Jeff Gundlach Just Gave Dire WARNING About Private Credit (More Cockroaches)
Summary
Market Outlook: Jeffrey Gundlach and others flag one of the least healthy stock markets in years and recommend holding around 20% in cash, with Warren Buffett’s elevated T-bill position reinforcing a cautious stance.
Private Credit: Highlighted as the potential next crisis with subprime-like characteristics, featuring liquidity mismatches and retail investors promised easy withdrawals despite illiquid underlying assets.
Blue Owl (OWL): The attempted merger of two private credit funds and associated lock-up concerns rattled investors, leading to a stock selloff and eventual cancellation of the deal amid red-flag optics.
AI: Speculative excess in AI-related equities and data center buildouts is noted, with skepticism about end-user profitability and a warning that momentum investing in booms often ends badly.
Funding Stress: Elevated tri-party repo rates versus unsecured Fed funds and usage of the Fed’s standing repo facility suggest broader liquidity strains beyond simple reserve levels.
US Retail: Target (TGT) cut guidance with declining sales and weak in-store traffic, signaling consumer caution; anecdotal evidence and broader mentions of bellwether retailers imply soft demand.
Risk Management: Preference for cash and short-duration US Treasuries is emphasized, while cautioning against AI euphoria and monitoring private credit contagion risks.
Transcript
Hello fellow Rebel Capitals. Hope you're well. So Jeff Gunlock comes out and gives a big big warning very similar to Jamie Diamond, but he also expanded on the froth, we'll say, in the S&P 500 and the AI bubble. Let's go right over to CNBC and check out I had to adjust the volume there. Sorry if I just blew your eardrums. [laughter] If I just implode exploded your eardrums there. My volume was turned up way too high. Okay, that should be better. Let's go over here. The title Jeffrey Gunlock sees one of the least healthy stock markets of his career urges 20% in cash. >> You're not sharing your screen. >> Boy, we've got all the technical difficulties going on here all at once. All right. Hopefully that's a little bit better here. So Jeffrey Gunlock sees one of the least healthy stock markets of his career or just 20% in cash. I don't know why I'm assuming he's saying cash and then maybe even bonds or I don't know if he's using bonds the cash equivalent. Let's see here. So gunlike urging investors to keep about 20% of the portfolio. One reason why I highlighted this is because I wanted to remind everyone and what Warren Buffett is doing. And Warren Buffett, as we speak, I I don't know if he's got 20% of his portfolio in cash, maybe even more, but he's got the highest percentage of his overall assets in cash right now that he's ever had. And if you look at times when he goes overboard on Buffett buys T- bills, but when he really uh goes to these extremes as far as the percentage of his portfolio that's actually in T bills or cash, it it's usually before stuff hits the fan. I mean, the last time he did this to an extreme was uh 2006, like 2007. I think he did the same thing back in 99. So, I mean, he's got a good track record there. We see Warren Buffett doing this. We see Jeff Gunlock saying or suggesting to do the same thing. And by the way, Warren Buffett has the opportunity to buy his shares back. His shares have come down quite substantially at least last time I checked. This was as of maybe two weeks ago. And he opted to not buy his own shares back even though he's got 380400 billion in cash. So think about that right now. Warren Buffett would rather have his money in T- billills in Ta bills than in his own stock. I think that tells you pretty much everything you need to know. And then you've got Gunlock pretty much saying the exact same thing, but Gunlock kind of expands on this. He says, "Today speculative assets, speculative excess, excuse me, in AI related stocks and data center investments cautioning that momentum investing during a boom can end badly. Uh, actually it usually ends badly. And by the way, he gave this interview on Bloomberg. I believe it was the Odd Lots podcast. He goes on to say he is especially worried about the rapid growth of private credit. Now, this goes back to the cockroaches that Jamie Diamond was referring to and whether it's Triricolor, whether it's First Brands, you know, UBS shutting down hedge funds. And today we had Blue Owl or it might have been yesterday, but I've got a story here that I'm going to go over. Blue Owl was going to merge two of its funds until the market said, "Yeah, now we're not going to accept that because why are you merging these two funds that are almost exclusively focused on private credit?" And by the way, merging these two funds is what they're going to do, I think, through an IPO. And the catch there was they were going to lock you in to where you couldn't redeem your investment until like the deal goes through. And it's like, okay, well, when is that going to happen? That can happen in a year. That can happen in two years. And I think that's why their stock took a big hit. Basically, the market said, no, we're not playing this game. This is way too risky. But this just falls in line with pretty much everything else that we've been seeing with not just private credit, with shadow banking, with all of these cockroaches. We continue to use that term. And then also what we're seeing with the money markets and the term in terms of like uh sofur and terms of repo and the standing repo facility being used by the Fed. You know, we're seeing all this lack of liquidity and everyone always blames it on a lack of bank reserves, which I I think the more I study this stuff, the more that becomes harder and harder for me to believe or even take seriously because you just scratch beneath the surface. You do some research and you see that it's just it it's it's you know there's no certainties and no one understands because no one can get into the mind of the participants that are charging a higher interest rate in repo than let's say and and by the way repo as most of you know is a collateralized loan. It's a secured loan. So why are they charging a lot higher rates in repo than they are with Fed funds which is just interbank and by the way the interbank loans they're not secured. So you've got unsecured loans here and secured loans here. And the only difference is the counterparty. These are trading at a higher interest rate the secured loans. And you're telling me that risk doesn't matter. It's all about bank reserves. I don't it doesn't really compute. It doesn't really add up. So anyway, getting back to this, my point there was to highlight the fact that we are definitely seeing a lack of liquidity and we're seeing a lot of strains in the system and this is also uh this is also uh why you see the Fed's repo the Sandy repo facility being used because those counterparties get too high of a rate in triparty repo which is the real repo market. So, this lines up with what we're seeing here with Gunlock, what we're seeing with Buffett as far as his actions, not necessarily his words, lines up what with uh what Jaime Diamond is saying as well. It lines up with what we're seeing with Blue Owl and these other private uh credit funds that are, let's just say, under some strain right now. And it also lines up with what we're seeing in the real economy. We have an article that we're going to go over right here from Target that um saying that they expect, you know, earnings and revenues to continue to contract. Like Target, it's a pretty good bail weather for the real economy. But getting back to this article, the next big crisis in financial markets is going to be private credit. This is gunlock. It has the same trappings as subprime mortgages, mortgage repackaging had in 2006. Again, this is not George Gammon saying, "Oh, this is similar to the GFC." Is Jeff Gunlock saying that. Gunlock also criticized the push to sell private credit funds to retail investors, calling it a perfect mismatch where there's a promise for easy withdrawals despite the fact those assets can't typically be sold quickly. So, I mean, this is a great point. What you're doing is the underlying asset is very illquid, but yet you're telling people that they can withdraw. I mean, >> [laughter] >> that that's basically um well I was going to say it's like Silicon Valley Bank not really because those investors can withdraw any time but if you do need liquidity then you're going to take a huge huge haircut so here you can't even take a big haircut you just have zero liquidity so you can't get a bid and when you have that kind of that mismatch as he's talking about that usually ends badly And it's it's obvious why. It's obvious why. I mean, think about that. If you had if you went out there and bought um borrowed, let's say, $100,000, right? And you said to the person you borrowed it from, I will pay you back at any time. If you want, you just call me tomorrow and I'll pay you back. Or you could wait a week or you could wait a month or a year, whatever. Whenever you call me back, you have this $100,000 on demand. And then you take that $100,000 and you buy a piece of farmland. Well, [laughter] you see a problem with that? You see a problem with that? And it's exactly what we're doing here, or it's exactly what they're doing with a lot of this uh private credit. to Gunlock's point, if investors pull money out, funds may be forced to sell at steep losses. That's if they can sell at all, right? If it's that illquid, they might not even have a bid at any price. He said he still likes gold, but has reduced his recommended allocation to 15%. Gunlock had recommend 25% midepptember based on his belief that inflation would stay stubbornly elevated because of the impact of tariffs on import prices. Um, so yeah. Yeah, I mean I'll give him a pass on that one, but it's not exactly what played out. We we haven't really seen, you know, inflation has remained stubbornly elevated if you want to use the Fed's target as a benchmark. Don't know that it's all about the tariffs though because although the consumer is picking up a little bit of that, it's mostly just uh the importers taking a big hit on their margins. Okay, now let's go over to this Blue Owl deal. Blue Owl calls off merger of its two private credit funds after announcement rattles stock as it should. I mean, think about it. If you're invested in one of these funds, first of all, what the hell are you thinking? Like, oh, you've got a higher risk tolerance than I do. That's for sure. But if you're invested in one of these funds and you just get a notification, I don't know if they email you or something and say, "Oh yeah, by the way, we're merging these funds and as a result, you're not going to be able to redeem until the deal's over." And we're doing this at a time when private credit in other places is completely blowing up. I mean, I'd [laughter] say hell no. Absolutely not. Uh, and I think that's probably the call or they got a lot of those calls from investors and the investors showed their dissatisfaction by the stock completely tanking here. This goes back to the 21st of October where it was trading 17 bucks roughly. Today it's trading down $1345. But getting back to the article here, it also added to concerns about the state of private credit industry among investors, especially the area that has started to heavily finance the AI data center. So the reason I highlighted this is just to show you first we start with subprime auto and all the bulls come out and say, "Oh, this is no big deal. It's contained. I don't know what you're worried about." And then we're like, yeah, maybe maybe maybe we made some of these bad loans to AI data centers and the AI data centers maybe used fraudulent collateral or maybe maybe maybe we're building out all these AI data centers because it is true that AI the demand is going straight up but where's the money? Like show me the money, right? like Tom Cruz. And right now when Tom Cruz is saying, "Show me the money." Open AAI or uh uh Chat GPT or OpenAI, whatever you want to call it, is sitting there saying, "Oh, we'll show you the money. Look, we've got $12 billion in revenue." And then the market says, "Yeah, okay, but what are your expenses?" Oh, they're 500 billion, but don't worry about that. [laughter] So let's all remember that at the end of the day for AI to work out well not for it to work out because I think it's definitely going to be there. It's definitely the part of the future just like the internet was. But for these companies to justify their valuation and to have all these data centers work out then you need profit. you you have to have profit. And if there's no path to profitability, I don't know or if that's an unknown, then that has to be priced into the market cap of these big hyperscalers or whatever the hell we're calling them now. And you know, I've said on this channel since I started it way back in 2021 that whenever it's a corporate CEO or especially back then the central planners, the politicians, whenever they say something that just really doesn't make sense, you almost know with 99% certainty we'll say that it's propaganda or they're just straight lying to you or maybe both. And the example I'll use is when Jensen he was pushed I listened to him on a podcast the other day when he was pushed a little bit about well okay it's great that you're profitable. I mean you're making massive amounts of money. No denying that but all these people that are buying your GPUs I mean are they going to make money? Like how's OpenAI going to actually turn a profit here? And he's like, well, what you have to realize is the global GDP is 120 trillion. And then he said like half of that goes to paying labor and AI is just going to completely replace the labor. Therefore, the profit or the revenue potential for open AI is 50% of global GDP. [laughter] I'm like, "Whoa, whoa, Jensen, Jensen, Jensen, Jensen, you got to pump the" And that was actually his argument. And the the the people interviewing him, like CNBC or whoever it was, they're just like, "Oh, yeah. Okay, moving on. Next question. Well, that explains it. There you go. It's just it's going to be half of GDP [laughter] without even like thinking that one through a little bit." And you know, let's say take his argument at face value and say that you've got someone that you're paying $100,000 to. Or let's just say that you've got in aggregate total people that you're paying $50 trillion to. Okay, let's say that you can go ahead and replace that with AI. Fantastic. That doesn't mean that you're going to pay open AI or or Anthropic or whoever it is. It doesn't mean that you're going to pay the AI producers or whatever they're called, service providers. It doesn't mean that you're going to pay them 50 trillion because you're going to be like, "No, I'm doing this to get a discount here. I'm doing this to reduce my payroll. So, I'll pay you 20 trillion." And then and and again, I'm using aggregate numbers to keep it simple. And then what's going to happen is Gemini or whatever XYZ company or some company from China is going to say, "Oh, we'll do it for 10." Okay, great. Now we're at 10. And it's just going to keep going down, down, down, down, down, down, down, down, down, down until you get to the point [laughter] where it's just like the energy costs plus 1%. They they turned into a utility. And now, does that benefit the uh entities that are reducing their pair? Absolutely it does. Absolutely it does. but they're not the AI companies. Now, maybe there's some tech companies with Google and maybe you could argue Amazon, they'll have a huge benefit, but for the the vast majority of this and then what's going to happen with those companies that are acrewing the benefit from using AI and not having to pay those employees $100,000 each is they're just going to hopefully if the free market is allowed to work, they're going to pass those savings on to the consumer because then the consumer has options and they'll say, "Wait a minute, company A who's using AI is dropping their prices by 10%. I'm gonna go with them. And then company B is going to be like, oh, we'll drop our prices by 15%. The consumer, okay, I'm gonna go over there. And then, uh, company A says, we'll drop it by 20. You see, you keep going down to where it becomes massively deflationary, but deflationary in a way that's going to be re would likely be really really bad for lenders um creditors, but it would be really really good for the uh the consumer. So then they go on this. Now, going back to Blue Owl here, I just wanted to point out the fact that the issues in private credit might not just be contained to subprime auto. That was really the point of that rant, that tangent. Okay. The CEO says both funds remain strong with excellent fundamentals. What does that even mean, strong? Okay, that's you. How are you defining strong and excellent fundamentals? Okay. Well, well, based on what? Based on what type of analysis? And of course, he's going to say that, right? That's exactly what they said with Lehman Brothers like 3 days before it crashed. So, now that the fund merger has been terminated, uh, OBDC2 will allow investors to redeem in the first quarter. I mean, if you're an investor now, like what what are you? As soon as that first quarter comes along, if I'm an investor, I'm like, "Hit me. Give me my money. Give me my money. Give me show me the money." [laughter] Um, there's no way because this is to me is a big red flag. And it's like, why are you merging the funds to begin with? Okay. So, now let's move over to Target because see what we're doing here is we're going from Gunlock and talking about these issues to the private credit issue he was talking about to and you know everything I talked about in repo that you guys understand with these money markets and then now we're moving over to the real economy. But it's really all the same story at the end of the day. It's all the same story. All right. Target cuts profit outlook as shoppers look for deals. I wonder why they're looking for deals. Probably because the economy is booming. Wrong. Because the economy is brutal and the economy is great for the top whatever 10%. I mean, it's the K-shaped economy that everyone talks about. The problem here is that the K-shaped economy is dependent upon asset prices. And if you do, or if we are in an AI bubble where prices start to come down, very similar to what we saw during the.com bust, then what does that do to the K-shaped economy? The K-shaped economy turns into a little Hshaped economy. [laughter] That's what it's a small H where everybody is up here, then straight back down. That's really the risk here. Okay, but getting back to Target, Target posted thirdarter sales decline. By the way, I was in the United States la a couple weeks ago speaking at the New Orleans investment conference and I actually went into a Target because it's one of the few places I can find pants that are long enough. And it was a ghost town. I mean, it was like a total ghost town. [laughter] I couldn't even find I literally walked around there because I wanted to uh what was I doing? I think I was getting the I wanted the key to to the try on what's it called? To the dressing rooms and I literally walked around the store like five times and I couldn't even find an employee. I'm like there's no employees, there's no customers. There was someone at Starbucks but [laughter] like what is going on here? So, this comes as no surprise based on that anecdotal evidence I saw in New Orleans a couple weeks ago. Key talking points. Uh, third quarter sales decline. Okay. They cut the top end of its fullyear earnings guidance. Incoming CEO is trying to kickstart the business after roughly four years of stagnant sales. Target said Wednesday it's And why has it been four years of Target sales? Is it because they just absolutely suck? uh or why why has it been roughly four years of stagnant sales? Excuse me. Is it because Target sucks? Probably not. It's because 75% of the United States has been in recession. Now, in aggregate total, when you combine the people at the top with the people at the bottom or the other 75%, let's say, has it been a recession? No. No, it hasn't. But for the 75% of Americans, basically, it is a recession. All the characteristics of a recession is what they're dealing with on a day-to-day basis. Okay. Target said Wednesday it's launching an experience with open AI. I love this. So, your stock is tanking. You're talking about how third quarter sales are going to suck. You're cutting your top end, but then you have to give them some little crumb of positive news. So you're like, "Oh, but don't worry about all this, you know, bad economy, customers, lower demand, fewer sales, cutting top." No, don't worry about that because we're adding AI. As though that's somehow going to change something. As though adding AI is somehow going to change the plight of the average Joe and Jane. You know, keeping up with technology is not Target's problem. Uh the economy is Target's problem. It said it anticipates adjusted earnings. Okay. Details, details. We don't really need that. We are focused on everyday making the right investments, right decisions. Okay. Yes, that's of course what he's going to say. Okay. This is the net sales. We got that. O there you go. So, this is not what you would see in a bellweather stock if the economy was booming. You would not see it go from $140 this year to 88. And what's that? A decline of 40 45%. I I mean, and this guy's announcing his retirement right here. That's not a good sign. So, we just have to look at the a that the Chipotles. We have to look at the CarMax. We have to look at the targets of the world and just put the pieces of the puzzle together. And any way you look at it, it's the economy is very unhealthy and the economy like Gunlock said, right? It's not just the wor unhealthy stock market he's ever seen. I would add it's probably one of the most unhealthy economies or unhealthy economies outside of a recession that the NBER would officially call a recession. I think that's the best way to characterize what we're dealing with right now. All right, guys. Enjoy the rest of your afternoon. As always, make sure you're standing up for freedom, liberty, free market, capitalism. We'll see you in the next video.
Jeff Gundlach Just Gave Dire WARNING About Private Credit (More Cockroaches)
Summary
Transcript
Hello fellow Rebel Capitals. Hope you're well. So Jeff Gunlock comes out and gives a big big warning very similar to Jamie Diamond, but he also expanded on the froth, we'll say, in the S&P 500 and the AI bubble. Let's go right over to CNBC and check out I had to adjust the volume there. Sorry if I just blew your eardrums. [laughter] If I just implode exploded your eardrums there. My volume was turned up way too high. Okay, that should be better. Let's go over here. The title Jeffrey Gunlock sees one of the least healthy stock markets of his career urges 20% in cash. >> You're not sharing your screen. >> Boy, we've got all the technical difficulties going on here all at once. All right. Hopefully that's a little bit better here. So Jeffrey Gunlock sees one of the least healthy stock markets of his career or just 20% in cash. I don't know why I'm assuming he's saying cash and then maybe even bonds or I don't know if he's using bonds the cash equivalent. Let's see here. So gunlike urging investors to keep about 20% of the portfolio. One reason why I highlighted this is because I wanted to remind everyone and what Warren Buffett is doing. And Warren Buffett, as we speak, I I don't know if he's got 20% of his portfolio in cash, maybe even more, but he's got the highest percentage of his overall assets in cash right now that he's ever had. And if you look at times when he goes overboard on Buffett buys T- bills, but when he really uh goes to these extremes as far as the percentage of his portfolio that's actually in T bills or cash, it it's usually before stuff hits the fan. I mean, the last time he did this to an extreme was uh 2006, like 2007. I think he did the same thing back in 99. So, I mean, he's got a good track record there. We see Warren Buffett doing this. We see Jeff Gunlock saying or suggesting to do the same thing. And by the way, Warren Buffett has the opportunity to buy his shares back. His shares have come down quite substantially at least last time I checked. This was as of maybe two weeks ago. And he opted to not buy his own shares back even though he's got 380400 billion in cash. So think about that right now. Warren Buffett would rather have his money in T- billills in Ta bills than in his own stock. I think that tells you pretty much everything you need to know. And then you've got Gunlock pretty much saying the exact same thing, but Gunlock kind of expands on this. He says, "Today speculative assets, speculative excess, excuse me, in AI related stocks and data center investments cautioning that momentum investing during a boom can end badly. Uh, actually it usually ends badly. And by the way, he gave this interview on Bloomberg. I believe it was the Odd Lots podcast. He goes on to say he is especially worried about the rapid growth of private credit. Now, this goes back to the cockroaches that Jamie Diamond was referring to and whether it's Triricolor, whether it's First Brands, you know, UBS shutting down hedge funds. And today we had Blue Owl or it might have been yesterday, but I've got a story here that I'm going to go over. Blue Owl was going to merge two of its funds until the market said, "Yeah, now we're not going to accept that because why are you merging these two funds that are almost exclusively focused on private credit?" And by the way, merging these two funds is what they're going to do, I think, through an IPO. And the catch there was they were going to lock you in to where you couldn't redeem your investment until like the deal goes through. And it's like, okay, well, when is that going to happen? That can happen in a year. That can happen in two years. And I think that's why their stock took a big hit. Basically, the market said, no, we're not playing this game. This is way too risky. But this just falls in line with pretty much everything else that we've been seeing with not just private credit, with shadow banking, with all of these cockroaches. We continue to use that term. And then also what we're seeing with the money markets and the term in terms of like uh sofur and terms of repo and the standing repo facility being used by the Fed. You know, we're seeing all this lack of liquidity and everyone always blames it on a lack of bank reserves, which I I think the more I study this stuff, the more that becomes harder and harder for me to believe or even take seriously because you just scratch beneath the surface. You do some research and you see that it's just it it's it's you know there's no certainties and no one understands because no one can get into the mind of the participants that are charging a higher interest rate in repo than let's say and and by the way repo as most of you know is a collateralized loan. It's a secured loan. So why are they charging a lot higher rates in repo than they are with Fed funds which is just interbank and by the way the interbank loans they're not secured. So you've got unsecured loans here and secured loans here. And the only difference is the counterparty. These are trading at a higher interest rate the secured loans. And you're telling me that risk doesn't matter. It's all about bank reserves. I don't it doesn't really compute. It doesn't really add up. So anyway, getting back to this, my point there was to highlight the fact that we are definitely seeing a lack of liquidity and we're seeing a lot of strains in the system and this is also uh this is also uh why you see the Fed's repo the Sandy repo facility being used because those counterparties get too high of a rate in triparty repo which is the real repo market. So, this lines up with what we're seeing here with Gunlock, what we're seeing with Buffett as far as his actions, not necessarily his words, lines up what with uh what Jaime Diamond is saying as well. It lines up with what we're seeing with Blue Owl and these other private uh credit funds that are, let's just say, under some strain right now. And it also lines up with what we're seeing in the real economy. We have an article that we're going to go over right here from Target that um saying that they expect, you know, earnings and revenues to continue to contract. Like Target, it's a pretty good bail weather for the real economy. But getting back to this article, the next big crisis in financial markets is going to be private credit. This is gunlock. It has the same trappings as subprime mortgages, mortgage repackaging had in 2006. Again, this is not George Gammon saying, "Oh, this is similar to the GFC." Is Jeff Gunlock saying that. Gunlock also criticized the push to sell private credit funds to retail investors, calling it a perfect mismatch where there's a promise for easy withdrawals despite the fact those assets can't typically be sold quickly. So, I mean, this is a great point. What you're doing is the underlying asset is very illquid, but yet you're telling people that they can withdraw. I mean, >> [laughter] >> that that's basically um well I was going to say it's like Silicon Valley Bank not really because those investors can withdraw any time but if you do need liquidity then you're going to take a huge huge haircut so here you can't even take a big haircut you just have zero liquidity so you can't get a bid and when you have that kind of that mismatch as he's talking about that usually ends badly And it's it's obvious why. It's obvious why. I mean, think about that. If you had if you went out there and bought um borrowed, let's say, $100,000, right? And you said to the person you borrowed it from, I will pay you back at any time. If you want, you just call me tomorrow and I'll pay you back. Or you could wait a week or you could wait a month or a year, whatever. Whenever you call me back, you have this $100,000 on demand. And then you take that $100,000 and you buy a piece of farmland. Well, [laughter] you see a problem with that? You see a problem with that? And it's exactly what we're doing here, or it's exactly what they're doing with a lot of this uh private credit. to Gunlock's point, if investors pull money out, funds may be forced to sell at steep losses. That's if they can sell at all, right? If it's that illquid, they might not even have a bid at any price. He said he still likes gold, but has reduced his recommended allocation to 15%. Gunlock had recommend 25% midepptember based on his belief that inflation would stay stubbornly elevated because of the impact of tariffs on import prices. Um, so yeah. Yeah, I mean I'll give him a pass on that one, but it's not exactly what played out. We we haven't really seen, you know, inflation has remained stubbornly elevated if you want to use the Fed's target as a benchmark. Don't know that it's all about the tariffs though because although the consumer is picking up a little bit of that, it's mostly just uh the importers taking a big hit on their margins. Okay, now let's go over to this Blue Owl deal. Blue Owl calls off merger of its two private credit funds after announcement rattles stock as it should. I mean, think about it. If you're invested in one of these funds, first of all, what the hell are you thinking? Like, oh, you've got a higher risk tolerance than I do. That's for sure. But if you're invested in one of these funds and you just get a notification, I don't know if they email you or something and say, "Oh yeah, by the way, we're merging these funds and as a result, you're not going to be able to redeem until the deal's over." And we're doing this at a time when private credit in other places is completely blowing up. I mean, I'd [laughter] say hell no. Absolutely not. Uh, and I think that's probably the call or they got a lot of those calls from investors and the investors showed their dissatisfaction by the stock completely tanking here. This goes back to the 21st of October where it was trading 17 bucks roughly. Today it's trading down $1345. But getting back to the article here, it also added to concerns about the state of private credit industry among investors, especially the area that has started to heavily finance the AI data center. So the reason I highlighted this is just to show you first we start with subprime auto and all the bulls come out and say, "Oh, this is no big deal. It's contained. I don't know what you're worried about." And then we're like, yeah, maybe maybe maybe we made some of these bad loans to AI data centers and the AI data centers maybe used fraudulent collateral or maybe maybe maybe we're building out all these AI data centers because it is true that AI the demand is going straight up but where's the money? Like show me the money, right? like Tom Cruz. And right now when Tom Cruz is saying, "Show me the money." Open AAI or uh uh Chat GPT or OpenAI, whatever you want to call it, is sitting there saying, "Oh, we'll show you the money. Look, we've got $12 billion in revenue." And then the market says, "Yeah, okay, but what are your expenses?" Oh, they're 500 billion, but don't worry about that. [laughter] So let's all remember that at the end of the day for AI to work out well not for it to work out because I think it's definitely going to be there. It's definitely the part of the future just like the internet was. But for these companies to justify their valuation and to have all these data centers work out then you need profit. you you have to have profit. And if there's no path to profitability, I don't know or if that's an unknown, then that has to be priced into the market cap of these big hyperscalers or whatever the hell we're calling them now. And you know, I've said on this channel since I started it way back in 2021 that whenever it's a corporate CEO or especially back then the central planners, the politicians, whenever they say something that just really doesn't make sense, you almost know with 99% certainty we'll say that it's propaganda or they're just straight lying to you or maybe both. And the example I'll use is when Jensen he was pushed I listened to him on a podcast the other day when he was pushed a little bit about well okay it's great that you're profitable. I mean you're making massive amounts of money. No denying that but all these people that are buying your GPUs I mean are they going to make money? Like how's OpenAI going to actually turn a profit here? And he's like, well, what you have to realize is the global GDP is 120 trillion. And then he said like half of that goes to paying labor and AI is just going to completely replace the labor. Therefore, the profit or the revenue potential for open AI is 50% of global GDP. [laughter] I'm like, "Whoa, whoa, Jensen, Jensen, Jensen, Jensen, you got to pump the" And that was actually his argument. And the the the people interviewing him, like CNBC or whoever it was, they're just like, "Oh, yeah. Okay, moving on. Next question. Well, that explains it. There you go. It's just it's going to be half of GDP [laughter] without even like thinking that one through a little bit." And you know, let's say take his argument at face value and say that you've got someone that you're paying $100,000 to. Or let's just say that you've got in aggregate total people that you're paying $50 trillion to. Okay, let's say that you can go ahead and replace that with AI. Fantastic. That doesn't mean that you're going to pay open AI or or Anthropic or whoever it is. It doesn't mean that you're going to pay the AI producers or whatever they're called, service providers. It doesn't mean that you're going to pay them 50 trillion because you're going to be like, "No, I'm doing this to get a discount here. I'm doing this to reduce my payroll. So, I'll pay you 20 trillion." And then and and again, I'm using aggregate numbers to keep it simple. And then what's going to happen is Gemini or whatever XYZ company or some company from China is going to say, "Oh, we'll do it for 10." Okay, great. Now we're at 10. And it's just going to keep going down, down, down, down, down, down, down, down, down, down until you get to the point [laughter] where it's just like the energy costs plus 1%. They they turned into a utility. And now, does that benefit the uh entities that are reducing their pair? Absolutely it does. Absolutely it does. but they're not the AI companies. Now, maybe there's some tech companies with Google and maybe you could argue Amazon, they'll have a huge benefit, but for the the vast majority of this and then what's going to happen with those companies that are acrewing the benefit from using AI and not having to pay those employees $100,000 each is they're just going to hopefully if the free market is allowed to work, they're going to pass those savings on to the consumer because then the consumer has options and they'll say, "Wait a minute, company A who's using AI is dropping their prices by 10%. I'm gonna go with them. And then company B is going to be like, oh, we'll drop our prices by 15%. The consumer, okay, I'm gonna go over there. And then, uh, company A says, we'll drop it by 20. You see, you keep going down to where it becomes massively deflationary, but deflationary in a way that's going to be re would likely be really really bad for lenders um creditors, but it would be really really good for the uh the consumer. So then they go on this. Now, going back to Blue Owl here, I just wanted to point out the fact that the issues in private credit might not just be contained to subprime auto. That was really the point of that rant, that tangent. Okay. The CEO says both funds remain strong with excellent fundamentals. What does that even mean, strong? Okay, that's you. How are you defining strong and excellent fundamentals? Okay. Well, well, based on what? Based on what type of analysis? And of course, he's going to say that, right? That's exactly what they said with Lehman Brothers like 3 days before it crashed. So, now that the fund merger has been terminated, uh, OBDC2 will allow investors to redeem in the first quarter. I mean, if you're an investor now, like what what are you? As soon as that first quarter comes along, if I'm an investor, I'm like, "Hit me. Give me my money. Give me my money. Give me show me the money." [laughter] Um, there's no way because this is to me is a big red flag. And it's like, why are you merging the funds to begin with? Okay. So, now let's move over to Target because see what we're doing here is we're going from Gunlock and talking about these issues to the private credit issue he was talking about to and you know everything I talked about in repo that you guys understand with these money markets and then now we're moving over to the real economy. But it's really all the same story at the end of the day. It's all the same story. All right. Target cuts profit outlook as shoppers look for deals. I wonder why they're looking for deals. Probably because the economy is booming. Wrong. Because the economy is brutal and the economy is great for the top whatever 10%. I mean, it's the K-shaped economy that everyone talks about. The problem here is that the K-shaped economy is dependent upon asset prices. And if you do, or if we are in an AI bubble where prices start to come down, very similar to what we saw during the.com bust, then what does that do to the K-shaped economy? The K-shaped economy turns into a little Hshaped economy. [laughter] That's what it's a small H where everybody is up here, then straight back down. That's really the risk here. Okay, but getting back to Target, Target posted thirdarter sales decline. By the way, I was in the United States la a couple weeks ago speaking at the New Orleans investment conference and I actually went into a Target because it's one of the few places I can find pants that are long enough. And it was a ghost town. I mean, it was like a total ghost town. [laughter] I couldn't even find I literally walked around there because I wanted to uh what was I doing? I think I was getting the I wanted the key to to the try on what's it called? To the dressing rooms and I literally walked around the store like five times and I couldn't even find an employee. I'm like there's no employees, there's no customers. There was someone at Starbucks but [laughter] like what is going on here? So, this comes as no surprise based on that anecdotal evidence I saw in New Orleans a couple weeks ago. Key talking points. Uh, third quarter sales decline. Okay. They cut the top end of its fullyear earnings guidance. Incoming CEO is trying to kickstart the business after roughly four years of stagnant sales. Target said Wednesday it's And why has it been four years of Target sales? Is it because they just absolutely suck? uh or why why has it been roughly four years of stagnant sales? Excuse me. Is it because Target sucks? Probably not. It's because 75% of the United States has been in recession. Now, in aggregate total, when you combine the people at the top with the people at the bottom or the other 75%, let's say, has it been a recession? No. No, it hasn't. But for the 75% of Americans, basically, it is a recession. All the characteristics of a recession is what they're dealing with on a day-to-day basis. Okay. Target said Wednesday it's launching an experience with open AI. I love this. So, your stock is tanking. You're talking about how third quarter sales are going to suck. You're cutting your top end, but then you have to give them some little crumb of positive news. So you're like, "Oh, but don't worry about all this, you know, bad economy, customers, lower demand, fewer sales, cutting top." No, don't worry about that because we're adding AI. As though that's somehow going to change something. As though adding AI is somehow going to change the plight of the average Joe and Jane. You know, keeping up with technology is not Target's problem. Uh the economy is Target's problem. It said it anticipates adjusted earnings. Okay. Details, details. We don't really need that. We are focused on everyday making the right investments, right decisions. Okay. Yes, that's of course what he's going to say. Okay. This is the net sales. We got that. O there you go. So, this is not what you would see in a bellweather stock if the economy was booming. You would not see it go from $140 this year to 88. And what's that? A decline of 40 45%. I I mean, and this guy's announcing his retirement right here. That's not a good sign. So, we just have to look at the a that the Chipotles. We have to look at the CarMax. We have to look at the targets of the world and just put the pieces of the puzzle together. And any way you look at it, it's the economy is very unhealthy and the economy like Gunlock said, right? It's not just the wor unhealthy stock market he's ever seen. I would add it's probably one of the most unhealthy economies or unhealthy economies outside of a recession that the NBER would officially call a recession. I think that's the best way to characterize what we're dealing with right now. All right, guys. Enjoy the rest of your afternoon. As always, make sure you're standing up for freedom, liberty, free market, capitalism. We'll see you in the next video.