Credit Woes, Campus Betting, Oil Shock and the Return of Retail

Private credit woes continue! 

Investors continue to worry about the private credit market and this week has been filled with troubling news from the sector. According to the Financial Times, Glendon Capital Management said private credit funds run by Blue Owl (OWL) and several of its peers may have understated loss rates in their portfolios, suggesting actual losses could be higher than reported. This has led to concerns around the “true valuation” of these assets. This wouldn’t be surprising given the little clarity that we have for these loans. We also saw JPMorgan Chase take a conservative approach and mark down the value of some loans tied to private credit vehicles. All the negativity has now caused investors to question the long-term viability of this investment, and many are now wanting to redeem their shares. The problem is these companies don’t have to give you all your money back when you ask for it. Blackrock, Morgan Stanley, and Cliffwater all had to curb withdrawals as requests exceeded the pre-existing limit, which normally looks to be around 5%. Looking at Morgan Stanley’s North Haven Private Income fund in particular, redemption requests totaled 10.9% of shares outstanding in Q1 and the fund said it would honor 5% of those requests, which is roughly just 45.8% of each investor’s tender request. This now means those investors have to continue holding the fund until next quarter and can try again at that time to sell additional shares. I also recently learned of a term in the private credit space called Paid in Kind interest, also referred to as PIK. It is essentially an IOU that borrowers give to lenders instead of cash. When this occurs, the borrower’s debt just increases by the interest due rather than the borrower needing to make an interest payment. The crazy thing is that these PIK receipts are still counted as interest income and it counts towards the management fee. An analyst by the name of Ron Kahn, who runs a unit at the Chicago investment bank Lincoln International that does valuations for about a third of all U.S. private credit loans, wondered why private credit companies were showing such few defaults. What he found was lenders were proactively amending loan agreements by allowing PIK interest rather than cash payment so they could avoid default. Lincoln International saw private credit loans with PIK interest rise to 11% at the end of 2025, which was up from 5% in early 2022. There are many concerns in this space right now and I’m sure glad I don’t have any assets in this space! 

Prediction markets are hitting college campuses to find gamblers 

Prediction markets have something FanDuel and DraftKings don’t, access to the 18 to 21-year-olds in college. Gambling is generally limited to adults 21 years or older, however, prediction markets that are run by companies like Polymarket and Kalshi are trades that are regulated as financial derivative contracts by the Commodity Future Trading Commission. This allows anyone 18 years or older to gamble using these prediction markets. Both Kalshi and Polymarket are hitting college campuses across the country and throwing cash around to lure in 18 to 21-year-old students to place bets via the prediction market. They are doing this by using fraternities and even campus clubs to promote their platforms and in some cases, they pay them $10 per each new account they sign up. There was one fraternity who received $30,510 in two weeks which the fraternity used for parties and new furniture. They are also using student influencers as brand representatives to sell other students on the prediction market. These two companies have no shame as they have even used college athletes to influence others to bet on sports with prediction markets. 

Don’t pay attention to the price of oil on a daily basis

I say that because there’s so much speculation out there and likely the information you receive on the price of oil is useless when you look forward to a few months and maybe even just a few weeks from now. Last week the price of oil surged around 35%, but on Monday after comments from the President that this will not last long in the Middle East, crude oil fell back down to under $85 a barrel. Why is this volatility in the price of oil happening?  Roughly 20% of global oil consumption is exported through the Strait of Hormuz and about 20% liquefied natural gas exports worldwide also pass through the narrow waterway. The United States over the years along with other allies have spent billions of dollars making sure the waterway remains open. At the smallest part it is only 21 miles across and to the northeast there sits, Iran. Officially the waterway is not closed or blocked physically, but there are concerns of going through the strait for fear of being hit by a missile shot from Iran. The other concern is how long this will go on because storage facilities for oil have pretty much reached full capacity and when that happens the producers need to turn off the well in a process known as “shutting in” occurs. When this happens, there can be problems and delays turning the wells back on and some may not regain the original flow. As you can tell, it is not a simple process and it’s not just oil that’s goes through the strait but also liquified natural gas and even large amounts of fertilizer flow through the area as well. I would not recommend making any investment decisions during this time around anything that has to do with oil or even energy for that matter. 

The International Energy Agency (IEA) agrees to historic oil release 

The IEA, which is an organization of 32 member countries primarily with advanced economies in Europe, North America and northeast Asia, agreed to release 400 million barrels of oil from strategic reserves. Currently, IEA members hold more than 1.2 billion barrels of public emergency oil stocks, with a further 600 million barrels of industry stocks held under government obligation. While the strategic release is helpful, it is only a temporary fix considering nearly 20 million barrels passes through the Strait of Hormuz per day in normal times. China also could help with oil prices if it reduced its purchasing or released some of its stockpile. Ahead of the war China was buying oil at an elevated rate and in the first two months of the year, crude imports soared 15.8% compared to a year earlier. It's estimated as of January China had a stockpile of 1.2 billion barrels as well. China has also been continuing to receive oil from Iran and since the war began it's estimated they've received close to 12 million barrels from the country.  

Surprise.... Gen Z is going to the mall for in-person shopping!

You may be hearing that younger people don’t go to the mall any longer, but that is not true, it’s just a little bit different than when people went 20 years ago. Gen Z, the generation consisting of 14 to 29-year-olds, shops at the mall but first they check online sources like Instagram and TikTok to see what's in style. According to Nielsen IQ, the global annual retail spending by this generation is expected to be over $12 trillion by 2030. Shoppers between 18 and 24 years old made 62% of their general merchandise purchases in stores last year, but shoppers 25 and older made just 52% of their purchases in person. Some of the reasons given for the in-person preference was that Gen Z does not like to pay the shipping fees along with common sense things like they want to touch the item and see it in person especially if it’s clothing, they want to see how it looks on them. Malls understand this, and many of them have actually set up areas so that the young shoppers can take their selfies in fitting rooms and other areas that are social media friendly. If you’re a salesperson in a retail store and if you’re talking to this generation, you’d better be up to date when it comes to what’s going on in social media. Some salespeople even have a tablet to show shoppers how influencers are styling different items. It is a misconception that this generation is averse to talking to people, but how you talk to them is different. They’d rather get their advice from an influencer or a friend rather than a salesperson. 

Another sign the labor market is cooling

In the aftermath of Covid, the labor market initially boomed and paved the way for what was referred to as the "Great Resignation." During this time period many employers were competing for talent and people were quitting their jobs to take new ones. During the peak in 2022, job openings surged to a record 12.2 million, the quits rate hit about 3%, and job switchers saw median pay increases of about 14%. Fast forward to today, and the market looks quite different. Job openings have fallen to 6.5 million, the rate of quits has declined to just around 2%, and median pay increases for job switchers stands at about 4%. To be fair, in the craziness of 2022 job stayers were also seeing big pay increases, but according to data from the Federal Reserve Bank of Atlanta for much of 2022 and 2023, workers who changed jobs saw median year-over-year wage growth roughly 2 percentage points higher than those who stayed with the same employer. Looking at the data today, the latest reading showed wage growth for job switchers was about 4.4%, compared with 3.9% for job stayers. Many of these changes in my mind are due to employers over hiring during this period and now needing to normalize the workforce. If you look historically, many of the labor market indicators remain healthy, but they are just coming off of high levels that were caused by labor shortages from Covid.  

Home sales see a small decline from last year 

February existing home sales, which look at closed deals so likely deals that were inked in December and January, fell 1.4% from last year to an annualized rate of 4.09 million units. Although inventory grew 4.9% from February 2025 to 1.29 million units, it remains challenged considering at the current sales pace, that is just a 3.8-month supply. A six-month supply is considered a balanced market between buyer and seller. One trend that helped the supply in the month was nearly 45,000 homes that were delisted last year were relisted for sale in January. Many of these sellers delisted their homes last year due to slower sales and weak consumer confidence. According to Redfin, the number of relisted homes was the highest January figure since Redfin began tracking this metric a decade ago and they now represent a record 3.6% of homes that were on the market in January. Another area helping the supply number is the fact that it continues to take longer to sell a home, which stood at 47 days. This was up from 42 days one year ago. Even though affordability continues to put pressure on buyers, demand continues to remain strong. Lawerence Yun, Chief Economist at the National Association of Realtors, pointed out the fact that there are over 6 million more jobs now than there were in 2019, yet home sales per year are down by 1 million. Tight supply and a strong demand pool have led to continued price appreciation, but it is now occurring at a much slower rate. The median price of a home sold in February was $398,000, an increase of just 0.3% compared to last February. One benefit for affordability is that wage growth is now outpacing home price growth by close to four percentage points. My base case for real estate prices remains that we see limited price appreciation over the next 5-10 years as wages catch up, and mortgage rates normalize.  

Inflation progress stalls in February 

February headline CPI of 2.4% and core CPI, which excludes food and energy, of 2.5% matched both the expectations and January's reading. Food prices increased 3.1% compared to last year with food away from home continuing to push the category higher considering the 3.9% increase. Food at home had a more favorable increase of just 2.4%, but items like coffee, which saw a year-over-year increase of 18.4%, and beef & veal, which saw a year-over-year increase of 14.4%, continue to put pressure on prices overall. Energy prices continued to be positive in the month of February as they climbed by just 0.5% compared to last year. Gasoline was down 5.6% during that timeframe and was offset by continued pressure in electricity prices, which climbed 4.8%, and utility (piped) gas service, which climbed 10.9%. This data was before the recent spike in energy prices due to the Iran war, so, March CPI data for the energy category will likely look much different. It's estimated that each $10 increase in oil prices is generally considered to add roughly 0.2 to 0.3 percentage points to the Consumer Price Index (CPI). Many other categories showed muted changes in the month, but I was somewhat surprised to see airfares increase 7.1% compared to last year. This category could see a further spike in prices going forward if oil prices remain elevated as carriers will likely need to offset the higher cost through increased prices. The concern on the inflation front is that if energy prices remain high, it could impact on other areas of the economy and cause further inflation. At this point in time, I see that as an unlikely scenario, but it is worth watching as time progresses.  

Is the California public pension plan too risky? 

The California pension plan known as Calpers has a market value of around $600 billion and manages money for over 2 million members. When you look behind the scenes of what the investments are for this huge California public pension plan, I become a little bit concerned. The first thing that was shocking to me was 32% of the assets are in private investments. We just wrote recently about how poorly the Ivy League endowment funds have done with their private investments over the last few years. In addition to almost 1/3 invested in private investments, they have gotten involved in the hot chip market with companies like Qnity Electronics and a $14 billion stake in Nvidia. In addition to that they’ve also begun to buy some quantum stocks with companies like IonQ. I know quantum computing is supposed to be the wave of the future, but I’m just not sure if a stock like that should be in a pension fund? My guess is probably not especially when you consider the risk going forward! 

Would you use a high yield stablecoin over a bank savings account? 

The yield on stablecoins can be anywhere from 2% to as high as 10% or more. This compares to bank savings accounts, which may only be 0.5% to 1% on your money. The term stablecoin makes some people feel comfortable but in reality, what you’re giving up is one real dollar to essentially receive a fake bank deposit. It’s important to understand it’s not insured, and the stablecoin is run by a company that is not nearly as watched and regulated as a US bank. It is true that stablecoins are backed by short-term treasuries or other reserves and they are required to maintain that one-to-one ratio with a dollar or other currencies, but if a three-month T-bill is earning around 3.7%, how can any company pay above that amount and still make a profit? Don’t kid yourself, remember the old if something sounds too good to be true, it probably is. Just because it says stablecoin does not mean you will get all your money back.