Hottest Inflation Report In 3 Years Has One Big Problem

Four years ago, I got a tip about the court, and I was not in the market to cover it whatsoever.

“But this tip was about a secret influence campaign that had been carried out inside the court.”

As you know, the very idea of that is outrageous. I'm Preparara, and this week, New York Times investigative journalist Jody Cantor. Join me to discuss her exposé on the court's Shadow Docket. The episode is out now. Search and follow stay tuned with Preparara wherever you get your podcasts. Today's number 39.

That's the percentage of Republicans who think Trump would beat them in a physical fight. That is according to a new poll from research from YouGov. And another news, celebrations at YouGov after winning the Pulitzer Prize for Best Survey Question Ever. "I'll be right back, I'll be right back." "I'll be right back."

"I'll be right back." "I'll be right back." "I'll be right back." "I'll be right back." "I'll be right back."

"I'll be right back." "I'll be right back." "I'll be right back." "I'll be right back." "I'll be right back."

"I'll be right back." "I'll be right back." Welcome to Proftory Market. I'm Ed Nelson.

“It is May 13th. Let's check in on yesterday's market vitals.”

The S&P and the Nasdaq fell after the latest inflation reading came in higher than expected. We'll talk about that shortly. Oil prices continued to rise. As tensions between Iran and the U.S. Remained elevated treasury yields also climbed.

And finally, the Senate confirmed Kevin Worsh as Fed Governor,

plearing a major hurdle toward becoming Fed Chair. Okay. What else is happening? Inflation's sword in April, up 3.8% from a year earlier. That is the highest inflation reading in three years. And even hotter, the economists had expected.

Energy accounted for 40% of the month to month increase. And was up 18% from a year earlier. But price pressures are spreading beyond fuel. Core inflation, which excludes food into energy prices, claims 2.8% from a year ago.

And for the first time in three years, wages are no longer keeping up with prices, which essentially means that real wages are falling. So here to discuss these numbers and the state of the economy, we're speaking with our friend Justin Wolfers, Professor of Economics and Public Policy at the University of Michigan,

and founder of Platypus Economics, his new YouTube channel, Substack and podcast Justin, welcome back to the show. Let's get right into these numbers. Inflation up 3.8% year over year in April. Core inflation up 2.8%.

This seems to me to be the worst reading we've seen in a long time. I guess the question is, how bad is it? It just hearing you go through those numbers. Cours, the worry lines to each a little deep right now. And I was in a good mood before I started talking to you.

Two things are true. This is a high inflation read. The cost of living is rising sharply. People are finding it hard to keep up. Their affordability crisis is real.

The second thing is true is none of this is yet deeply problematic.

So let me back up and put that out. There's two inflation measures you just pointed to. One was headline inflation that answers a specific question. If I care about the cost of living, what happened to the cost of living, that's it. It rose.

And so if you feel like you're not keeping up, it sure it is when you're paying 4 bucks a gallon, you're not.

“Second question is, what's going on with the future of inflation?”

And that's where economists tend to look at core inflation. We exclude food and energy. It goes up and down with droughts and eight in flu and stuff like that. Energy goes up and down with strife in the Middle East. And so neither really capture the underlying inflationary momentum or the inflationary psychology.

And that at 2.8% is lightly uncomfortable, but not miserable. And a question and perhaps the question over the next few months is, how much will we be able to keep? Well, this is an energy crisis around temporary story. Remember, there's still some tariff business going on. Versus how much does it gain the same momentum.

Start to feed its wind to inflation expectations and become something substantially more to worry about. Because getting inflation down from 3% to 2% would require slowing the economy quite substantially. So this gets to the heart of the problem, which seems to be that it's really, I mean, when you look at the numbers, it's mostly a fuel problem. It's mostly an energy problem, or at least 40% of the problem was the cost of energy,

which is because of the fact that the strife on Moses closed, because we're at war with Iran,

And this was asked in so many words to the President yesterday.

Yesterday, he was asked whether the financial pressure facing Americans was going to influence his decision making in Iran, and his response was striking. I just want to play this clip and get your reaction. Not even a little bit.

“The only thing that matters when I'm talking about Iran, they can't have a nuclear weapon.”

I don't think about American financial situation. I don't think about any, but I think about one thing. We cannot let Iran have a nuclear weapon. That's the only thing that's gone. You're reactions to that clip.

Actually, I thought it was going to be much worse. What a relief.

Let me start by agreeing with the President.

I think it's probably immoral to go to war in order to deliver low gas prices. I don't want him to walk around doing that. I think the stakes of war are so much larger, they're human. Gas prices is narrow, short-term, small and selfish. What I noted though is the mission-changed,

which is originally going in there free the Iranians from the Yoke of oppression. That all we wanted was regime change, and we didn't get rid of Ayatollah community, which is why we now have instead Ayatollah community. I understand there's a vast difference between the two.

So scoring this war is so damn difficult, because the President refuses to say why we're there. Having said that it's okay for him not to be laser-focused on what this does to the cost of living for Americans. Let me come back and give the other side of that.

I do think the stakes, if we're talking about the freedom of 90 million people,

or the possibility of crazy regime make bombers to smithereens, those stakes are just enormous. And I'm happy to pay a little more at the pump if those are what we achieve. It would be clear if I would have achieved nothing.

So we had started the war. The straight of the Moose was open. We had Ayatollah community in the Iranians had nuclear material. The straight of the Moose is closed. They have Ayatollah community, and they still have nuclear material.

So whatever, I don't feel any sense of why my life's better here.

“I think the reason people have a right to resent this is the President never tried to make the case to the American people.”

Here is an important and noble goal from which I'm going to ask sacrifice. He seems constitutionally incapable of asking for sacrifice. He's a thing that populations do when they're considering war. That's an adult grown-up mature conversation. Just like saying, I'm going to start a tariff war and prices aren't going to rise.

Isn't it a mature lie? You might think there's a serious argument to be had about defending American manufacturing or some argument. It's not my argument. There'll be some costs and there'll be some benefits. But I think this leads to a better world.

That's a mature conversation. Not even having the conversation before putting Americans prosperity, livelihoods and in some case children at risk. It's not my wife doing things, man. When we think about what's happening with inflation here, and you mentioned the difference between core inflation versus overall inflation.

We strip out food, we strip out energy because it's volatile. It can skew the data in a lot of ways. Trump has made this argument where he says that the increase in oil prices and fuel prices is fake inflation. It's a different thing. On the one hand, you can make that argument.

On the other hand, it's like, we're still at war here and there's no indication that this is going to end anytime soon. And in fact, the more they keep on telling us a deal is about to happen or about to get somewhere. There's going to be a ceasefire and suddenly it doesn't happen. It happens over and over and over again. It starts to become kind of clear at least to me that this is going to last for a very very long time.

And it starts to look a lot like Iraq. It starts to look a lot like Afghanistan where they said it's going to be a couple of weeks. It's going to be a couple of months. And it ended up being eight years or it ended up being two decades. And so it seems as a very similar situation could play out here where we're telling ourselves that it's transitory like we said a few years ago.

We're telling ourselves, oh, it's it's just for now. It's fake inflation. It's just it's just for now. It's just the fuel because the straightaway loses just blocked up for the time being.

“I just, I'm not sure I believe that anymore.”

And it starts to seem as though the 3.8 number could be something that lasts for a very long time.

It either memory that at the very start of the war I came on your show.

And I said everything that economic theory and history tells me is it is a very large risk. This takes a lot longer than four to five weeks and almost no chance it takes less. And there's a long history of excess optimism at the beginning of wars. And that a more realistic assessment should be that it was likely to be far longer with a far greater economic cost. I take no great pleasure in being right.

I just want to remind you I was. The Food and Energy, let me say two things about it.

“One, you know, we take it out for the reasons I described earlier, which is if you want to just we leave it in for the reasons I described.”

If you want to describe the cost of living, it's got up Americans are sacrificing. If you want to know what's happening to inflationary psychology, we take it out. But there's a very real risk it spills over and becomes part of the process. And that's very much what's on the Fed's mind right now. That in our models, people shouldn't think about inflation.

Should think about inflation coming from energy differently from other things. From reality they may not particularly after several years in a row of inflation being above the Fed's target.

And finally, this wasn't the question you asked, but I do want to put it in there.

Food and energy is something we look through as part of a statistical exercise. I want to predict inflation, what are the most persistent aspects by blah blah. But Food and Energy are also a very large part of the consumption basket of the world's poor. And so the World Bank and the IMF have pointed out if you wanted to think about who's really going to be hurt by high food and energy prices. It's actually the most vulnerable in the world.

And again, if we could have a mature responsible conversation about whether or not to go to war, part of that one hopes the American conscience cares somewhat about hunger and poverty beyond our shores. And the consequences there are very large. And you and I, so far, have been talking about the United States economy.

It's remembering that U.S. economy is actually much less affected than many of our allies.

And that Europe and Asia are feeling much, much, much more pain than we are. And those folks even more than the American people wanted to ask their feelings about this either. Yeah, it seems as though this has to come back to bite us in a very real way at some point. And so, for the markets have been extremely resilient. Wait, it's agreement with that. So let's pick that up.

Yes, yeah. So look, here's the glue bands. So the glue bands, who is the stock markets at no time high, therefore the market thinks the war is fine. That's clear because markets reflect lots of things. So let's just think about it in a more focused way.

Let's say that the markets partly responding to the war, partly the AI boom and partly other stuff. And if what you want to do is take the markets' responses a vote of confidence in the war,

“then what you need to do is isolate the power that's due to the war.”

How might we do that? Well, one answer is we can look every single time that the president has been more belligerent and pushed into the war. Markets have fallen literally as he speaks. Every single time he steps back and looks like he might take a market's rise.

So that's markets saying they believe. They're acting as if they believe that Americans' large companies will be more profitable over the longer run. If the president would have stepped back from the conflict rather than stepping into the conflict. You could actually go even a step further in trying to quantify this. So if only we had some index of trouble being caused by the Middle East,

then what we do is we'd see how that index was correlated with the stock market. I don't have the perfect index, but I've got a pretty good one which is oil prices. All the movements up and down in oil prices are about is they're more trouble, more strife, we're moving towards war or not. And it turns out on a day in which oil prices rise 10%.

The S&P 500 falls by 0.9% on average. You just draw a scatter plot and you'll find that. You can get fancy and call it a regression coefficient. And so that tells you there's very strong statistically significant evidence that whatever it is that's driving oil prices up and down, and we know what it is, has big negative effects on U.S. stocks.

We also know that the oil prices up about 60 or 70% over the course of the war.

“And so if you want to extrapolate my point negative point 9 coefficient, that says you take the 70% to rise in oil prices,”

multiplied by minus 0.9, and you can say the U.S. stocks are about 6% lower than they would otherwise be. 6.3% as a result of this war.

So I think this analysis very back at the envelope, but we're in the middle of a war. No one's giving you strong answers.

“You know, I'm not going to defend it till the day I died, but I think it's informative.”

This says that U.S. stocks are 5% of points lower as a result of the president's aggression so far. Because we have all of these other things that are buoying the economy and that are, we're all very excited about. Because earnings have been very strong. We do have the AI build out occurring as planned. We'll see what happens. But we got a lot of other stuff going on, which is great, which is, I think, a lot of the resiliency is reflected in that.

But it just does seem that, I mean, at the same time, two thirds of the economy is consumer spending. Consumers spending has thus far been somewhat resilient. And I guess we're just playing this waiting game at this point of helping this thing all end next week or next month. And that's essentially what we are, what we are betting on and what we're hoping for. And I don't know, I just, I mean, you're in my voice, this, this, this report makes me quite anxious. I mean, just as we wrap up here, the Senate confirmed Kevin water is the Fed governor.

Yes, today, this obviously, all of this inflation data is going to be very important for his decision as what we do in terms of interest rates. Will we cut them as the president has advocated for doesn't seem like a great idea now. Just as we close here, what are your thoughts on, on water's appointment and what do you think the path is going forward for the Federal Reserve?

“So the most important question is who is Kevin water?”

So from 2006 to 2011, Kevin water was a Fed governor. And so we know a lot about him. That was the period in which we had the global financial crisis, the global economy created, the US economy created, unemployment saw inflation was low and we risk deflation. And throughout that entire recovery period, water kept saying, I'm worried inflation's going to rise. I think we should have higher interest rates. So two things you could learn from that one, that was a spectacular bad judgment.

It's almost certainly the case that the US economy would have been better with a more aggressive response to that particular crisis.

And the second is that that Kevin water, the 26th, 2006 to 2011, Kevin water was an inflation hawk.

He saw inflation around every rock through that period. It was terrified of it and one of the forceful Fed response to it, even though we were risking deflation more than inflation. Yeah, it opposite. Yeah. There's a different Kevin water.

“That Kevin water was at a Senate confirmation hearing and said, I believe in Fed independence and was asked by Fed independence, of course, means I'm willing to serve the interests of the American people even if it hurts the president's feelings.”

This Kevin water was asked by Elizabeth Warren, whether the president lost the 2020 election and thought it's so important not to hurt the president's feelings that he evaded the question altogether. That Kevin water sounds like a suck puppet and a suck puppet who'd follow the president's desires, which would be to cut interest rates dramatically at a moment that the economy doesn't call for it. Hey, man, there's two Kevin waters. One of them wants really high interest rates. The other one wants really out low interest rates. I'm glad I'm not trying to living inside his head.

And we got to find out in the next few weeks and months who Kevin water is. Justin Wolfers is a professor of economics, public policy, the University of Michigan, and founder of Plasper's Economics, his new YouTube channel.

Do I encourage you to go check out? It's also a subject and a podcast. Justin always appreciates it. Thank you. Great pleasure.

After the break, white chip stocks are on a tear. And by the way, we're heading out on tour at the end of the month. So for more info and to get tickets to a show near you, head to Prof. MarketsTour.com. Support for the show comes from hosting her. The biggest barrier to entry from most entrepreneurs is an lack of capital. It's the friction of starting. You can spend months in the strategizing phase, which is precious time that could instead be spent actually making moves, but these days the rules have changed.

AI is redefining who gets to build a business. So when you're building the next big thing, go live in minutes, not weeks with hosting her. Hosting her is an olive and platform that brings everything into one place. Your domain, website, email marketing, AI tools and AI agents. So you can launch online without stitching together five different subscriptions. Start with a prompt and add your personal touch. You can create websites, online stores, and custom maps without coding or designing skills.

Use AI agents to automate tedious tasks and grow your business. Hosting her powers over 10 million websites, and there's a reason it earned a CNET editor's choice award.

Turn your one day into day one.

You can an extra 20% off with promo code, TheProvG. That's less than the price of a cup of coffee per month.

“That's hosting her.com/TheProvG promo code, TheProvG for an extra 20% off.”

Support for the show is brought to you by Vanguard. To all the financial advisors listening, let's talk about bonds for a minute. Capturing value and fixed income is not easy, bond markets are massive, murky, and let's be real. Lots of firms are a couple flashy funds your way and call it a day. But not Vanguard. Vanguard bonds are institutional quality, institutional quality isn't a tagline, it's a commitment to your clients. It means top-grade products across the board. The lineup includes a variety of bond funds.

Connectively managed by a 200-person global squad of sector specialists, analysts, and traders.

A lot of firms love to highlight their star portfolio managers, like it's all about that.

One brilliant mind making the magic happen. Vanguard's philosophy is a little different. They believe the best actors strategy shouldn't be locked away with one person. They should be shared across the team. So, if you're looking to give your clients consistent results year in and year out, go see the record for yourself at Vanguard.com/Audio. All investing is subject to risk Vanguard marketing corporation distributor. We're back with Proftory Markets.

Chip stocks just posted their biggest run on record. Over the past six weeks, S&P 500 semi-conductor companies have added nearly $4 trillion in market cap. Chip stocks now account for almost a fifth of the entire S&P and three companies, TSMC, Samsung, and SK Heinix. Account for more than a quarter of the entire MSCI emerging markets index. Meanwhile, an index of semi-conductor companies hit a record high on Monday and is up 65% year-to-date.

However, the index did fall 3% yesterday as traders took profits following all-time highs. So, hit out was breakdown what's happening in the chip market and what is driving this rally. We're speaking with Stacey Raskon, managed and director and senior analyst at Bernstein Research. Stacey, thank you for joining us. It's just some unbelievable numbers here.

Sandisk up 50% in the past month, micron up 78% intel 80% AMD 80% I mean, all of these chip stocks are just tearing right now. And I guess the question is why is it happening right now, as opposed to say a year ago, when Nvidia was also tearing? Yeah, to be fair, we've had a number of names over the last year or two or three, you know, move like this. But we haven't seen the whole group broadly move like this. And I think it's a few things.

First, there's been a real appetite to play other names.

“I think in the AI supply chain, and frankly, the AI is now getting so big that it's dragging everything along with it, right?”

Now, it started with the GPUs and the accelerators know a year or two years ago, whatever. And then, one at a time, different other end markets that are more peripheral to it, but important for it, have come into focus. I mean, we went from the GPUs and accelerators and then we went to memory and then semiconductor and then optical and then power semiconductor. And more recently, CPUs, and so one at a time, as demand has grown and grown and grown, it sucked a lot of these other things into it and driven unexpected upside.

These were not areas that investors broadly were looking at for upside from the AI trade. So I think that's that's one. Secondly, and maybe explain some of the recent ramp at your to your point. I mean, I think the socks index, which is a broad index of semiconductor stocks is up. At least as of Friday, I'm not sure how it ends up today, but as of Friday was up 66% year to date.

And it was up almost 50% since the beginning of March when earnings season kicks off kicked off. earnings estimates have actually exploded to the upside. And, and if you look at the interplay between earnings and multiples year to date, multiples valuations in the industry year to day are actually down slightly. All of the growth in the stocks has been explainable via growth in earnings estimates. We've we've actually had a just a huge cycle of positive revisions in earnings across the board probably most pronounced in in memory.

“But we've seen earnings go up like pretty much across the board and I think finally there's been a real scramble.”

Because not all investors may be have been involved. And frankly, if you haven't been there given the magnitude of the move like you're starting to get with into the realm of potential career risk. Right, if you haven't been investing these things and so I think there is a lot more interest and attention being being placed on the space now and that may be driving some of the soil.

And so that probably does drive a little more volatility and maybe more willingness to buy some of the narratives over, like some of the other fundamentals that are there.

So I think it's a combination of all those four things that have taken the stocks up, but they've really been on a tear. Yeah, on the one hand, it almost looks like it's just expectation speculation, momentum. I mean, people talked about GPUs and then suddenly CPUs are hot and now memory chips are hot and suddenly everyone decides, oh, we're very excited, but to your point. I mean, if the fundamentals are there, if the earnings growth is there, and if on an earnings multiple, it's actually gone down for a lot of these names, then maybe it's it's not too much of a concern and maybe that means that there actually is still more room to run despite the fact that we've seen these ridiculous jobs.

“There's a relevant debate on like how sustainable are these earnings, right? So that's let me take memory just in the example, because that's why I think we're seeing more the more extreme behavior and I don't cover the memory space.”

It's a colleague of mine, so I will refrain from discussing investment conclusions on these, but just on a factual basis take take a company like a sand desk.

They just guided to an earnings next quarter that is higher for that quarter than the entire stock price was, you know, 18 months ago when they went public. I'm going to make up the numbers, but it was, you know, they guided us, I can't miss something like $32 a share and it was, it went public at like 30 bucks or whatever. I don't think so, so on that basis, 18 months, it was trading, like, you know, 0.25 like price to four earnings, right? I mean, it's just been amazing how much, and memories of its own special case, right, but, but you have that.

You've also had multiples and memories come down actually probably the most of everything, the multiples are probably down 20% here today, on an average basis. I don't know, more and more, while earnings estimates have, I don't know, quadrupled or quintupled, something crazy. And the reason is, you know, investors, you get worried when when numbers go up that much, you worry that are we close to peak, right? And if you're worrying close to your close, you're going to pay less for that earnings, and so that's some of the dynamic, I think, not just in memory, but I think broadly we've been seeing and I think that is where the debate is is, are these earnings sustainable.

And the level of AI capex that we've seen, you know, from the hyperscalers, we're, you know, we're getting, not that far off of a trillion dollars this, this year, are those levels of sustainable, how much more can that grow.

“These are the kinds of conversations I think that investors are having, as they're trying to evaluate whether or not that the stocks still makes makes sense to be in or not, but, but for now.”

And the reason why I'm not on the nettles have actually been, been fine, like, as earnings have been growing, and at least from a demand standpoint, at least within the AI space, it doesn't look like we're seeing any signs of slowing at this point. We can talk to some of the other end markets, but I mean, AI is, is really the driving force behind everything, right? And by the, in and out of semis, you know, if AI demand, the average does roll over, like, we're all screwed. I mean, it almost feels like even in the broader economy, it's the data set of spending in AI spending that really is supporting everything right now.

The sustainability of earnings seems to be such an essential point here, because we all seeing a lot of people pointing to the earnings saying, okay, everything's fine.

But at the same time, I mean, we're witnessing what looks to be a little, like, a little bit of a gold rush, but for data centers. That is the reason that all these stocks and all these, or their products are in demand is because everyone's trying to build a data center right now. But I guess the question is, like, are we going to be building data center? This many data centers perpetually into the future. The answer seems to be logically speaking just no. I mean, once you've built the data center, it's built.

But what do you think? Well, I mean, it depends on how much compute you need, and so that this gets now to the usage and the return on these assets. And again, it's still early days, right? And the amount of revenue that is getting generated from these assets is still probably relatively small. Most of the spending we've seen so far has been used. They built these massive compute clusters to train these models. I don't know how much your, your list was no about AI models. But you can sort of think about, like, a massive amount of data and parameters that have to be set to create a model that can perform a task.

And so most of the compute spending so far has been to train these models.

“So what we need to see is these models actually get used for something, right?”

It's actually called inference, right? And it's still early days, but we're already seeing evidence. So you can take your company like an anthropic, for example, who discloses their annualized, like, run rate of revenue. And anthropic makes something that's called clod that's used for, you know, for a gented coding, for example.

And I mean, there were revenues gone vertical. I mean, as of the most recent analysis, which was, I think a week ago, maybe.

There's something like $44, $45 billion a revenue annualized.

“In April, I think they, I can't even remember, they were at $30 billion or something.”

And in, like, January, they were at $14 billion, and in December, they were at $9 billion. And a year ago, they were, I don't know, $1 billion, maybe, the last. So, I mean, and this is probably a good example of an application where customers are absolutely willing to pay for it. And there were revenues have gone vertical, right? So, the question of whether or not we need to keep building all this data center, either not as much or much more,

kind of down to how much computer we are going to use. Like, how many tokens are people going to use? And I don't know the answer yet, but right now, it's going literally vertical. So, like, that is something I guess we'll have to see as we go forward. But as of right now, the only thing we're hearing from any of these folks is that they don't have enough compute.

Just to wrap up, yes, and investment conclusions. I mean, it seems to me that you shouldn't necessarily bet the farm on summits, but it doesn't seem like a good idea to not be invested in summits. I mean, whatever happens in terms of AI, and what are the investment conclusions at these prices? Like I said, summits in AI spending in general are kind of driving almost everything in the industry,

and kind of everything in the economy right now. And it's understandable, because right now you're building out the infrastructure and these are key components of the infrastructure.

“And I think you look at the returns we've seen so far and again, the question is, is it sustainable?”

If it's sustainable, I don't think that performance that we've seen at this point has been crazy. And even the side where you want to play if you're in summits, again, we've like, we've like the, you know, the accelerated names, the inventions and the broadkins of the world. I'd like semi-cap, the guys that actually make the equipment, they make semi-connections. If all of this demand is really going to be true, we need more chips and more waferes in that requires more equipment.

So these are the kinds of things that I've liked.

And again, what is always in a gold rush, you know, it's always the, the guys that are making the picks and the shovels that are,

that are making the money. So all these guys are making the picks and the shovels. And then over the long term, we'll see what the usage looks like. Stacey Razzgon, MD and Senior Analyst at Bernstein Research Stacey really appreciate your time. Thank you. Yeah, you bet.

“The financial times revealed something striking yesterday about the state of AI.”

And that is that Amazon employees are faking their usage of AI in order to not get in trouble at work. And that might sound a little ridiculous, so let me explain. Earlier this year, Amazon made it its mission to adopt AI in the workplace as much as possible. Their target was for 80% of developers to be using AI every week. And they even created an AI leaderboard which tracked who was using AI the most at the company.

Now, the result was that employees did start using AI more, but as the FT reported, they weren't using it to get actual work done. Instead, they were using it for meaningless tasks with the ultimate goal of showing their managers that they are indeed adopting AI. One employee said that workers at the company are simply using AI to, quote, maximize their token usage. And another said that it has created, quote, perverse incentives and that people are, quote, very competitive about it.

By the way, a similar dynamic has cropped up at Meta, which is also using AI leaderboards, and employees are now engaging in what is known as token maxing, which essentially means using as many AI tokens as possible to rise up the ranks of the AI leaderboard and impress your boss. There is an economic term for this known as Good Hearts Law. It's named after British economist Charles Goodheart, who said that, quote, when a measure becomes a target, it ceases to be a good measure.

And in this case, that measure is AI adoption in the workplace, but unlike most measures, this one has become the underpinning of the entire trajectory of the stock market. And so what these anecdotes at Meta and Amazon are telling us is that this measure is probably no good. Yes, we are buying chips, and yes, we are using AI, but in this case, that usage isn't actually real. And if it isn't real, well, then the question becomes, is the demand for AI actually sustainable,

to which the answer is maybe probably no.

Now to be clear, does this mean that all of the AI usage is fake or forced or contrived?

But the question is how much of it is fake or contrived.

“We don't yet know the answer to that question.”

But when we do, rest assured, it will either make this market or break this market.

Because as we've said before, the economy and the stock market are now a giant bet on AI. [Music]

Okay, that's it for today.

“This episode was produced by Claire Miller and Alison Weisen,”

engineered by Benjamin Spencer. Our video editor is Brad Williams. Our research team is down to the lawn.

“Is a delicate little Christmas Donahue and Mia Salvario.”

And our social producer is Jake McPherson. Thank you for listening to "Proftly Markets" from "Proftly Media." If you liked what you heard, give us a follow. I'm Ed Elson. I will see you tomorrow.