16.10.25 - Financial crisis around the corner?
Fears about the health of the banking industry are spreading after a string of loan-related shocks in the US. The latest wave began with the bankruptcies of First Brands and Tricolor Holdings, both tied to the auto sector.
Today, shares of regional banks and investment bank Jefferies slumped as more signs of credit stress emerged. The focus quickly shifted to Zions Bancorp, which disclosed a sizable charge due to bad loans to a few borrowers, prompting an independent review.
Then Western Alliance reported potential fraud by one of its borrowers, further unsettling investors, even though the bank reaffirmed its guidance and 2025 outlook.
Analysts warn that while these may look like isolated cases, the clustering of such events is raising broader questions about hidden risks in the lending system, particularly in the private credit space. As one market strategist put it:
“Even if exposures are limited, investors tend to sell first and ask questions later — especially when credit fears rise.”
Markets: the news causing a sell-off and spike in volatility
Global equities and Futures down
Gold with new all-time high over USD 4’300/oz
Bond yields broadly lower
US dollar falls
Cryptos see losses
My View: was never the question if, but when we would see a pullback. After the recent rally, it was quite obvious that the day was near. The only question now is whether this will remain a short-lived shakeout — or become the trigger point for a broader correction.
That depends largely on the behavior of speculative capital. In recent months, every small dip has been met with “buy the dip” enthusiasm. But speculators’ cash reserves are getting stretched, and cryptos, often labeled as “safe” during crises, are now losing ground sharply. That reduces margin buffers for leveraged investors and could even trigger forced selling via margin calls. If that spiral starts, it can unwind markets fast and painfully.
It’s also notable that the credit story is back. With rising interest rates, the risk of companies struggling to service debt was always the elephant in the room. The bull market and the AI mania simply pushed it out of focus.
As followers of ETFMandate know, I viewed the recent euphoria, particularly in AI-linked names that rallied on mere investment announcements, with increasing skepticism. At the end of the day, it’s not about what I believe, but what the market believes. Still, when conviction fades, risk must be reduced.
That’s why I’ve cut long positions substantially since May, except commodities as one of my key exposures, and increased short positions over the past two weeks, especially in AI-related and crowded trades.
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