Ken Fisher: Private Credit and the Next Bear Market
Ken Fisher argues that while private credit may contribute to the next bear market, it won't be the primary cause because extensive discussion about it means the risk is already priced into markets. True market-moving recessions are caused by surprising, unpriced risks that aren't widely discussed.
Summary
Ken Fisher discusses the relationship between private credit concerns and potential bear markets or recessions. He establishes that surprise is the key factor that moves markets most significantly. Fisher acknowledges that private credit has been extensively discussed as a potential problem, but argues this widespread discussion actually mitigates its risk as a market catalyst. He explains that because many people talk about private credit issues, these concerns have already been priced into the market, reducing their capacity to cause a major shock.
Fisher distinguishes between private credit's role as a contributor versus a cause. He notes that while private credit won't be causal to a recession, it will certainly be affected during a business cycle recession. When recessions occur, companies issued private credit that cannot pay off their debts will face defaults, and private credit will be hit alongside public credit. However, Fisher emphasizes this would not be surprising—it would simply be a normal, expected part of business cycle dynamics.
The speaker's core thesis is that true bear markets and recessions are typically caused by factors that are powerful, capable of significantly reducing GDP, but have not been noticed or pre-priced by the market. Private credit fails this test because its risks have been widely discussed and analyzed. Fisher concludes that private credit's prominent role in market discussions places it in a reactive category rather than a causal one—it will be affected by recessions but won't be the trigger that initiates them.
Key Insights
- Fisher argues that surprise is what moves markets most, and extensive discussion about private credit risks means those risks are already priced into markets, removing their potential to cause major shocks.
- Business cycle recessions are typically caused by features that haven't been noticed or pre-priced—things that are big, powerful, and capable of reducing GDP significantly but had been undetected.
- The degree to which everyone discusses private credit removes it from the category of potential recession causes and places it in a diminished risk category.
- During a business cycle recession, private credit issued to companies unable to pay off debt will be hit along with public credit, but this would be a reactive, normal part of recessions rather than a surprise causal factor.
- Fisher reiterates that widespread discussion of private credit tells you it won't be causal to recession but will instead be a reactive function that gets affected after a recession begins.
Topics
Transcript
[0:00] It's surprise that moves markets the most. There's been endless discussion about problems in private credit. Will private credit create the next bear market and recession? I'm going to tell you it might contribute to it, but it won't cause it. But the fact that so many talk about it tell you it's already priced. It's better to focus on things everybody doesn't talk about. Bear markets and [0:33] recessions, when they happen together, business cycle recessions tend to be caused by features we don't talk about, things that surprise us, that are big, powerful, and capable of reducing GDP significantly, but hadn't been noticed and pre-priced. The degree to which everyone talks about private credit takes that out…
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