Five Risks I See Heading Into 2026
Submitted by QTR's Fringe Finance
The first risk heading into 2026 is the simplest and the most ignored: the American consumer is tapped out. Subprime auto loan delinquencies have already pushed past 6% on a 60+ day basis, the highest levels seen in decades, and they’re still climbing. Credit card balances are north of $1 trillion and delinquency rates remain well above pre-COVID norms, particularly among lower-income and younger borrowers who burned through their excess savings long ago.
Buy-now-pay-later “phantom debt”, marketed as convenience, has quietly morphed into a shadow subprime system, with a large share of users missing payments and stacking short-term obligations just to stay afloat. The consumer didn’t delever after COVID — they levered up at floating rates.
Now the liquidity is gone, prices are still high, and rate cuts, whenever they arrive, won’t be fast or deep enough to rescue households already behind. This won’t show up as a single dramatic blowup. It will show up as persistent defaults, rising charge-offs, tighter credit, and earnings pressure across any sector still clinging to the idea that “the consumer is resilient.”
Names in this space I’ll avoid are all regional banks (KRE), Carvana (CVNA), Credit Acceptance Corporation (CACC), Santander Consumer USA Holdings (SC), Ally Financial (ALLY), OneMain Holdings (OMF), Enova International (ENVA), and Bread Financial (which serves many subprime consumers) for subprime/consumer lending, and BNPL fintechs Affirm Holdings (AFRM), Sezzle Inc. (SEZL), Block, Inc. (owner of Afterpay), and Klarna Group (KLAR).
The second risk is valuation — and the growing gap between narrative and capital reality, especially around AI. Markets are still priced as if artificial intelligence guarantees exponential growth while somehow requiring no trade-offs, no margin pressure, and no capital discipline. That fantasy is starting to crack where it always does: financing. The Shiller PE is now over 40x - insane:
The recent collapse of a major multibillion-dollar AI data center deal tied to Oracle after Blue Owl walked away wasn’t about the technology; it was about risk, returns, and who actually wants to underwrite AI infrastructure at today’s prices with today’s cost of capital.
Across corporate America, AI capex plans are being slowed, staged, or quietly rethought as CFOs realize that GPUs, power, cooling, real estate, and talent are expensive, and the monetization curve is far less certain than equity multiples suggest. More on this here: Burry Breaks His Silence
Meanwhile, positive real rates continue to drain liquidity from the system, and the marginal investor is no longer being paid to believe ten years out. Multiple compression doesn’t require a...(READ THIS FULL NOTE AND ALL FIVE RISKS FOR FREE HERE).