Trends in Financial Markets

Friday marked exceptional volatility in precious metals markets, with gold falling ~12% and silver ~38% intraday — moves we rarely see outside of periods of acute market stress. The immediate catalyst was the nomination of Kevin Warsh as prospective #Fed Chair, which triggered broad profit-taking and renewed concerns around a potentially more hawkish policy path. Beyond the headlines, positioning and liquidity dynamics played a meaningful role in amplifying the sell-off. Our current view: #Gold: We do not see this as the end of the bull market. The broader monetary backdrop and structural demand drivers remain intact, and we do not expect a material shift in the Fed’s overall trajectory. In the near term, we believe consolidation in the USD 4,500–4,800/oz range is possible as positioning resets, but fundamentals remain supportive. Our mid-year target remains USD 6,200/oz. #Silver: Momentum had already begun to soften ahead of Friday’s repricing, despite strong ETF inflows and speculative interest that helped fuel last year’s rally. With volatility elevated and industrial demand facing potential headwinds, we believe it is still premature to establish long-term strategic exposure. For readers interested in the deeper analysis, my colleagues Wayne Gordon, Giovanni Staunovo, and Dominic Schnider expand on these themes in the detailed reports below.

As someone who grew up in the leveraged finance markets, I can say with confidence that today's high yield market is not the one we all once knew. My team and I have spent considerable time analyzing the evolution of global credit markets and what it means for asset allocation, portfolio construction, and risk management. And with all the twists and turns of the past decade, one of the quietest transformations has been hiding in plain sight: high yield. That is why I wanted to share my recent Financial Times op-ed on why we believe the high yield market is positioned for its second act. ➤ The asset class has fundamentally changed. With a record 57% of US high yield and 68% of European high yield rated BB, lower software exposure relative to loans and direct lending, shorter duration than at almost any point in the past 15 years, and first lien secured bonds at an all-time high of 33% of the US market, this is not your grandfather's junk bond market. ➤ And the technical backdrop is shifting in its favor. As CLO appetite has grown more selective and direct lending terms have tightened, more issuers are rediscovering what high yield has always offered: a deep, diversified, and durable investor base that prices risk when others step back. It did it through the GFC. It did it through COVID and it is doing it again now. ➤ For investors, despite tight spreads, the all-in yield remains compelling in absolute terms and increasingly attractive on a risk-adjusted basis relative to alternatives carrying more risk for only modestly more yield. The junk bond label was earned forty years ago and the market has spent the last decade writing its new chapter. I hope you will give the op-ed a read, and for a more global deep-dive on how KKR is thinking about the opportunity set, my colleagues Jeremiah Lane, Eddie O'Neill, and I recently published “High Yield’s Second: What AI Revealed about Credit Quality" 📎Read it here: https://go.kkr.com/4w7bXWK

As expected, the Fed cut rates by 25 basis points and announced an end to quantitative tightening—both steps toward further easing. However, the meeting revealed some notable divisions within the Federal Open Market Committee. One member voted against the rate cut, while another favored a larger, 50 basis point cut. This dissent was a bit unexpected. Chair Powell also highlighted strong differences of opinion about a potential December rate cut and discussed the “neutral rate”—the level at which the Fed is neither stimulating nor restraining the economy. Powell suggested a range between 3 and 4%, higher than the 3% median estimate from FOMC members. These factors led markets to pause and reassess the likelihood and pace of future rate cuts. While markets still anticipate a December cut, the path ahead may be shallower than previously expected. Both stock and bond markets reacted with caution. For investors, this complexity is a sign that the Fed is weighing risks carefully—balancing the dangers of being too easy or too tough in today’s environment.  

Small angel investors make the startup world go round - founders could be missing out by setting a high minimum check size. The SAFE has come to dominate angel / early startup investing, mostly because of decreased legal costs and time. So we looked at over 19,000 SAFEs signed by startups in 2023. All of these SAFEs went to companies that had yet to raise any priced equity. Some may be part of "seed on SAFE" rounds, others to true pre-seed companies. Small checks (under $25K) made up a full 62% of all checks signed in the earliest rounds (those under $250K total raised). Even rounds that came in just under $1 million had major participation from small checks. In fact, the median check size for all rounds $1 million or less never got over $25,000 last year. What do these small checks bring to a founder? Julian Weisser of On Deck suggests: 1. Expertise = They can help in a particular area (GTM, sales, hiring, etc).     2. Network = They can introduce you to other investors, potential customers, or future teammates.     3. Legibility = their involvement will help in the areas mentioned above and positively impact how other investors view your company. And sure, the total capital from these small checks may only account for a sliver of the total round. But they can demonstrate progress, push forward momentum, and the angels themselves may open doors to larger investors down the road. We are also seeing many initial advisors to nascent startups become strategic angels down the line. Lots of ways to improve your cap table. Here's to a year of small checks! Data just like this flows into 19,000 inboxes every Thursday morning - head over to the link in graphic to subscribe. #cartadata #startups #preseed #SAFEs #angelinvesting #founders

During my time serving in government, I saw firsthand how geopolitics can impact energy production and flows, with cascading impacts on market and macroeconomic trends.   We're already seeing this play out following the last few days in the Middle East. U.S. and Israeli strikes on Iran triggered retaliatory action across the region that has disrupted energy production and transit.   The market reaction is changing quickly. Since I recorded this video on Monday, oil and gas prices have jumped further, and equities have shifted toward a risk-off move as investors price in continued escalation. Bonds sold off further, reflecting inflation fears in developed markets. Due to the segmented nature of natural gas markets, the impact of higher prices will hit regions differently, with Europe more exposed than the U.S. to elevated LNG prices.   The central question: will this remain a short-term volatility spike or evolve into a broader supply shock? The duration of the disruption and the severity of transit impacts are the core variables I'm watching.   ⬇️ Watch the full video for my latest take on what this could mean for markets.

Animal spirits are running loose - be careful. The chart below shows the option-adjusted credit spreads for US BBB-rated corporate bonds with a 10-year maturity. Credit spreads are always positive: for corporations to attract investors to buy their bonds they must offer a premium. That premium is called ''Credit Spread'': it refers to the fact that corporate bond yields are higher than government bond yields or interest rate swaps. Hence, investors willing to take the risk of a corporate default will be compensated with this premium - the credit spread. So, what's strange about the chart below? US credit spreads are now sitting at 94 bps only. That's the tightest level in 25 years! And it’s not only a US phenomenon. Despite the non-negligible worries about French political jitters and ignoring what a bad French outcome could mean for Europe, the spread between 10-year Italian and German government bonds sits at 109 bps. That’s a level only seen during the peak of QE – with the stark difference there is no QE going on today. So, what does this mean? Sitting on a long credit spread position means you get paid a nice spread until something happens and volatility comes to bite. Investors convinced nothing bad can happen will end up going long credit spreads at very tight levels. Effectively, today investors are selling volatility and receiving a low upfront premium for their risk. Animal spirits are running loose. Be careful out there. P.S. If you liked this post, you will love my macro research. Get my flagship macro research pieces directly in your inbox: 👇 https://lnkd.in/drddWc-W

After 34 angel investments, I can predict which startups will die from their founder update emails. Email 1: The Vanity Metrics Special "We hit 10,000 signups!"  But monthly actives? Revenue? Retention? Nowhere to be found. When founders lead with downloads instead of dollars, they're already lying to themselves. Email 2: The Pivot Parade "We're exploring an exciting new direction..." Third pivot in 6 months. They're not iterating. They're panicking. The best founders kill bad ideas fast, not dress them up as "strategic shifts." Email 3: The Bridge to Nowhere "We're raising a small bridge round to extend runway..." Translation: Our metrics don't support a real round. Bridge rounds are life support. I've never seen one lead to a comeback. Email 4: The Radio Silence 3 months. No update. Then suddenly: "Quick update - things have been busy!" No. Things have been bad. Good news travels fast. Bad news hides. Email 5: The Narrative Novel 2,000 words about market conditions, team culture, future vision.  Zero words about burn rate, runway, or actual metrics. When stories replace numbers, the numbers are telling a story you don't want to hear. The pattern is always the same: Updates get longer but say less. Metrics disappear. Excuses multiply. Then silence. The startups that survive? Their updates are boring. Same metrics every month. Small improvements. Clear challenges. No drama. Drama in updates means death in 6 months. Boring updates mean they might just make it.

Belief contagion: The real story behind the rise of alternatives 🐑 U.S. public pensions didn’t triple their allocations to alternatives because of performance. They did it because their consultants changed their minds. Together. From 2001 to 2021, allocations to private equity, real estate, and hedge funds rose from 14% to 39% of risky assets. A Stanford University/Harvard University paper from 2024 by Begenau, Liang, Siriwardane argues this wasn’t about realized returns or liquidity needs. It was belief-driven. The authors match pension portfolios with consultants’ capital market assumptions — the forward-looking “alphas” that drive models. Post-GFC, consultants’ expected alpha for private equity jumped +88bps vs. public equities…with no change in realized performance. Then came belief contagion: One consultant raises expected returns. Peers follow. Allocators rebalance. Consensus hardens. The narrative becomes self-reinforcing. As Mordecai Kurz warned, correlated beliefs can move markets as powerfully as fundamentals. And Andrei Shleifer’s behavioral lens fits perfectly: extrapolate good news, ignore tail risk, cluster thinking. The result? Portfolios that look diversified — but may be a shared bet on shared assumptions. As Verdad Advisers’ Dan Rasmussen concludes: “In short, the ‘rise of alternatives’ is not only a structural trend. It is a story of belief coordination. Consultants changed their minds, together. Institutions followed, together. And now we live in the portfolio equilibrium their expectations built.” (+++Opinions are my own. Not investment advice. Do your own research.+++) 👋 Follow me for my daily investing nuggets, musings on markets, and hilarious investing memes. 💸

🛑 Why Are So Many VC Firms and Angel Networks Shutting Down? Let’s talk about the elephant in the startup room. In the last 18–24 months, a silent churn has gripped the venture capital and angel investing ecosystem not just in India, but across the globe. Funds are shutting down. Angel networks are fading. Global VCs are hitting pause. And no it’s not just a funding winter. It’s a deeper correction. Here’s what’s really happening 👇 💰 1. Too Much Capital, Too Little Common Sense The 2021–22 period was a gold rush. Term sheets were flying for pitch decks with no product, no revenue, and no customers. But that capital came without discipline. Now we’re seeing the aftermath: 😒 LetsVenture's senior team exits and internal restructuring 😒 Indian Angel Network (IAN) slowing new syndications drastically 😒 500 Global scaling back India operations 😒 Lightspeed merging India ops into a global structure to optimize cost 😒 SoftBank pulling back drastically from early-stage bets globally 😒 Sequoia (now Peak XV) splitting India and Southeast Asia from U.S. operations Even some respected micro-VCs have quietly exited the market after failing to return capital. 📉 2. Poor Portfolio Performance Many networks bet on 30+ early-stage startups expecting unicorns. But the outcomes weren’t pretty. No meaningful exits Flat or down rounds Unsustainable burn rates When fund returns don’t materialize, LPs stop wiring capital. That’s exactly what’s happening. 💸 3. Broken Angel Network Economics Truth be told, large angel networks charging carry on small cheques (₹10–25L) without adding real value don’t scale. High overheads Founder disillusionment Too many passive investors with no follow-on capacity Founders are choosing direct investor connects or curated syndicates led by operators and smart money instead. 🌍 4. Global VC Reset This isn’t just India. Globally too: 😒 Y Combinator cut 20% of staff and scaled back late-stage investing 😒 Tiger Global and Coatue have written down billions and paused aggressive deployment 😒 Accel shut down its early-stage European seed fund and slowed new bets 😒 Techstars shut down accelerators in several U.S. cities 😒 Big VCs are now spending more time fixing portfolios than funding new ones. 🧭 So, What’s Next? ✅ The next phase will be led by sector-focused, capital-efficient, and operator-led funds that actually roll up their sleeves. ✅ Angel investing will survive, but only through tight, high-quality syndicates not open-platform chaos. ✅ Founders will need to bring more than just ideas, revenue, customers, and real execution are back in style. 💬 Your Turn: Are we witnessing a healthy market correction or a long-term reshaping of the venture ecosystem? Let’s hear from founders, VCs, LPs, and angels on what you're seeing on the ground. Let’s make capital meaningful again. #VentureCapital #StartupFunding #AngelInvesting #IndiaStartups #FundingWinter #LPs #Founders #VCReset #SmartMoney Obediah Ayton

Considerations for the High Yield Bond Market: The BB-rated High Yield (HY) bond market has shown strong performance, with favorable news recently related to growth and inflation.  Fundamentally, the companies represented in the HY Index have a favorable upgrade-to-downgrade ratio. BB-rated bonds constitute 50% of the HY market, distinguishing them from lower-rated B and CCC companies. BB HY bonds typically feature fixed rate, comparatively lower coupons, resulting in lower liability costs and more manageable debt service. In Contrast, the CCC-rated segment shows a concerning trend, with an upgrade-to-downgrade ratio below 0.5 (2x as many downgrades). The credit quality dispersion, shown in the chart below, reveals that BB vs. CCC-rated bonds trade at a spread margin of ~400 to ~1,200 bps, currently sitting inside of 750 bps.  While CCC credits can generate substantial returns during robust economic growth in a low default rate environment, and have rallied with the market in recent days, CCC deterioration is most pronounced during distress and recession. During the first half of 2020, the BB-CCC spread differential reached 1,200 bps, and in 2016, CCC spreads were even wider. It is noteworthy that Europe is straddling recession, and the BB-CCC European HY bond spreads have recently widened to 1,400 bps, surpassing its peak in 2020. So despite, the recent rally in lower-rated HY bonds, caution is warranted for the weakest segment of corporate credit. The HY bonds historical default rate: BB’s 0.4% default rate, B’s 1.4% default, and CCC’s a stunning 14.3% historical default rate! During a recession, default rates tend to increase significantly from historical measures. Composition of HY Index: 50% BB, 39% B, 11% CCC. 1 year ago, the HY Bond Index had 1.2% default rate. Today, the trailing 12M default for the HY bond market is 2.6%. By Q2 2024, I expect the default rate for high yield bonds exceed 4%. Michael Schlembach, Marathon Asset Management’s PM for High Yield, expects default rates to increase in 2024, with peak default rates potentially reaching ~1.0%, ~3.0%, and >20%+ for BB, B, and CCC’s, respectively. The key will be to invest in the debt of companies with solid fundamentals and financial strength to navigate the pending downturn. If you believe as I do that an economic slowdown (potential recession) is likely in 2024, it might be best to focus on higher quality credits with robust operating businesses within the HY market. Ford serves as a prime example in the BB sector, having recently been upgraded to Investment Grade by S&P, marking it as the largest 'rising star'. Ford represents 2% of the HY index with $41 billion of bonds, its upgrade has spurred demand for other quality BB-rated bonds to replace it. While recent inflows have tightened BB spreads, I advise against trading based solely on the technicals, as this post is intended purely for informational purposes. U.S. HY rated BB vs. CCC Differential: