The Cracks Emerging in a $3 Trillion Market – And What We Can Learn From It VIEW IN BROWSER I’ve never considered myself an alarmist. But I’ve been warning my subscribers about the hidden dangers lurking in the private credit market for practically the entire year. Yet, for most of 2025, the mainstream financial media coverage of this topic has been practically nonexistent. That all changed last week, when a major lender tried to merge two of its private-credit funds, nearly triggering a run on the whole industry. Investors were facing losses of almost 20%, and the firm had to freeze redemptions. That’s how panics start, folks. The good news is that the merger was called off, and the immediate chaos is cooling down. But this little scare showed us something important: The weak spots in our economy are not where most people think. They’re not in the big AI build-out or the cloud giants spending billions on new data centers. The trouble lies in the old credit system – the same over-leveraged pockets that have failed repeatedly. Jamie Dimon at JPMorgan said it best: “When you see one cockroach, there are probably more.” So, in today’s Market 360, I’ll break down the credit risks building under the surface, explain why they point to a much bigger shift in the market and where I believe investors need to be moving now to stay on the right side of it. What Private Credit Really Is – And Why It Grew So Fast Before we go any further, let me explain what private credit actually is. Private credit is simple. It’s lending that happens outside the traditional banking system. These aren’t loans from JPMorgan or Bank of America. They’re loans made by non-bank lenders – asset managers, private funds, insurance companies and giant investment firms. In other words, this is Wall Street’s version of “shadow banking.” Now, why did it grow so fast? After the 2008 financial crisis, regulators clamped down on the big banks. The new Dodd-Frank rules forced banks to hold more capital, reduce risk and cut back on certain types of lending. Banks could no longer make the same aggressive loans they used to make to small businesses, weaker companies or higher-risk borrowers. But the demand for loans didn’t disappear. It just shifted. Private credit funds stepped in and said, “We’ll do it.” And the money poured in. Private credit grew from about $300 billion in 2010 to almost $3 trillion today. That’s a tenfold increase in a little over a decade. Investors loved it, because private credit promised something most people couldn’t get anywhere else: high yields, stable income and less day-to-day volatility. For a long time, that pitch worked. Pension funds loved it. Endowments loved it. Family offices loved it. Even wealthy individuals piled in. Access was limited. Regular investors usually couldn’t get these deals because many private-credit funds were closed to the public. They were sold to institutions and accredited investors. And that exclusivity created the illusion of safety. If only the “smart money” could get in, then it must be safe… right? Well, not always. Let’s remember that private credit often lends to subprime auto lenders, distressed companies, businesses with thin margins... Borrowers who can’t qualify for traditional financing. These loans work fine in a strong, growing economy. They break when things start slowing down. And that’s exactly what we saw last week. | Recommended Link | | | | The legendary investor who picked Nvidia in 2016 before a 150x move just issued a critical new warning. Watch now. |  | | The "Cockroaches" Start to Appear The story that finally grabbed the headlines was the Blue Owl scare. Blue Owl Capital Inc. (OWL) is one of the largest private-credit managers in the world, with funds that lend money to businesses outside the traditional banking system. Last week, the firm tried to merge one of its non-traded private credit funds into a larger, publicly traded one. Because the larger fund trades at a steep discount, investors in the smaller fund were looking at almost a 20% loss the moment the deal closed. To push the merger through, Blue Owl had to freeze redemptions. Investors couldn’t pull their money out. That’s the kind of move that shakes confidence. Private-credit funds are sold as stable, income-oriented investments. They’re not supposed to lock you out or force you into losses. But here’s the important part: The Blue Owl episode was not the first warning. It was simply the first one the financial media couldn’t ignore. The earlier signs were already there. One of the first cracks showed up months ago when Tricolor – a subprime auto lender in Texas – collapsed. That bankruptcy forced JPMorgan to write off $170 million and raise its loan-loss reserves to the highest level in five years. Then another troubled borrower, an auto parts maker called First Brands, failed. That pushed more stress into parts of the private-credit system tied to autos and consumer lending. Some analysts may have brushed it off, but a pattern was clearly forming. Next, a handful of regional banks increased their loan-loss reserves. For several of them, reserves were at the highest levels in three years. These were all early signals – the kind that credit analysts pay attention to long before the public hears anything. And that’s exactly what the Blue Owl scare showed the world. It wasn’t the beginning of the problem. It was the moment when people started to get genuinely concerned. But the twist is that the stress isn’t evenly spread across private credit. Only certain corners are breaking – the same old, over-leveraged pockets that have failed in past cycles. And that brings us to an important point… not all private credit is the problem. Why Bad Credit Is the Problem This is a good time to mention that I worked in the banking industry as an analyst in the late 1970s and early 1980s. That experience shaped how I look at credit today. I watched troubled banks merge, repackage their bad loans and push problems into the future just to qualify for FDIC and FSLIC insurance. And after seeing how those deals worked firsthand, I’ve never fully trusted the numbers. Bank accounting is still a strange world, and that’s one of the reasons I stay away from financials in my premium services. The point is, when I warned my followers about the private credit market, it’s because I’ve lived through this movie before. After a week of scary headlines, it’s easy to think the entire private-credit world is falling apart. It’s not. The cracks we’re seeing are concentrated in the same places that always fail first – subprime borrowers, stretched consumers and businesses that were already on thin ice. But other parts of private credit are not only stable – they’re thriving. One of the strongest trends in the entire economy right now is the rapid expansion of AI data centers. These facilities are expensive, and the big cloud companies can’t build them fast enough. A large part of that build-out is being funded by private credit. These are not risky loans. They’re backed by real demand, long-term contracts and the fastest-growing technological revolution the world has ever seen: artificial intelligence. Where Investors Should Go Next This is important for investors to understand. Some of the private credit market is weak. Some of it is very strong. And the divide between the two tracks almost perfectly with what I’ve been talking about all year – the split between the old economy and the new one. The old economy runs on credit to consumers, autos and legacy industries that lack the growth or pricing power to keep up with rising costs. That’s where the failures started. That’s where the cockroaches showed up. The new economy runs on cloud computing, AI, robotics and automation. These are sectors with strong growth, robust margins and strong demand from customers worldwide. When companies in these sectors borrow, they borrow for expansion – not survival. That’s the split I want you to pay attention to. Capital is already moving toward the strongest parts of the market. Earnings are following. And over time, stock prices will, too. In my view, the best opportunities in this environment will come from owning the companies at the center of the biggest technological shift of our lifetime. Other companies will be relegated to the dustbin of history as we reach what I call the Economic Singularity. I’ve been studying this transformation all year, and I recently highlighted the seven companies I believe are best positioned to lead the next major wave of growth. If you want to stay on the right side of this divide – and avoid the weak corners that keep cracking – I encourage you to watch my latest presentation. So, if you want to understand what's really driving the unprecedented changes in our economy, go here to watch it now. Sincerely, | .png)
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