An admission: we’re mildly obsessed with the private credit markets.
When there’s a bull market in everything — AI stocks, financials, rare earths, gold and silver — it helps to keep an eye on the plumbing.
One chart tells the tale: since 2015, bank loans to non-depository financial institutions (NDFIs) — think private equity and private-credit funds — have soared nearly 300%.
Consumer loans, residential mortgages, commercial real estate? Flat as Kansas. Post-2008, Basel III and Dodd-Frank made leveraged and middle-market lending so capital-intensive that banks stepped back.
Private credit stepped in, ballooning from niche to a ~$3 trillion force by 2025. Banks didn’t fight it; they financed it. Lending to one collateralized fund — with Business Development Company equity buffers around ~36% — beats managing hundreds of small, risky credits.
Funds get cheap revolvers; banks get fee income and tidy risk weights; PE-backed borrowers get speed. Everyone’s happy… until the loop runs backward.
The risk outsourced by banks was never destroyed — just rehypothecated. If portfolio companies wobble, funds draw bank lines precisely when banks are tightening. That’s how a clever arrangement becomes a transmission mechanism.
And we’re starting to see tremors: a string of bankruptcies in leveraged loans — now a ~$2 trillion market — has triggered billions in losses for asset managers and PE sponsors.
Shares of several marquee alt-credit names have slumped; a simple relative-performance chart of Blackstone Secured Lending Fund, Ares Capital, and Blue Owl versus the S&P 500 tells you where worries live. Private credit has never lived through a full-blown recession.
Here’s the point: The entire edifice was built in an era of near-zero rates and frictionless liquidity.
Regulators are scrambling for better data, but growth is outrunning oversight. Banks stopped being the main act; they became the producers behind the show.
Profitable, yes. Safer? Only if the audience never rushes the stage.
Pop Psychology for Bull Markets
During bull markets, we also collect pop psychology theories to explain crowd behavior.
You’ve heard us describe The Schelling Point— those obvious focal choices two negotiators arrive at without talking — help explain tariff brinkmanship and how markets gravitate to round-number narratives.
The Eggles Pause helps us price the gap between pre-AI full employment and post-AI deployment — there’s a productivity lull before the payoff, and it complicates the Fed’s “maximum employment” mandate.
Today’s behavioral lens is the Dunning-Kruger Effect.
(Source: Slide Model)
In 1995, McArthur Wheeler robbed two banks with lemon juice on his face, convinced it made him invisible to cameras. He wasn’t high; he was overconfident and underinformed.
The event became the pivotal research point in David Dunning and Justin Kruger’s research. Their seminal work — “Why People Fail to Recognize Their Own Incompetence” — shows how people lacking skill also lack the metacognition to judge their own limits.
Two decades ago, in the early Daily Reckoning days, we put it more bluntly: “Markets make opinions.” In our first book, Financial Reckoning Day, written at the time, we phrased it a different way: during roaring manias, even 401(k) passengers and taxi cab drivers feel like hedge-fund heroes.
Our Grey Swan aim is simpler: participate, but don’t become the Greatest Fool — the last buyer when the music stops. Consider today’s leverage, the private-credit loop, and the AI narrative machine as your friendly reminders.
Tomorrow, we’ll take up the Anatomy of A Stock Market Bubble in Grey Swan Live! to help you come to terms with your own abilities during this historic, terrifying bull market. (More details below.)
Earnings Jumble, Metal Whiplash
Stocks were more jumbled than the laundry pile on your chair: Dow up, Nasdaq down, S&P not much of anything as mega-cap earnings crossed the tape. The real eyebrow-raiser was in metals: after a breathless run, gold dropped by the most in 12 years — a violent reminder that even “ballast” can pitch in heavy seas. If you hold it as insurance, size it like insurance.
Amazon’s “Cobots” and the Eggles Pause
Amazon expects automation will help it avoid hiring ~600,000 workers as it aims to double deliveries by 2033, per internal docs reported by the New York Times.
The company plans to skip onboarding ~160,000 U.S. workers from 2025 to 2027, saving $0.30 per item — about $12.6 billion — with a longer-term goal to automate ~75% of operations. Nobel laureate Daron Acemoglu calls it a shift toward “net job destroyer,” and warns rivals will copy the model. Amazon disputes the framing, saying automation frees hiring elsewhere.
AMZN fell ~3% on the news.
However you cut it, this is the Eggles Pause in real time: the productivity dividend eventually arrives, but labor markets must cross the chasm first.
OpenAI’s Atlas and Alphabet’s Chill
OpenAI launched ChatGPT Atlas, a desktop web browser (macOS first) that brings the agent into the page—no copy-paste, all context.
It’s a shot across Chrome’s bow and may get our vote.
Alphabet shares slipped a couple of points on the announcement. Browsers are distribution; distribution is data; data is power. It’s also how Google calibrates what ads you do and don’t see when you’re online.
We expect a bundling war — assistant + browser + wallet + identity — which will be a good thing. Competition in the marketplace tends to bring prices down for end users.
Diplomacy on Hold
The Trump–Putin meeting in Hungary is “not happening any time soon,” per the White House. After a “productive call” between SecState Marco Rubio and Sergei Lavrov, the administration said a summit is unnecessary for now. Moscow still insists “root causes” be addressed before ceasefire talk. Translation: stalemate.
Netflix’s Brazilian Speed Bump
Netflix posted a rare miss after a $619 million settlement with Brazilian tax authorities. Management said they would have exceeded operating-income guidance absent the one-off, and don’t expect ongoing impact.
Revenue still topped $11.5 billion in Q3, helped by the animated hit KPop Demon Hunters. A reminder: foreign tax regimes can yank a few teeth from even the smoothest streaming machine.
Warner Bros. Discovery says it’s fielding interest from “multiple parties” and may sell before splitting into studio/streaming and legacy networks.
Paramount-Skydance CEO David Ellison, fresh off his Free Press and Bari Weiss acquisition, wants the whole stack; WBD’s David Zaslav thinks he’ll get more by selling pieces.
Other suitors: the above-noted Netflix (studio, not cable), Comcast, and the usual big-tech look-ins. Whether or not Apple or Amazon bite, consolidation is the theme.
Content libraries we’re observing are outliving strategy decks. That’s a good thing too, because to be sustainable, the content has to be… good.
Shutdown, Day 22 — And Shrug
In case you’re wondering, we’re now living through the second-longest full shutdown in U.S. history. Who knew?
Another Senate CR failed — the 11th. The House is still on extended recess as Speaker Mike Johnson tries to force the Senate to accept a House-clean bill; Democrats want ACA subsidies restored first.
The term “shutdown” remains a misnomer; essentials keep running and back pay arrives later. But it’s also a stress test. Some projects — like nuclear arsenal modernization — are delayed by furloughs; others, like immigration enforcement, are fortified.
If SNAP payments slip in a prolonged standoff, politics will change quickly. For now, markets and most sentient beings in the United States have barely noticed.
The Louvre Heist: What Happens to Hot Jewels?
That was our first thought. When you hike a ladder to break a second-story window and make off with the crown jewels of a sovereign nation… for all the world to see. Who’s going to buy the loot?
After the museum theft heard ’round the world, the plundered necklaces and tiaras are too famous to fence intact.
The black market will demand a steep discount — or the pieces will be broken down, stones re-set, gold melted, identities erased. Artifacts to atoms.
Meanwhile, the Louvre has reopened; the public can view the other treasures kept there behind pressure-treated glass again.
~ Addison
P.S. 
Join us for Grey Swan Live!
Tomorrow, Thursday, October 23 @ 2 p.m. ET, we’re going to share the Anatomy of a Stock Market Bubble — a frank tour of how bubbles actually end: where leverage hides, how liquidity vanishes, and what signals matter more than headlines.
Friday, October 24 @ 2 p.m. ET (for paid-up annual members): we’ll update our asset allocation & do a quarterly review of the Grey Swan Model Portfolio. We’ll also give you a free look at what we’re calling the Plunge Protection Plan — practical hedges and opportunistic trades to deploy before the crowd jams the exits.
To make sure you can attend this event, go here now for details about how to become an annual member.
If you have any questions for us about the market, send them our way now to: Feedback@GreySwanFraternity.
