Epic Fury...
- Marc Bentin
- Mar 2
- 8 min read
BentinPartner Weekly
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Please find below our latest Weekly Trend Report.
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Marc Bentin,
Bentinpartner GmbH
The market did not need the week end news of the “Operation Epic Fury” to close on a sour and febrile note, dragged down by escalating concerns about the AI impact (so called “AI scare trade”) and the private credit fallout. If anything, the latest military operation could also revive memories of the past (where the initial war related selloff did not last) and create some needed political diversion away from the Epstein fallout.
Before that, after changing the way redemptions at its fund would operate, Blue Owl shares suffered their worst week, bringing YTD losses to nearly -30%, in line with other private credit titans Ares Management (-30% ytd) and KKR (-27% ytd). These losses spiraled into bank shares last week, driving the KBW index to shed -5% on the week.
The credit impact was made worse on Wednesday with UK specialist and independent lender Market Financial Solutions Ltd nearing collapse and of which the activities intersect with private credit, real estate financing and sit on the balance sheet of some of the largest US financial institutions. Just like with now bankrupt subprime auto parts supplier First Brands Group, banks took comfort with MFS in tangible collateral that was double pledged. Barclays alone was said to face up to GBP600bn losses and Apollo GBP400mn.In short MFS was said to hold GBP230bn collateral with USD1.2bn in debt.
Last week, UBS also caused a stir, opining that private credit could see default rates surge as high as 15% if artificial intelligence triggers an “aggressive” disruption among corporate borrowers, 2% higher than when UBS came wit its previous worst-case scenario two months ago. Aggressive disruption is what investors faced over the past 3 weeks with miseries hitting mammoth software companies like IBM (IBM shares had their worst day in more than 25 years last Monday shedding -15%), MSFT, ServiceNow and SAP at the same time as so called hyperscalers stumbled amidst concerns about excessive debt.
On Friday, D. Trump announced that Anthropic would be classified as supply-chain risk, an unprecedented move against a US company and banned from public services as the company refused its technology to be used for mass surveillance and non-human assisted autonomous weapons …after its miscellaneous killer apps erased hundreds of billions in market cap from software and IT service providers giants over the past two weeks.
This heroic and (rather unique) ethical fight from an AI entrepreneur lasted hours until an announcement came that Open AI (Anthropic was founded by former Open AI employees) would fill the void for official procurement to the Pentagon…
Talking about Open AI, the company announced last week that it had received another round of financing (USD110bn) in a deal that valued the startup at USD730bn with Amazon, Nvidia and SoftBank also pouring more money into OpenAI in the latest fundraising round, conditional to Open AI launching an IPO soon (read …this will be the last round and probably the last pumping effort to attract retail to buy OpenAI in public markets at the top giving a chance to earlier backers to exit with the best terms into more gullible investors’ hands).
In Europe, Bloomberg reported, one of Europe’s most famous beach resort destinations was said to be scrambling to avoid insolvency after it was ordered to pay €350 million in compensation over a real estate deal gone awry, Macarena Muñoz reports. Benidorm — the Spanish city widely considered the birthplace of package tours — is now seeking a government bailout to help make the payment that’s more than double its annual budget, Bloomberg reported.
Miseries from the fallout of excessive private credit exposure to the software industry continued. A publicly-traded private credit fund managed by Blackstone said that it was seeing continued signs of stress in one of its largest investments, software company Medallia Inc (marking it down to 78 cents). Share prices of a handful of closed-end funds, including ones backed by the billionaire Koch family and Carlyle also fell to all-time lows last week.
Suggesting a distributive market last week, was the poor response to blockbuster Nvidia earnings, seen as a confirmation that the market has become defiant about the viability of financing requirements of $3 TN plus of the AI investment boom. The MAG7 Index also dropped -2% last week (-7% ytd).
That said and away from US markets, South Korea rallied another 7.5% last week (+48% ytd), with Japan and Shanghai also gaining 3.6% and 2.0% respectively while European equities for the most part were largely stable.
This time, US treasuries benefited from renewed credit related safe haven buying as10Y yields sank -15bps last week to 3.94%. Traders in US futures and options markets are piling on bets that the Federal Reserve will continue cutting rates into next year instead of raising them, Bloomberg noted.
Similarly to the week before, more spillover effects were felt in public credit markets with HY spreads widening 24bps last week. Oracle CDS, the posterchild of AI related excess borrowing, also jumped 7bps to 164 bps, to the highest level since the Great Financial Crisis and European subordinated CDS (credit default swap) also jumped 7bps to 101 bps. Notably, investment credit spreads widened sharply, adding 7bps on the week.
The dollar index was unchanged last week.
Precious metals gained last week and added 1% to those gains overnight.
Bitcoin shed USD2’000, having lost almost half its value from October highs as speculative deleveraging gathered momentum in the space as well.
Oil rallied already last week, bringing YTD gains to 20% with another 7% rally seen overnight as some of the worst fears emerged as the conflict hit the strait of Hormuz (without Iran declaring it was shutting it down but all boats diverting for security reasons). This was also the time chosen by a Belgo-French military operation to seize a so-called Dark fleet oil tanker before escorting it to Zeebrugge to be seized. Assuming the flow of oil from Iran remains severely disrupted, China which imports nearly all the Iranian oil will likely now seek to accelerate its supplies from Russia.
We can only hope that oil disruptions will be temporary to avoid the further dampening economic impact of an oil shock to an already fragilized economy resulting from AI related excessive debt and AI related prospective job-related concerns.
News of Iran’s Supreme Leader Ali Khameni death (and of his most immediate successor, it seems) likely achieved a primary objective to pave the way for an ultimate regime change, assuming the people of Iran would want to follow US encouragements to follow up and topple local institutions which the killing of 80 schoolgirls in the early hours of the US-Israeli operation might hinder or at least delay.
In its retaliation campaign, Iran struck several military bases and interests across the Middle East including Dubai with damages reported in the tourism and financial areas in a serious escalation. Several missiles struck Israel also leading to human casualties.
Over the past week, the S&P500 dropped -0,5% (0,6% YTD) while the Nasdaq100 dropped -0,2% (-1,1% YTD). The US small cap index dropped -1,2% (6,2% YTD). AAPL dropped -0,2% (-2,8%).
The Equally Weighed SP500 gained 0,4% (7,0% YTD), outperforming the S&P500 by 0,9%. The median SP500 YTD return closed the week at 7,8%.
Cboe Volatility Index rallied 4,0% (32,8% YTD) to 19,86.
The Eurostoxx50 gained 0,1% (6,0%), outperforming the S&P500 by 0,6%.
Diversified EM equities (VWO) dropped -0,7% (8,1%), underperforming the S&P500 by-0,2%.
The Dollar DXY Index (UUP) measuring the USD performance vs. other G7 currencies dropped 0,0% (0,2%) while the MSCI EM currency index (measuring the performance of EM currencies vs. the USD) gained 0,7% (1,7%).
10Y US Treasuries rallied -15bps (-23bps) to 3,94%. 10Y Bunds dropped -9bps (-21bps) to 2,64%. 10Y Italian BTPs rallied -7bps (-28bps) to 3,27%, underperforming Bunds by 2bps.
10Y French OAT’s rallied -8bps (-35bps) to 3,22%, underperforming Bunds by 1bps.
US High Yield (HY) Average Spread over Treasuries climbed 21bps (25bps , Z-score 2,2) to 2,91%. US Investment Grade Average OAS climbed 8bps (8bps, Z-score 2,4) to 0,92%.
In European credit markets, EUR 5Y Senior Financial Spread climbed 5bps (5bps, Z-score 3,3) to 0,59%.
Gold rallied 3,4% (22,2%) while Silver rallied 10,8% (30,9%). Major Gold Mines (GDX) rallied 9,0% (35,1%, Z-score 2,2).
Goldman Sachs Commodity Index rallied 2,0% (12,3%). WTI Crude gained 0,9% (16,7%).
Overnight in Asia…
Ø S&P future -42 points; Hong Kong -2.3%; Nikkei -1.6%; China -0.6%
Ø Oil and gold rallied while US stock futures dropped as the war in Iran boosted safe haven demand, albeit with the expected fade out from the initial reaction.
Ø Lloyd Blankfein (who led Goldman in the 2008 financial crisis) warned that the financial system is inching toward another potential catastrophe with everyday Americans exposed to some of the losses as he criticized financial firms for seeking to give retail investors access to private investments at a time when they're more likely to blow up, Bloomberg reported.
Ø D. Trump said he had three good choices to lead Iran (after realizing that the son of the Shah will likely not fit the bill for many Iranians who remember his father’s ruling).
Ø H. Lutnick may be called to testify in the House Oversight chamber's Epstein probe, and Democratic Representative Ro Khanna suggested there may be enough votes to issue a subpoena to Lutnick. Still, President D. Trump has shown no interest in punishing Lutnick over the relationship, and the White House spokesman said Trump "maintains complete confidence in Secretary Lutnick".
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