The AI Panic Trade | What the Viral Doomsday AI Article Means for Markets

Summary

Podcast Summary: Excess Returns – "The AI Panic Trade | What the Viral Doomsday AI Article Means for Markets"

Date: February 28, 2026
Hosts: Jack Forehand, Justin Carbonneau, Matt Zeigler
Guests: Brent Kachuba, Ben Hunt, Rupert Mitchell, Meb Faber

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Overview

This episode examines the ripple effects of a viral, dystopian AI “End Times” article (referred to as the Citrini piece) that set off a widespread panic—and curiosity—across investors, market commentators, and policymakers alike. Hosts and guests break down market responses, debate the merits of scenario planning, and analyze what both the hype and the hard data actually mean for investors. They use this moment to revisit long-term investment frameworks and the enduring lessons from boom-bust cycles, all while weaving in wit and real-world anecdotes.

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Main Discussion Themes

• The Power and Pitfalls of Viral Narratives in Markets
• What Options Trading and Flows Reveal Versus Headlines
• Macro Implications: Credit Cycles, Contagion, and AI's Real Economic Threat
• Is It All Priced In? Where Value and Opportunity Might Lie
• How to Navigate Extremes: Scenario Planning, Base Rates, and Humility
• Global Macro Shifts: U.S. vs. International, Currency, Gold, and Energy
• How to Track AI’s True Market Impact Going Forward

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Key Segments & Insights

1. The “Citrini” AI Apocalypse Piece Goes Viral

[03:59] Jack & Matt

• The fictional but plausible AI doomsday scenario “from the future” (the Citrini piece) triggered responses from major players (e.g., Citadel, Jeremy Siegel, a Fed governor).
• Matt: “It's kind of amazing that we're all on record now responding to fiction.” [04:18]
• The piece was intended as a “bear-case scenario-planning tool," not a prediction.
• Both hosts stress the educational value: scenario extremes force new thinking; the most likely path is far less dramatic.
• Jack: “There’s always something you can learn from this—not in terms of what's actually going to happen, but...thinking through the progression of AI, both as labor enhancer and replacer.” [05:41]

2. Risk, Probabilities, and Investment Scenario Planning

[06:35] Matt & Jack

• Reiterate Michael Mauboussin’s advice: always have multiple base/bull/bear cases. Scenario edges teach us about the full distribution of outcomes.
• Matt: “Risk means more things can happen than will happen...This is one strand of the spaghetti noodle in the whole pot…” [06:35]
• AI is unique—never before has tech replaced human intelligence at scale. The hosts urge humility; no one, experts included, knows the path. [08:14]

3. Market Mechanics – What Actually Happened After the Panic?

[09:38] Jack with Brent Kachuba (Spotgamma)

• Brent tracks options flow to see if fear–from headlines—translates to actual trades.
• Brent: “It moved options prices. Some stocks...seem to have unusually high volatility. But there was no put buying, no signal at all...that said this sparked actual fear.” [13:51]
• “Peak panic” seemed to mark a short-term bottom, not the start of a crash.
• Jack: “This is telling us what people are actually doing with their money...if I'm buying puts, that's real fear. If I'm just talking about it, that's not much of anything.” [18:16]
• Differentiation within software: options market is not pricing uniformly for all stocks—e.g., bullishness for Shopify/Zoom, bearishness for Palantir.

4. Credit Cycles and the Real Macro Danger

[22:03] Matt with Ben Hunt (Epsilon Theory)

• Ben applauds the Citrini piece’s creative scenario but warns that classic credit cycle dynamics are already dangerous enough—AI apocalypse not required.
• Ben: “There comes a time in every credit cycle where the money, the lenders, the investors...they say, ‘No more.’” [28:38]
• Anecdotal story: Private equity losing a company after failing to refinance illustrates lenders' new caution and tightening.
• Ben: “We had basically free money for a long time and…the world [was] just awash in money. Now that tide's going out and the cost of capital is going up. That's what always makes people with money say, ‘I'm out.’” [34:03]

5. Rotation, Software Stock Valuations, and the Global Picture

[35:37] Matt with Rupert Mitchell (Blind Squirrel Macro)

• Rupert was “early” being cautious on SaaS software stocks—now re-examining names after sharp declines and considering the value case.
• Emphasis on international markets: Ratio chart (S&P vs MSCI EAFE) now shows U.S. underperforming international equities again after a short reversal.
• Governments worldwide are spending, benefiting equities (“Dirty little secret: equity markets go up where governments are spending money.” [41:11])
• Gold and miners: still attractive; gold's margin resilience against energy shocks noted.

6. Bubble or Opportunity – The “Is This Time Different?” Debate

[46:34] Jack with Meb Faber (Cambria, The Idea Farm)

• Review of three key research pieces (Schroders, Mauboussin, Grantham) linked by theme: how do you defend against bubble risk?
• Meb: “Most financial media spends all the time on the diagnosis...but the reality is...the prescription is just have a diversified portfolio...trim your winners, buy your losers, and...trend following.” [50:59]
• Historical precedent: Japan in the 1980s, dot-com, Nifty Fifty—booms can last, but busts devastate those “priced for perfection.”
• Mauboussin’s base rates show how rare it is for firms to sustain explosive growth; OpenAI’s expectations may be statistically improbable.

Memorable quote:
Meb: “My least favorite phrase is 'the easy money has been made.' ...There has never been easy money made in markets.” [57:45]

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Timestamps for Highlighted Segments

• Viral AI panic piece and reaction: [03:59] – [06:35]
• Scenario planning, risk frameworks: [06:35] – [09:01]
• Brent Kachuba on options/flows: [09:38] – [21:18]
• Ben Hunt: credit cycles/contagion: [22:03] – [34:12]
• Rupert Mitchell: SaaS, global rotation, gold: [35:37] – [45:47]
• Meb Faber: boom/bust/bubbles, investing prescriptions: [46:34] – [61:39]
• How to track if the AI bear thesis is playing out: [62:06] – [69:34]

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Notable Quotes

• Matt: “We're all firmly in the coattail riding thing...Did the piece inspire?” [05:00]
• Jack: "We have no idea which outcome we're going to get. Let’s think through the range and how it impacts us as investors." [02:12 & 08:14]
• Brent Kachuba: "It moved options prices...There was no put buying, no signal at all in that options data that said this sparked actual fear." [13:51]
• Ben Hunt: “There comes a time in every credit cycle where...they say, 'No more.’” [28:38]
• Rupert Mitchell: "The dirty little secret is that equity markets go up where governments are spending money.” [41:11]
• Meb: “Diversify, rebalance, trend follow...That will keep you in the game.” [50:59]

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Tracking Real AI Impact Going Forward

• Watch corporate filings to see how (and how much) actual AI adoption alters profit and cost structures. (Kai Wu’s future episode will focus here.)
• Monitor job market/layoffs in tech: so far, most layoffs are correcting the hiring boom, not signs of mass AI-induced disruption. [65:33]
• Hardware/energy build-out: AI's inflationary demand on electricity and compute will precede any “deflationary” productivity surge. [68:57]
• Don’t extrapolate too fast—real-world adoption always lags technological capability.

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Tone & Closing Thoughts

All guests share skepticism about extreme forecasts and instead favor humility, base rate thinking, and a probabilistic framework. The episode is fast-paced, witty, and self-aware—even when discussing serious systemic risk. The recurring wisdom: scenario extremes are worth considering, but investment success lies in discipline, adaptability, and an appreciation of how narratives, data, and incentives interact.

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Useful for Listeners

By the end, listeners have a toolkit to:

• Separate headline-driven panic from reflective investment practice.
• See what data actually changed in the wake of viral stories.
• Frame market boom/bust in historical context.
• Monitor the right signals, not just the loudest ones, as AI transforms (or doesn’t transform) the investing world.

Transcript

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[Podcast Host/Announcer]

are excited to announce the launch of a new podcast, Last Call. While many market rap shows can repeat the same information, we wanted to try something different. We wanted to get away from what the market did in the past month and instead bring in some of our friends who offer truly unique perspectives and data. And we wanted to have some fun along the way. Our first episode features Ben Hunt on private credit, Brent Kachuba on what he is seeing behind the scenes in market flows, and Cai Woo on how AI capex is changing the MAG7. You can subscribe to Last Call on all major podcast platforms or our YouTube channel using the links in this episode. Description thank you for listening. We hope you enjoy the new show.

[Matt]

This is not some piece of like new evidence. This is literally a manufactured story from the future.

[Ben Hunt]

There comes a time in every credit cycle where the money, the lenders, the investors, where they say no more.

[Brent Kachuba]

I drew this line right here and this is when that AI End Times article was written. And so it would be kind of a fascinating thing if that actually marked

[Rupert Mitchell]

a bottom the dirty little secret is that equity markets go up where governments are spending money, right? I mean that's, that's the reality. And governments are spending money all over the world. Now.

[Meb]

My least favorite phrase is the easy money has been made. You hear this on CNBC all the time. They're like, the easy money has been made. And I'm like, bro, there has never been easy money been made in markets

[Jack]

the world is a series of probabilities. There are. There's a bunch of different outcomes. Each one has a probability. We have no idea which one we're going to get. Let's think through the range of all the different outcomes, and then let's try to just think about how that impacts US investors. So, Matt, do you think it's fair to say that Last Call has taken the investing world by storm?

[Matt]

I. I not only know for a fact that we've taken the investment world by storm, I'm. I'm disappointed to let you know. I left on the private jet when I just got off there, I left the custom cocktails we had made in celebration coming into this second show. You know, after a couple of two drinks, we had those blueberry citrinis. It was like a blueberry citrus martini combo in honor of probably the.

[Jack]

Oh, Citrini.

[Matt]

Yeah, yeah, yeah. We've taken the world by storm, right?

[Jack]

We have. I mean, I think maybe. Maybe like a light rain maybe. But if it's a. Like, can. I mean, can you work with that? You're kind of. You're kind of the marketing guy. So can you take, like, the investing podcast has taken the investing world by light ream. Can you work with that? We've taken.

[Matt]

We've taken the world by a misty haze.

[Jack]

Yeah, exactly. I mean, that's probably accurate based on the views in the first one. So can you work with it?

[Matt]

Is it misting or are you just sweating? It's the story of my life. And are you.

[Jack]

That's kind of where we are right now and taking the world by storm. But, you know, maybe four or five episodes in.

[Ben Hunt]

We'll.

[Jack]

We'll have that done.

[Matt]

So Citrini, I feel, like, took over my life for the last, like, week and is certainly the bow on the top of the month because it fits into every other conversation I feel like we're having. What. Where were you? Where were you? And when. When you first read the Citrini piece or realized you'd have to keep talking about this.

[Jack]

I mean, think about the people that have responded to it. Like, Citadel decided that they needed to write a response to this. Like, Jeremy Siegel was out this morning with a response to this. Like, the Governor Waller on the Fed, like, was talking about it, responding to it. Like, it just shows. I mean, it shows the power of the Internet, like, and the power of writing a certain type of piece. But, yeah, and everybody is talking about

[Matt]

this thing, especially for what is stated at the beginning of the piece, is basically like a science fiction bear Case exercise. This is not, this is not some piece of like, new evidence. This is literally a manufactured story from the future, theoretically looking backwards, which I also find just mind boggling, especially when we get responses from some of these people because it's like they're responding to fiction. And that's kind of amazing that we're all on record now responding to fiction.

[Jack]

I can just imagine, like, the first thing I think of, as you can imagine with me, is like, I'm like, how many substack subscribers did he gain from this? Because it's got to be like just, it's got to be a massive, massive number.

[Ben Hunt]

Yeah.

[Matt]

And this is like, everybody's on. You see small versions of this all the time. You see like the Mike Greens when he puts out his piece, which factually people then obsess over. So he gets the biggest push. A bunch of people obsess over it, ride the coattails for stuff and pull apart details. In the end, we all agree, hey, he was directionally pretty.

[Ben Hunt]

Right.

[Matt]

And that it costs more than it used to, which is a simple and obvious observation. But lots of people in the ecosystem ride the coattails. We, we are firmly in the coattail riding thing. I wonder how many YouTube views, how many new substack subscriptions some of these people have gotten. I don't know if we're going to get any of that bump here today, but any big takeaways for you? Did the piece inspire?

[Jack]

Yeah, I think people take these things all completely the wrong way. You know, I think when I read these things, I don't. My reaction is not like, this is the worst piece that's ever been written or that I agree in the world's going to end. Like, there's always something you can learn from this. And like, I learned a ton from this in terms of. Not in terms of what's actually going to happen, but in terms of thinking through, like, the progression of AI and AI from the perspective of enhancing labor, enhancing the ability of workers, but also AI from the perspective of replacing and the balance that we're going to face with that. So, like, to me, it was. And we did. Kai and I did. Kai Wu and I did a separate episode that'll come out the day after this where we spent an hour breaking this down. But like, to me, this is a great learning experience because it forced me to think about this scenario. Even though this is a scenario. I think Citrini would even tell you it's probably not going to play out this way. If it does, it's probably not going to play out nearly this fast. But nonetheless, like, just thinking about the extremes sometimes, like, helps you learn about the reality.

[Matt]

We've said it a million times, risk means more things can happen than will happen. And I believe even Citrini in this case would tell you, this is part of a bear case scenario planning tool. And that's what's. So I'm gonna say it this. What's fun about a piece like this?

[Jack]

It's kind of fun having fun with the bearishness, Matt.

[Matt]

I like having fun with the bearishness. Put some explosions and some fire around me because I look at this and I go, I've. I've been taught extra Michael Mobison, extra expectations. Investing and thinking about what's in a price. You should have a base case, a bull case and a bear case and maybe put plurals on all those. Have base cases, have bull cases, have bear cases. This is one strand of the spaghetti noodle in the whole pot that we're pulling out and going like, this one's undercooked and maybe a little moldy or whatever. This is a bearish bear case that's in the mix. But at the end of the day, when we're thinking through, and me with my planner hat on especially, it's like, AI in this build out is all these tendencies of an inflationary shock inside of it. But on the back end of it, if these tools are really for real, there's a giant disinflationary element too. And that's a hard scenario to plan over that curve of being like, these are all the things that are probably going to push prices up in the short term. And then these are how far prices could come down in the far. And here we have this wild scenario that takes into account demographics. Ghost gdp. I love that word. Definitely didn't know that word until this report.

[Jack]

Yeah, I'd never heard of that.

[Matt]

Love Ghost gdp. You know, send them a Pulitzer for that one. But how cool is this to have all this other cool color around the scenario? I think I'm with you. It's neat that they did this.

[Jack]

And we've never had a technology that was a replacement for human intelligence, at least in part. And so nobody has any freaking idea like you. You can see all these economists and everybody's writing all this stuff. Like, the reality is, like, you and me, who are unqualified to talk about this, have just as much of an idea as those people do in terms of how this is going to play out. We don't know. And so when you don't know. I think I find the best thing you can do is what you said, which is really realize that the world is a series of probabilities. There are, there's a bunch of different outcomes. Each one has a probability. We have no idea which one we're going to get. Let's think through the range of all the different outcomes and then let's try to just think about how that impacts U.S. investors. Like, I, I think that's the only thing you can do. And this, this helped me like on the bear side in terms of thinking about that probability because he, he worked it through it in the story in a way like I hadn't worked through

[Matt]

it before in a story. And that's the key part of it. He worked through it in a story. It was memorable. It stuck. It kinda sorta a little bit. Seems to have moved markets. So it's our market recap. We're looking back over the last month and things that happened. We tapped some of the smartest people we know to come in with us and actually look sort of in the wake of this, which they all did, we didn't even ask them to. Everybody came to the table with at least a hint of Citrini and what they were talking about. I know you had Brent Kachuba up first. Just give a little preview before we play the clip because Brent walked through what I'm assuming, dealer flows and everything else for how this played out.

[Jack]

Yeah, yeah. What's interesting about this is we're all talking about our opinions, but what Brent sees is what people actually do with their money. He sees pricing inside the option market. And so that's what we talked about. We talked about this idea of this treaty piece came out. All kinds of crazy stuff went on in terms of the pricing of options, particularly around these software stocks. So I sat down with Brent and he's Got a great 4 quadrant chart here where he can talk about what's going on with these software stocks and also the way people are differentiating between them. It's not like all these software stocks are in one spot. So this is my conversation with Brent. Brent, welcome back to Last Call.

[Brent Kachuba]

Thanks, Jack. I'm super excited for you about the show. I'm super excited to be talking to a person and not some AI for a few minutes. So that's nice as well.

[Meb]

Yeah.

[Jack]

Well, I thought you were going to do a little announcement at the beginning of this that we're having a 50% layoff here at our options podcast and you've decided to Go with an AI host going forward. So.

[Brent Kachuba]

That's right.

[Jack]

We'll see what that means for, like, labor productivity and the economy and all that stuff in the future. But really, I mean, what do I do? I tell a couple bad jokes and then I move on with my life. So you could probably do that with AI, no problem. Right.

[Brent Kachuba]

Your spirit can't be replicated by AI, Jack.

[Jack]

So I hope so, because, yeah, I want to still be employed when this whole thing. When this whole thing comes down.

[Brent Kachuba]

Yeah, we're all. We're all gonna die is the headline, apparently. Yeah.

[Matt]

Yeah.

[Jack]

I mean, hopefully. Hopefully we don't see the reality of the Citrini piece playing out, and we won't get into that too much, because I know people don't want our macro takes, but what is interesting is you do see what goes on behind the scenes with all this stuff. And, you know, one of the things before we get started here, I want to point out is I did notice. I was just scrolling through Twitter the other day, and I was like, brent is going viral over here. Like, it's very rare to see a tweet and then see the comments of the tweet actually get more views than the tweet itself. But we've seen some misuse of the put call ratio. Is that what's going on?

[Brent Kachuba]

That's true. And I don't get a ton of, like, Twitter likes persistently, but this one I did, for me, get a decent amount. So for some people, this is like eating popcorn. You know, it's just another day. But the chart. The. The chart, that is offensive. And I wonder how much this is CBO is. Is AI Doom stuff, whatever. But this is the chart. And so this is the. The fella here, and he wrote that this is very scary, but this is the chart that he posted. And he said that. Do you see this? S and P dump. S and P dump. S and P dump. And he circled all the dumps. What do you notice about these circles here, Jack? What do those seem to correspond with?

[Jack]

It seems like he circled the absolute bottoms, Brett. Every single time.

[Brent Kachuba]

And then he spelled fukin, I think wrong, whatever it is. The point is that this seems to correspond with stock market bottoms, actually. And incidentally, there's a little bit of data to support this. And so he did call out something interesting that this ratio is extended. This, I believe, is a single stock put call ratio. But, you know, the problem with this is, is. And I'm getting all these people saying, how do we hedge the Middle east war and Stuff like that. I looked at Poly Market. There's not like a big spike in people thinking that the war is going to take place. Maybe because insider trading on Poly Market now has been taken out. I don't know. But you know, if you look at where the S&P's have been trading, Jack, I don't know how well you can see this, but do you know how far back this sort of range goes? I mean this is 6800 to 7000. You have any idea how far this goes back?

[Jack]

I don't.

[Brent Kachuba]

That's Christmas. So in the last two months we've done nothing in the S&P 500. Today futures were down a percent. And like finally this is the moment, Iran war, this, that hopefully none of that happens and then the S and P just kind of bounces. So, you know, if we break 6800 then I think you got to like do the famous roaring kitty, lean forward thing. But at the moment we're just trading in the range and it's kind of boring. It's decent if you're like a call seller and playing those ranges is cool. But you know, Nvidia earnings didn't really spark anything. And so that leads us to. There's really only two interesting stories. One is gold and silver is doing pretty well. But the second one is software, which everybody and their brother and their mother and their bot is talking about. And so I think we want to touch on that a little bit.

[Jack]

Yeah. Did you see anything? I'm just interested, like the Citrini thing, I mean it was weird to see like, to actually see that as a Bloomberg headline like Citrini P Sparks Market sell off or whatever. It was like, was there anything you saw crazy in the S and P or like anything at all, like behind the scenes in options when that whole

[Brent Kachuba]

thing was going on, it moved options prices. Some stocks like American Express we're talking about MasterCard definitely seem to have unusually high volatility. But there was no put buying, no signal at all in that options data. That said, this sparked actual fear. And what I think is actually kind of interesting about this, Jack, we was you bring up IGV. IGV is the iShares Tech Software ETF. So a lot of the names that were kind of pinned in that, in that article show up on this list. And if you kind of just zoom back a little bit and look at this, I drew this line right here and this is when that AI End Times article was written. And so it would be kind of a fascinating thing. If that actually marked a bottom. And in a way that almost kind of makes sense, right? It's like everybody sort of knows this trade. Everyone's talking about how the trade is, you know, on to short these things. And this is also a level in this index. I think you're more of a certified market technician than I am. But, you know, this has been a level where these software names has sort of bounced. And a lot of those names are reporting earnings this week, which is also interesting. And in fact, on that point, Salesforce CRM, they announced a $50 billion buyback, which I don't know. If they feel like they're about to get nuked by AI, would they do that? I'm not sure. You're the fundamental macro analyst when we talk, so I'll leave that to you to parse through. But it is an interesting moment where maybe that marked the short term bottom.

[Jack]

If I'm the technician, of the two of us, Brent, we're in a whole lot of trouble over here. We basically got the value guy and the options guy drawing lines on charts.

[Brent Kachuba]

That's what we saw.

[Ben Hunt]

We haven't.

[Jack]

It doesn't look though that's a very. You don't have to be a chart the technician to figure out that that line has been a pretty consistent bottom.

[Brent Kachuba]

It has. And maybe this time is different. Of course, you know, the last two weeks have been bananas in the AI space. Like, the tools coming out are crazy. And I think it's hard for everyone to sort of pick through. But what we like to talk about oftentimes, Jack, is options prices in positions, because we can talk however we want about the way that AI is impacting our lives and everything like that, but are you actually trading off that, Jack? Are you going all in short S and P, because you think we're about to hit a 30% drawdown, recession, depression, whatever. Or are you just saying that, right? If you buy an option or you buy a put, we know that you have some conviction or at least want to hedge something. If you buy a call, you're betting on the opposite, right? So that shows up in one or two places, options positions, which we track, and then also prices. And so we talk about this compass scanner a lot in our monthly OPEX reports. And what this just shows you is options prices on a relative basis. So what I mean by that is if options prices are pricing in extreme movement, you're at the top of this chart. So high IV rank low movement is at the bottom. So when you're really scared or if you're uber bullish, like because we all got to buy silver or gold or whatever that's at the top of this chart. And then left versus right on the left people are more into puts. On the right people are more into calls. So top left is as bearish as you can get. So Adobe adsk as bearish as it gets over the last year of data. You can see the IV rank there is a 95% and the risk reversal rank, which is the weighting of the put versus call is a nine. So people are really into puts and that implied volume or the estimate for them is extremely high. Now two things on this, right? Both of these names are going to report earnings. That's what this little red E is. And so why does that matter? It matters because we know that when earnings comes out, volatility usually comes down. And you get clarity on these names, right? Meaning Salesforce says hey, $50 billion buyback, that doesn't seem terribly bearish. You even have situation like into, for example, they reported yesterday stock, last time I checked was amount three was down about 3, 4%, which is okay amount. But these stocks are pricing in, you know, 8 to 10% moves in perpetuity. And so if you get anything less than 8 to 10% moves, then that volatility comes in a little bit, right. Those that, that shock comes in a little bit. And that could be supportive for these stock prices. And so that's ultimately what I think here is we have this extreme bearishness and at this point the stock's already down 30%. So how much more bearish are you going to get here to justify how expensive these options are? And I just think that that as that sentiment normalizes and these options prices shift a little bit lower on this chart. Normalize, mean revert a little bit. That that could help with these stocks bouncing a little bit.

[Rupert Mitchell]

Yeah.

[Brent Kachuba]

Now two things.

[Jack]

One, one is what's really cool about this is like we always talk about like the market fears this or the market fears that. Like this chart is like what people are actually doing, which, which I think is really even for me as like a long term fundamental investor. Like this is telling us what people are actually doing with their money. Like that's fear. Like if I'm buying puts that's to your point before that's real fear. Like if I'm just talking about it like that's not much of anything.

[Ben Hunt]

Yeah.

[Brent Kachuba]

And that's 100%. Right. So what you can see here is I refresh this and I put the last three Days of history. So there's a lot of lines on this chart, but the lines show you the path. So CRM, for example, they reported yesterday and you can see that into their earnings. It's a little tough to see. They were up in this area here. Right. Extreme bearishness. As bearish as it's been in the last year. Remember the tariff tantrum in April, which is one of the. I mean, we weren't sure the financial system was going to survive that. And those were some legitimate fears there. Right. So we went through that period was in the last year ranking. So these are more bearish or were more bearish than that period. And now that CRM reported, you see that volume come down now. Right. So the options prices have lost a lot of their elevated pricing. They've gotten a lot cheaper on a relative basis. And that tells you that that fear is subsiding a little bit. That event is out of the way. So now maybe you can see a little bit of normalization here. You're not seeing people piling into calls yet. And so, you know, ultimately that would be the little bit more of a bullish sign. But, but that fear or that sort of peak crisis, kind of the point of the IGV chart we were looking at before, seems like it's coming down. And again you have Adobe reporting next week as well as adsk. And so that can just sort of let the whole complex just sort of breathe a little bit. And maybe that generates a little bit of bullishness in a market that has had a hard time finding, finding a bullish narrative, quite frankly. Yeah.

[Jack]

Just as we wrap up, one other thing that's interesting to me about this is there's this, this narrative that like all software stocks are in trouble and they're all going to fall apart. And like, what you want to see I think to some degree is differentiation. And you're seeing that here like people are reacting differently in the options market depending on what's happening with that actual business, not just what's happening with soft software stocks in general.

[Brent Kachuba]

That's right. It can be hard to parse this stuff out. And I was thinking about this too because, you know, we all want to catch the ultimate AI investments as, as that is, that grows. Right. And you know, is that the memory space or GPUs or, you know, what is the sector you want to go into? And if you can look at those options flows and you can see, okay, call prices in these names are pricing in better movement in the future, you can start to glean which names bigger funds in theory think are going to win. Right. Because they're positioning in those, in those specific ways. And the same thing works with, with these stocks. Right. Where you see Microsoft now starting to catch a little bit of a bounce. Shopify moving a little ahead.

[Meb]

Zoom.

[Brent Kachuba]

Clearly, you know, these aren't super bullish things at the moment, but you compare that against something like Palantir, Palantir can't get off the deck. Right. So, so the idea that Palantir has something special here, you know, seems to be a little bit of a stretch. So, so those prices are, are definitely forecasting much more relative bearishness versus something like a Shopify or Zoom.

[Jack]

Well, Brent, thank you for doing this. It's always good to see what's going on behind the scenes. I mean we see the headlines, but this is what people are actually doing with their money. So it's always great to see it.

[Brent Kachuba]

Yeah. Thanks so much, Jack. And, and congrats again on the show.

[Jack]

Thank you.

[Matt]

Next up we have Ben Hunt from Epsilon Theory and Persian. What's really great about this commentary from Ben is he's going to talk about how it's just another boom bust cycle. The Citrini piece is there, it matters, it affects, it's moving the narrative. But we do have a credit boom bust cycle that's underway. There's an update about private credit in here and make sure you pay extra attention to this anecdotal story he has from this trip out to San Francisco meeting a consumer facing company founder and what happens when they couldn't renegotiate their terms. This is my clip with Ben Hunt. Up next, we're joined by Ben Hunt of Epsilon Theory and Persian Ben, welcome back to Excess Returns.

[Ben Hunt]

Great feedback. Thanks, man.

[Matt]

So Citrini, we've all read this piece you've been writing and you've said recently you don't need an AI apocalypse to break private credit. When a classic good old fashioned boom bust credit cycle. That'll do, especially if it's hypercharged by 15 years of Zerp and liquidity. Explain the nuance here.

[Ben Hunt]

Not much of a nuance. Right. It's just that I, I like the Citrini piece just to recap for the people, well, the five people who haven't read it out there. But the idea is that okay, if the AI eats the world, by which I mean does all the software jobs in the world, does all the white collar jobs in the world and honestly I think there's more than a small grain of truth to that. I think that is going to have an enormous impact in those ways. Well, if that happens, then the software companies, the consultant companies, all these private companies that private credit has been lending money to, well that's a problem because they, there'll be defaults, they won't lend the money back or they won't get the money back and well, that's not good. That's not good. So I get that. I don't think though you need to imagine an AI apocalypse for that dynamic to take hold. So on the one hand I'm both, I guess, maybe even more pessimistic, you can imagine such a thing than the Citrini bit. But I'm also less apocalyptic than the Citrini approach. I think we've got plenty in just a hypercharge because of everything that's gone on over the last 15, 20 years. But I think the, I think the ordinary boom, bust credit cycle of financial markets can do most of the work here.

[Matt]

And to that extent, like we just saw the Blue Owl news, we're seeing UBS post these numbers of 15% potential default rates. Are we just sort of like working through that part? Kind of like we were in2567?

[Ben Hunt]

Well, yes and no. I mean, I mean we're not, we're not in 06 anymore. We're in 07 going into 08. And what I mean by that is then we were talking about defaults in homes here. We're talking about defaults by companies that have borrowed money. Then we, back then we were talking about homeowners defaulting on their mortgages. What's similar though is that in the same way that the, the contagion spread. Remember that was Bernanke's famous line. The subprime is contained. Not just contained. Well contained.

[Meb]

Ring fence around.

[Ben Hunt]

It's just the poor people who are having a problem with paying back their loans.

[Brent Kachuba]

And

[Ben Hunt]

that when that proved to be not true, that's when. The debacle really began. Because loan books are set up to withstand some defaults. I mean maybe 15% like UBSA, that's the law of defaults. And to get to 15% defaults, it can't just be from one little corner of the world. It has to be much more diverse sources of defaults. So in that sense what's happening with AI and putting stress on software companies which make up a big part of the private credit world, it's meaningful. So it's more than just working something out. What everyone is trying to figure out is how bad is the Spread how bad is the contagion? From all sorts of different sources. And what I'm saying is that the excess of lending by these alternative asset managers, we used to call them shadow banks, we don't call them that anymore. Of the excesses of that and the way that it's been structured and levered in different, what are called BDCs or CLOs. It's another kind of Alphabet soup, the same way we had around mortgages being levered and structured. It's that, right? It's that that makes for a bubble that, that, that gets popped. It's, it's real world rising and falling and companies doing well and companies going bankrupt. That's kind of normal, right? And so you get normal market responses from that. The bubble inflating is when Wall street, which Wall street always does, because it's what Wall street does when you take that cycle and you. Well, let's ramp it up to 11. Yeah, let's turn it up to 11. That's what's been going on. And that's why I say that even kind of normal default cycles, which we haven't seen in a long time, that's bad enough. But against this backdrop of leveraging, which just means borrowed money and structuring, which just means different ways to sell it to different people, I, I actually still think it could be a lot worse than people are, are even thinking.

[Matt]

You put this in a PRO note that went. And if, if you're watching this and if you're not subscribed to Pro, this is your invitation. Go.

[Ben Hunt]

Thank you.

[Matt]

Epsilon Theory. Check out Pro. Look at the service because you get stories like this in your inbox with all this data and way, way, way more. So I want to pull a story out of the pro email from today, which is you were just on this trip to San Francisco. And I know this is an anecdotal example, but this is a really powerful anecdotal example of what's happening at this frame in the cycle. Tell me what the experience was. Tell me the story.

[Ben Hunt]

I haven't been to San Francisco in, I don't know, four or five years. And so it's, it's fascinating. So right now, San Francisco, there's an energy and a vibe to San Francisco that I haven't seen since Dot Com. There's a belief that they're building something. It's important. So it's the technology. Everything you hear, I think it's real. At least people really believe it. And yeah, I got a chance to have dinner with an old Friend of mine, he's been the CEO of a consumer facing online company for a couple years now. And this is one of those companies that was bought by a private equity group that is part of, I'm not going to go into all the details right, maintain some anonymity here. But the private equity group is part of, let's call it a name brand Wall street firm. And so they, they bought this online company and then they do what you do, you borrow money on it and you're borrowing a lot of money because you're basically borrowing it. Close to zero percent interest rates. That's the playbook and you borrow the money and it's fine. And the company is a good solid operating company, makes enough in cash to pay off the debt until you've got to refinance the debt because today you can't refinance at as low an interest rate as you could four or five years ago when they took out all these loans. Now what often happens in these situations, it's not like, oh, you're a homeowner and so you're going hat in hand to the bank, please, bank, can you, can you give me a better deal on this mortgage? I need to refinance for whatever reason or you bought a new home. Can I have a better rate than you're giving the rest of people? No, no, no, you get what the bank offers you. Well, in this case, this often happens in this sort of world. The private equity guys from the name brand firm said, you know what, we're just gonna, we're just gonna steamroll the lenders, right? We got, yes, we got a refinance, but they'll, they'll give us a ton of breaks because we're name brand firm, right? And these are just some, you know, who knows, lenders. And besides, what are they gonna do? They're gonna, they're gonna call us on this. They're gonna force the company basically to default. They're gonna force a workout. They're gonna, they're gonna take possession of the company. Come on, you know, they're a lender. They're not going to do that. Well, they did. The lenders didn't blink. They weren't going to give them a big discount. And so the private equity, well, okay, here are the keys. And so the result of this is, you know, the company will survive, it'll just get downsized dramatically and it'll be managed to throw off cash, won't be growing, it'll just be boring and basically in runoff mode. They'll Just get what they can out of it. Obviously nothing left there for my friend, so he's going to find something else to do. But there comes a time in every credit cycle where the money, the lenders, the investors, where they say no more. Where they get skittish about whatever. Maybe it's the economy, maybe it's AI is coming. Maybe they think there's some threat and they say, you know what? I would rather take a manageable certain loss today and move on than re up for more money that could be potentially existential loss tomorrow. Every credit cycle, this happens where the money says I'm out. I think that's where we are. I think that's where we are in this. And there are lots of reasons for it and there always are. AI is going to, you know, undermine the, the ability of these companies to make as much money in the future as they've done in the past. Oh, you know, the consumer is really stretched and so we're not. We don't want to lend money to these companies that are facing a stretched consumer. All these reasons, and they're all true. But what's really true, and this is what I mean by it's the constant boom, bust credit cycle, is that we had basically free money for a long time and then the world just awash in money. And now that tide's going out and the cost of capital is going up. And this is what always makes people with money say, I'm out. That's what I think's happening today.

[Matt]

Ben, people want to see some of these themselves. They want to track this along with you. Where do you want to send them?

[Ben Hunt]

Go to Epsilon Theory, as you say, go to Percy. IT pro. And this is what we do. We try to. We try to track the stories. And this is one of the biggest stories out there. When the money says, no thanks, Ben. Thank you.

[Matt]

Rupert Mitchell. Blind squirrel. Macro. Always with the counter takes. He does a little bit of an intro game. I want you to appreciate that with me. He's slippery when wet, that squirrel.

[Jack]

Did he turned it on you, the intro?

[Matt]

He flipped it on me, man.

[Jack]

Oh, he did? That's the first.

[Matt]

He came in hot, caught me off guard, made me on the fly. I have to think of a bunch of Bon Jovi jokes. I'm always there for that. Always there for that. So Rupert goes through not only the standard chart that he always shows us the S and P relative to the rest of the world, but then he talks through. Rupert was one of the guys early, early, early on this software story Cracking. So now he's looking at the software stocks after the comedown and saying, well, this happened quicker, faster, and farther than I had predicted. On the heels of this report, what's likely priced in. Should I be bottom fishing here or what's going on in the rest of the world? Spoiler. He's very intrigued still by where this is settling out outside of the US Right now. Rupert Mitchell, tell us something smart. Rupert Mitchell, blind Squirrel macro. Welcome back to Access Returns.

[Rupert Mitchell]

Hey, Matt, I've got something for you. I'm on with the pinnacle of Pennsylvanian planning and the Jon Bon Jovi of financial joycasting.

[Jack]

This is, I had to go.

[Meb]

This is what I'm here for.

[Matt]

Well, if anybody ever called you a midwit of fintwit, you're ready to defend the mid curve because you're, you're, you're ticking some people off this week with this whole idea that, you know, we should just be, don't, you know, you throw the babies out with the bathwater.

[Jack]

You were early on the.

[Matt]

Paint the picture on what you saw early on the software companies and then tell us where we are now because you, you kind of said there was, this was at risk. Now it's happened. Now you're diving in and researching and revisiting some of these names. What's going on with software? Why are you mid curve and defending it?

[Rupert Mitchell]

Well, I first started writing about the impact of AI on SaaS businesses a couple of years ago, right. And started getting much more aggressive about it in the last three and four months. And it's worked very well. And I saw a sort of snarky tweet on Twitter yesterday who basically using the classic mid curve meme, and the topic was Adobe left, left quadrant. Adobe's a sheep stock. Right side Adobes and sheep stock and mid curve, I. E. Me in, in, in the middle. And so I get, you know what, okay, I'm gonna, I'm gonna red team myself. So that's what I'm working on this week. You know, the sad thing is, is I'm, I'm doing all the work. I'm pretty comfortable that know, yeah, it's trading at 4 times EV to sales now. I could easily defend. Right. The multiple. That's half of that. Right. So potentially got a long way to go. And you know, should we look at something like Photoshop and Premiere Pro and Acrobat as interesting sort of potential annuity businesses that could be owned inside some kind of evergreen capital vehicle, but it ain't worth a hundred billion Dollars, the ticket for that is a lot lower. So I'm doing the work on this and, and the irony is not lost on me that, you know, it probably doesn't make a huge amount of sense. Adobe as a sort of, as a, as, as a funding short, you know, it's, it has moved aggressively from here. I could, you know, I mean the argument really is sort of just sort of passive aggressive indifference towards names like that really rather than trying to sort of stay in the arena on the topic. And you wonder why I'm spending a week of my life doing this instead of looking for cheap stocks that are going to go up internationally. Because that's really what's working.

[Matt]

Well, let's talk about that. You are also writing about this round tripping since Liberation Day basically of US stocks relative to rest of world.

[Rupert Mitchell]

Yeah, so, so my, my, my favorite chart of truth that we always talk about is just the ratio chart of the SPY versus the MSCI ether and the ETF ticker for that is IE fa. So it's spy versus ifa. And you know, up to Liberation Day last year in a, the spy chronically underperformed international stocks. It then retraced a classic Fibonacci retracement where it hung around for about five, six months and we're now below the liberation lows. So, you know, I see all the debates about how real or not real the sort of the great repatriation trade is, but the chart's pretty clear. And it's not all the currency move.

[Matt]

How do you stack that up now to explain not all the currency move. And I'm particularly interested in where you think this is going from here.

[Rupert Mitchell]

Well, I have a bias for a weaker dollar generally, but that's, you know, that's become a consensus view that normally would bother me a lot, but I actually see how it, it benefits everyone, you know, for the dollar to weaken slightly and you know, while, while they can't say it out loud, you know, this is, you know, this is, this is more suited to achieving the administration's aims. Having, having, having a weaker currency, it's just not good for the ego. And meanwhile, you know, real or not real, I think marginal dollars are staying at home in less liquid indices that are cheaper and there is a kind of forced RE rating going on and you've got the rest of the, the dirty little secret is that equity markets go up where governments are spending money. Right? I mean that's the reality. And governments are spending money all over the world now. And it used to be A sort of unique, unique, unique achievement by the U.S. so I mean, I guess Japan's the poster child for that. You know, China's going to have to carry on doing fiscal and they are now cheerleading their own equity market as well. That's a double winner. And you know, there are plenty of reasons to be excited about a Europe that's starting to spend money properly in

[Matt]

the wake of all this. Where's gold fit in?

[Rupert Mitchell]

Listen, I think, you know, gold has really, you know, stomped its supremacy in the last 18 months. And I wrote about the gold miners last week. I mean, I joked that I've turned into my dad. You know, my friends and I always used to tease our fathers about pouring over financial newsletters about junior gold miners and now I'm doing it myself. So. But yeah, no, I, I, I actually wrote a really long piece talking about mining Beta, talking about how, you know, just owning the ETFs. You really need to know what you, what you're owning, particularly as you think you're diversifying by owning some, some seniors and juniors of silver and gold. And actually there's so much cross ownership across those ETFs if, if you do what I did last year, I basically bought a silver fund unintentionally. So I tore the to, to tore those apart and, and, and put together my own bespoke basket really to leverage on expertise of professionals. Right. I, I believe in team expertise. And so I looked at what are the active managers, specialist mining active managers, what do they own? What do the, you know, the major sort of gold newsletter writers like Fred Hickey like and, and, and put together basket that lent on their expertise, lent on what I call sort of institutional beta. At some stage big grown up active management is going to reach for the miners and there only are about four or five stocks that they can own right in, in, in large, in large portfolios. And again, if you just owned the, the four mining ETFs, you'd be chronically underweight in the likes of Newmont and EcoEagle, Barrick, Alamos. Although you don't want to own Barrick because they gave up the gold ticker. Idiots.

[Ben Hunt]

Idiots.

[Matt]

They had it right there in the palm of their hands. And do you really, and this is really fascinating. So this is blind squirrel macro. You can check this out on the website too if you want to read this whole piece. You still see a lot of room for this to continue as that flow story evolves, especially around these names.

[Rupert Mitchell]

Yeah, I really, I really do. I think it's more than just a flow story. These, these, these, these stocks are still incredibly cheap. And you know, if you think that a global all in sustaining cost for gold is about 1500 bucks an ounce, right? These balance sheets are in great shape. So they're not going to, they're not going to, they're not going to dilute you to, to, to, to death. The margins are just amazing. The, if you compare multiples versus the last gold peak back in 2011, the miners are trading at massive discounts to the broader market versus to the premium that they were trading at, you know, 15 years ago or back, back in, back in 2011. And I, I'm not worried about the price of the metal itself coming to, coming down to challenge the all in sustaining cost. When we're in a world of $5,000 gold. You also don't have to worry about conventional anxieties like the oil to gold ratio, right? So let's, let's take that $1500 AISC, right? Let's jack up energy prices by 20 to 30%. You're really only impairing margins, the AISC level by about 5, 5, 5 to 9%. So you can't get, you can't get sort of punctured beneath the waterline by a, by a spiking energy price, which is good news because I actually think I'm, I'm a bit of, I'm, I'm back in the energy bullish camp, right? I'm not in the, you know, WTI250 baseball cap world, but you know, I think we're going to see sort of generally rising energy prices over, over the next couple of years.

[Matt]

Well, you sir, are a cowboy from this Jon Bon Jovi on a steel squirrel you ride Rupert, where if people should look you up, where do you want to send them?

[Rupert Mitchell]

Blindsquirrelmacro.com is the easiest place to start. And send me a message if you want a trial. You know, I'm not putting a button out there that you can just blindly press and then ignore, but get in touch with me and I'll put you

[Matt]

on a trail trail between the software stuff and the gold miner stuff. You want to check in on this work? Rupert, thanks for joining us.

[Rupert Mitchell]

Thanks Matt.

[Jack]

So I think Matt, whenever anybody is like whenever the world is saying this time is different, I can't think of anybody better to talk to than that favor because nobody has better data to look at that situation. I think that, that and especially what they're doing with the idea farm, especially

[Matt]

with the idea farm because it's always a survey back to what we were talking about at the beginning. Risk means more things can happen than will happen. One of the great populator of my base bull and bear cases is leafing through the Idea Farm and getting a bunch of different takes from a bunch of different outlets. So I love that meb's doing this for us.

[Jack]

And that's what we did. We picked three of the articles they've highlighted recently. All of them are around the same theme of this Time is different. We've got a Schroeder's article. We've got Grantham's new AI piece. So here's MEB breaking that down with me. Meb, welcome to Last Call.

[Meb]

Great to be here.

[Jack]

When we came up with this idea, you were one of the first people I thought about because we're trying to highlight. We're trying to do the opposite of what, like a normal market rap would do. Like, here's what the S and P did this week or something like that. We're trying to highlight great research, and I think the Idea Farm, in terms of, like, the quality of the research you guys find, I think is the best site out there. So I would. I would recommend anybody take a look at what you're doing. It's the ideafarm.com. you guys have some. You guys always find papers that I can never find myself. Like when we did our. We did our episode on 22 market wraps, we wanted to figure out, like, what the consensus was for the year. So it's like we read 22 market raps so you don't have to. We just went to the Idea farm and you had 22 market, like market outlooks for this year, and we just found them all and we read them.

[Meb]

So the cool part is we. We've now built out an archives, so it actually has all the research pieces we've sent out going back a decade, and we're going back year by year. So we should be done with that project by July 4th. We have all the top podcasts, some of yours, that we've sent out over the past 10 years. So it's all searchable. You can kind of dig through. So if you're looking for a master's in investing, skip the NBA. Y' all just go. Go hang out on the Idea Farm and download a bunch of those pieces. Listen to this show. Get you. Get you all the way there.

[Jack]

Yeah, we're going to talk about three pieces here, and I would recommend everybody read all of them and they've kind of got A similar theme here because this, this idea of is this time different is one that's, I would say out there right now. And we've got three different pieces you guys highlighted. One's called Decoding Markets so Obvious it Hurts from Schroder's, one is Bayes and Base Rates from Michael Maubouson at Counterpoint Global. And one is the Grantham piece on Decoding AI Extreme Bubble, New Growth Era or both. And they kind of have similar conclusions in terms of this idea of is this time different or is it not?

[Meb]

You know, I think the struggle for so many people is they want to end up in one camp or the other. Right. You have all these perma bears out there, the sky is falling doom, the stock market's super expensive, everything's going to crash. And you have the optimists on the other side. We're going to do 20% returns a year in the stock market, on and on. And as an investor who's studied history, not just 10, 20 years, but 100, 200, 300 years, you learn these various cycles and there's this constant push and pull of how do you participate in the boom but protect yourself and the bust. And so I think all three of these pieces give good historical examples, good frameworks on how to think about that. And we can dig into each one and kind of talk about it now.

[Jack]

And that's the challenge, right, because these things are so hard to time. So it's easy to look back in all these charts and say, oh, it was obvious the way it was going to end. The problem was it wasn't obvious when it was going to end.

[Matt]

Yeah.

[Meb]

And so if we start with the Schroder's piece, which Schroeder's consistently puts out some pretty good charts. They go through like three or four famous periods globally in investing and they stick to stocks that had a boom period. So nifty 50, which was the late 1960s, amazing period. A lot of names from our parents generation. Ge, Coca Cola, the old phrase, nobody got fired for buying IBM, Right. All these just blue chip stocks you bought, you put them away, you didn't have to worry. Well, that was until the 1970s when you had high inflation and all of a sudden stocks got pummeled, these high multiple stocks got re rated and other things like gold did well or things like value stocks. So you had this sort of rinse, repeat. I mean the granddaddy we love talking about, I was just over in Japan, was their boom in the 1980s. I mean, my goodness, what a Monster run. Japan was going to take over the world. Nintendo, Toyota, Panasonic and their stock market I think is in terms of size and scale, was the biggest bubble we've ever seen. I mean the PE ratio was double what the US had in the late 90s. And then of course, you know, we've all seen, everyone loves the example now do Japan. The three decades since stocks were stinky returns in Japan. Now they look good now, but that's an entire generation, 30 years that people that, you know, got burned trying to buy Japan after that bubble burst.

[Jack]

Put up this chart, figure 8 here, which is, which is all of them sort of combined. Like they looked at Japan, they looked at the dot com, they looked at China. Like what do you think? What do you think are the biggest takeaways when we look at this? Like when you analyze these all together,

[Meb]

there's always the diagnosis and then what's the prescription? And most of the financial media spends all the time on the diagnosis. You know, stocks are expensive, right? Or it's, it's, it's dangerous. But the reality is if you look at some of these charts that had hundreds, thousands of percent returns, you could have said that along the way. So to me there's kind of two prescriptions that are thoughtful and will keep you in the game. The first one is just have a diversified portfolio, right? Most people don't. They're all in on US stocks and bonds. So having global stocks, global bonds, global real assets is a great starting point. Second is strategically rebalancing. That means always trimming your winners, buying your losers. Hard for people to do, but it keeps you kind of coming back to being at least a little thoughtful. And the last one, which I think is a little harder for most people, you know, you can buy funds that do it. We manage some is, is trend following, you know, trend following at its core, its goal is to try to stay invested during these really long moves. But at some point, say, you know what, it's time I'm getting out. And I think that one of the added benefits of trend following is not just missing out on these declines that are, you know, in many of these cases, 50, 75 plus percent. Right? Like those are tragic terminal declines for many people, you know, being able to sit those out. But also trend following often gets you invested in what we call the right tail. Things that you may not invest in like foreign stocks or gold or silver, on and on. So there's some prescription I think like those steps in order for most people can help you as, as opposed to listening to your neighbor as opposed to saying, I can time the top of this. I know when I. I'll be able to get out musical chairs. That's. That's the hardest of all of them.

[Jack]

So the second piece is the Mobison piece. And anytime Mobison writes anything like, I'm pretty much immediately dropping everything and reading it. And this idea of base rates, you know, flows through a lot of his work. And it was interesting, and I'm going to put up these two charts here, but he looked at OpenAI and it's interesting because OpenAI is growing at an incredibly rapid rate right now. And I didn't even know this, but, like, the market expects OpenAI's revenue to grow 100% a year between now and 2029. But what Mauboussin did is what he often does. He took the outside view and he said, of all the companies that are, you know, billion dollar plus revenue companies, how many of those have been able to grow revenue at 100% a year over this period? And it's an interesting way to take a look at it and maybe challenge the view from the inside. The company's going to grow that fast.

[Meb]

If I can tell you how many startups I've seen that claim to be the fastest growing fintech of all time, there's like a thousand of them. You know, it's like you always see these statistics and information as an investor, you look at it and say, okay, I see this projection, maybe it'll come true. But has like, like, how do I gauge this? What is my framework? What is my anchor to compare this to what's happened in the past, right? And so Moses and the cool thing he's done across thousands and thousands securities, to say, okay, let's classify this company, this stock, this market, cap the sales, here's what it looks like, and here's other companies that have looked similar in the past. And how often does this happen? Is it a coin flip? Is it likely? Is it unlikely? Has it never happened before? Right. And so then at least you have a framework of saying, okay, I can make an educated bet on this outcome. You know, it's like a football game, right? If your team's down, Broncos are playing the Raiders, and the Raiders are down 40 points, and it's the fourth quarter, you're like, well, this has probably never happened before where someone's come back by that amount. Probably not a great bet even at 100 to 1. But, you know, and you can compare it to all the times in history. And so what he finds not surprising. This paper is kind of unlikely that, you know, OpenAI and Oracle and some of these are going to hit these targets. At goes back to some of the Cathie Wood, you know, projections on GDP and, you know, funds doing 50% a year. You kind of take a step back and say, that sounds great, but is it likely? And it goes back to kind of the dumb and dumber movie. You know, there's, there's a chance, but not, not much. 1.

[Jack]

Yeah, I think it's great because it makes you ask the question, if you have one of these forecasts, like, how much confidence do I actually have in my forecast? Because it doesn't mean it's impossible. Like, like if we had put up this chart of the base rate chart before the Mag 7 when they were smaller companies, they've blown on the right side of this chart. Something that maybe wouldn't have been impossible, would have been very, very low probability. But if I'm projecting that for a company in the future, I should at least have the context to say in the past, how many of companies that were in a similar situation, how many were successful in doing this? And if that number is exceptionally small, I need to have a high confidence in my forecast.

[Meb]

Imagine we did this on Twitter not too long ago. J.P. morgan has a nice chart of world market cap over time. And so going back to the Japanese example, Japan was a majority. It was the largest stock market in the world in the 1980s, bigger than the U.S. okay, so not that long ago in our lifetimes. And I go, imagine, go back to the 80s, U.S. japan holds the crown. U.S. is number two. And imagine telling someone, say in 30 years, Japan is going to go from whatever the number was, 40% of world market cap to 5, and the US is going to go from 25, 30, whatever it was, to 2/3, right? People would be like, no way. Like, no chance. Like what, what happened? Right? But you know, you, so you take a time like today and you say, okay, well, what's most likely to happen? Like, can, can you fathom a scenario where us goes from 2/3 to a quarter, right? You're like, oh my God, that sounds like what happened, a Great Depression or something. Well, a quarter is US gdp, right? Currently the world, right? So it's not that out of the ordinary. So it, I, I think the challenge for investors at least fathoming the outcomes, because we all know with investing, with life, with relationships, with anything, it's your expectations versus what happens, right? When you have this, like, oh, this is definitely going to happen. This is the total outcome. I, I'm, I'm, I'm completely confident and then that doesn't happen. That's where the fractures, mental, emotional, psychological happen. And a lot of times, particularly with, you know, investing, think back to 2009, people said I can't take anymore, I have to sell everything and then never get back in. It can be traumatic.

[Jack]

So we won't go through the whole Grantham piece, but there was one chart I want to talk to you about because it's really interesting to me and this, this idea of the number of companies trading at 10 times sales. And I didn't realize that, but we got above the dot com in terms of that. And going back to Mobison's work on base rates, the base rates in terms of a lot of things are not very good for these companies that trade at 10 times sales.

[Meb]

It's fun to look back at a lot of the historical bubbles because you see so many commonalities. I mean the Grantham piece, they talk about rca, nobody's talking about RCA anymore, but they talk about how that stock went crazy. They talk about UK Railways. Professor Shiller has a great old paper that he looks at the sector cape ratios during the 1920s and how people went full easy for railways back then. And utilities, right? Imagine get all hot and bothered about railways and utilities. That's the boring part of the monopoly board. Like nobody wants those today. But we'll look back at this period and probably say similar things. And I was laughing at the Schroeder's piece because he was talking about the nifty 50 period. And you're like, people were crazy. They were paying 30 to 50 times earning for some of these stocks. And I was like, well today it's not 30, 50 times earning, it's 30, 50 times sales on some of these. And so when you look at for example the percentage of the market cap trading over 10 times sales, you know, it's, I never thought I'd see something like the late 90s again. And here we are not too, too, too far into the future. So it's kind of priced for perfection. Now all this having been said, the US market's still sort of floating around all time highs, but you've seen this massive rotation over last year this year into other things, other things particularly being foreign stocks, foreign value, gold, precious metals. And then this year it's even rotating into things like small cap value in the US Basically anything other than market cap weighting. There's an interesting piece recently on, on Twitter from de Shaw where they were talking about. Everyone talks about how expensive the market cap the big names are. What no one talks about is how volatile they are. They're actually much more volatile than the market, which is interesting. I'll leave you with one more thought on this topic. You know, as we look around the world, my least favorite phrase is the easy money has been made. You hear this on CNBC all the time. They're like, the easy money has been made. And I'm like, bro, there has never been easy money been made in markets. In fact, I just use the opposite. I'd be like, the hard money has been made. So when you look at like global deep value stocks Last year up 50, up another 15 to 20 this year, I say the hard money has been made. And people are like what are you talking about? I say, well who owned those at that point, right? Because if you own deep value stocks x us, that meant since 2009 you underperformed year after year after year after year after year after year. I could keep going about five more years, right? So the hard part was holding, buying re upping actually went on CNBC and Bloomberg a couple years ago. And I was trying to make this example and I say very quietly, look, I love Yalls TV show, but all you do is talk about Nvidia all day long. Nvidia, Nvidia, Nvidia. And as you should, like record profits. Execution at this scale is astonishing. Maybe the world's first five trillion dollar stock. We'll see. But I said how many times have you guys mentioned the stock Hanmi Semiconductor? And they're like what are you talking about? Did you just sneeze? Like what are you doing? And I say, well this is another semiconductor stock that's outperform Nvidia over the last one, three, five years. But it just happens to be located in South Korea, right? Like, like nobody's paying attention because it's somewhere else. That stock has been like I think a 20 bagger or something. But very quietly, right? Like no one's. So when you look at kind of a lot of these trends, if we did this show a year or two ago, I think, you know, we were still in this like to the moon forever, period. But very quietly underneath the surface, you're now seeing the rotation and into lots of other things. So maybe the bull market and diversification has begun.

[Jack]

We're hoping so. At least those of us that are value investors, we weren't able to get into a lot in these papers. They're all really really good papers. So I'd recommend the ideafarm.com, check it out. There'll be new stuff every week. You can get the email. Thank you for doing this.

[Meb]

It was great.

[Jack]

Now that we've, we've heard all these arguments on both sides of this, now the question is, this is going to play out in the real world. How do we think through it? And I think one of the things I'm thinking about is, like, what would I look at, like, what would I see in the data to tell me how this is playing out? So I don't know if you have any ideas, but I'm thinking about, like, what I might follow going forward to see if anything close to this Citrini thing is playing out or if we're getting a completely different version of the world.

[Matt]

So I think what's really interesting is I haven't heard the conversation you just had with Kai. I'm very, very excited to hear that conversation because I'm curious the way we can actually look at corporate filings and further understand, because Kai's already been on top of this with some of the intangibles work, how can we understand what companies are actually doing and pinning to their use of AI, so their upkeep of AI, the percentage of spend, the percentage of return that they're getting on that spend. I think corporate filings are a major, major, major one. What about you? What are some other areas?

[Jack]

No, that's a good. By the way, because we didn't, we didn't. That didn't come up as much in our conversation as it should, but Kai does that. Like, Kai does a really good job of like, our previous conversation with Kai, we talked about that. Like, he's looking at what people are saying, their filings, in terms of actual ROI with AI. So, so that, that definitely would be one thing you could look at. We pulled stuff for our conversation. A lot of it was from the Citadel piece and, you know, Citadel took the other side of this. But they were, they were looking at the types of things you might look at if you wanted to say, like, is this, is this playing out the way Citrini thought? And one thing you would look at probably is some degree of AI adoption. And this is something Kai and I like, push back on a lot in terms of the article, which is like, there's one thing about the pace of growth of a technology, there's a totally different thing about the pace of growth of adoption. Like, just because the technology is going crazy and growing at a rapid rate does not mean that my dad is going to let an AI agent make his purchases. Like that's, that's a long way away. And so I think it's important to look at both of those things. Like not just what the technology is doing, but also, or like whatever the new model can do relative to the old model, but also like are people actually using it and are they conceivably going to use it the way it was phrased in this piece?

[Matt]

It's a very interesting nuance to part as a part of it. And I see a lot of things on the product adoption life cycle curve where they're saying this probably doesn't grow in scale in the same way because we might not end up in the scenario where your dad is using it or they might be using it, but in the basic chatgpt way that we see people using things now where it's like where do I go to lunch when I'm on vacation? That's very, very different than the enterprise software decision to drive how do we recode the CRM for our entire department?

[Jack]

Yeah, and it's very different than what was in the piece which is this idea that basically AI has taken over as the buyer of choice for everybody and it's like this low cost buyer and so that it's just deciding what to buy for you. That's, that seems to me like that's a long way away. Not that the technology might not be that far away, but your average person agreeing to let that happen is probably

[Ben Hunt]

a long way away.

[Matt]

So also interesting inside of this is on the employment data side and I think, I think Eric, Eric Pakman at Data for the People has been doing an exceptional job of this because he's been flagging this already before any of this came into the picture. He's saying, look where we're shedding jobs and in a lot of places we were hollowing out some of that white collar market. I'm not saying that's definitely going to going to continue, but I think that trend has already started in the data. If you're looking through the BLS statistics, if you're looking through the survey data, it'll be interesting to see if that continues and goes to what depth he's got some tools on a national, state, even town and local level where you can drill in and see like which jobs are going in which directions for people losing jobs, filing for unemployment or not. Lots and lots of wrinkles inside of this. But this might be the great fourth turning wealth distribution that we've been promised. I. I don't know.

[Jack]

Well, it was funny too because I'll put the chart up. But Citadel cited this indeed job openings thing in software and they were showing like actually like software jobs are going up right now. And like when I, right when I got on with Kai before we recorded, he's like, you know, that's a massive chart crime. And I'm like, whoa, it is. And he's like, he went to Fred and pulled the whole thing and basically they had just centered in on like this recent period. But if you take the data back to 2020, it's like this massive peak in software jobs and then like this huge move down which so there's nothing to do with AI in there. Like it hasn't gone up or down because of AI. Like it's barely moved at all. But it like it lost the full picture of the entire thing. Like since 2020 we do a decent

[Matt]

amount of work with clients in and around the space in the tech sector and software jobs and talk to enough people in this space to have a, have a feeling pre Covid. So like 2019-2023, you basically had this massive hiring boom in these areas. And even with seeing some of the early layoffs and whatever else, it's like we're doing an adjustment off of a massive base where we had a giant multi year hiring boom that followed by like a flattening to a slight decrease. But it was like we were, they were hiring in that sector like two to three times the national average of additions for four years in a row. And then that kind of petered off. And now some of those like people being let go or the adjustment on backup where there are openings at a handful of companies. It's very disorienting if you're not zooming out.

[Jack]

Yeah. So I think the reality is that data is telling us absolutely nothing about the treaty thing one way or the other. And I think that's true of all the data right now. We were talking before we recorded like productivity, just the ability to measure productivity. Like in the Internet technology based world. Like when we have Jim Paul, when we talk to Jim Paulson on the Jim Paulson show, he's talked to us about like he thinks that data is, you know, basically useless now. Like the productivity data is not even valuable. So. And also, by the way, even if it is valuable, like go pull that up on Fred. It's basically a straight line across that's bouncing up and down like there's, there's nothing there. So all this is Backward looking, there's, there's nothing in the data yet I think to indicate that we have this type of scenario playing out other than, you know, what Jack Dorsey did yesterday. I mean that type of thing you're starting to, starting to see. And whether you see more of that is probably important in terms of figuring out what might happen.

[Matt]

Jack Dorsey's another case though of where they had a massive hiring boom and then they held the line and now they're finally letting some people go. There's also a really weird stat about some corporate party, some multimillion dollar corporate party. People are like, how do I get invited to that event? I'd like to know too. But some of this is just normal corporate behavior. You, you over hire in a boom and then you cut back when something gets tight. There's a lot of wanting to read through onto the exact reasons for this decision. And much like every time we talk to a, like you talk to a Brent Kachuba or you talk to a Kevin Weir or any market maker, it's like, yeah, somebody's kid was sick and they weren't in on Monday for the rebalance and some stuff happened. Like that's all part of this year. I want to ask about this one to you too, just in case you saw it in any of the other conversations or stats. It doesn't feel like we had a lot with the, with the CapEx build out and basically like the energy boom. This part still really troubles me on just the inflation stats of like AI data centers as a portion of electricity consumption are like mid to high single digits heading into double digits by all the projections in the next couple of years. It's like we still need to spend and burn a lot of energy and get a lot of compute to get anywhere near this scenario.

[Jack]

It feels like you got to move forward. It's like you need to eat the inflation to get the deflation right.

[Matt]

You need a lot of inflation to get the deflation and you need a lot of compute build out and you need a lot of energy consumption. And it's not clear that we can get even all the way to the stage where that's feasible in the next few years outside of inventing nuclear power plants or putting solar farms in space, which I'm sure that'll happen soon.

[Jack]

And by the way, Gavin Baker's really good to follow on this too. Like he was one of the people who, he didn't attack the Citrini piece, but he did say like there's just not nearly enough compute for this to happen on the type of timeframe they're talking about. Like, even. Even if this could happen, like, we're not gonna have compute for like, a very long time for something like this to go on.

[Matt]

All right, that was you answering my question. I think it's time for us to leave the office, get back onto the private jet. We gotta get down to the Caymans, check out on how all of our undisclosed positions and things. I shouldn't even say that.

[Jack]

Now you're making me think I gotta make a private jet video of us getting back on to put at the end of. It'll be long enough to make that one. To get us getting off, we need

[Matt]

the closing video where we get back on wiping the sweat from our brow. You know, I like.

[Jack]

I do like that. At least. At least one person who we will remain unnamed. At least one person did believe the prep jet, which is great. I think there's more out there. So there's more out there who definitely believe it. So anyone who loves time. If one person.

[Matt]

You believe that video, I have a copy special of Jason Buck's book Pimp of all just for you.

[Jack]

We still get comments that people want to buy that book.

[Matt]

As they should.

[Brent Kachuba]

As they should.

[Jack]

Well, and the best way for that story to end is for him to actually write the book, because that's how it has to end. I think he had no intention of writing the book. You made the book up. But now he's got to write the book.

[Matt]

I'm holding my breath, Buck. I'm holding my breath.

[Jack]

Well, thank you, everybody, everybody for joining us, and we'll see you next time.

[Podcast Host/Announcer]

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[Jack]

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[Matt]

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