What you’re seeing is a sharp divergence between listed private credit proxies (a Blackstone BDC and Blue Owl’s stock) and the S&P 500. The index is levitating on mega cap tech momentum and easing policy hopes, but private credit is pricing a very different cycle with tighter cash flows at borrowers, rising loss expectations, and margin compression ahead.
Private credit’s core exposure is floating rate loans to middle market, sponsor backed companies. Higher short rates were a tailwind at first, yields reset up quickly while credit losses were still muted so BDC earnings looked great. That phase is ending. All in coupons above 10–12% have chewed through interest coverage; adjusted EBITDA add backs are getting harder to defend; and the easy levers (expense cuts, price hikes, sponsor support) are largely pulled. Markets are now discounting three things at once: more non accruals and restructurings, markdowns that follow rather than lead reality, and a turn in net interest income if base rates fall.
Losses are inherently lagged in this asset class. Portfolio values are marked quarterly with model inputs; managers can amend and extend to buy time; and covenant lite terms delay formal defaults. Share prices move ahead of those marks. The steep drop in the Blackstone secured lending vehicle isn’t proof of crisis by itself, but it is the market saying expected NAV and dividend paths are lower than recent prints imply.
Blue Owl’s selloff adds a second signal. As an alternative manager, it earns management fees on AUM and incentive fees on performance. If fundraising slows (wealth channels re-risk back into liquid bonds & equities) and performance fees fade as portfolios are written down or restructurings eat returns, forward earnings get clipped. In a falling rate scenario, spreads compress and loans refinance out of funds more quickly, fee bases shrink and the peak NII story reverses. Add higher operating leverage and equity beta, and the stock can slide even if current fee revenue still looks fine.
There are structural headwinds too. Competition in direct lending has pushed leverage up and spreads down for top sponsors, great for issuers, not for lenders heading into a softer macro. The 2025–2027 refi wall for sponsor backed companies looms; many loans were underwritten."
https://x.com/onechancefreedm/status/1973140523218268667
