The conflict is disruptive. Normally, fundamentals (jobs, capital spending, accommodative policy) are 95% of what matters. Now, geopolitics, government borrowing, excesses in capital markets, and technological change make up the other 30% of concerns.

It's something to watch. Governments are spending more than they bring in with no sign of letting up. This kind of borrowing is normally inflationary, as is the restriction of goods and labor flow, but we haven't seen it yet. For a credit investor, it's a good time for risk-off.

A tick up in inflation would handicap the Fed's ability to push rates down further.

Companies and consumers are in good shape; ironically, governments are not. We are at the end of a long accommodative credit cycle. The recent discovery that AI impacts software has triggered a massive risk-off mode. Software stocks are down almost 70%, and problems in software lending will ripple through high yield, equity, and bank lending.

Apollo's private equity portfolio has zero software. Their credit book is not concentrated in software. The problem is software was 30% of the levered buyout and lending market, so it's overrepresented. The world is spending massively on infrastructure, energy, next-gen manufacturing, defense, and AI/data all at once, creating the largest need for capital ever.

The banking system is in great shape. The vast majority of the private market is investment grade. Leveraged lending, a small slice, has moved from bank balance sheets to the CLO and BDC markets. This is a de-risking activity for the economy and for individuals who sell equities to invest in first-lien debt.

Most investors in private credit are not levered. The press focuses on the leveraged lending portion, but most private credit is investment grade financing a global industrial renaissance. A correction is coming in private markets, similar to banking. Good risk managers who avoided concentration will do well.