Juggling Dynamite

An oil shock amid rising credit stress and negative job revisions, unexpectedly pushing up unemployment.  Every cycle is a little different, but similar developments have marked the onset of past recessions and bear markets. Oil price spikes reduce economic demand, partly because they tend to keep interest rates higher for longer. The segments below do a good job of examining the implications of recent trends.

Private credit has exploded in recent years, drawing in major institutions and alternative asset giants, and even featuring more heavily in retail portfolios. But as cracks emerge in parts of the private credit space, we take a look at how the benefits of non-bank lending could be turning into vulnerabilities. Apollo’s Marc Rowan points to the broad appeal of private lending to institutions, while former Goldman Sachs CEO Lloyd Blankfein and former Federal Reserve Board Governor Daniel Tarullo worry about the harm it could cause for retail investors. Here is a direct video link.

A simply brutal reminder from Canada about the real state of the global economy. The Canadians backed up the US payroll number for February, except in Canada it was the largest loss of jobs since 2022. As one big bank economist put it, this is a “simply brutal” result. While everyone has been talking, really hoping for reflation maybe recovery, the opposite keeps showing up instead. Especially where it comes to employment. Here is a direct video link.

In February, the Canadian economy ‘unexpectedly’ lost 83,000 jobs, the most since January 2022 (shown below since 2020), driving the unemployment rate up to 6.7% after a 25,000-job loss in January. Economists surveyed had expected employment to rise by 10,000 and the jobless rate to be 6.6%.

Employment declines were widespread and across both goods and services industries, with the private sector losing 72,600 jobs, and employment falling by 17,100 in the public sector. A 108,400 decrease in full-time employment was partially offset by a 24,500 gain in part-time work.

While Canadian stock prices are now negative on the week and month, bond prices surged on the belief that the Bank of Canada may now cut rates more than previously predicted. See, Canadian Bonds Surge After Economy Loses Most Jobs Since 2022:

“This is a pretty bad report,” Brendon Bernard, economist at Indeed Canada, said on BNN Bloomberg Television. “Everything is coming out pretty soft and we’re seeing declines across a range of sectors.”

The losses suggest the labor market remains soft as the economy bears the weight of US tariffs and an upcoming review of the US-Mexico-Canada Agreement looms over businesses.

…The loonie extended the day’s losses after the release of the jobs report, falling 0.4% to C$1.369 per US dollar.

While the data point to mounting economic slack, policymakers must also account for higher oil prices stemming from the ongoing conflict in the Middle East, which are likely to boost inflation at least in the near term. These are tough conditions for policymakers to navigate.

The plan to bring mom-and-pop investors into ‘alternative’ investments was always about finding a pool of greater fools to keep inflows coming. The ‘free money’ years covered up a lot of naked swimmers that are now being revealed. When people need cash, they sell what they can, and this is how liquidation contagion spreads between different asset classes.

On today’s Big Take podcast, Bloomberg’s Brian Chappatta and Olivia Fishlow unpack the recent tumult in the world of private credit. How cracks formed in this $1.8 trillion market, how companies are trying to tamp down investor anxiety and what it all could mean for the private credit industry’s efforts to get into 401(k)s. Here is a direct audio link.

The banks are involved because they lent to everybody in the loop, which is why the JP Morgan CEO has been warning about cockroaches for the past few months. See, JPMorgan Chase reins in lending to private credit firms after marking down software loans:

JPMorgan Chase is reducing its exposure to the private credit industry by marking down the value of loans held by the bank as collateral, according to a person with knowledge of the moves.

The bank’s giant Wall Street trading division has reduced the value of loans — most of which were made to software firms — sitting within the financing portfolios of private credit clients, said the person, who declined to be identified speaking about the client interactions.

JPMorgan’s move indicates the biggest U.S. bank by assets wants to get ahead of potential turbulence involving private credit loans to software companies.