YWR: 4 reasons we make new highs.

I must have a glitch. Or a wire crossed.

Everyone is freaking out, but I see the market making new highs.

And remember! This is not financial advice. Just a personal view.

2 Months Ago everyone was bullish and nobody wanted cash.

Now everyone is panicking.

It makes sense that the next swing in the pendulum will be back to greed and risk taking.

Here are 4 reasons the S&P 500 could surprise everyone and make new highs.

#1. Private Credit is a storm in a teacup.

This is the easiest thing to not worry about. The fear seems to be that private credit is the next subprime mortgage crisis which spills over to create systemic risk, which takes down the economy.

The whole rush in private equity and private credit at the end of the cycle has been a train smash in the making and why we wrote Anatomy of a Private Equity Train Smash in 2024.

Yes, private credit returns might be weak/negative, but it is a problem for the endowments and pension funds which invested in them. It will also be a problem for the private equity funds which will have to use their ‘dry powder’ to bail out the underlying companies so they can pay interest on their private credit loans.

But that’s their problem.

Just because private equity and private credit funds are experiencing a long overdue train smash, it doesn’t mean it has to ruin our party in public markets.

Private credit is a $1.2 trillion asset class. Appreciate how small $1.2 trillion is compared to global fixed income markets of $145 trillion!!!

Second, loan exposures by banks to private credit funds are also small in the scheme of things. Loans to private credit funds are estimated at roughly $300bn out of total US bank loans outstanding of $13.4 trillion. How is an exposure = 2.2% of US loans going to cause a financial crisis?