BREAKING: Interest Rates SURGING! The Private Credit Bubble Is Ready To Burst

[00:00:00]Interest rates are hitting the highest levels since the global financial crisis, and a lot of people would think, well, this is hitting mortgage holders really hard, which it is. But, there is another risk that is even bigger, and it involves some of the biggest pension funds in the world, and we're going to get into that in this live stream today.

[00:00:25]So, first of all, let's take a look at what is happening with interest rates.

[00:00:30]Because it is historic, you know, we're going back to 2007, 2008. So, if you look at where the 30-year government bond is, it's going back to 2010 in Canada. If we flip over to the United States 30-year government bond, you're going all the way back to 2007 levels. If you take a look at the UK government [laughter] bond, I mean, they're having serious issues there. It's going back to the highest levels since 1998.

[00:01:03]It's currently at 5.73%, which is crazy. So, you know, why does this matter? Well, there are a lot of corporate loans which are based off the very interest rates that are surging right now. Because it's not just the long ones like the 30-year debt that's surging, you've also got front-end debt that is surging as well. As you can see, the biggest mover in Canada today was actually two years. Two-year government bonds was the biggest mover, and it's heading right between, if it drops below this level, bearish. If it goes above this level, obviously bullish. You know, the five-year is heading higher once again. So, for mortgage holders, that's not going to be a good thing. And when we get to the CLO and private credit, the AI bubble, commercial real estate, all these different things, how these toxic loans have been packaged and are basically being sold to pension funds. I mean, it's going to blow your mind. It's going to show you the risk right now in the financial system that's building and why it matters so much because these interest rates surging are what pushes that risk up that the financial system is going to blow up because all these underlying loans for corporate debt, which is held for a 30-year maturity, think about Walmart, McDonald's, Canadian Tire, whatever it is, they've got 30-year debt bonds that they have out there and the yields on those surge, but they've been lending to just more and more risky places as we're going to get into. And you've also got inflation risks that are heating up as well. This is diesel, diesel prices, once again, heading higher. So, they're the highest level since 18th of May of this year.

[00:03:04]So, once again, diesel prices going up.

[00:03:06]That affects goods that flow throughout the economy. It's sea transportation, truck transportation, lots of transportation that is impacted by that. Most people feel it with the gas price increases, but actually they'll feel it more with their inflation, with the diesel price increases. And you can see here, you know, WTI has gone above that green line, so it's bullish again that [laughter] it's going to be moving higher here. So, continues to move high higher. It's now at $85 a barrel and we'll get to why all this matters. The risk of rising inflation could actually topple the whole financial system. And it's not about subprime lending into mortgages anymore. It's about subprime corporate lending here.

[00:04:02]This was posted on X, and you can see some of the price increases since the start of the Iran war. Palm oil, wheat, cotton, diamo- di- diammonium phosphate, Brent crude oil, WTI, rice, gasoline, diesel, jet fuel, heating oil, natural gas, sulfur, all these things have increased in price substantially.

[00:04:27]And a lot of these are inputs to food.

[00:04:30]Are inputs to the goods that you buy.

[00:04:33]And of course, there's a lag with all of this feeding into the stuff that you buy because the stuff that you buy now was probably manufactured like 3 to 4 months ago. I'm not talking about food, obviously. Otherwise, unless it's that prepackaged garbage or that processed garbage. But yeah, that might have been produced 6 months ago. It might have been produced 5 years ago. But when it comes to like most of the products that you see in stores, yeah, those were made like a long time ago in a lot of cases.

[00:05:06]So, they've already got whatever they already paid whatever prices they were paying bef- before this probably even kicked off here.

[00:05:15]I want to show you this as well because this is going to again just feed into the whole private credit talk. And I'm just going to show you like what pension funds are doing, and then you can be the judge of whether you think it's risky.

[00:05:30]I'll try and explain it in the best way possible, but you know, it is really esoteric. Wall Street loves to do this.

[00:05:38]If you've watched The Big Short, you'll know it that they try and make things as esoteric and as opaque as possible so that people don't look into them. And you look at producer prices. Last month, we got a report coming on Friday, by the way, but last month they were 13.6%.

[00:05:57]And this is the same, you know, replace Canada with the US, with the UK, you get the same thing. There's a huge spread.

[00:06:04]Like the difference between the CPI and producer prices is 10.8%.

[00:06:11]So, somebody is taking on board that cost there. And obviously, if it's it's not the consumer, because the CPI is 2.8%.

[00:06:21]So, if it's the business, well, they can't afford to do that. So, they're either going to look to cut costs by basically laying people off, or they're going to go bust, because they can't have their margins be impacted by over 10%. I mean, that would wipe out a lot of businesses. That is more than their margins, because their margins are so slim.

[00:06:47]So, take a look at this as well. US corporate bankruptcies hover at 16-year high, and this matters for multiple reasons, as we'll get into with private credit and the CLOs in a second here.

[00:07:01]This is so, so important that this is at a 16-year high. A total of 1,663 small businesses filed for bankruptcy during the first half of 2026, a 50% jump from the year earlier, according to a release last week. It was attributed to ongoing financial pressures facing households and employers, because obviously, if they're facing those margin pressures, they're seeing the exact same thing. You know, they will go bust just like the households will when they're claiming to go insolvent. But here's the thing. All these private credit, you know, all this private credit lending that has happened has gone to businesses. It's gone to corporate America. It's gone to corporate Canada. It's gone to UK businesses. And it's gone to smaller and smaller and smaller businesses. And it's gone to riskier and riskier and riskier businesses as well.

[00:08:03]But it's getting much worse than that as well. So, I want to show you this as well. So, a CLO, just to explain this like at the most basic level here, the CLO is just packaging for a bunch of loans. Just think about it like that when you hear this word CLO, which you're going to be hearing a lot in this live stream. So, a CLO basically just the packaging for a bunch of loans. But when it's in a CLO, it becomes very opaque to what's actually in there. And that becomes great to avoid regulators looking at what's in there and seeing what's in there and being able to value what's in there, most importantly. And a lot of regulators have flagged this as well, saying like, "We don't really because these things are so illiquid, we don't really know how to value them or how to rate them." And basically, it's allowed pension funds to just go into this and make shitloads of money.

[00:09:05]Because that's what it's all about. You got to ask like the question, why why is this happening? It's because people on Wall Street, a lot of people on Wall Street are making a [ __ ] ton of money from this. All these CLOs, as we'll get into in a second. So, Manulife, the private credit platform of Manulife Wealth Asset Management, announced the closing of Comvest Credit 2026-1 CLO, a 428 million private credit collateralized collateralized loan obligation. That's a mouthful, isn't it?

[00:09:37]But, I'm just showing you like across the spectrum here. I mean, this is the notes which received ratings from AAA to A from Standard & Poor's. Yes, the same outfit >> [laughter] >> that was doing the ratings on the CDOs back in 2008. Okay, yeah, we really believe them. Okay, all right, carry on.

[00:10:01]And then, backed by a diversified portfolio of senior secured loans originated and managed by Manulife. The CLO was priced on May 11th, 2026 and officially closed on June 8th, 2026.

[00:10:16]But, here's the thing, right? The structure includes an approximately 4-year reinvestment period and a 2-year non-call period. Deutsche Bank served as a lead arranger for the transaction.

[00:10:29]Like, it's all the same outfits that were associated with 2008. I'm not going to get into this paper that I was reading from the Fed because it gets really, really esoteric. And I just want to highlight like Manulife, like so many stocks is just absolutely surging right now, going absolutely parabolic. And obviously, when they're issuing these private credit things, they're making [ __ ] loads of money because the pension funds are eating these things up. So, their earnings, man, they're going to look good. They're going to look fantastic until it all falls apart.

[00:11:06]>> [laughter] >> Eventually, the crux of the matter and the one thing which might take down the whole [ __ ] thing is the fact that interest rates are surging right now because all those underlying loans which have got riskier and riskier and riskier, the interest rates are going up and up and up. And guess what? Can those businesses afford to pay those loans when already so many businesses are going bust? The economy is weak in the US and Canada. I don't care what the fake government numbers say and all that AI [ __ ] growth, which a lot of that is related to private credit as well.

[00:11:44]Both economies fundamentally weak under the hood.

[00:11:49]And then they're going to pay back all this money.

[00:11:52]>> [laughter] >> I don't think so. I don't think so. And then this comes from the pension pulse here, and this is a a good kind of summary of what's been going on here.

[00:12:02]So, pension plans and insurers have been piling into funds that invest in equity tranches of collateralized loan obligations, CLOs, in recent months, according to several asset managers who spoke on the condition of anonymity. Why would they do that? The inflows have helped a slew of hedge funds and other money managers, including GoldenTree Asset Management, Sculptor Capital Management, Collateral Group, CVC Credit Partners, to raise at least 3.1 billion in less than a year for strategies solely dedicated to these investments.

[00:12:41]So, they are making loads of money. They are making loads of money. These fund managers, I mean, think about it. When they go to Las Vegas and they're at the shooting range, [laughter] I think it is, with that guy, and they're like trying to question what's going on with these loans, and they're like, "You're a [ __ ] buzzkill. Like, we're making tons of money here. Just shut the [ __ ] up. We're going to carry on shooting our guns here. We don't want to know about all of that."

[00:13:10]It's just absolutely wild that this is happening again.

[00:13:15]And a lot of people don't even know it.

[00:13:17]Like, they're focused on other things, but really this is the big thing that everybody should be focused on. And it's going to impact everything because again, pension funds, including the biggest and the biggest in the world, like some of the ones in Canada, for instance, have been gobbling this up.

[00:13:36]So, you know, private equity is different to private credit, but here's the link, right? Private equity, I mean, this is how esoteric it gets with, you know, all these different words, all these different acronyms for different things. I mean, so private equity has been investing a lot in these private credit funds. It's also been buying the insurers that are creating these private credit funds and these CLOs. So, I mean, it's heavily, heavily involved in it.

[00:14:09]And I mean, the FT put out this article about it, and I think I may have covered it a couple of months ago. I think it was fairly recently. Uh it doesn't say on here, but anyways, I think it was like a month ago or 6 weeks ago. But, Ontario Teachers' Pension Plan, which manages around 279 milli- billion Canadian dollars, US 206 billion of assets, and the 145 billion Ontario Municipal Employees' Retirement System reported returns of minus 5.3% and minus 2.5% respectively for their private equity portfolios in 2025. For OTPP, it was the worst performance for this class since 2008, and for OMERS, the worst since 2020.

[00:15:01]Well, let's just think. Were those good years?

[00:15:04]>> [laughter] >> I mean, no. No, they were not good years. So, so I mean, it's right in the face here of what like in our faces, but a lot of people don't know this is going on, and it is huge because with interest rates rising, you know, as I said, it's no understatement, this could, probably will, blow up the financial system. It's just a case of when. It's not a case of if, it's a case of when this is going to happen because there's already trillions into this market. You cannot reverse that very easily, especially when you're dealing in a lot of illiquid crap. So, I mean, that's And then Lacasse Quebec's $517 billion state pension fund also reported weak private equity results.

[00:15:58]The group said its PE portfolio returned 2.3% last year, well below the 12.6% gain in its benchmark index, half of which is listed of is made up of stocks.

[00:16:10]So, if you take a look at this, you can see the private equity performance by year. And you can see, you go back to 2021, and all Oh my god, look at the returns there. You're talking for Lacasse there, it's over 30%.

[00:16:28]So, I mean, that is just great for a pension fund. So, it is no wonder that they actually absolutely just slammed the money into this because they're just trying to get the returns higher and higher and higher. And at the end of the day, like a lot of these fund managers, you know, that what they get paid, their bonus is based off of the return. So, of course, they want to try and find ways to juice those returns as much as they can. And there is regulators that watch these pension funds to make sure that they're not investing in a lot of this crap. And they've just been stood there like with their arms folded, just like, "Yeah, I mean, this looks kind of risky.

[00:17:13]Looks kind of like 2008.

[00:17:16]But you know what?

[00:17:18]We'll just wait. We'll just wait.

[00:17:21]We'll just wait and see what happens.

[00:17:23]And you know, even the Bank of England has flagged the risk. Fair play because the Fed and the Bank of Canada don't have a clue. Like I was reading a Fed paper earlier. Clueless. Clueless to what's going on. But the Bank of England, fair play. Like they've even flagged the risk saying it could be as bad as 2008. So even if you like central planners and you don't like listening to me, even central banksters are saying that this is a big risk. And you got it here from the Financial Post. CLO profits are sparking infighting. And this just recently came out. Like literally 4 days ago.

[00:18:03]So a type of invent investment that once generated some Wall Street's juiciest fixed income returns has deteriorated so badly that investors are heading for the exits and are arguing about who to blame. The tussle concerns CLOs. Investment vehicles that package corporate loans into pieces of varying size and risk.

[00:18:25]The $1.3 trillion market is a perennial favorite with institutional buyers like pensions and hedge funds. I mean, doesn't that make you sleep at night? I mean, if you're like 25 years old, you don't have much to worry about anyway because by the time you retire, your CPP what you get, like what you get on retirement, your social security or whatever will probably be buying you a loaf of bread.

[00:18:53]>> [laughter] >> I'm not joking. The way The way this is going and deteriorating over the past sort of 6 years, that's probably going to be the way because the the low inflation that people have been used to is not going away. And governments have changed to stimulus as a way to you know, get the economy going, which doesn't work. But anyways, that's a separate thing. So, it's a 1.3 trillion dollar market. Not small.

[00:19:24]Lately low, the returns to the riskiest portions of CLOs have plunged well below zero. And the damage to the so-called equity tranches is spilling over into some investment firms that could that that caught individual investors. A one 580 million million fund based in Chicago with significant CLO equity investments, a bit of feud has erupted between its two managers over who or what caused a 50% decline over the past two years. A slew of other funds with high CLO exposure have slashed their dividends and warned shareholders of more trouble ahead. So, when you think about a CLO like it's a bunch of loans, and essentially they slice it up like a cake, and you've got these parts of the cake where the people get paid out first because the loans are the less riskier types of loans. And then you've got the ones which could fail and blow up with the riskier type of loans. But there is spillover from each. So, you know, if the whole CLO default rate start rising, it can affect all of the tranches as well. And that's one thing that obviously was something that was really bad during 2007 and 2008.

[00:20:46]So, CLOs make money by buying and bundling bank loans and then issuing debt in the bond market at a lower interest rate, reaping the dis- difference or arbitrage as a profit. The managers split the CLO into tranches with vary- varying levels of reward and risk. Investors who buy the safer senior tranches get paid a promised rate of return. Anything left goes to the holder of the riskiest securities known as the equity, but in reality, essentially a form of highly subordinated debt.

[00:21:17]Returns for those investors can be quite lucrative, but if nothing is left over, they can be stuck with losses. And here's the thing, like the problem is they started running out of loans to put in these bigger like the the upper tranches. And there's already the regulators themselves have seen that these things are very opaque like the CLOs, and it's very hard to define the risk on it. So, they've already said that. So, that means like you could have like a triple-B rated slice of that pie, which is just full of garbage, the same garbage as the person bought who isn't getting paid, and you just don't know about it yet until the economy just grinds to a halt essentially, or the economy slows down, or enough businesses are going bankrupt, and it just goes up and up the chain because it starts off with the weakest businesses, then goes through to other businesses, and then to, you know, the stronger businesses. And basically, that's what we're seeing now.

[00:22:23]It's filtering through. You've got the US bankruptcies, small business bankruptcies, at a 16-year high. And then this pretty much sums it up, doesn't it? "CLO equity for years was a glorious place for investors who understood the market," said Michael Hizlo, an analyst for Curasset Capital Management. "But recently, underlying loan performance hasn't been good enough to compensate equity buyers for the risk, and they've got hammered." So, and again, like the biggest private equity funds, Brookfield, BlackRock, they are pushed into this. I mean, this is Brookfield, and they are hiring here. I mean, this was 21st of July, 2026.

[00:23:08]And they hired up a private credit expert.

[00:23:13]>> [laughter] >> I mean, a CLO expert, sorry, not private credit. So, Brookfield's recruitment of a CLO expert. So, again, they're all involved in this and that's what matters. So, you got to ask like, what's the size of that private debt market?

[00:23:31]That debt market of corporate debt, private business debt. And it's huge.

[00:23:37]It's absolutely huge. In fact, Canada, one of the biggest in the world, 161.4% of GDP. At one point, it was nearly up to 190% of GDP. So, you know, it's huge. It's absolutely huge. It's bigger than the economy. In the United States, it's also really, really high, 142% of GDP as well. And you can see here, the listings in the world, Luxembourg, a little bit skewed there cuz that's a tax haven for Europe there. You've got France, extremely high. Netherlands, Sweel, Sweden, sorry. Ireland, Denmark, Norway, South Korea, Iceland, Japan that is having problems, obviously, with its currency right now. The Bank of Japan, if you haven't seen everything that's going on there. I mean, there's a lot going on there with the yen. And then you've got Canada, Belgium, United States. So, they're up there with some of the highest for the private debt. And obviously, South Korea has also run into some turbulent times recently. And there's a lot of this money that has flowed into malinvestment within the AI space. And not only that, you've got to ask like, a lot of these loans as well.

[00:24:59]I mean count I mean pension funds like CPP for example, as you can see. And I mean it's the S&P 500 as a whole as well is highly invested in all these tech companies, right? All these tech companies that have invested loads into the AI space, which is just full of malinvestment right now. And you've also got not only that, like the trade tensions going on with Canada. That adds just another level of risk because there's all these loans that have gone to manufacturing companies, that have gone to commercial real estate, that have gone to developers. I mean, just name the shitty space where people could have lent money to it and it's happened since 2020. I mean commercial real estate very very bad, a place that you do not want to lend to with the [ __ ] that happened in 2021 and it has not recovered in most places. And you've got like valuations that are just insane because they've tried to do refurbs, they've borrowed money to do refurbs to then boost the value of the office buildings to get more money. Like there's all kinds of like Ponzi financing that has gone on just in commercial real estate. Then you've got all these other types of risk, like all these manufacturing companies which are facing, you know, tariffs, that are facing potentially the company moving to the US and what happens to all that Canadian debt. I mean, take a listen, this is what Mark Carney said just recently here.

[00:26:37]>> As many of you know, yesterday the United States announced the intention to in 30 days to launch the latest what is a series of trade actions against against Canada in violation of our agreement Kuzma with the United States and Mexico.

[00:26:56]And I want to put this in a bit of perspective then answer you a couple questions. The first is that in response to these actions this has began over 18 months ago. Canadians from coast to coast to coast have stood together. The federal >> Well, I don't know. He always uses that language. Canadians coast to coast have stood together. Well, I haven't. I've been in the US a lot. And by the way, the previous Prime Minister, he's been just balling in the US with Katy Perry.

[00:27:21]But anyway, let's continue.

[00:27:22]>> government, provincial government, labor, business, Canadians themselves uniting, focusing on what we can control, building strength here at home, supporting each other, buying Canadian, and diversifying partnerships.

[00:27:36]>> Canadians just sign more than 20 >> uh economic and security partnerships internationally.

[00:27:42]Investment machinery equipment's picking up.

[00:27:45]Economy's picking up. We're growing jobs at twice the rate in the United States with the fastest growth in foreign direct >> know what's going on with the with the audio there, but I mean it's just again like this word salad response like trade tensions heating up again.

[00:28:03]And you've just got to analyze the risk there because a lot of lending has gone to manufacturers. And the government especially has done a lot of bailouts to these manufacturers as well. And you've also got the real estate space. Let's not forget that with developers because all these bailouts that go to developers, all these loans that come from banks which we've seen just skyrocket over the past couple of years, they're private they're not private credit, but that is a private that goes into the private debt to GDP, not the household debt to GDP because it's going to a business. And you've got this that's going on and it's been flooded all over social media. I mean, you've probably seen it, but it's basically that Chinese AI models are now being used more than US-made ones. And you've got to think, like, with all the data centers going up in the United States and everything, all that malinvestment that is going on as well into the AI space, and you've got the Chinese models that are taking over. It's a very competitive space. And, you know, there's so many just complete BS companies. I mean, completely insane.

[00:29:20]But, you know, all this malinvestment, how has it been allowed to happen in the first place? And it all comes from credit. It all comes from loans. Like, people didn't fund this out of their own back pocket, and that's the reality of it. Where did they get the money for those loans? Well, ultimately, they might have come from your pension fund.

[00:29:44]And then, you might be indirectly invested in a lot of [ __ ] shitty AI companies or, you know, bad commercial real estate companies.

[00:29:56]And until the tide goes out, which, as we saw earlier with that article that I think's here, you know, US corporate bankruptcies at 16-year high. I mean, I think it's clear as day here that the tide is starting to go out. It just becomes a question of when this is all going to blow up and take down the financial system, which is hard to say at this point. With interest rates surging, though, I don't think it's yet, because if you go back to, on the US, for example, like, it started declining yields in 2007, and the loans were deteriorating for the mortgage-backed securities in 2007, kind of like they are today. But, obviously, the stock market and everything didn't actually start collapsing until 2008, until that big poster child Lehman Brothers moment, which was just the straw that broke the camel's back. So, you know, we're already in that kind of 2007 phase, but so hard to know when this will actually blow up, but it is going to be at some point, unfortunately.

[00:31:07]Anyway, if you've enjoyed this video, please subscribe to the channel. Please leave a comment with your thoughts below, and please like it. It really, really helps. Please check out this video here, which I would highly, highly recommend, and it's all about cash and how basically they're trying to get rid of it. And then, if you want to help support the channel, check out the links in the description, check me out on Substack for my longer writings, and I will see you in the next one. Take care, everybody.