Wall St Insider Reveals Hidden Risks In Financial Markets (w/David Levenson)

Levenson contrasts China's response to the 2018 tariffs—weakening the yuan by 8% while exporters absorbed another two percentage points—with its currency strengthening after the election. He also describes China as slowing, citing industrial profits and oil, while saying falling Southeast Asian currencies are turning customers into competitors.

Levenson sees AI as a potential long-term productivity driver but argues that current investment prices make it difficult for companies to earn money, likening the risk of overinvestment to past railroad and electric-utility booms. He also says AI cannot handle a real yield above 3%.

Levenson says the prolonged yield-curve flattening was beginning to affect money-supply growth and was reducing Bank of America's net interest margin; the speakers describe the curve as having flattened for 56 weeks, with a 20-to-30-year yield at a 21-month low. He calls the Treasury curve the spine of risk assets and predicts flattening will mechanically stop bond yields from rising.

Levenson attributes Silicon Valley Bank's failure to falling asset values and lengthening duration, explaining that leverage can turn a 3% loss into a 30% bank loss. Banks try to match asset duration to deposits, but deposits expected to stay for years can leave in days, forcing asset sales at a loss; after SVB failed, the two-year yield fell 120 basis points in three days amid an implied $16 trillion deposit backstop.

Levenson warns that duration mismatches can also affect insurers: rising rates can slow mortgage refinancing and extend mortgage lives, while life insurers need long-duration investments to match decades-long obligations. He says insurance leverage is at a historic high and criticizes private-credit marks, citing an asset marked at 100 that later appeared at zero.

Levenson argues that deterioration in private-credit assets and retained earnings, with liabilities still in place, could trigger deleveraging and increase financial-system risk; he compares the deterioration to subprime. He also says private credit has few observable marks and reports that Apollo was gating another fund.