Chapter 1: What factors contributed to the growth of the private credit market since 2008?
That line about neither a borrower nor a lender be? With apologies to one William Shakespeare, the economy just doesn't work like that. From American Public Media, this is Market Class. In Los Angeles, I'm Kyle Rizal. It is Thursday. Today, this one is the 26th of February. Good as always to have you along, everybody.
This economy, this one specifically the U.S., the global economy to almost all other countries as well, run on debt. Credit, national or sovereign debt, the bills, bonds, and notes that governments sell. Individual debt, car loans and mortgages. Corporate debt as well, because companies sell bonds too, you know.
Increasingly, though, companies are trying to get their hands on more capital by going to what are called private credit markets, borrowing money from big investors or money managers rather than actual banks. According to the Federal Reserve, the private credit market has exploded since the 2008 financial crisis. Exploded is my word, not theirs.
It's five times bigger now than it was back then, somewhere near the $2 trillion mark globally. The last couple of weeks, though. The private credit market has gone a little bit sideways, and economists and analysts aren't totally sure what to make of it. Marketplace's Daniel Ackerman starts us off.
After the financial crisis, regulation forced big banks to tighten up their lending practices. Elizabeth DeFontenay of Duke University says that made it harder for some companies to get loans.
And so this has really created an opening for private credit funds to step in.
She says private lending can be riskier than bank loans or corporate bonds. But Laura Veldkamp of Columbia University says that's part of the appeal. Typically, you'll get a higher rate of return in private credit. Investors tend to be the ones with an appetite for that kind of risk.
So you might have an endowment fund. You might have a wealthy person trying to achieve more diversification.
As for the companies receiving those loans, Gerald Cohen of UNC says, A significant amount of private credit has been in the software industry. Which, he says, shouldn't be a surprise. Software firms are often startups too small to sell bonds or may not meet requirements for bank loans.
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Chapter 2: Why are private credit loans considered riskier than traditional bank loans?
Blame power-hungry data centers in part for that.
We've also seen professional services, everything from accounting to waste management driving prices.
Where there's been sharp goods inflation is for raw materials and other inputs for manufacturing and construction that face high import taxes. It's pretty staggering. Ken Simonson is chief economist at Associated General Contractors of America.
Construction was definitely hit hard by the tariffs on aluminum, steel, and copper.
Prices up 28, 17, and 11 percent last year. Also sharply higher, appliances and furniture. Simonson says all this has led clients to hold off on starting new construction projects from factories to houses. I'm Mitchell Hartman for Marketplace.
Here's one more consumer price-related item for you, home mortgages. Freddie Mac said this morning that the average rate on a 30-year fixed-rate mortgage has dipped below 6% for the first time in three and a half years. 5.98% is the actual number, so not a whole lot below 6%, but at this point... The housing market will probably take what it can get.
On Wall Street today, yet another example of no good deed going unpunished. I mentioned yesterday that the AI chip giant NVIDIA blew past revenue and earnings expectations. Well, today in the capital markets, the company shares off five and a half percent. Why, you ask?
Well, it's because traders just don't seem to believe that the company and maybe the whole AI industry, actually, is going to be able to keep on going like this. Elsewise, it was mixed on the major indices. We will have the details when we do the numbers. Consumer confidence in this economy has rebounded a little bit because mostly people are feeling just a smidge better about the labor market.
Overall, though, confidence is still low-ish, which makes this a tough environment for businesses and a typically tough time of year because January and February are always slow. Marketplace's Kristen Schwab has more now on how retailers have been coping with retail's slow season.
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Chapter 3: What role do private credit funds play in the current economy?
They're taking stock of inventory, re-evaluating pricing, and strengthening ties with customers.
Allison Vick at Little Blue Macaron has been doing all of the above. She recently partnered with another local business to host a terrarium-making class in her cafe.
And that benefits both of us because they have a place to operate their small business and do these pop-up events. And we have maybe new customers who have never been in the shop before, and hopefully they'll turn into a repeat customer.
Because the more people pull back on spending, the more customers she needs to make up for the losses. I'm Kristen Schwab for Marketplace.
We do, as you know, the numbers every day on this program, where the major indices landed for the day, how some big and or interesting companies did. Before we get there, though, you usually hear me say something like this. Wall Street today, traders did what they do on a Fed day when what the central bank is going to do is already priced in. That is, we all knew what was going to happen.
We will have the details. Yeah, when we do the numbers. Priced in was the relevant phrase there. When news happens and the markets don't react much, like that Fed day a couple of weeks ago, there was that big announcement, Palace Press Conference and Wall Street basically yawned.
I do dabble in baking a little bit.
That's Sasha Indarte, professor of finance at the University of Pennsylvania's Wharton School. Baking, I hear you say? So I would say that the analogy to baking, when we talk about baked in, is pretty appropriate.
A bit on the nose, perhaps, but stay with me on this one, because once all the ingredients are mixed together and the cake's in the oven, what's going to come out when the timer goes off is already decided. It's baked in. The market works kind of the same way. Once news, or more accurately, anticipated news gets baked in, by the time the news actually happens, it isn't really new news.
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Chapter 4: How is artificial intelligence impacting the software industry and private credit?
We're kind of baking the cake, just eyeballing the ingredients. If you don't have a complete recipe, maybe you have all the right ingredients in front of you, but you don't know the proportions. You don't know the right order to add them in, basically how to put things together.
You might have had a chance to get to the right recipe, but if you're missing maybe the knowledge or skills in order to get there, then it might not work out. That is to say, a cake is only as good as its recipe, a forecast is only as good as its parts, and it's all about the ingredients.
Coming up... We do t-shirts and leggings and underwear. Anything you can think of. The whole catalog.
But first, let's do the numbers. Dow Industrials up 17 points today. We'll call that, percentage-wise, flat 49,499. The Nasdaq dropped 273 points. That is 1.2%, finished at 22,878. See also technology, NVIDIA, hello? The S&P 500 gave back 37 points, about a half percent, 69.8%. Daniel Ackerman was talking about private credit markets.
Blue Owl Capital is the asset management firm that sparked a bit of panic this week when it changed the rules for some of its investors. Blue Owl Capital ticker symbol, rather, ticker, not tickle, ticker symbol, OWL, that's a good one, shrank one and a tenth percent. Today, Apollo Global Management, that's another private equity firm, decreased two and four tenths percent.
Blackstone declined about two tenths of one percent. A new smartphone forecast says sales are going to drop by almost 13% in 2026. That is a lot. A lot. It's because of a shortage of memory chips. Here's the quote. The tariffs and pandemic crisis seem a joke compared to this. That's from a researcher at IDP, the company that did the analysis. Apple down about a half percent today.
Alphabet, they do Google's Android and Pixel, contracted one and eight-tenths percent. You are listening to Marketplace. This is Marketplace. I'm Kai Risdahl. When you think about the economy of Los Angeles, the first industry that comes to mind is surely entertainment, then maybe technology, some aerospace and defense.
But on a cold and rainy morning last week, we got a peek into a more unsung slice of the economy around here, about 20 minutes east of downtown in South El Monte. Stop. Private space. Employees only. Hi. Sorry to barge in, but it's raining outside. It's nice and warm and dry in here. Hi, I'm Kai.
Hey, Kai, Joe. Nice to meet you. Nice to meet you. How are you?
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Chapter 5: What economic indicators are influencing the January producer price index?
Right now they're working on a bunch of swimwear.
Tell me about your company, first of all.
Okay, well, City Threads is the largest American-made clothing brand for kids. We do 100% cotton, 100% organic cotton basics in all sorts of styles. We do T-shirts and leggings and underwear, anything you can think of.
Production for City Threads happens in Los Angeles. There are something like 45,000 garment workers in this city. But clothing manufacturing as a whole has mostly moved overseas. Only about 3% of all of the clothing and shoes sold in the United States are made in the United States. That's from the American Apparel and Footwear Association. How long have you been doing this? Almost 25 years.
This was your idea way back in the day, right? Yes. This was my idea. Joe was in graduate school for composing for TV and film. And I started the line. And every time he had a break, I'd be like, can you just help me for a little bit? And then he graduated from that program. And he said, I'll give you six months. Here we are 25, 23 years later, whatever it is. Wow.
Cool.
Tell me how it works, because you are a small, right, it's only like eight-ish, ten-ish people, tops, right, in your company, proper?
Yeah, there's the two of us, and then we have seven employees in our office full-time. But the whole infrastructure of manufacturing around town, it ends up being hundreds of people. We basically use, like, this is one sewing contractor, and you can see how she has a certain amount of employees here. And then we also have, there's a couple more sewers.
Cutters, sewers, dye houses.
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