How Big Tech Offloaded The Risk Of AI

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I'm John Finer, and I'm Jake Sullivan, and we're the hosts of the long game, a weekly national security podcast. This week, we're breaking down the dismissal of Ukraine's defense minister, the architect of their drone strategy. The episode's out now. Search for and follow the long game wherever you get your podcasts. Today's number three. That's the number of hours depends prime minister says she gets per night. I don't know if you've heard about the new

quarter-roy pillows. They're making headlines. How much sleep do you get every night, Ed? Seven and a half to eight is my baseline. How much sleep do you get? It's weird. You think it's a sleep is one of those things that just leaves you. When I was your age, I used to just, I was a great sleeper, and my,

to amazing thing is my boiser at that age, but they can sleep 12 hours now, and I'm like,

let them sleep because they're growing, but I would say I get six to seven hours now. I used to get eight. I don't think you need as much sleep when you're my age. I'm jealous. I kind of lament the fact that I need so much sleep. I'll get eight hours, and I'm still exhausted when I wake up in the morning. Try something else. It's weird. Either that or you're just grumpy and tired all the time because you can't sleep, but yeah, I go to bed. I usually go to bed around two, and I wake up usually around nine,

and then power up that. I guess you've got to kind of walk on US hours a little bit, but the two AM's sleep time is nuts to me. Yeah, but from 11 PM to 2 AM is when I get real work done. Like when I start actually writing well, and I don't know, there's something about that night time. Morning people are more productive, especially evening people are more creative. I'm neither. But from 11 PM to 2 AM, it's just me and the dog, because then everyone's safe, and I feel

asleep, and I feel kind of at rest, and that's when I find I can really like do, I don't know, real work that'll stand out, if you will. You know, Wells is like that. Margaret Thatcher, she would stay up till like four on the morning. Yeah, me and Margaret Thatcher. And then you know, the Wells is barely sleeps is present Trump. He's supposed to get drunk four or five hours a night and that's just astounded to me. He's a fucking fat slob that sleeps in watches Fox.

No, I believe that actually. I believe he watches Fox, and he's got all of his other health.

“You really believe he sleeps four or five hours. That's what they said about Clinton. I think that's”

a myth. I don't think I think that's real. So many people have reported it, and it's not like, it's not like, I don't think that necessarily bragging, maybe it is a bra. I got it out. I think it's real. I think it makes sense. Jeffrey Katzenberg said he doesn't he only sleeps four to five hours a night and send XM to take it. I think that's got to be, I think that's got to take a real toll on you over time. I think there are certain people who are just genetically

predisposed to being fine with low amounts of sleep. I think Trump is one of those people.

And I'm very jealous. It basically just means that he gets like 20% more more time in his life.

He dies sooner. I think I think I catch this up to you on the back and although he seems to be not

Yeah, they're always sleeping. Thank God. They just be constantly looking at you like it's

“snack time, isn't it? But anyway, it's got you all sorts of exciting news. Would you like to share it?”

I have no idea what you're talking about Ed. I don't. I'm befuddled by your query. I got something to do with guy named Newsson. Well, thanks for asking Ed. It's not like off Mike. I had to prompt you to talk about it. Yeah, I've been, I've been appointed to the board of the Regents of the University of California. Very exciting. Yeah, it is exciting. You seem very excited. You're exciting for you. I really appreciate how you're investing in our relationship.

Yes. Why don't you talk about what it is and what what it means to you? So what it is is the

governing body that decides the curriculum, the resources, and you know employment practices,

and where we invest and don't invest. It's a board that oversees what is I would argue the

“greatest innovation machine in history. 74 Nobel laureates, four to the five out of last year were”

faculty at the University of California. It's produced more startups than and created more economic value than I would argue any state and arguably any nation with the exception of the U.S. and China. And just on a personal level, change the trajectory of my life when you get to my age. You have an obligation to reverse engineer your blessings to the things of where you're fall. And all those roads lead back to the University of California that let me in with 3.1 high school

GPA and 1130 on the SAT, 74% admissions rate, and then let me into graduate school at Berkeley, the hospital of business with a 2.27 undergraduate GPA. And then I got my shit together and I kind of locked in and have registered some success because of the generosity of California taxpayers and the you know the vision of the readings of U.C. and when I got a text message from Governor Newsom who are people, the post called me his pal. I've met him once. I shook his hand at Davos. That's,

I don't even know how we got my fucking phone number. Anyways, and I spoke to, you know, I said this makes no sense for me. I live in London at six times a year, two days. Super busy trying to build a business. Of course I'll do this. This is, this for me is a full circle moment. I'm really excited in my mission and aim is still down to one word accessibility. If it hadn't been accessible for me, I wouldn't be here with you.

And that's my mission. I want to figure out a way to grow freshman class size, faster than population growth. But yeah, I'm, I'm boasting now, but this is a wonderful moment. I'm really, uh, I'm super appreciative and reflective of the governor and anyways, I'm, I'm just, I'm super excited to get to work. Yeah, yeah. Very exciting. Very happy for you. All right. Let's get into our show.

Investigation from Nicaria Asia revealed something concerning about some of the world's biggest companies. Alphabet, Microsoft, Amazon, Meta and Oracle are carrying more debt off their balance sheets than on them. The companies have roughly $1.65 trillion in off-balance sheet obligations compared with the roughly $1.35 trillion in debt that they officially report. The situation with Meta is particularly

concerning with an off-balance sheet debt load of $420 billion roughly three times it's reported debt.

So Scott, this was a really interesting investigation from Nicaria. And I want to just add some details and color to it. So, you know, there's one point, we've been asking this question about the AI bubble for a long time. It's like, it's going to be bad if we see huge amounts of leverage.

“And this is what Andrew Ross Sorkin has talked about in his book 1929. That's how bubbles are really”

built, not with equity, but with debt. And we have long been saying, you know, so far, the debt has been relatively contained. Oracle is an outlier and we've seen that reflected in the stock price, which has been obliterated in the past year. But the companies that we really care about like Meta, Google, Microsoft, etc. Those companies have been generally speaking, they've been managing their debt in a responsible way. So we can look at the amount of debt that we know exists

that's on their balance sheets around $1.4 trillion. Nicaria says, we've gone and found that there's a lot of debt off the balance sheets that is worth $1.7 trillion. Bloomberg estimates it might be even higher. They think it's going to, it's around $1.8 trillion. And essentially, what is happening here is the big

SPVs, special purpose vehicles. And these special purpose vehicles are basically these shell

companies where the data center financing isn't provided through the bond sales of the tech company, but it's provided through someone else in most cases private credit funds. So instead of Google going out and making a bond sale, which would have major implications for its own borrowing costs, and its own financial health, see above article, they slice and dice that debt, they offload it into the SPV and the private credit fund, they provide the financing and Google rents the compute

“from the data center. That's how it works. Now we should get into whether that's bad,”

what if we should be worried? I have some thoughts, but I'll throw it over to you and see what you make of all this. There is a sweet spot of leverage in the economy, both in the banking system and corporate debt, and even personally, a certain amount of leverage. But big tech's $1.7 trillion and off balance sheet debt versus $1.4 trillion reported. That gap is sort of the story because when you're hiding a bigger number than what you're reporting, that's not accounting. It's concealment

and Meta's off balance debt is $420 billion, which is 3x what they report. That's not a rounding

era. That's the second company hiding liabilities inside of the first company. In the mechanism is the shell companies will fund the data centers, private credit funds, the shell companies,

“and pension funds and insurance and newities fund the private credit. If you reach far enough into”

the barrel, your reverse engineer or far enough, what you find is that a teacher's retirement account is underwriting Zuckerberg's GPU bill. And, you know, Bernacchio has said this, we're obsessed. 90% of the era time on this show or on CNBC is about equities because they're more interesting and

they have a daily scorecard, the movements are more dramatic. We're just stocks are just more

fun, they have more personality, they're more interesting to track. But whether it's whether it's the depression, whether it's a great financial recession, whether it's a dot com implosion, nothing rings the bell of a beginning of a crisis like leverage. I just want to clarify for a listen is like where the risk actually is here because, you know, the way we're talking about it, 1.7 trillion dollars of maybe 1.8 trillion dollars of hidden debt. It makes it sound like, you know,

big tech still is taking on that risk. It's just that they've buried it somewhere else, but they're still accountable for it. That's not really the case. What they've done with that, that 1.8 trillion dollars is they have offloaded the risk onto someone else, specifically the private credit fund. So they create the SPV with the private credit fund. The private credit fund borrows the money to the SPV to build the data center. Google, as an example, then rents the compute from the SPV and the

income that is generated by that rental agreement is paid back to the private credit fund. So when even about who's taking on the risk here, it's actually Google meta Amazon, they're offloading the risk. They're saying we don't want to take on this risk and you can say that that's a good thing or you can say it's bad thing because you can say why don't you want to take on this risk. I thought these data centers were a short thing, but the whole business, the whole calculation,

rests on the assumption that the data center will pay back way more money than the cost of building it. That is the assumption and the people, the entity that is responsible for accurately modeling out that assumption and pricing in all of the risks and thinking about the depreciation costs, of the GPUs and thinking about the demand, all of that stuff. The guy responsible for that isn't big tech, it isn't Nvidia, it's the private credit funds. It's all of the guys who are lending

“the money to the SPVs and that's what this entire data center AI build out is essentially”

predicated on at this point because as we've seen the financing that's happening off the balance sheets of the tech companies is larger than the financing that's happening on the balance sheet. So the question you have to ask yourself, if you want to believe that we are not in a bubble, is the following, do you trust the private credit funds? Do you think that they are accurately projecting the risks associated with building these data centers and do you believe that

build a data center at Prince Money, that they are actually accurately and responsibly issuing

this lending in this debt financing? That is the question. My view probably not because we've seen a lot of weirdness in the private credit industry probably the most obvious and scary example

“was the collapse of first brands. This was back in September 2025 and if you remember but first”

brands this company they filed for chapter 11 bankruptcy and it turns out they were in this very, very murky and bad financial situation and they had been financed primarily by the private credit funds and then it exploded and the private credit funds got burned and that was when Jamie Diamond is issued his famous warning about private credit he said when you see one cockroach there are probably more. This is where he called the private credit industry cockroaches

and that was its own thing and now we're seeing it's extended to the data center industry. Those same guys are the same guys who are underwriting these data centers and the question you have to ask yourself is do you think they're doing it properly? Do you think that they are underwriting

“these data centers in a responsible way? I think it's definitely up for debate. I think it's”

very, very precarious and the fact that it's so opaque and the fact that this industry has little to no regulation again a blunder of the administration that makes me think that we are headed for potentially a very ugly situation. I'm torn on this because I think there's a lot of nuance here when we talk about when we're reductive and just use the term debt. So I think our national debt and a bipartisan agreement to just consistently spend more than we take in in terms

of tax receipts. I think that is irresponsible and leads to a bad place. I think a surge in credit card debt in my household so can't afford to pay their bills. I think that leads nowhere good and it's a signal of irresponsible behavior or a poor economic environment. I think that working with a lot of private credit funds keep in mind and when these companies take out debt, the people looking assessing the risk are very smart people and they look at the security against

that debt. And in the case of someone like Meta, I would imagine that if that debt's going to get paid, I believe if they default on it, is it secure by the data center itself? Is it secure? I mean the question is what is the credit here? And if they're trying to offload the lie, if they're trying to hide it fine, as long as they're on the hook for it. If they're not, then buyer beware and these credit funds are subjecting their LPs to risk. And that risk is paid off for the most part, for the last

17 years, those funds, they haven't delivered above market returns, but they've delivered the returns of the market minus their fees, which has been exceptional returns for the last 17 years. I do think that leverage and debt, I'll use banks as an example, banks loan out $120 or $130 on a hundred dollars in assets. That's a form of leverage. Elizabeth Warren wants to move it to where for every hundred

“dollars you land out to people, you have to take out and one for one a hundred dollars into”

deposits. Responsible makes sense, but here's the thing. Leverage also equates to growth. When you have

20 different depositors giving you that hundred dollars and you loan it out to 30 different people and you loan out four bucks or whatever it is to get $120 in loans on a hundred dollars in equity, you grow the economy faster and as long as you're lending to different people, that leverage results in greater economic growth. A certain amount of debt failure reflects that the economy is taking a certain amount of risk that results in growth that is better for the country. It's easy to say

all leverages bad in these private credit companies are way out over their skis. I get it and there's some truths to the notion that we're due for recession and it'll likely start in the credit markets.

Having said that, one of the amazing things about America and why our GDP's up 40% more than the

GDP of Europe, which was approximately the same per capita, 95, and that we're 40% above them, is because those same private credit analysts, those same VCs are more comfortable with risk

when you start taking on risks without all of the facts properly lined up in your head without transparency. Sure. Yeah. And that's where you run into problems, where people start levering up, taking on risk, and then making these decisions based on data that is telling them

“one story, but in reality it's actually another story. And that's how I feel about the circular”

financing stuff, where you have companies investing in each other's companies, and then reporting

all of this buying each other's stuff, which is creating incredible revenues, the same thing we

see. I mean, the Google earnings, cloud revenue, up 82%. Bang, what a quarter. They crushed it. And then you dig a little deeper and you start to realize hold on roughly half of that. We think because we have to make estimates because there's a lot of opacity to this, is coming from two companies. Open AI and Anthropics. It's like the whole thing is being built off of this one little leg in the stool, and all of that money is coming from the venture investors. And so if

that implodes for whatever reason and the likelihood is pretty high, then you've got a real problem. And the question is, when people underwrite these deals, because remember, a lot of people

“see very certain about the economic prospects of these data centers and the returns that they're”

going to get. The question is, when people underwrite those deals, are they operating with

all of the fact straight? Do they recognize the fragility of the revenues that are being registered right now? Do they recognize the circular nature of those revenues? Because one thing I can tell you is a lot of these companies are doing a lot of work to not let you understand that, to obfuscate and complexify the numbers, to make you think that it is healthy, diversified revenue growth, when in reality is unbelievably concentrated into a handful, less than a handful, two companies

who are in very, very poor financial standing when it comes to their financial health. When it comes to how much they spend, versus how much they make. And so my concern is that you

have a lot of people who have probably a healthy appetite for risk, who are like, yeah, let's do it.

It's a gold rush. Data centers. AI. Everything's happening. Look at the numbers. I went out 80 percent. It's doubling. It's huge. And then they forget to do the deeper digging here of recognizing that actually this is a lot more vulnerable than it really is. And this is how bubbles grow. It's through that complexity. I mean, this is what the CDOs were all about. It was the slicing and the dicing and taking all of these financial instruments and then putting them into another financial

instruments so that the whole thing was too complicated to even pulse out. And I do worry that that is the road that we are headed down, where we're just making things more complicated than they need to be forming these SPVs, offloading the risk over to the private credit guy over here, and this one over here, and this one, why don't you just do it the day yourself? Why don't you just do it, Meta? You think it's too risky? Well, then why are we comfortable if one person provides

the financing? But, but not comfortable if the other does. Well, they're being, to be fair, if they can find cheap capital and for people to absorb the risk, they're definitely to share obligation to let other people absorb your rational risk. And what you're suggesting, I think is that there needs to be better mandatory disclosure rules such that people on the other side of the trade, at least have transparency in the risk. And keep in mind, you know, it's easy to say people

do your homework, do your diligence. Investors aren't going to dig into the debt structure of Meta and what's disclosed and what isn't. And that's exactly. Meta has so much. Meta is such a cashfall cano that I'm not just worried about the debt of Meta. If she got real there, they could probably figure it out. It's these other organizations that don't have sit on top of the cashfall cano and cry frankly are cashfall and negative, such as almost every AI adjacent company right now.

“The keep in mind, I think the only way you protect against this again is my favorite word”

diversification because because if you're looking for the big investment banks to disclose to you, what's going on here in a thoughtful way, keep in mind that, you know, JP Morgan and Morgan Stanley have $205 and $300 price targets on SpaceX and also keep in mind that it's down to 112. Yeah, what a couple three weeks after the IPO. But worse than that. Okay, how how yours truly got sort of famous. When I read the S1, I think JP Morgan, I forget in Goldman, we're taking

we work public. They approved. They decided to take a company public and we're selling it to their investors based on a disclosure document. You don't talk about the SEC, not not being your friend, that had something called community adjusted EBITDA. They were allowed to come up with a term

from their costs. I called it, I called it EBITDA before everything else. So we're in a podcast

“company, if we're trying to raise money or or we build a data room for someone to potentially”

acquire us, imagine me saying that our profitability is profits revenue before I pay you guys. That's podcast adjusted EBITDA. And this was a financial disclosure document approved by the SEC and the investment banks who have the smartest analysts in the world. They let them come out with an S1. They claimed they had EBITDA. There was a clinical community adjusted. They didn't include the cost of the real estate for a company, sub-leasing, one floor in a building,

but they don't have to include that cost when calculating some derivative of profit. So again,

I would not trust investment banks. There are some smart analysts. I do think that some of these

blog posts, the creator economy, I actually think is doing a pretty good job here, holding these people's feet to the fire. But the institutions we used to trust to do this shit, you cannot trust.

“And I think the only way, unless you're a financial analyst yourself, is to diversify because folks,”

everybody thought Cisco was impenetrable. Everyone thought that people putting together the sub-prime mortgages and packaging them into the studios. Everyone assumes you could trust them. They're going to do whatever gets them an additional nickel in investment banking or money management fees. They will craft their narrative. I would love to see the 300 the analyst who wrote the $300 price target. I think it Morgan Stanley. That person should be writing fiction.

That person should be writing romantic comedies, where people bump into each other at the grocery store and in file eight to side they're in love. Well, don't forget Brian Segwal is at Raymond James's price target of 800. He thinks the company is worth $10.4 trillion. He should really be writing a fiction. By the way, just on your community, adjusted EBIT to point, semi-analysis put together a

“some research on anthropic and they talked about not ironically, by the way, the new community adjusted”

EBIT, which is called EBIT, which is earnings before training interest and taxes. This is quote, "the new default metric for library investment on the best source of truth of where cash economic set for the inference business." So it's happening. That wasn't in an SEC report and to be clear, I don't want to throw shade at them because I actually like a lot of those guys and I enjoy having them on the podcast to hear about what they think about things. But EBIT reinventing

accounting metrics to make inference and training make sense. Come on, enough of this shit. I mean, we've seen this before, no one's buying it. We'll be right back after the break and if you're enjoying the show so far, send it to a friend and please follow us on YouTube Spotify or wherever you get your podcasts. Support for the show comes from BCX, the public ticker for private tech. For generations,

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for free today at framer.com/markets for 30% off of framer.pro annual plan. That's framer.com/markets for 30% off framer.com/markets rules and restrictions may apply. We're back with pro-fishing markets. Two of the biggest contributors to inflation appear to be getting worse tariffs and oil prices. Last week President Trump announced a new

slate of tariffs, reigniting concerns about a broader trade war. First he imposed a new 25%

tariff on exports from Brazil that went into effect on Wednesday and he also announced a 50% tariff on Canadian goods which will go into effect on August 19th. At the same time, the Iran war is not showing any signs of slowing down last week. Oil prices hit $100 a barrel as the Houti's attacked two Saudi Arabian tankers in the Red Sea. Meanwhile traffic in the straightiful mousse remains extremely low on the US has continued its strikes on the

country. So Scott, we have here tariffs ramping back up which we can get into and obviously that's going to be a problem moment thinking about inflation because we've already seen the inflationary impacts. These of course US consumers are paying close to 90% of the costs of those tariffs. It isn't these foreign countries that Trump seems to think that he's punishing

“every time that he slaps these tariffs on them. But I think probably the more significant news”

when it comes to the economy and its impact on inflation would have to be the price of oil. Brent crude surged up to beyond $100 a barrel last week. It's up 30% since the beginning of July. Goldman Sachs says if these disruptions in the straightiful mousse don't ease up, then oil could surpass $120 a barrel by next quarter. Our which point we have to start thinking about the implications that we'd see in the CPI and overall inflation. In last month we had 4.2% when

oil prices were where they're at basically right now. It came down a three and a half percent

which is still bad by the way, but seems like it'll just go up again. Your reactions to what seems to be the continuous shooting of all feet when it comes to economic policy. I think you can make an argument that the investment in the war on Iran will be the best investment of the last 50 years. Unfortunately, the entity registering the return on the investment is China. And that is we're trying to manage our own inflation while China quietly banks the geopolitical

dividend here and freeze the car and nail this. China's gain more from this crisis than any in three decades. You have a Middle East hedging away from us, a world more dependent on Chinese tech and then every nation in the world is thinking we not only can't afford to be dependent on fossil fuels economically, geopolitically it presents a defense risk to be so dependent on other countries that can, for whatever reason, have the artery of flow into our nation of this fossil

fuels have a boot stepped on it. So what do we do? We move to renewables and clean energy. And oh,

I am battery capacity, 70% of clean energy tech production, 70% production of EVs globally.

You guessed it. China. So we're we're hemaging credibility and our treasury on tariffs and strikes and China spending nothing and picking up the reputation for being the adult in the room. The, I mean, this, this stat is so upsetting. Pew reports that more people globally think that China is a force of good in the world than the United States. In some, we're spending money to buttress China's reputation. Yeah, just to expand on that data, China is now view more favorably

than the US. This is according to Pew research, more favorably than the US across the globe, across 20 different countries between 20, 23 and today, the favorability of America has fallen from 58% to 35% and China's favorability has risen from 32% to 46%. So we've seen a flat out flipening when it comes to the favorability of both China and the US and then also just Donald Trump and Xi Jinping.

“And I think it's hard to say that that doesn't have to do with what we've seen on the tariff front.”

I mean, these new tariffs, it seems like this is his way of just trying to bully other countries.

That's basically what it is. I mean, this Canada tariff, 50% tariffs on Canada. Supposedly,

Canada is discriminating against the US. That is the argument. So he's putting these tariffs on Canada. Obviously, he's not accounting for the fact that it actually is self-defeating because it ultimately makes prices higher in America. And we had Peter Harrell on the podcast earlier in the week. And he made the point that he thinks that maybe the Trump actually just doesn't really realize that or doesn't know that or at least his advisors are just kind of intentionally ignoring

that fact in order to just do whatever he wants and to just play the sick offense again,

which sounds absurd, but I think that it actually is a genuinely possible scenario that is

“playing out right now. And yeah, you have to ask what that does to an economy long term.”

You have to ask yourself if we can maintain any semblance of a relationship with any of these other nations and trading partners, and increasingly it seems like I don't know that's not possible anymore. So you want to know my theory on Trump. Yeah. He's a fucking idiot. And surrounds himself, ops for a faulty over confidence gets very poorly advised and makes a series of poor decisions that the CCP and the GRU couldn't have dreamt of in the wildest.

I mean, it just whether it's taking oil up such that Russia can further escalate or continue to fight, whether it's hemorrhaging credibility to the IRGC from the US, whether it's giving the CCP just an unbelievable layup across the world, whether it's dividing, taking 66% of GDP that used to be sitting on the operating system that is American law, economy, our Navy, our military, our bases, our trade agreements, wanting us to win, generally feeling good about us and dividing

in at half by giving comfort to our enemies and then alienating our allies such that they begin working with some of our adversaries or with each other, creating a, you know, a tri-polar world where we're now in the minority, the real cost of the Trump administration aren't going to be

“felt for 20 or 30 years. I think when you are, you know, when you are have kids, when you're thinking”

about your kids in college, you're going to have just ridiculously high interest rates and inflation trying to pay off the extraordinary debt that any responsible boomer generation of which I'm part of, technically I'm Gen X but anyways, everyone calls me boomer online so I'll just lean into it. You're going to continue to pay the debts off or for the mistakes of my generation in this administration and you're going to see an inability to form great alliances, defense threats,

more terrorism, more insecurity, more nuclear proliferation, a reduction in our growth rates because other nations don't want to trade with us or don't trust us, a lack of human capital flowing into the U.S. because people no longer feel the goodwill towards us, we're going to be paying the price. We're going to be paying off the extraordinary debt that this administration is registering

decades. A lot of people would hear what you said. A lot of people would agree with you and a lot of

people would disagree with you and say that you have Trump to range from syndrome and that your hatred of Trump is clouding your understanding of what's really happening to the economy. I know

“that people will say that but I can also tell those saying people, there is a very important group of”

people who agree with your comments right now and that is the bond markets. So we can look at the 10 year yield right now. It's above 4.7% is higher than the yields we saw after the liberation day crisis. The 30 year yield and that's the time frame you're talking about is above 5% it's been stuck above 5% for 27 days this year. It's been stuck above 5% for 12 days in a row. That is the longest consecutive run of more than 5% yield on the 30 year treasury since 2007, which is of course

right as we were gearing up for the great financial crisis. But even compared to 2007, bond investors right now are pricing in more long-term risk as it relates to America and it's financial standing than they did at the beginning of the financial crisis. This is according to the bond markets. One of the riskiest positions that the United States of America has ever been in.

“And you ask yourself, okay, why is that? Is it the AI concerns, maybe? Is it Iran? Is it inflation?”

Yeah, it's kind of all of these things together. But to your point, I think the biggest concern is the fact that we have almost $40 trillion of debt. We've got a nearly $2 trillion annual deficit that seems to be growing every year. We've got annual interest costs of more than a trillion dollars also seems to be growing every year. And all of these decisions that contribute to those deficits and that overall debt load, there all being commented by an administration that appears to

have actually lost its mind. Not just the president, but all of the people who are enabling his decisions, who are enabling the decisions on tariffs, which are contributing to higher inflation, enabling the decisions on Iran and Hillary Clinton and our conversation brought up a great point. She questioned whether they had even considered the possibility that the straight-of-home ers might even be blockaded. That was their big, what if that they had talked about and strategised

about for decades, they just go ahead and bomb the thing. They don't make any contingency plan. They come up with this memorandum of understanding, which we said was BS from the get-go and back then, that was a month ago. And we saw oil prices go down to 70, as everyone for whatever reason believed that there was actually a deal to be had here. And then when we said that wasn't a deal, people again said TDS, TDS, TDS, we're back to no

deal and we're back to 100 on the price of oil, which means that inflation's going back up above full. And that's a runaway train at that point. I thought we use said it was really an interesting means of communicating the issue when you reverse engineered and made a solid

cogent argument for four percent inflation, about 1 percent of that can be attributed to the

Warren Iran and the spike in energy prices and about 1 percent to be reverse engineered to inflation, or excuse me, to tariffs. Now, people don't realize, societies fall because of inflation.

“If the Fed is the key entity in terms of a society's economic health, they're there to manage two”

things. Job growth and keep inflation in check. And by the way, that is in reverse sort of importance. If you said to the Fed, okay, the Board of Governors, you can either have weak job growth, right, or you can have inflation with strong job growth, they would pick weak job growth and low inflation. Society's crumble, not when people are unemployed, but when people have two jobs and can't afford their rent. And let's just talk a little bit about inflation. And the numbers

are misleading, because when you hear three or four percent, you're like, oh, there's no difference. No, there's a big difference. Let's talk about the G7. The inflation rates, Japan, one and a half

percent, France, 1.8 percent, Italy, 2.4 percent, Canada, also 2.4, Germany, also 2.4, the United

Kingdom, 2.6 percent, and the highest inflation rate among the G7, which is supposed to have the most robust economy and the most competitive economy, which should keep prices low, we come in at the highest inflation rate of any G7 nation at 3.5 percent. And that's down from 4 percent, because of the temporary decline in the price of oil. Now, what does that mean? Let's keep it. Let's be optimistic and say it doesn't go back to 4. It sticks at 3.5. That means, say wages go up 3

and productivity gains. That means, in 10 years, Japan's going to register prosperity increases,

“it wages above inflation of about 20, 25 percent. That means in 10 years, you're not going to be”

able to take your kid to Disneyland, Tokyo, Disneyland, once every four years, but once every two years. That means you're going to be able to borrow or need to borrow a quarter less to send your kid to college. And means you're going to be able to eat out four times a month instead of three times a month. This has a material impact on your well-being and your prosperity. And because of own goals, we are dramatically reducing the prosperity of Americans. And this is when they're

going to get angry. And again, we can manage in the American public can manage a 4.5 or 4 percent

inflation rate in the short term. Sure, it's hard for them. They see it. But in 10 years, if this shit keeps compounding because of the poor fiscal policies and structural shifts and our economy and our alliances, the results in stubborn inflation, including the massive debt problem we have, because if you're responsible spending on both sides of the aisle, you just end up with a society where, I mean, the reason my parents came here was not for religious freedom.

It wasn't to express their first amendment rights. They weren't fleeing religious prosecution from Glasgow and London. They came here because they wanted as middle-class household to be able to buy home and lagoon in a gal. And when they stood on their tippy toes on the second floor,

they could actually see the ocean. That was a life they just never dreamt of.

And be able to go to this amazing restaurant called the Sizzler. Hashtag awesome. You don't remember it incredible restaurant. And they had just this, my dad could join a country club. I mean, that, I remember him saying to me, I used to play a go watch from play golf. And he was like, he's like, you don't understand. This is a dream of mine to be able to join a country club. I just, the idea he played golf growing up. But every year that wages cannot keep pace with this

inflation, you're going to see a compounding of a decline in the prosperity of Americans.

“That's how economies stumble and then fall and then fail is your wage growth doesn't keep up”

with inflation. That's happening right now. We just learned that that is the trajectory that we are on because of crucially, not things, exogenous events that happen to America, but actual decisions that were made in Washington that created this inflation, that created that lack of prosperity and that declining, that decline in wages in wage growth. So that's the thing that drives me nuts here is that we're not talking about things, you know, tragedy's happened. Like COVID happened and

that was really bad for a lot of countries and a lot of economies and it was the contributor to inflation. That is why we saw such insane inflation back in 2022 that was a real problem for a lot of people that put huge economic pressure on millions of Americans. But again, that was an exogenous event. Now you can argue as to whether the Biden administration did a good job of dealing with that exogenous event, whether they should make different decisions, how they handled it,

how about it, blame them all you want. But that wasn't a situation where we invented a problem out of thin air based on the decisions that came out of Washington. And as you've pointed out and as I've said, we've had those two big decisions. One was the tariffs, boom, percentage point, and the other is Iran, boom, another percentage point. And it seems like that's not going away.

“I know a lot of traders keep on trying to be optimistic and that's what we saw last month.”

But again, we're seeing what's happening here. We're seeing that the strikes are continuing. This is not getting better. And I want to just add one other very important decision that actively has harmed our economy. And it's kind of hard to do that. It's kind of hard to make a decision that specifically makes things worse. You have to make a pretty bold and stupid decision to do that. But here's one that I've got for you, which is crazy. As you know, our emergency oil

reserves have been massively depleted because of the oil shortage that we're experiencing because

of the war reserves have hit their lowest level since 1983. We're down to 311 million barrels.

The operational minimum is 200 million. So we're getting into very precarious territory here when it comes to our oil reserves in America. Great time to have a big bolstered and sophisticated

projects in the US so far. Why? Because he thinks that clean energy is woke and lame. And he'd

“rather be drilling for oil. And in fact, the administration is now actually paying companies to”

not build renewable energy projects. There's this company total energies, a French energy company, they had planned to build a wind farm on the east coast, Trump forced them to cancel that project,

and then paid them a billion dollars in compensation because he had cancelled it. And he had to

now pay them. So we're actually paying money to companies to not build this stuff. And to your point about China, who is building clean energy faster than any other nation in the world? China responsible for 55% of global clean energy investments over the past seven years. They are ramping up their clean energy investment, ramping up their spending, they're responsible for 80% of the solar energy investment in the world. So they're speeding way ahead of us and they're accelerating

they're increasing the amount that they're investing into renewable energies each year. We're

decreasing ours because we think that it's woke. A myth on the right, they have somehow associated

renewables with a woke ideology to go woke-o broke that somehow renewables are non-economic.

“You know what state is the number one producer of wind energy?”

Let me ask Texas ding ding ding, 100%. 100%. And do you think it's because Texas leadership is woke? No, it's because economically, at a given point, on a summer-day in Texas, 60% of the electricity is being produced by wind. And they're not doing it because they're granola or kale-eating brick and stock-wearing progressives. They're doing it because it makes sense economically. So again, we have attached, we have politicized economics here to an unhealthy extent where we said,

okay, renewables. And also, again, to both sides, Europe has probably gone too far in terms of politicizing nuclear power, politicizing fossil fuels and the energy costs in Europe have been a real, real dampening or registered real dampening and economic growth because it has become energy, fossil fuels and nuclear become too politicized from the left. But both sides tend to do this. And this is an example of the right attaching an ideology that is just non-economic

and irrational. On the both sides, I mean, I kind of agree, but part of me wonders if it's, I mean, you made this point like you want to be balanced here. I don't know why you even need to say that at this point because the extent to which the mythologies on the right are damaging the lives of millions to a degree that is like unlike anything we've seen in a long time, the extent to which these very stupid mythologies, and to be clear, I agree with you that mythologies have existed

on the left and they've caused problems before. But I don't think we've seen anything like the mythologies that we're seeing on the right, specifically the anti-woke mythologies. That's where that are creating these ridiculous decisions. So Polymer is kind of like, why even spending a Toyota of energy trying to be balanced on it when it's so clear the size of the problem of the mythology on this one side. And I don't know if Republicans even necessarily unanimously agree

with the decisions that he's making. It's basically just him and his close circle. And that's

“the damn it, that's the, that's what we need to get angry about. We'll be right back and”

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figuring it all out for yourself when your fresh out of school cannot only be daunting, it can literally cost you. I'm Vivian 2, Eurh BFF, and on this episode of Network and Chill, we're rewinding a decade to when I was first at a college and learning to care for my own finances, the hard way, with plenty of slip ups and face plants. But since I already made those mistakes,

“I get to share them with you so you don't have to, if you want to swore of all of the”

pot holes I fell into, give the episode a listen wherever you get your podcasts or watch on youtube.com/yourrichbf. We're back with Proftory Markets. At first glance, it appears that we may be in the middle of a small

business boom. According to the Census Bureau, Americans filed nearly 6 million applications last

year to start new businesses, that is the most on record. But the data doesn't tell the whole story. Only 1.7 million of those applications were identified as high-prepensity businesses, meaning that they intend to hire paid employees. The vast majority of the applications were for entrepreneurs with no plans to hire people. So Scott, this really grabbed my attention because I've been seeing this argument that we're seeing this small business boom, which I was

“down to run with. It's a reason to be optimistic. The fact that small business applications”

new business applications have exploded last year. They were up 10% year of year, hit a record.

It's continued into the first half of this year. But most of those businesses are, quote,

likely non-employer businesses. So these are businesses with a very low likelihood of producing actual payrolls. And this is a methodologies that the Census users, they include things like, have you indicated that you're hiring, have you provided a first-wage is paid date, are you in an industry with strong employment demand, et cetera, and it turns out that more than 70% of these new businesses that were supposed to be celebrating are likely non-employers.

So this seems like a little bit of a fake boom. This blew me away. So just in terms of how the Census gets made here, we do editorial calls where the analyst's pitch story is in Ed comments on them. And I comment on them and we decide and our producer decides what stories we're going to do or not to. And this is blew my mind because I have this whole AI Optimus wrap. And one of the stats I just love is that new business formation is at a record high.

And this just punctured that argument because again, numbers can be misleading, right? 6 million new

business applications, which is a record. It sounds like a Renaissance to the American entrepreneurial spirit. But as you guys pointed out, it isn't only 1.7 million or about 30% of them were quote unquote high propensity, meaning they have any intention to hire people. The other 4 million plus or one person, a laptop and an LLC. So when you try and start a restaurant, you're going to hire 10, 20, 30 people when you're starting a food blog as a side hustle. That's not great for

any employment market. What the data shows is this isn't a small business boom. It's a side hustle economy dressed up in census bureau language. And it probably in some ways reflects something unhealthy about the economy. One and three adults say they're planning a business or side hustle in 20, 26. And that's up 94% you know year over year, which is okay, there's something very good about that. But the question is, is it entrepreneurial confidence or economic anxiety wearing a

founders hoodie? And in people aren't starting companies because times are good, they're hedging because they can't afford to pay their rent with their main hustle. So this is one of those many times where I realize like, I don't know what I don't know. And this quote unquote new business boom

“supported by new business applications isn't really a new business boom. Yeah, I think this is”

a really important day to point. And I just want to just clarify for everyone. So as I said, 70% of these new businesses are likely non-employers according to the census, you can pay this to the mid 2000s. The share of likely non-employer businesses or businesses that are probably not going to employ anyone, that share has doubled. So yeah, I was seeing new businesses, but most of them are not really contributing to the economy. Now the question is, why is this happening?

What's actually going on here? So one theory is that you're seeing like the rise of the AI enabled solopreneur that AI can sort of allow you to kind of form your own thing and you start your

this happened. It exploded in COVID. So this was a COVID development where suddenly all of these kind of

“like non-employee businesses just skyrocketed. There's another theory, maybe it's just a lot more”

people are self-employed now. People quit their jobs and now they're doing their own solo companies. But if you look at the self-employment rate and the number of self-employed Americans today, it is actually down. It is falling quite significant over the past few years. So that leads me to one conclusion that makes a lot of sense, which is that these are all kind of bullshit sidegicks. This is, I'm bored at work. I'm still employed at work, but I work remotely and I kind of want to

start like a lifestyle brand and I'm going to make an Instagram account and maybe I'm going to make a sub-stack and maybe if I'm feeling really excited about it, I'll also create NLLC because I'm interested in doing that. But to be clear, that's not a business that is actually contributing

to the economy. It's basically like a hobby. It's basically like a more legit vehicle to express

yourself based out of the boredom that you feel in your real job. I think that this is becoming a real trend here, especially among young people, because I think young people are so disillusioned by the notion of traditional work, by the notion of being an employee, and receiving a salary, and receiving a wage. I mean, this is part of sort of the Android Tate philosophy of

“don't be a wagey, don't be a wage slave. You need to start your own business, you need to be an”

entrepreneur, you need to be a hustler. The entrepreneurship mindset has become such a hot thing, especially among young people who are living in an increasingly digital and social media driven world, to the point where I think we are all fantasizing about that by creating these little bullshit side hustles and saying, I'm an entrepreneur now. But in reality, you're not because you still work for a company, and you're not generating a livable income off of your side hustle, off of your business,

that you're saying makes you a founder. And I think that that is the problem that we're running into, and it's being reflected in the data. In my 30-year career, 40, I've only worked for another organization or a company for two of those years, and it was right out of UCLA and it was Morgan Stanley in the analyst program. And the rest, it's been me starting my own businesses. And so when kids, when I say kids, students come to be in my office hours, they don't want to talk

about strategy or brand strategy. They want to talk about, they want career advice. And typically, the most common thing I get is I have an offer from Google and JPMorgan, but I'm thinking about maybe trying to start my own business. And they come to me because I'm an entrepreneur that's registered some success, and they think I'm going to encourage them to start a business. And my answer is universally, don't be a fucking idiot, go to work for Google. Entrepreneurship is romanticized.

Six out of seven startups fail. There has never been a wealth creation machine like the American

Corporation. It's not as sexy, it's not as romantic, there's a lot of bullshit, there's a lot of

“politics, but they will remove that mole on your back and it is the best way to get rich,”

slowly in history. And these platforms, the American Corporation, are the the most unbelievable platforms. If you're so many of these dudes who work at the alphabets, the JP Morgan's, the Goldman's, the snowflakes, the, you know, the, I mean, the sales forces of the world think they're so badass and they should start their own company. And for most of them, I can look at them and say, "Fuck and call Mark Benioff and say, "Thank you." Because you have had access to a platform

that has created millions of dollars and economic security, and guess what boss? You are not that talented. You attached your card to a fucking thoroughbred, because you live in America and you have the right certification and you're probably very talented, but nothing leverages talent. Like the US Corporation, some people aren't cut out for it. I didn't have the skills, not because I'm such a baller and needed to do my own thing, but I literally was too insecure

to work at a corporation. I was every time people went into a conference room, I thought they were talking about me. I was constantly in a state of anxiety because I just didn't know how to navigate the politics of an organization. I was too immature and I resented people who I thought were

without my input. Okay, folks, that is a small price to pay for what is with a great company,

an unbelievable chance to increase your skills, have an HR organization trying to invest in you. I find most big companies have a certain paternal feel. I do think that most of them try to take a care of their employees for not only shareholder reasons, but they generally try to be good citizens, but everybody wants to be an entrepreneur. And then let me act like a real boomer here.

“My companies, I've always been, I think I have, I can”

briefly say I'm great at working with young people and I appreciate and love working with young people. The average, I think the median age at PropGee Markets is 26 and the creativity and dynamism of this generation, this younger generation is unparalleled. It's the most I've worked with

every 20 something that that that our economy has spit out since 1980's 1990 when I started my first

company. This is the most talented generation of 20 somethings in history, their facility of technology, their social responsibility, their willingness to work hard amongst a cohort of this cohort. What worries me is that when I was coming out of college, it was a given that you were going to have to put on a suit that you were going to have to wake up at 7 a.m. that you were going to have to commute downtown that you were going to have to

navigate a corporation that you were going to have to behave a certain way that you were going to have to not go out on a Wednesday night because you had to be up at over 100 hours on Thursday morning. And I needed that discipline and it served me well the rest of my life and I worry that a lot of

people of your generation never developed that level of discipline because of remote work

because of sometimes parents who indulge, they're quote-unquote passion of pursuing a food blog or starting a jewelry line and that we have a larger portion of young men and women in this cohort that are in for a bit of a rude awakening because they haven't been exposed to the requisite discipline of being really successful in this economy. Having said that, I appreciate how many young people have started their own business work, their asses off and are building something great.

“Entrepreneurship has served me well. But I think this is a double edged sword and a younger”

generation that has some of the most talent people in the history of the economy that I worry that some of the Gestalt of the Zeitgeys is setting them up for failure. The trouble to me isn't the idea of someone thinking I'm going to take a risk and I'm going to take a swing and I'm going to leave my job and start a company. You know, maybe they'll be right, maybe they'll be wrong, but they're assessing the risk and they're deciding to take the risk and I kind of respect that.

The thing that I don't respect is what we're increasingly seeing based on this data which is you actually don't leave your job. You stick around as an employee and then over on the side you start your little company because not because you're actually like trying to change your life, but because you like the idea of being a founder, you like the idea of being a business owner. And if we look at the data the way Gen Z thinks about this stuff, it's really striking.

More than half of Gen Z is say they have seriously considered starting a business in the past 12 months. One and two, Gen Z is on the street, they want to start a business. 70% of them say that business ownership is part of the American dream. And if you believe that most of us are trying to pursue

“the American dream, that that means most of us think that the only way to be fulfilled and to”

live a successful life and have a successful career is to own your own business and to be an entrepreneur. But here's my favorite stat last year on LinkedIn. There was a 69% jump in linked in profiles who added the title founder to their bio. And this is the problem. This is the thing that I take issue with, where you like the idea of being a founder. You like the ethos and the culture and you like to be able to call yourself a founder because founder is a cool and they go on podcasts and they have

interesting lives and maybe they have large social media followings and they're kind of something of an influencer at this point. But you're not willing to take the actual risks that it takes to actually build a business, which as you say six out of seven times fails because it's really, really hold. And it's actually quite grueling and not very sexy when you live the actual life that is required to make that business successful. So we're just living in this limbo period,

this like paralysis of like, oh, I kind of, I have my job, but I kind of want to be a founder

So the notion that entrepreneurship takes a toll on you. Add let me just prove that.

“Look at me, Ed. Seriously, come closer. Look at me. Okay, I have a real be in my”

body around the whole founder thing. And if you typed in the name on LinkedIn of every company I've started, you're going to find there are 30 or 40 co-founders of all these companies. Everyone has decided there are a co-founder of Red envelope of profit and people would call themselves co-founders and I'd be like, fine, have at it. Titles are cheap, have at it. But here's what a founder is. A founder signs the front of checks, not the back of checks.

And the reality is the vast majority of people are not willing to put their own money. Here's

what it means. You know, I'd, L2 amazing, great company, smart people. We sold for 160 million.

I got very lucky, extraordinary, all the moons lined up. The first two years of L2

“was me going home and telling my girlfriend who had just given birth to our second son in about”

36 months. Oh, business is good and I apologize. I can't be home for bad time. I am working 14 fucking hours a day and I've got to work all day Sunday and just going on Sunday to be emotionally supportive of the people who showed up on Sunday. And in exchange for that on the first or the 31st of every month we've got to take a hundred thousand dollars out of our savings and put it into the company. And my girlfriend would literally look at me with this look of fear like what the fuck

are you doing to our family? And I would have to sit there for an hour and explain to her why hopefully it was going to pay off. And not once, but twice, I came within a hair of losing it all. Couldn't pay my, my, my, my lease on my office was going to have to shut the whole thing down and go home and not only lay off a bunch of people, but go home and tell my girlfriend and the

mother of my children. Oh, the $1.2 million or basically the majority of our savings is gone.

“That's what entrepreneurship is folks. And sometimes, and by the way, that's a good story. It worked out.”

So, but back to this notion, people love to call themselves a founder, have added. Let me give it a sweet spot. If you think of going to work for a company, there's employee zero, the founder, there's employee 200,000 at IBM, right? Where's the sweet spot? My experience is the sweet spot is somewhere between employee 10 and employee, like, call it a hundred at a fast growing great firm with great founders. Because the founder risk is so immense. It's like infant mortality

in the 1500s. You just don't know what's going to take the baby out. You just don't know. Right? They can catch high-foyed, you just don't know what's going to kill this thing. That's kind of macabre. Anyways, once that risk has been starched out, if you're, if you find Mark Benioff, and you got this guy worked Oracle, this company's raising a shit ton of money. It's a great product. And I could be the 300th employee and be the VP of

marketing and get a quarter of a point. That's the sweet spot. Because you will, every one of the first

one, two, three thousand people at Alphabet, at any of these companies, even the companies you don't think of. Like a pallet here, there were tens of millions of dollars. And they registered a fraction of the risk and the psychic damage. The sweet spot is kind of employee 10 to 100 or 10 to 1000 if it's Amazon. If it's Amazon on a series B and you meet Jeff Bezos and you're going to be the 1200th employee managing their fulfillment centers and you're going to get millions of options.

Go all in. That's an unbelievable. And then as an investor, I find that the sweet spot is actually way late when basically the most successful businesses, the lowest failure rate of any startup is nursing homes. Because they're unsexy. I find the greatest returns I've registered and the greatest place to invest is in distrust. Is in companies that have gotten the shit being out of it and everyone's written them off for dad, both in equities and in distressed dad. I find from an investor

standpoint, from the your own human capital, you want to be at letters B and C, not letter A, not letter D or E, and from an investment standpoint, you want to be, you want to invest in a nursing home. All right. Let's take a look at the week ahead. We'll see earnings from Microsoft, meta, Apple, and Amazon will also get the federal reserves interest rate decision for July.

in January of 2025. The token usage from Chinese LLMs was 10%. In July it's 58%. So there are now,

there's no more token usage of Chinese AI firms and then frontier models in the US. Now, the dollar volume is still much greater because get this anthropic and CHPT are 35 times more expensive than deep seek. So what you're seeing here is a bifurcation in the market. I'm not going to I'm not catastrophizing

“the frontier models are going to go out of business. I think they're great businesses. I think”

their valuations are going to get crushed, but they're still amazing businesses. What's happening in the AI market is what happened in the automobile market. And we're becoming Germany. We have very high-end aspirational luxury brands that are the best cars on the road that are how be higher margin, higher price tag. But Chinese models are basically Honda, Hyundai, BYD. They're

offering 80% of frontier models for 10% of the price. And the reality is, and I hate to say this,

I think China is winning the AI race because it's not about having the most expensive or even the

“best product. It's about putting the most AI in the most people's hands. And that's what China is doing.”

The AI market is turning into Germany versus Japan and Toyota is the most valuable automobile company in the world except for a meme stock called Tesla. That's what people will fill up the comments. What about Tesla? It's down 15% a week. AI is becoming bifurcated into frontier models and into the models that get in everyone's hands. And I would argue that if you look at the low class automobile producers, they're more relevant than the high-end guys. All right, I like it.

My quick prediction. We add inflation at 4.2. It went down to 3.5. People seem to think that's going to be the trajectory of inflation that's going to keep going down. I don't think so.

“I think we're going to go up above four. We're going to be hovering around 4.5 for the rest of”

the year. And I've said it before, but I'll say it again. I don't think we're getting out of this situation anytime soon. This episode was produced by Claire Miller and Alison Weiss and engineered by Benjamin Spencer. Our video editor is Jorge Coltty. Our research team is down to the lawn, Chris Nodonahue, and Mia Svario, Jake McPherson. It's our social producer, who borrows, is our technical director and Catherine Dylan. It's our executive producer.

Thank you for listening to Prophecy Markets from Prophecy Media. If you'd like what you heard, give us a follow and tune in tomorrow for a fresh take on the markets. Live time. You have it. And come for you, yeah. As the world turns. And the brother. [Music] Running a business shouldn't feel like surviving a software group project. One after accounting

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