One investment we have in a private debt fund has close tabs on SMB / consumer defaults, as the portfolio holds a substantial amount of its loans in unsecured consumer loans (albeit purchased at a discount), and SMB advance facilities. I view it more akin to equity than debt given its return profile.
One of the principals of the firm commented today:
Liquidity dried up very quickly. But, the economy is weakening at a much slower pace. We see it with the pace of rising consumer and SMB loan delinquencies. The speed of change points to a regular recession.
I think it’s important to note that consensus regarding a recession is near unanimous. The stock market already contracted as well. It seems to me at least, that the nature of this upcoming recession will be a real decline in the economy, but one everyone is prepared for.
This is distinct from unforeseen shocks to the system that catch participants off guard and result in dramatic volatility. Could an event happen? Absolutely. Perhaps China moves on Taiwan, or Russia makes another advance, etc. The point of shocks is most don’t anticipate the trigger event.
To that end it still appears to me to be a good environment to continue cautiously re-investing into, especially on the credit side.