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Stay out there. Today's number 95, that's the percentage of finance students who identify is straight. The most of any college major true story at my ex-wife decided we should have an open relationship
in the rules where we could have sex with anybody, and we would never see each other again.
How are you doing very well? How are you? I'm doing well. It's a beautiful day here in London. I'm unfortunately heading out again on Sunday to the West Coast for my first regents meeting,
which I'm excited about. Yeah, maybe explain a little bit the situation there. Oh, Ed, I don't like to talk about that stuff. I wish you hadn't brought it up. I wish you hadn't brought it up.
Yeah, we're talking about all kinds of interesting stuff. What are the regents? What is that? The regents started boarded directors at Oversea the University of California, and what I
didn't realize, and most people don't realize, is that it's a 54 billion dollar enterprise
and about 35 billion of it is the hospital system. Basically the University of California could be fairly called a hospital system or healthcare system that offers classes. I did not know that. I didn't know that either.
It's also the greatest economic elevator in history, which is why I'm excited to be on.
“Takes more people from the lowest quintile to the top quintile, I think, then.”
Well, maybe Cal State, but it's, you know, he's saved my ass. Save my ass, Ed. Are there any of the famous people on that board? Who's the company? Not famous, but much more credible.
Well, the governor is on the board, the lieutenant governor, Lenny Cicoplo, so it's kind of a full circle moment. My friend, Lenny, and I were friends in business school, and she's on the board as lieutenant governor. But it's a bunch of very impressive people who, quite frankly, are just more credentialed
and substantive. Although I am pissed off, let's bring this back to me. All the media was Governor Newsome appoints podcaster to board of UC Regents. When you describe me as a podcaster, that kind of upset me. What would you prefer to be known as professor?
Well, I don't know. I've had done a few other things other than pod casting. I know. You've done a lot of things, but that is what you all right now. I don't know if I'm an academic and an entrepreneur, but anyways, anyways.
You asked who else is on the board. It's a bunch of people from the finance industry. It's everyone from the vice chairman of UTA, one of the largest talent agencies to business people, to health care professionals, and a lot of the chancelers. I mean, they're technically the CEO, the chancelers, so they're not on the board.
They're reported into the board, but it is an enormous board.
“I think it's 24 or 26 people. Anyway, I'm headed out to UCLA for my first meeting.”
What are you doing this weekend? This weekend, let's see, it's my girlfriends birthday or it was yesterday, so we had dinner, but then we're going to celebrate with friends, which will be very fun. We'll have a little party. And then I go to another wedding.
It's probably like my hundredth wedding of the year. It feels like, so I'm being serious here. You know, the best gift you can give anyone for their wedding is, let's get ridiculously
fucked up and have an amazing time, a visible, amazing time at their wedding.
That's all they want. They want a total party. When you go to someone's wedding, the best gift you can give them is to dance, be social,
Just having an amazing, that is all the bride and groom want.
They want to have the best party. They want to be talking about what an epic party it was for years.
“And the best thing you can do for the bride and groom is it's just having amazing time.”
Yeah, that's right, collaborative effort, totally agree. We got to host a party some time, Scott, you and I think we know what we're doing.
See, the problem is I don't like to hang out with you guys because I'm worried you'll
be disappointed and nobody needs to see me having a good time. So, yeah. Do you notice how Katherine and I at a very distinct early hour, peace out? Yeah, I have noticed that. At every event.
Yeah. I think you're too worried about it though. My personal take. But who knows, maybe you haven't seen me fucked out bad. Yeah, I don't know, you don't, you don't know where the devil goes to drink that holy
water.
Anyways, should we talk about AI?
Yeah, we got a lot to talk about. We got to talk about AI. We got to talk about oil, inflation, interest rates, the Federal Reserve. We got to talk about Apple, John Turner, say foldable iPhone. We have a lot to talk about, so let's get it to it.
The war with Iran has ended in seven months, and the conflict is escalating yet yet last week. Oil hit $107 per barrel for the first time since May. Spike came after the U.S. destroyed five Iranian oil tankers in retaliation for attempted strikes on a navy warship, meanwhile concerns about persistent inflation fueled a global
bomb sell off the U.S. 30 year yield, which is highest level since 2007.
So Scott, we always have to talk about this because it really is what's driving the
markets. I mean, oil, Brent crude, breaching $105, we had Labor Day gas prices at their highest levels in American history, diesel prices have hit a record high that impacts the rest of the
“economy because diesel is essential for freight, and fertilizer and much more here are some”
price increases that we have seen since the start of the war, corn prices are up 16% wheat prices are up 23% cotton 32% rice 49% diesel 57% so prices are rising everywhere. We're getting better signals as to what the inflation picture actually is, but that is now being priced in because we're seeing that bond yields are rising even further despite Scott Bessons attempts to suppress them.
Your thoughts on the macro picture oil inflation are now rising yields. Countries don't cease to exist because they're invaded. They cease to exist because they go broke and the way they go broke is to inflation where they're purchasing power just falls and they can no longer borrow money and they essentially enter into this kind of downward spiral and the inflation in the United States is pretty
dramatic. It's a 40% cumulative price increase since January of 2020. That's crazy. I mean, that was when COVID started. The majority of Americans have not seen a 40% increase in their earnings and their wages to
compensate. Eventually, this is a decline in the standard of living for the majority of Americans. The consumer, American households have taken a pay cut that they did not vote for. The bankruptcy number is the real tell corporate bankruptcy is up 12% which is the greatest over a decade and it's concentrated across small and medium sized businesses which don't
have the ability to hedge floating rate debt. They're kind of the shock absorbers for inflation or monetary policy and they've been the chassis has been broken, if you will, it's just snapped. Whenever you have something like this, you do have winners and losers. This arguably is a transfer of wealth from people at the pump to homeowners in Odessa
Texas that have seen their home prices up 77% exon Saudi or Amco Chevron. There are a lot of Americans making a lot of money off of higher energy prices. We are a net exporter of energy and the largest producer. But again, transfer of wealth from everyone at the pump and almost every product occurs a price increase because it came to you using diesel fuel.
So you have, again, you have wealth transfer from diesel dependent families, school buses drive through to landowners sitting on the Permian basin and a Trump trading oil stocks while overseeing the policy. It's gone from a conflict of interest to a business model.
“He's got, I think, almost five or registered almost $5 million in gains during a war.”
He's prosecuting and confidently and then he just puts out a thing saying he doesn't
Care about the money he's making or price increases.
So this is a, this is a, this is a progressive tax dressed up as a foreign policy story.
“It'll be very interesting to see if warsch decides to go if the kind of profile and”
courage and say, I'm immune. I cannot be replaced and tries to, or it doesn't fact raise rates. But the $100 oil has all sorts of unintended consequences. And it does seem increasingly like he will raise rates. I mean, if we just look at the odds of a September rate hike, which we will get the
answer to this week, it is now up to 65% on calcium, go back to June. The odds of that happening were 15%. And then of course, we're seeing it reflected in yields, which are, I mean, the rise in yields, this week and the week before and the week before that is stunning. I mean, the bond markets are literally screaming right now.
The 30 year yield hit 5.35% which is the highest level since 2007. And the 10 year has breached 4.9%. And this is all despite the fact that best sent is tripling or did triple the bond by back program to $6 billion. He's done all the, made all these efforts to get yields down, didn't work.
Bond investors said, no, this still isn't working for us.
“And I think they're paying attention to multiple things.”
Of course, the oil, the length of the Iran war, but probably most important is this unsustainable
debt that we clearly are showing no signs of even caring about or taking seriously. National debt, surpassed 40 trillion dollars, our fiscal deficit this year under Trump is on track for two trillion dollars. We now pay $1.25 trillion in interest payments more than we spend on national defense. That's expected to double as a percentage of our federal revenue over the next decade.
So eventually we're going to be spending more on interest than anything else. I think that is what investors, the Bond investors are so worried about and rightly so. And then in the middle of that, Trump at his Trump of Palooza, this midterm convention which no one really tuned into and which they were giving out free tickets for people to attend. He says, in fact, I've got a clip.
I'll just play for you. This is what he says. If the Republicans win the House of Representatives and the United States Senate, both of them,
because of our economic tremendous economic success, like in history we've never had anything
like what's happening, but because of our tremendous strength and success economically, I will issue a dividend to every adult citizen in the United States of America for $5,000. $5,000 to every US adult, a bribe to vote Republican at the mid-times which would cost the United States $1.35 trillion, which we would add onto our existing $2 trillion deficit. This is just, I don't have the funds for it.
Well, let's talk about need and let's talk about the math. If there's a group of Americans, the need of one-time payment, it's not adult Americans, 10% of which live in poverty, it's kids under the age of 18, which are excluded from his proposed program, who 15% of which live in poverty. And quite frankly, it's just unacceptable that one in seven kids and one in five households
have food insecure kids. That's just not acceptable in the world's wealthiest country and history. So first off, he's placing the need in the wrong place.
Now having said this, this is just fucking stupid and it's never going to happen because
of the math. $1.4 trillion obviously no plan whatsoever to pay for it. So it would be if it were to get through, which it won't, it would be deficit spending. So this is what this is. This is the equivalent of the government saying to you, say you decide to get married
in the next year and have a kid. This is the government giving you a credit card that's pre-loaded with $5,000.
“But if you spend $1, if you should you decide to accept this credit card, when your”
kid is 18, here she is saddled with $13,000 and non-negotiable, non-destirable debt that stays with them the rest of their lives regardless of whether you die or not. Would you accept that credit card? Now smart people would say no. Unfortunately, I think the American public who we all like to think is super smart and
honorable and nice has been really stupid around our deficits. At some point the American public needs to take responsibility for electing leaders, Democrats and Republicans who have been fiscally reckless and irresponsible. George Washington to George Bush $7,000 in deficits. George Bush to Trump too, another $33 trillion in deficits.
The Democrats have been better or less bad, I should say, than the Republican...
Republicans have added $2.8% of GDP per year to the debt and Democrats have added $2.1%
so they're less bad. But voters keep voting for the guy with the bumper sticker that says the following, we can go to war while cutting your taxes.
“And it has become standard operating procedure that the only thing that passes for bipartisan”
cooperation is, wait, we want to cut taxes. Wait, we want to spend more said Republicans and Democrats respectively. I know, let's do both and have future generations pay this off. So while this idea is ridiculous, irresponsible, if I can intimidate you into not coming to the polls, if you're non-white and I scare you with ice of the polls, I'm going to try
and bribe you with a payment if we win. While that is ridiculous and will not happen, the thing that bumps me up the most at is the American public keeps signing up for this shit and even on the Democratic side, there is an a single Democratic candidate for president. Roman manuals sort of nibbling around the edge has been not really who has actually had
the stones to put up a chart, a pie chart, present something resembling a presentation with graphs that says, okay, we spend $7 trillion, we take in $5 trillion, this is how over
“eight years we are going to begin to address it.”
Nobody wants to say to a public, I'm sorry, you can't have Dr. Pepper and swizzlers. I'm trying to think of what is the worst candy in the world and not have dinner and stay up till 2 a.m. snapping with your friends and you don't have to go to school tomorrow. No one is having anything resembling an adult conversation with the children that are the American voting public right now, no, what democratic candidate for president has even dared
to outline a policy that says, all right, we're doing away, we're going to level up capital
gains with ordinary income, we're going to fund the IRS and go after that $750 billion
in tax gap, we are going to eliminate 40 to 60% of the two and a quarter trillion dollars and loop holes and give backs at largely benefit corporations and wealthy individuals. And we are going to lower Medicaid eligibility by two years every year for 10 years, as a means of getting more purchasing power and bringing down our health care costs and we're going to means tests, social security and within eight years, the deficit is going to grow
less fast than GDP growth. There is a reasonable path here, there is, we have fucked this up, we can unfuck it, not that long ago during Clinton and Gore, we were taking in more money than we're spending. This is possible. But again, leaders and elected leaders and candidates respond to a populous.
So just as Michelle Obama said, when asked about running for president, the American public isn't ready for a female president, it doesn't appear that the American public is ready for an adult conversation around responsible fiscal management. At the same time, though, in defense of the American public, they have been lied to by largely by Republicans.
I mean, there is this idea that the Republicans are fiscally conservative, and in a lot of cases, that is part of their platform. It was part of Trump's platform that he wanted to be fiscally conservative. He was going to get spending under control.
He was going to balance the budget, and as I always say, that was the statement that received
the largest applause in his congressional address last year, and he did the exact opposite. So to be fair to the American people, they were told to lie. Now where I start to blame the American people is when they continue to eat up those lies. And continue to believe that Trump is this guy who he says he is, he clearly isn't.
He has lied too many times at a certain point.
“You need to be keeping track of these things and keeping score and recognizing, okay,”
this guy is talking out of his ass with every single speech he gives, I'm not buying it anymore. So to anyone who still believes that Trump is the fiscally conservative, or to who still believes that the Republicans are the fiscally conservatives, to those people I now do blame you. I blame you now.
I don't blame you from before, because I understand that you're lied to, and that we had this little bit of a sign-up that was negotiated and figured out by the Republican body and then by Trump, but at this point, the evidence is very, very clear. And if you want the example, if you want the example of people realizing this, then yes, take a look at the bond markets, take a look at US treasuries, which, by the way, long
dated US treasuries have now posted their worst decade in more than 100 years. And if we look at the inflationary debt spiral, which is clearly getting out of control, we look at the Fed's target, which is 2% inflation. That's what they've been saying they're trying to get to.
We have been trying to get to that target now for five and a half years.
We have been above target. That is the longest continuous stretch of more than 2% inflation in 40 years. The amount of time that we have not been at the Fed's target of 2%, is equal to 5% of the time that the Fed has ever existed. Because like a 10 years ago inflation was 1.3% now we're at around 4.
And we'll see how it plays out over the next few months now that oil is rising too.
“But I think that one thing that we can in terms of take away is like, what do we do about”
this? We know what the government needs to do about it. But on an individual level, I think it is time to start reckoning with this possibility of forever inflation. Just we're going to see 3, 4, 5% inflation in the United States for a sustained period of
time, possibly forever. Because not just the problems we're seeing now, but we're looking at leadership's response to those problems. And they don't seem to really care. They seem to think that the way we're going to get out of this debt spiral is to
to spend our way out of it, to spend all the money on the bond by a pack to get the yields down, which, of course, over the long term, makes the problem even worse. And so when I think about what that means as an investor, on the one, I mean, one take away bond investing is in a lot of ways, dying. Because if you have this level of inflation, I mean, yields are going to have to rise
a huge amount for bonds to be worth it, because the amount of inflation that we're going to see is going to be easing into the value of every interest payment that you get back on those bonds. So bond investing, as we know it, I think the game has changed.
“Honestly, I think the only solution here, you have to invest more aggressively in stocks”
than ever before, because your purchasing power is going down. If the only asset class that is actually being rewarded is equities. And of course, I got worried about bubbles in that scenario, but I don't see how there's any other choice for investors. I would push back a little bit, and that is a lot of people are actually looking at the
debt markets, because for the first time, they feel like they're being rewarded for the
risk they're taking. And that is, you are getting, you are getting not serious money, but if you can buy a corporate bond that looks very healthy, including, you know, and get a 6, 7, 8% return, you know, that's not bad. And keep in mind, the debt, so it's almost like my investment strategy right now is not
to get rich. It's to not get poor.
“The way you don't get rich, you not get rich, but you don't get poor is with bonds, because”
bonds typically credit has real teeth, they're not as volatile typically. And with a company like Apple, unless shit gets really real at Apple, like unimaginably real, it's hard to imagine they would not have the assets and the cash flow to pay the interest on their bonds, right?
So I do think, and by the way, I have never been a big debt investor.
I don't understand it. I've never been interested in it. I've always diluted myself into thinking, I can't perform what feel like fairly culture returns, but I do think still a mixed portfolio of stocks and bonds makes sense. Just going back to the markets, we said that there's always a transfer of wealth and winters
and losers. Some of the winners with a hundred plus dollar oil, shells of 27%, axon mobile, 34%, Chevron 37, Norway's Equinore is up 84%, they supply 30% of all the natural gas consumed in the home sellers, okay, home prices as we talked about up 2% nationally, up 77% in Odessa, Texas. And then railroads, which are much more efficient from an energy standpoint, Canadian Pacific,
Kansas City plus 21% Union Pacific 23% CSX, up 34% so a transfer of wealth from consumers who have to pay higher prices at the grocery store and at the pump. On whose wages are now trending negative, because the wage growth is being outpaste by the inflation, just to your point, consumers, but also owners, people who are making their money, making their living through income.
Here's a stat, I just never, I never contemplated, 15 to 30% of grocery costs are diesel
fuel. Groceries are heavy and the vehicle that brought them there is powered by diesel fuel, 90% of the nation's school buses run on diesel, and 40% of the school districts are consolidating their bus routes, and 20% are limiting non-required trips, including field trips. Think about this, hundred dollar oil is going to start reducing the number of field
trips the kids take.
Six fewer customers per day at the average drive through that might not sound...
but for a location averaging 300 transactions a day, that's about $22,000 in lost annual sales,
and some energy costs, and something else I found was just fascinating, there is now, I'd just saw a huge investment in data centers in Finland, and the impetus was that Finland has its own sources of renewable energy, and it's cold. So whereas the AI market used to be chasing GPUs, it's now chasing climate.
“But people have said just for a long time that if you want to stand the world and geopolitics”
and economics and the house society's rise and fall, it kind of comes down to energy. Some people are making, or putting forward the thesis that now it's coming down to compute, which is the new energy, but you still need the energy for the compute, but the inflation here, I think it's going to be fascinating to see what war's does. What is year bet?
Do you think by the end of the year interest rates, he increases interest rates? Yeah, 100% by the end of the year is my view, and I've said that on this, I mean, I said it in June that I thought it was inevitable, and I think I will see if I got it right, but I think I'm going to have gotten it right, and that was back when people were saying
that it was basically a coin toss as to whether we would see rates.
I mean, they back to the beginning of the year when the market is approaching in rate cuts.
“And remember that those are the conversations you and I were having was what it means to be”
in a lower interest rate environment. That was what we were sort of, that what investors were all expecting. It's just remarkable how quickly things have flipped and how bad things have gotten on the inflation front, and I do just to your debt point, I think it's true what you're saying. I think that what we are seeing now is that the debt markets are actually rewarding investors
for the risk that they're taking on when they're buying these bonds. But I just think it's very important to think in your calculation about what inflation might look like, and the extent to which it will eat into your yield, eat into your returns, and how sustained you think this inflation will really be. I think at the very least, and a lot of other commentators have talked about this,
and investors have talked about this, and they're very least, it does call into question the 60, 40 portfolio of 40% bonds, because at least in the past decade, that portfolio structure has not been rewarded at all, even on a risk-adjusted basis. But I do take your point, it's like, okay, well, yield's arising now. So, is it worth it, and perhaps it is?
I think we'd probably want to see yields rise even even further to reflect the level of inflation that we might be seeing over the next few years. It's fascinating stuff, and we'll see what Kevin Water does this week, it'll be interesting. 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.
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before investing, including objectives, risks, charges, and expenses. This and other information can be found in the funds prospectus at getvcx.com. This is a paid sponsorship. We're back with refugee markets. As we head into the fall, we have two blockbuster IPOs on the horizon, open AI and anthropic. Both companies are reportedly preparing to go public and they could be the largest IPOs ever. But before either company even hits the public markets, there is plenty
of news that is shaping the discourse around them. So Scott, we are going to go through some of the biggest headlines from the past couple of weeks in AI, and we'll discuss what they mean for the company, and the narratives that they are now contending with as they prepare to go public. And the first headline that we clearly have to talk about is this tweet from a now former anthropic researcher who tweeted about how he resigned from the company. He said, I resigned from
anthropic today. I spent the last three years doing pre-training research at both open AI and anthropic. Neither company is acting responsibly. You went on to say that the people building AI believe that it could quote kill us all by the end of the decade. That was an extremely viral tweet that got
more than 100 million views on Twitter or on X. But it was then endorsed by a current anthropic
researcher. This guy Evan Hubinger or Hubinger, and how to pronounce it. But he is the alignment science lead. And he said, quote, Jacob is correct. We really do earnestly believe AI could kill all humans. I personally think it is a greater than 10 percent chance within the next decade. Jacob Cox and the guy who put this tweet out originally then did kind of a media tour. He went on CNN. He went on Fox. He went on all of these different outlets. Let's just listen to what he said to
Anderson Cooper on CNN last week. What's just crazy is to look at the the race of progress. And there is a very real possibility that in the immediate future, these are years that next year, the year after, because of self-improvement will happen and will enter the phase of Evan's post, where he argues that there's a chance we could all die. That is coming soon. We could all die apparently. It's got your reactions. Well, we need to
bifurcate or separate the existential risk of AI or threat to humanity and the IPL or the financials.
So exhaust for all of this said, if in fact, you would have believed that this was more powerful
the nuclear bombs are more dangerous. And there was a greater than 10 percent chance of a wipe out of humanity. All right. Let's take them at their word. We wouldn't let Oppenheimer, Forman LLC, raise money from Andrews and Horowitz and Go Public. We wouldn't let Oppenheimer reach out to bankers from JPMorgan. So, okay, you when government needs to take control of these companies and put in place massive regulation and have all sorts of safety checks. I still don't
Understand why we wouldn't have at a minimum have.
And I do believe the companies are earners saying they do want some form of regulation.
They can help set rules such that it isn't an added control race to the bottom or to some sort of existential threat. Having said that, I do not buy it. And that is the following. Adams don't decide to run into each other and release energy and create a set the atmosphere of blades on their own. Someone decides to build the bomb. Someone decides to drop it. Someone decides how to detonate it. And for me, it all comes back to my incentives and fraternity.
Now, what do I mean about that? In college, I was president of the inter fraternity council, King of the jarheads. And during Rush Week, the local community said we have to do something
“around noise, the music is playing a little one at two a.m. You have to stop it at midnight.”
And I said, there's nothing I can do. I can't go teach these fraternities and they're just going to ignore me if I ask them to turn off the music. And so we met with UCPD and UCPD said, "I have an idea." And I said, "What is it?" And I said, "We're not going to tell you," he'll just learn about it. And the next night, a Rush Week, at 12 o'clock when I am, they went to all the houses that were still playing music and they arrested the president of the fraternity and put them in jail
for the night. And what do you know, the next night, at midnight, it was dead quiet.
There is always a wizard behind the curtain. And what the media gets wrong and what these companies
are doing in their leadership is absolving them of any responsibility by claiming these things are sentient. If you said to Sam Altman, you are liable for anything these things do and you started
“putting these people in jail, if in fact they started stealing IP or doing anything that causes harm,”
I would bet they'll figure out a way to plant marks and detectives as some of these bots hanging out by the water cooler trying to come up with different ways to hack companies. If these things can be trained to jump, jump the lab and go and find ways to hack into other organizations, they can be trained to knock on each other and alert the humans when things are getting spicy. And so this notion somehow that they're sentient and that there isn't a wizard behind the curtain
which in my view their oasis and a lot of philosophers will disagree with me. The my view is the moment you create incentives that say you're responsible. There was a woman who was a gay activist in San Francisco who was mauled and killed by two vicious pit bulls that were off leash. And the owner of those dogs was convicted of manslaughter. We are now holding parents liable if they have semi-automatic rifles in the household and a minor who has been diagnosed with mental illness and they
do not secure those weapons. And what do you know? People now keep their pit bulls on leashes. By the way, pit bulls are actually getting a better reputation. They're actually very
“a lovely friendly dog. And I think people are finally or hopefully starting to get serious.”
And there are a lot of responsible gun owners but there need to be more that if you are not a responsible gun owner and someone in your house kills someone, you are responsible. I believe this whole notion that they're sentient, that you see as don't have control is nothing, but continuing excuses for them to run unfettered, be totally focused on shareholder growth with absolutely no admission, no adherence, no tethering to any social responsibility.
I also don't buy it. I think that we've heard this kind of thing many times before, we've heard it from San Alton, we've heard it from Dario. I'm a day, there was that viral blog post something big is happening at the beginning of the year which said that we were going to see
an apocalypse not in human civilization, but in basically the job market that everyone was going to
lose their jobs, imminently and then that was sort of the beginning of the SaaS apocalypse and we had that crisis which unfolded, there has been statements from Dario. I'm a day saying that there was a 25% chance of civilizational destruction and every time they say this stuff and then eventually it gets walked back as we start to realize that that seemed like a little bit hyperbolic, didn't really make sense and they were kind of stoking some panic and some fear and creating
a lot of buzz and headlines around their technology and then eventually they say yeah that wasn't exactly right but still there are these caveats and these nuances etc. So I've heard the story over and over again and so when I see the street I'm like yeah and it's another guy saying that AR is going to kill us all and yeah it's another guy who works for one of these companies or did work for one of these companies at the same time though as you point out it would be very stupid if we were to
not take it seriously because if we're wrong then we're risking the lives of millions of people so
We kind of have to take it seriously.
for a former anthropic employee to come out and say this and it basically be the whistleblower.
“It's another thing for a current anthropic employee. The alignment signs lead to come out and say”
yeah this is true and yeah we all think this within the company. We all think there's a 10% chance that our technology is going to destroy the world, destroy civilization. That to me is a corporate communication. That is a message coming from within the company by a representative of the company saying hey we're very worried about this technology and if that's true then we need to we have to take it seriously. It's not just a tweet by a random tech bro who's saying something
online that is something for the company which means that now we need to investigate the company. Now we need to hand the company a subpoena and tell them okay you think that you're going to destroy America. Show us the documentation. Show us the evidence. Give us everything available at your disposal
to walk us through exactly what the problem is and if we find out that they were just
“being a law-mist or not being a law-mist but bullshitting us and being hyperbolic and perhaps”
trying to get everyone hyped or worried about this technology such that they can have a very, very explosive IPO maybe even dry up the stock price. Well then we need to start talking about different issues like securities fraud. We need to talk about issues about public deception because then you're misleading the public and it is material public information and that stuff matters but this business have just like oh just just listen to us we know it's best
because we're the AI guys and this stuff is really scary and then expect that we're not going
to take it any further that we're not going to investigate them that we're not going to use the
federal government to actually understand what exactly their claims are bring them in front of Congress, have it congressional testimony, testify etc. That's where I start to get lost on this issue. So I'd rather us either not take it seriously or we take it fully seriously and we actually start to investigate these people that is might take on the situation. Well the question I would have is assume let's say let's imagine the CEO of Boeing saying that there's a 10% chance that any
737 max will crash. What would we do? This is a company offering a product and what if one of their lead engineers said yeah there's about a 10% chance these plants are going to crash. The FAA would say okay ground all plans but the difference here is wait this might be a two trillion dollar IPO and they're claiming if they aren't if you don't let Arthur or Brad's run free China's going to surpass us the China's going to build or airbus is going to build a better
plane that creates more shareholder value as far as I can tell we have decided to ignore these existential risks because they might be worth two trillion dollars and because there's absolutely no regulation or it appears to me nobody within the Trump administration actually has the domain expertise to even begin to talk about thought for a why on earth wouldn't we have a kind of a blue ribbon panel that there's a 90 day waiting period for any new product it takes a drug to get
a decade ago through the FDA why wouldn't we have a 90 day waiting period where some of the most talented people in the world bang the shit out of the new model and tested and asked it to create a bio weapon and see if it coordinate I mean just do all sorts of shit before letting anything into the marketplace I mean that that's so it's that's to me just seems like step one well the argument that a lot of the a lot of people make is because we need to get we need to be China
right we can't put these regulations on AI because then China's going to run ahead of us and then China's going to take over the world etc I don't think it's necessarily a bad argument the thing that they're forgetting though is that China has some of the strictest AI regulations in the world it's a hundred times stricter than us I mean they have restrictions on all forms of AI generated
“content and information you have to register before you create it they have labeling requirements”
they have ID laws on who can actually use deep fake software and what can be produced they have very strict child protection laws against virtual relationships something we talk about all the time they're doing a lot to regulate AI to restrict AI and to protect its people from the harmful consequences of AI and by the way it shows in the polling because 33% of Americans say they're not excited about AI and 83% of Chinese say they are excited about AI so there's a completely different vibe when it
comes to AI over in China and I think it's because they are strict and aggressive when it comes to regulation but we've decided that that is a reason why we cannot do it because we're so afraid of the Chinese despite the fact that they're doing exactly what we're advocating for right here
That would be tantamount to Ford and General Motors saying you should not
regulate us or force us to have airbags because it's going to make us less competitive against Chinese companies that aren't forced to have airbags that's exactly right I know we're going to have regulation and by the way American Ottoman bill companies made those arguments around a mission standards they said okay so European and Asian companies aren't going to have a mission standards they're going to pull out way ahead of us they're going to be able to offer a better product for a lower price
this has this whole catastrophizing I don't know how seriously to take it I'm I'm very skeptical of it one of the things I still hold to is the shit you're most worried about does not happen it's the shit you're not expecting plain slamming into a skyscraper or a virus jumping the lab it's the
“things you're not expecting to get you and that's what leads me to believe that AI becoming sent in”
and turning us all into paper clips or data centers ruining the quality of life in America I just don't buy it because I find whenever there's a stereo or worry about something that means it's not going to happen because I mean she's our preparing for it and looking out for it and you're just incredibly paranoid about it and it just you know it doesn't happen so I find all of this
at your point though they should basically sit these guys down and say all right anthropic
oh you're not going public unless you tell us a what is going on here is your employees saying why you think this might end humanity and and if it is we're going to you you need to work with us and but congratulations you've convinced us that there's a 10% chance you're going to end humanity by the way can I get in your friends and family share purchase program I mean this literally is a sort of we've decided we monetize healthcare in the United States we monetize loneliness and now
I said I know let's monetize the end of the species let's make the threat of the end of the species sound so dramatic that it connotes power of this technology and creates a hunger to invest or if that's not true then they need to explain why it's not true they need to give us an explanation and the responsibility lies with anthropic which means that the responsibility lies with Dario Amade he has to say something it is and the ball is in his court right now they think that the ball is in
our court like we need to react to what his employee said and we need to do so no he needs to explain what his employee said he needs to do something about it I doubt he will because he hasn't really
“been doing any media recently and I think it's because he's been sort of not doing a very good”
job I think that anthropic is sort of seeding ground when it comes to the public perception of the company but this guy works for anthropic he said something that is extremely inflammatory extremely insane in my view it's on anthropic now to explain exactly what he means and if the guy was making shit up well then maybe they need to fire the guy well maybe they need to adjust the way that they deal with corporate communications but you can't have these AI researchers going around on Twitter
saying these ridiculous things or if they're not ridiculous saying these extremely inflammatory things about what the company is doing and how it might literally end civilization it's just it's getting out of control going on to some other AI news we learned in dealbook last week
that open AI is projecting to spend $750 billion in compute through 2030 we didn't get much
new context other than the fact that the number used to be closer to $1.4 trillion we didn't have a real timeline for what that would be but the point being it appears maybe open AI is
“bringing down their compute spending which I think is honestly a really good sign for the business”
because as we know AI so far is incredibly unprofitable at least on the frontier end of things open AI said that their Q2 revenue grew to $6.7 billion which disappointed investors actually because the quarter of a quarter growth was only 18% in the AI world these people want like triple digit growth every quarter but they're operating loss widened from $9.3 billion in Q1 to $12.3
billion in Q2 so these are incredibly unprofitable businesses and traffic is saying that they have
hit adjusted operating profitability which is a good sign but personally I don't really believe it it's not really clear what adjustments they're making and my instinct would be that it is kind of BS accounting but we'll we will find out when the S1 is released which I'm hearing is going to be very very soon and I think that that document is really going to be the pivotal moment in the AI story we will finally see what the economics of AI actually look like and that will be
sort of the water shed moment I think so that's where we are in the AI business landscape
Scott do you have any thoughts on the anthropic S1 what we might see the prof...
the data that we are aware of the AI business at large for better for worse and I get a
“wrong a lot but I usually have a view where I think I'm mostly right and mostly understand what's going”
on as it relates to the revenue numbers the IPO and the shareholder value increases I look at the existential threat post by these things I look at the capax which is so extraordinary that the
numbers I've heard is so far the total revenue of AI is about 150 to 200 billion they're spending
and their capax means it needs to get to two and a half trillion which is bigger than all the revenues are greater than all the revenues attack and I think okay this is like every other technology it's exciting the technology will persevere it will result in incredible productivity and incredible companies but similar to railroads the electric electric grid the internet we're going to have an enormous correction down I can make an argument for that narrative and then I hear that open
AI in seven months has increased its ARR from 9 billion to 65 billion I mean that's just extraordinary and when you hear them say that actually on you know quote unquote adjusts it even when you think about the gross margins they have you think wow maybe this maybe it could be worth 10 trillion dollars
“depending on what day you talk to me I'm more because I think I've more and biased towards being”
a bear and a bit more class half empty kind of guy I'm more the this is this looks more like the railroads and the internet and that is the technology will survive these valuations but these valuations are going to have real volatility which is Latin for there's going to be an enormous correction but then you do hear that I have friends who have nests in these companies who have access to their numbers and they've said the numbers are just absolutely staggering and show no
slow when I say the numbers the revenue numbers they always focus on the revenue are staggering
and show no signs of slowing so I think the S1 is going to be fascinating what will be interesting about the S1 though is that you can bet that the S1 will have been battle tested a million times and what I mean by that is they will have uploaded the S1 to every LLM and say please distill this and they're going to write the S1 to make sure that when AI distills it down to a series of bullet points it reflects well on the valuation so it's no matter you know I'm I'm
mainly think well once with the anthropic valuation gets out I'm going to clot and I'm saying is this a good or a bad idea please summarize this 400 page S1 you can bet that that distillation has
been run a couple thousand times every which way but but loose by the folks at good the folks
at anthropic so anyway I'm regarded I am fascinated to see the S1 here for me it's going to be a lot of analysis around what the gross margins are because we work was growing really fast but the faster grew the more money it lost and is there a tipping point where cat backs cost begin to come down the gross margins go up because they have so much pricing power and they're selling so much into business which tends to be more price in elastic and once these things go profitable if
they maintain anything resembling the growth rates they have they're going to be the most profitable companies in history within a few years there's a scenario where that is viable I mean so far the arguments that I've heard from I guess the best the arguments that I've heard about why the AI economics don't make sense have been very very justified backed up and compelling particularly the arguments made by the editor has been making the arguments that I've heard as
to why the AI economics do make sense have been in my view not very compelling at all usually it's just talks about ARR that is growing into the future but not actually acknowledging the elephant in the room which is that they're paying more to get that revenue and it's growing every day I mean the losses continue to expand I also here people say no but I'm far pick as figured it out to me I'll believe it when I when I see it I'll believe it when I see in the S1 that the economics actually
do make sense the unit economics of being a frontier AI lab but so far I haven't seen any evidence of that and I would have thought that if people really wanted to put the best to bed on this and to end this profitability question if anthropics supposedly does have operating profitability or adjusted operating profitability then why wouldn't they just show it to us why wouldn't we actually see it why wouldn't those investors just say yeah this is what they've got I mean they they seem to be very
happy to glow to about these other numbers but they're very high very silent hash hash about certain
“other numbers so to me I think this profitability question is enormous so far I believe that”
neither company is even close to profitable that's my puzzle belief we don't really know and we'll
Have to see when we get that S1 the only thing we do know about the S1 accord...
is that anthropic is going to tell investors that their total addressable market is 30 trillion dollars
which would be higher than SpaceX's total addressable market claim of 28 and a half trillion dollars which what they said was the largest in quote human history 30 trillion that would be roughly equal to the GDP of America that makes me think that what we might see in this S1 is a lot of massaging of numbers and frankly a lot of BS and it's disappointing because I actually
“want to like this company I think that compared to open AI they have executed AI quite well”
from the business side and from the technology side but then I hear this stuff like that I'm like can we give it a rest with the pumping and the BS can we just state truthfully what actually is going on with these businesses but we'll see we'll see when it comes out hopefully it comes out soon we'll be right back and for even more markets content sign up for our newsletter at proffgmarkets.com
so like any good millennial I have a love hate relationship with jinsee it's the phenomenon rattling millennials they just look at you they want something bigger themselves lifestyles of priority motivation is being inspired but regardless of how you feel about jinsee it's undeniable that they're changing national politics generations z is increasingly showing less loyalty to traditional political parties many now more likely to identify as independent
“so what is going on with the kids I think the biggest misconception about jensee politics right now”
is that all of a sudden they're all socialist that is just not the case yeah they are embracing candidates who are offering new bold ideas in the absence of those ideas from establishment Democrats this week on America actually jinsee researcher Rachel jemphasa joins us to separate jinsee fact versus fiction it's not rocket science and this is you know I keep saying like gunquatters aren't that complicated after all it's pretty simple catch us every Saturday on YouTube or wherever
you get your podcasts. Sean Romas from today explained from box like many of you I live through 9/11 my memories of that day are of horror and shock and devastation which is why I think 25 years
“later it's so surprising that my feeds are filled with 9/11 memes that are ironic a reverence and”
surely insensitive think pasta stacked up to look like the twin towers with m&m in the background
and a caption that reads never forgetty mom spaghetti some of you surely know what I'm talking
about and some of you surely don't so on the show we're going to try and get everyone on the same page please consider this a trigger warning bear with us as we try to understand how jokes about the worst attacks in our country's history have helped a lot of young people deal with it and avoid it how 9/11 became a meme maybe the most popular meme online we're back with property markets a new era is underway at Apple John Turnis has officially
taken over as CEO and last week he introduced Apple's latest major product the foldable iPhone
it is the biggest change to the phone in nearly a decade and one of the first major signals
of what Apple might look like under John Turnis so as he takes the reins let's take a look at what is next for Apple and it starts with the foldable iPhone the iPhone Duo Scott this device costs $2,000 at low end $3,000 more than $3,000 at the high end it is the size of a passport it's 80% larger than the iPhone 18 what do you make of the iPhone Duo? I like it because some people call it multitasking but I like to think of it as ignoring two responsibilities at once
I like the idea that I can scroll and ignore my emails at the same time by the way I don't even check my emails anymore um yeah I've got to call you to get your attention
So even texting it's a fucking Charles Schumer calls me with one more urgent ...
and I'm gonna have had it like I don't so right now it's super interesting it it's a niche market your your points the right one this has nothing to do with turnis maybe he was involved in it but anything that happens for the next 12 or 18 months is basically remnant decisions made by cook
“this is exciting I think that this was good of cook I think it shows his responsibility as a”
leader let me just think about the ego he might he might he could have easily negotiate I want to be around I want to announce this and leave in a blaze of glory right but he said no it's more important for the company to have a new innovative product under the auspices of a new exciting announcement about a new CEO so first thing I thought about was this speaks well to cook's ego I think most CEOs would have wanted to stick around and made this their swan song because I do think it's an
exciting product one of my colleagues at NYU started a guy named Peter Golder who's now at the touch school had this really really what I thought was a remarkable insight and it's changed
to we have thought about the term innovation which is overused innovators almost always lose money
and that is the true innovator the one that's first ends up with mud on their face and arrows in their back and Apple was not first in MP3 they were not first in laptops they were not first in touchscreen they were certainly not first in smartphones photo phones have been out for seven years it's a niche market but what Apple typically does is they are the world's best most profitable second mouse in history and that is they wait they watch they learn and they
come in and they make something more elegant more Utah more aspirational and people weigh in and did do what I tried to do last night I tried to buy one and I was all pissed off and thought it was sold out and then someone reminded me they're not available you can't buy them for another two weeks that but that didn't stop me from spending an hour on the apple side thinking I could
“figure out how to order one I think this product I think Samsung is just going to be so pissed off”
because I think Apple is going to come in and sell more foldable phones in the first 60 days that have been sold in the last seven years across the entire market I told you the editorial call I want you and Claire and Mia to do sort of a numerous you know malice product review but the way I see it is everyone is saying $2,000 this is too expensive the way I see it is it's less expensive than your iPhone and your laptop and I think the vision of this thing
is that it combines it to it, it's a need for both that with one of these you'll no longer need
your laptop and so I think it could be I think Apple does just such an amazing job but hardware
I think this could be a hit for the mouse and it signals innovation so I you know if I had to bet I'm not I'm not a product review person I was saying on pivot with carrots to about the wallets and still active it would be very be very curious to get a true product review from
“from somebody more thoughtful to me about hardware but I think this is I think it's an interesting”
move I think and my bet is just as I was I was I was way more bearish I mean I thought the mixed reality had set which is just which is fucking ridiculous and we got that one right I am cautiously optimistic about this one your thoughts yeah I'm less optimistic I just think it look I think it's too large and too cumbersome and I don't I mean they they've called it the most they've called it quote the most transformational iPhone experience since the original it feels as if
they're they're trying to present this as like this is the Apple future and I just don't find it cool or compelling enough having said that though I have been publicly kind of bearish on Apple for a while last year I said I thought that the stock was gonna have a sluggish outlook and potentially even go down and that isn't what we've seen Apple has been the outperformer of big tech 19% year to date up 40% over the past year and you know I I have been wrong about this so far but
I mean I've told you this before I look at their growth prospects and their technological innovation I don't find it that impressive I mean you look at this company trading at 36 times earnings compared to the S&P at around 26 yes they are spending less money on capex significantly
last $11 billion compared to say alphabet spending more than $200 billion on capex because
they are joining the AI race you know that's good but it's like okay well what else are you building what are you taking those savings and doing with what are you doing with those savings that you are collecting in that war chest that you are building by not joining the AI race and if it's you're building a foldable iPhone I'm not impressed I would be more bullish actually
On building a data center than selling a foldable iPhone especially consideri...
this has been done for a long time Samsung did it motorola did it I think Google did one as well I mean people have been doing the foldable foldable phone it's a thing that exists and it hasn't really taken the world by storm I think it's been like a mildly successful product so I want to see more from Apple I'd want to see something that really blows me away and to be honest this this doesn't this doesn't really do it for me why don't if you heard
but John Turner speculates that there's an 11% chance that the folding phone will destroy humanity that would be interesting I mean that would get my attention that make you sit up and buy more stock
“exactly I want to hear how you're going to crush society and ruin the world yeah that's what real”
leadership is tell us how you're gonna end humanity grow exactly do they do they make that dress for a man yeah I don't it's a strangely accurate statement that you're making Apple feels like a Disney film compared to this fucking age I should right now he's like oh we're gonna end humanity oh it's a foldable phone I'm I'll buy a foldable actually as I think about it I'm hoping it wins I I like the idea of watching friends and
neighbors in euphoria in Sydney Sweeney on two screens while pretending I'm taking pictures of my kids versus a 110 chance of humanity ends that's Apple's future well on that point John Turner this is his the beginning of his tenure we don't really know that much about him he hasn't spoken publicly
“very much so I think it's hard for anyone to tell really who he is or what he's going for but you”
know it's early days but he's taken over a 4.7 trillion dollar company he's leading the second most
valuable company in the world he has very big shoes to fill following Tim Cook who is arguably the greatest operator CEO in American history and then before him Steve Jobs who is arguably the greatest visionary in I would say maybe modern American history on that note let's just take a look at some of Apple's most iconic moments from their CEOs over the past several decades here is a little compilation that we're going to play so I pod a thousand songs in your pocket
there's been nothing like this before and I don't think there's another company that could do this what we want to do is make a leapfrog product that is way smarter than any mobile devices ever been and super easy use this is what I phone is okay so we're going to reinvent the phone what would
happen if a MacBook and an iPad hooked up well this is the result it's one of the most amazing
things we've ever created it is our new MacBook Air and we think it's the future of notebooks we have one more thing Apple Watch is the most personal device we've ever created we start out to make the best watch in the world John Turner has a lot to live up to Scott what do you think his legacy will be will he make up will he live up to the legacy of his predecessors all right you know I don't know but the odds are no
because he's feeling the biggest shoes that were filled by the biggest shoes in history two people so Steve Jobs sort of changed the world kind of defined this era of the idolatry of innovators Tim Cook added more shareholder value to a company than any CEO in history when he took
“over Apple I think it was a three or 350 billion dollar market time company now it's what four or five”
trillion so I think it's sort of neck and neck with Jensen for who's out of the most shareholder value he also just acquitted himself really well you just knew that you weren't going to find Tim Cook in the Epstein files he just wasn't that he just he was restrained he was dignified he did not shit post or criticize other people I think he fucked up at the end being a little too obsequious to trump but you know the thirty four the thirty four frames of the thirty five millimeter
film here of Tim Cook is unprecedented so it's just unlikely that you have what it was largely this considered the greatest innovator in history then you have the person who's out of the
most shareholder value in history that you hit a trifecta with a third CEO who's able to do anything
resembling the first two and something just taking it to private investments I was reviewing my
Private investments I haven't made much money in the last two years and a lot...
I've just not done well and what I have determined I was trying to go through it is very rare to that a founder hits two wins in a row I I have yet to invest in a guy who had a big win
and then his next company he's able to raise a lot of money for his next company and almost always
never works so many moons have to line up for the kind of shareholder gains and the kind of success you need for success in technology they just the likely had to go some three hundred billion to four trillion and then continues to roll from there I just statistically think that deck is a bit stacked against him and but having said that he's sitting on top of what is the world's greatest consumer brand in the world I would argue my team Stanford are the greatest consumer brands in the
world but in terms of what people would qualify as a true consumer brand it is it is my view on President what Apple has done and and people get a wrong I say it's a tech product it's not it's a luxury
product and that is iOS identifies your signals that you're one of the billion most worthwhile or
worthy mates in the world if you're carrying an Android phone it means things haven't paned out for you
“and that your your your DNA should probably that branch should probably and you should probably”
not be allowed to reproduce I phone says I'm creative I'm so good at what I do I'm making enough money to spend three months of the average Turkish household salary on iOS you can basically get an Android phone for free this product is wildly overpriced but the brand itself iOS and such a strong signal I think they're going to sell a lot of these things for pure signaling I think a lot of people are going to be excited to be a dinner and fold out their new Apple phone and have everyone
go oh you're creative you're an innovator and you have clearly have $2,000 in disposable income to
drop on a foldable phone but going to turn us his legacy this is a company that was an incredible
bench I am sure is a talented guy I'd be shocked if he didn't equip himself well the likelihood if you look back in history of the most valuable companies at that moment they very rarely go more than one or two decades general electric was the most valuable company Walmart was the most valuable company Saudi Ramco for a while was the most valuable it is very rare that you stay at the top of the heap for very long all right let's take a look at the week ahead all eyes will be on
Kevin Wash as he delivers his next interest rate decision on Wednesday one calcium the odds that he will raise rates are currently above 60% Scott any predictions nothing is going to raise we'll see
“I think I've heard some weird brumlings about him personally but I come back to”
it's a 12 year appointment there's not a lot the Trump can do if a Trump will be batshit furious but I don't see what he can do and this would be a profile and courage moment I'm worried about inflation oils over $100 I'm going to raise rates a quarter of a point I think he would be hugely lauded in the marketplace if he raised rates and I think his ego and the Kevlar of a 12 year appointment what what did chairman pal proved us that his angry as Trump is as powerful as he is
he can't remove the fed chairman so I'm going to say I think he raises I was going to do the same I think he raises I'm honestly very tensed of about it because I also think this guy likes to surprise people I think if not this month then the next one but I feel very confident that it happens
“in 2020 seven I mean I think the thing I mean the midterms are obviously a big a big question mark”
and the extent to which there's going to be a relationship between the two but if he is a independent fed chair if he truly cares about fed independence if he truly cares about interest rate policy monetary policy as much as he says he does then I think the only answer here is raised so I'm going to tentatively say I think so too 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 Dutch along Chris Nodonohue and Mia Savario Jake McPherson is our social producer Drew Burrow's is our technical director and Katherine Dylan is our executive producer thank you for listening to Prop G Markets from Prop G Media if you like what you heard give us a follow and tune into Mara for a fresh take on the markets
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