Tracking Tentacles
Our funky fall seems so long ago. Perhaps that might be the point of our frenzied news cycle - to obscure our path from point A to point B in the hopes of buying just a little more time to rearrange the deck chairs? Remember when the Tricolor and First Brands drama unfolded in the fall and we watched as a private credit actor and big bank Titan traded barbs seemingly in preparation for some eventual cage fight?
Powell vs Trump, Dimon vs Lipschultz, Good Guys vs Bad Guys…when are we going to wake up and say enough is enough? The kayfabe serves as distraction as those in power obfuscate in hopes they can drain just a little more from the system, from us. How have you coped through the last several months? Did you spend a little more than you should, did you fly off to warmer temps in an attempt to drown out the noise, did you rail on social media in righteous indignation, or did you find yourself hiding under the covers? The deception we are subjected to on a daily basis would be enough to rattle Mother Theresa. That, my friends, is not going to change. The only thing we can change is how we deal with it. When the truth is ever-fleeting and reality unrecognizable, we have to focus and use our gifts to bring as much sanity to the world as we can. You have gifts I don’t and vice versa. For my part, when the excrement hits the fan the only thing that keeps me sane is heavy, productive pursuit of what I can know. While I may not be able to put the puzzle fully together, I can frame the edges through observation and the triangulation of the existing data. Truly that is what I try to do here…to give you clues so you are armed with more insight than you could gain on your own at the current moment so that you can make the best decisions possible for you and your family cuz those in power ain’t worried about us. In their minds, we are steppingstones to some vision of life most of us absolutely do not share.
Remember last week when I said that during the last crisis, each company’s borrowing schedules looked like the Who’s Who of High Finance? That we felt like we were part of a team, in it together to save the financial system? Most of us believed, needed to believe, that lessons had been learned despite no one ever being held accountable. Lessons were learned - just not the ones most of us thought. The architects of our last crisis just learned how to do it faster, better, stronger. But, as always, as history instructs, they got too greedy, they flew too close to the sun, and they believed their own BS. As before, the tentacles of this hyperfinancialization monster can be found on balance sheets around the system as it robs Peter to pay Paul. The names on the list of Who’s Who may be a little different, but yet again they repeat everywhere. What you are witnessing are these actors blustering about as they desperately try to deny that you and I are not just steppingstones.
Case in point? As tech titans run around pledging monopoly money to each other, desperately trying to push valuations ever higher, Forgotten Americans all over the country are rising up against data centers.
Amen to that. If you haven’t seen the video of the moments after the community learned that the data center would be cancelled, I encourage you to watch it. Of course, even in a story like this cynicism can be found. Nonetheless I encourage you to take from it the lesson that when people come together with purpose, sometimes just sometimes we win. In a post I wrote last year called Make it Happen I discussed this with respect to housing. By choice or not Americans have said no to ridiculously high home prices they cannot afford despite mainstream media working overtime to convince us that going into debt slavery is the only way. Even the feat of reading this (really long) Substack is a small act of rebellion as I often chronicle the falsehoods that get lobbed like bombs at us each day. A little bit later, I will discuss the new home sales data we just received for November and December which fits squarely in that category.
Before going there, let’s chat a little about two stories from High Finance this past week. First up, when the Co-CEO of Blue Owl, Marc Lipschultz, pounded his chest and threw shade (deserved or not) at Dimon in October, the following phrase came to mind: methinks he doth protest too much.
Indeed, that was the case, and it only took a few short months for reality to surface. For an excellent write-up of exactly what transpired, I recommend Unicus Research’s deep dive into the details. What I find interesting about this story is that when you understand the timeline, we can see why Blue Owl badly needed to get everyone off the private credit trail. When reading the below details from the legal complaint filed by Goldman against Blue Owl which “alleges scienter, that is, knowing or reckless disregard for the truth — based on the executives’ direct access to BDC performance data, redemption figures, and liquidity metrics, as well as their control over SEC filings and earnings call messaging,” keep in focus when Lipschultz made his comments about Chase:
Q1–Q3 2025: According to the lawsuit complaint, OBDC II investors withdrew approximately $150 million over the first nine months of 2025 — a roughly 20% increase versus the same period in 2024. Redemption requests in August–September 2025 nearly doubled year over year. Third-quarter redemptions reached approximately $60 million, equal to 6% of net asset value. Tender requests exceeded the 5% quarterly cap in multiple periods, forcing the fund to prorate redemptions. Blue Owl’s Q1 and Q2 2025 10-Qs each reiterate that there is “no meaningful pressure” on its asset base…
October 21, 2025: Blue Owl and Meta announce the Hyperion joint venture — at the time described as the largest private-credit transaction ever executed.
Lipschultz’s comments came four days before this historic deal with Meta was announced. The con(fidence) game requires confidence. Clearly at the time Blue Owl was under significant pressure. The predominant lesson from the GFC? Don’t blink. The lesson those in power learned post the crisis and throughout our Silent Depression? Say it loud enough with enough conviction and many, many will believe, even if the facts contradict. You may not exactly understand the Blue Owl story because the concepts are foreign. There is no need. The key takeaway is that they did a lot of “fronting” to hide stress to make sure the Meta deal got done. What else is this sector hiding?
In looking at Blue Owl’s list of investments, the company we will next discuss, Klarna, appears. Blue Owl owns $65M of Klarna’s subordinated floating rate notes, maturing in 2034.
Anyone who has been in the credit game through a down cycle could tell you that distress at Klarna was just a matter of time. Private Buy Now Pay Later firms can claim low delinquency without having to really prove it. I have a feeling the private BNPL firms are doing some fancy footwork around non-accruals. When you are a public company, though, you have to work harder to hide the cockroaches as the scrutiny is much more intense and the definitions clearer. Accordingly, Klarna did what public credit companies have to do - they took provision for loan loss which put them in the red. From their earnings release:
Transaction margin dollars came in at $372 million, below our $390-400 million guidance, primarily driven by the faster-than-anticipated adoption of our expanded banking offerings. As our banking service adoption accelerates at a rapid pace, we provision upfront for future expected credit losses on new cohorts while revenue is recognized over time. When growth outpaces expectations, those day-one provisions temporarily weigh on margins— even when credit quality remains strong and lifetime economics are attractive. This is value creation that is deferred.
Ummmm. Day one provision? Yes, as a public company you do have to abide by generally accepted accounting principles, but you only have to take provision if you have facts that tell you based on historical performance, industry benchmarks or market fundamentals that you will need it. We are growing faster than expected so we have to take more provision as an excuse is quite the spin.
Click that button and the world becomes your oyster. So, Klarna, you didn’t think this campaign would be a raging success with our younger cohorts who are capital constrained and addicted to consumption? But, also, have you never heard of hedging? Could you have slowed your growth to deliver on your promises, or is getting over your skis already the look you are going for? Deferred value creation? Where have I heard that one before? Cough. AI. Cough. Cough. Based on rising delinquencies across all asset classes, I think it’s safe to say Klarna has some rough waters ahead.
Blue Owl + Klarna sitting in a tree, k i s s i n g. What could go wrong? Can I throw in another tentacle - this one real estate related - for good measure? Sure thing. Will do so below as even I had a hard time believing what I found but now understand even more why we cannot rely on any industry participant to provide reliable data. Additionally, for today’s post we will review those delayed results for new home sales received on Friday as well as the high-level January summary for the cities I track. Can we believe these new home results and what does it mean for Spring? In January of last year 16 cities of the 85 I track had YoY price declines. Guess how many this year? And, based on regional results for January, there are yet again strong signals as to which region will next fall. Finally, I will share a list of links to each of the city deep dives I did last year and reveal which city we will stop in next.
The latest tentacle uncovered in one, two, three…
