Wednesday, March 18th, 2026
By Laura Kuntz, CPA/PFS, MBT, Chief Investment Officer
Recently, Richard Bookstaber published an opinion piece in The New York Times titled “I Predicted the 2008 Financial Crisis. What Is Coming May Be Worse.” His article highlights what he sees as growing systemic risks tied to the expansion of private credit, particularly as it intersects with the current enthusiasm around artificial intelligence (AI).
First, a word on the headline itself. Many commentators routinely predict downturns, and occasionally they are right. No one, however, can consistently predict the timing or magnitude of the next bear market. If that were possible, that person would sell that secret for billions. That said, Bookstaber is correct that systemic risks exist — and they always do. From time to time, those risks align and contribute to the next bear market.
Bookstaber focuses on private credit, an area we seek to avoid for client portfolios at Laurel Wealth Planning.2 Private credit is accessed through private channels where borrowers are not required to publicly report their financial condition. Credit analysis is performed privately by lenders, and many borrowers are inherently higher risk — often the reason they turn to private markets rather than traditional bank financing.
The private credit market has grown rapidly, fueled by strong U.S. corporate profits and large pools of capital seeking opportunity. Bookstaber estimates the market at roughly $2 trillion, which is directionally correct. He then links private credit risk to AI, noting that many borrowers are software and technology companies whose services could theoretically be disrupted by AI.
This risk is not hard to understand. Systemic contagion is real and often plays a role in bear markets. As Warren Buffett famously said, “You don’t find out who’s been swimming naked until the tide goes out.”Economic stress exposes which entities have taken on too much risk. Those that manage risk prudently tend to survive and often emerge stronger.
We saw this during the 2007–2009 financial crisis, when excessive risk-taking by large banks was exposed. The U.S. government ultimately supported the banking system, allowing it to reorganize and stabilize, along with our economy, and ultimately the investment markets. Subsequent regulation limited certain bank activities, and private credit partially emerged as a result.
While at LWP we seek to avoid private credit, systemic risk can still affect public markets. The stock market rises most of the time, on average two years out of three, but declines are inevitable. Bear markets are often driven or amplified by systemic stresses, sometimes compounded by geopolitical events. The early 2000’s tech bust, followed by the shock of 9/11, is one example.
Some risk is currently unwinding in private credit — and time will tell how much — and if AI disruption proves more severe than expected, a geopolitical shock could certainly intensify the downturn. That is one possible scenario. There are, however, many others.
Our own experience with AI suggests it is helpful but not yet transformative. I recently listened to Michael Cembalest of J.P. Morgan, who noted that many AI productivity studies assume 50% accuracy1. In many business functions — investment reporting, trading, tax calculations, payroll, and finance — even 95% accuracy is insufficient. AI still has meaningful hurdles to overcome. In addition, current non-AI systems are imbedded across companies, integrated into many other systems, and thousands of people have been trained on them. Companies will move carefully in replacing these systems.
Our outlook is that AI has long-term potential, but adoption will be gradual. In addition, as some tasks are automated, new ones are created and businesses will continue to grow — and hire to support that growth and handle the new roles. In fact, per Mr. Cembalist, over the last approximate 75 years, after a productivity “shock” employment decreased over the following two years but then increased over the following years.1 Disruption does not necessarily translate into widespread failure, especially over time.
Private credit remains risky, and we believe avoiding it is prudent. A downturn driven by its unwinding, especially if paired with geopolitical stress, is possible. On the other hand, it is also plausible that the riskiest segments unwind quietly while public markets continue to bump along, supported by potential Federal Reserve rate cuts. If global trade routes such as the Strait of Hormuz normalize, markets could even see a lift. This “bump along” scenario forms our base outlook. That said, we remain prepared. If a bear market uncovers attractive valuations, we stand ready to act. Our first target buying level is 6,100 on the S&P 500, down approximately 8% from Monday, March 16th.
As always, we welcome your questions and comments and appreciate the trust you place in us.
Prepared with the assistance of Copilot AI, along with research, ideation, and editing by Laura Kuntz.
NOTES
1 Michael Cembalest, Chairman of Marketing and Investment Strategies, JP Morgan, “Future Shock: What comes after the US invasion of Iran and after the rise of Agentic AI.”
2 Certain investments through Laurel Wealth Planning may have small exposures to private credit.
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