06.08.2026 - Debt, Debt, Debt
Debt is becoming one of the defining themes across the US economy. Government debt, consumer debt and corporate debt are all reaching new extremes, while financial markets continue to show remarkably little concern.
The US government's outstanding debt has climbed to a record USD 39 trillion.
US consumers have also accumulated a record USD 18.8 trillion of debt. More concerning is the deterioration in credit quality. Credit card balances more than 90 days overdue continue to rise rapidly, with roughly one in eight outstanding credit card balances now seriously delinquent. Auto loan and leasing delinquencies are also approaching levels last seen during the Global Financial Crisis.
Corporate America is showing increasing signs of strain as well.
The AI investment race has forced several companies to aggressively expand their balance sheets. Oracle has become one of the most prominent examples. Following massive AI-related capital spending, the company's free cash flow fell to approximately negative USD 23.7 billion, while total debt has risen to roughly USD 130 billion. Credit markets are taking notice. The cost of insuring Oracle's debt has climbed to levels last seen during the 2008 financial crisis, and S&P recently downgraded the company to BBB-.
Oracle is not alone. The hyperscalers continue to invest at record levels in AI infrastructure, with capital expenditure increasingly exceeding internally generated cash flows.
Markets: remain calm
Equities: European equities outperform, while technology shares underperform. South Korea's KOSPI declines another -4.5%
Bonds: yields almost unchanged - US 10y yield above 4.64%, Japan 10y yield 2.76%
Commodities: Oil prices slightly higher, WTI around USD 76/barrel and Brent around USD 81/barrel
Precious metals prices with minor moves after yesterday's rally, gold above USD 4’265/oz, silver trades above USD 61/oz
Currencies: another day without major moves, Japanes Yen weakens already again with USDJPY 158
Cryptos: almost flat - Bitcoin at USD 64k
Volatility: The VIX index on the lows at 15.5 (good hedging level)
My View: Debt levels have moved beyond what I consider healthy across nearly every part of the financial system.
As long as investors continue accepting ever higher leverage, the system can continue functioning. Confidence remains the key ingredient. However, if investor sentiment changes, highly leveraged structures can unwind much faster than markets expect.
The overall picture reminds me of previous financial cycles.
Before the Global Financial Crisis in 2008, excessive leverage accumulated quietly beneath the surface while markets remained relatively calm. Today's environment is different in many respects, but one characteristic looks familiar: debt continues to expand while investors increasingly assume the system can absorb it indefinitely.
It feels like stretching an elastic band further and further. The difficult question is not whether it is stretched, but when it finally breaks.
Another question keeps bothering me.
Why is the Federal Reserve repeatedly forced to inject liquidity into the financial system while inflation remains well above its long-term target? Under normal circumstances, monetary policy should remain restrictive until inflation is brought under control. Instead, policymakers appear increasingly concerned about financial stability.
That raises the possibility that vulnerabilities beneath the surface are larger than markets currently anticipate.
I have highlighted for some time that the US consumer represents one of the weakest links. Household debt continues to rise, mortgage financing remains expensive, and auto loan delinquencies have returned to levels associated with previous periods of financial stress.
If one important domino falls, confidence can disappear surprisingly quickly and trigger a much broader market reaction.
This is not intended to spread fear, but rather to encourage preparation.
Many investors have only experienced markets where every correction was followed by a rapid V-shaped recovery and eventually new all-time highs.
My own experience has been different. I witnessed the technology and telecom crash in 2000-2001. Many telecom companies never recovered their previous valuations. I also experienced the Global Financial Crisis in 2008, after which numerous European banking stocks never returned to their former highs.
History shows that not every market leader eventually comes back.
In a severe financial crisis, cash becomes one of the most valuable assets because it provides flexibility while others are forced to sell.
I also continue to see precious metals as an important strategic allocation. Central banks remain aggressive buyers, reflecting their desire to diversify reserves and reduce dependence on the US dollar.
Meanwhile, bond yields remain elevated, energy prices are higher than historical averages, consumer prices continue to rise, and inflation remains persistent. All this is adding more stress to the already stretched system.
At the same time, retail investors are loaded on stocks with highest leverage levels ever seen. This has also been the case right before the 2001 and 2008 collapse. It is definitely a sign of late late cycle and marks a big warning for the coming weeks.
Finally, market volatility remains unusually low. From a portfolio management perspective, periods like these often provide an attractive opportunity to purchase downside protection while hedging costs remain relatively inexpensive.
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