Blue Owl Money Machine Sputters in Face of Private Credit Cracks

21:08Carol, are you done with Walmart? Because I want to go to Home Depot in a minute.

21:12Carol Massar:I want to ask one thing. I want to go to Home Depot. I know, I know, I know, I know. But let me just ask you, Abby, what does it mean? I mean, I mean, they're transferring their stock exchange, listening to the Nasdaq from the New York Stock Exchange. Like, does it really, for the exchange, it means something. But I don't know. What do you tell an investor about this? Is there anything to tell? You know, it was certainly an interesting part of the announcement this morning. And I think, you know, we have seen, we like Walmart here because it's, you know, both defensive. We think they're really well positioned short term.

21:43Carol Massar:But I think also the announcement, they're positioning themselves for growth longer term with really the focus around the alternative revenue streams, e-commerce. Just they're really positioning themselves and setting themselves up in addition to investing for growth in the future. So I think the announcement wasn't all that surprising given that has really been the tone that we have heard from this management team over the last several years. Wait, so being on the NASDAQ means you're a growth company? Is that kind of what it is? I mean, I know that's kind of the history, but is that the idea?

22:12Carol Massar:Yeah. And I think, you know, I think, you know, that's certainly how they're positioning themselves with investors. I think in addition to being defensive, but I think longer term, they are positioning themselves, you know, from a growth standpoint with these different areas of higher growth for them relative to selling, you know, more consumer staples. It feels so old school to me because the New York Stock Exchange has tried to counter the narrative. You know, the Nasdaq is the home for tech. Yeah. So, but anyway, it's interesting. Look, these, you know, they, I think it was on surveillance this morning, Tom and Paul talking about how they, the, the, the NIC and the NASDAQ, you know, they play off each other and they try to, you know, it's expensive to list.

22:51Right. So then, you know, if you can actually save money by going to another exchange, maybe do that. Why wouldn't you do it? Yeah. Okay. So Home Depot, because you also cover Home Depot, Abby, it seems like the Home Depot story is more idiosyncratic and it's like Home Depot, Depot specific. Is it fair to say after hearing from Lowe's earlier this week?

23:11Carol Massar:It is. I think, you know, with Home Depot, I think certainly they're positioning themselves. They're really focused on that pro customer and especially the complex pro. I think it continues to be a challenging environment, both for the consumer, but also from a housing standpoint of the interest rate piece of that is really a key for this story. And I think we're long term investors. So we're focused out the next five years from now. And I think when we look at how Home Depot is trying to position themselves with that pro customer, when we look at the environment longer term, we think there's a lot of ways that they're trying to set themselves up for future growth over the next several years, despite a bit of a challenged environment here as a result of just housing in the macro.

23:50Why was Home Depot so concerned and Lowe's not so much? What are the differences between their business? And I know there's the pro thing. And what's the exposure that Home Depot has that caused it to say, OK, we have to think differently about what next year is going to look like? And we didn't see that from Lowe's.

24:06Carol Massar:I think with Home Depot, you know, there was more explanation both around some of the recent acquisitions that they've done, in addition to conversation around the weather, sort of the lack of a hurricane in 2024 versus this year. I think investors are really never that enthusiastic to hear conversations around, you know, there certainly is a challenge comping the comp when there's a hurricane and when there's not. But I think that coupled with commentary around different moving parts of the SRS and GMS businesses, I think just left investors feeling a little bit sour, particularly in light of the current environment.

24:41Carol Massar:I'm sorry, SRS is Wholesale Distribution Residential Commercial Building. Just remind us what that is, SRS versus HRS. Yes, the SRS distribution acquisition that they did last year as it relates to the roofing side of the business. And without a hurricane this year, they didn't get as much benefit from that standpoint. No, it's just like real life stuff, right? And what you need or don't need. I should point out Home Depot traded down 6 % on Tuesday when it came out with its results in Lowe's, which reported and investors reacted yesterday was actually up about 4%. In a nutshell, how would you describe the consumer and the retail environment?

25:17Carol Massar:Just got about 30 seconds. You know, I would say it's much of the same. I wish there was a different story that I could tell you that the consumer doesn't continue to be bifurcated. But that's really the message that we've heard from consumer from different companies is that upper income consumers continue to hold in there quite well. But I think the lower income consumers are still OK. I think they're still challenged, but they haven't dropped off a cliff. So I think consumer companies are still operating, still meeting the needs of the different consumers while being very cautious around the sensitive needs of the lower income consumer who's more pressured in this environment.

25:50Carol Massar:All right. So appreciate it. Hey, Abby, thank you so much. Abby Roach, Senior Portfolio Analyst. She covers consumer stocks for the Empiric LT Equity Team at Allspring Global Investments. Stay with us. More from Bloomberg Businessweek Daily coming up after this.

26:11This is the Bloomberg Business Week Daily Podcast. Listen live each weekday starting at 2 p.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station. Just say, Alexa, play Bloomberg 1130. Lots of news in the chip world this week. I'm going to read. Yeah, there's so much stuff. Okay, but I got to go quickly. Okay, go, go, go, go.

26:37Carol Massar:We have a great guest. The U.S. has approved the sales of tens of thousands of advanced AI semiconductors to the UAE's G42 Group and regional rival Humane. That's of Saudi Arabia. It's a major boost for both Gulf nations efforts to become formidable players in the tech. And then there's NVIDIA and what's going on with NVIDIA today. Following a rally of more than five percent, NVIDIA now down two point three percent. The chipmaker did reassure investors on AI demand questions lingered, though, about the stretch stock prices and hefty investments. And that's where we want to start with Lane Best.

27:10Carol Massar:He is the CEO of the data security company Deep Instinct, chairman of Blaze, which is an AI semiconductor company that works on low power, high efficiency processors for edge computing. He is also former CEO of Palo Alto Networks and the former COO of Zscaler. He joins us, Tim, from Miami Beach. Lane, good to have you on the program. You've been doing this for more than 30 years. You've built and led tech companies in the US and around the world. Yes or no? Are we in a bubble? No, I don't think we're in a bubble. I actually liken this to what we saw. You mentioned I've been at this 30 years. I've seen us from the days of the DEC mainframes and IBM mainframes moving to servers, ultimately to PCs and then ultimately to handsets that have all the power.

27:54I think what we're seeing is an AI push that's condensing what we saw over perhaps two decades into a two to three to five year time frame. The acceleration of this adoption is what might make it look like a bubble. But the applications and the growth opportunities in various markets make me feel that we're still at the front end of something that might take pauses on occasion, but certainly not a bubble. Well, let's start with the applications of this. technology. I mean, what do you see that justifies not just these lofty valuations, but all the capex that these companies are spending to try to achieve?

28:32Yeah. Well, in the first place, every one of the companies that have to invest here, they have to invest to have a piece of the action. So there's almost going to be a forced action by them to invest in the GPUs, invest in the LLM models. But if you take a look at where the market will grow over time and that's why i'm involved as you mentioned earlier in a company called blaze semiconductor on the edge again it is like that movement from the mainframe the central large data center off to the edge where a lot of the applications and solutions are going to be provided so i see a very large opportunity of growth in semi there's a number of companies that we've seen Cerberus.

29:17We've seen Grok and, of course, Blaze in the market. And there's many, many more. But I also see similarly a high growth in the cybersecurity area where agentic AI attacks, black, dark AI attacks are going to create a growth need for cybersecurity companies as well.

29:37Carol Massar:And that's kind of where you come in. Tell us a little bit about Deep Instinct and the work that you guys are doing. Sure. Well, Deep Instinct is based on an advanced AI capability called deep learning. And we've heard a lot about machine learning, but AI in the form of a deep learning framework really allows you to get into a predictive preventative mode. And it uses large GPU processing to be able to take massive amounts of data from all over the web and the dark web and be able to actually predict a ransomware attack or a breach before it happens. And so the market has been heavily, and we know very well-known names such as CrowdStrike in the past few years, Palo Alto Networks, Zscaler.

30:24There's still a lot in the detection and remediation mode, which is very important. You need layers of defense. You need to know what to do when something happens. But to really get a step up on some of the AI attacks, you you need a more sophisticated you need to fight ai with better ai how do you do that though in a world where the incentives are so aligned for bad actors to come after you i mean i don't know how many carol how many texts do you get a day that are like trying to dupe you into a lot yeah and i mean i mean even we're we're to the point where uh you know, with the voice generation, uh, kids, you know, really fool those companies that are, that are used as voice authenticators.

31:12Like you didn't either, there are warnings about, you know, if you get a call from somebody in your family, it might not actually be your family. Like we're not headed in a great direction. I feel like you've called off a great list of things and really in, it's just what keeps me up at night. Don't worry. We can, you can charge me later. I get them too. But really knowing that the biggest risk to most companies and governments is insider threat. It's phishing attacks. It's deep fakes that can really fool an individual user. And that's really what they focus on is the weakest link. So what you have to be able to do, and that's what we do at Deep Instant, we actually track and scan at massive rates, all of the bits and bytes and threads that come through.

31:58And at the end of the day, if you do get a scam or if you do get something that's in the form of a file that you open, whether it's on a text or in an email, there's a file there. Many times it's fileless, but there's a scan that takes place that will be able to stop what we call zero day threats. It's the first time never seen threat. That's what we specialize at at Deep Instinct.

32:20Carol Massar:So like, who do you see as your main customers or who are your main customers? Yeah, large globals. If you take a look at the largest number of our customers, there are global banks, there's global manufacturing, global health care companies and, you know, service providers, such as the people who carry your your phone conversations, your text messages. All of these are really where we focus our attention and our sales efforts. Do you think we can ever get to a point where we don't have to be vigilant as normal human beings or we just always have to be on the lookout and looking over our shoulder that somebody is going to get our data?

32:59Somebody is going to get access to our accounts. Yeah, this is going to be a game that continues cat and mouse for the longest time. And it's why, quite frankly, the cybersecurity sector continues to be a strong sector. There are going to be some consolidation in that sector, as we've seen in recent months. Back to this year, 2025 has been a significant year for consolidation. I see 2026 being the same. But everybody, the largest platform players, including Palo Alto, Zscaler, are accumulating the capabilities to be able to do everything from access identity management to make their SOC or their security operations centers more efficient.

33:43the consumer will continue to be under attack. And really, my best advice to consumers is, if it doesn't look like anything you know, or anybody you've heard from, don't click on it. When it comes to businesses, put the best layers of defense in place, including AI capabilities that are going to be able to battle more sophisticated attacks.

34:06Carol Massar:So you're basically saying you are for someone, anybody who's creating data before it starts to go anywhere in the AI world or use, if you will, of, you know, through the AI lens, that's where you guys enter. It's like cleaning out the data, making sure it's pure, it's clean. You hit it right on the head. That's really only what bad actors are going after, data. It might be your individual data, but more regularly, it's compromising corporate data, government data. That's where they have the most leverage and can hold for ransom. They can disrupt operational capabilities. And at the core of this, being able to scan every byte of data, whether it's on premise or in the cloud.

34:58These days, most companies are adopting multi-cloud strategies, AWS, Azure, Google GCP. Your data is everywhere. And if you cannot protect your data, then you're going to be at risk. And in many cases, a lot of corporations have data that's already corrupted and they don't know it. So what we really promote is not only being able to scan in line the data and the files leveraging Deep Instinct or other AI technologies, but also being able to scan all of the data you've had resident in large data centers that you've been storing data for years in some cases. In many cases, data that has been disturbed has been corrupted for more than 86 days before somebody who determines that there is actually something bad there.

35:51That's just an impossible number of days and too long of a time. Lane, do we need a new way to authenticate ourselves? if the data that we traditionally use, like social security numbers or parents, maiden names, those things are out there, what's the right way to prove to an entity that we are who we say we are? Well, I think the efforts in multi-factor authentication have been very good. While it might seem aggravating sometimes every time you want to log on to a bank account or into some piece of our data website that you're looking to access, that you have to get a code text to you or sent your email.

36:34These two multi-factor authentication methods are really helpful. And at the end of the day, they do help identify that you are who you are. Identity access management is another key growth area in the cybersecurity space as well. And AI tools are being applied there as well to help.

36:55Carol Massar:Just one last. I'm going to go back to where we started because it's just top of mind, the narrative about the questions behind the AI trade, the AI spend, the circular financing, the valuations. You're not worried. Just got about 30, 40 seconds here. No, not really. I think we'll see pauses. I don't see trade off on NVIDIA today. Believe me, I've been involved in many great earnings calls where after the earnings call is done, the stock drops and you scratch your head. I don't think that's an indication as to any chink in the NVIDIA armor here. I think we'll see some pauses and resuming. But as I do say, I think the shift towards the edge and companies are going to be where we're going to see additional future growth.

37:41And that will come alongside with growth from NVIDIA as well.

37:44Carol Massar:Well, so glad we could go there with you. Certainly another window into this AI build out. Lane Best, he's CEO of the data security company, Deep Instinct, Chairman of Blaze, former CEO of Palo Alto Networks, former CEO of Zscaler. Stay with us. More from Bloomberg Businessweek Daily coming up after this.

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40:45Carol Massar:Checkouts, instant. Absolutely genius. Big League reliability for any business. That's genius. You're listening to the Bloomberg Business Week Daily Podcast. Catch us live weekday afternoons from 2 to 5 Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app. Or watch us live on YouTube. Okay, let's bring in Brent Schuette. He's CIO at Northwestern Mutual Management. They've got more than$300 billion in assets under management. Brent, good to have you on the program. A lot has changed since you were last on with us in the middle of September. We had an entire government shutdown, the longest ever in history.

41:26We had the government reopen, so we've gotten some late data. We've also had some cracks start to form around what many consider being the AI trade and questions about CapEx. How are you looking at all this? There certainly are quite a few cracks. And I know that the commentary about NVIDIA's earnings, I think the reality is there's still questions about the sustainability of AI and what it becomes in the future. There are economic questions. So think about the unemployment report, the jobs report. Where is the labor market at coupled with inflation and what does the Fed do about that? And then I just think there's lots of market questions.

41:58So you've seen a large run-up in non-profitable tech companies. You've seen cryptocurrencies start to fall quite a bit. You've seen private credit cracks start to emerge. And that's where I think there's lots of questions that are still unanswered. I think investors are probably starting to pay attention to those. That's where I would just counsel people to please stay diversified. I know the temptation has been to concentrate in these AI names, in these tech names that have been the high flyers that have carried the markets for much of the past few years. I just think in the future, the answer is going to be a broadening out across the spectrum of asset classes.

42:31Large cap overall, small caps and mid caps, which actually trade at pretty cheap levels relative to their large cap counterparts. And yes, even international stocks. I guess the question is, do we have a hiccup before then?

42:43Carol Massar:Well, I want to talk a little bit more about diversification before I do. So if I look at the Bloomberg Mag 7 index, it is still up nearly 17 percent year to date. If I look at the S &P 500, it's only up about 11 percent. You know, we can go on. But so, like, I think there are, you know, this, Brent, you know, people will counter and say, well, wait a minute, though. I get it. You know, this is where everybody runs into. But they tend to continue in many cases to outperform. They continue until they don't. At least historically, that's been the case. And leadership has always changed. And towards the end of economic cycles or think about it, after the Fed tightens rates, You harm the economy because they're trying to slow the economy to slow inflation.

43:21But that doesn't harm it all at once. It harms manufacturing. It harms housing. It harms smaller cap companies until at least historically you get enough critical parts of the economy that have been harmed to where you actually have a recession and then we broaden back out. That has happened in every single cycle. It's not odd for the market to become concentrated. Then typically on the opposite side, what ends up happening is that the economy broadens back out and those things that have been harmed become better again or healthy again as rates are usually lowered. And that's where no matter what happens in the next few months, I do think you have to have a market that broadens.

43:52You have to have an economy that broadens. You can't have the housing market continue to not operate. And that's where I think there's opportunities pushing forward. And it's kind of the same formula that occurred post-1999 where you did see the Internet, which is where everybody concentrated back then. It benefited more than just the companies that were putting it in place. It benefited the economy and the broader set of the economy and companies. And that's where I think you'll see AI have the same impact pushing forward. Brent Schutte, you were going through a litany earlier of sort of cracks that are starting to appear.

44:23You mentioned private credit. Carol and I are certainly trying to get to the bottom of everything happening in private credit right now. It's a thing we're going to continue to focus on it. Totally. Yeah. I mean, it's really piqued our interest. The crypto part that you mentioned with Bitcoin sliding right now, Bitcoin down another$4 ,000 today,$86 ,400. lowest going back to April of this year. Does that send, what is the signal that that sends? Like why are you even mentioning it? Liquidity and speculation. And so that's where I think, you know, whether or not and what it is or what it is not, we can debate that all we want.

45:00But it's certainly to me still as a speculative part of the market. There are other cryptos besides Bitcoin, some that have no purpose and no stated purpose, and they have a lot of money in them. To me, that's been a sign of speculation and a lot of liquidity that's still floating around in the economy, in the markets. And that's where I'm wondering what is happening underneath the surface with liquidity. Are people being forced to liquidate? Where is their leverage in the economy? This is where I think there's quite a bit of leverage. And that's where I think you look at this part of the market and you wonder what it is signaling.

45:28And that's where I think it's just nice to pay attention to the risks that are potentially out there. And this certainly is one of those.

45:34Carol Massar:Yeah, I keep thinking about that, Brent, too. Like I just, you know, for those of us who've been around through some market cycles and crises, I think of the great financial crisis where everybody was like, go, go, go, go until it all came undone. And then when it came undone, it was pretty harsh. I don't want to be an alarmist. I just want to be smart here. And I think, you know, as you continue to look at this market, I mean, are you anticipating a certain amount of correction? And is it because of concerns of private credit? Is it because of AI? Is it both? Something else? Help me out here.

46:04I think it's all the above. I think there are lots of things that are concerning out there. This doesn't mean that you run out and you sell all your stocks or do anything drastic. It just means that you pay attention to what your risk level should be based upon a financial plan and that longer term asset allocation that you have chosen in that plan, which in that plan, there is the reality that stocks go up and stocks go down and that we actually have pullbacks in the economy. And that's where I just fear that people are doing what they shouldn't be doing, which is concentrating. If you didn't concentrate in the market in the late 1990s in the NASDAQ, in the tech sector, you didn't have the large drawdown that the people who did, did.

46:40And that's where I'd counsel people to think about that and think about what has worked as a timeless investment philosophy, which is diversification. And that's where if you diversified post-1999, which I get a lot of questions about, what are you doing to keep me from having the, if it's a bubble, what are you doing to keep me from falling prey to that? Which the answer is just diversification. That was the answer then. It's the answer today. I know it's not popular. It's not cool. It's not as sexy as watching the rips in stocks. But it is the best answer that anyone in my position has come up with in 40, 50, 60, 70 years of doing this.

47:14And that's where I would encourage people to avoid the urge to concentrate, which I know is out there. I also know the urge of greed in making sure if your account should be 60 % equities and it's moved to 70 % equities, you might not be apt to rebalance, which you should rebalance back to 60 % equities. and that's where I just encourage people to do the time-tested investment strategies that have worked. There are certainly tilts you can make, things that you can do, but that time-tested strategy is how people have at least historically gotten from point A to point B, and I think that will be the same way in the future.

47:43It sounds like a lot of what Brett's speaking about comes down to behavioral finance, and it's like controlling our emotions, which is such a big part of what we hear from advisors increasingly now, which is like, hey, you have your goals. Make sure you stick to them no matter how enticing something is.

48:03Carol Massar:Listen, take the emotion out, right? It's what prevents you from chasing trades or getting out completely when things start to come undone. Brent, perfect chat on this Thursday. We really appreciate it. Brent Schudi, CIO, Chief Investment Officer over at Northwestern Mutual Management. This is the Bloomberg Business Week Daily podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live weekday afternoons from 2 to 5 p.m. Eastern on Bloomberg.com, the iHeartRadio app, TuneIn, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal.

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