Today's number: 77. That's how many people are in Ireland's Navy Reserve. One of the smallest in the world. Here's an Irish joke. What's the difference between an Irish wedding and an Irish funeral? One less drunk.
Welcome to Propy Markets. I'm Ed Elson. It is March 26th. Let's check in on yesterday's market vitals. The major indices swung through the day but ended the session in the green. Oil declined. Treasury yields fell. And finally, Meta and Google shares were little changed after the companies were found liable of negligence in the social media addiction trial.
Okay, what else is happening? The Iran war is shining a spotlight on insider trading and Washington may be at the center of it. On Monday morning, roughly $1.5 billion in S&P futures were purchased and $192 million in oil futures were sold. That was five minutes before President Trump announced that productive conversations with Tehran were underway. The position netted $60 million minutes after the Truth Social post. Senator Chris Murphy called it, quote, mind-blowing corruption, and asked publicly whether Trump, a family member, or a White House staffer was behind the trade. Meanwhile, the FT separately flagged $580 million in crude oil futures that traded 14 minutes before the announcement. Okay, here to help us untangle what is going on here, we're speaking with Anthony Scaramucci, the founder and managing partner of Skybridge Capital. Anthony, thank you for joining us. Please, I know you have thoughts.
Well, first of all, it's great to be on. So, but I want to add to that if you don't mind. So, April 2nd, 2025, Liberation Day, they put trades on. They got short the market prior to the announcement. You know, when Trump came down from Mount Evil like orange Moses with the big tablets, okay, they got short the market prior to that divulgement. A week later, prior to Trump saying he was pulling back the tariffs, there was going to be a 90-day moratorium. They got long the market. Okay. On October the 10th, about an hour before the tweet went out related to the rare earth minerals and the fight that he was starting with China, they got short the market, they got short the crypto market. So this is another example of it, but it's been very consistent throughout the administration. Tens of millions, if not hundreds of millions of dollars, are being made, and you know, so much so that the head of the enforcement area that's supposed to police this stuff, she resigned last week because she said she can't get the agency focused on this. Now, we sent Martha Stewart, and so you're young, Ed. I think you know who she is, but...
I watched the documentary, so I know.
Okay. So, for your younger viewers, she had $45,000 of profit. Says she had a stock tip and she spent five months at a federal prison because they caught her, quote unquote, insider trading. This is hundreds of millions of dollars. Okay. But there's a bigger problem here for the American people. And that is this is rampant. Trump has taken it exponential with his team. But do you know who a Democratic representative is? Kelly Morrison. So, Kelly Morrison bought Seronic Technologies, a name I didn't know, but she bought Seronic Technologies, which is an autonomous warship company, nine days after the beginning of the war with Iran. Right as the Navy was awarding Seronic contracts, her office said that her portfolio is managed by a blind trust and an investment manager and she had no prior knowledge. But government watchdogs said, 'Hey, whoa, this is a pretty clear conflict of interest.' So, what I'm here to tell your viewers and listeners, Trump has gone exponential, but Nancy Pelosi, she's traded her account better than any hedge fund manager that I've ever met in my life, myself included. You pick the biggest hedge fund managers. And it's not just her. It's bipartisan. Okay? So, they're running rampant in Washington with the corruption. As an American, I'm embarrassed by it. As an American, I would like it to stop. The insider trading at the Congress level is legal. The insider trading at the Trump level is probably not legal because it's not Trump himself doing it, but it's people close to him that are actually doing it and that probably makes it illegal. So, here's two things I would say very quickly. Thing number one, if you're a young kid, if you're the younger version of me, growing up in the 1970s, Professor Galloway, growing up in the 1970s, we had hope on our side and aspiration. I'm not saying there wasn't corruption, Ed, in the country, but it was veiled. It wasn't this big. It wasn't this dramatic. And when you have corruption like this at this scale, if you're a young kid, if you're a young Scott Galloway, a young Anthony Scaramucci, you're looking up and you're seeing a concrete ceiling. You're saying, 'Okay, oh my god, there's a two-tiered system. There's one tier for those guys, a different tier for us. We're never going to make it.' And it creates a tremendous amount of cynicism in a society. So, I'm heartbroken by it. And but nothing's going to happen. And they're going to make some more tweets and trade the oil markets. You know, somebody got short oil before the president's announcement yesterday where he said we're getting this big gift from Iran and it turned out I guess one of the tankers was able to pass through the Strait of Hormuz as a sign of good faith, which was, you know, lots of oil coming back onto the international markets. And of course oil went down and guess what they did? They closed the short position. So, I think the stuff is reprehensible, but I don't think it's changing.
Yeah. I'm so glad you mentioned all of the previous instances that this has happened because it seems that everyone is focused on, look, the insider trading as it relates to Iran, and then my mind goes back to Liberation Day when we seem to see the same thing. Then the post-Liberation Day taco. We've seen this constantly over and over again. As you say, it's happened on both sides, but the level with which it has been, I guess, shameless, the fact that they don't seem to care at all, the fact that the kids are investing in these drone companies as well before we go and launch these attacks on Iran, combined with the fact, as you also mentioned, you made all the points that I hoped you would make, which is the SEC director has left because she tried to investigate this stuff and she got scolded by her bosses, and we saw similar things with the DOJ as well. And so I guess the question becomes, I mean, how bad has this gotten? And do you think that people are properly recognizing this? Because I see what's happening. This is like the greatest corruption we've ever seen, or at least that I'm aware of. That to me is like it's a cut above just regular political gripes. This seems to me like this is a serious issue that I don't know that people need to at least vote on or at least consider voting on.
So the woman that you're referring to, her name is Margaret Ryan. Okay. She was just with the SEC for many years. And she basically resigned under protest because she said that she cannot get any enforcement of any of these actions. And by the way, these are easy to tag and these are easy to geolocate.
The tag on the trading. You can find out immediately who's doing all this stuff and then you can start bringing cases. And she's been told by her bosses that she cannot do that. So I think that's reprehensible. But I want to take you back because you said this is the worst corruption ever. We had the Teapot Dome scandal. Unbelievable corruption, but those people got prosecuted. That was at the turn of the century, the 1800s into the 1900s. We had the ABSCAM case when I was in high school. This is back in the 1980s where two congressmen were caught on a bribe. Okay. Where the FBI had a wire on them and they got caught saying, 'Oh yeah, give us that money and we'll change our position on this policy inside the government,' and they got caught. So the point I'm making, we have corruption in the country. We have political corruption, banking corruption, all sorts of corruption. But attached to that corruption was some level of law enforcement and some level of justice. I'm not saying it's perfect, but at least there was a supposition in the country. Oh, wow. Do something wrong like that, that bald-faced, there will be repercussions. And that repercussion, Ed, creates a deterrent for people.
You see what I mean? Like I'm going to be speaking at the 92nd Street Y with a guy who got caught insider trading. He wore a wire for the federal government and he stopped a huge insider trading ring in the 2006 and 2007-2008 time period on Wall Street. That stuff is over. Okay? And so it makes the markets unfair. It makes the pricing in the market manipulative and it's giving a license to these people to do what they want.
Yeah. And you know, look, the flip side is, you know, the congressmen are going to say, 'You're paying me $180,000 a year. I can't afford to live, and so I'm going to enrich myself by doing this.' And I want to make this last point because I need your listeners to hear this. We have this thing called Citizens United, which means people can give unlimited donations to the congressman, right? All political candidates, all policies, unlimited donations. So here's what's going on. The Congress has a 14% approval rating. It's slightly above Kim Jong Un, the North Korean dictator. However, the individual congressman has a 95% incumbent rate. So, their narrative to their people is, 'Who cares, man? I'm going to do whatever the hell I want. The money's coming in from big food, big pharma, big business, big wealthy. I'm going to get reelected.' And so, what are we trading today? What information am I going to get? You know how many times a congressman has bought defense stocks the day before, two days before the contract is announced that the appropriations is going to that defense contractor. I mean, it is staggering and it is sad and it is tragic and it's very unfair to the American people.
My question to you before we let you go, I mean, you're in the politics game or at least you're a political commentator. You have been in politics. I mean, this to me seems like it could be the issue going into the midterms and perhaps for the presidential election as well. That I mean, there are certain issues that are political issues. There are certain things that are cultural. There are issues with DEI. There are, you know, some people believe that tariffs are a good idea. Some people think it's a bad idea. But this issue seems to be so brazen and so criminal that it makes me believe that this is probably going to be the ultimate issue, and that is the issue of corruption and insider trading and profiting off of being elected into a position of power. As someone who's, you know, in politics, do you think that that will transpire?
So I don't, and it should, but I don't. Let me tell you, let me give a quick history. Peter Schweizer wrote about this insider trading stuff in 2012. 60 Minutes did a big story on it and the Congress said, 'Oh, we're going to pass something called the 2012 STOCK Act, which prohibited the use of non-public information for trading.' And so there was an eight-month period of time where the Congress was handcuffed and they couldn't trade. Then by voice vote, Ed, they didn't even want to go on to the floor because they didn't want to be seen on C-SPAN. By voice vote, they called in and said, 'Let's put it back in.' Wow. Okay, we're going to vote on putting it back in. Yes, we're voting and putting it back in. So, now fast forward, it's 14 years later, and the last 14 years they've been running this racket. So, Chris Murphy, you mentioned him earlier in the program. He's a senator from Connecticut. He's trying to come up with something now that's called the No Bets Act. Okay. And he's basically trying to say if we can stop the prediction markets, make it illegal to bet on assassinations or make it illegal to bet on wars. It's called the Bets Off Act, I should say. But in any event, I don't think that's going to pass. And by the way, if it does pass for political purposes leading into the midterms, as soon as the midterms are over, Ed, they're going to vote back to put it back on. Voice vote. I'm just telling you what these guys do. This is why people don't like them. Exactly. It's very depressing. We could talk about it for hours, but I got to let you go. Anthony Scaramucci, founder and managing partner of Skybridge Capital. Anthony, always appreciate it. Thank you.
Thank you. Real pleasure to always be on with you, man. Thank you.
We'll be right back. And if you're enjoying the show so far, be sure to like and subscribe to the ProfG Pod YouTube channel at the link below.
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We're back with Propy Markets. Private credit is in crisis and investors are rushing for the exits. Ares Management and Apollo both capped withdrawals at 5% this week after redemption requests came in at more than 11%. That means investors got back less than half of what they asked for. Meanwhile, Moody's downgraded a fund run by KKR and Future Standard to junk status on Monday, saying the fund's asset quality had worsened more than its peers. The latest wave of fear wiped out more than $10 billion in market cap from Ares, Apollo, Blackstone, and KKR on Tuesday. And here to tell us what is going on here, what is driving this turmoil in the private credit market, we are speaking with Steve Eisman, the legendary Big Short investor, also host of The Real Eisman Playbook. Steve, thank you very much for joining us again on Propy Markets. We wanted to have you on to talk about this because you were the guy who was telling us about this just a few weeks ago when we had you on that Friday episode and things seem to have gotten even worse. So just remind us what is happening in the private credit markets and what we've learned here.
So the, you know, the funny thing is that for my podcasts, I do this weekly wrap that I put out every Friday and every week for the last probably two months, I'm speaking about private credit. And I just amusing for your viewers, you know, I start writing the wrap when I wake up Monday and I do work every single day. And so the last several weeks the way it's been written, it goes, and then there was some more bad news about private credit on Monday, blah blah blah, and then I wake up Tuesday and then I add a paragraph and on Tuesday, blah blah blah, and on Wednesday, and so it's absolutely relentless.
So let me, let's take a step back. There are two issues here. They're related but they're not exactly the same. The two issues are, should private credit have been sold to retail, right, and I think the answer to that question is mostly no, and we're suffering the ramifications of that right now. And the second issue, which is related, is are we starting a credit cycle in private credit and how bad is it going to be. So, let me address the first question first and then we'll get to the second question because that's every piece of news that you hear is related to that. You know, private credit funds were originally created for institutional money and that makes a lot of sense because you're talking about long-term illiquid loans and institutions know what they're getting. They're getting a higher yield in exchange for less liquidity and that's fine. After private credit basically sold their funds to every single institution on planet Earth, they looked around and they said, 'Okay, now who do we sell it to?' And they said, 'Let's sell it to retail.' The problem is that with retail, you have to create liquidity. So what they did was they created mostly what I like to call the illusion of liquidity or semi-liquidity. Now all this was disclosed. None of this is illegal. So no one's going to jail for this. You know, this was all disclosed in the prospectuses. Whether the retail investors actually understood what they were getting into, you know, who knows? But no question it was adequately disclosed. All these funds have quarterly caps in their documents. Most of the funds have a 5% quarterly redemption cap. Some have seven, but most have five. And so what's been happening is as for the last year, the news on private credit has gotten steadily worse. And we could talk about, you know, where that's happened. And so the redemption notices are universally coming in now above the 5% cap. And with the exception of Blackstone in the most recent quarter, which did honor a 7.9% redemption notice, even though the cap is 5%, everybody else has just honored the cap. That's part one. Part two is that we have not had a credit cycle in the United States since the Great Financial Crisis. And that has bred a tremendous amount of complacency amongst lenders. We are overdue for a credit cycle. And traditionally, you know, if you know anything about lending history, whenever there is a credit cycle, the place that it takes place almost 100% of the time is the asset class that grew the most. So in the Great Financial Crisis, the asset class that grew the most was subprime mortgages and that blew up the most. Since the Great Financial Crisis, the banks have not had much loan growth at all. All the loan growth has really been in private credit. Private credit 10 years ago was a $300 billion per year market and now it's close to a $2 trillion per year market. You're starting to see cracks in credit. You know, you had this, you mentioned it, this KKR fund got downgraded by Moody's. By the way, the rating agencies are always very slow. If the rating agencies are downgrading it, you know, it's bad.
You know, now it's a problem because if even the rating agencies admit there's a problem, you know, problem.
So, you have one downgrade of a fund because its non-accruals were too high. I think they were five and a half percent, which is probably the highest in the industry. There's private credit. There are three parts to private credit. There's direct lending, there's asset-backed lending, and then call it other. The biggest category is direct lending and then asset-backed lending. Direct lending, which gets the most press, 80% of that business is basically private credit lending money to private equity to buy companies. What makes this sort of incestuous is that most private credit funds are run by private equity companies. So in a sense what you have is private equity raising money in its private credit funds to lend to itself to go buy the companies that it wants to buy. If that sounds circular, it's only because it is. So 80% of private credit is related to that. Now between 2018 and 2022, private equity went on a buying binge of software companies. Now that looked like a great decision because, you know, for the last 30 years the best place in tech to be was in software. You have the SaaS model, software as a service model, I think it's called, where you pay monthly. So everybody loves that because it's so easy to model. Software companies have done exceptionally well as technology has grown and they went on a buying binge. So apparently about 25% of all direct lending is in software companies that were bought between 2018 and 2022. Now those companies were bought when interest rates were considerably lower than where they are today. You know, a lot of that happened during COVID and about 11% of those loans are going to need to be refinanced next year and another 20% are going to need to be refinanced the year after that. If they are refinanced at all, they're going to be refinanced at considerably higher interest rates. So, that's a problem. And some of them may not be refinanced at all because people are literally freaking out about the impact of AI on software, as I'm sure you've told your viewers many, many times and I've told mine.
And then there was a piece of news today that I thought was very interesting, which was not in the direct lending world. It was in the asset-backed world. Barclays put out a press release. I don't know if it's a press release or it was a Bloomberg story. Probably I think it was a Bloomberg story that Barclays has dramatically pulled back from making asset-backed loans to small to medium-sized companies. So, it'll only make asset-backed loans to large corporates. This is what happens at the beginning of a credit cycle. The news gets bad. People start to worry about losses. Underwriting standards start to tighten. Certain borrowers are cut off and lending gets tight.
