‘Cockroach’ Bankruptcies and Post-Earnings Liquidation of Palantir Stock: A Time Bomb Puts a Bottom in Price to Gold and Silver

Global stock markets sold off this week as Wall Street executives warned that stocks are overvalued. Other analysts are worried about an artificial intelligence stock bubble. TO Bloomberg A report earlier this week said that Wall Street CEOs said a US stock market decline of more than 10% could occur in the next 12 to 24 months, and that such a correction could be a positive development for the broader stock market.

In another worrying sign, Palantir Technologies (PLTR) earlier this week raised its annual revenue outlook to $4.4 billion and beat analyst estimates for its third-quarter sales. The company’s revenue rose 63% to $1.18 billion, with earnings, excluding some items, of $0.21 per share. However, Palantir shares fell on the news due to concerns about the company’s lofty valuation after a record rise, despite the company’s strong quarterly results. When a stock, or market, fails to recover on recent bullish fundamental news, it is a sign that all the expected bullish news has already been priced into the stock.

You can bet that the astute bulls in the gold (GCZ25) and silver (SIZ25) markets have taken note of the weakness in Palantir stock this week, considering it could be a harbinger of overall stock market weakness towards the end of the year.

Bond traders lately have been more concerned about private credit arrangements that may not have a solid financial foundation. From global banks to alternative fund managers, more top financiers are warning of cracks in private credit.

Bloomberg reports that TCW Group CEO Katie Koch said at a forum in Hong Kong today that she is “very nervous” about parts of private credit. Tony Yoseloff, chief investment officer at Davidson Kempner Capital Management LP, said there has been a “race to the bottom” in terms of clauses.

“His comments come as private credit – or lending made outside the heavily regulated banking sector – has ballooned into a $1.7 trillion industry. Some banks are making conscious decisions to collaborate with private credit players to earn fees and tap into ever-deepening capital reserves, while others say the combinations are risky and could infect the banking sector,” he said. Bloomberg.

This comes a day after UBS Chairman Colm Kelleher highlighted risks in the US insurance industry, citing weak and complex regulation as private financing increases. U.S. life insurers have increased investments in private debt in recent years, allocating about a third of their $5.6 trillion in assets to the sector last year, up from 22% a decade ago, according to data compiled by research firm CreditSights and reported by Bloomberg. The risks are amplified by offshore jurisdictions that do not have the same regulatory and qualification standards as the US.

Some financial executives involved in private credit say the sector is not large enough to produce serious systemic risk.

“Payment in kind” debt is a main element that generates concern among bond market operators. Private credit funds may be using it to mask a deterioration in loan quality, while the amount of this costly debt continues to rise. The focus is on “bad PIKs” added over the life of the loan to ease pressure on cash flow, which valuation firm Lincoln International considers a “shadow default rate” that was 6% in its most recent data, according to Bloomberg. “The use of PIK is facing scrutiny at a difficult time for credit markets generally, with some experts warning that giving struggling borrowers a leg up may not last forever and that deferred interest could quickly become deferred pain.”

Prices in the gold and silver markets stabilized last week, following the sharp sell-offs seen in late October that produced serious short-term technical damage. Some estimated that technical damages would generate additional selling pressure. In contrast, the gold and silver markets have stabilized. It could well be that price floors have been set for gold and silver due to underlying concerns about the health of the US stock market and bond markets showing some concern about private credit strains. A couple of weeks ago, respected JPMorgan CEO Jamie Dimon said, “When you see one cockroach, there are probably more.” He used the phrase and warned that “everyone should be warned,” that the bankruptcies of companies like First Brands and Tricolor Holdings were signs of deeper problems within the credit markets.

This 40-year gold and silver market observer believes that the recent stabilization of the gold and silver markets suggests that risk aversion in the market has increased, not to the elevated level where gold and silver prices are rising solidly, but to the point where gold and silver market bears are currently afraid to play short positions due to potential storm clouds on the market horizon. Stay tuned!

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As of the date of publication, Jim Wyckoff had no (directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article are for informational purposes only. This article was originally published on Barchart.com