November 17, 2025 • 39 mins
Chuck Zodda and Mike Armstrong discuss what to expect in markets this week. Nvidia helped spark the AI rally. Its earnings could revive it. Those wishing for a drawn out bear market have forgotten how much pain comes with a bear market. Blue Owl private credit fund merger leaves some investors facing a 20% hit. You can't eliminate volatility, you can only transfer it.
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Transcript
Episode Transcript
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Speaker 1 (00:00):
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(01:05):
Zada and Mike Armstrong.
Speaker 2 (01:09):
Chuck Mike Tucker with you today, and we got a
nice little week that we've got planned out here. As
I take a look at the calendar, it's not you know,
a ten out of ten week where you're sitting there saying,
oh my goodness, like, how am I gonna sleep? I'm
so excited about all the stuff we're gonna be getting.
(01:31):
But I put it firmly as like, you know, a
solid seven out of ten on the economic data side
of things, A couple of decent reports that we're gonna
be getting FED minutes on Wednesday, which I'm more interested
in now just giving some of the you know, things
that we're talking about as far as the December meeting,
(01:51):
whether that is on off or you know, somewhere in between.
Speaker 3 (01:56):
And so I think the things we're talking about is
many FED meetings being you know, you I don't care about,
I know, being brought out in front of a mic
saying we're not sure about this December rate cut that
was previously pretty baked into market, which is.
Speaker 2 (02:10):
Kind of interesting to me. So I'm interested to hear
what we get from the FED meeting minutes on Thursday.
We are going to get the jobs report for September, so,
you know, little anti climactic just because it's kind of like, Okay,
you guys collected this data two months ago and now
you're going to show it to us. But it'll still
(02:31):
at least fill in a data point that we've been missing,
and I think that'll be informative. And by the way,
we can compare this to the AI generated jobs reports
that and I shared back that first week in October,
and we'll see whose artificial intelligence was closest to what
we actually get from the Bureau of Labor Statistics.
Speaker 3 (02:54):
So that September jobs report was fully collected and not released,
so we will get a release on unemployment rate. We
will get a release on jobs created or lost. The
October report, you can get a partial, you won't get
the full one. And when will we be getting that one,
We don't know. We don't know. Okay, And the October
report again because it was not fully collected because of
(03:14):
the government shutdown. We expect to get the Establishment survey,
which is the survey of businesses, so we'll get the
number of hires or fires. We will not get that
unemployment rate read because correct surveying ten times as many
households is apparently more strenuous A little bit of work, yeah,
you know, than getting the service little bit of work.
Speaker 2 (03:33):
So we get the September jobs report on Thursday. I
do not believe we are going to get weekly jobless
claims from the d well then, yet I think they
are still ramping back up, so I anticipate next week
maybe is when that starts to happen. We'll get existing
home sales data Thursday as well, so that's going to
be fun. And then on the earning side of things,
(03:57):
everyone's kind of focused on in Vidia on Wednesday, just
because the last couple of weeks has not been great
for AI adjacent stocks and obviously a monster report from
in Video could save that section of the market, which,
by the way, it's I was going through my notes.
I take daily notes on like what is going on
(04:17):
in markets, just because it's nice to be able to
look back on them and they kind of see what
what was happening.
Speaker 3 (04:23):
Chuck's diary is even more boring than the typical diary.
Speaker 2 (04:26):
It is like it's you know, most of the time,
it's like, oh, I wonder if he loves me. I
wonder if she mine's like, doesn't video love me? And
it's you know, it's it's just kind of it's doesn't
talk in that voice, but it would, uh in any case,
in video a bunch of times in the last couple
of years has come in and saved markets that looked
(04:47):
a little bit dodgy. Can it do that again? Beyond that,
other big names that I think are interesting. This is
the week that we get all the retail earnings home
depot on Tuesday, TJX Low's target on Wednesday. The target
is you know, gradually drifting towards irrelevancy. It still is
or irrelevance, irrelevance. Yeah, we don't need to add the
(05:10):
Y at the end. And then on Thursday, we've got
Walmart coming out with earnings, which is obviously a big
one as well. So I think that this is I'm
not gonna set this up and be like, this is,
you know, the most pivotal week ever, but in video
is going to give us some clarity hopefully on you know,
(05:32):
what the market does or look, there's always the potential
that it just acts as a vehicle for a bunch
of people to go out and spend a bunch of
options premium only for those options to expire worthless one
the volatility doesn't materialize, which in turn then helps out
our good friends at Citadel Securities to allow Ken Griffin
(05:53):
to buy another dinosaur skeleton, which is you know, fun too,
like everyone needs a second one to keep the first
one company.
Speaker 3 (06:00):
Sometimes we joke these are actually serious things, right.
Speaker 2 (06:03):
Ken Griffin, a dinosaur skeleton probably wants a second one.
Speaker 3 (06:06):
One thing that I don't think you mentioned was the
Import Price Index. We do get that Tuesday. Almost nobody
has ever cared about this, but people are actually looking
at it this year for one reason, to try and
determine who is actually absorbing tariffs. So you can actually
take a look and say, oh, yeah, this was the
price of all imports as of October compared to October
of twenty twenty four, which hypothetically tells you, oh yeah,
(06:28):
our Chinese suppliers eating the tariffs? Are we eating the tariffs?
Where is it coming from?
Speaker 2 (06:33):
Because the Import Price Index does not include the tariffs,
and so you can see if there are discounts that
are being applied relative to where they previously.
Speaker 3 (06:42):
That's technically the first data points since the government has reopened,
so you know again I'm desperate for anything there.
Speaker 2 (06:47):
I haven't seen confirmation that that's going to be published. Okay,
I know it's on the schedule. Maybe I'll be disappointed.
I haven't seen confirmation that it's been published. So it's
it's a hard Maybe. The other thing that we are
getting now every week, which in the absence of other
employment statistics, we do pay attention to ADP's reporting their
(07:08):
weekly four week moving average for their employment data. Again,
it's kind of like, Okay, what do we do with this,
because ultimately there's two reasons why it doesn't matter normally.
The first is that historically ADP has not been a
great predictor of job gains. In the BLS report, It's
(07:30):
gotten a lot better if you look at kind of
rolling three month averages over the last year or two,
so I think maybe there is a little bit more
value in that at this point. The other piece is
that when we look at how the Fed makes policy,
fit doesn't make policy based on the number of jobs added.
It makes policy based on the unemployment rate, and ADP
never gives us an unemployment rate, So it's kind of like, okay, like,
(07:51):
what's the point of this. Then if I'm not getting it.
But in the absence of other real time job data, sure,
I'll always take more. Like I'm not going to say no.
Speaker 3 (08:01):
Yeah, I could probably detect big swings, but other than
that's not terribly useful.
Speaker 2 (08:04):
I think when we're looking at some of the other
supporting job data, other things that we've looked at, you know, recently,
the INDEED Jobs Posting Index, they don't have the newest
data tabulated for it at the moment. I don't know why,
but the last week or so has not yet been updated,
so we're still running with the October thirty first data.
It's nothing interesting to report there. Paychecks reports, a monthly
(08:29):
snapshot of small business hiring, there's nothing to report there
because again it's you know, we've already done the month
of October. We're now waiting on November. So I think, yeah,
we're kind of in this holding pattern where we want
more data and we don't have all the data that
we want now. But this week's still going to give us,
you know, a little bit of information that I think
(08:51):
will be informative. Let's take a quick break. When we
come back, let's dig in more to preview in videos ears,
I think There's a lot to talk about, and we
will do exactly that.
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Speaker 2 (10:40):
Mike. We mentioned in our first segment that in Video
reports earnings after the bell on Wednesday, and I do
think this is coming at an important time for stocks
related to artificial intelligence. I'm not saying that it comes
at an importan in time for the overall you know,
(11:04):
AI trajectory or the overall AI business, but there are
some stocks that are tied to the AI trade that
are showing signs of bending a little bit. And I
think if in Video were to come out with, you know,
some signs not of weakness, but just lacking the pop
and pizzaz that these earnings have had for the last
(11:26):
couple of years. It does suggest that it could be
something to worry about for the stocks in the short term,
without saying anything about where they go longer term.
Speaker 3 (11:34):
Yeah, to be clear, it does seem to both you
and I that investors have been scrutinizing some of these
fastest growing companies over the course of the last two
to four weeks.
Speaker 2 (11:45):
I said that the last week of October and the
first week of November potentially represented a major inflection point
that we could look back on years from now.
Speaker 3 (11:56):
So obviously in video could come out Wednesday afternoon and
knock the cover off the doors, as they have many times,
cover off the doors, the cover off, the doors, off
the hinges, knock the cover off the ball, cover off
the ball, door off the hinges.
Speaker 2 (12:09):
I like, knock the cover off the doors. That's almost
as good as smooth as cucumber.
Speaker 3 (12:14):
Yeah, knock it off.
Speaker 2 (12:15):
It's as smooth as a door knocked off.
Speaker 3 (12:17):
That you guys, don't have covers on all your doors
really keeps them in better shape long term.
Speaker 2 (12:22):
It does. It's kind of like the plastic couch covers.
Speaker 3 (12:26):
Yes, yeah, just like that. But anyway, it could come
out and knock the covers off the doors, and that
would be part of the course for Nvidia. I'm trying
to think through precisely what CEO Jensen Wong could say
about their earnings that would genuinely I could see a
few things where it just kind of furthers that narrative
(12:46):
of oh, we got to scrutinize this a little bit further.
But is there anything they could do that would likely
severely worsen the story around the scrutiny. I mean it
would have to be pretty disappointing sales numbers, I think
to really the narrative like, oh, yeah, we are not
seeing growing sales from some of our biggest customers. I
feel like we've already got confirmation that we are seeing
(13:08):
that from their biggest customers who reported three weeks ago.
Speaker 2 (13:12):
It's I don't know that we're going to get anything
this quarter from in Nvidia that is particularly concerning.
Speaker 3 (13:22):
It'd be surprising to me, yeah, just because again we've
already seen confirmation from elsewhere that the companies that represent
their biggest buyers are planning to expand further.
Speaker 2 (13:33):
The danger zone for Invidia, in my mind, is twelve
to eighteen months from now, and the reason why is
at that point you'll be able to say, okay, like
do we need to you know, you've gone through this
huge ramp up in capex then, and you know, further
development of the actual product, and now you've got to
(13:55):
get to actually showing hey, companies and people are willing
to pay up for them us in order to offset
all of the CAPEX that we are doing, because I
can guarantee you, like again, you will get to a
certain point where this amount of CAPEX is going to
start impacting financial statements through depreciation. And to me, that's
(14:16):
like twelve to eighteen months from now. And will we
hear it from Nvidia first? Probably not, because they always
report after the main earning cycle. They're always three to
four weeks after everyone else in tech reports. And I
think the question for in Vidia is, look, do businesses
right now? You're in a situation where companies are saying, look,
(14:38):
we just need to grow the data center PI sure,
because we think that there's a chance that if we
spend two hundred and fifty billion dollars, it could represent
a trillion dollar plus, you know, a multi trillion dollar opportunity,
and so companies are doing that. As it becomes clear
whether or not that is going to become a reality,
(14:58):
those companies will start to make decisions as to whether
they want to continue this because the question that's out there.
And by the way, we first raised this in August.
So I would like to thank you know, the Wall
Street Journal and CNBC for listening to the Financial Exchange
and you know, starting to publish pieces on this, because
there was one that was published last week. It was like,
(15:19):
the big question everyone's asking right now is about the
depreciation of GPUs, the GPU's graphic processor units. It's what
these Invidia chips actually are and what they're based on. Yeah,
they're originally designed to process like three D graphics for
you know, playing like Counterstrike and stuff like that.
Speaker 3 (15:35):
Instead you're gonna be running them hot in data warehouses
twenty four hours a day. So how long do they
actually last?
Speaker 2 (15:40):
Correct? And so this is the question, which is, Look,
if you're spending like fifty grand on an Nvidia chip,
how much use do you get out of it? And
how often do you need to replace it? Because right now,
what is fueling in Vidia's growth is companies building out
initial capacity. If companies do need to replace those chips
(16:01):
every two to three years, then it becomes something where
that's a huge ongoing operating expense that they have, and
that impacts the profitability of the companies making AI. If
they don't need to replace them every two to three years,
and they can get six to seven out of them,
then at some point in video's growth rate plateaus and
maybe even rolls over because you don't need to replace
(16:23):
these every year, and that means less profitability for in video. Again,
I don't see any world where you sit there and
you're like, the chip makers are gonna make billions, the
AI companies are gonna make billions, and the users are
gonna make billions, because that's never happened in any tech
revolution of any kind. There's always someone who's a loser
(16:45):
in that piece. We just don't know who it is yet.
I'm not saying like Jensen Hwang's a loser. I think
he's a huge winner. But there's going to be some company,
some industry or sub industry that and look, you're already
starting to see kind of the commodification commoditization. I like
(17:06):
commodification though of AI, and that if you ask people
from most general things, let's say, yeah, like if I
put a query into chat, GPT or Gemini or what's
the Amazon one anthropic cod If I put you know,
a general query into one of these, I get basically
the same answers from all of them. There are some
(17:29):
you know, niches within them where you know, from what
I gather, coding people generally prefer CUD for some reason,
and and some of the submodels in there. I don't
know how. I don't know why because I don't understand coding,
but this is what I gather is that they prefer QUAD.
There are other areas that you know prefer you know,
different ones, But in general, if I'm asking, hey, give
(17:53):
me a list of you know, sixteen restaurants that you
know offer tacos on them, they're all generally the same.
Speaker 3 (18:04):
I think where I get where I get caught up
and concerned, and I'm not the only one. Is when
you ask all sorts of businesses, whether it's the creators
of the platforms, the generated AI tools themselves, or the
users of them, they all will speak to the useful
tools that they can do. And we've got a story
covering how even some small business owners are using these
(18:25):
tools successfully for their businesses. But then when you start
asking about the financials behind that, and like, oh, but yeah,
it seems like it would cost you a quarter million
dollars to run those queries and is that really worth it?
They shift the conversation. The conversation then shifts to well, yeah,
these tools are useful, but we're really going for is
(18:46):
this artificial general general intelligence, the AGI, the holy grail
of AI, where it's going to be this unknown future
entity that can do all sorts of new things. And
there are clearly some really useful use cases for AI,
but when you press somebody on the P and L,
(19:09):
it's well, just wait for this future thing to come about.
And I guess the point is the longer time goes on,
the more clear what that future thing actually looks like
and if there's any value to it, because the spending
compared to the payoff of the tools that are available
now useful, helpful, but not paying for themselves even close
(19:31):
to it? Right, No, am I miss Potagra.
Speaker 2 (19:35):
I'm just having flashbacks to all of the talk we
had about crypto, like six or seven years ago, when
people are like, oh, Crypto's gonna be able to do
this and do that. Yeah, and now it's like okay,
like it's still pretty good at moving money, you know,
across borders, sometimes legally, sometimes through laundering, but otherwise Crypto's
not really doing much for the average person.
Speaker 3 (19:53):
Because the math stops working, you start making new promises,
and that's what concerns me.
Speaker 2 (19:57):
Quick break here. When we come back, we got Wall
Street Watch.
Speaker 1 (20:10):
Like us on Facebook and follow us on Twitter at
TFE show. Breaking business news is always first right here
on the Financial Exchange Radio Network. Time now for Wall
Street Watch a complete look at what's moving markets so
far today right here on the Financial Exchange Radio Network.
Speaker 5 (20:29):
After a bumpy week, markets today are mostly quiet, dipping
into negative territory as investors ready for a new florry
of third quarter earnings, including from AI and Chip Giant,
in Vidia, as well as retailer's Home Depot, Target and Walmart.
Wall Street's also bracing for the delayed September jobs report,
due out Thursday morning. Right now, the Dow is down
(20:49):
by two tenths of a percent or eighty eight points lower.
SB five hundred down about a tenth of a percent
or eight points. NASDAC down about a tenth of percent
as well. Russe On thousand is down a tenth of
a percent. Tenure treasure reeled is down one basis point
at four point one three five percent, and crude oil
down about two tenths of one percent, trating just below
(21:10):
sixty dollars a barrel. Alphabet jumping nearly five percent after
Warren Buffett's Berkshire Hathaway disclosed it took a stake in
the Google parent company in the third quarter and further
reduced its stake in Apple. Speaking of Apple, the Financial
Times reported that the tech giant is ramping up its
preparations around identifying and appointing a successor to CEO Tim Cook.
(21:33):
Apple stock is down about one percent. Meanwhile, the fifteen
days standoff between Disney and Google is over after both
companies reached a deal to return ESPNABC and other Disney
networks to about ten million YouTube TV customers. Disney shares
up modestly. Elsewhere, Quantum Computing stock is surging nearly thirteen
percent after the company issued a strategic roadmap towards scalable
(21:57):
Quantum and photonic manuf factoring, and both Ford and Amazon
announced a new partnership this morning where Ford's franchise dealers
will be able to sell certified pre owned vehicles through Amazon.
The deal comes a year after Amazon said it would
allow auto dealers to sell cars through its sight starting
(22:17):
with Hyundai. I'm Tucker Silva and that is Wall Street Watch.
Speaker 2 (22:22):
Okay, so we got a piece here in the Wall
Street Journal. The headline is why we could use a
good long bear market, And unless the reason is because
you want to make everyone feel immense amounts of pain
and not be able to do the things that they
(22:43):
could do if you were not in a bear market,
there's not really any good reason to do so, because
bear markets sucking. And I feel like this piece is
basically the equivalent of this piece really comes off as
like the people online who in there's a hurricane announced
get all excited about like, oh, it's gonna be a
Cat five without like realizing, Hey, the actual storm kills
(23:07):
people and damages lives and ruins entire metro areas.
Speaker 3 (23:11):
Like don't just feel like we've gotten a lot of
this over the course of the last couple of years. Yes,
and it's cheering for a recession.
Speaker 2 (23:16):
It sucks, Like I again, I feel like people just
don't remember what a recession is actually like because it's
been so long that since we've had I'm gonna quote.
Speaker 3 (23:26):
The piece here. A downturn like seven h nine, when
US doocs fell by more than half, can be both
awful and therapeutic. So let's focus on the therapeutic part.
What part, like I need to go to therapy because
like part of one in ten so much. What part
of one in ten people looking for work and unable
(23:48):
to find it is therapeutic? What part of people losing
their homes, losing their livelihood permanently, unable to borrow money
because their credit stories get destroyed is therapeutic? Again, I
am not excusing the bad behavior that led to the
Great Recession by doing this, Like you know, the bets
(24:08):
that Wall Street was making and all of that stuff
was stupid and you know, led to serious problems, but
then a whole bunch of people that weren't responsible for
it paid the price. So cheering for a prolonged downturn
should just never really happen. I think it should be
(24:29):
acknowledged that it's a natural part of the system that
I do suspect at some point we will again have
a prolonged downturn, And I acknowledge that it has been
now fifteen plus years since we've had one, but I
don't welcome it.
Speaker 2 (24:45):
No, it's it's not something that you root for. I
think you can certainly say, hey, like when downturns happen, like, yes,
you can end up getting rid of some of the
problems that have and in markets, sure as a result,
But like I don't think you can ever like you
should never publish a piece like why we could use
(25:07):
a good long bear market. I think you can also
end up, by the way, with some of those the
weeding out of like bad crap in markets without a
really long bear market. Case in point, the spackmania of
twenty twenty one and twenty two, specifically in the EV space,
(25:27):
we've basically worked through without having to go through a
broader bear market because people decided, hey, we don't want
to buy evs and the quantity of the market is producing,
and we definitely don't want to buy EV's that are
being pushed down a hill by their founder to make
it look like they're moving on their own power when
they're not, and so we're actually going to prosecute those
(25:49):
people for fraud. And so the market worked that out
without having a larger blow up. Now some of that
is just because the size of that bubble didn't get
big enough to impact the broader economy. If we do
end up finding out that this whole AI you know,
valuation crazy, you know growth thing is is bubblicious, then
(26:13):
there's going to be more pain that's felt over a
broader swath of the market over a longer time period.
And I don't think any of us are going to
particularly like it because the consequences are likely pretty severe.
Speaker 3 (26:25):
The just again calling out some of the bad stuff.
I'm gonna focus on the eight recession since that's what
this piece focused on. Stocks dropped by fifty percent. It
took sixty six months for them to recover back to
where they were.
Speaker 2 (26:39):
Like, ask anyone who retired then what it was like
trying to figure out how you could live off your
portfolio during that time.
Speaker 3 (26:46):
It took. So it took sixty six months for the
stock market to recover, It took I'm trying to find
out eight now ten years for the labor marketter so one.
Speaker 2 (26:58):
Hundred and twenty months in twenty months.
Speaker 3 (27:01):
Ten years, there's unemployment rate to get back to where
it was pre Great Recession. So again, you can I
welcome all the you know complaining about the stock market,
complaining about speculation. I am critical of the market or
the gambling type of mentality that markets have created as
(27:25):
of late, but remember what other stuff comes along with
a prolonged downturn, Because it's not just oh, the stock
market goes down by fifty percent, it stays there for
a little while and I keep my home, I keep
my job, and I'm able to put food on the table.
Speaker 2 (27:40):
You don't know if you're going to be one of
the people that's you know, hugely impacted by this. And
this is why no one should root for bear markets.
It's not something Again, I do feel like the only
reason this piece gets published is because we haven't had
a problem bear market in a long time. Like imagine
imagine writing this piece in twenty eleven and what people
(28:03):
would have said about it then, Yeah, you know, it's
just like no. Now, I do want to talk about
something that Mark Fandetti forwarded over to me over the weekend.
It ties into this a little in some of the
concerns that we've had, and what I'm talking about is
what's going on in the private credit space. Oh good,
(28:24):
because this is getting pretty gnarly right now, and kind
of gross what you would doing on the other side, Yeah,
we could do it on the other side. Yeah, I
got something great to talk about right after this.
Speaker 1 (28:41):
Breaking business news as it happens only here on the
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Speaker 2 (29:07):
All right, So here's the deal. There's a company by
the name of Blue Owl.
Speaker 3 (29:12):
On their hats.
Speaker 2 (29:14):
They are an asset manager and they've got a huge
presence in the private credit space. For those of you
listening wondering, like what the heck is private credit? It's
basically any loan that's made that doesn't trade on public markets.
But like calling it private credit makes everyone think it's
like something special, like there's a secret sauce there and
there's not. Private credit managers like to tell you, hey,
(29:38):
this gives you like a more stable path, like it's
you know, it's more stable than public credit. Well that's
only because they don't actually market to market on a
day to day or months or week to week or
minute to minute basis. They just only revalue them much
less frequently. And it's like how your home gives you
a much more stable path because you might get an
update on the value of your home every thirty seconds.
Or as an example, if you only look at your
(30:00):
four oh one k at the end of each year,
he'd be like, oh, like, it's pretty stable, when in
reality it can be gyrating a ton in the middle.
So Blue Owl is a huge manager of private credit
and they love to manage private credit because the fees
are high, and it's been a good spot to be
in just raising money for the last ten to fifteen
years quite honestly, Like, there's been a lot of money raised,
(30:20):
and I understand why there has been. I understand the
incentive structure. So here's the thing though, private credits started
to come under some questions in September when we had
a couple bankruptcies that popped up Tricolor and First Brands.
And now you've got this over the weekend that the
Financial Times is reporting the one billion I'll quote like effectively,
(30:46):
here's here's what's going on. They have a private credit
fund called Blue Owl Capital Corporation two. It's not listed,
so again it's not publicly traded. You don't see it
on markets or anything like that. And pretty much they
received redemption requests for six percent of the value of
that fund last quarter.
Speaker 3 (31:07):
Explain redemption requests.
Speaker 2 (31:08):
If you are a holder in a private credit fund,
you can't just go and press the sell button on
any particular day. You have to submit a written request.
Usually it's a form template to the manager saying I
want to redeem x shares at the next redemption date,
which typically is on a quarterly basis.
Speaker 3 (31:25):
Got it.
Speaker 2 (31:27):
Blue Owl decided, Hey, we've seen six percent in redemption requests.
We are closing the door and not allowing these redemption requests.
And what we are going to do is instead, we
are going to merge this Blue Owl Capital Corporation to
fund into the publicly traded So this is a private
(31:49):
credit vehicle that trades publicly Blue Owl Capital Corporation funded
as the ticker OBDC, and that fund, by the way,
happens to be trading at a twenty percent discount to
its net asset value. What that means, in no uncertain terms,
is the assets inside of there are valued at X,
(32:11):
but the stock is trading it X minus twenty percent.
Speaker 3 (32:15):
Why would something like that happen?
Speaker 2 (32:17):
Because the public investors don't believe the valuations that are
listed on it. So what this means is that the
holders in this Blue Owl Capital Corp. Two fund are
taking a twenty percent haircut in many cases instead of
getting the liquidity they wanted. But now they can sell
whenever they want on the public markets. But oh, you've
(32:38):
got to take a twenty percent haircut in order to
do so. This is just screaming to me. I don't
think the deal's done by the way. I believe they
have to vote on it. They have to vote on it,
But this is screaming to me that it is mid
two thousand and seven and mortgage backed security funds are
(32:59):
facing redemptions and trying to figure out where the liquidity
is going to come from, and merging funds and this
and that like it. It feels like twenty twenty six
is going to be the year of private credit blowing up.
We just don't know how big that blow up is
going to be.
Speaker 3 (33:14):
And I always like to bring it home, why does
it matter if I don't own any private credit whatsoever?
Because I think it could. It might not, but it
could still matter to everyday Joe who learned about private
credit five minutes ago when we started talking.
Speaker 2 (33:30):
There are a few different reasons. The first is one
of the biggest buyers of private credit insurance companies. They
love to buy the stuff, and I get why. It's
generally yielding high single digits or low double digits. And
if you are taking in a bunch of premiums each
year from individuals and needing to invest them in something
that generally has appeared to be stable while still earning
(33:52):
a high rate of return, this has been the area
that you've gone. So things that you could end up
seeing as a result of this. Again, if this is
if things go badly, which I don't know where we're going.
No one knows how big this is going to be,
so I want to be clear, like, I don't know
if this is exactly where we go, but if things
go badly, you could end up with insurance company bailouts.
(34:14):
That's where this could go, or.
Speaker 3 (34:15):
Some that's the worst case.
Speaker 2 (34:16):
Yeah, small insurance companies even going under potentially, Yeah, that'd
be a worst case. Other reasons why this matters. This
affects overall lending markets.
Speaker 1 (34:26):
Right.
Speaker 2 (34:26):
Even though these are privately held instruments, they can still
end up having an effect on broader credit markets, and
that can affect the plumbing under the surface as well
as you know overall lending to companies.
Speaker 3 (34:38):
A real direct connection here. One of the sparks in
this private credit space was a company called Tricolor that
made loans to general consumers who are trying to buy cars.
They fund on private credit. If that drives out, their
interest rates go up, and there's not the ability to
do it. So any any drying up of credit conditions
affects everybody, and it's just unclear how big that possibility is.
Speaker 2 (35:02):
And so everyone out there is going to be looking
at their pools of private credit now being like okay,
Blue Owls giving their investors a twenty percent haircut on
this one fund? What's our stuff worthy? And nobody knows
right now. It could be good, it could be bad,
But if you're asking the question, it's usually not great.
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Speaker 3 (36:29):
Just one more point on this, you mentioned it, I
think it's worth repeating. These types of assets, these types
of alternative assets are specifically marketed and sold as Hey,
look at this, it's a good return that does not
correlate and it doesn't have the type of volatility baked
into public equity markets. Investors in this specific fund today
(36:50):
are learning that that's kind of irrelevant when you know
what hits the fan. Yeah, because what happened today is
yesterday this far was worth X. Now it's worth X
minus twenty percent assuming the vote goes through. Yeah, And
you know, being worth X on paper is pretty useless
when you try to redeem your cash and the company says, oh,
(37:12):
you can't do that.
Speaker 2 (37:14):
Volatility can never be Volatility is like energy, not to
get like all physics on you. But this is one
one thing that I do believe to be true. Volatility
can't be destroyed. It can be transformed into a different form.
In this case, the volatility is can I redeem when
I want to for what I want to? This is
(37:37):
like it doesn't go away, It just gets transformed into
something else, and you have to be aware of that.
Something that is volatile, such as the value of a loan,
you can't just say, oh, well, we put this in
a wrapper where like it's always worth this. Like, no,
that doesn't work even if the company physically guarantees the value,
(37:59):
which they don't in these cases, I want to be clear.
Then you're saying, Okay, the volatility is not with what
I own, but with the company's financials. Like, you can't
ever eliminate volatility, you can just transform it into something else.
And I think that's a really important concept to come
back to, and as Mike said, like investors are kind
(38:22):
of learning that in this case. Here, let's take a
quick break when we return. We got a whole bunch
more to get to. In our two. We're talking cost
of living. We got Disney and YouTube finally getting together
and saying, hey, we can do a deal. We got
four to one K accounts that have been left behind.
(38:43):
We got FED officials violating trading rules. Oh good again.
Quick Break hour two is coming up.
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Speaker 2 (01:09):
Chuck Mike Tucker with you today, and we got a
nice little week that we've got planned out here. As
I take a look at the calendar, it's not you know,
a ten out of ten week where you're sitting there saying,
oh my goodness, like, how am I gonna sleep? I'm
so excited about all the stuff we're gonna be getting.
(01:31):
But I put it firmly as like, you know, a
solid seven out of ten on the economic data side
of things, A couple of decent reports that we're gonna
be getting FED minutes on Wednesday, which I'm more interested
in now just giving some of the you know, things
that we're talking about as far as the December meeting,
(01:51):
whether that is on off or you know, somewhere in between.
Speaker 3 (01:56):
And so I think the things we're talking about is
many FED meetings being you know, you I don't care about,
I know, being brought out in front of a mic
saying we're not sure about this December rate cut that
was previously pretty baked into market, which is.
Speaker 2 (02:10):
Kind of interesting to me. So I'm interested to hear
what we get from the FED meeting minutes on Thursday.
We are going to get the jobs report for September, so,
you know, little anti climactic just because it's kind of like, Okay,
you guys collected this data two months ago and now
you're going to show it to us. But it'll still
(02:31):
at least fill in a data point that we've been missing,
and I think that'll be informative. And by the way,
we can compare this to the AI generated jobs reports
that and I shared back that first week in October,
and we'll see whose artificial intelligence was closest to what
we actually get from the Bureau of Labor Statistics.
Speaker 3 (02:54):
So that September jobs report was fully collected and not released,
so we will get a release on unemployment rate. We
will get a release on jobs created or lost. The
October report, you can get a partial, you won't get
the full one. And when will we be getting that one,
We don't know. We don't know. Okay, And the October
report again because it was not fully collected because of
(03:14):
the government shutdown. We expect to get the Establishment survey,
which is the survey of businesses, so we'll get the
number of hires or fires. We will not get that
unemployment rate read because correct surveying ten times as many
households is apparently more strenuous A little bit of work, yeah,
you know, than getting the service little bit of work.
Speaker 2 (03:33):
So we get the September jobs report on Thursday. I
do not believe we are going to get weekly jobless
claims from the d well then, yet I think they
are still ramping back up, so I anticipate next week
maybe is when that starts to happen. We'll get existing
home sales data Thursday as well, so that's going to
be fun. And then on the earning side of things,
(03:57):
everyone's kind of focused on in Vidia on Wednesday, just
because the last couple of weeks has not been great
for AI adjacent stocks and obviously a monster report from
in Video could save that section of the market, which,
by the way, it's I was going through my notes.
I take daily notes on like what is going on
(04:17):
in markets, just because it's nice to be able to
look back on them and they kind of see what
what was happening.
Speaker 3 (04:23):
Chuck's diary is even more boring than the typical diary.
Speaker 2 (04:26):
It is like it's you know, most of the time,
it's like, oh, I wonder if he loves me. I
wonder if she mine's like, doesn't video love me? And
it's you know, it's it's just kind of it's doesn't
talk in that voice, but it would, uh in any case,
in video a bunch of times in the last couple
of years has come in and saved markets that looked
(04:47):
a little bit dodgy. Can it do that again? Beyond that,
other big names that I think are interesting. This is
the week that we get all the retail earnings home
depot on Tuesday, TJX Low's target on Wednesday. The target
is you know, gradually drifting towards irrelevancy. It still is
or irrelevance, irrelevance. Yeah, we don't need to add the
(05:10):
Y at the end. And then on Thursday, we've got
Walmart coming out with earnings, which is obviously a big
one as well. So I think that this is I'm
not gonna set this up and be like, this is,
you know, the most pivotal week ever, but in video
is going to give us some clarity hopefully on you know,
(05:32):
what the market does or look, there's always the potential
that it just acts as a vehicle for a bunch
of people to go out and spend a bunch of
options premium only for those options to expire worthless one
the volatility doesn't materialize, which in turn then helps out
our good friends at Citadel Securities to allow Ken Griffin
(05:53):
to buy another dinosaur skeleton, which is you know, fun too,
like everyone needs a second one to keep the first
one company.
Speaker 3 (06:00):
Sometimes we joke these are actually serious things, right.
Speaker 2 (06:03):
Ken Griffin, a dinosaur skeleton probably wants a second one.
Speaker 3 (06:06):
One thing that I don't think you mentioned was the
Import Price Index. We do get that Tuesday. Almost nobody
has ever cared about this, but people are actually looking
at it this year for one reason, to try and
determine who is actually absorbing tariffs. So you can actually
take a look and say, oh, yeah, this was the
price of all imports as of October compared to October
of twenty twenty four, which hypothetically tells you, oh yeah,
(06:28):
our Chinese suppliers eating the tariffs? Are we eating the tariffs?
Where is it coming from?
Speaker 2 (06:33):
Because the Import Price Index does not include the tariffs,
and so you can see if there are discounts that
are being applied relative to where they previously.
Speaker 3 (06:42):
That's technically the first data points since the government has reopened,
so you know again I'm desperate for anything there.
Speaker 2 (06:47):
I haven't seen confirmation that that's going to be published. Okay,
I know it's on the schedule. Maybe I'll be disappointed.
I haven't seen confirmation that it's been published. So it's
it's a hard Maybe. The other thing that we are
getting now every week, which in the absence of other
employment statistics, we do pay attention to ADP's reporting their
(07:08):
weekly four week moving average for their employment data. Again,
it's kind of like, Okay, what do we do with this,
because ultimately there's two reasons why it doesn't matter normally.
The first is that historically ADP has not been a
great predictor of job gains. In the BLS report, It's
(07:30):
gotten a lot better if you look at kind of
rolling three month averages over the last year or two,
so I think maybe there is a little bit more
value in that at this point. The other piece is
that when we look at how the Fed makes policy,
fit doesn't make policy based on the number of jobs added.
It makes policy based on the unemployment rate, and ADP
never gives us an unemployment rate, So it's kind of like, okay, like,
(07:51):
what's the point of this. Then if I'm not getting it.
But in the absence of other real time job data, sure,
I'll always take more. Like I'm not going to say no.
Speaker 3 (08:01):
Yeah, I could probably detect big swings, but other than
that's not terribly useful.
Speaker 2 (08:04):
I think when we're looking at some of the other
supporting job data, other things that we've looked at, you know, recently,
the INDEED Jobs Posting Index, they don't have the newest
data tabulated for it at the moment. I don't know why,
but the last week or so has not yet been updated,
so we're still running with the October thirty first data.
It's nothing interesting to report there. Paychecks reports, a monthly
(08:29):
snapshot of small business hiring, there's nothing to report there
because again it's you know, we've already done the month
of October. We're now waiting on November. So I think, yeah,
we're kind of in this holding pattern where we want
more data and we don't have all the data that
we want now. But this week's still going to give us,
you know, a little bit of information that I think
(08:51):
will be informative. Let's take a quick break. When we
come back, let's dig in more to preview in videos ears,
I think There's a lot to talk about, and we
will do exactly that.
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Speaker 2 (10:40):
Mike. We mentioned in our first segment that in Video
reports earnings after the bell on Wednesday, and I do
think this is coming at an important time for stocks
related to artificial intelligence. I'm not saying that it comes
at an importan in time for the overall you know,
(11:04):
AI trajectory or the overall AI business, but there are
some stocks that are tied to the AI trade that
are showing signs of bending a little bit. And I
think if in Video were to come out with, you know,
some signs not of weakness, but just lacking the pop
and pizzaz that these earnings have had for the last
(11:26):
couple of years. It does suggest that it could be
something to worry about for the stocks in the short term,
without saying anything about where they go longer term.
Speaker 3 (11:34):
Yeah, to be clear, it does seem to both you
and I that investors have been scrutinizing some of these
fastest growing companies over the course of the last two
to four weeks.
Speaker 2 (11:45):
I said that the last week of October and the
first week of November potentially represented a major inflection point
that we could look back on years from now.
Speaker 3 (11:56):
So obviously in video could come out Wednesday afternoon and
knock the cover off the doors, as they have many times,
cover off the doors, the cover off, the doors, off
the hinges, knock the cover off the ball, cover off
the ball, door off the hinges.
Speaker 2 (12:09):
I like, knock the cover off the doors. That's almost
as good as smooth as cucumber.
Speaker 3 (12:14):
Yeah, knock it off.
Speaker 2 (12:15):
It's as smooth as a door knocked off.
Speaker 3 (12:17):
That you guys, don't have covers on all your doors
really keeps them in better shape long term.
Speaker 2 (12:22):
It does. It's kind of like the plastic couch covers.
Speaker 3 (12:26):
Yes, yeah, just like that. But anyway, it could come
out and knock the covers off the doors, and that
would be part of the course for Nvidia. I'm trying
to think through precisely what CEO Jensen Wong could say
about their earnings that would genuinely I could see a
few things where it just kind of furthers that narrative
(12:46):
of oh, we got to scrutinize this a little bit further.
But is there anything they could do that would likely
severely worsen the story around the scrutiny. I mean it
would have to be pretty disappointing sales numbers, I think
to really the narrative like, oh, yeah, we are not
seeing growing sales from some of our biggest customers. I
feel like we've already got confirmation that we are seeing
(13:08):
that from their biggest customers who reported three weeks ago.
Speaker 2 (13:12):
It's I don't know that we're going to get anything
this quarter from in Nvidia that is particularly concerning.
Speaker 3 (13:22):
It'd be surprising to me, yeah, just because again we've
already seen confirmation from elsewhere that the companies that represent
their biggest buyers are planning to expand further.
Speaker 2 (13:33):
The danger zone for Invidia, in my mind, is twelve
to eighteen months from now, and the reason why is
at that point you'll be able to say, okay, like
do we need to you know, you've gone through this
huge ramp up in capex then, and you know, further
development of the actual product, and now you've got to
(13:55):
get to actually showing hey, companies and people are willing
to pay up for them us in order to offset
all of the CAPEX that we are doing, because I
can guarantee you, like again, you will get to a
certain point where this amount of CAPEX is going to
start impacting financial statements through depreciation. And to me, that's
(14:16):
like twelve to eighteen months from now. And will we
hear it from Nvidia first? Probably not, because they always
report after the main earning cycle. They're always three to
four weeks after everyone else in tech reports. And I
think the question for in Vidia is, look, do businesses
right now? You're in a situation where companies are saying, look,
(14:38):
we just need to grow the data center PI sure,
because we think that there's a chance that if we
spend two hundred and fifty billion dollars, it could represent
a trillion dollar plus, you know, a multi trillion dollar opportunity,
and so companies are doing that. As it becomes clear
whether or not that is going to become a reality,
(14:58):
those companies will start to make decisions as to whether
they want to continue this because the question that's out there.
And by the way, we first raised this in August.
So I would like to thank you know, the Wall
Street Journal and CNBC for listening to the Financial Exchange
and you know, starting to publish pieces on this, because
there was one that was published last week. It was like,
(15:19):
the big question everyone's asking right now is about the
depreciation of GPUs, the GPU's graphic processor units. It's what
these Invidia chips actually are and what they're based on. Yeah,
they're originally designed to process like three D graphics for
you know, playing like Counterstrike and stuff like that.
Speaker 3 (15:35):
Instead you're gonna be running them hot in data warehouses
twenty four hours a day. So how long do they
actually last?
Speaker 2 (15:40):
Correct? And so this is the question, which is, Look,
if you're spending like fifty grand on an Nvidia chip,
how much use do you get out of it? And
how often do you need to replace it? Because right now,
what is fueling in Vidia's growth is companies building out
initial capacity. If companies do need to replace those chips
(16:01):
every two to three years, then it becomes something where
that's a huge ongoing operating expense that they have, and
that impacts the profitability of the companies making AI. If
they don't need to replace them every two to three years,
and they can get six to seven out of them,
then at some point in video's growth rate plateaus and
maybe even rolls over because you don't need to replace
(16:23):
these every year, and that means less profitability for in video. Again,
I don't see any world where you sit there and
you're like, the chip makers are gonna make billions, the
AI companies are gonna make billions, and the users are
gonna make billions, because that's never happened in any tech
revolution of any kind. There's always someone who's a loser
(16:45):
in that piece. We just don't know who it is yet.
I'm not saying like Jensen Hwang's a loser. I think
he's a huge winner. But there's going to be some company,
some industry or sub industry that and look, you're already
starting to see kind of the commodification commoditization. I like
(17:06):
commodification though of AI, and that if you ask people
from most general things, let's say, yeah, like if I
put a query into chat, GPT or Gemini or what's
the Amazon one anthropic cod If I put you know,
a general query into one of these, I get basically
the same answers from all of them. There are some
(17:29):
you know, niches within them where you know, from what
I gather, coding people generally prefer CUD for some reason,
and and some of the submodels in there. I don't
know how. I don't know why because I don't understand coding,
but this is what I gather is that they prefer QUAD.
There are other areas that you know prefer you know,
different ones, But in general, if I'm asking, hey, give
(17:53):
me a list of you know, sixteen restaurants that you
know offer tacos on them, they're all generally the same.
Speaker 3 (18:04):
I think where I get where I get caught up
and concerned, and I'm not the only one. Is when
you ask all sorts of businesses, whether it's the creators
of the platforms, the generated AI tools themselves, or the
users of them, they all will speak to the useful
tools that they can do. And we've got a story
covering how even some small business owners are using these
(18:25):
tools successfully for their businesses. But then when you start
asking about the financials behind that, and like, oh, but yeah,
it seems like it would cost you a quarter million
dollars to run those queries and is that really worth it?
They shift the conversation. The conversation then shifts to well, yeah,
these tools are useful, but we're really going for is
(18:46):
this artificial general general intelligence, the AGI, the holy grail
of AI, where it's going to be this unknown future
entity that can do all sorts of new things. And
there are clearly some really useful use cases for AI,
but when you press somebody on the P and L,
(19:09):
it's well, just wait for this future thing to come about.
And I guess the point is the longer time goes on,
the more clear what that future thing actually looks like
and if there's any value to it, because the spending
compared to the payoff of the tools that are available
now useful, helpful, but not paying for themselves even close
(19:31):
to it? Right, No, am I miss Potagra.
Speaker 2 (19:35):
I'm just having flashbacks to all of the talk we
had about crypto, like six or seven years ago, when
people are like, oh, Crypto's gonna be able to do
this and do that. Yeah, and now it's like okay,
like it's still pretty good at moving money, you know,
across borders, sometimes legally, sometimes through laundering, but otherwise Crypto's
not really doing much for the average person.
Speaker 3 (19:53):
Because the math stops working, you start making new promises,
and that's what concerns me.
Speaker 2 (19:57):
Quick break here. When we come back, we got Wall
Street Watch.
Speaker 1 (20:10):
Like us on Facebook and follow us on Twitter at
TFE show. Breaking business news is always first right here
on the Financial Exchange Radio Network. Time now for Wall
Street Watch a complete look at what's moving markets so
far today right here on the Financial Exchange Radio Network.
Speaker 5 (20:29):
After a bumpy week, markets today are mostly quiet, dipping
into negative territory as investors ready for a new florry
of third quarter earnings, including from AI and Chip Giant,
in Vidia, as well as retailer's Home Depot, Target and Walmart.
Wall Street's also bracing for the delayed September jobs report,
due out Thursday morning. Right now, the Dow is down
(20:49):
by two tenths of a percent or eighty eight points lower.
SB five hundred down about a tenth of a percent
or eight points. NASDAC down about a tenth of percent
as well. Russe On thousand is down a tenth of
a percent. Tenure treasure reeled is down one basis point
at four point one three five percent, and crude oil
down about two tenths of one percent, trating just below
(21:10):
sixty dollars a barrel. Alphabet jumping nearly five percent after
Warren Buffett's Berkshire Hathaway disclosed it took a stake in
the Google parent company in the third quarter and further
reduced its stake in Apple. Speaking of Apple, the Financial
Times reported that the tech giant is ramping up its
preparations around identifying and appointing a successor to CEO Tim Cook.
(21:33):
Apple stock is down about one percent. Meanwhile, the fifteen
days standoff between Disney and Google is over after both
companies reached a deal to return ESPNABC and other Disney
networks to about ten million YouTube TV customers. Disney shares
up modestly. Elsewhere, Quantum Computing stock is surging nearly thirteen
percent after the company issued a strategic roadmap towards scalable
(21:57):
Quantum and photonic manuf factoring, and both Ford and Amazon
announced a new partnership this morning where Ford's franchise dealers
will be able to sell certified pre owned vehicles through Amazon.
The deal comes a year after Amazon said it would
allow auto dealers to sell cars through its sight starting
(22:17):
with Hyundai. I'm Tucker Silva and that is Wall Street Watch.
Speaker 2 (22:22):
Okay, so we got a piece here in the Wall
Street Journal. The headline is why we could use a
good long bear market, And unless the reason is because
you want to make everyone feel immense amounts of pain
and not be able to do the things that they
(22:43):
could do if you were not in a bear market,
there's not really any good reason to do so, because
bear markets sucking. And I feel like this piece is
basically the equivalent of this piece really comes off as
like the people online who in there's a hurricane announced
get all excited about like, oh, it's gonna be a
Cat five without like realizing, Hey, the actual storm kills
(23:07):
people and damages lives and ruins entire metro areas.
Speaker 3 (23:11):
Like don't just feel like we've gotten a lot of
this over the course of the last couple of years. Yes,
and it's cheering for a recession.
Speaker 2 (23:16):
It sucks, Like I again, I feel like people just
don't remember what a recession is actually like because it's
been so long that since we've had I'm gonna quote.
Speaker 3 (23:26):
The piece here. A downturn like seven h nine, when
US doocs fell by more than half, can be both
awful and therapeutic. So let's focus on the therapeutic part.
What part, like I need to go to therapy because
like part of one in ten so much. What part
of one in ten people looking for work and unable
(23:48):
to find it is therapeutic? What part of people losing
their homes, losing their livelihood permanently, unable to borrow money
because their credit stories get destroyed is therapeutic? Again, I
am not excusing the bad behavior that led to the
Great Recession by doing this, Like you know, the bets
(24:08):
that Wall Street was making and all of that stuff
was stupid and you know, led to serious problems, but
then a whole bunch of people that weren't responsible for
it paid the price. So cheering for a prolonged downturn
should just never really happen. I think it should be
(24:29):
acknowledged that it's a natural part of the system that
I do suspect at some point we will again have
a prolonged downturn, And I acknowledge that it has been
now fifteen plus years since we've had one, but I
don't welcome it.
Speaker 2 (24:45):
No, it's it's not something that you root for. I
think you can certainly say, hey, like when downturns happen, like, yes,
you can end up getting rid of some of the
problems that have and in markets, sure as a result,
But like I don't think you can ever like you
should never publish a piece like why we could use
(25:07):
a good long bear market. I think you can also
end up, by the way, with some of those the
weeding out of like bad crap in markets without a
really long bear market. Case in point, the spackmania of
twenty twenty one and twenty two, specifically in the EV space,
(25:27):
we've basically worked through without having to go through a
broader bear market because people decided, hey, we don't want
to buy evs and the quantity of the market is producing,
and we definitely don't want to buy EV's that are
being pushed down a hill by their founder to make
it look like they're moving on their own power when
they're not, and so we're actually going to prosecute those
(25:49):
people for fraud. And so the market worked that out
without having a larger blow up. Now some of that
is just because the size of that bubble didn't get
big enough to impact the broader economy. If we do
end up finding out that this whole AI you know,
valuation crazy, you know growth thing is is bubblicious, then
(26:13):
there's going to be more pain that's felt over a
broader swath of the market over a longer time period.
And I don't think any of us are going to
particularly like it because the consequences are likely pretty severe.
Speaker 3 (26:25):
The just again calling out some of the bad stuff.
I'm gonna focus on the eight recession since that's what
this piece focused on. Stocks dropped by fifty percent. It
took sixty six months for them to recover back to
where they were.
Speaker 2 (26:39):
Like, ask anyone who retired then what it was like
trying to figure out how you could live off your
portfolio during that time.
Speaker 3 (26:46):
It took. So it took sixty six months for the
stock market to recover, It took I'm trying to find
out eight now ten years for the labor marketter so one.
Speaker 2 (26:58):
Hundred and twenty months in twenty months.
Speaker 3 (27:01):
Ten years, there's unemployment rate to get back to where
it was pre Great Recession. So again, you can I
welcome all the you know complaining about the stock market,
complaining about speculation. I am critical of the market or
the gambling type of mentality that markets have created as
(27:25):
of late, but remember what other stuff comes along with
a prolonged downturn, Because it's not just oh, the stock
market goes down by fifty percent, it stays there for
a little while and I keep my home, I keep
my job, and I'm able to put food on the table.
Speaker 2 (27:40):
You don't know if you're going to be one of
the people that's you know, hugely impacted by this. And
this is why no one should root for bear markets.
It's not something Again, I do feel like the only
reason this piece gets published is because we haven't had
a problem bear market in a long time. Like imagine
imagine writing this piece in twenty eleven and what people
(28:03):
would have said about it then, Yeah, you know, it's
just like no. Now, I do want to talk about
something that Mark Fandetti forwarded over to me over the weekend.
It ties into this a little in some of the
concerns that we've had, and what I'm talking about is
what's going on in the private credit space. Oh good,
(28:24):
because this is getting pretty gnarly right now, and kind
of gross what you would doing on the other side, Yeah,
we could do it on the other side. Yeah, I
got something great to talk about right after this.
Speaker 1 (28:41):
Breaking business news as it happens only here on the
Financial Exchange Radio Network. The Financial Exchange streams live on YouTube.
Like our page and stay up to date on breaking
business news all morning long. Base is the Financial Exchange
Radio Network.
Speaker 2 (29:07):
All right, So here's the deal. There's a company by
the name of Blue Owl.
Speaker 3 (29:12):
On their hats.
Speaker 2 (29:14):
They are an asset manager and they've got a huge
presence in the private credit space. For those of you
listening wondering, like what the heck is private credit? It's
basically any loan that's made that doesn't trade on public markets.
But like calling it private credit makes everyone think it's
like something special, like there's a secret sauce there and
there's not. Private credit managers like to tell you, hey,
(29:38):
this gives you like a more stable path, like it's
you know, it's more stable than public credit. Well that's
only because they don't actually market to market on a
day to day or months or week to week or
minute to minute basis. They just only revalue them much
less frequently. And it's like how your home gives you
a much more stable path because you might get an
update on the value of your home every thirty seconds.
Or as an example, if you only look at your
(30:00):
four oh one k at the end of each year,
he'd be like, oh, like, it's pretty stable, when in
reality it can be gyrating a ton in the middle.
So Blue Owl is a huge manager of private credit
and they love to manage private credit because the fees
are high, and it's been a good spot to be
in just raising money for the last ten to fifteen
years quite honestly, Like, there's been a lot of money raised,
(30:20):
and I understand why there has been. I understand the
incentive structure. So here's the thing though, private credits started
to come under some questions in September when we had
a couple bankruptcies that popped up Tricolor and First Brands.
And now you've got this over the weekend that the
Financial Times is reporting the one billion I'll quote like effectively,
(30:46):
here's here's what's going on. They have a private credit
fund called Blue Owl Capital Corporation two. It's not listed,
so again it's not publicly traded. You don't see it
on markets or anything like that. And pretty much they
received redemption requests for six percent of the value of
that fund last quarter.
Speaker 3 (31:07):
Explain redemption requests.
Speaker 2 (31:08):
If you are a holder in a private credit fund,
you can't just go and press the sell button on
any particular day. You have to submit a written request.
Usually it's a form template to the manager saying I
want to redeem x shares at the next redemption date,
which typically is on a quarterly basis.
Speaker 3 (31:25):
Got it.
Speaker 2 (31:27):
Blue Owl decided, Hey, we've seen six percent in redemption requests.
We are closing the door and not allowing these redemption requests.
And what we are going to do is instead, we
are going to merge this Blue Owl Capital Corporation to
fund into the publicly traded So this is a private
(31:49):
credit vehicle that trades publicly Blue Owl Capital Corporation funded
as the ticker OBDC, and that fund, by the way,
happens to be trading at a twenty percent discount to
its net asset value. What that means, in no uncertain terms,
is the assets inside of there are valued at X,
(32:11):
but the stock is trading it X minus twenty percent.
Speaker 3 (32:15):
Why would something like that happen?
Speaker 2 (32:17):
Because the public investors don't believe the valuations that are
listed on it. So what this means is that the
holders in this Blue Owl Capital Corp. Two fund are
taking a twenty percent haircut in many cases instead of
getting the liquidity they wanted. But now they can sell
whenever they want on the public markets. But oh, you've
(32:38):
got to take a twenty percent haircut in order to
do so. This is just screaming to me. I don't
think the deal's done by the way. I believe they
have to vote on it. They have to vote on it,
But this is screaming to me that it is mid
two thousand and seven and mortgage backed security funds are
(32:59):
facing redemptions and trying to figure out where the liquidity
is going to come from, and merging funds and this
and that like it. It feels like twenty twenty six
is going to be the year of private credit blowing up.
We just don't know how big that blow up is
going to be.
Speaker 3 (33:14):
And I always like to bring it home, why does
it matter if I don't own any private credit whatsoever?
Because I think it could. It might not, but it
could still matter to everyday Joe who learned about private
credit five minutes ago when we started talking.
Speaker 2 (33:30):
There are a few different reasons. The first is one
of the biggest buyers of private credit insurance companies. They
love to buy the stuff, and I get why. It's
generally yielding high single digits or low double digits. And
if you are taking in a bunch of premiums each
year from individuals and needing to invest them in something
that generally has appeared to be stable while still earning
(33:52):
a high rate of return, this has been the area
that you've gone. So things that you could end up
seeing as a result of this. Again, if this is
if things go badly, which I don't know where we're going.
No one knows how big this is going to be,
so I want to be clear, like, I don't know
if this is exactly where we go, but if things
go badly, you could end up with insurance company bailouts.
(34:14):
That's where this could go, or.
Speaker 3 (34:15):
Some that's the worst case.
Speaker 2 (34:16):
Yeah, small insurance companies even going under potentially, Yeah, that'd
be a worst case. Other reasons why this matters. This
affects overall lending markets.
Speaker 1 (34:26):
Right.
Speaker 2 (34:26):
Even though these are privately held instruments, they can still
end up having an effect on broader credit markets, and
that can affect the plumbing under the surface as well
as you know overall lending to companies.
Speaker 3 (34:38):
A real direct connection here. One of the sparks in
this private credit space was a company called Tricolor that
made loans to general consumers who are trying to buy cars.
They fund on private credit. If that drives out, their
interest rates go up, and there's not the ability to
do it. So any any drying up of credit conditions
affects everybody, and it's just unclear how big that possibility is.
Speaker 2 (35:02):
And so everyone out there is going to be looking
at their pools of private credit now being like okay,
Blue Owls giving their investors a twenty percent haircut on
this one fund? What's our stuff worthy? And nobody knows
right now. It could be good, it could be bad,
But if you're asking the question, it's usually not great.
Speaker 5 (35:19):
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Speaker 3 (36:29):
Just one more point on this, you mentioned it, I
think it's worth repeating. These types of assets, these types
of alternative assets are specifically marketed and sold as Hey,
look at this, it's a good return that does not
correlate and it doesn't have the type of volatility baked
into public equity markets. Investors in this specific fund today
(36:50):
are learning that that's kind of irrelevant when you know
what hits the fan. Yeah, because what happened today is
yesterday this far was worth X. Now it's worth X
minus twenty percent assuming the vote goes through. Yeah, And
you know, being worth X on paper is pretty useless
when you try to redeem your cash and the company says, oh,
(37:12):
you can't do that.
Speaker 2 (37:14):
Volatility can never be Volatility is like energy, not to
get like all physics on you. But this is one
one thing that I do believe to be true. Volatility
can't be destroyed. It can be transformed into a different form.
In this case, the volatility is can I redeem when
I want to for what I want to? This is
(37:37):
like it doesn't go away, It just gets transformed into
something else, and you have to be aware of that.
Something that is volatile, such as the value of a loan,
you can't just say, oh, well, we put this in
a wrapper where like it's always worth this. Like, no,
that doesn't work even if the company physically guarantees the value,
(37:59):
which they don't in these cases, I want to be clear.
Then you're saying, Okay, the volatility is not with what
I own, but with the company's financials. Like, you can't
ever eliminate volatility, you can just transform it into something else.
And I think that's a really important concept to come
back to, and as Mike said, like investors are kind
(38:22):
of learning that in this case. Here, let's take a
quick break when we return. We got a whole bunch
more to get to. In our two. We're talking cost
of living. We got Disney and YouTube finally getting together
and saying, hey, we can do a deal. We got
four to one K accounts that have been left behind.
(38:43):
We got FED officials violating trading rules. Oh good again.
Quick Break hour two is coming up.
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