Strain Hits the Credit Markets

A few months back, shares of Oracle popped nearly 40% on news of a deal to expand its AI operations.

Shares have now round-tripped back down to that level, as many – including us – have looked at the rising level of circular financing deals in the AI space.

We’re not alone. The credit market is balking at some of the AI spend going on today:

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Credit default swaps on Oracle debt have more than doubled in the past month, and are higher than during the end of the 2022 bear market. (Source: Zerohedge via X)

Credit default swaps (CDS) are a tool that measures the cost to insure against a company’s debt.

A soaring CDS suggests that investors are demanding a higher return. The implication? That debt isn’t as safe as it may appear.

It’s also a sign that the liquidity crisis and dangers in the private credit market are starting to show up in the mega-cap companies that are raising debt to invest in AI and data centers. And if that starts a slowdown, it could mean that the stock market hits the brakes.

~ Addison

P.S. This echoes sentiment from last week’s call on Grey Swan Live! with Andrew Zatlin — the #1-ranked economic forecaster on Bloomberg.

Zatlin sees a pullback in stocks now, with a rip in 2026 ahead of the midterms. While the government closure is over, the real challenge now is in economic data – or the lack thereof. That’s increasing the chances of a Fed pause in lowering interest rates in December, which in turn is sending asset prices lower.

If you have requests for new guests you’d like to see join us for Grey Swan Live!, or have any questions for our guests, send them here.

A few months back, shares of Oracle popped nearly 40% on news of a deal to expand its AI operations.

Shares have now round-tripped back down to that level, as many – including us – have looked at the rising level of circular financing deals in the AI space.

We’re not alone. The credit market is balking at some of the AI spend going on today:

Turn Your Images On

Credit default swaps on Oracle debt have more than doubled in the past month, and are higher than during the end of the 2022 bear market. (Source: Zerohedge via X)

Credit default swaps (CDS) are a tool that measures the cost to insure against a company’s debt.

A soaring CDS suggests that investors are demanding a higher return. The implication? That debt isn’t as safe as it may appear.

~ Addison

P.S. This echoes sentiment from last week’s call on Grey Swan Live! with Andrew Zatlin — the #1-ranked economic forecaster on Bloomberg.

If you have requests for new guests you’d like to see join us for Grey Swan Live!, or have any questions for our guests, send them here.

The stock market “rebalancing” is a polite way to put it. Energy and health care are getting a healthy boost. But tech hardware and software makers are still getting dressed down and have been asked to report to the principal’s office.

The great rotation underway has triggered a series of “Hindenburg Omens.” Five have occurred in recent weeks.

The S&P 500 has traded in a 3.7% range over the past two months — less than half the 20-year median of 8.6%. One of the tightest ranges in modern history.

In trader parlance, the indexes are “flat,” a setup that often materializes before a sell-off at the top after a multi-year bull market.

Goldman Sachs told its own traders to be aware that institutional trading activity resembles a VIX reading near 35. Rather than a reading of 20, where the VIX has been trading over that same 2-month period.

The U.S. software ETF, IGV, tested its April 2025 lows last week and trades roughly 35% below its peak. The “SaaS-pocalypse” in software companies reflects the fear of Citrini’s 2028 scenario happening in real time. That divergence now exceeds the spread seen at the peak of the Great Financial Crisis.

Under the surface, the “great rotation” we wrote about last week is threatening to widen.

Despite its overly-educated 40-million-plus population, on a GDP per capita basis Canada is null. Collectively, the Great White North would rank as America’s second-lowest state, coming in above Mississippi, but below Alabama.

SpaceX is the most valuable private startup in history — and if its success continues, it might become the most valuable public company in history.

After all, as Musk famously said in 2023, “I have never lost money for those who invest in me and I am not starting now.”

For investors, SpaceX has been a wild, joyful ride — and now the journey continues!