The Cracks In Private Credit Are Now Visible

(Written by Bert Dohmen & Dion Dohmen, contains excerpts from our latest February 22, 2026 Wellington Letter)

The stock market is looking precarious to us. It is so similar to what we have seen ahead of other remarkable market crashes.

The US general stock market is currently near all-time highs, with all-time record margin debt. Leveraged purchases, record excessive valuations, and record margin debt could cause a major debacle.

The software sector has been demolished after being one of the most expensive sectors for years. Without software, computers are worthless. But now reality returns to valuations, software is still important, even with AI. However, it had been extraordinarily overvalued as investors just bought them without thinking whether the valuations were worth it.

We just read this comment online,

"Exactly one year ago, software was trading at a P/E multiple of 51x, making it the most expensive industry in the equity market. Today, software trades at a P/E multiple of 27x and is not the most expensive industry. Media, autos, semis, and capital goods are trading at a higher multiple."

There are two remarkable things with that statement:

1. That software stocks were considered an investment when it would take a buyer 51 years just to recoup his money if he would get all the earnings. That means he would just be getting his money back (breaking even), assuming the firm grows at the same rate.

2. That mundane sectors like “Media, autos, semis, and capital goods are trading at a higher multiple." That means above a P/E of 27. What money manager would buy these vulnerable sectors when they are that expensive? Have they all lost their minds, as in 1929?

We see many signs that the stock market is under distribution. That means that the big, smart money is selling while their minions in the media are urging viewers to buy, no matter how crazy the overvaluation of the stock is. One example is Palantir, with a P/E of 257 now, down from a P/E 388.

This may be a company with dependable customers, like the CIA, but as we wrote weeks ago, the valuations are astronomical and discount the company’s growth perhaps for the next 10-15 years.

Huge declines in stocks like this usually follow when money managers on salary sell in order to keep their jobs. After all, how can they defend owning such overvalued stocks with other peoples’ money?

What worked the past 50 years is now different. There are superfast computers with AI programmed to fool the majority. That suggests to us that the “distribution” can last longer because AI is now making the decision on how to fool retail investors.

We don’t know their algorithms, but we do know it is not wise to buy even well-known stocks with such overvaluations.

In our December 21, 2025 Wellington Letter, we wrote about the overvalued stocks saying,

"Lately we’ve been seeing stocks already starting to be revalued by big declines in stocks of great companies. They became overvalued by factors of 2x or 4x and now have to decline at least 50%, and many over 80%, in order to get to fair value."

And that is what a market crash will do, whenever it comes. Our preliminary clues are suggesting that this time is likely on the horizon.

Here are just a few formerly popular overvalued stocks, which were all highly recommended as “buys” just few months ago by Wall Street, that have suffered huge declines (data as of 2/23/2026):

Let’s look at just a couple of charts of the aforementioned stocks. First, Microsoft (MSFT), one of the leaders in the software space, just plunged to a new 52-week low on February 23, breaking strong support. It is now down over 30% since its late October 2025 high.

Notice our proprietary Dohmen Money Flow indicator (bottom, black arrow) has been declining since the start of the year, signifying consistent outflows out of MSFT.

The private credit space has been heavily promoted over the past 12 months in the financial media. However, we have been pointing out the “cracks” we’ve been seeing in this sector during that time, warning our members to not give in to the all the hype. We said the reason for their constant hard selling of private credit stocks was that “they need buyers for the garbage they hold.”

Blue Owl is a great example. The private credit firm was in the news again after it was rumored to have stopped redemption by their clients while selling roughly $1.4 billion in assets between three of its funds, although that is disputed. The stock is now down nearly 61% from the 2025 high.

Blackstone (BX) is one of the most dominant players in the private credit sector. Take a look at BX chart below, showing it has plunged 40% since last September, also breaking to a new 52-week low on February 23.

Notice how trading volume (bottom, black arrow) has surged higher this year during the most recent part of its plunge. That’s a warning that this sector will become a big casualty in the months to come.

CONCLUSION: Based on the charts and the huge plunges in big stocks like the ones above, the markets appear to be on very thin ice. Beware of the day when the ice breaks. A number of cracks are already visible. Late February is historically notorious for being weak.

However, for longer-term investors there are still great opportunities in our favorite sector we have recommended over the past 10 months. Just don’t invest in the majority of stocks mentioned often on TV. Those are used as “bait.”

We discuss the potential of a significant market plunge, along with the one thing that could delay that plunge, in our latest February 22^nd issue of the award-winning Wellington Letter (21 pages) titled “The Repercussions of a Potential War.” (click this link to read a free sample issue)

After becoming a member, you will gain instant access to our two most recent February 2026 issues so you continue reading more about our latest market analysis, forecasts for stocks and precious metals, and our outlook for the economy.

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Wishing you successful investing,

Bert Dohmen, Founder
Dion Dohmen, Vice President
Dohmen Capital Research