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#FinanceDaily: Debt Ceiling | Google I/O | EU’s New AI Regulations
Recorded: May 15, 2023 Duration: 1:55:11Space Recording
Short Summary
The discussion highlights Google's advancements in AI technology, including the release of Bard and Palm 2, which demonstrate significant innovations and trends in AI integration. Additionally, there is a noted shift in user preferences towards Microsoft products due to AI advancements, and an increase in investment in cryptocurrencies like Bitcoin and Ethereum suggests growth potential in the crypto market.
Full Transcription
Okay, checking echo.
I'll go ahead and leave my channel open.
Go ahead and do it again.
Check and echo.
Hey.
Oh, go ahead and leave it open a little bit more,
and I'll cross talk with you.
Check, check, check, check.
Yeah, pretty good.
All right.
All right.
Finally.
Jesus.
Actually, it was interesting.
There was a spaces where the head of spaces,
like the head engineer of spaces on there,
and she said that,
That is largely driven by the number of people there on stage.
That's really because there's like a feedback elimination tool.
It's like the same software.
Well, it's not the same software.
I don't know.
But it's like Zoom uses similar software, I should say.
Because, you know, you're talking when you're talking on Zoom, you're talking into a mic.
And there are speakers that are feeding back into that mic.
So I think they have software that controls that.
Same stuff here, but apparently it's just not working as well.
So when you get more people, the software slows down.
I wonder if they're processing that server side or something.
This might not make any sense.
It just has to do with stability.
That's what she was saying, that ultimately it's the fact that
The number of people that are on stage affects the stability of those tools, of all tools.
So everything from the chances of it going busts completely.
She's like, you know, if someone's not speaking, you got to take them off stage.
And I was like, or you guys can fix your fucking stability issues.
Like, it's not that complicated.
Like, because it's interesting.
One of the things that they've done that Clubhouse never was able to do.
is that they've been able to get millions of people in a room and it still works.
So one to many is working pretty well.
But many to many they're struggling with, which is a fascinating sort of technological challenge.
And I'm just not sure if some of the things that they've done to enable all these thousands of people that join our rooms,
which, by the way, you couldn't do easily on Clubhouse at all.
Yeah.
And so the truth of the matter is that I do really wonder if they're like giving up, you know, there's like a tradeoff here technologically, but...
Well, I also add, you know, like, you know, things like Fortnite and the arch chat, these things that use VVox, which is like a game tool, can have way more than like 30 to 50 speakers at a time.
And still, you know, they have like other issues with visual fidelity and frame rate, but voice chat, multiple voice chat doesn't seem to be an issue there.
I mean, I'm sure there's some technical reason for it, but I do find that surprising as well.
Aren't you required to have a headset for those things, though?
Yeah, but VVox is, well, I'm saying VR chat, yes, you need a headset, but Fortnite you don't, right?
So, Fortnite, they both use VVox, which is like a thing that a lot of games use to do voice, like multiple voice, and you can get, you know, 30 people in a room.
And voice is usually pretty stable.
It's usually like the frame rates and other things that are not.
So just checking in a different space, can you guys hear me?
and i can't use the word space anymore which is annoying but how's the audio can someone else
speak want to make sure no echoes all right cool no echoes no echoes no echoes there we go that's
fucking crazy you said we can't use the word space anymore well because it keeps getting confusing
are am i talking about twitter spaces or am i talking about
about my own personal space.
Oh, seriously? Okay.
Yeah, confusing, confusing.
All right, we have a lot to go through this morning.
There's a lot of information this week.
I couldn't even get retail earnings up there.
There's like that much going on this week.
So just wanted to frame what's been, you know, what's been happening.
So as many know, everybody up here knows,
but people that are listening may or may not know
if they're not watching the markets closely.
And before I get started, just a reminder,
for people that are listening,
If you have questions, put them in the comments on the bottom right.
It's really important that if you don't understand something and you ask us, we will explain it up here.
Our team reviews all the comments on the back end.
And if it's a question that, you know, we think is critical to continuing on here, we'll either bring you up or just bring your question up and then answer it.
And so go in the comments on the bottom right.
You'll see a little bubble.
It's got...
you know, like a little chat thing on it.
And if you hit that on the bottom right, you'll be able to ask questions and our team does review it.
And for everybody that's up on stage, remember that our audience, while being the best-looking audience on spaces, is actually sometimes does not know everything that we all know.
So we have to use, we have to like try to explain the things that we're explaining that we're talking about.
So, yeah.
To remind everybody what has been going on, the market has been in a malaise.
The market had, you know, two straight weeks.
Dow Jones and SMP 500 have been down.
There's been a ton of data that's come out about the health of the economy.
We've had a new inflation print.
We have had these debt ceiling talks in Washington.
Janet Yellen has been on TV.
before this weekend has been on TV, you know, yelling fire, that, hey, that's theling is this big issue.
And overall consumer sentiment and consumer strength has been perplexing.
Employer sentiment versus actual employer actions have been contradictory.
And what I mean by that is the consumer is their credit cards are rising, but yet their activity has remained similar, at least based on earnings.
to date, employment numbers are confusing because we're seeing that the employers are struggling
more and more, but it's not translating into unemployment numbers yet, I would say.
But still, you know, kind of interesting.
And now this week, everything comes to a head.
My opinion is that this is going to be a very important week.
And the reason why we're starting with debt ceiling is because the debt ceiling numbers are quite interesting at this point.
So, you know, I know that everybody else pretty much on stage is not concerned about debt ceiling.
Like, it's like less than a 5% concern for everybody.
I think the most concerning thing ever about the debt ceiling happened this weekend, which is that
Jenet Yellen came up on the Sunday news shows and said, oh, I think we're going to figure it out.
And that is the most scary thing because what has happened recently whenever someone says that
they're going to figure it out, it doesn't get figured out.
And so, you know, wanted to start there.
And, you know,
If people can kind of give context of what the market is thinking about the debt ceiling, I think it'll be really helpful.
You know, I saw that the insurance costs for treasuries has gone up.
You know, Caleb, can you give us a sense of what the market sentiment is about the debt ceiling?
I'll keep my comments on this super brief because to be quite honest, the debt ceiling is not really factoring too much at all into my overall outlook of market dynamics, simply because political showmanship is always a factor in the markets.
And historically, debt ceilings always get pushed forward.
I've kind of been a little bit facetious saying that the debt ceiling should actually be renamed as the debt floor because it always gets raised.
It always gets exceeded.
And so calling it a debt ceiling fundamentally is a bit ironic.
So I think one of the things that I've kind of been paying attention to with respect to the debt ceiling that I could maybe add some value to for the listeners on this call is, you know, I'm always very, very focused on what the Treasury market is trying to tell me.
And when I look at the one month and the three month treasury yield as high as they are, especially relative to even the one year and the two year treasury yields, to me, this really does kind of highlight a couple of things. First and foremost is that the treasury market is still pricing in fairly tight monetary policy over the next one, three, and six months.
But it's also seeing this kind of enhanced short-term risk with respect to the government paying off lenders.
And so with all of the risk around what's going to happen with the debt ceiling, when I have my great aunt calling me, asking me if her bond portfolio is going to be okay.
I pretty much know that, you know, again, it's all just a lot of political showmanship.
And so I'm trying to see here really quick.
The last time I checked the three-month yield was right at like 5.21%.
Yep, that's exactly what I'm seeing this morning.
And the one-month treasury yield right now is at 5.66, right?
And so what that means is on an annualized basis,
if you lend your money to the government for one month,
you're expected to generate an annualized return of 5.66%.
And that's significantly higher than even what the three-month treasury yield is at,
like I just said, 5.21, right?
So we basically have this 0.45 basis point spread.
excuse me, 45 basis point spread between the one month and the three month treasury yield.
This is very indicative of these short term risks, right?
So I'm not going to pretend to be smarter than the bond market.
And the bond market is seeing an elevated risk on a short term basis.
And so that's where I'm going to keep a lot of my focus.
I'm not really going to listen to what Janet Yellen has to say because I think you appropriately mentioned that, you know, when these people come out and say, everything is going to be fine.
Right.
You know, we've seen a lot of stuff over the course of the last 12 months that has shown that everything is not necessarily fine.
Right.
I think even this last weekend was like the one-year anniversary of,
of the Terra Luna collapse, right?
And so, you know, we can all recall Doe Kwan coming out and saying steady lads, deploying more capital, how did that work out?
Right? So, you know, to your point, these kind of talking heads coming out and reassuring everyone,
whether they're CEOs or government bureaucrats or crypto CEOs, has not necessarily been a good sign.
So, again, I'll be very focused on what the bond mark is telling me.
And I'll be particularly keen to be looking at the one month and the three-month treasury yields.
Thanks, Caleb. Does anybody think that Caleb may be incorrect about thinking that the debt ceiling issue will not be as much of an issue? And again, just to be very clear, I'm taking a very non-n nuanced take on what he said. He was very clear in the fact that, you know, he's watching it very closely. The bond market's clearly pricing in some short-term...
hurt but but in the long run it's just showmanship does anybody think that this could kind of get worse
before it gets better in terms of actually getting a downgrade or the the country not getting a
shit together i did post in the nest how the market seemed to agree with caleb they don't really
the stock futures rose from those comments
Yeah.
Do we have complete, go ahead.
I think the can will continue to be kicked down the road,
and that's just inevitable in the United States.
Yeah, Mish, what do you think?
I tend to agree with that, but I thought we have, if you really wanted to understand more in terms of risk on offer neutral, we do a lot of research over the weekend on these relationships, and that's what the market's all about right now, obviously, is relationships.
So I thought if you wanted, I could give you some ideas of the key risk on, key risk off, and the key risk neutral factors to keep an eye on this week.
And there's a couple that are really interesting to me.
For one, is the new high, new low ratio last week improved off of its lowest levels that we had in March.
So that's a risk on, right?
Yeah.
the volatility ratio remained positive.
Sentiment readings in the small caps also stacked positively.
And the Russell had been the weakest index for 2023,
and now is actually showing some signs of improvement.
And remember last week, we talked so much.
about that trading range,
and particularly at the bottom of the trading range
in the small caps, is right here at 167 to 170,
and we're holding it.
So those are the major positives in terms of the actual internals.
As far as the risk off, the markets were completely sideways,
and so that made the internals weaken marginally
and remain in a negative mode.
and that the S&P new high, new low ratio gave a mixed reading.
So there's a lot of mixed things going on.
The three out of the six people, people, I call them people because they're, you know,
they're my economic modern family, but three out of the six of the economic modern family
went more into, out of bullish phases,
But KRE, right, the banks, which we talked about, which I actually got a little bit of, not from you guys, but from other places where I've talked that it possibly bottomed, actually right now remains in a bottoming formation.
So that's possibly a good thing, not a risk off.
But things are copper and oil broke down and the dollar improved.
Those technically are risk off situations.
Now more neutral, and this is what I'm interested in because it supports a trading range,
is that three of the four years had inside weeks.
So that means that from the week before to last week, the range was inside of it.
That's a giant pause.
And volume was kind of neutral.
Consumer discretionary actually gained a little bit.
And so if you keep looking at all these different things, basically, another thing that was more neutral is that the foreign equities gave up a little bit of the leadership that it was having versus the U.S. equities.
And the inflation numbers, of course, that we saw last week.
This is more neutral.
put gold into kind of a flatline week.
So here we are, coming into this week.
And what has changed?
Really, not that much.
So I would necessarily conclude at this point
that the debt ceiling is something
we can just sort of totally forget about,
but I wouldn't also...
that the debt ceiling is going to kill the market.
And I think that we just have to look at it for what it is right now, which is, I mean, my God,
have you heard me say this enough now?
In a trading range, dodging bullets, there's buyers out there, obviously, or we would see much lower levels.
And this week, we have, as you mentioned before, Dr. D, we have big retail earnings coming out.
We have tons of Fed speak.
My God, those people never shut off.
And on top of that, we have a situation now where the market is right now more innocent than guilty in terms of proving that it can hold up at these lower levels, these lower trading range levels.
And that's kind of what I have to add at this point.
Yeah. Thanks, Mesh. I appreciate that.
You missed the key part, though. This is the blank, blank economy.
The one blank?
You know, I wanted to get some thoughts from Nancy because I think Nancy is more in my camp, which is we're worried about, and Nancy, please correct me, but we're worried a little bit more about the debt default issue or at least taking it to the brink.
This feels a lot more like 2011 than all the other times.
Nancy, do you agree?
I definitely agree.
Good morning.
I do agree with Bish's great summary of all the market prices.
You can't really ignore market prices.
You have to believe them.
I will say that.
the volatility markets are saying there's nothing to worry about. And that to me, when everybody's
not worried about something, that's when I start to worry. I do think there is, there's been a lot of
money that has flowed out of regional banks into money market funds. That has been the flight of capital.
And I think the problem is, is that if we do hit,
the debt ceiling. I'm not saying that the U.S. is going to default completely on their debts,
but we could have a delay of payments, specifically a delay in paying T bills. And that will have
immediate ramifications on money market funds and could cause, you know, if nobody takes their
money out, no problem. But if we have another sort of like headlines,
commentary even people like me maybe I shouldn't mention it and keep quiet but like money market funds can
absolutely break the buck and if they have a lot of redemptions coming out and they have to sell
assets especially T bills that have fallen in value because we did hit the debt ceiling that's when
you could get all that stuff that we were hearing about in 2008 about money market fund risk so
I do agree that the markets are really complacent they're not worried about it they don't
see it as a, you know, big event at all. But to me, that's when you have to be thinking about
these things a little bit more. I think also the political environment. I'm not a political
science person. You know, I'm just a portfolio manager, but I do see like both sides of the table are kind of
incentivized to not get something done within their own parties. It's definitely seems like compromise
is not something that is a favorite word. And I am very concerned. I do think specifically the money
market funds could have a break the buck moment if people get worried about
you know, who will the Treasury pay?
What will be the scale that they pay?
Who do they pay first?
Who doesn't get paid?
And how long of a delay will be if there is a delay?
So that's my two cents.
You know, interestingly, the head, go ahead, Eugene.
Go ahead.
I was going to ask, Nancy, do you actually think, and I'm curious,
this is earnest question,
do you think that there's a real risk at all that the U.S. will not pay
its debt, i.e. will not pay principal or interest payments on treasuries.
And like, how would that look like?
Well, not pay is, I don't think, on the table. I do think the U.S. will pay its debt. I don't think it will default. I think the question is we could have a technical default if there's a delay in the payments. I don't know. We haven't had this happen yet, but we are definitely running out of money very quickly. We have a lot of spending. We have a lot of
Interest coverage.
Fact-checked me on this stat, but I read somewhere recently that the U.S. debt costs more now to service than the entire, every single branch of the military, including the Coast Guard.
That's correct.
That's true.
That's crazy.
And a lot of those bonds are not even...
you know, policy rates of five to five 25 right now is the policy rate. So a lot of those
bonds haven't even had the higher interest rate. So I do think there is a risk that I don't know
what would happen, but there's going to be have to have some kind of like prioritization about
who gets paid and who doesn't get paid. The problem with the debt ceiling is there's not going
to be enough money for everybody to get paid. So,
Yeah, I think it's a risk.
And I think the interesting thing in 2011, the last time this happened,
interest rates were at the zero bound.
We were having a European crisis, if you remember,
with the pigs in Europe and specifically Greece.
Then we had a couple U.S. firms that were having some real credit risk.
Right now, it's the opposite.
Nobody seems really...
concern to Mitch's point.
Markets are pretty like all is fine, all as well, but that to me is exactly...
It makes no sense, Nancy.
That's when you get worried.
No sense.
It's as if the market is just...
And this is what's concerning.
I agree with you that ultimately, especially when you look at...
you know, equity volatility seems to be super low.
Bond volatility, Nancy, please correct me, but it seems like it's going higher and higher.
Is that correct?
There's been a discrepancy, correct?
Between the bond markets and volatility and the equity markets.
So maybe I'll split it up in bond volatility.
Some people look at the move index, which is bond volatility.
So that's an option on a listed treasury future.
But that's not the really big market.
Like most people don't trade when they trade optionality, they don't go trade, oh, let me go trade a treasury future.
The treasury market is super tiny compared to the swaps market.
So the bigger market is the rate volatility market, the interest rate vault market.
Sometimes they're called swapsions.
That market is ginormous and volatility is actually lower now than it was at the start of 2023.
So Val has fallen this year.
Vol has moved up.
If you look at over the last three years, five years, Vol is higher.
in fixed income that it is in equities.
But I think that makes a lot of sense
because we have this, you know,
crazy thing going on called
quantitative tightening and hiking interest rates.
And that makes more...
And also...
That makes more prior to the financial crisis before QE started, most investors would buy rate volatility to hedge the prepayment risk embedded in mortgages.
It was sometimes called negative convexity hedging.
basically a U.S. homeowner is long the option to prepay and the owner of the financial mortgage is short options to homeowners.
So it's just normal course of business to buy rate volatility, not bond ball, but rate ball, U.S. interest rate ball.
Now the Fed owns a third of their, you know, call it, it's a little under $8 trillion, but it's barely...
barely budged. It's a ginormous balance sheet. A third of it is mortgages and prepayments are down
quite a bit because homeowners are rational and they're not going to, if you have a two or three
percent mortgage, why would you move or prepay right now? And that's part of the issue with the housing
market and the scarcity of the
of listings right now, but not to go down a rabbit hole. I do think rate volatility is very
surprising to me that it's lower in 2023 with the
regional bank blowups with the debt ceiling on the horizon, it's just shocking to me. I don't think it's
equity vol that, you know, equity vol might all vol tends to go higher together. So they all tend to go,
you know, similar correlations when there's a risk off event. But I really do think interest rate
is the thing that I've kind of scratched my head. And I'm like, how in the world
Can that be lower with QT on the table, the debt ceiling, people coming back and hedging their mortgages again by buying VAL?
What is going on?
And I think it comes down to one thing in the fixed income market.
There's...
carry. That's all people care about. And when you have equities rallying, the people on the fixed
income side of the table, they can't buy equities. So what do they buy? They buy equity like things,
which include selling ball. Makes sense. That was a, that was super helpful. Neely.
You know, I think I'm coming into this week a little calmer on the debt ceiling dynamic.
I've been following a handful of accounts here on Twitter, some really good accounts out there that are just true experts.
Literally watching the P's and the Q's, as it were, on what's going on the Treasury statement, the TGA, which is data we've been following for decades too.
But, I mean, they're taking it to the next level.
And...
It just seems to me that there's just the preponderance of historical evidence that would suggest that if you've raised the debt ceiling or suspended it 78 times since 1960, chances are pretty good.
You know, there's been a lot of political regimes since 1960 as well.
I think I'm just in the camp that's, they're going to do it.
Will it be done with drama at the very end?
Yeah, probably.
But, you know.
History should at least give us some comfort that, you know, we will probably not default on our debt.
Let's just say that we get to the place where we do need to have a temporary shutdown or a furlough shutdown in the government, the federal government.
We actually have a document that talks about what happens when that happens to the federal government.
I put it up in the nest because I made deep study of it over the weekend.
Fun fact, Congress still gets paid because constitutionally they are required to govern.
A lot of congressional representatives will actually, you know, put up there like, we won't, we won't accept payment.
You know, they try to like make it cool, but they do, they are required by law to still basically get paid.
Their staff, however.
Of course, I know.
If they make the law.
Yeah.
Since they make the laws, they get paid.
Keep going.
Their staff, however, does not necessarily get paid.
So this is where it gets really tense in the offices.
That's fucking, fucking...
Yeah, right.
Come on.
That is funny.
No, it is.
And we just admit how ridiculous this is.
So I think that's where these things probably come to a halt real fast is because these congressional representatives realize you really can't do their job without their staff.
So, and you're not required, you're not allowed.
I mean, actually, I went into the opportunity.
of personnel management, which is essentially the HR office
of the federal government.
And I read their procedure documents.
Like you're not allowed to work voluntarily.
You're not allowed to, like you have to be gone.
You have to be offsite.
You can't be emailing.
I mean, it's extremely prescriptive.
So I think the reason why we avoid shutdown, and we've done so 78 times since 1960,
is because we can't function.
We simply can't function.
And that's ultimately where both sides will come to an agreement.
It's just going to be a little bit drama bound before we get there.
I don't think it's going to be an issue.
What about the concern that we're going to have a change in our credit rating?
Anybody worried about that?
Yes? No.
Okay.
No one's...
A.K., go ahead.
What are your thoughts on the debt ceiling conversation?
Well, I mean, for me, I'm more so I come from the background of technical analysis,
and that kind of helps give me a picture on what's going on in the markets.
You know, for the last multiple years, I was able to kind of catch the tops of the markets
and catch certain bottoms based on certain catalysts and the fundamentals.
But mostly, you know, when you look at who's buying, who's selling, where positioning is, where hedge funds are at, and kind of the overall big picture, you're able to catch a lot of the moves and actually kind of pre-predict where the sentiment wants to go.
And, you know, we've been in a negative sentiment for the last, you know, two years, I would say a year and a half, two years since the tops have been put in.
And the Fed started to tightening up a lot more.
For me right now, you know, I'm seeing a lot of the sideways action for the last month or two.
A lot of traders are as well, you know, not much actions going on.
The VIX has been showing that, you know, we are, we're seeing less volatility go on as well.
But what I'd like to say is, you know, capitulation is around the corner.
I do see some more pain ahead.
I think the markets are kind of in their dying breaths right now in terms of the SMP and
where it's at.
You know, I saw a mention earlier about the bank index.
I think that's, you know, it is bottoming out, you know, short term here.
But I do think there's some more pain ahead to retest those low, low, the lows of COVID from March 2020.
uh so you know i think this week's going to be a little bit crucial i do see the markets heading down
this week i think there's a quite an important uh test to be made which is that 200 day moving
average that's historic uh you know we've been breaking above it and kind of uh hitting a resistance
at around uh 4100 on the s mp we're for you know 420 or say as you want to call it so i'd watch for
these key areas uh
personally, you know, on a personal level, just as an entertainment value, you know, I am,
I am net short on the market. I have been for the last multiple, about a year, year and a half.
And, you know, it's paid off. It's paid off because we've been able to get lows and lows and
lows. And, you know, there's some buying that comes in, some good sentiment that moves in.
But the overall is, I believe, capitulation and a downward move.
So we are yet to stand to see what will happen.
But I like to look at the technical aspect as opposed to the fundamental.
It gives you a real bit of a reading and kind of a predictability factor so that when you do look at the headlines and when you do look at what's actually being set out there, and that could be wrong, it kind of prepares you, my opinion.
Yeah, Mish, do you agree on AK's overall market sentiment?
Well, I think you would have to be kind of blind if you didn't see the risk involvement.
But what's so exciting to me right now is that we have real numbers.
How often can you say that if this happens, then this is going to happen with some level of confidence like what we're seeing right now?
So let me give you an example of that.
So we talked about bonds.
You guys talked about bonds a little bit.
And I will say that we've talked about this more last week, which was the relationships between the bonds.
That's more key, the ratios, than the actual bond performance.
So if you look at the junk bonds, you know, I love looking at those versus the long bonds.
That ratio actually is more neutral right now.
And again, looking at numbers, if you look at YG,
it has to hold last week's low, in my opinion, to stay in the game, to keep me really feeling
more positive than negative. So that's extremely important to keep your eyes on. And the TLTs have
come down where they look like they were going to break out last week. They've
come back down, whereas the junk bonds kind of stayed in this range. So that's so important.
If we start to see the long bonds outperforming the junk bonds and the junk bonds breaking down and
looking at YG under last week's low warning. Number two that I think is so, so interesting here is
with all the retail earnings coming up,
The retail sector as measured through what I like to use, the ETF.
XRT is hanging on for dear life.
Another really big number, 60 in XRT is so important.
I mean, I have these numbers like in front of me, like ingramed into my brain.
We cannot hold 60.
Fair warning.
We can get through 62.
Right.
better. If we take a look at some of the stronger sectors of the, that I think are really key,
transportation actually is holding in a bullish phase on a weekly basis. So that has to hold up.
IYT has to hold around this 222, 24 level this week. And then the strongest sector, of course,
that we've got would be the semiconductors, right?
And that too is sitting right on a precipice now that it had it split at around 122 to 124.
So in terms of the equities market,
I certainly think you have to be open-minded.
So I'm not going to say it's definitely negative at this point or it's definitely positive at this point, but it's definitely very clear on the numbers and the relationships.
Now, one thing nobody's talked about yet that I love to talk about, of course, is inflation, right?
Right.
So what's so interesting.
Actually, Mish, that's what I was going to go into really quickly.
I'm sorry.
Bostick just came out.
So I wanted to make sure I mentioned that before.
And I'll go back to you, I promise.
The Bostick, Fed's Bostick just came out, Atlanta Fed President Rafael Bostick.
He said that he does not foresee cuts at least through 2023, even if a widely forecasted recession hits.
He said that there's if there's going to be a bias to action, it would be to increase a little further as opposed to cutting.
Mish, I just wanted to say that because I know that what you were about to say, I have a feeling at least.
You never know what Mish is about to say, but I have a feeling that I know what you were about to say.
And so I wanted to give it back to you in context of Bostick just coming out and saying,
and I don't know what the bond markets are doing on this, but I'm assuming there's some reaction.
But Mish, go ahead.
Yeah, I don't really, I have to say, talk about not really paying attention to the individual Fed speakers.
I don't really pay, give that much fine. I'm much more interested in what Powell has to say when he comes out and says something. I find these people jawbone constantly. I just, it's, it's almost like all I hear is blah, blah, blah, blah, blah. I mean, really, that's what I hear when I listen to these fed people. Because there's a, because they've never really been, I shouldn't say never, but
But they really haven't been right in so long that I think that they're trying to save face at this point.
But anyway, but in terms of inflation, he's not totally wrong in terms of being a little bit concerned because everybody you want to talk about complacent has gotten complacent that inflation is done.
But meanwhile, there is a...
A really nice graph that came out this morning.
Risk-adjusted returns in the rolling one-year sharp ratio.
Talk about ratios.
Right.
And yes, if you look at the commodities as an aggregate, they have fallen, and you're going to see that.
Energy has fallen, no doubt, but everything else has risen.
Okay, so you have agricultural reason.
Wheat at a 16-year low in terms of its crop production.
Industrial metals got a little bit better.
Livestock.
high coffee prices high so we still are not out of the woods and to me what was so
more even more important is that consumer sentiment towards inflation is actually
is actually higher than the market right now now why is that important
Because if consumers believe that inflation is going to stick around, then in terms of the whole discussion of wages and what companies are willing to pay is going to continue to be an issue.
And so to me, the debt ceiling and Bostic and what happens with the rates right now, we're more in the camp of pause as opposed to more raise.
But as far as the everything I've mentioned about the market and the relationships and the precariousness of how important, and I know you started out, Docs, by saying this week is extremely important, that I couldn't agree with you more.
We hold up this week.
You all can relax.
If we don't, then we're going to probably see some of the lower ends of the trading spectrum that we haven't seen in a while, and that's not going to be good.
But keep your eye on the inflation part too, because everybody all of a sudden has taken their eye off of that, like, okay, we're good.
And I don't not necessarily sure we're so good.
Yeah, Jeff, do you agree with Mish's assessment of the situation?
Yeah, I actually, good morning.
I agree with much of it.
First off, I mean, on the individual Fed speakers, I don't believe Bostick is voting, but someone can...
Correct me on that one. I believe that he previously was, but he's not anymore.
And yeah, they have to, like, they're programmed to jawbone until the day, like the hour that they're going to move on rates.
So, I mean, that's what they're going to do.
It's almost like, I think people are tuning them out.
I didn't see the markets move, by the way, since...
You know, he made those statements this morning.
So they're going to jawbone, including, I mean, even to some extent, Powell,
but he's definitely more measured.
But they're going to jawbone to the day or hour they move.
And if you look back at,
you know,
2021 November,
I don't believe that they even forecasted any rate hikes in 20,
22 and then,
you know,
come to do seven or eight of them,
you know,
in a row or that year.
So I just,
again,
they're going to,
they're going to jawbone until the day of the hour that they're,
they're going to,
you know,
pause eventually and then at some point,
cut.
But if you just look at the last three data points or so in the last,
week, you know, kind of rewinding backwards.
You know, jobless claims come in, you know, slightly high, but, you know, you know, it was the
highest number, I think, in over a year.
And then you had, you know, CPI relatively in line.
I agree that some of the core inflation is a bit sticky and like the deceleration is, like,
the deceleration is, is occurred a bit.
But again, if you remove that housing component, you know,
It's actually, and you kind of use a more real-time index for housing something like Kay Schiller.
It's actually, you know, it's not too bad.
And then, of course, PPI, the leading indicator came in cool.
You all know that.
So, again, you know, they're set up, they're set up for a pause.
But again, they're going to job on until the minute, you know, that they make that move.
It's interesting, Jeff. I'm not convinced that they're going to do a pause.
I know that they're sort of choreographing it, but I think it really comes down to the next CPI numbers and the PPI.
I think that there's a lot ahead.
And I think some of this might be driven by what's happening in the commercial real estate sector and real estate in general.
I know that we've seen, as many people have been watching this last week,
inventory is rising, which is fascinating.
And I think that a lot of people are watching how inventory rises across the country,
especially in certain cities, Miami being the biggest one.
There was a ton of hoopla about it late last week.
you know and so i wanted to really focus now uh was there any other comments on the debt ceiling
or inflation before we move forward i wanted to make sure that we talk a little i was just gonna
um to jeff's point i think it will be a last minute sort of rotation of fed speakers and you're
correct bostick is not a voting member this year he will be next year but the uh i i
The CPI number actually gets released.
It's just a reminder of the timeline, right?
CPI gets released the morning of the first day of the two-day meeting.
So, yeah, we're going to be obsessing about it until we get there.
Can I just pop in before I have to pop out?
Yes, Samantha. Go ahead.
Hey, good morning all.
Yeah, if anyone is interested, I have an interview that I did with Craig Shapiro last week for clients.
So there's no sales pitch in there.
It's just a hand-holding tour of what all the debt ceiling implies and its impact.
Right.
But kind of overarching isn't just the debt ceiling resolution, but the treasury issuance that
will come onto the market after that and trying to kind of trade around that. So even if I might
be bullish right now, it doesn't mean that there isn't a sentiment of, you know, by the rumor
of debt ceiling resolution, then sell the news. That happens oftentimes, right? So the same kind of thing
with that very kind of.
very well-known, you sell the last rate hike, right, traditionally.
Well, I have firmly believed that we are, this May was the last hike and then a pause and a
continued pause.
We did so for about 15 months in 2006.
there was a period in the 90s. I think we were like, I don't know, five years. But the point is,
I think they absolutely are in pause mode. And historically, that's also kind of sitting above
that 4.6% at their 500 basis points in the last year. So that's my baseline bet. But that doesn't,
you know, impact that ceiling. If things do go awry, they do have a little bit of room to cut. But I think right now the main issue
around this debt ceiling, the resolution, and then what happens with issuance after is just the confidence, right?
The possible default is making the world take notice of our desperate and, you know, deepening debt problems.
So yes, our interest payments are now more than the defense budget.
You know, this is a bigger issue also as the markets are flatlined. And I don't just mean the past five weeks being in the box, right? Dollar, yields, equities. It's very much, you know, stocks and bonds have very unattractive risk reward higher.
because there's a whole bunch of paid to wait, right?
That migration that happened long before the bank crisis back in September,
just that migration to 5% in T bills and money market funds.
So as we have this kind of slowing economic growth, global trade,
we do have some waning fed liquidity,
but overall this debt issuance that's coming in post debt ceiling resolution,
which most agree will happen at some point or get,
kicked down the road and then happen. But that is a, that's the biggest debate that I hear anyway
in the fixed income is, is it going to be, you know, pulling or pushing liquidity? And that's
really what makes the market go, right? So this is volatility suppressing. We stay in that gamma positive
zone, which helps stocks. We,
We maintain all these critical support levels that Mish is talking about across stocks and bonds.
And really, that's it.
You know, it's brace for impact if Bulls don't defend those key support areas while a lot of money has been migrated to paid to wait, right?
Just, just...
not risking default, the CDS spreads. You can see those very historically high, but also the
move index is also elevated and staying there, even high yield OAS spreads, which have basically
held up at the same level as the bank crisis. So the bond market is still
anxious. It's no question. Is this going to pull forward recession risk? How is it going to reprice
equity fundamentals with earnings expectations? Right now,
They're expected to push this forward.
But then we also have heads we lose, tails we lose,
which is either we get budget guts or we get more taxes.
Yeah, and I mean on the earnings conversation,
I know you've got to go soon.
So Samantha, I wanted to get your thoughts also on the retail.
You know, we know that retail sales are coming out Tuesday,
but then we also have earnings.
from Home Depot, Target, and Walmart this week.
Anything specific you're looking out for in terms of the consumer, in terms of retail?
It's bifurcated. I mean, I happen to also, you talk about real estate a lot. I happen to be a silent investor in a construction company in the Boston area. And of the 13 flips that we're doing right now, five are already under contract and they haven't even gone through the remodeling. And this is just a very, very flush market. There's still a lot of cash in the system. So it's basically tons of liquidity that's being used for leverage.
Still, that is the bigger issue of why the economic slowdown hasn't occurred.
There's still tons and tons of liquidity.
And then as it relates to speculating in the market, that's obviously been very, very firm.
And this, to me, is all about the market structure is all about gamma.
As long as we stay in positive gamma, in other words, it's volatility suppressing.
And those support levels hold...
All the narratives around that are very worrisome, but ultimately that's really where we need to see selling.
And then we have lots of good triggers for pressing short once we break those technical levels.
CTAs, for example, right?
They're price insensitive buyers and sellers.
They've got 222 billion to sell if we break support.
So there's a lot of incentive to watch those levels that Mish was kind of describing.
There's definitely a lot of concern in the elevated high yield and move and, you know,
credit default risk spreads because there is going to be a very large issuance after the debt ceiling is resolved.
But either way, we're still going to have higher taxes or budget cuts.
that will filter through into the economy.
So I think for right now, the parallel with July of 2011,
when we fell very sharply 10%, and then August 5th,
Fitch came in and downgraded the U.S.,
we fell another 10%.
We definitely have that risk rising.
I don't think it's a non-zero risk at all.
Agreed.
And that's why these indicators are maybe not vix of volatility,
but that's a different animal.
That's why they have stayed so elevated and why money has gone into paid to wait mode.
So I definitely think it does not pay to be complacent.
Agreed. Neely, I feel like you've raised me like 18 times.
We have some breaking economic news.
Oh, just cut in next time.
Go ahead,
Samantha.
Okay.
No, you should do that.
It's fine.
Right.
So the,
it's the Empire State Manufacturing data to the New York State Manufacturing.
It's a pretty big miss.
It just dropped on their business conditions for,
uh 43 points down to a level of minus 31.8 expectations i believe are like minus four minus five so um
That's a big drop. This is looking at kind of...
Neely, can you put it in context with the rest of us? What are we looking for here? What does it tell us about the overall state? It's business conditions. So like how are manufacturers right in that region and that area in New York State actually feeling? It's one of many different kind of business conditions indicators, but it's the first one we're getting this week.
What's also key- Neely, is there any point in which people might think that this is limited to the northeast or to New York or the coast right now?
Or do you think people do see it as a broad indicator of economic activity?
I don't think that anyone would think that this is just localized.
I mean, you one could possibly go down that path, but I think it's viewed as a general sentiment indicator.
And I think what's also, I have a bad feeling, Dawn.
I'm just giving everybody a heads up.
I think what's important is like when our data collected, right?
I mean, that's another key thing.
And the survey responses are collected between May 2 and May 9.
So that's the other thing that you're getting.
It's doesn't matter if it's localized.
It's recent.
And I think that's also what's key and critical about these indicators.
Yeah.
So what I was going to say was I'm just giving everybody a heads up.
My spidey senses are going off in general.
And I've had this feeling all morning that this week is going to be a pretty negative week.
I don't know why.
But it might just be because I internalize all the bad news I hear over the weekend.
But Samantha, you were going to weigh in?
Oh, no, just the U Michigan on Friday also another survey, but clearly points to elevated inflation expectations further out.
So they're not, you know, expecting this is more structural, you know, that's been my baseline bet for a few years.
But the point is that this is also now getting entrenched, right?
And that's one of the things that Powell warns about that they need to do, they need to act, they need to act or else this will be entrenched inflation.
It already is.
So the survey results, I think, are also kind of tougher than hard data, but they're still very indicative of that worry.
If I could chime in real quick on this topic, too, because the last time we got the Empire State manufacturing data, I think it was much better than expected.
And a couple of days later, we got the Philly Fed factory survey data, and that was a terrible, terrible report.
And so even in my newsletter, that was something that I focused on was this kind of divergence between...
you know, these two different reports, but, you know, the Philly Fed has been much, much more accurate, right?
And so we'll get that updated data again this week, but I think with the fact that now we're seeing a massive decline in the Empire State data,
my expectation would be that the Philly Fed data is going to be even worse than it was when we got it a couple of weeks ago.
And Caleb, would you be changing any aspects of your current data?
pricing and how you're playing the market overall based on any of this data.
I mean, that's a big thing for me.
I think a lot of people that are listening are thinking about, okay, what does this mean
for me?
Can someone give an idea of what this means for them?
Yeah.
So, I mean, it hasn't changed my outlook on things because even going into this year,
my baseline, as with most economists, I think, expected to see a recession this year.
I've been super defensive with my portfolio since, you know, Q1 of last year.
And so, you know, that doesn't mean I haven't been allocating.
I certainly have been buying stocks.
I've been buying bonds.
The whole nine yards.
I've been increasing my exposure to Bitcoin and Ethereum.
The whole nine yards.
Right.
At the same time, I'm also 28 years old.
So I need to be a net buyer of assets for any given year.
That's something I talk about very frequently.
And so, you know, for me, this doesn't really change much because I've been kind of ahead of this deterioration in a lot of ways.
Right.
And so, you know, I think from that standpoint, if anything, it's just kind of reaffirming the fact that manufacturing is very weak.
I will say, though, that the service sector has been much stronger than anticipated and much, much stronger than manufacturing specifically.
And as we all know on this call, the U.S. economy is a service-based economy, right?
So services is what really matters for us.
And so if that's still in an expansionary territory with the ISM data, so on and so forth,
you know, I don't think we can get overly bearish just because we're seeing bad manufacturing data.
I think we should expect to see more bad manufacturing data.
I think the point I would add to that though, Caleb, and this brings it down, I think, to more of a Main Street versus a Wall Street level.
is that, you know, the consumer is first the laborer.
They're not actually two separate economies, right?
Like every single consumer is a laborer,
and that is by where they get their capacity to spend.
And so when you see businesses like this start to show
kind of signs of weakness and possibly cracking,
I mean, that's a pretty decent deceleration grant.
It's one data point, it's one thing,
and just one thing that we're going to look in a cacophony of others.
But that's another thing that we're looking for for retail earnings. Yeah, sure, it's around
consumer demand and conversations around inflation. But you have the nation's largest private sector
employer reporting this week, a la Walmart, right? Between Walmart Target and Home Depot, you've got
about three million employed people under their care across those three retailers. That's a significant
group of, you know,
stewards, right, of people's employment that we're listening to because that's what
would crack services down the road is if we start to lose our jobs.
So that's the interconnectivity that we think that is relevant to put a wrap, you know,
a skin around why it is we're looking at these data points.
No, I could not agree more.
Oh, sorry.
Go ahead, Rob.
Just to add to that, I mean, you don't have to be a, I mean, something that none of
spoken about privately, but like, well, on Twitter, you know,
You do not have to be a massive researcher to find the number of LinkedIn groups, Facebook groups, WhatsApp groups of small, medium businesses.
that are not, you know, how we're growing to save the future.
It's like how the hell are we going to survive next 24 months?
And that's the largest employer as a total as these small companies.
And they're all struggling.
They've now got COVID support, loan repayments to add to that.
You know, the founders and owners of these businesses have not had to be paying student debts.
They have says a lot.
So like we've got lots of these kind of contributing factors.
The general, you know, I spend most of my day on the ground on businesses.
I don't spend it looking at charts and stuff.
And the general sentiment is,
cost redemption, surviving the next 24 to 36 months.
This is not necessarily a bearish attitude, but it's a very defensive one.
And my concern with that is that it's also therefore not bullish.
And I like to think that lots of business owners, in particular small business owners
and people who have got growth companies and founders in all types of companies are more
optimistic than those who go to work.
And so if they're optimistic type personalities,
they're willing to go out and risk stuff.
And they're thinking defensive,
it probably means it's a bit bearish.
And so I'm just, you know,
that plus what's happening now,
I'm not, you know, the...
The number of Facebook groups, if you just search now, new Facebook groups of small businesses that, you know, owners that are coming together to talk about how to do rent reductions, how to speak to landlords, how to, it's not positive in that sense.
So we need to kind of, I think, in my mind, bear that in mind, it's very easy to look at a chart with data.
But realistically, I mean, it's back to the big short, right?
The hilarious part of the film was when they went down to Florida and they confirmed it was a bubble because nobody was there.
right and the data on their charts were saying they were there and they weren't there
and reality for me on the street is all these guys are going defensive they're going they're
looking to cut numbers they're looking to cut staff numbers they're trying to survive next 36
months this is generally not good for the economy in general and i think we're starting to see
that with the numbers now that's my real quick on numbers just real quick danish before i hop off um
my line in the sand
for unemployment claims is much lower than most economists.
I find if we get and stay above 267,000,
we just hit 264 last week, which was a big change.
This is a very important level for me.
We're going to have recession risk increase in conversation and risk aversion and companies,
and it's going to pull that recession risk forward.
So that's one level I've been waiting on, and by the way, for about eight months.
So it's not something that it's slow to get there.
But once we get above it and we stay above it, recession risk gets pulled a lot more.
faster forward. So just keep that in mind. I'm going to wish everyone a great trading day. Thank you so much.
Bye. Thanks, Samantha. Appreciate you. Thank you for joining us. Yeah. So, you know, I agree with Samantha that there is a
social aspect of this. There is a psychological aspect to this. And so, you know, do people agree that
recession risk is going up?
Well, this is the big question with an expert panel I'm really interested in, which is, you know, how does it affect everybody, the general audience in the room?
So rising home loan rates, lower investment income, increasing prices.
Those are a couple obvious ones.
But what are the other ways that people will be practically affected by this?
What should people look out for?
Almost credit availability is going to be the biggest one, right? So if for it, like when not you're a small business or if not you're a trader, it doesn't matter what it is, if you can't leverage as much, you can't buy as much. And so you can't buy as much stock, you can't hire the people, you can't get free capital into the company, you can't get free capital into your portfolio. Whatever you trade is up to you. But.
if you're a leverage trader then that's what you're doing.
If you're down on the ground and the companies you're buying aren't able to get as much credit in order to buy stock and grow, then you have to factor that into pricing.
And so, and that affects employment and whatever else.
And notice that's right.
You know, the number of people.
who the consumer and the employees are inseparable.
They are one in a muchness.
They are the same people.
And so if those people,
if we're now accepting that unemployment is likely to go up,
and we're already seeing it creep up,
but it's likely to go up,
and then the people who are in employment
have greater pulls on their, on their salaries
before they can do discretionary spending.
that's recessional by nature, right?
That's not growth.
That's a lower pool of money.
And then if they are able to raise credit in order to make purchases,
but the interest that they pay on that purchase is high,
they're not going to buy big purchases as often,
which we're seeing already with cars,
but we're going to start seeing it with technology and whatever else.
that's all recessional. And I'm not saying that we'll go into, I think we need to separate between technical recession and recession.
Now, recessional is inflation is recessional on people's incomes if their salaries don't grow, right?
So people are already feeling like they're in recession personally because they have less money to spend this year than they did last because they didn't perhaps have a wage increase in line with inflation, certainly in Europe, right?
And then we've got credit crunching, which means that they've got less available cash, even though it's not theirs today.
That's going to feel recessional and they're unable to buy less stuff.
you know, it's all a contributing factor.
If the home loans are going up,
et cetera, et cetera, et cetera. That's all a contributing factor to
consumer. That plays through to businesses.
That plays through to the data eventually.
And now I'm not saying that we go into a technical recession
financially. I don't know that question. If we did,
I'd be a lot richer than I am today.
But the knock on offense of consequential behavior
has to be a player factor, right? That's my view on that.
I've got to say that
someone message me on the back end
and actually in the comments on the bottom right
and they're not wrong.
Maybe it's because Kramer came out and said
that everything is going to go great now.
He needs to be locked up.
And that might be the reason why I'm feeling like, you know, worst days are ahead.
Neely, go ahead.
I'm done.
That's your funny.
Yeah, Rob and I definitely vibe on this whole topic on small business.
I love the work that he does in small business.
He clearly knows small business, which is actually probably big business for what he's doing.
The one thing that we came across over the weekend in our research is we did a deeper dive on the CBO.
So the Congressional Budget Office is a nonpartisan entity.
And they, every single month, they come out and they give a report and they're like, hey, here's how the federal government's doing.
Okay.
Which is great, right?
Like our tax dollars are paid to, you know, make sure we're getting like, you know, update reports on how our taxpayer funds are being used.
And in that release last week, not only did we get like a budget outlook update for the next kind of 10 years, we also got an update on their views on the month of April.
And embedded in it was this tiny little line, which I put up in the nest on a tweet, where the small business administration, uh,
all of a reversal of their line items.
So they've historically, in the last couple months,
basically been a decline.
They've been showing a decrease in the expenses associated with their agency, right,
within the government.
And now they just had a tiny little change.
to they started having an increase in their expenses.
But it was called out as being, you know,
eight times their spending level higher than where they were just a year ago in the same month.
Right.
And in the release, they said largely because the agency recorded an increase of $28 billion in the estimated cost of disaster loans.
It would be really easy to just overlook that little data point, but it matters.
It matters to what Rob's talking about.
It matters to what we're talking about, too, around like consumers are first laborers.
So small business represents 33, 34 million, you know, people employed or no, 34 million businesses, right?
Rob, I think is what it, 34 million small businesses.
Yeah, thank you.
Yeah, it's something like that.
It represents about 45% of employees.
Yes, yeah, exactly.
So it's like 60 plus sort of million people that are employed.
But here's the timeline.
And here's why this particular thing matters from our research over the weekend.
There's something called the emergency disaster or the economic injury disaster loan.
And it's called EIDL.
You'll hear it reference.
You can Twitter search at EIDL.
And what it is is it was kind of like the last trunch of help to small businesses out of the pandemic era.
We had the PPP loan one.
We had the PPP loan two.
We had the employer retention credit.
That has all been helpful.
But those were effectively like, we're handing you money.
Okay.
Like you just have to check a few boxes, but we're just going to hand you money.
The EIDL loans actually have to be repaid.
And.
And they were in two-year deferment and they just went back into repayment in earnest in terms of like the wave of them.
But they were extended to the people who were the most challenged, the ones that needed that they had the most economic injury even during pandemic.
So call it like the subprime, right, of small business.
Right.
And what appears to be happening is that the agency's recording increases in costs related
to these loans, which means there's probably higher defaults.
They're like eating it, basically, right?
So this is what we're watching for.
This is why when you take this, plus you add the Empire Manufacturing Index data point
like today, it starts to become like a Rhesus peanut butter cup in economic data terms,
right?
Not just chocolate, not just peanut butter.
And that is why we remain cautious heading into this earning season,
heading into these next couple months.
It's because small business is showing signs of cracking.
Yeah, and just to add to that, like, it's really important if we're worried about commercial real estate, if we're worried about whatever else.
You know, I'm fortunate enough to have businesses that operate within regions, but I'm very interested in small companies, mainly because I was a small company once, right?
I know what the problem, problems these people are going to go through.
On one of these Facebook groups, and I will find this guy's, he did a survey of like 45 small business owners in a similar position to him.
I think it's under two million revenue, eight employees.
generating about maybe 8 to 12% free cash flow every month.
And so he was saying that he got that disaster relief loan that was due to be repaid.
And he came onto this profile like SuperShop, along with 40 other people,
because it completely wiped out his free cash flow position pretty much just repaying that debt.
And so that now his business has gone from surviving the recession because of COVID and all of the restrictions and all that type of stuff, it's survived inflation.
And now it's got debt calls.
And he's basically saying, you know, unless I grow and even if I do grow, the repayment goes up because there's like a minimum repayment and then it's tied to income.
So like I...
I'm just sitting here thinking, well, we're worried about commercial real estate and we should be,
but the largest amount of tenants there are are in those smaller units around the country.
You know, we're worried about,
We're worried about rents going up, but if rents go up and the number of employees go down,
you know, that's going to be problematic for any of these big guys on rentals and any small-time
landlord that's going to be affected by that.
Credits tightening and the cost of that credit's going up.
So there's highest service fees on that.
And so it's all looking very in my, I'm not trying to be like Super Doomsday.
I'm not saying on the ground where we're-
Sounds like you are right.
on the ground where we're talking to people
people are not necessarily positive
and I'm not seeing that in all of the data
being reflected on sessions like this yet
so I'm trying to bring to these like groups
a bit of like on the ground reality
along with your data to try and give you some
not a perfect picture but to try and give you
like both sides of the coin
in terms of recession risk
how is that not a recession risk
is the better question to ask anything
And Dakota, quick comment and then we got to move on to AI stuff.
But go ahead, Dakota.
Sure.
Good morning, everyone.
Rob, I got a question for you because I kind of work in the same space and small business,
real estate investing as well.
Most of the small businesses that we're talking with are flush on liquidity.
They just don't know how to rationalize where to put the liquidity.
So they're all sitting back and sitting on their hands saying, where do we go with this?
Are you seeing the same thing?
It really depends on the small company.
If they're a high stock company, so I don't, I work with a lot of small companies.
My business partner and I have invested in maybe 50 startup type businesses with our own capital.
But we, I'm primarily in energy and do larger projects, but we've got foot on the ground that.
It's either one of two camps.
They've got liquidity and they don't want to do with it because these guys are not capital allocators.
And so they're going to sit there and let it inflate, probably, you know,
you know, be nervous about the general environment,
then they're high, small business owners.
And I mean this kindly to anybody's listening to small business owner,
but typically,
and I was one too,
you know,
back in the day,
you know,
are highly emotional,
not,
not logical people when it comes to financial allocation
because it really affects their livelihoods if it goes wrong.
So I understand that.
So there's either that, or if they're in high stock companies,
i.e. that, you know, stocks pull through,
we're now seeing cost of ads going up,
credit against the ads going up to get product out there,
or cost of stock going up.
So there's less stock coming through.
And then they're on the marginal business.
And those people were probably either not or massively affected by the COVID situation.
So they're being affected by the loans.
A couple of companies in our portfolio are doing great.
They're growing.
But the general sentiment is even in those growing companies, they're nervous and looking at cost reduction strategies.
So even when they've got cash in the bank, I think the general narrative that's playing out in the market is that they're nervous that if their customers, if they take on a load of stock and try and grow too fast in a sensitive position, and then their customers stop buying as much, they're going to be left in a tricky position.
So it really depends.
You see with tech companies a lot.
Yes, they've got either they're growing and they need to raise capital right now, which is pretty dry, or they've got liquidity and they're sitting on it for, you know, on the ground businesses that are doing, you know, labor or whatever else, they're seeing demands from staff for pay increases. They're seeing less credit available. One of our companies is.
is a solar installer and you know that business is going to struggle over the next few months
because it's getting credit to put these things on the on the top the on people's roofs and installing things and
is going up and at the same time staffing costs is going up our margins are being squeezed and we're getting less demand because people are holding off which is as to be expected for robin to go back just real quick it's EIDO loans are only about four million loans in total for a notional value of about 400 billion it represents probably about 13% of overall small businesses so if you want to just put that in context of what we're talking about
Yeah, sure. Yeah. Those notes are over 30 years, though, correct?
They are at a 3.75% rate. Uh-huh.
Wow.
Yeah.
That's actually not a bad deal in this current environment.
But if you think about it in that way.
But I did, Mitch, did you have a last comment before we move on?
I do.
And that is that, again, when I listen to all of this information about small business,
it's all great and valid and obviously a factor.
But, you know, I'm a market watcher.
And if we are key.
key on watching the federal reserve because you know don't fight the fed has definitely been a thing
There are two interesting things that I wanted to mention.
Number one is we had talked about the potential of the interest rates peaking in May historically.
And also there's a statistic that when the Fed funds actually are higher than the CPI, that's
generally the signal to the Fed and that we're there.
The other interesting thing I just wanted to mention was that Paul Tudor Jones, right?
Who?
I think most people would agree is pretty smart and very experienced and comes from the same,
cut from the same mold as I in terms of we were both commodities triggers.
And predicted the 87 crash, right?
I can't remember what he got famous for.
He just came out and said exactly what we've been talking about here with the eyes to the Fed
in that he believes that they will pause the Fed.
And I'm sure he's looking at all the stats we just talked about.
And number two, actually is looking for a rally as a result.
So if you take out, and this is my last point,
if you just take out all of the stats and the information and the boots on the ground,
and you look strictly at what has been the market driver.
for years and years and years, which has been monetary policy,
whether it comes back to haunt us or not.
For now, I think we have to see that it looks like,
barring something crazy, the Fed is done, they have paused,
that doesn't necessarily mean pivot,
and all the numbers we talked about before,
regardless of everything that's coming out here, there, and everywhere,
is right now suggesting that if that is true,
we couldn't actually hold up here.
And that's all I really wanted to say is it's very easy to get into all noise about the economy,
but you got to look at the market and you have to look at what the Fed monetary policy is
because that's still one of the major drivers.
Okay, I'm done.
Thanks, Mesh.
Appreciate it.
And, you know, just talking about...
Yeah, sorry.
I'm getting messages on the back end.
It's so funny.
Mario seems like,
can you please talk about the sponsors?
So first of all, bottom right, you can go in.
You can put in the comments.
Feel free to tell us what are we missing or are,
Is everybody in agreement?
It sounds like most people actually up here on stage are in agreement.
You know, Mish and Nancy and Neely and the rest of the team here definitely is all in the same page.
I have yet to hear someone who truly believes that things are going to be different than what's being said here.
But if you do...
disagree. Please go on the bottom right into the comments and put in what and why.
And again, we read them out loud all the time. And then the other big thing is that our sponsor,
IBC, incubates and accelerates AI and Web3 companies. They partner with VCs and funds.
And we have a lot of VCs that listen in every day. So please feel free to reach out to
Mario and his team. They work with your portfolio companies in return for equity and zero cash.
We're going to be talking a lot about AI today.
And so there is obviously a lot going on in the AI space.
And I'm not a big believer in Web 3, but that's not my position.
I love our sponsors.
What I was going to say was we also are doing Shark Tank style pitches.
Mario's team is they've been doing it for crypto and AI.
and people have been loving them.
But any startup or portfolio companies,
they're actually expanding beyond that.
If there are any digital health companies,
feel free to reach out to me or to Mario,
and we're happy to have some conversations around that.
But, all right, bills paid.
All right, now let's continue back to the fun part.
So, yeah.
Yeah, so I really did want to pivot a little bit to the AI conversations.
I think there's a lot going on in the space right now.
But more importantly, a lot of people were talking about how many times Google CEO said AI in his speech last week.
Clearly, he's feeling the heat.
Jeff, I wanted to go to you about your initial impressions from Google I.O.,
And, you know, wanted to put in context, the reason why we brought up EU's new AI regulations is Google's, Google Bard was not opened up in Europe or Canada, which was fascinating. And, you know, this week also there was a release.
a new regulation that just dropped on Thursday at this last week.
And so, you know, Jeff, just your initial impressions of what Google's doing.
I know you're bullish on Tesla and other AI companies.
But really today we want to focus on Google I.O.,
what your initial impressions were.
And what are you thinking about the AI race?
Yeah, no, thanks. And I do have to disclose, they are one of my clients. I will not be disclosing any non-public information on this space. But I am very excited about what's going on in AI. They had a number of announcements in terms of kind of their existing tools. But if you go write the barred,
They opened it up, I think, in 180 countries,
removed the wait list.
It just tells you that they have the capacity
to get this moving.
There isn't this $20 fee.
Right now you have with ChatGPT.
And I've started using, you know,
I've been using Bard for actually for a while
and I've just seen this convergence
and almost like it's passing what ChatGPT can do now
in terms of capability.
It's very fast.
So basically Google came out, you know, last week and said, look, you know, the tools are here.
They're ready and they're already, you know, they're already integrated into many of the Google, you know, Google for business apps.
You know, you can have it auto-compose emails and do a number of things that'll just...
you know, literally blow you away.
So, and, you know, this, this is not going to, you know, pause.
This is not going to, this is only going to accelerate in terms of capability.
You know, they released tools also for coding and improving that.
And just, just strictly speaking, in the AI space, they really just came out and showed
everyone, like, look, like, you know, we're not in this, you know, perceived,
trailing position were actually leaders in this space.
You know, we've been leaders in this space.
I think there was just, quite frankly, an optics issue, kind of born on themselves.
And I think they came out last week and showed you not only is it here, but like you can access it.
You can use it today.
So it'll be interesting to see.
you know, where this goes.
I mean, the stock obviously reacted quite well
to all the announcements
and kind of how the team,
how the team roll everything out.
They're also struggling, at least just based on, you know, briefly.
I don't know if you heard the All-In podcast, the most recently released one.
But at the beginning, they were kind of making fun of its inaccuracies.
It was basically making up a lot of information.
Is this one of the reasons they didn't get it out earlier because they're struggling with that accuracy?
You know, it's interesting, and I see this as well with other generative AI tools,
right?
I mean, there isn't, I wish there was a publicly accessible metric on, you know, accuracy.
Like, if you, if you drive,
a Tesla today with their full self-driving suite. It's all AI vision-based. If you have a
disengagement, you know, like, hey, I drove 20 miles and I had a disengagement. And that's,
you know, Tesla is actually measuring that information and improving it each release. I don't know.
It's not clear to me, you know, I know there's kind of thumbs up, thumbs down,
information that you can give on responses on these generative large language model
model AI tools but it's not clear to me you know it's not clear to us as users in terms of like
what that accuracy rate is but you're right there's definitely inaccurate responses that go out
across all these tools and it's almost like if you're using it for research you almost have to like
go in and also do some cross reference on the on the information just to make sure but if it's
You know, if it's kind of, if it is accurate, it's going to, you know, obviously cut a lot of time out of the process.
But yeah, there's definitely still an issue with accuracy.
For me, this is a very huge moment because especially for Microsoft and Google, especially for Google,
because I would have never thought in my wildest imagination, I would have abandoned Google's tools in favor of Bing.
Like, that's like a joke.
But when BingChat came out, because I've been using Google Workspace or G Suite or whatever they're calling it now, they change names every quarter.
But I've been using this for almost a decade or something.
or something like that.
And when Bing came out, after using Bing chat,
I forcibly was signed up for Edge, you know,
because they required you to.
And I'm like, well, this is stupid.
I didn't even want people seeing me using Edge
at my co-working space that I typically work at.
And I started using it.
And I would say within about two to three weeks,
I haven't been using Google in a while anyway because I don't feel like the algorithms what it once was.
I've been using Duck.DuckGo.
But within a few weeks, I used Edge as my default browser.
I use it default on my iPhone now.
And...
I was actually doing Bing searches on how to port over my whole Google workspace G Suite over to Microsoft 365 products and Outlook.
And that's a, you know, there are some other issues as well.
because of just inability to search within G Suite.
There are emails that just are instantly deleted without my knowledge.
And I thought I was the only person.
Google told me, oh, that's just on your issue.
What a weird issue.
And then it turns out, as I talked to a lot of other founders who use Google Workspace...
The same is true with them.
It's just randomly deleting stuff.
So the bottom line here is I never thought in my wildest imagination, I would set edge as my default browser and look into moving from Google Workspace into Microsoft Office 365.
I just, I don't think I'm alone in this view.
I mean, maybe I am, but is this an indication of a bigger trend?
I really don't think so.
I'll explain to you why.
So I wanted to go item by item.
from the I.O. release
because I think it will actually
give you... Now, has there
been some increase in utilization of Bing?
Sure. There's no doubt about that.
I think that's probably
an obvious comment.
And has OpenAI gained users
more than any other company
as quickly as possible? Like, this is the fastest
growth of any single tool
in the history of tools.
But I think that,
ultimately, remember
that
Google often is not the first, but it's usually the fastest.
And that is something that has made Google really good.
Now, do they have a very bloated organization?
Sure.
Was Google I.O.
Perhaps not as exciting as people were, you know, as many may know,
people were pretty excited about Google I.O.
And some people were a little bit disappointed.
I think their expectations were too high of anything.
Right.
But I'll walk through item by item, and we're going to see crazy, crazy updates.
Google Maps, immersive view for routes.
Anybody that has actually...
use Google Maps recently has been looking for this specific feature, which is that all of the
information that a user needs is all in one place. So it includes traffic simulations, bike lanes,
complex intersections, parking. Parking was a big one that I think people were laughing at when
he brought it up.
up the other big, big one, and it's all putting it in context.
I think this was the sort of Gmail going from helping you write to helping you compose
to now completely writing your emails for you.
All three of those, I can't remember the exact branding around it, but that was a pretty
big one for me.
And the same thing with the Google Photos and kind of that parallel, that Google saying, hey, look,
You know, Microsoft just woke up to AI.
We've been in AI company all along.
So a good example of that.
I'm sorry, go ahead.
No, no, just agree.
Yeah, you know, because the other big thing was magic editor and then magic compose, right?
The idea really being that, you know, on pixel phones, they've had magic eraser, right?
Now they have a true magic editor.
You can move things within the photo.
If anybody's not seen this, that was kind of nuts.
Who hasn't taken a photo and being like, God damn it, I took the wrong angle or I took the wrong background.
You can literally not only remove things in the background, you can move things in the foreground, which, again, was a really big feature.
And people don't think that photo-related features are important until you realize that there's like 30 companies that are built on this.
I went to school for graphic design and like Adobe, I mean, the magic eraser thing, because I used to have pixel, I switched back to iPhone recently, which probably was a mistake.
iPhone is not as good as I remember.
But my brother was showing the magic eraser thing.
And as someone who has used Photoshop and all these tools for a while, it was amazing to me to see Google hopscotch Adobe on a freaking phone.
Like that, that blew my mind.
Because Adobe tools don't have this stuff.
Adobe isn't even that good.
Yeah, and, you know, I think the biggest release was Palm 2.
So Palm 2 is the newest large language model from Google.
It's powering the updated bar chat tool.
And just, you know, Jeff referenced it, but there are actually the...
you know, the hallucinations, at least on testing, have gone down.
Again, we don't know if the hallucinations have gone.
Hallucinations for people that don't know, sorry,
are what we were referring to as completely made up stuff.
And so that's kind of the, so with Bard 2, or with Palm 2,
at least according to their,
their release, they were talking about how not only does it improve support for writing and debugging,
that, you know, on testing, Jeff, please correct me if I'm wrong, but hallucinations should have been going down.
I think that was a large part of the Palm 2 paper that they, with, with lens and so on.
Is that correct, Jeff?
Yeah, I mean, and it will, it just, it will go down with just how wide of usage.
that these tools are being deployed.
That's the other thing that Google's doing is these things aren't kind of going out in these small little chunks.
They're going out fairly wide.
So, yeah, they'll have a rapid decline in any false flags or erasly hallucinations.
Yeah, and then in terms of Google workspace, like you were mentioning,
and that's kind of, I wanted to return back to that, Justin.
Was that...
you know, for anybody that's used Google Sheets,
first of all, Google Sheets is pretty incredible to begin with.
And Microsoft Excel has lagged behind in terms of collaborative work.
But with Google Sheets now,
with embedded barred and with the ability that the ability for AI to create formulas for you,
to be able to generate charts for you, and then to push that into Google, Google slides and other tools.
It was kind of interesting.
Now, again, as a reminder, Microsoft co-pilot already does this.
So, you know, Google is still playing catch up.
My favorite thing of all the things was Music LM.
and in the in the face of everything that's going on in media vice closing down uh you know with
uh with all of that stuff that came out with drake in the weekend well not actually their stuff but it sounded
like them with music lm anyone can make music go ahead eugene i'm just glad you can get banned danish
yeah that's true that would have been bad go ahead eugene yeah i mean i think the stuff is is so wild um you know i think it's
So, I mean, you know, what's funny is if you think about Deep Mind, right, which was acquired by Google in 2014, I mean, you know, Open AI was started because, you know, Google, well, Elon and some others thought like Google had like this monopoly on, you know, like this monopoly on AI talent. It had like some like 75% of the world's talent.
And now it's, quote, playing catch up.
But actually, it turns out, you know, Google is actually, you know, one of the biggest players all along.
So I think it's kind of affirmed that with, you know, with sort of what's happened.
And I agree with a lot of what your comments are about some of these incredible tools, right?
I mean, you know, can you imagine some of these LLM models and some of these, you know, photo editing models, right?
You know, you have all these startups that have raised lots of money, you know, companies like RunwayML that, you know, are making generative videos.
I mean, it's just kind of.
amazing that, you know, Google and some of these other big, big players already have these tools.
And, you know, it's interesting, though, that Google is not allowing these tools in Canada and the EU, which, I mean, I know you have the EU AI stuff, which is up there, but the EU AI stuff.
It's just wild, right?
And when we get to that point of the conversation, I mean, you know, even people like
Paul Graham are tweeting out, hey, you know, it's probably better preemptively for people
who are trying to do startups in the EU to maybe just move out of, um, of the EU entirely
just because it's going to take still long for the regulation to actually make sense.
Um, so anyway, that's just a comment there.
But when we get to that point of the conversation, it's going to be great to dissect, uh,
you know, the amended AI act
that the EU just
which is just really crazy.
And when we do, I agree with you 100%.
One of the things that you just mentioned
about startups,
Eugene, I know you advise a lot of startups
out in the Bay Area,
especially on AI and Web 3.
Are you telling them to wait?
Because if I'm a startup right now, five different companies just got annihilated in this announcement.
I'm so confused about what startups are supposed to do when incumbents have all the data,
they have tons of proprietary data that they've not opened up to others.
There have been companies that have raised millions of dollars that essentially are rappers on chat GPT and,
or GPT4, sorry.
And now we've got Google coming out and building all these tools that essentially make a lot of them completely useless.
That's right.
Do you agree?
Yeah, you know, I think it's actually been really tough to figure out how to invest in AI.
And actually, I've been lucky to be part of some of these AI spaces with Mario and team.
And I think as well as you, Donish.
Yeah.
You know, I think, you know, if you look at investing in the Bay Area, it's basically
like AI, AI, AI, AI, right?
Like that's the only thing.
And there's even a meme of Sondar Pashai talking about like AI AI AI throughout his presentation,
as I think you mentioned.
It's unclear what like represents competitive advantage.
Like basically how do you create a moat around your business in the AI space, right?
you can raise a lot of money, as you mentioned, if you just put Gen AI in your PowerPoint deck
or your Google slide deck. But that doesn't necessarily build an enduring business. But I think
that's particularly hard in AI now, right? So we've come to a point where it's almost like, well,
as you said, proprietary data sets are the important thing to protect, but a lot of these big
companies like Open AI, etc., especially now with these EU AI stuff, where it's like,
well, you can't have copyrighted models, right?
Otherwise, you're going to be fine 20 million euros, right?
What startup can sort of withstand that?
And by the way, not even governments have to, the government won't even regulate that.
A private party can actually sue a company for having like GitHub for, you know, hosting a model that has copyrighted data in it, right?
So like, I mean, it's almost impossible to operate in sort of that context.
You have to, you should probably move out if you're, if you're there.
What's the advice? I don't know. How do you build a competitive moat? I mean, the only company that seems to be doing that in a way where they don't have proprietary data sets is mid-journey.
Actually, they're building a brand, you know, like they're doing the Apple model, you know, building a brand and great UI.
But outside of them, it's really, it's really tough. I think the answer, though, is if you can do something in a specific business segment with specific proprietary data sets, then I think there really is defensible modes there.
But, you know, outside of that, it's a very confusing space.
Yeah, I'm pretty bullish on, yeah, vertical AI, like you just mentioned.
I was going to say that a little bit, which is that a lot.
But the challenge, though, is that the vertical AI players are struggling also because they rely on
these companies to build the infrastructure for them.
And so we don't know whether their proprietary data sets can be proprietary forever
because you're relying on storing and training on their systems.
And again, the laws and the regulations are so –
early and they're going to be so delayed that I'm very concerned about, for example,
with my company storing our healthcare data,
even in a HIPAA compliance server on Microsoft Azure.
That's the honest truth.
It's quite concerning that what's proprietary,
they say it's federated,
which means that it's separated.
They say it remains proprietary.
But can you really trust in this situation when the laws actually are not as
as well defined as they should be.
And I think that's what a lot of companies are struggling with.
with. That's a big area. One of my clients, I guess I won't say the client, but they're doing
computer vision stuff and they're doing it for like a dev tool, in a dev tool sense. So if you
want to put computer vision into your app or your technology, it obviously requires a pretty
large team, a lot of investment there. And so they're creating a dev tool where anybody can
create a computer vision app overnight. And why, because I was doing PR forum. And so why we were
pitching stories to various publications,
We were getting all these tips from some of their users that Amazon, I think AWS has panorama.
I think it's just a computer vision.
It's a computer vision tool.
And some people were saying, hey, I've been seeing, I don't know the context here.
It's the story we couldn't get anywhere.
But I've been seeing some of my data sets.
popping up on other Amazon products,
or I have suspicion that they're using my data sets
on other Amazon products.
Now, we weren't able to verify
why they were suspicious,
but that is a concern, right?
That if you are trying to build a tool
and you're relying on Google, Microsoft, or AWS,
to run that tool, there is a concern.
So I wonder if one big investment in AI
is independent tools that are allowing the small guys
to compete with the bigger guys
because that's what this company's doing.
They got a Series A from SAC's company to get Kraft.
Graph Ventures, yeah.
So going back to search,
I want to make sure that we get to the rest of it
because we have a lot to get through.
Again, it was a pretty big...
One thing about Music Alem, by the way,
is the example that they gave...
One of the examples that I read about was, let's say you're a dinner party and you're with friends.
By the way, music L.M is available.
You can go out there and try to get access to it right now.
I believe there's a wait list, but I'm not sure.
So let's say that you're a dinner party and you want to play music, some background music.
You can literally just say to it, hey, play some soulful jazz for a dinner party and it will produce original music.
And which is freaking nuts.
Just think about how crazy that is.
If you're an artist right now or a musician,
I mean, can we just be honest that this system is only going to get better?
And at some point, we have a deeper conversation.
The artist thing is interesting because it's like,
people will go to authenticity
and I understand why people say
I'll be able to copy them whatever else
but the end of the day, true fans
also want to go out and see that artists play live
and they want to do all that type of stuff
and so there's always going to be market
for real human beings in that sense.
Yeah, I mean, just like there's a market for handmade furniture, but ultimately.
I think Rob and I talked about this in another space.
I think Rob, you were there because Rob and I, I feel like Rob and I align on this issue a lot.
Everything he says about this topic is brilliant.
You're old.
Dollar old.
That's what it is.
I'm your biggest fan, and I was not that person texting you all that terrible stuff.
but the one thing I bring up is there was this one amazing video that Banks
he did street demonstration and he gave his original works
to some guy who just sat on the street and was selling spray paint art.
And like, these are original banksies and no one wanted to pay that much money for them.
They had people negotiating down like $20.
And so I asked this question in another space.
I was like, ask AI to generate a banksy for you.
And sure, why not?
Get like a printer and print it on the side of the wall.
And then Banksi wants to sell you a piece for $100 and that thing was free.
Which one do you want?
Everyone wants the Banksy piece.
So there is often, you know, people pay a premium for authenticity and real human connection.
Because that's what art is.
That's what music is.
It's real human connection.
And we pay because we want more connection.
We want more, we want the emotions that come with it.
Yeah, it's possible.
Cody, I wanted to get your thoughts as well.
Sorry, not to completely...
Yeah, whatever. Whatever, Justin.
Whatever.
No, no.
My point is that, of course, there's going to be a need for that.
But what if...
You know, it's not like somebody made a photocopy of it, right?
Like, it's not like you're going to IKEA and getting...
a photocopy of a very well-known photograph, you could actually have them train their own model,
and then now they can produce a Banksy every 35 milliseconds.
I mean, there's a whole new world coming.
Rob, I wanted to give Dakota a chance to weigh in as well, and then we'll go back to you, Rob.
Go ahead.
Right. Yeah. Thank you, Dennis. Justin, I think you're completely spot on here. I mean, there is definitely a moat for authenticity and all of this. Where the AI really is going to come into place is in content generation. I mean, this is going to be for people on social media, people for enterprise content generation. AI is not going to use the artist and the creative mind that sits within our society. It's necessary. People want.
real creativity. They want real art. They want to be a part of it. Like Rob said, I mean, going to
music venues, going to see live artists is going to continue to be a real thing for sure.
I will say that there was a artist and a poet named T. Payne who literally gave number one across the entire country for like a year and a half with zero talent, no offense Tepin, with zero talent completely based on auto tune.
So if we want to believe that humans need this human connection, I will remind you then this last week, there was a lady that built a fake version of herself.
and was allowing people to become her internet boyfriend
and made $72,000 in the first 12 hours.
So...
and I'm not, you know, an expert in music,
but he actually can sing.
He actually can sing.
I don't know where people are getting that idea
that he can't sing.
And then number two, has anyone verified the $72,000 number?
Great question, Jay.
This is exactly the question I had
the minute the number came out.
I was like, I want bank evidence.
Now, Danis, in your sector,
let's do like,
doctors, right? Okay, I'm at home and I've got these conditions. So I go onto some sort of
AI platform and it tells me what I potentially could have. I think we've had this conversation
before. However, if I need to go and have surgery, I want a bloody human being stand in front
with me telling me how to do this. So how they, even if the human being doesn't even do the,
even if a robot does the surgery, I want a human being to look after me. So let me walk you through
what's actually happening. So that sounds good until you realize that the data is coming out. So
So let's walk through exactly what's happening.
You know, for a long time, people said the same thing about pharmaceuticals, actually, about medicine.
They were like, well, no, I need my surgeon to do bloodletting.
Right.
I need my surgeon to actually fix me instead of taking a medicine instead,
especially, for example, for neurology and other things.
By the way, they were doing lobectomies at that time, lobotomies at that time.
So, you know, there's always a hesitance until the data bears out.
If I told you, Rob, that having a robot do your super complicated skull-based surgery
was better than any neurosurgeon in the world.
what the fuck would you do?
Especially not, forget about you.
I think about you.
I know, I'm gonna bring up with something
a little bit more emotional.
Imagine it's someone you love
and they have to make this decision
and there's a robotic system.
By the way, it's very, robotic in medicine is bullshit.
It's just robotic in medicine today
is the doctor using a robot to do surgeries.
But there's no like automated robotic surgeries yet.
There's actually a few companies working on it.
If the outcomes are significantly better, I'm talking about there's always an inertia that comes with this, right?
Like you have to overcome an inertia.
But this is the same shit people said about autonomous driving.
There's the same shit that people said...
I think it's about care, Donish.
I think it's about care.
So, for example, I don't care if a robot does my surgery.
I do care about who's telling me...
Like, when I'm in...
Sure.
You can get the best nursing team ever.
Doctors suck at the bedside matter anyway.
Sorry, let's just being honest.
I almost admire that.
You almost want a cult...
Like, for me, it's like, I want somebody who's like ruthless
coming in and saying, right, we're going to do these three surgeries.
This is how it's going to go.
I'm just talking to me in plain English.
I feel safer with a human being a bit cold with me.
Then a robot saying, would you like to go to your surgery now?
And I'm like, no.
I have a question for you, Rob.
Do you?
Well, that's not how it's going to work.
But go ahead.
And by the way, Dakota, just so people know, he's in medical devices.
So it's kind of funny.
But Dakota, can you weigh in on how wrong Rob is?
I don't think Rob is wrong at all.
I think the bridge actually between Rob and what you're saying, Donish, is that people want an outcome-based care system, right?
And right now, the decisions and the ability to make a rational decision about your care outcomes, the data is just not there.
And we're seeing it more and more on the system side, on the medical device side, of collecting the data so that we can have performance and outcome-based care.
care. You know, it kind of goes back to...
Okay, I'm going to push back for a second. Dakota, really quickly. When robotic surgery first
came out, right? And by the way, robotic surgery, again, as a reminder, is the surgeon
still involved, is tele-robotic surgery? But when robotic surgery came out, did patients
ask for the hand-based surgery or the robotic surgery? Just answer my question, yes or no?
Or robotic surgery? That's not what we're talking about.
But hold on, hold on.
People literally would put up giant billboards all over the country saying, oh, the robotic
surgery is here.
By the way, the average patient had no idea, but they knew that a robotic surgery would be, in
their opinion, better than a human surgeon.
Now, the data has not borne out that way, actually.
Correct.
There's a big difference between the marketing efforts of these institutions and the actual.
But it tells us a lot about human behavior.
Definitely.
Yeah.
Humans want outcome, so we do agree on that.
So you want the problem to be fixed.
But also, if you're in a health scenario, as an example, I've picked on it because it's your specialty.
We also, like, I've met very few people who go into surgeries, who especially emergency ones or something, who are completely logical and only want to see the data about it.
They're highly emotional.
And so I think that's where a human being interaction comes in, not necessarily doing the act, not necessarily even diagnosing you.
But I think there's a future in doctors becoming primary carers, are you looking after the psychological of a human being in front of you?
Yeah, sure. I mean, humans, perhaps AI will make the doctor's job to be more human. That is totally possible. I just don't think that the average patient, having taken care of thousands of patients, you know, I just don't think that the average patient is going to be like, in the operating room, I need that to be a surgeon, a human doing it. I think in the beginning they might, but over time, I really don't think that there will be as much of an issue. Just having done robotic surgery.
Bottom line here is that people aren't rational, not even close, right?
Dan Ariely, he's one of my favorite authors.
I had them on my podcast.
It's a little humble brag there.
I was blown away.
Anyway, people are not rational at all, and I,
I would be willing to guess AI is rational, right?
Or at least it will be rational.
And so I think there will always be this tension and this gap between what AI wants people to do
or the solutions AI wants to deliver and what people will be willing to accept.
I think that's going to be the tension in our humanity's relationship with AI.
Justin Rob, can I ask you a question?
Can I ask the question to Justin and Rob?
Like, what is your guys' experience using chat GPT,
particularly if you use chat GPT for?
Like, do you feel like it's not?
Well, yeah, just what's your guys is,
objective experience.
Well, I know it's not, I know it's not human, so I know I'm tracking to a machine,
but I use it a lot.
I'm not, I'm not anti-adoption, by the way, and I don't think that people should be doing
surgeries if they're statistically better, not doing surgeries, etc.
I don't think that's the hold-up.
I think there's an element of AI where human beings require authenticity.
If you've ever tried to, if you haven't been in business for someone who's inherently
dodgy, they're saying the right things and they're doing the right things, but there's
something about them is making you feel
completely uneasy. It's that
gut feeling that human beings have
about most things. We know when something
isn't necessarily being... Now, that
might be an IQ level. It might, you know,
for lower IQ people, sorry if you're in the room,
like, you know, I'm not attacking you.
They might be
easily, I don't know, it's just from a fundamental human being level, yes, I don't care
if the robot does the surgery and a great percentage success rate. I'm not anti that at all.
I'm a technologist. I completely agree that the future is technology. But on a human being level,
I would like, if my son's going in for an operation, I'd like to speak to a qualified person
who understands that I'm an emotional person, who understands who I can see, touch,
like see in front of me talking through my son's operation.
I don't care how the operation is done.
I don't care what,
as long as the outcome is the best for my son,
but on a human being level,
I want that.
And I think that in healthcare,
and I think that in artistry,
and I think that in everything.
There's a space.
Right.
you know, AI will take over, it become the IKEA of furniture for everything, right?
And it will enormously help the people's ability to execute.
I think, like, highly creative people will be unlocked by AI because AI will be able to execute their ideas for them.
And they will then be able to compound the limit of their creativity, much higher and faster.
That's amazing.
But in terms of, like, the genuine prompts,
and the genuine human being behind that,
people will search that out.
And I think on these debates,
I do agree that I will take over lots of things
and that will be good, bad, ugly, whatever.
But on a fundamental level,
human beings will find ways to seek out other people
on an authentic level.
We've done it every era, every single era we've had.
The internet, I know AI is way more than internet,
but when the internet came out,
everyone was like, everyone's going to copy everyone.
I don't know about you,
but artistry did better after the internet.
not before.
So, like, in general,
just,
I think there's roots through that,
but I think,
like,
we will seek out authenticity
and on an emotional level,
we need to be targeted emotionally,
whether or not be a doctor,
would not be connecting with music,
whatever,
we will seek out authenticity in human beings.
I will say,
I want to talk to somebody
who may potentially disagree with that.
Jeff,
I don't agree.
Please.
I highly,
I highly,
highly disagree with that.
I love her outfit.
Yeah, so, okay.
So, I actually really want what you say to be true, Rob, like personally.
But, yeah.
join the movement it's a quiet movement no i think it's a great movement i think i agree with it like from a
but i i'm not i'm not so sure i share your optimism and i'll say a few things why right we started
this conversation with music and we're talking about all these different spheres so i guess you know
i guess to localize it to maybe art and music because that's you know the realm of where where i'm
at not only do i come from a musical family um my you know my wife is a singer-songwriter so um you know
You know, I showed her some of these Kanye and other things.
And I've also showed this to other musicians, some of whom are very famous.
And I think pretty much everyone's like, yeah, man, this is kind of the end of, you know, like, you know, artistry as we know it in the music industry.
A new art might emerge.
But, you know, I think just...
Yeah, I think that it's what's crazy is when I asked you the chat GPT question, right?
Because as you use it, it's like, do these things seem like AI to us, what we might call the uncanny valley in animation, right?
So I used to, you know, work at Pixar and we worked really hard to go against what's called the uncanny valley where things seem human, but they're not quite human.
So it feels very off.
But there are things now that AI is producing.
Yeah.
including some of the AI music, right?
If you guys listen to it.
And by the way, I love that Jay mentioned a T-Pain.
That's great.
I didn't expect that, but that's awesome.
Jay, I appreciate that.
But if you guys listen to like some of the stuff, like Jay Z rap or these Kanye AI
raps or these other things, I mean, even Marquez Brownlee on YouTube mentioned this,
MKBHD, he was like, he was listening to this JZ AI song.
And it was just like, we know it's AI, right?
And we think it's not, right?
Even when you do know it, right?
It's like Passy Uncanny Valley.
Right.
And so I agree with what Donish and some others have said.
Like, I'm not so sure that I have this, you know, really optimistic view of where art's going to go, right?
I mean, I'm not even sure it's going to be the IKEA.
It's going to be more than the IKEA.
It's just going to be kind of.
Kind of everything, actually, right?
I mean, my main concern is that if we don't find a route to authenticity,
and maybe there's an AI tool that we'll be able to tell whether or not something
is authentic or not.
We constantly talk about there'll be AI tools to convert AI tools, hopefully, right?
And I am optimistic.
but I think we if we aren't able to differentiate between the artists I've got into and I can't go to a gig, etc.
We can't differentiate that.
Depression is going to go through the roof because people will not be able to understand what base reality is.
And if they can't understand what base reality is,
people get really, really, really depressed really quickly.
And so I think there will have to be methods for human.
I'm generally optimistic that human beings find a way to find themselves in the best scenario that they're in.
So although, you know, we might be limited by war or whatever else,
we try and find the best out of most situations normally.
And I know that's not normally in our politics,
but generally speaking, human beings build things that try and make themselves happier.
And so if corporate AI companies aren't able to very quickly establish between fact and fiction, we're either going to have
human beings completely come away from those tools and only use them for utility basis
and get back to face-to-face interactions in order to stabilize themselves,
or we're going to get massive amounts of depression.
And so I think there needs to be a difference.
At least during the transition period.
Well, the tools, though, required, well, who is the artist that you said, mentioned?
It made a, I can't remember the, oh, crap, you just blanking one.
The AI made the...
Drake in the weekend.
There's Drake, there's Kanye.
Yeah, yeah, yeah.
Drake got upset at the Ice Spice song, Month.
Yeah, the AI...
It still needed Drake, though, right?
And some people are like, look at how great AI is at writing.
I just asked it, write this article in the writing style of Joanna Stern at the Wall Street Journal.
And AI still needed Joanna Stern at the Wall Street Journal to do that.
And so fast, like rewind, what was this?
Six, seven years ago I had written my first piece for the Wall Street Journal.
And a literary agent reached out to me and said they wanted to publish a book.
Now, fast forward, the book ended up failing because at the time I didn't have enough Twitter followers.
As you can see, I still don't care about Twitter followers.
Right.
But I asked the agent, I was like, why, I don't understand like why you reached out.
He goes, well, you have a business voice.
You write in a business voice, but it's different.
It's more casual writing that maybe I would see elsewhere, which is why I was really interested.
And.
And so that was the same feedback I got for that first Wall Street journal piece.
I, like, had no experience.
I've never written anywhere.
And the journal just ran an op-ed.
That was in the golden era of social media, when every time I refresh Twitter, there were 20 people tweeting this article.
And that only happened.
I do wonder in the future, maybe AI will get really, really good.
But AI today...
still needs fresh human input to do the things that it does.
Does it though?
I'll give you a really simple example.
Hold on, hold on. I know it's really hard to envision this,
but let me walk you through this.
And by the way, on this note, on this grim note,
that AI is going to take everyone's jobs.
And I don't believe that at all, actually.
I think it's only going to power us.
It's going to just take away certain people's roles in society.
But, you know, a lot of people...
Their voice is not as original as they think.
It's usually an amalgamation of the people that they have heard
throughout the course of their lives.
And we know that there's a lot of information on this.
And actually, there's a lot of people out there
that emulate people that they respect
whose writings or music that they actually enjoy.
And you can hear parts of it.
So really, you don't actually need, in my opinion,
AI to be able to come up with original information
material as AI gets better and better it can take multiple different people and say hey I want you to
talk about innovation in the in the voice of Steve jobs and I want I want you to talk about and so the
idea here is that you know I want a little bit of this a little bit of that a little bit of this and
it will come up with a completely different quote unquote new voice that could actually be more
attractive than even yours and so that that's sort of the idea I think that people are struggling with
None of us knows what's going to happen.
All we do know is that the AI wars have now taken place, and we're actually going to see this accelerate.
And if you don't think that it's going to accept.
What we're seeing right now is, in my opinion, similar to judging all of computers based on the pawn game.
We are so early. This is so early. Now, Paul Graham actually has a very good point on this, and that's what I want to end on. The big question is not whether AI is going to take over certain roles or is going to make certain things irrelevant or whether it's going to accelerate. The question is,
Is it going to asymptote?
Is it going to stop at some point?
And that's the big question.
Is this going to be like other situations
where we saw, you know, things asymptotes?
So if you're somebody who people rely on for...
for certain types of content,
maybe you may not be affected
if you're super niche
or you have some specific insight
that you think is different
or people just like the quote-unquote authenticity.
But can you imagine generating,
saying to AI,
hey, take all the stuff that I do usually
and just put it on auto-repeat.
And then you just review it before it goes out.
Suddenly you can write an insane amount of content
and a lot of people that generate content every day
would love. And by the way, those days are very close. So, all right, on that note, we will see
everybody tomorrow, 8 a.m. Eastern. Please follow all the people on stage. Appreciate everybody
joining us. And we'll see you tomorrow. Probably your talk about it.
