(Kitco News) -Positive third-quarter earnings from chipmaker Nvidia are providing new momentum to U.S. equity markets, and while investment in AI infrastructure continues to dominate Wall Street, one research firm is seeing significant cracks in financial markets.
Laks Ganapathi, CEO of Unicus Research, said she is concerned about growing risks in private credit markets as consumers struggle with rising prices and slowing economic growth. She added that liquidity issues in the shadow banking system could have a domino effect on regional U.S. banks and eventually take down major players.
Unicus Research is an independent research firm focused on identifying opportunities on the short-side. In the current environment, Ganapathi described the growing financial market risks as “the 2008 Great Financial Crisis on steroids.”
Ganapathi explained that student loans, mortgages, and car loans are creating significant financial burdens for consumers. Specifically, delinquencies for car loans have hit record highs in recent days.
“ Negative equity is going through the roof. Consumers cannot pay the loans; an average of one in five Americans is paying a thousand dollars in loans, which is not sustainable,” she said. “Private credit is an absolute nightmare. This sector has been infusing billions of dollars into buy-now, pay-later programs. And the problem is big banks—JP Morgan, Morgan Stanley—they are funding this private credit.”
Ganapathi said economic conditions are so poor that even expectations for the Federal Reserve to continue cutting interest rates through 2026 will provide little relief.
“Cutting interest rates is like putting a Band-Aid on a bullet wound,” she said. “It’s not going to do very much.”
Ganapathi explained that even as the Federal Reserve cuts rates, the effects will be delayed for consumers; however, she added that falling interest rates and more quantitative easing to support equity markets will continue to drive inflation pressures higher.
At the same time, Ganapathi said she sees the growing AI sector as a house of cards and does not expect it to create a new wave of productivity. She said she expects the AI evolution, which is driving demand for new, more powerful data centers, will lead to greater moral hazards.
Along with rising financial burdens, Ganapathi said new data centers will drive up energy and water costs, putting even more pressure on consumers.
“ If the economy starts to fail you can infuse more liquidity into the market, you can keep the consumers going, but at the end of the day, inflation for non-flexible items like maintenance of your car has gone up more than 50%, and you have insurance premiums for cars up 56%, and your health insurance—forget about it,” she said. “You will continue to see people suffering in real life. You will see anger, frustration, as people have to choose between defaulting on their car payments or taking care of their kids. We expect, as a firm, there's going to be more social unrest in 2026.”
Although Ganapathi’s Unicus is bearish on AI and regional banks, she also warned investors that this will be a difficult path, noting the Wall Street adage that economic conditions can remain irrational longer than investors can remain solvent.
Although Ganapathi does not have an official view on gold, she said it makes sense to hold real assets as her thesis plays out and rising consumer debt causes a collapse in global financial markets.
“Gold is a solid commodity that has value and should continue to do well as a monetary asset,” she said.
