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- [00:00]
A
What's up? It's Todd McShay, host of the McShay show at the Ringer and Spotify. We're building this thing up and I couldn't be more excited to be back talking college football and everything. NFL Draft with the most informed audience out there. That's you, my co host Steve mentioned. I will be with you three times a week throughout the football season with all the latest news, analysis and scouting intel from around the league. For even more insight, subscribe to my newsletter, the McShay Report to access my mock drafts, big boards, tape breakdowns and other exclusive scouting content you can't get anywhere else. It's going to be a great season and I hope you'll be with us at the McShay show every step of the way.
- [00:45]
B
This episode is presented by AT&T. America's First Network is also its fastest and most reliable based on root metrics. United States Root score report, which is 1H2025 tested with best commercially available smartphones on three national mobile networks across all available network types. Your experiences may vary. Rootmetrics ratings are not an endorsement of ATT. When you compare, there's no comparison. AT&T this episode is brought to you by Canva. If you find yourself flipping between endless tabs and programs trying to realize your vision, you should try Canva, the all in one design platform that makes ideas flow into beautiful work. Whether you're a content creator, small business owner or influencer, it's got all the tools you need in one place. Like Canva Video. With thousands of templates or Canva docs for beautiful visual documents, Canva lets you bring your big ideas to life as fast as you can think of them. Put imagination to work@canva.com today. Young people every month, the University of Michigan Survey of consumers asks young people how they feel about the economy. They've been doing this for more than 40 years, going back to 1978 and this summer. In 2025, young people between 18 and 34 said they were more negative about the state of the economy and the housing market than any month on record. If you take their word for it, young people today are screwed. They're screwed by housing. The average age of a first time home buyer just hit 40 years old, 10 years higher than it was just a decade ago. A record Young people are screwed by the labor market. The unemployment rate for 20 to 24 year olds just hit a decade high and they're screwed going forward. Hiring rates have collapsed in the last few years and there's strong anecdotal evidence and some empirical evidence that AI artificial intelligence is reducing new hires in jobs that are heavily exposed to automation, like entry level computer programming, which in many cases can be done by someone cleverly using Claude. You add on top of this, the fact that young people today are more isolated, more anxious, more addicted to gambling, less likely to date. It's not a pretty picture. But is it the whole picture? It's easy and at least partially accurate to say that young people today seem screwed. But to further explore this idea, I wanted to bring on some people I thought might disagree somewhat with the premise. Today's guests are two of my favorite economic commentators, Michael Batnik and Ben Carlson of the Animal Spirits podcast. We talk about whether young people are screwed and along the way we touch on the housing market, the stock market, the AI bubble, and much more. I'm Derek Thompson. This is plain English. Ben Carlson, Michael Batnik. Welcome back to the show, guys.
- [04:06]
C
Glad to be here, Derek.
- [04:08]
B
So I want us to do a little point counterpoint. I want us to start off by making the clearest and most devastating case that American economics, society, even politics, is decidedly biased against young people today. And then I want to give us ample chance to interrogate that premise. So, Ben, let's kick things off with your essay which was appropriately and pithily entitled Are Young People Screwed? Kick us off with the opening statement. What's the strongest reason to think that in fact. Yes, Ben, young people are screwed today.
- [04:40]
C
I mean, the biggest and easiest one is the housing market. There's never been a worse time to be a first time home buyer, right? The NAR just said this week that the average age or median age of a first time home buyer is now 40 years old and it's the lowest share ever. It's like 21%. Housing prices went up 50% this decade alone. We pulled forward, I don't know, 20 years worth of housing market gains. Mortgage rates doubled. So people are just pushing off, becoming an adult further and further into the future. Student loans, it's more expensive to buy a car these days. Just the general inflation young people had to live through. Covid I feel like I could keep checking off boxes, but it's been a very difficult decade to be a young person.
- [05:21]
B
Ben, can we slow down and talk a little bit about why the housing market is, is so shitty for first time home buyers? I mean, it would be one thing if we were coming off say 10 years of economic depression in which young people were getting poorer and poorer and the stock market wasn't going up. And basically things were just terrible on the wage front. And so no one had any money to put into that first down payment. But that's not really the situation. Like real wages have not had the strongest five years, but they're kind of starting to come back. Young people, we've seen the stock market really grow and more young people today are invested in the stock market. I think we'll talk a little bit more about stocks in a second. But why in the biggest picture is the first time home buyer market just so putrid, as you said, as a share of overall home buying, like just 21% of the market?
- [06:20]
C
Part of it is also demographics. There are more 30 year olds than ever, like people in the 30 to 40 age range. That's the big rabbit going through the snake right now. And plus you have 40% of all homeowners own their house clear and outright. So you're competing against baby boomers who have all this equity, all this wealth, and there's just a lack of supply because people with 3% mortgages don't want to move. And so you have this weird housing dynamic where you have a lot of people who want to own, who there's just not enough supply. So if, even if they want to try to buy, there's probably not a house that they want to get. And, and then the people they're competing against have way more money than them. And so it's, it's just a double whammy of more people wanting to buy, not enough supply, mortgage rates that are too high, and housing prices that are too high. So it's like all this confluence of events. It's this perfect storm where it's just, there's really no good answer right now for young people who want to get that first home. Unless you just spend an exorbitant amount of your household budget on a mortgage payment.
- [07:15]
B
Yeah, Michael, as I see it, the story really goes Back to like 2007, 2008. You've got the Great Recession, you've got the crash of the housing market. You have years where construction is essentially in an industrial depression. We lose so many construction workers, so many small construction companies. So you've got this housing shortage coming into the late 2010s, and just as the housing market is kind of getting back online, bam, you've got a pandemic. People start moving, moving into the bigger houses. You've got this huge run up in home prices in 2021, 2022, then interest rates spike. Now your average mortgage, if you're a New home buyer is like two, three times higher than it would have been 10 years ago. As a result, older homeowners aren't moving, they're staying in their homes, which means that there's less coming available in the resale market. And like, you just put it all together and it's just such a shitty time to be a first time home buyer. Anything that I said strike you as incorrect or something that I missed in terms of trying to understand the big picture of just why things seem so bad for basically anybody under 40 trying to buy their first house?
- [08:22]
A
No, you nailed it. It is a peanut butter and poopy sandwich, there's no doubt about it. But let me answer your question with another question. Two things about are young people screwed? One rhetorical and one actual. When haven't young people been screwed? Show me a point in time where young people were ready to take over the world. Okay, secondly, which young people are we talking about? Because Drake may, for example, shout out to the podfather is doing quite well. But in all seriousness, the question is this. Are they screwed? Like today? Are young people screwed in November of 2025? The answer? We have data. Now, the data is a bit stale at this point, thanks to the government shutdown, but the data says no. You hear people talk all the time. The unemployment rate for young people 22 to 27 is twice the overall unemployment rate. Okay, fine, but what is it historically? So right now, as of the most recent data that we have, it's 7.4% for people's 22 to 27 versus 4% for the rest of us. For all of us. So that 3.7% spread, hey, guess what? What do you think the average is going back to 1990? It's 3.8%. So they're actually doing better off based on this one piece of data. So is now an awesome time to be looking for a job as a young person? No. Is it going to be better in 12 months from now? For reasons that we're going to discuss, probably not. But are young people so much worse off than when we were young people once upon a time? Because when we graduated, the unemployment rate for young people was. Was 16%. And guess what? I got kicked out of college twice. You think it was great for me being a young person in the employment in the labor force? No, it wasn't very good. Derek.
- [10:10]
B
Yeah, let's go deeper in the labor force because there's many ways in which I agree with you. The unemployment rate for young people is always higher than the unemployment rate for the entire labor force. That's absolutely true. I do want to make sure that we drill down on just how crappy a time it is right now for folks looking for a job. Hiring rates have been plunging for the last few quarters. The unemployment rate of young people, Michael, is, you noted, including for college graduates, has steadily increased a couple days ago, I think it was last week. I don't know if you guys have seen this chart that I wrote about. I called it the scariest chart in the world where basically you see that around 2022 new jobs listed, jobs listed have basically declined steadily in a period where the stock market has basically soared. And if you were the kind of person who thought that AI was going to like replace every single job, well, this is pretty close to what you would expect to see in a graphical picture. That said, there's no guarantee that that's what the graph is showing. It could be showing that the Fed both by raising interest rates, reduced job hiring and also sort of led us into an AI cycle where AI stocks are taking over the economy. But just talking about the labor force first, Ben, why do you think jobs listed and hiring has declined so much in the last few quarters in the last few years?
- [11:36]
C
Well, I think two parts. I do think we're never going to see a job market as hot as we saw in like 2021. Do you remember driving around and seeing the McDonald's signs for $20 an hour and like you couldn't find people to fill these jobs. And so I think part of the job opening thing was just companies were so afraid of losing employees because the job market was so hot that it just things got really out of whack. And I'm not sure how many of those jobs were real. Part of it is some of those job openings were filled, right? Some of those people got hired. So I think that's part of it too.
- [12:05]
A
And the job listings were real. A lot of the jolts data was fake. Like we were talking about at the time. There was companies that were being inspected that were like having duplicate listings. I think a lot of it was the political environment. We're not laying off people, look how much we're hiring. A lot of this was a visual representation to society that yes, our profits are at all time highs and I know that you're at homes a million, you are dying and can't work. But we're hiring, we're trying our best, we're raising wages. A lot of those listings were literally not real. And look what Amazon did. Look at Their overhiring and now they're on the other side of that and they're all taking cover under the umbrella of AI. Sorry, but it is an over. It is a natural correction to an over hiring spread.
- [12:44]
C
But we are, and now we are hearing that because the labor market is slowing, companies are definitely cutting back. And this is not just anecdotes and headlines. Companies are saying we are cutting back on hiring these, these new employees because, like, we overdid it too much. And we're hoping that this AI baton handoff happens where we don't have to over hire as much. And so I think that's the confluence of events where the fact that 9% employment coincides with OpenAI putting out ChatGPT within months. Right. It is, it is kind of nuts how that happened. We had this handoff from how are we ever going to solve this inflation to oh, here's AI. This is how you solve it. And then the stock market and the economy take off because of it. It is pretty insane when you think about it. And I think, Derek, to your point, people are gonna look back at that chart forever and go, this was a pivot point in potentially human history, even if there's some correlation causation stuff going on now. But it does seem like young people for those entry level jobs are having a very difficult time finding something now.
- [13:41]
B
And since we are describing a chart on a podcast, I want to describe in words as clearly as I can what it is we're talking about, which is BAS. For most of the 21st century, if you graph total job openings versus the S&P 500, there's a pretty tight correlation. Generally speaking, when the economy is good, there are more job openings and the stock market goes up. When the economy is bad, you get job openings declining and the stock market declines. Something happened in 2022 and there was an absolute forking of these two paths where the stock market has gone to the moon since 2022 and total job overall hiring has declined. To your point. And I think this has been often missed in commentary about this so called scariest graph in the world, which really does, when you look like it, look like the beginning of an AI economy where assets and capital go straight to Mars and job openings go straight to the bottom. Two things happened in 2022, one in March and one in November. In March, the Federal Reserve started raising interest rates to combat inflation. And in November, ChatGPT was launched by OpenAI. So when you look at this chart, I think a lot of people are associating this forking of paths with the debut of generative AI as a mainstream tech phenomenon. But I do think that the most sophisticated explanation for this graph comes very, very close to what Michael said, which is there was a period, we called it the Great Resignation, which was a terrible term at the time, but we called it the Great Resignation. So many people were quitting their low paying jobs and moving into slightly higher paying jobs. There was an enormous amount of churn and hiring in the economy. Unemployment fell to near record levels in 2021, and then there was inflation and the Federal Reserve started to raise interest rates. The raising of interest rates choked off capital. It raised the price of money and slowly you saw hiring come down while at the same time stocks did whatever it is that stocks are doing right now. And I definitely want to ask you later about what it is that stocks. But Michael, again, sorry to basically give you Derek narratives and ask you to edit it. I'm treating you like I treat chatgpt.
- [15:55]
A
No, Derek, I approve of your message.
- [15:57]
B
What about this message? Do you agree with or disagree with?
- [16:00]
A
All right, so I would just like to say, Ben, please don't be a keyboard, or in this case, a podcast warrior, because two weeks ago we opened up the show screaming, hemming and hawing about this chart crime. And it is a chart crime. Let's be very clear now, Derek, I'm not saying that you perpetrated the crime, even though you did put it out into the world. So the point that you made earlier is you can't listen. It was the perfect narrative. It was served up so perfectly of ChatGPT coming online just as soon as we started to get the rate hiking cycle. But it was just two things. And I'm not saying that ChatGPT and AI isn't going to have a material impact, that we won't have to twist the narratives and the data it will show up. But this chart that we're describing is. It is a result of two things very clearly, with the third being a small portion of the AI thing. It is, number one, the overhiring story that we just outlined, and it is, number two, the Fed aggressively hiking. That's 90% of the story.
- [16:58]
B
I agree. It's 90% of the story. For now, Ben, the question is, is it 90% of the story for the next decade? There's a lot of evidence coming out, a lot of it anecdotal, you know, college counselors saying that we're just hearing from companies that they're replacing entry level positions with AI, some of it empirical Erik Brynjolfsson and several other economists at Stanford found some evidence that AI is now being used to replace automatable entry level jobs. So like computer programmers that are 22, 23 years old, for every 100 that you might have hired in 2019, they're now only hiring, let's say 92 in 2025. To what extent, Ben, do you think AI really is making it harder for young college graduates to get a job in fields that essentially are figuring out how to eke more out of the clods and chatgpts of the world?
- [17:55]
C
I think there's three things that can all be true at the same time. One is that AI is that companies are already thinking of ways to use it and become more productive and it's impacting their hiring decisions in the future. Two is I think there's also a lot of companies that are using it as a shield because who would you rather blame a hiring manager or a company or a technology for lack of jobs? Right? So I think some people, some companies are going to hide behind AI as an excuse because they had over bloated labor forces. Right? And then number three is I think we just don't know what the actual ramification is going to be. My I heard from one college professor, I talked to a college group of college students last week and they said they've been telling their students that there's probably never going to be more inequality within the generation than this generation coming up right now. Like the people that are ambitious and know how to use the technology are going to be doing great and the people who don't and get left behind are going to left behind to a wide degree and there's going to be a huge range of outcomes. And I think you already see this in the finances. Think about how many young people have hit it rich. Like you never heard stories of millennials in the 2010s saying I put some money into this stock or this new asset, which is crypto, I guess that didn't really exist and I made millions of dollars. You hear stories from young people doing that all the time now. And I think that's where I think I land on the AI is that it's going to make inequality worse and it's going to be even harder in these younger generations. The divide that it's going to have.
- [19:20]
B
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- [22:14]
A
So I think that AI is not just going to be used for better advertising for Facebook, although of course that is a huge component of it, that it is transformative. It is going to change the world the way that the iPhone and the App Store did, in ways that we can't fathom. We had no idea that Spotify was going to be a thing. We had no idea that Uber would be a thing, that DoorDash would be a thing. And it goes obviously so far beyond that. So I do believe I am a techno optimist. However, I also believe that from here to there, the transition and rocky and inability of young people to enter the workforce is going to be dramatic. Unfortunately, I do believe that AI is going to automate all of the entry level jobs. All is a lot, but it's going to be tough. And I'm very sympathetic to the plight of young people coming into the workforce today. However, and we'll get to the OpenAI and the CapEx spend and the bubble talk because that's obviously on everybody's mind. I do think that narrative shapes everything, right? You write a lot about this. Obviously it has political ramifications. Three quarters of young people in New York City voted for a socialist, which is pretty wild. So it matters. It absolutely matters. But there are also young people that are doing quite well now. Nobody wants to read about it. It's not interesting to listen to. But if you listen to Robinhood's earnings calls and you look at net deposits by cohort of coming into the market, they're growing over time. If you look at Wealthfront's IPO filing, same thing. Young people are investing a lot of money. Amex, for example. This is a mind blowing stat, Derek. Gen Z spending is up 39% year over year at Amex. These are people with money. Millennial spending is up 12% year over year. Guess what? Gen X is only 8%. Boomers, it's only 4%. And Gen Z is now 6% of all spending on Amex and growing. So the people that are doing okay are doing very well. But of course, who gives a shit about them, right? Why don't we talk about it? They'll be just fine. Let's talk about, let's talk about, let's get dark. Okay? Let's get real dark. So we could talk about OpenAI and the bubble and hyperscalers and everything else, but I really want to point out that it's not everybody who's suffering. And I'm not, not sympathetic to people that are having trouble, but there's also a lot of good happening in the world.
- [24:30]
B
Yeah, No, I think it's important to see the full picture, right? If what we're trying to do is understand the shape of and the health of a generation, the generation's 70 million people. It's very unlikely that they're all doing worse than, than ever. It's very likely. There's some winners and there's some losers. And there's a lot of talk right now in economic analysis of a so called K shaped recovery, essentially where you have this division between on the one hand, the upper middle class or Even the top 10% can be doing very, very well, while at the same time the bottom, say 30 or 40% can be struggling. And I do think that to Ben's point, we're likely to see that kind of intragenerational inequality grow as some people become very good at working with AI and some people fall a little bit behind. I think you're going even more of a schism between those who are succeeding and those who aren't succeeding. Ben, did you want to follow up?
- [25:22]
C
Yeah. So it's interesting because I actually think the housing market is having a huge impact here. And I think the best hedge against AI is to just own the people who make the robots. And so I think the best hedge against AI is just owning the stock market. And I think, and ironically the housing market is making people do this. So there's a lot of information that shows the people who aren't buying a house and that, because I think that's part of the consternation is you have steps in life. You go to school, you get married, you buy a home. Right. I think that's why it's so upsetting to people because that, that last step is taken from them. So they're saying, listen, I can't afford to buy a debt, pay for a down payment. I can't afford these monthly housing costs. It's cheaper for me to rent. Instead I'm going to invest the money in the stock market. And some people are doing it in a degenerate fashion and gambling and, and betting on all these crazy things. But some people are just investing in the stock market. So here's some stats for you I want to show you. This is from the Wall Street Journal. Among Americans with incomes between 30 and 80,000, right. These are lower income Americans, 54% now have taxable investment accounts. Half of those investors have entered the market in the last five years. People under 40 have seen their holdings in stocks rise 300% since 2020. The bottom 50%, the value of equities held in their net worth has increased fourfold since 2020. So it, so there still is 87% of the stocks are owned by the top 10%. So the rich are getting richer. But to Michael's point. Robinhood has 25 million customers, half of them. It's their first ever brokerage account that they've ever opened. So this has all basically happened since 2020. And this is not just at places like that. JPMorgan Chase says that people with below median incomes account for a third of their customers, up from 20% in 2015. They also found that 37% of 25 year olds have used an investment account that was 6% in 2015. So all these people who can't afford a home now are investing in the stock market. And you could make the case they're going to be wealthier because of that. They're not happier. Maybe it doesn't bring them this psychological like the psychic income that you get from a house owning a house. But I think you could make the case a lot of these young people are going to be wealthier because they're forced out of the housing market into the loving arms of the stock market. Now, the, the bad part would be, hey, AI is a bubble. It bursts. Do these people still stick around? That's that young people tend to be the ones who don't stick around in that instance.
- [27:33]
A
They.
- [27:33]
C
But I think the fact that people are more apt to take risk, like the appetite for risk among young people in Gen Z, is way higher than millennials. Remember, millennials hated the stock market after 2008. It took them a long time to get back in. The fact that younger people are more okay with risk, I think is actually a good thing. And it's probably going to make them wealthier because of it.
- [27:52]
B
It's a very interesting narrative violation. Right, because what you're essentially saying is the housing market is putrid. People under 40 can't buy a home, but they still have some savings. Many of them do. And what they're doing is they're putting that money into stocks. They're putting it maybe sometimes into meme coins, maybe sometimes into crypto. Sure. Maybe sometimes into gambling. But if they just do the simplest thing, which is just buy the S&P 500, what they are effectively doing is buying Mag 7 +1, which essentially means they're buying a kind of extended play on Nvidia stock. And Nvidia has been fantastic for the last four years. And as a result, what's the stat that you just said their holdings have, what, quadrupled since 2020? I mean, that's a very positive story about a weird side effect of the housing market being shut off from young people is that they put their money in the stock Market. I'm not ready to say that it's overall good. I think that there are non material or super material benefits to owning. If you want to own right, it lands you, it gives you a place to live, it gives you a place to raise your children, it gives you a place to invest in community. But it's not altogether terrible for people to essentially say, I'm just going to rent for an extra 10 years, put the rest into Microsoft and Nvidia and oh, look at that, they all just octupled in the last five years. Not the worst thing in the world.
- [29:16]
A
Michael, Derek, I was skeptical that people were actually doing this in real numbers. Now, anecdote is not data, but we heard from a lot of our listeners saying, actually, Michael, no, I did this and we heard that quite a bit. And I agree with you that the real area in which young people are screwed. Now, listen, I happen to think that the American dream of homeownership is good, but in many, many, many ways overrated. I also think it's a travesty that if you want to own a home and you've been saving and now it's out of reach, I think that's horrific. But I think it's not black or white. So even though there is a crisis in housing, is it all bad? I don't think so.
- [30:02]
C
Yeah. So, Derek, we've gone from your biggest investment being your house. And baby boomers invested in the house first and then later on invested in the stock market. If you go back to 1983, only 20% of households own stocks in any form at all. Now it's like 62%. Right. So baby boomers bought a house first and then later on they decide in their 40s and 50s, now we're going to invest in the stock market. The fact that people are doing it now in their 20s and 30s, if they hold on, the compounding effects for that are going to be massive for them. And I don't think young people realize this yet. And again, you're right. There's something about owning a home that you can't put a price on. But if we're looking just in spreadsheet terms, because I'm a numbers guy, I think if these young people keep their money in the market, by the time they're in their 50s, they're going to go, oh my Lord, I'm so much wealthier than I would have been otherwise. That's my glasses half full on this whole thing.
- [30:50]
B
I think what Michael said is really important, which is that it sucks to want something that you can't have. If Ben is telling a story about people who are 31 years old who've wanted to own, let's say Ben's telling a story about someone who's say, 37 years old. This guy's wanted to own for seven years. He hasn't been able to buy into the housing market either because he didn't have enough money. And then there was the pandemic weirdness and then interest rates went up and now he can't afford the mortgage. That sucks. That's just a shitty situation. And so the fact that he baby has been able to put some away into an ETF that's basically been a rider on Nvidia stock for the last five years and therefore has a nice chunk of change in that account, that's great. But I do think there's a lot of evidence that people fundamentally want to turn that chunk of change into four walls and a roof and a ceiling they can call their own. I'm looking right now at the University of Michigan consumer survey data showing consumer sentiment among 18 to 34 year olds between 1978 and 2025. Now, the stock market has been up some absurd amount over the last five years, but the single lowest score in the history of this chart was recorded in the early summer of 2025. So many things can be true at the same time. People can be really frustrated by the fact that this economy isn't giving them what they want. And also in ironic ways, being blocked from the housing market is funneling their money toward assets that are booming. It's a strange overall picture to put together. Michael, going back to you.
- [32:27]
A
Wait, hold on.
- [32:27]
B
One thing that just yet.
- [32:31]
A
When did we stop blaming social media for all our problems? Can we get back to doing that a little bit?
- [32:36]
B
I was hoping to invite you to blame social media for all of our problems. Let me get you started with a little bit of an on ramp. I think there was that study that was done a year ago or two years ago that asked people of various generations, how much money do you consider to be financially successful? And practically every generation was something between 150 and the low, $200,000 per year. And Gen Z was $500,000, $600,000 a year. There is the possibility that you create a generation that's locked to their screens. They define economic and financial success by something that is unattainable and therefore happiness being expectations minus reality are pegged to a level of expectation that reality can never meet. And so as a result, their Consumer sentiment is puking whenever the University of Michigan asks them the question. That's one interpretation I suppose you could have. But, Michael, do you have other social media critiques that you'd like to put on the pile?
- [33:28]
A
No, because don't get me started. We don't have that much time left. I want to talk about this. One of the things that is causing consternation again, it's not just the picture today. It's what does my future look like when clearly the robots are coming. I mean, Elon just called these robots an infinite money glitch. Like, they're coming, and this is causing a lot of stress. So let's talk about the bubble question. Is it a bubble? When is it going to pop? Ben and I were talking today. There is a clear and present danger that, yes, this is a bubble. How could you not see it? OpenAI with their $1.4 trillion worth of commitments over the next six, and they're only doing $14 billion in revenue today. Like, hello, make the math. Math. There is a great data point. Talk about inequality. There is inequality in the stock market. The MAG7 are as big as the bottom 449 stocks in the S&P 500 index. This is a large index. The MAG7 are larger than the combined sectors of energy, materials, consumer staples, healthcare, financials, utilities, and real estate. And I mean every stock in all of those sectors. And you say, time out. I want to get off the ride. This doesn't make sense. It doesn't make sense. It's a bubble. Okay. But I think it's really difficult to understand from the outside, just for the casual listener to understand the scale and the magnitude of these companies that we're talking about. Let's use Apple as an example. Apple is a $4 trillion market cap. Ben and I have used this data a couple times because I think it's really compelling and helps paint the picture. The iPhone. So there's a couple of segments that Apple reports on the iPhone being the biggest. It's about half of their revenue. The iPhone did more revenue in the last 12 months than not combined than bank of America and also than Meta. Okay. The iPhone services, which is where all of their margin expansion is coming from. Right? The app store and everything else. $109 billion in revenue. Target did $107 billion. Wearables, which are AirPods and the watch did $36 billion. Salesforce did 39 billion and Starbucks did 37 billion. So just the AirPods and the watch and whatever other devices they have did as Much money as Starbucks, a global leader in Coffee with 40,000 locations. Okay. The Mac, the computer that I'm on did $34 billion in revenue. That's a lot more than Charles Schwab. Charles Schwab did $26 billion in revenue. And then lastly, Derek, the iPad. Who buys an iPad? I mean, I guess people do. I have one, but I haven't bought one in a while.
- [36:04]
B
I buy one like every 12 years.
- [36:05]
A
Yeah, the iPad did $28 billion in revenue compared to AMD, one of the leaders in this AI revolution did $26 billion. So you have to talk about the size of these businesses, you have to talk about the valuations. You can't just throw out market cap and say there' going on to unpack this.
- [36:25]
C
This is what we haven't had in a bubble like this before is that the leaders of the pack are this big and well run in cash flow producing machines. So that's why it's so hard to handicap, I think is because they're so big. I got this is my glass half empty one for you, Derek. So let's say there's two outcomes from the bubble, right? The bubble bursts, it slows the economy, we go into recession, the stock market crashes. That sounds pretty bad. Option two, the bubble doesn't burst. We have this magnificent handoff between AI spend right into ROI for these tech companies and then it leads to job loss. Which one is a better situation where we have white collar job loss because AI actually does everything that the techno people are telling us is going to do. Which one is the worst situation?
- [37:07]
B
I don't know because I haven't decided whether AI succeeding requires significant job loss. I could just as easily imagine AI succeeding looking essentially like every white collar worker in America, spending something like $20 a month on AI in perpetuity. Right. That would mean just tens of hundreds of billions of dollars flowing into these companies in perpetuity before we even see what Michael was talking about earlier. The proverbial Spotify or Uber or DoorDash. Right. Which I interpret as ideas for companies that no one was really thinking of as being possible in 1999, but are made possible by the implementation of the technology by really smart other people. It's really hard for me to see exactly how things turn out in 15 years because I don't think that outside of recessions, companies want to lay off millions of workers. Like we just haven't had an example of companies laying off millions of workers outside of a recession. So if the AI boosters are right and the economy just grows and grows and grows with higher productivity. It seems more likely to me that we don't get some job apocalypse, but rather we have a muddling through where we try to figure out how. The same way every worker has become an Excel worker, every AI worker becomes a generative AI work. And on the other side of it, essentially AI is as integrated into the general workflow of a white collar workforce as Microsoft Office is, except it's ten times more productive.
- [39:02]
C
I hope you're right, because there's the old Jerry Seinfeld joke that's dated now, but he said, isn't it funny how the amount of news that happens in the world every day fits on the same amount of pages in the newspaper? And I think that could be our working capacity. AI makes us more productive, but we just do different and more kinds of work. And so it's not like we go from working 50 hours a week to 25. We still work 50. We just do more in different things because AI is in the background doing other things. So I do hope that's the glass half full thing that happens, that it just makes some tasks easier. But we do more tasks now.
- [39:34]
B
Yeah, I mean, one, I've been thinking a lot about this question. I've done a lot of podcasts on it, I've written a lot of articles on it. Is AI a bubble or is it not a bubble? And to me, the biggest difference between what's happening right now and what happened in the fiber optic build out or the dot com bubble or the railroads or whatever else, the biggest difference is that when you go back and you look at the companies that defined those bubbles, they were little Fledgling startups like Pets.com had like $17,000 of annual revenue. The folks who built the railroad were essentially startups founded in the 1860s and 1870s that were given land grants and government loans to build something that essentially failed and then built again and then failed. We're talking, as Michael said, about the biggest companies not just in America, but in the history of American capitalism. We're talking about Apple, which, if I recall Michael's example, does the business of bank of America + Target + Starbucks + Schwab + AMD every single year. And they're not even leading the hyperscaling build out. They're still smaller than Microsoft in some ways. So we've never had a situation where the most profitable businesses in American history were building the most expensive new business in American history. And right now, so much of the buildout is coming from free cash flow and as long as it is, I don't think that we're in a situation where leverage can really kill us. If these companies start to lever up and go into debt in order to keep up with the data center spend, then I think we could see trouble ahead. Michael, a question I wanted to spin off to you actually was obviously the max 7. The AI hyperscalers are doing fantastically, but it's really the entire stock market you look at. I think there was a graph I saw from Michael Sembalis from JP Morgan. I know one of your favorites. It showed that the share of corporate earnings that beat estimates in the last few years has been higher than any period in measured history. So it's not just the AI companies, it's everyone. And it's just kind of weird that in an era where the overall economy doesn't seem to be doing that great and interest rates are higher, that companies are still just blowing past earnings estimates. Do you have a big general theory for why not just the Mag 7 but the overall stock market has just had such a fantastic few years, even in the headwinds of one of the fastest interest rate hikes in modern history?
- [42:09]
A
I do. I'll get to that in one second. I just want to go back to the thing that you mentioned about the railroads because Ben and I on Animal Spirits today were talking about your interview with that historian. And one of the points that was.
- [42:21]
B
So clear to me, Richard, just for folks who want to go back, yes, Richard White, who wrote a book called Railroaded, which is about the history of the construction of the transcontinentals. But back to you.
- [42:31]
A
So a lot of these companies popped up out of nowhere because there was so much easy money to be made. Of course, when it's fraud, it's very easy money to be made. But companies today that are powering the AI revolution because it is so capital intensive, it's companies like Microsoft, which by the way have grown their cloud business, which is now at 100 billion annual revenue run rate. They've grown every quarter for the last 10 years. So 40 quarters. They've grown 20% every quarter. The idea that there is a bubble that is going to pop and bring the economy down with it, I think sounds absurd from that lens. But again, if you look at the private markets where we don't have the financial, there's no transparency. Is it going to be perplexity? Is it going to be anthropic? Is it going to be OpenAI? And if they're powering everything right, because OpenAI makes an announcement that they've done a partnership with a company XYZ and company XYZ goes up 20%. If OpenAI can't actually make good on those commitments, then what does it do to projected revenue and profits? And that's where the danger lies. And to your point, it's not debt. I mean, we're starting to see some of it, but these companies aren't levered up. It's all coming out of free cash flow. And as far as the other companies, what was the question? Because I had a good answer, but I distracted myself.
- [43:54]
B
Well, you're right. The question is just why is the stock market doing so well? The Max 7 stocks are obviously doing fantastically. That story is not overblown, but it's popularly known. But it's not just them. Michael Semblis is showing that earnings estimates are being blown by by a lot of companies. And that just seems surprising to me given that there's a lot of macro statistics that look kind of stagflationary. So why is the stock market doing so well?
- [44:19]
A
So this is also baked into the pie of just the general uneasiness and anxiety of what's going on because corporate America or corporate Americans are outperforming Americans. Companies in the s and P500 that have access to cheap capital, guess what? Completely insulated from higher interest rates. Apple is not looking to take out a mortgage. Amazon is not paying a credit card balance. They were completely insulated. And what they're really, really, really good at is protecting their bottom line. Which goes back to my earlier point of having record margins, and not just in the mag 7 record margins for these companies while also laying people off and pulling back job openings is a really bad look. And so this is part of the thing that gets people upset. I'm struggling and I look at the market and the Dow makes a new all time high every day. Make it make sense, Derek.
- [45:16]
C
I've made the point that the stock market is the last institution in this country we can really trust. We can't really trust our politicians anymore. A lot of the organizations are kind of hard to trust. But the stock market, they have like these blinders on. And think about all the stuff that's gone on in the 2020s, from the pandemic to supply chain shocks to 9% inflation to rapidly rising interest rates. And these companies have improved their margins from an average of 8.8% in the 2010s in 6.3% in the 2000s to now 10.3% in the 2020s. So margins have increased despite all this stuff that's been thrown at corporations. They are so good at producing cash flow and increasing their margins and giving money back to shareholders. And betting against corporations is a really tough thing to do these days. They're so much better run than they were in the past.
- [46:04]
B
I want to close where we started by talking about young people. And Ben, at the close of your essay which inspired this episode, you mentioned that you had a conversation with some college folks that you came away quite inspired by. And I wonder, aside from Buy Nvidia, what is your advice to 21 and 22 year olds in America today? Looking at the job market, seeing that hiring is slowing down, seeing that AI applications and implementation is accelerating, what would you tell the 21 and 22 year olds who are listening and maybe their parents who are listening who can forward that intelligence? What's your advice to folks getting started in their careers in their investing?
- [46:46]
C
Yeah, I spoke to a finance class at the University of Colorado last week and I said, I don't want to give a presentation. Just pepper me with questions, I don't know what's on your mind. And they asked me such smart and engaging questions I couldn't believe they were sophomores, juniors and seniors. And these kids know the kind of firms they want to work for. They know the type of career path they want. I knew none of that when I was graduating back in the early 2000s. And I think the thing I would tell them is just it's great to be so prepared like that. But don't assume you're going to get your dream job right away. Right? You have to kind of put take your lump sometimes it's not going to work out perfectly. And I also think there's this problem with thinking that you're part of a generation and a statistic. Right? Like I'm a millennial. It's so tough for me in 2008 to find a job as opposed or I'm in gen Z in 2025. It's too hard for me to buy a house and find a job. I don't like lumping yourself in with a generation. Like figure out what it is you can control and focus on that. Improving your station in life better your education, going to places where there's opportunities. I think it's easy to fall into the victim mentality these days because there's a lot of places to look for it. So I think you just have to avoid that mentality and do what you can to improve your station in life. And I think a lot of young people are doing that today. I've been very impressed with every young person that reaches out to me for career advice. And I tell them all, like, you're in such a better position than me. Just continue learning and don't stop just because you're graduating school.
- [48:07]
B
Do you tell them to start a podcast.
- [48:11]
C
You know, it's a good way to, you know, I think being a creative person is one of the ways to hedge AI in the future, right? Unless we have a bunch of AI podcasts that people are listening to that just parrot everything we say, I do think being a creative person is a way to stand out in the crowd.
- [48:27]
B
Michael, what's your intergenerational wisdom?
- [48:30]
A
Oh, man, I am so not wise, I guess. Here's what I would say. The more that I think about the narratives that we're consuming every day, the more I reject a lot of them. And a lot of them are based in kernels of truth. But, for example, this idea that it's Only the top 10% that are doing anything and everybody else is struggling. Josh and I were in Washington in the nation's capital, which was a bizarre experience with nobody on the streets. But we were there over the weekend. The Lions were in town, Ben's. Ben's home team, and you know, the, the elite, the coastal elitist in Detroit that are, you know, just bathing in hundred dollar bills like Scrooge McDuck. They were like half of the stadium. There was so many Lions fans there. So what I'm saying is get. Pull yourself out of the negative vortex if you're in it. And it's very easy to fall down there. I do it myself sometimes. Get off the phone, get out into the real world, and things aren't as bad as they will always seem. That's a. That's a structural issue with the way that we communicate these days. Things will never appear better than they are if you're on your phone. So put your phone down for a second. I'm addicted too. But get out into the real world and you'll see that things are not so bad.
- [49:43]
B
Let me follow that up in closing by agreeing and disagreeing. I agree that the news has an impossibly histrionic catastrophe bias. We are, of course, negativity biased. If it bleeds, it leads. That's true. The most negative narratives go viral. Positive narratives do not. Even when I have one story, and I will, on the substack platform, A B test. A negative headline versus a positive headline. I know the negative headline's going to outperform the positive headline every single time, which speaks both to sometimes my, as a writer preference for negativity and the audience's preference for negativity, which is driving that headline bias. It's also, though, I think, really important to pay attention to negative narratives because they do shape the world, even when they're wrong. Right. One might say, for example, that people living in New York City have it so much better than they know, that New York is so much better and easier to live in than it was the 1970s and 1980s, that in many ways it's a bargain to live in New York City, given the access to the best restaurants in the world and the best culture in the world. There's also no question that dissatisfaction with the price of housing and the general question of affordability was the most important factor in allowing a democratic socialist who two years ago was entirely unknown on the national stage to become the youngest mayor of New York City in a century. And so narratives that, as you said, I think you put it effectively, narratives that might be exaggerated but have a hint of truth to them can change the world. In fact, maybe partially true narratives are the only thing that changes the world. Right. And so I think it's always important to both look at the data as it is and describe reality as it exists, and also to recognize that no one lives purely in reality. Everyone lives inside a web of narratives that have various elements of truth in them. And those web of narratives are what ultimately changes the world and drives elections and moves markets and creates new companies and drives science and technology and everything else in the world. And so, anyway, I'll end that sermon by saying I appreciate that you guys both played with the narrative today and also brought the data because I think that in many ways, young people today do not have it well at all. And also if you go back through the last decade, 2008, the decade before that, 1992, the decade before that, 1980, 1981, when there were and interest rates were absolutely horrendous, young people have often had it significantly worse than the rest of the economy. And it's important to see this picture in its historical frame. So Ben Carlson, Michael Batinek, thank you both very much.
- [52:39]
A
Thank you.
- [52:39]
C
Thanks, Derek.
- [52:41]
B
Thank you for listening. Plain English is produced by Devin Beroldi. And we are back to our twice a week schedule. We'll talk to you soon.
- [52:54]
A
Sam.