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- [00:01]
A
From globalization to innovation sustainability to market volatility, there's always more than one side to a story. Explore different perspectives on today's most important business and economic issues with the Flipside podcast from Barclays Investment Bank. Hear two research analysts in a lively debate and get insights from every angle. To further inform your view, listen to the Flipside on your favorite platform.
- [00:32]
B
Pushkin. It looks like investors are really popping those happy pills. The Iran situation is. The Iran situation, it's still bad. There's not a lot of ships moving around over there. Oil is still 50% more expensive than it was at the start of the year. So in general, it's not great. But like, whatever, stocks have not just recovered in the US They've zoomed up to new record highs. And there's some classic, overexcited, silly stuff going on, too. Today on the show, euphoria and joy across the land. This is Unhedged, the Markets and finance podcast from the Financial Times. I'm Pushkin. I'm Katie Martin, a markets columnist here at FT Towers in London, where spring is in full swing. Lovely stuff. And I'm joined down the line by the big man, Mr. Robert Armstrong, off of the Unhedged newsletter in New York City, where he's been thinking big thoughts about big tech. Rob, are you feeling the vibes? The vibes are good. Are you feeling good?
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C
I feel good. I feel exuberant. Now that you've had your baby. I am irrationally exuberant right now.
- [01:47]
B
Record highs in stocks, baby.
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C
Yeah, it's true. And it happened so quickly. I mean, the way I was thinking about this is like a week or two ago, you could say grouchily, the S&P 500 hasn't gone anywhere since October. And you'd be right. And then the S and P was like, watch this, hold my bed.
- [02:09]
B
Yeah.
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C
And now we have an S&P 500 that starts with a 7, which is something of a moment. We've never had it starting with a
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B
seven before for 7,000 and something on the S and P, boys and girls.
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C
And I don't really know, to be honest. You know, the market hit a low at, you know, 6300 on the 27th of March. So what was that? That was, you know, two, three weeks ago. Two weeks ago. What changed between now and then that took you from 6,300 to 7,000? I don't rightly know.
- [02:47]
B
Well, I think the thing that does make sense is, as you and I and regular listeners to this show will know, markets are forward looking Things, Right. So they dropped in anticipation of an energy crunch. So before the oil actually started drying up, markets, like, dumped. And now they're jumping in anticipation of a resolution. So, yes, I know there is no lasting resolution to this conflict in Iran yet. But if you're feeling pretty bullish about the world, feeling pretty positive in general, then the direction of travel is towards things getting better rather than things getting worse. And that's enough. That's like, fine.
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C
Let me add to that. We've had a sustained period of oil at $100 or more than $100, and it hasn't been a disaster. So it's like, okay, we can live like this. The world is saying, right. You know what I mean? This is a bearable equilibrium. Now, that can, of course, be wrong. Oil nerds keep telling us if the blockade of the blockade stays in place for a long time, that it's not going to be a linear increase in oil prices, that oil prices will move in spiky ways suddenly and kind of geometrically rather than arithmetically.
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B
So, yeah, so that it will be
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C
scary and horrible, but the market persists in believing that this piece of water is so important to global commerce that one way or the other, people will figure it out and get this thing out.
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B
They'll figure it out.
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C
That is the market assumption.
- [04:26]
B
So the market is saying, look, a few things can go wrong. Yeah. One of them is that the oil price, just hockey sticks, goes to like $200 a barrel and stays there. Another is that central banks have a bit of a kind of brain freeze and jack up interest rates, really hard to deal with inflation risks, which I think everyone agrees would be a bad idea. And it's something that they're certainly suggesting they're not going to do just yet. And the third thing is that, like, the. The US Economy falls into a recession, which nobody thinks is terribly likely. They are things nonetheless that could happen, but they haven't happened yet. So vibes are good, which is why you get really, really stupid things happening in markets. Now, here's a stupid thing, Rob. You quite often have incorrect views about footwear. However, please tell us about a. Please tell us about a company called Allbirds, which I'm not familiar with.
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C
So Allbirds made some kind of hippie sneaker made out of wool or hemp or something like that. I don't know. It's a shoe. They were quite a hit for a while, and then it all went wrong and the stock collapsed.
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B
So. Have you ever worn these trains? Do you approve of them stylistically?
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C
I've never worn them. I've heard our colleague Robin Wigglesworth likes an all bird.
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B
Oh, they must be dreadful then.
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C
Okay, so this explains why the trend came crashing to an end.
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B
If you know Robin Mickletsworth, you'll know what I'm talking about.
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C
Everything Robin wears is doomed to die. We shouldn't be. He's going to get his own podcast soon, which we should talk about at some point so he'll have his revenge on us for saying this. That's fine. In any case, that. That all goes terribly wrong. The stock crashes a few weeks ago. I mean, they haven't even, you know, reported any financials since the third quarter of last year when the finally they were burning cash at a historic.
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B
Yeah, and the stock is down like 99% or was down 99% from when it listed.
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C
And then they sold all the assets. They're like, we're doing an asset sale. We sell the brand to somebody else we're sending, selling the inventories. I should know, but I don't know what's happening. They have long term liabilities, lease commitments, long term debt or whatever. So it's like this shell with some liabilities in it. The assets and a few of the short term liabilities have been sold off. It's this shell. And then drum roll please.
- [06:52]
B
Well, then let me tell you the statement they put out yesterday. They said, we are pivoting and I quote, to AI compute infrastructure with a long term vision to become a fully integrated GPU as a service and AI native cloud solutions provider. What manner of nonsense is this?
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C
They did fill up the whole bullshit bingo playing card in like one sentence there. They win the prize at the church raffle after that.
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B
Yeah, they're changing the name to Newbird AI. Now you, Robert Armstrong, hear this and I, Katie Martin, hear this and think this sounds ridiculous. However, the stock market goes hooray. AI sounds fantastic. So the stock closed 600% higher on Wednesday as a result of this, whatever this is.
- [07:47]
C
What is the market? Do we have the market cap in front of us of this monstrosity? It's 100 million plus, I think. And the point is, you know, as of a couple of days ago, this was a corporate shell with negative value as far as I can tell. In other words, it had some liabilities and basically no assets selling trainers that
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B
not even Robin Wigglesworth buys anymore.
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C
And basically, you know, if you read down in that announcement, you just quoted the ridiculous part from, they're like, we have $50 million of financing to start being a GPU as a service AI dingbat machine, right? So now it's like just a big box full of these liabilities and it's worth $100 million now. So what's going on here, Katie? Give me a hypothesis.
- [08:37]
B
I tell you what's going on here. We have seen this movie before. So when you have like stupid speculative nonsense, frenzies about nothing, people like companies that are basically like, have basically failed or have shrunk dramatically for whatever reason, stick a word on the end of their name and hey presto, their Stock goes up 600% in the day. So for a little while people were just like randomly adding the word blockchain to their company name or randomly adding the word crypto to their company name. And just because the world is stupid, that is enough to send the shares up very dramatically in the very short term. So.
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C
But Katie, Katie, Katie, Katie. I just don't think we live in that world anymore, right? Despite what the, what the S&P 500 has done, it's not been tech that has been leading the S&P 500 higher. Really. I mean it's been a tech has been okay and it's had a recovery, but we're not in like bonkers everything. AI is magic time anymore, you know.
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B
Well, allow me to tell you another AI thing then. In that case, I read here from the Starbucks website, meet the beta Starbucks app in ChatGPT, a new way to discover your next favorite drink. So if you can't, if you literally cannot decide what to drink in a Starbucks, which is a situation I can't really empathize with on any level, you can ask AI. And the example that it comes up with from a query saying, what should I try today? Is an iced brown sugar oat milk shaken espresso. I mean, is this what this technology is for?
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C
It's artificial stupidity? Katie, here's the thesis though. I don't think anyone who is bidding up the stock of Allbird, AI, Blockchain,
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B
Wing nut, whatever it's called now, Oat milk shaken espresso.
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C
Oat milk shaken espresso. I don't think anyone involved is like, oh hooray, they're gonna make loads of money doing AI now in other words, I think this is, I think this is a completely self contained game among speculative traders where it's like this, you know, they make this announcement and people are like, oh, this is a funny thing to trade or like this will get a little bounce somebody and then, you know, it's self perpetuating momentum and then it's like a fun game of chicken among speculative traders where they chase the momentum up and it's like who's going to get out first and whatever. I just cannot believe, despite the existence of an AI tool that helps you pick your coffee, which suggests that terrible things about humanity, I just don't believe anyone is this dumb. I don't believe there is one single person, one single trader in the entire world who is buying this story. I don't believe it.
- [11:34]
B
I'm old enough to remember when markets were very serious and very serious things happen there all the time. And now there's just like a whole window of like regulated financial markets that's opened up to this sort of just bullshit and it's annoying, but I think
- [11:48]
C
it's, it's the bullshit has become self aware. Is the argument that I'm making to you, Katie, that no one actually buys the story, right? It's a trading event, you know, the markets are exuberant, people have high risk appetites. There is a community of people somewhere out there that wants to have fun trading this little wave. But they don't think that Allbirds AI is gonna like be competing with OpenAI and Anthropic anytime soon.
- [12:18]
B
Let's move on from frivolous nonsense to something more serious. Which is the thing that you were writing about in the unhedged newsletter today, which is about like, and it is quite an important question, isn't it? What is AI worth? So there's a lot of, there's a, there's a handful of stocks that are out there that are like super important to the AI ecosystem and they're holding up a lot of sky in financial markets. Holding up like a large portion of the value of like US stock markets and global stock markets. And part of the idea behind that is that these companies are going to be able to charge good money for this AI, but we don't know that that's a thing. Right?
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C
Let me reframe your question slightly, Katie. I would say the question is there is consensus that AI is going to be very valuable indeed. It is going to be worth a lot. The question is who captures the value? So the example you might give is airlines. Airlines are incredible companies in terms of generating value for the world. Like we get to go to France whenever we want, right? We can fly to Japan. It's like world changing industry. But we've all captured the value. The companies as businesses stink, right? You know, because of the competitive situation,
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B
like the problem airline prs. Please email Robert Armstrong.
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C
But like, the problem with the airlines is like any dingbat with a few hundred millions of dollars can start an airline, right? And that means.
- [13:58]
B
Knock yourself out, Rob.
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C
Yeah, sure. All I need is, I mean, you know, this is like the oldest joke in finance, but, you know, how do you make a million dollars in the airline business? You start with $2 million, you know.
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B
Yeah.
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C
The question is, is the competitive AI more like, I don't know, the software industry, which has been brilliantly profitable and created a lot, created a lot of value and captured a lot of it for itself, or is it like the airlines that have created an immense amount of value and we got all of it Right? That question boils down to, is a brilliant AI model A different from the next AI model down the block? And part B is, can you keep them proprietary? Once somebody has found out a brilliant one, can somebody else copy it really easily? Right. And so if everybody's AI model is the same, all it is is a matter of computing power. And these companies, like the big mag7 companies, Google, Microsoft, Amazon, Method, then the private ones, OpenAI and Anthropic, all they're going to have done is built really big computers, right? Really big, like places where there's metal and there's, there's GPUs and there's cables and whatever. And that's a business, Right? Selling computer power is a business, but it's going to be a business with modest returns, Right. It's going to be like running a utility. And like the money that's going in to this business right now does not expect utility like returns. So, so that is the question. Are AI models differentiated and can they be kept proprietary? If there's anyone in the audience who's smart enough to answer this question, please write us@unhedgedt.com I unfortunately am not smart enough to answer this question, only smart enough to raise it.
- [16:03]
B
Because. Yeah, you know, as you were writing in your, in your newsletter, if this stuff is actually a commodity, right, and it's like water or worse, it's like air, energy, there's like a whole heap of money that's been thrown at the wrong thing. That is a problem for financial markets, right?
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C
Well, again, it depends what you mean by wrong thing. I don't, I never know how you pronounce this guy's name, and I'm going to mangle it, but Dario Amadei, am I saying his name correctly?
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B
I believe so.
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C
He's the chief executive of Anthropic and he's a very interesting guy and he Gets anthropic.
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B
I think that's the thing you're promising wrong.
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C
It's amazing. They let me come on a podcast in any case. You know, he has this thing like, you know, he thinks in three or four years, a data center, his term is going to be like a country full of geniuses. Like, this guy really believes, like, there's not going to be disease anymore. We're going to, like, cancer is gone, you know, because we're going to have. The data centers are going to be so much smarter than us. The AI models are going to be so much smarter than us. They're going to be like, curing cancer, nuclear, nuclear fusion, energy, teleportation, everything, right? And if that happens, the economy is gonna get a lot bigger, Right? Things are gonna be good.
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B
So we're going to somehow leap from telling otherwise normal people to drink iced brown sugar, oat milk shaken espresso to curing cancer. Right.
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C
I mean, so all I'm saying is if artificial intelligence allows us to make incredible scientific progress, that is going to be very good and valuable. And we will be glad that Google and Microsoft and OpenAI and Oracle and everybody else invested billions in these data centers. However, who will not be glad about that is the shareholders in the companies that did the investing. Because if it's commoditized, their returns will be terrible. And we'll all be glad that these things were built. But, you know, the investors won't be rich. There's plenty of examples exactly like this in the history of capitalism. So, like, basically everyone who invested in the opening round of railroads went bust, right? And it was the second round investors who made the big money who, like, built businesses on the rubble, right? And it's great for the world that those railroads got built. It was just terrible for investors.
- [18:38]
B
Do you know, one thing that I do take some comfort in is, like, the past six weeks or so, it's been war, war, war, war, war, oil, oil, oil. You know, the only thing we've been able to think about is Iran. And now it's like, oh, we're back to talking about whether AI is a bubble. Nature is healing. Yeah, we're back to.
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C
It is so much nicer.
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B
It's so much nicer. And to be clear, the war could definitely get worse. And then we'll flip back to talking about that. But in the meantime, we're going to be back in just.
- [19:15]
C
Bull or bear trade or tariff future or fad. There's more than one side to every story. With the flip side podcast from Barclays investment bank. You'll hear two research analysts having a provocative debate on hot topics in business and markets. Listen to the flip side on your favorite platform.
- [19:35]
B
Okie doke. It is time for Long Short, that part of the show where we go long a thing we love or short a thing we hate. Rob what you saying?
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C
Katie I am Long the Strait of Vermouth. I don't know if you heard this yesterday, but our Treasury Secretary, Scott Besant, was talking about the war and its economic implications and he misspoke talking about the crucial waterway and called it the Strait of Vermouth. And what I'm advocating here today is that we actually change the name to the Strait of Vermouth. Remember earlier in this presidency, we changed the name of the Gulf of Mexico to the Gulf of America.
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B
This is correct.
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C
Why can't we change the Strait to the Strait of Vermouth and like put huge olives in it and like pump gin through it as well?
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B
He must have been great about martini time. I'm here for him.
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C
I would be too if I had his job. I'm never going to call it anything else ever again, by the way, on this show, everywhere else.
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B
He also mused out loud about what the hit to global GDP would be if London was hit by a nuclear rocket, which I think is a strange.
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C
I think he was trying to imply that it would be bad in his defense.
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B
Yeah, it's a strange thing to say out loud, isn't it?
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C
Yeah.
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B
Anyway, I am Long Kebabs There are new rules in the UK banning ads for junk food online and and on times on TV when kids are awake. So apparently the regulator's already banning online promotions for pastries, but it has allowed ads for kebabs because they are not less healthy.
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C
I do love a kebab. Yeah, I do.
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B
So Long kebabs and vermouth. It's a winning combination. Hopefully it will get you all through the weekend listeners. We will be back in your ears on Tuesday. So listen up then. Unhedged is produced by Jake Harper and edited by Bryant Urstadt. Our executive producer is Jacob Goldstein. We had additional help from Topher Forehead. Cheryl Brumley is the FT's global head of Audio. Special thanks to Laura Clark, Alastair Mackey, Greta Cohn and Natalie Sadler. FT Premium subscribers can get the Unhedged newsletter for free and a 30 day free trial is available to everyone else. Just go to ft.com unhedgedoffer I'm Katie Martin. Thanks for listening.
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C
Hang on. I think I've got pretty decent taste in shoes.