#417 Nick Nemeth: The Biggest Turn in My Lifetime, Why Credit Contagion Could Hit Everything

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Julia La Roche (0:31)

Hey, everyone. Welcome back to another episode of The Julia La Roche Show, where we have a special in-studio episode with a guest making his debut. We have cross-asset analyst Nick Nemeth, who is the author and publisher of Mispriced Assets. In this conversation, we do a deep dive into the world of private credit and insurance, and we look at the risks that are building up in this system that very few understand on these very complex balance sheets. I really enjoyed this conversation with Nick. He helped me learn a lot, and I hope he helps you all learn too. So I hope you all enjoy this one as much as I did.

Hey everyone, welcome back to another special in-studio episode of The Julia La Roche Show where I am thrilled to bring you this conversation with Nick Nemeth, author and publisher of Mispriced Assets. Nick, I'm so happy to have you here for your debut.

Nick Nemeth (1:26)

Thanks for having me.

Julia La Roche (1:27)

Really appreciate you taking the time all the way from the West Coast, although I know New York is home for you as well. All right, this is going to be a very educational conversation for this audience because you've garnered so much attention for the deep dive that you've done in private credit. And I got to tell you, I get a ton of viewer questions and emails about this topic. So I'm thrilled to have you. Let's start with the big picture though. We always start with more of a macro view.

How you see the economy and markets today, what's your assessment there, where do you see things headed, and what's been on your radar of late? Nick, you can take all the time you need to set the table.

Nick Nemeth (2:06)

We have a very levered system, so figuring out credit markets. I'm an equity native guy. I like looking where people aren't looking for cheap growth, typically, looking forward in the future, and just making sure that my portfolio is going to be fine, and my clients are going to be okay, my readers are going to be okay.

Over the past year, I think the Blue Owl financings of last October were really, it was quite incredible to look into it. The shadow banking has grown past three years, but for an equity guy, stocks are going up into the right.

Three years ago, when I first broached what's happening in the shadow banking sector, AI was just taking off. So it was, put a bulletin in that, we'll worry about it later. And then a year ago, Blue Owl really pushed me to figure out the leverage that is happening in private credit. Because I've had this view for half a decade at least now, that the reason why we're not seeing inflation is because it's just building up in the credit system. And that does provide supply.

And CPI is a terrible metric to begin with, especially in a K-shaped economy.

And when I'm looking at private credit and all of a sudden we're going into the new year, and it's seeming like there's credit stress during an economy that was accelerating. This is before the Iran War, right? So then I figured it's worse than I thought. And I came out with what was basically a rant on what is happening in private markets broadly, but the banks, the private equity guys that you hear so much from, and the private credit guys that these people aren't investors. They are asset gatherers and they're stamping and approving things based on a story that's popular of the day. And then quickly after that, it became there's a lot that's in insurance. Why is there so much in insurance? And then on puzzling these complex balance sheets that the asset guys, I'm an asset guy, they think the liabilities are extremely easy and that you just have to worry about matching your duration and it's a simple equation. And all of a sudden I'm realizing there's a trillion dollars of private credit over there. And that's a $10 trillion balance sheet. So it just expanded to like, this is systemic for me. Does it mean that everything's going to end tomorrow? Maybe not. But it's certainly worthwhile to try to figure it out. And that's what I've been doing basically all year.