Illiquidity is the tipping point
October 21, 2025
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–Quote by Ben Hunt on podcast Excess Returns, talking about recent bankruptcies and the private credit landscape: “You can be insolvent forever, but you can’t be illiquid for a second.” Somehow, the payments have to be made (of course, he didn’t address how PIK fits into that model). The overarching question is, how much hidden leverage is in the system. No definitive answer until it starts to really unravel. The interesting part is that Hunt tracks narratives thru his system Persient, an AI tool that scrapes all news services to identify thematic language links signaling strengthening areas of concern, ideally prior to the ‘common knowledge’ tipping point.
–We’re a little over a week away from the FOMC, with CPI on Friday. FFX5, which prices the October FOMC has settled 9614 to 9615.5 every trading day of October. i.e. around 3.85 with current EFFR 4.11. Ten year yield fell back below 4% to 3.984%, down 2.3 bps, now about 1/8% below the Fed Effective rate. Oil (CLZ5) is hanging around $57/bbl, and lower prices at the pump are obvious, at least in the Chicagoland area A 25 bp ease is in the bag.
–TY vol Is low, around 5.0. TYX5 113.5^, which expires Friday, settled 30/64 ref 113-19. Doesn’t feel like a big CPI surprise is coming. My personal bias though, is that a larger negative crypto washout is near.
–Just a couple of other notes: there’s an article on ZH about the possibility of the US food stamp program (SNAP) running out of funds in November if the shutdown persists. Will NOT happen, but I was surprised by the stat of $100b per year spent on this program. Second, a friend was describing a model pertaining to equity option flows and how prices might react due to this framework. I think the acronym was Click…(close-to-close). These things are on opposite ends of the spectrum. Systematic flows may spark minor market waves, but from generally overvalued levels, if the BIG system loses jobs and benefits, i.e. ‘real economy’ flows reverse quickly, then the market can only go one way.
