So the long-prophesied conflict with Iran is upon us — and the timing is more than a little suspect. We have seen a range of warning signs in recent months that all is not well behind the scenes in terms of both the U.S. economy and the financial system. Repo market usage recently spiked yet again, indicating serious liquidity stress, and now, just this week, another skeleton fell out of the closet.
Market Financial Solutions Ltd (MFS), a UK-based mortgage and bridging loan provider, entered insolvency. Administrators and creditors have uncovered what they’re calling “serious financial irregularities.” Chief among them: the double-pledging of collateral—where the same assets were pledged many time over to secure substantial loans from major banks like Barclays and Santander. If you are wondering why both U.S. and European banks were tanking last Friday, look no further. Barclays alone have $700 million dollars of exposure to MFS.
The collapse of MFS hammered the shares of Barclays and Jefferies, and accelerated a broader selloff in financial firms and alternative asset managers on Friday, as the market grappled with the prospect of a widening credit contagion, amid concerns about lending standards in the industry.
Other players impacted included Atlas SP Partners, a structured credit affiliate of Apollo Global Management (APO.N). It comes after twin bankruptcies of auto parts supplier First Brands and car dealership Tricolor last year and follows troubles at Blue Owl(OWL.N), opens new tab, which emerged late last year when it moved to limit withdrawals from a fund.
—Reuters, Wall Street hit by UK mortgage lender collapse, raising fears of more credit ‘cockroaches’
So what is really going on with Private Credit? They told us it wasn’t systemic when last year, First Brands and Tricolor went bust exposing similar “irregularities.” My view at the time was that they were lying, and this is just the tip of a very large iceberg. Clearly, it wasn’t an isolated incident; what we’re actually finding out is it’s a pattern. As Jamie Dimon warned, when you see one cockroach, there are usually more nearby. Jeffrey Gundlach went further, stating that private credit is the top candidate to start the next financial crisis. The signs are numerous at this point we could be close.
I highlighted in my past video how just like going into 2008, it seems the ratings agencies are in on it again. But it’s not just private credit. At this stage the entire system is a house of cards. The stock market is reeling as the AI narrative crumbles, with investors looking for any excuse to jump ship. Yet prices remain at record overvaluations, creating what Fidelity calls a “disconnect between the positive short-term environment for risk assets, and a broader structural instability.” You don’t say! Recently we saw shitcoin lender Blockfills halt withdrawals, and the entire cryptocurrency ecosystem has been buckling under pressure while equity and credit markets appear undaunted. That won’t last forever.
It’s my view things are about to deteriorate, fast. And this is precisely when distractions become most needed. A war. A fresh wave of Epstein revelations. Plenty to keep the masses looking the other way whilst their bank deposits and retirement accounts are lined up to be fed to the fires of Moloch. So now is certainly not the time to fall asleep at the wheel. Things could deteriorate quickly — not just geopolitically, but economically and across the financial system itself. The combination of leverage and illiquidity rarely ends well, least of all at the far end of a mega bubble.
In my latest episode, I discuss what we should be considering beyond the obvious, from gas prices to food, to the gold price come Monday morning.
God bless,
Mike
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