Renowned hedge fund BlackRock was the latest victim of credit destruction with this week's headline that said, "BlackRock cuts value of private debt fund by 19%, waives fee."

It's going to get a lot worse, according to Dowd's latest report called "US Economy Outlook 2026."  Dowd says, "This is a big call, and what is going to happen does not happen that often.  We will try to call the bottom in the future, but right now, I have never seen risk like this before in my career.  This has been unfolding. . .. I have not been wrong in the 2025 call.  The stock market did go up 17%, but the rest of the economy imploded.  Real estate started rolling over. . ..  Unfortunately, because this is such a bubble because they kicked the can down the road . . . the odds of this happening fast have increased exponentially since the beginning of 2025."

Dowd goes on to explain, "The three fundamental risks that we see for the US economy for 2026. . .. There are two internal risks and one external risk.  The first risk is US housing crisis/white swan event.  Immigrants came in and filled the gap.  That's now stopped. . .. Deportations are going to continue over the next year to two years, and that is going to continue to put pressure on homes.  Affordability is a disaster.  Incomes do not allow people to buy homes at these prices.  The only way to correct this is home prices dropping 25% to 30% over the next two years.  That would set us up for a recovery."

Dowd continues, "The second risk to the US economy is a stock market bubble.  The valuations are as bad as the Dot Com bubble.  This is driven by the AI bubble, and we see the cracks are starting there.  We expect that to pop sometime this year.  The third risk is China.  It is entering into the acute phase of its economic crisis.  This is going to be a global contagion.  It will hurt Japan and South Korea, and this will spill over to the US. . .. It will be a liquidity crisis, and that is why we are bullish on the US dollar."  (Dowd has new cutting-edge analysis on China for institutional investors.  It has shocking new and never before released details about how much trouble China is really in.)

Dowd goes on to point out, "We have a lot of headwinds coming at us in 2026. . .. We think the first problems will begin in the shadow banking system, which is private equity, private credit funds and all these non-depository financial institution loans commercial banks made over the last two years. (See BlackRock story above.)  All their loan growth came from that source.  There was no loan growth in commercial and industrial.  It was all in the shadow banking system."