Liquidity Problems?
Are the 50 Year Mortgages and Softbank Sell-Off a Sign of Weakness?
Good evening, everyone, and welcome to this week’s five-minute market update. I am getting ready to head out of town for the rest of the week, so here is a quick recap of this week’s biggest stories: the fifty-year mortgage and the SoftBank sell-off of Nvidia.
The 50-Year Mortgage: A New Wave or Mirage?
The proposal for a government-backed 50-year mortgage, recently promoted by Trump, aims to make homeownership more affordable by extending payments and reducing monthly financial stress for buyers. While this policy could spark greater demand, especially in high-priced urban markets, it introduces significant risks for both individual borrowers and the wider financial system. Homeowners would accrue equity far more slowly and pay nearly double the interest over the life of the loan compared to a standard 30-year mortgage, locking many into extended debt cycles and exposing them to market downturns.
The effects go beyond individuals. Mortgage-backed securities (MBS) markets could see liquidity dry up as the longer duration makes these assets more sensitive to interest rate swings, challenging traditional hedging strategies for giants like Fannie Mae and Freddie Mac. If investor appetite for these instruments wanes, borrowing costs could rise, and secondary market liquidity could falter, a setup that echoes some past liquidity crunches.
SoftBank’s Nvidia Liquidation: Ripple Effects on Capital Flow
SoftBank’s surprise $5.8 billion liquidation of its entire Nvidia stake (32.1 million shares at an exit price close to $181.58) shook equity markets, highlighting the profound effect that large institutional moves can have on liquidity and sentiment. The stock immediately dipped nearly 3% amid speculation about broader implications. Analysts suggest SoftBank isn’t rejecting Nvidia but rather reallocating capital to other ventures, especially its ambitious AI strategy. Yet, the timing, just 14% below Nvidia’s all-time high, signals a careful response to perceived late-stage froth in the market.
When such a major player converts illiquid equity into cash, it is both a symptom and a catalyst for tightening liquidity: large exits may put pressure on asset prices and encourage other institutional investors to reassess risk and hedge against sudden changes.
Evidence of Strain: Insights from Michael J. Burry and Credit Data
Michael J. Burry, famed for “The Big Short”, has again sounded alarms about system-wide leverage and consumer debt levels. As of Q1 2025, Americans are grappling with credit card balances in excess of $1.18 trillion, a record high, while delinquency rates and 90+ day missed payments are climbing sharply. Personal consumer credit is now over $5 trillion and rising, with high interest rates compounding the burden. Burry argues these are early signals of pressure building beneath the surface, echoing his warnings ahead of past crises.
Corporate America isn’t immune: rising labor costs, expensive borrowing, and margin compression are quietly attacking profitability. Several notable company defaults, including cases of fraud and accounting manipulation, have put a spotlight on the structural vulnerabilities lurking in credit markets. He's also sounded the alarm on AI as well, accusing the big players of overstating their earnings by slowly increasing the useful life of their computing equipment.
Private Credit: Masked Stress and New Frontiers
Private credit, now a $1-2 trillion market, has mushroomed thanks to tighter bank lending and the search for yield. But cracks are emerging under the surface. The proportion of borrowers with interest coverage ratios below 1.5x has soared to 47%, from just 7% in late 2020, and more than 40% of borrowers now report negative free cash flow. The rise in payment-in-kind (PIK) facilities, where borrowers pay interest with more debt, not cash, points to underlying stress. While default rates remain low on paper, increasing “liability management exercises” reflect a growing struggle to meet interest obligations.
Fundraising remains strong, with more than $124 billion gathered in H1 2025 alone, driven by high-net-worth demand for evergreen funds. Yet, the market’s resilience may mask looming trouble if underlying credit quality doesn’t improve.
A Liquidity Crossroads: Boom or Squeeze?
Recent months saw a liquidity surge as economic growth accelerated in Q2, fueling a broad equity rally. But signs now point toward a slowdown in both growth and liquidity, a critical inflection that could weigh heavily on risk assets and credit markets. Credit spreads remain tight, and economic growth is holding steady for now. Still, persistent inflation, weak labor market prints, or a continued deterioration in corporate profits could trigger a re-pricing in credit and asset markets.
Contradictory Evidence: Resilient Credit for Now?
Despite the pressures, some analysts and market participants argue that recent credit market defaults are connected more to fraud and idiosyncratic risk rather than systemic weakness. The underlying structure of loans, especially in private credit, may keep the risk of a full-scale crisis contained for now. Still, interconnectedness with major banks and the rapid growth in shadow lending leave the system vulnerable if external shocks arrive.
Final Word: The push for ultra-long mortgages and massive institutional moves like SoftBank’s Nvidia exit are both signals and drivers of changing liquidity conditions. While underlying credit stress, from ballooning consumer debt to rising payment-in-kind arrangements, points to mounting fragility, credit markets are not uniformly brittle just yet. However, the qualitative evidence is worth noticing at this moment.
Softbank is selling one of its most valuable investments ever to provide dry powder for future investments
Michael Burry is warning about credit and potential fraud in the AI trade.
The US government is suggesting ultra-long-term debt to buy homes.
Firms like Goldman Sachs are mentioning the fact that recent credit failures “are not a sign of weakness”. (Don’t look at the man behind a curtain)
When we connect this with last month’s banking exposures, I think the potential dry-up of liquidity in the economy is worth thinking about. Honestly, after writing this article, I am not sure, but this week’s news stories are making me even more suspicious that we’re not seeing the “truth” in the US market. I’ll be looking deeper into this in the coming weeks, but, in the meantime, for investors and observers attuned to liquidity risks, these developments warrant a close watch, tactical caution, and readiness for volatility as 2025 progresses
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Tyler Kreiling, WealthNWisdom, Founder and Head Editor
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This piece realy made me think. Your analysis of the liquidity problems, especially with the 50-year mortgage, is remarkably insightful.