Dave Collum: The Private Credit Bomb Is Coming

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Dave Collum and Rudy Havenstein came on this week, and what was supposed to be a focused conversation about market valuations and private credit turned into something wider and more honest than that. Three guys who are genuinely pissed off about the same thing: a system with no accountability at any level, in medicine, finance, geopolitics, or politics, and a growing sense that the Fourth Turning's grand finale is closing in fast.

The headline thesis belongs to Dave and Rudy: markets are sitting at roughly 3x historical average valuation on every metric they track, and the AI bubble is perched on top of private equity, private credit, and real estate simultaneously. Turtles all the way down. When that unwinds, the insurance industry may be the specific detonator, because private equity firms spent the last decade quietly stuffing insurer balance sheets with their own products. I've covered pieces of this before in my conversations with Nick Namath on life insurance and private equity, and the stress fractures in private credit are already showing.

My own take coming out of this conversation: I've spent years down political rabbit holes and I keep arriving at the same place. The money is the core of the problem. Until that's fixed, the rot in pharma, finance, and government just keeps reproducing itself in different forms. That's where I'm refocusing.

Key takeaways

• Private credit is the next shoe to drop. By Rudy's reckoning, markets are roughly 200% above historical average valuation, meaning a correction to the mean requires a 65%+ drawdown. The AI bubble is sitting on top of private equity, private credit, and real estate simultaneously.
• Private equity broke the insurance industry. PE firms saw what Buffett did with GEICO, bought insurers, fired external asset managers, replaced them with themselves, and loaded the balance sheets with their own private credit and PE products. Policyholders are now carrying PE risk they don't know about.
• The AI technology is real; the equity story probably isn't. OpenAI and Anthropic may end up like Netscape, real technology, wrong companies, wrong valuations. The winners come after the bust.
• There are no adults in the room and no cops on the beat. Dave put it plainly: no accountability for Fed inflation policy, Afghanistan, Iraq, COVID, pardons, or the looting of the Treasury. Not a partisan observation, both parties.
• The Fourth Turning grand finale historically ends with a catastrophic war. The geopolitical contradictions right now, bombing Iran over enrichment while signing Saudi a nuclear deal, expanding conflict while Yemen bombs Saudi ships, point toward escalation, not resolution.
• The money is the core of the problem. I truly believe this. Fix the money, fix the world. Everything else is a symptom.

The private credit bomb

Dave's market thesis is straightforward and a little grim. By every rational valuation metric he tracks, markets are sitting at roughly 3x historical average. The Shiller CAPE has been running in the low-to-mid 40s against a long-run historical average around 15. The Buffett indicator, market cap to GDP, is similarly stretched. Rudy's math: if you're 200% above historical average valuation, you need a correction of roughly 65-66% just to reach the mean. And the mean isn't the floor. Half the time you spend below it.

What makes this cycle different from prior bubbles, in Dave's read, is the stacking. The AI bubble is sitting on top of private equity, private credit, real estate, and standard equities all simultaneously elevated. His framing for it: "turtles all the way down."

The specific detonator Rudy flags is the insurance industry. Private credit exit liquidity is already jammed, and the people holding the bag may not know it. Insurance companies are, at their core, long-duration promises to pay. They took in premiums and were supposed to invest them conservatively.

The question Rudy asks is a real one: how many companies are still functioning after multiple decades? The answer is not as many as annuity buyers assume.

Dave points to SpaceX as a potential market-top signal. His argument: mega-IPOs at trillion-dollar valuations suck liquidity out of the system the way a sponge does. Banks will write one $10 billion loan before they'll write a thousand $10 million ones.

SpaceX was excluded from the S&P 500 because the index requires two consecutive profitable quarters, a rule SpaceX doesn't satisfy. The staged lockout of insider shares over six months is, in his reading, the only reason the stock isn't falling faster than it already is.

How private equity broke the insurance industry

I've had two conversations with Nick Namath (a researcher who has been tracking the intersection of life insurance and private equity closely) and the picture he laid out connects directly to what Dave and Rudy described here.

The scheme runs like this. PE firms watched what Buffett built with GEICO, use insurance float as a low-cost funding base, invest it patiently, compound for decades. They decided they could replicate the model. So they went and bought insurance companies. Then they fired the external asset managers running the balance sheet and replaced them with internal allocators.

The catch: those internal allocators then invested the balance sheet into the PE firm's own products, private credit, private equity, SaaS buildouts, AI infrastructure.

Double-dipping. The PE firm earns management fees on the insurance assets and takes the upside on the underlying investments. The policyholder absorbs the risk.

Rudy flagged These Are the Plunderers by Gretchen Morgenson and Josh Rosner as the detailed account of what PE does to industries it touches. He cites a stat from that book: 47% of companies PE resells into the public market eventually go bankrupt. If that pattern holds for insurers, the downstream consequences land on policyholders who signed up for conservative, decades-long coverage, not SaaS and AI capex risk.

The depreciation bill on AI capex alone is enormous, and that bill is now sitting, at least partially, on insurance balance sheets that most policyholders have never examined.

The AI bubble, real technology, wrong companies

My take on AI has gotten more nuanced over the past year, and I said it plainly on this episode: Anthropic and OpenAI may well end up in the dustbin of history.

That's not a bet against the technology. I use it every day. I sit on the board of a Bitcoin mining company that's actively exploring AI compute hosting. The technology is genuinely transformative.

But Rudy's Gundlach analogy is right: electricity companies peaked in 1911. Cisco had 30% revenue growth in 1999. Revenue growth is not the same thing as a sound investment at any price.

The historical pattern Rudy and Dave lay out: the big winners of the internet era were not Yahoo or Netscape. They were Google and Amazon, companies that came after the bust and used the infrastructure that got written down to zero. The frontier model companies today may be Netscape. Whoever builds on top of the wreckage may be Google.

The counterargument I raised: I had a conversation with Mel Madison recently, and he made the point that the hyperscalers, Google, Microsoft, Amazon, Meta, could theoretically let AI go to zero tomorrow, and the cash flow from their legacy businesses could retire the AI-related debt they've taken on within a few quarters. That's a real distinction between the hyperscalers and the pure-play AI companies. The former have other businesses; the latter do not.

Google's revenue was up roughly 24% in the most recent earnings period I've seen. But Rudy's point stands: Cisco had similar numbers in 1999, and Coca-Cola was trading at 50x earnings in 1998 while Treasuries were yielding 6.5-7%. None of that stopped what came next. The financing structure behind the Ohio data center buildout is already exposing how levered this is.

The other thing worth noting: the open-weight models coming out of China are keeping pace with the frontier labs here. The competitive moat these companies are trying to build through regulatory capture is not as durable as they're pricing in. Governments are already trying to grab a seat at the AI cap table, which tells you something about where this is heading.

No adults in the room, accountability is dead

I've been going to DC once a month for the last six months. More than I went in the first 34 years of my life. You can feel it in the air when you're there. This isn't a theoretical observation anymore.

Dave laid out the accountability ledger. Who got fired for the Fed's inflation policy? Who got held accountable for Afghanistan? For Iraq? For COVID? The answer across the board is nobody.

The only people who seem to get fired are mid-level officers who point out that current policy serves someone else's interests.

The Clarity Act, which should be a straightforward Bitcoin market structure bill, is hung up on an ethics clause that exists because Trump and his family have been trading meme coins and crypto against a public they govern. The figure being cited is that Trump made roughly $1.9 billion on some of his crypto trades. Melania coin went to zero. That's the state of things.

Dave's framing for all of it: there's no too big to fail and there's no too big to jail. Both need to end. What we have instead is the unabashed looting-the-Treasury stage, and Congress is either owned or asleep.

I wrote a newsletter that week specifically about Gen Z and where this leads. They've been taught that the broken system they live in is capitalism. Since the system is obviously broken, they're going socialist. That's a rational inference from a bad premise, and it's a long-term civilizational problem.

The fix isn't Mamdani. The fix is sound money, a system where you don't need to trust the people running it because you can verify what they're doing. Bitcoin's "don't trust, verify" is a political philosophy, not just a custody practice.

The Medicaid and Medicare fraud story is real regardless of whether any given person covering it is a limited hangout or not. I have a good friend in Maine, Steve Robinson at the Maine Wire, who was independently investigating the same scheme in Maine years before anyone else surfaced it nationally.

The problem exists. It's wrong. As a taxpayer funding it, I'm done pretending it doesn't matter.

The Fourth Turning grand finale

Rudy's framing for where we are historically: think of a fireworks display. If you're halfway through the timeline, what percentage of the fireworks have actually gone off? Probably 15%. They all go off at the end. That's the grand finale.

Historically, the grand finale of a Fourth Turning ends with a really horrific war.

The geopolitical picture right now is hard to look at without that frame. Ukraine-Russia escalated in 2022. Iran-US escalated this year. Yemen is bombing Saudi ships. Saudi Arabia is pursuing a nuclear deal while we're bombing Iran over enrichment. We just voted in the House on what amounts to merging military procurement with Israel. Four Republicans voted against it.

I said it plainly on this episode: war lost me. Trump lost me on the Iran war. Now that it's expanding, with Saudi getting bombed by Houthi forces and the conflict spreading, we're doing exactly what we did post-9/11. Here's another 20-year war.

Rudy ran a Twitter poll asking: if Putin starts dropping serious weapons on European cities, who do you blame? He gave four choices. Putin got somewhere in the single digits. Everyone else who responded understood that we've been pushing buttons for years and the escalation ladder didn't start on Putin's side.

On the Fed: Rudy asked me what I think Kevin Warsh does as Fed chair. My read is he basically welds the Treasury and the Fed together and makes it politically palatable, full nationalization dressed up as policy.

But I'm also open to the secondary hypothesis Rudy floated: maybe Warsh is a Volcker-style appointment, put in to force the purge the banking system actually needs. Volcker didn't do it for the American people. He did it because the banking system needed to projectile vomit. We might be at that point again.

Fix the money, fix the world

I keep arriving at the same place no matter which rabbit hole I go down. Pharma rot, private credit, Medicare fraud, the Iran war, Gen Z going socialist, these aren't separate problems. They're the same problem manifesting in different industries. The incentive structure is broken at the monetary level, and everything built on top of fiat money inherits that rot.

CrowdHealth is a good example of what happens when you route around the broken system instead of waiting for it to fix itself. My family has been members for five years now. We've had two babies and multiple health events on it. As a family of five, we pay around $700 a month.

They've consistently negotiated healthcare costs down 50-80%. We're never going back to traditional health insurance. If you want to opt out of the system and take care of your family the way I take care of mine, go to joincrowdhealth.com and use code TFTC, $99 a month for your first three months.

The political work I've been doing over the last few years has made me more disillusioned, not less. Not nihilistic, I still believe we're going to win, but clear-eyed about where the real influence actually is. Building systems that don't require trust is where it lies, not in finding better politicians. Bitcoin is the foundation of that. The AI tools I'm now using are how I'm planning to get that message further and faster.

About Dave Collum & Rudy Havenstein

Dave Collum is the Betty R. Miller Professor of Chemistry and Chemical Biology at Cornell University. He has published his widely read "Year in Review" macro and market commentary annually since 2009, covering valuations, central bank policy, geopolitics, and institutional rot. He is a recurring guest on TFTC.

Rudy Havenstein is a retired Cornell chemistry professor and long-running independent financial and political commentator. He has been active on social media since the late 1990s and is known for his dry wit, contrarian market takes, and willingness to go after institutional sacred cows. He is a recurring guest on TFTC.

Sources mentioned

• Private Credit's $2.5T Stress Test Is the Fiat System Breaking in Real Time (TFTC): the broader private credit liquidity picture this episode's thesis sits inside
• Private Credit's Exit Door Is Jammed (TFTC): redemption gating and queue mechanics in private credit funds
• AI Earnings Boom Hides $549B Depreciation Bill Coming Due (TFTC): the capex depreciation wave hitting hyperscaler earnings
• Nvidia as Guarantor: OpenAI's Ohio Bet Exposes AI Capex's Debt Problem (TFTC): financing structure behind frontier AI buildout
• The State Wants a Seat at the AI Cap Table (TFTC): government encroachment on AI ownership and governance
• You Can't Have Capitalism When the Money Is Corrupted (TFTC): the monetary rot argument that underlies this whole conversation
• These Are the Plunderers by Gretchen Morgenson and Josh Rosner: the detailed account of private equity's behavior across industries Rudy references
• Maine Wire: Steve Robinson's independent investigative journalism outlet, referenced for Medicaid fraud reporting
• Shiller CAPE ratio current data (multpl.com): current and historical Cyclically Adjusted PE ratio data

Watch the conversation

Timestamps

• 0:07 - Intro / Bitcoin & fiat dynamics
• 2:00 - Pharma rot: SNRIs, Effexor tapering, and what patients find out too late
• 8:20 - Statins, side effects, and why Twitter beats your GP
• 12:51 - Looting the Treasury: CLARITY Act, Trump's crypto trades, meme coins
• 17:15 - No adults anywhere: pardons, accountability, cops on the beat
• 28:55 - Tyler Robinson case and the Rorschach test for who you trust
• 49:00 - Trump's "fuck-it theory" and the Iran war losing everyone
• 57:02 - SpaceX IPO as market top signal, liquidity mechanics, S&P exclusion
• 1:02:37 - AI bubble: real technology, turtles all the way down, private credit detonator
• 1:09:25 - Insurance companies and the PE-buys-GEICO scheme
• 1:19:43 - Fourth Turning grand finale: fireworks analogy, WW3, Putin poll
• 1:35:03 - Iran war, ceasefire collapse, Saudi nuclear deal contradiction
• 1:43:23 - Accountability and the Fourth Turning vibes returning
• 2:10:01 - Kevin Warsh / Fed: weld the Treasury, or a Volcker purge?
• 2:44:48 - Fix the money, fix the world: refocusing on Bitcoin

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