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Private credit is cracking and lending standards are tightening behind the scenes. If you’re not building cash reserves right now you’re going to wish you had.

by cmiles8 7mo ago

Private credit is cracking and lending standards are tightening behind the scenes. If you’re not building cash reserves right now you’re going to wish you had. The distressed opportunities ahead go to whoever kept dry powder while everyone else was chasing growth. If your business is light on free cash flow (ie everyone in AI at the moment) buckle up as there are storm clouds ahead. If you’re running a business that relies on external cash (VCs, loans/bonds, etc) to keep things going things will get very ugly.

mothballed 7mo ago
Well it only took 5 years of destroying responsible savers with every policy imaginable to make sure they get crushed by those who availed themselves of the negative real rate loan inflation machine. How many people are left remaining that were dumb enough to take that strategy and are still standing? If you were operating on a cash basis for the last 5 years you were mostly wiped out by people leveraged to the 9s on debts and meanwhile your buying power was erased.
- cmiles8 7mo ago
  Interest rates on things like CDs and low-risk bonds have been decent for a while now. It’s not been painful to sit on cash reserves provided you were smart about where the cash was parked. It’s not an either/or, it’s just a question of who was participating in the boom while preparing for storms ahead vs those all in on the boom. What implodes in the period ahead are things that are massively over leveraged and can’t absorb a hit without doubling down again with more funding/loans and such. These are the folks and companies that get wiped out.
  - b112 7mo ago
    Interest rates on things like CDs and low-risk bonds have been decent for a while now. It’s not been painful to sit on cash reserves provided you were smart about where the cash was parked. Just make sure you can unpark it, else you're SVB.
  - uneoneuno 7mo ago
    You're not wrong it's always good to have cash but certain allocations could have done 50%-100% return on investment while a CD brought ~5.5% for a while. Look at S&P since 2021. Knowing when to transition from cash, liquidity, other instruments is what kills/allows people to survive. We can't all do the same thing, it's almost as if it's economic ecological evolution, random death.
  - hnfong 7mo ago
    It's decent only if you believe inflation = CPI In actuality, the CPI is lower than inflation because technological advancement, automation, and economies of scale (due to globalization etc) are driving consumer prices low. In other words, if factories are still producing things like they were 20 years ago, the CPI would have been much higher, and that higher number is closer to what should have been the inflation number.
    - JumpCrisscross 7mo ago
      > if factories are still producing things like they were 20 years ago, the CPI would have been much higher, and that higher number is closer to what should have been the inflation number This is an impossible counterfactual to test. In reality, tracking value across time requires adjusting for immeasurable preferences. This is why inflation is really only a useful measure for personal purposes across periods of years. It’s only macro economically interesting across a generation and close to meaningless longer than a human lifespan.
      - hnfong 7mo ago
        I think it's so obvious that no testing is needed, but generally I don't disagree with your take. The thing is one really needs to understand what "real yields" mean when investing in bonds, i.e. it means your purchasing power with respect to cheap commodities tracked by the CPI is preserved, but it doesn't necessarily mean "value" (whatever that means in the abstract) is retained.
        JumpCrisscross 7mo ago
        > it means your purchasing power with respect to cheap commodities tracked by the CPI is preserved CPI isn't a measure of commodities. And "CPI" is a bit of shorthand, given there are pretty much as many measures of consumer and producer prices as there are economists. > it doesn't necessarily mean "value" (whatever that means in the abstract) is retained This is what any measure of inflation ultimately seeks to measure. Purchasing power is intrinsically tied to the basket of goods and services its measuring. That basket varies across people and time as preferences vary.
  - hypeatei 7mo ago
    Decent is fine if you're about to retire and want to avoid risk but I wouldn't recommend parking your wealth in CDs/bonds if your retirement is still 15+ years out, personally. The government has to print money to bail itself out which means things are going to inflate quite a bit, just look at what gold has done in anticipation of this. Banks bailed out the hedge funds in '98, then the taxpayer bailed out the banks in '08, then the government bailed out the taxpayer in '20... now monetary policy from the fed has to prevent the government from defaulting.
coldpie 7mo ago
> If you’re running a business that relies on external cash (VCs, loans/bonds, etc) to keep things going things will get very ugly. Honestly thrilled to hear it. The AI bubble needs to burst so we can find out what's actually useful, start requiring real business models again, and get rid of all the noise and waste.
- alecco 7mo ago
  The problem is all these over-leveraged sectors will drag everybody else. And guess who will be bailed out? Heads they win, tails everybody but them loses.
  - coldpie 7mo ago
    > The problem is all these over-leveraged sectors will drag everybody else Well, the good news is that's what good public policy is for, to blunt the impact of the damage with strong anti-trust enforcement and careful cash injections to weak-but-critical areas of the economy to help stabilize in rough times. Now, hang on for just one moment while I crawl out from under this rock and take a look at who we have entrusted to set our public policy.
  - franktankbank 7mo ago
    Assets don't disappear they get bidded.
    - mschuster91 7mo ago
      The problem is, what assets remain of a company that doesn't own anything material? OpenAI, Anthropic - they don't own datacenters that could be auctioned off. All they own is training data and trained weights, and both are relatively worthless. The game that all the AI companies are playing is to be the last dog standing at all costs, because that kind of dominance is a money printer.
    - alecco 7mo ago
      And who buys those troubled assets at deep discount? Where do they get the cash to pay for them?
derwiki 7mo ago
This is not my field of expertise, but I modeled keeping cash reserves to buy distressed assets. Unless I was able to perfectly predict the crash, the outcome was still better to not time the market.

by cmiles8 7mo ago

mothballed 7mo ago

Well it only took 5 years of destroying responsible savers with every policy imaginable to make sure they get crushed by those who availed themselves of the negative real rate loan inflation machine. How many people are left remaining that were dumb enough to take that strategy and are still standing? If you were operating on a cash basis for the last 5 years you were mostly wiped out by people leveraged to the 9s on debts and meanwhile your buying power was erased.

cmiles8 7mo ago
Interest rates on things like CDs and low-risk bonds have been decent for a while now. It’s not been painful to sit on cash reserves provided you were smart about where the cash was parked. It’s not an either/or, it’s just a question of who was participating in the boom while preparing for storms ahead vs those all in on the boom. What implodes in the period ahead are things that are massively over leveraged and can’t absorb a hit without doubling down again with more funding/loans and such. These are the folks and companies that get wiped out.
- b112 7mo ago
  Interest rates on things like CDs and low-risk bonds have been decent for a while now. It’s not been painful to sit on cash reserves provided you were smart about where the cash was parked. Just make sure you can unpark it, else you're SVB.
- uneoneuno 7mo ago
  You're not wrong it's always good to have cash but certain allocations could have done 50%-100% return on investment while a CD brought ~5.5% for a while. Look at S&P since 2021. Knowing when to transition from cash, liquidity, other instruments is what kills/allows people to survive. We can't all do the same thing, it's almost as if it's economic ecological evolution, random death.
- hnfong 7mo ago
  It's decent only if you believe inflation = CPI In actuality, the CPI is lower than inflation because technological advancement, automation, and economies of scale (due to globalization etc) are driving consumer prices low. In other words, if factories are still producing things like they were 20 years ago, the CPI would have been much higher, and that higher number is closer to what should have been the inflation number.
  - JumpCrisscross 7mo ago
    > if factories are still producing things like they were 20 years ago, the CPI would have been much higher, and that higher number is closer to what should have been the inflation number This is an impossible counterfactual to test. In reality, tracking value across time requires adjusting for immeasurable preferences. This is why inflation is really only a useful measure for personal purposes across periods of years. It’s only macro economically interesting across a generation and close to meaningless longer than a human lifespan.
    - hnfong 7mo ago
      I think it's so obvious that no testing is needed, but generally I don't disagree with your take. The thing is one really needs to understand what "real yields" mean when investing in bonds, i.e. it means your purchasing power with respect to cheap commodities tracked by the CPI is preserved, but it doesn't necessarily mean "value" (whatever that means in the abstract) is retained.
      - JumpCrisscross 7mo ago
        > it means your purchasing power with respect to cheap commodities tracked by the CPI is preserved CPI isn't a measure of commodities. And "CPI" is a bit of shorthand, given there are pretty much as many measures of consumer and producer prices as there are economists. > it doesn't necessarily mean "value" (whatever that means in the abstract) is retained This is what any measure of inflation ultimately seeks to measure. Purchasing power is intrinsically tied to the basket of goods and services its measuring. That basket varies across people and time as preferences vary.
- hypeatei 7mo ago
  Decent is fine if you're about to retire and want to avoid risk but I wouldn't recommend parking your wealth in CDs/bonds if your retirement is still 15+ years out, personally. The government has to print money to bail itself out which means things are going to inflate quite a bit, just look at what gold has done in anticipation of this. Banks bailed out the hedge funds in '98, then the taxpayer bailed out the banks in '08, then the government bailed out the taxpayer in '20... now monetary policy from the fed has to prevent the government from defaulting.

coldpie 7mo ago

> If you’re running a business that relies on external cash (VCs, loans/bonds, etc) to keep things going things will get very ugly. Honestly thrilled to hear it. The AI bubble needs to burst so we can find out what's actually useful, start requiring real business models again, and get rid of all the noise and waste.

alecco 7mo ago
The problem is all these over-leveraged sectors will drag everybody else. And guess who will be bailed out? Heads they win, tails everybody but them loses.
- coldpie 7mo ago
  > The problem is all these over-leveraged sectors will drag everybody else Well, the good news is that's what good public policy is for, to blunt the impact of the damage with strong anti-trust enforcement and careful cash injections to weak-but-critical areas of the economy to help stabilize in rough times. Now, hang on for just one moment while I crawl out from under this rock and take a look at who we have entrusted to set our public policy.
- franktankbank 7mo ago
  Assets don't disappear they get bidded.
  - mschuster91 7mo ago
    The problem is, what assets remain of a company that doesn't own anything material? OpenAI, Anthropic - they don't own datacenters that could be auctioned off. All they own is training data and trained weights, and both are relatively worthless. The game that all the AI companies are playing is to be the last dog standing at all costs, because that kind of dominance is a money printer.
  - alecco 7mo ago
    And who buys those troubled assets at deep discount? Where do they get the cash to pay for them?

derwiki 7mo ago

This is not my field of expertise, but I modeled keeping cash reserves to buy distressed assets. Unless I was able to perfectly predict the crash, the outcome was still better to not time the market.