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I'm Ed Elson. It is March 24th. Let's check in on yesterday's market vitals. The major indices rallied as President Trump signal that a move to de-escalate in Iran more on that in a moment.
Oil fell on that news. Meanwhile, a yield on tenure treasuries dropped and the dollar declined. Okay, what's happening? The war in Iran may be entering a turning point.
On Saturday, Trump gave Iran a 48-hour ultimatum. Reopin the straight of Hormuz or the US would destroy Iranian power plants. Iran responded by threatening to take out US energy and decalination infrastructure across the Gulf just two days later.
Trump said the two countries were engaging in quote very strong talks and that he would pause all strikes for five days. However, Iran's Parliament speaker quickly dismissed the news
saying the talks never happened.
Nonetheless, the S&P rose more than 1% and Brent crude oil fell more than 10% on the news. So here to help us make sense of what is actually happening here. We're joined by Justin Wolfers Professor of Economics and Public Policy at the University of Michigan.
So Justin first Trump tells us that we're having these constructive talks with Iran. It starts to look like maybe the war is coming to an end. Then Iran tells us no that didn't happen. Markets kind of digested that.
They sort of fell down a little bit but ultimately they're still up.
“What do you make of what we've learned here in the past 24 hours?”
It's the most extraordinary thing that the most critical issue facing American financial markets is whether to believe the American president or the Iranian leaders about what the Americans are doing. Should we believe the American president talking to the American people about the actions of America?
And I think it reminds very much up in the air. And just to be really clear on the stakes here. And as you said, Markets rose very strongly on news that these talks were going ahead. Probably about a third of it unwound is it appeared that the Iranians were not so confident that anyone had ever called them.
So that right there tells you that Markets believed that our president is slightly more credible than the Iranian leadership but not substantially so.
Look 1% on the S&P 500 is 600 billion dollars.
Maybe it was right about one and a half percent actually if I remember. So that's about a trillion dollars. There's about 100 million American households. So that says whether the president was telling the truth or not makes a difference in the wealth of the average American household of plus or minus $10,000.
It's just a way of saying the stakes here are incredibly high. And we are sailing through fog at midnight with a blind fold on while listening to the
Sweet sweet tunes of our president telling us what may or may not be happening.
What do you think about how investors are going to
“make decisions based on what they believe or don't believe going forward?”
Because I mean it's clear that literally the entire world, the entire economy, all of global markets depend on these questions here and what happens in Iran, what happens in the straightforward moves and as we're learning more and more it's also going I mean our entire economy is going to depend on this question. If this area remains closed then we will see unbelievable amounts of inflation. I mean if we see oil consistently remaining at I mean let's call that $150
maybe $200 a barrel. I mean the implications are tremendous here and it all comes back to literally like what is this guy going to do? I do we believe him and it reminds me of Greenland, it reminds me of the tariffs and then it just brings up this question like are we in the same
position again where we're basically just hanging on to his every word making decisions about
his every word which often just don't pan out to be even true. So for sure over the next few weeks lots of people are going to say financial markets are crazy they're hormonal why they're moving up or down like crazy. But if you're actually in a situation where there's two choices we could make aggression, non-aggression and they have huge effects on the economy and we don't know the probability and we really really don't know the probability we end up here or here then small statements
rationally lead to large reevaluations of the value of stocks of your future forecast for the economy of bond rates, the whole nine yards. So things going to look crazy it will, but I think here this is not a statement about financial markets necessarily being temperamental it's more statement about the president's inability to convince anyone that what he's saying he means. And this is actually I think there's one profound sense there's many senses in which these are
uncharted waters but one very profound sense is I don't think we've been in a situation like this where the word of the president about what his intentions are is so uninformative about the future.
“Right George W. Bush when he said let's go ahead you're kind of new that's what he meant”
when he said let's pull back your kind of new what he meant and here I think we're all just guessing. Do you think this this kind of goes back to Taco where I mean the whole premise of Taco was Trump threatened something crazy and then the markets throw up and then he gets worried because he values the opinion of the markets or he values the dollars that are related to those investment decisions and then he tacos he chickens out and then it became a question of
maybe he is immune to Taco at this point or maybe the markets aren't reacting anymore to sort of front run the Taco which means that we no longer have this regular regulating effect where the
markets basically slap them on the wrist and tell them to do the right thing like what do you
think the the relationship between the markets and Trump's decision making actually is at this point and is that relationship still strong as it seems to be back during the tariffs of last year.
“Yeah so I think that's a it's been a question very much on a lot of people's minds so”
if your simple model was the president will do what he wants until he hears markets don't like it when he hears markets don't like it then he'll undo it and if markets can think one step further then they'll see the president does what he wants it's not very good they think he'll undo it given that they think he'll undo it they don't need to move right what's the equilibrium of this game it could be that markets don't move very much and the president becomes hypersensitive to markets
who knows this feedback loop is profoundly broken and it would be a lot easier for it was genuinely mechanistic but it's not maybe you know all of this comes back to what how do you rewrite the rules of the game when you have an unpredictable president and so the idea of talker the people found very reassuring is in fact the president's very predictable. I don't know that's true actually so yes he tacos sometimes except when he doesn't and so you could think about
you know and I do think you write to bring up all the past analogies I think most clearly through the trade war but if you remember Canada went from our number one enemy to our number one friend and it did like three or four round trips on that journey actually right now the rhetoric is
Profoundly anti-Canadian the reality is not very anti-Canadian but it's very ...
and it's not even clear that the president has so mate if I look a little bit lost it's because this is very confusing so you look here's the here's the safest thing to say markets are
“reacting as if developments in Iran are tremendously important for the development of the global”
economy yes when you see the move one and a half percentage points based on a truth social post and that takes into account that he might taco that one and a half percent is a profound underestimate of the true effect of going to war because they don't think that he pulled back from all they think there's some possibility he did and some that he didn't some since what's already priced in the economic implications here are numerous and it's kind of hard to put any numbers
on it I'm just wondering when you teach your class your students over at you Michigan I assume that what's happening in the news is making its way into your classes and into your lectures what kinds of takeaways are you trying to convey to your students right now in the middle of this moment yeah and I'm not teaching a semester sorry yeah okay fair enough I'm talking to a lot of people let me give you a couple of very quick answers the first is the orders of making a
“shooting fault with war are very very large second is what I think I was being the most important”
macroeconomic skill which is being able to keep track of of orders of magnitude to give an example I was interviewed a bunch of times a week ago just after it came out that the Pentagon had said
that the first week of the war cost $11 billion and commentators like oh my god 11 billion
dollars this is outrageous it's terrible it's too much it's and I'm like you know actually 11 billions not that much 11 billion is well if there's 100,000, 100 million households you can do this for me it come on what if that's like don't put me in this position it's 100 bucks a household it's a hundred bucks per household not much but then you see markets today I rise one of the half percentage points and as we talk about that's a trillion that's you know a trillion dollars right
and so the stakes aren't tens of billions the stakes are hundreds of billions implausibly trillions and so therefore the stakes for the average and no one is average the average American household are thousands and plausibly tens of thousands of dollars so two things you learn out of that one big deal two keeping track of orders of magnitude is actually the most
“important skill here I can probably guess how many zeros are involved I can't anyone who thinks”
they know what number is in front of the zeros is is kidding themselves about how precise they can be all right Justin Wolf has professor of economics and public policy at the University of
Michigan Justin always appreciated thank you so much great pleasure it
after the break open AI locks in and for even more markets insights you can subscribe to my weekly newsletter simply put at simply put.proxymedia.com support for the show comes from ship station when your company is growing nothing stops that growth quite like a bad customer experience because they couldn't get your product luckily ship stations intelligence driven platform brings order management rate shopping inventory and returns warehouse
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think of a man but there's one woman who might fit to build she never thought she'd be in politics
When on to break what she calls the marble sealant then they'd say why don't you
want just make a list of things that the women want and we'll do those what this is in this century really so the marble ceiling it's not a glass ceiling it's a marble ceiling and they all had it lined up but you go next and I'll go next and I'll go next and I'll go next and I'll go next and I wait like well you know what we've been waiting over 200 years for breaking in line Nancy Pelosi the long time democratic speaker of the house live on stage as South by South West
and Austin today explained every weekday and now one Saturdays two
“this week on version history our chat show about the best and worst and most important”
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in an internal memo the company's chief of applications said that open AI needs to ditch its side quests in order to quote nail productivity on the business front that new strategy
“includes building a super app that combines chat GPT codecs and the Atlas browser”
the company is also planning to double its headcount by the end of the year as it works to keep up with anthropic here to discuss open AI's new strategy was speaking with Alex Heath author of the sources newsletter and co-host of the access podcast so Alex this new news from open AI they are trying to ditch decide quest this is sort of the initiative that's being spearheaded by Fiji Simo who I know you have interviewed and who you've been talking with tell us a little bit
about what you know about what they're trying to do at this point how has the open AI business strategy actually changed here yeah I mean I've been seeing people calling this a pivot and I guess you could say it is but if you look at what's really happened at over the last couple years in AI open AI went square for consumer being the biggest consumer AI platform and they did that
right they have 900 million users and they're growing they're still meanwhile what anthropic did
is during that same period it focused almost entirely on enterprise and now Claude has you know some traction especially off of you know people wanting to support the company due to what happened with the Pentagon but anthropic was B to B open AI was was consumer now that open AI has one consumer guess what the vast majority of its users actually cost it money to to surf this was something I was talking about with Fiji when she was on access a couple months ago and that's a problem
if you were a venture backed unprofitable AI lab who needs to IPO right and where is the money in AI it's in enterprise applications it's in putting agents in large companies doing four deployed engineering building all these kind of bespoke products for enterprise usage that's where I mean in Silicon Valley people are talking about token maxing right companies literally incentivizing their employees to burn as many tokens you know which are just the atomic units
of AI as possible and there's literal leaderboards of you know who is doing this and spending the most money inside the company that doesn't exist in consumer land so open AI you know needs to make money it needs to become profitable and short of the adds thing that they're doing
which we've talked about a lot this is the way to do it it's to go after enterprise and they finally
have a model and a product and codex that is growing on that front on the coding front and finally can challenge what cloud has been able to do specifically on coding definitely doesn't have the mind share but has exploding usage and so yeah the super app idea makes a ton of sense and as does you know growing the enterprise push if you look at it that way and I think I think this is just the beginning I mean I think I think the super app ideas like this is the future
“of all of these assistants I think cloud code is going to be the interface tax that's what we think”
of as cloud the chatbot and I think the same will happen for for Chad GPT codex we'll eat it. Do you think that they see their push for consumer versus enterprise as a mistake at this point? I mean that's really how it seems on my end I look at how anthropic how Claude is
Taking over the enterprise market but I I always thought that this would happ...
predictions that I I made a while ago about two years ago I thought that chat GPT is a consumer
product was going to kind of fall by the wayside and my prediction was opening I was going to sort of shift their focus they had this awesome hit product but they're going to go after the real big fish that everyone wants which is enterprise customers so chat GPT will kind of fade out of view and we'll see more emphasis on enterprise that's not what happened at all but if they had gone with what I thought they were going to do then maybe things would look better for them but do you
think that they view that as a mistake that they went off the consumer and they realized this actually
“isn't that great of a business compared to enterprise and now they're switching over I think”
they view not focusing on coding and coding model progress earlier as a mistake as a huge strategic mistake that they're now catching up on and they gave andthropic the opening with Claude code that it has I'm not so sure about the consumer versus enterprise thing I mean look when you get
to a billion of users you can kind of just figure it out that's like the hardest thing to do
right and you know what is harder you know anthropics enterprise deployments or getting hundreds and millions of free users to be very attentive in your product it's hard to say I mean I think you know it's incredible long-term optionality if they can figure out the ads piece which they they will they just hired a senior metad exec this week phiji ran you know monetization at Facebook they'll figure that piece out that's the thing anthropic doesn't have and that's probably
we're all the all the margin is really if you start doing really good ads on a surface that high intense that data rich for hundreds and millions of people you've got the next massive scale consumer internet business which anthropic just doesn't have by the function of Claude not being huge as a consumer product yeah so I'm not sure I don't I don't know if they really feel like oh my gosh we forfeited you know enterprise and now we got a scramble I do think though the coding piece I
“think these companies judges themselves based on the model progress and I think open AI got distracted”
with I mean phiji said it all the side quests but with you know being a massive consumer company and hiring all of these consumer you know previous era tech employees to come in and do all these different things and Sora and all this stuff and meanwhile anthropic was singularly focused on coding and the enterprise market and now that's paying off so they're playing catch up there for sure it does seem like focus would also just mean building out this ad business if they if they want to
win in the consumer world which they have done and they want to figure out how to monetize it now it's time to get into ads and as you just said they just hired one of the top advertising executives from mehto who's now gonna lead their ad sales would you say that advertising is still top of mine for opening AI in spite of being made fun of for it after the Super Bowl with those anthropic Super Bowl ads people saying we don't want ads in our you know AI apps do you think they're
still going for the ads yes they are I mean they're testing it and the early reporting on the tests or that they've been super low tech surprisingly very bespoke and white glove and I think they're just trying to feel it out and feel out the limits of advertising on a surface like this and now they're productizing it and they're building the system to kind of deploy it at scale they have to do it for the reasons we talked about yeah I think if you bought the theory from
Sam Alman that Super Intelligence or some version of it is just around the corner and the technology is really going to automate all labor and replace you know scientific drug discovery and all the things that they talk about would you be doing a concerted ads push maybe not right like if you've got like AI God right around the corner so I think it also suggests that this model progress that gets hyped a lot in the industry is maybe not as dramatic as as as it's said
but there's no I think ketchup these going to be around for a long time I think it's going to be big it's just ingrained you know it's like the Kleenex AI for a lot of people that takes a
“long time to unseat that's what Google managed to accomplish yeah and sure like there will be”
nipping at the heels and at the edges of it like what Claude is doing with a lot of like tech early adopters right now who just anecdotally I'm I'm also part of this but here just like switching from chat to to Claude but in terms of your mass average consumer chat is still the only AI experience that they have and that they know and that's just going to be very hard to unseat yeah the the other final news I would just want to get your reaction to that I saw a little
today this is exclusive from Reuters apparently open AI is offering private equity firms
investment deals with a guaranteed minimum return of 17 and a half percent so basically saying if
you invest in us we guarantee we will return 17 and a half percent of your money which for those
Who don't know that's like a ridiculous return that's significantly higher th...
this just seems ridiculous to me how can you guarantee 17 and a half percent it makes me think maybe
they're just going to lose money on this thing or maybe some sort of foul play I don't really know I just wanted to know if you know anything about this and if that sounds right to you I don't have reporting to share on it I do agree with you that it's unusual and maybe a red flag someone has been picking up the bill constantly yeah and who is like going to keep picking up the bill that it comes back to why they need to do enterprise why they need to do ads like at the end of the
“day you need to eventually control your own destiny which as a company is producing free cash flow right”
which is what the meta and Google and apples of the world have as they have control of their destiny
because they have massive money cannons and open AI right now is contingent on sam's ability to
convince another large pool of capital that he has somehow not already tapped to invest more money until they become profitable right and like maybe the IPO is the next phase of like someone paying the bill then it's dumped on retail and maybe that's you know if you're going to IPO it by Q4 maybe you feel confident giving a 17 whatever percent you know guarantee but certainly strange you know I'm old enough to remember when open AI was a nonprofit and all investments up until like a
year ago we're labeled with like disclaimer this can go to zero and you should treat this as a
“donation so definitely a new territory we're in it was the capped profit company now it's”
there's a floor 17 half a set that's really really incredible okay Alex Heath all through the
sources newsletter and co-host of the access podcast Alex pushing time thanks Ed well we started the week on the right foot Trump said he had quote very good and productive conversations with Iran and that is what created $2 trillion in market value in a matter of hours the implication was that the war with Iran might be coming to an end or at least that is what investors thought but then as usual we got some clarifications that complicated things Iran denied
having any direct talks to end the war and the nation's foreign ministry said they'd had no negotiations with the US that was when stocks started to fall back down again as investors recommend the possibility that the president might be once again talking out of his ass is that really what was happening here was he lying I guess we don't know but I guess that is also kind of the point and this was yet another reminder that anything that comes out of the president's mouth cannot
really be taken seriously especially if you are an investor and we know this because we've seen it over and over again two weeks ago for example Trump told us that the war with Iran was quote very complete investors bought that news and then here we are two weeks laser and the war continues to rage on before that we had the debacle with Greenland where Trump suggested America would simply take Greenland and he refused to rule out the use of military force investors sold on that news
1.2 trillion dollars in market value was erased but then he got bored of that idea and then he decided to move on to the next thing last year he suggested firing Jerome Powell he said his termination quote cannot come fast enough everyone sold and then he turned around and he said he had quote no intention of firing him he did the same thing with of course the tariffs the tariffs were on and then they were off and then they were on again and off again and with each announcement
trillions of dollars worth of stocks and bonds were traded each time it happened and so here we are again this time betting not on trade policy but on all out war but if there's anything we've learned at
“this point is that if you want to actually understand things if you want to understand”
the global situation if you want to get closer to the truth well then there is one thing that you should not be doing and that is you should not be listening to the president because what we know now is that despite the power he has his words genuinely mean nothing doesn't mean he's necessarily lying right now and it also doesn't mean he's telling the truth what it means is it means nothing there are no conclusions you can draw there are no predictions that you can make based on what he
says and if you try well then you will fail just as millions of traders have failed before you so we'll end here with a message to Wall Street if you want to stop losing money
It's quite simple stop listening to the president and for one simple reason m...
out of that which has no meaning at all okay that's it for today this episode is produced by
“Claire Miller and Allison Weiss edited by Joel Passen and engineered by Benjamin Spencer. A video editor”
is Brad Williams a research team is Dange Laugh and it's about a cancel Christmas Donahue and
Mia Sorvario our social producer is Jake McPherson. Thanks for listening to Proftly Markets and
Proftly Media if you like what you heard give us a follow I'm Ed Nelson I will see you tomorrow
