Majority of investors still optimistic expecting quick resolution, but ground signs suggest conflict could last longer with lasting Middle East tensions and supply chain disruptions.
Alberto Gallo
Entering 2026 with extremely tight credit valuations and signs of froth made us cautious. War could be catalyst for higher commodity prices and central banks unable to cut or even having to hike.
Asks what made him more cautious about credit this year.
Tim Stenovec
Alberto Gallo
Mapped private credit system for over year: loose underwriting, overlooking risk, circularity, conflict of interest - typical signs before things go wrong.
Alberto Gallo
40% of private credit companies are software with negative free cash flow, 10% pay-in-kind (pay principal instead of coupons) - large misallocation of capital.
Asks about systemic risk and how bad it could get for financial system.
Carol Masser
Alberto Gallo
$3T private credit market comparable to $1.3T subprime in 2008, but different contagion channel through insurers rather than banks.
Alberto Gallo
Collateral often BBB/BBB- rated, concentrated in sectors with companies lacking free cash flow - looks very fragile.