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#FinanceDaily: PPI Live 🚨| FOMC | EU Sues Google | VCs hyping AI?
Recorded: June 14, 2023 Duration: 1:04:48Space Recording
Short Summary
The discussion highlights significant fundraising in the AI sector with Mistral AI's $113 million seed round, indicating strong venture capital interest. France is noted as an emerging hub for AI and Web3, with key companies like Stability AI and Hugging Face. The crypto market is anticipated to experience growth, with risk-on assets expected to gain. Additionally, IBC's partnerships with VCs and funds aim to support AI and Web3 startups, showcasing strategic collaborations in the industry.
Full Transcription
Hey, everybody.
It's all over again.
For people that weren't here yesterday,
let me tell you a little story about how we started a room about the CPI.
And then a few minutes later, after starting,
after just like a glorious room, it was a great room, a great space.
And then we brought on what I can only presume is a grumpy old man called Robert Kiyosaki.
who wrote a book once in a long time ago called rich dad, poor dad,
where he essentially convinced people to take on debt that they can't afford.
And then told all of us that we were a bunch of dumb MBAs that had never taken companies public.
So what do we know about the death of America?
Followed by, and the US dollar, by the way, which by the way works great on TikTok because it's, you know, bite size. You don't really have to go deep. But as soon as we started asking him questions like, what are you talking about? What evidence do you have?
what the fuck are you talking about?
Suddenly took it very personally and got very upset,
which by the way,
great sound bites.
A bunch of people tweeted it out.
It was the funniest shit.
Like literally,
this is exactly why Twitter spaces exist
because, you know,
grifters come up.
They talk their book.
And then we say,
one second,
what are you talking about?
And then they have to explain themselves,
which is really,
really hard when you,
you know,
around super intelligent people,
like a lot of our guests on stage.
And so,
So then, after calling him out, and making him look like a dumb fool,
we were able to kind of move on and get back to the business of talking about CPI,
followed by two minutes before the print.
Two minutes.
I'm not even kidding.
We had 10,000 people in the room.
It was electric.
We were ready to go.
Space has crashed.
Freaking insane.
I have to say, nearly...
Mario's team knows, I nearly threw my phone at a wall and nearly said, I'm done.
I was this close.
I was so upset.
Can you guys imagine?
It was nuts.
Like literally one of the most frustrating, but, you know, it's like highs and lows.
Like, do I love the fact that I can completely make, and not only me, everybody on stage got to make
you know, a guy that gets way too much play for a really stupid book that he wrote 20 years ago,
make him look like a real dumbass?
Yes, I enjoy that.
No doubt about it.
That was a great moment for us.
Thank you, everybody, for participating in his murder.
But then we get to do the CPI, we get to do breaking news, and then we didn't get to do it.
Was anybody else super frustrated yesterday?
It was crazy.
Who else was up here?
I actually don't know who was.
I think Cody was listening.
Mickle, were you up here when Robert Kiyosaki was up here?
I can't remember.
Yeah.
Yeah, it was pretty painful to listen to that entire experience.
I thought one of the funniest things was, I mean, he kind of got brought into the room to talk about CPI and then acts like he has no idea that's happening that day, nor he wants to comment on it, which I get whether or not you want to make some other points and you want to go off on some other things.
But like, at least take the feeder question and address the massive thing that's happening that day.
The whole thing was just kind of absurd to listen to.
Yeah, I started with, hey man, how are you?
You guys are speaking Filipino and I'm speaking sign.
He's already talking about how he didn't want to be there.
It's like they just wheeled me up over here next to this phone and you know, y'all are Chinese when I'm spilling you Filipino.
I was like, dude, what are you talking about right now? What is going on?
I just asked you how the day was going. Like, if I asked him about the weather, he would suddenly talk.
He's like, what have you done with your life? It was like, um, bro, just chill. It's like, it's like, uh, it's, it's breakfast time. You angry at breakfast?
Yeah.
Like, we're, we're, we're just having a conversation, man.
Like, like, just have your donut, like, chill.
Like, we're just, we're just talking about the freaking markets.
Seems like maybe he needs to invest in coffee, too.
I don't know.
You know, he's got to beef, yeah.
Yeah, yeah, but, you know, I got cattle.
It's like, all right, dude, like, just chill.
Like, that's fine.
That's great.
Like, sorry.
I just thought it was really...
Donish, I only saw the end of that, but man, that was someone for the books, for sure.
I don't know what it led up to it, but the reaction was...
I was really impressed with how you managed that.
Oh, thank you.
I thought it was one of the funniest situations because all, you know, when it's like judo,
like when someone's literally putting themselves down, the best thing you can do is just let them just crash the train.
Like, it's fine.
Like, let them just do it.
And you just watch them do it in slow motion.
It's one of the most beautiful feelings.
Cody, you unmuted.
I was going to say, I would have paid money to watch that keep going.
I thought you guys were going to become fast.
Oh, really?
It was mad awkward.
It was so awkward.
It was kind of like, I felt like at moments, I thought, I think in his head, he was thinking
that, hey, you know, um,
I might switch my tone.
And then he said, no, I'm doubling down.
I'm going to go more, more asshole.
I'm going to go in more.
Like, let's go all in.
And I was like, oh, okay, interesting.
He's not switching.
And, no, I just think that everybody up on stage was just like, all right, let's talk about it.
Let's have a conversation about this.
But no backup.
Just TikTok sound bites.
It's the end of an empire.
Yeah.
It's in the end of an era.
I was like, oh, my God, dude, Jesus Christ.
All right.
Anyways, that's enough for...
shitting on our special guest yesterday.
I will say that on the back end, you should have seen the back channel when I was not the one that's, you know, that has some of the people up on stage, but the one that I had with Mario's team.
I was like, who the fuck is this clown?
Like, what is going on?
Like, why did we bring him in for the CPI print when he doesn't believe in any of this?
Also, he did offer some of you all jobs.
He hires people like us.
He did let us know that.
So that's really helpful that we have an opportunity to work somewhere after we end up doing this.
So that's comforting given where unemployment might be headed.
So yeah.
That was one of the funniest things I've ever experienced in my life.
So, you know, I'm trying to decide where I want to start first.
I think.
I think the best place to stop.
I'm going to bring on some AI folks since this is something that I'm going to be
kind of harping on for the next few months.
I'm sounding the AI hype alarm.
Hype alarm has now been officially sounded.
So for people that are not paying attention this morning,
or maybe a little bit yesterday, maybe last night, a French startup, Mistral AI, raised a $113 million seed round, which was valued at $250 million led by Lightspeed.
For context, I just posted it up in the nest so you all can see.
The company was created four weeks ago.
They don't know what they're building.
I'm not even kidding.
You have to read the Financial Times article.
In fact, I will just give me one second here.
I'm going to add that to this.
You think I'm kidding.
This is like, this is some like 2021 web 3.
Hold on.
Give me a second.
So I just posted, I just added that.
So yeah, some context.
Mr. AI, a French AI company was started by,
These random dudes that come from deep mind.
He was a staff scientist.
But company was created four weeks ago.
They don't have a product.
They don't even know.
If you read the Times article, you're going to be like, wow, they don't even know what they're really building.
They haven't even started really working on it.
But the VCs have now given it, Matt,
You're not representing all of them.
But the VCs have now given it a $250 million valuation for $113 million seed.
Matt, defend that decision making.
Just kidding.
Sorry.
But Matt, what is going on here?
How is this not incredibly overhyped?
Yeah, I mean, it's a news article, first and foremost. I know the author that wrote it, and there's a lot of hype and news. Sometimes what they have as factual may not actually be the case. So I can't defend exactly, you know, why they would say that this company is worth X amount. But I will say that,
What we are seeing is there's two layers, right?
There's the infrastructure, LLM layer, and there's the application layer.
And, you know, in the rule of three, you need to be fast, you need to be first, and you need to be right.
And I think the bet here is that if the...
spending that we're going to see transition from traditional enterprise to the application
and enterprise layer and AI is as big as they're all betting it to be, then investors don't
want to look like they miss the next massive platform shift. And if it costs them,
a couple hundred million to do that, then they can at least justify to their investors that they at least tried.
So if you look at it from, you know, the infrastructure layer, you've got the coherence of the world,
you've got Open AI, you've got Anthropic, things like that.
And you can even see the corporates doing it, right?
Invidia, Salesforce, and so one, they're all throwing Oracle, they're all throwing their hats in the ring to say that we have a stake in this next platform shift.
And I hate to say,
But Matt, is this the same shit that happened in the web for weeks?
Hold on a second.
You have to understand the numbers.
Go ahead.
The numbers that you're throwing out as like $250 million valuation, like, who cares?
Who cares what the valuation is?
It was $113 million seed round.
Who knows if they got all the money at first?
Who knows if some of that was debt financing?
Like, we don't know exactly how much cash was deposited into a company's debt.
Okay?
So everyone just chill the fuck out.
Yeah, it could be like $13 million equity.
with a $100 million deficit.
And primarily the $100 million goes towards data, goes towards GPUs.
I mean, like it's totally possible.
Exactly, my point.
So just the structure of these deals, when money goes into a company and when money comes
out of a company, I bid on both sides.
I see how the chips fall.
And I just don't like it when people take the headlines and extrapolate fact from it,
because that's not exactly the truth.
So I agree with you.
You know, four dudes from Deep Mine, you know, Deep Mine was shut down.
Their offices in Canada, where it was started, was shut down recently.
And so there's going to be a huge dispersion of human capital popping up over the next couple months.
And these guys were lucky enough to be maybe first to sit down with Lightspeed and tell them what their pitch was.
After they'd been working on a project in DeepMine funded by Google for the last 10 years.
You don't know, right?
So maybe the story was they came to these investors and say, look,
Google was putting billions of dollars to work in this deep mind project.
We have the inside scoop on it, and we're just going to replay the play.
But we have the recipe.
And they're like, oh, my God, that's crazy.
Well, of course we'll give you $100 million for that.
That's easy.
That's like a 10x in like a year.
That's maybe what the thought process was.
So we don't know those conversations,
especially when there's so much human capital coming out of these deep-minded projects
to go and start something big.
And when you see the large, like,
Old school elephants like Mark Benioff fucking standing up and telling people,
Gucci's going to make their outfits using AI.
The guy is just throwing spaghetti at a dartboard and seeing what sticks,
and everyone's trying to do that right now.
Yeah, it doesn't change the fact that good money is going towards...
Yeah, I want to push back on...
Well, it's not push back, but I want to do the other...
I want to do the other side of that.
I mean, definitely agree that actually the biggest thing is what is the details of the deal.
So totally, totally agree with you, Matt, on that.
But I'd say, like...
generally speaking, I have been involved probably similar to you across different types of, you know, valuations all the way from like Tiny's Precede to Giant. When I was in private equity, we literally did a, or at least we're contemplating a billion dollar equity check, right? Like literally a billion dollars out the door. But it was phased in a few hundred million at a time to your point, right? But I generally found, and this is not always true, but.
But, you know, I mean, back to like 10 years ago, like the polar raising 40 million bucks in their seed round as their first round.
And there's a whole lot of things like that.
And they often aren't good for the company, right?
Not always, right, but often it's a sign when a company raises really early and too much.
It's correlated.
Again, no causation necessarily, but it's often correlated with less than spectacular results.
It's often better if a company, you know, starts out, gets PMF, product market fit.
and all those things so i do see what don't know what don't think it's i don't think it's
completely overblown right despite the fact that news articles often you know glazed over facts
i'll also say i think um i'm looking actually at the uk registration from mistral um trying to figure
out because actually what happened
what happens to your point is in the u.s at least the cc filings for the raise actually show a lot more
of what's going on so i find that to be useful whenever there's an announcement and the company often
has to announce a startup office and has to announce because we have to you know file sc filings for
securities so i'm actually looking up the the the sort of the european version here to figure
out what the details are but obviously it's like you know hundreds of pages here so but uh yeah
um you know i i think there's always more of the story but uh i do think potentially
a i high potentially uh this may be an early sign so i completely agree like you never
want to throw a hundred million dollars into a team of four people who've never actually
handled that much capital before like 100 percent agree and so whenever i see like these
first check-in type investments that are way too big for what the the actual like
founders can handle, I think, is a bad sign.
I also think it's a terrible sign when, like,
investors like light speed think that they can write
you know, a Series C equity style check into a founding team that has not designed their culture,
has not designed their playbook, their go-to-market, their hiring protocols.
Like there's so many things that go into starting an early-stage company that we do all the time
that we don't invest post-Series A.
Like, it's just not our thing.
And we will never do that because we know what we're good at at the precedence seed
of like getting in the weeds, working in the trenches with our founder,
setting up all the different like frameworks.
But then when they need to hit like scale and grow from like 10 million to 25 million and 100 million maybe in revenue, like there's way better experts beyond that that should be coming in and doing that.
So when you're crossing over between like early stage and late stage and then writing big checks into early stage founding teams with like four fucking people, that actually is more scary, Donish than just the hype valuation part to me.
No, I agree.
And throwing those, just for people, if you continue to read through that thread, I put in the article, a bunch of people are asking for it.
And again, I will agree the Financial Times is not always the most objective.
We can all agree that they like, whoever their headline editor is is nuts.
There's no doubt about that.
Matt's not wrong.
But man.
And also I put in a video that explains the thought process behind what happened.
It's from Silicon Valley, if people know that show.
Always be pre-revenue.
It'll be seen as a pure play.
One of my favorite moments of Silicon Valley, the show, of all time.
Worth a watch for everybody that watches it.
The thing is that there's no greater multiple of revenue than zero revenue because it's infinite.
Your multiple on revenue is infinite when you have zero revenue.
Yeah, much agree. It's easier to sell the dream than reality and numbers. By the way,
low-key, France's AI, I mean, I was just there a few months ago. And I mean, you got stability,
right? Stability AI is based at Paris and London. You got Hugging Face, right? Clement from
Hugging Face. And I was there and I actually did an AI jam with some great entrepreneurs over there.
I just say, like, you know, France low-key, not only Web 3, right, they got a lot of, you know,
a lot of intentions of low-key Web3 hub, but
You know, AI is also looking as it's part of the mix in France,
typically in Paris specifically.
I was going to say to Shakar,
Shikar, you guys did something really weird at copy AI.
You guys actually, like, generated revenue.
I feel like that's really, really dumb.
Why did you guys do that, Shikar?
You know, it's this crazy thing.
We all get into, you know, business to make money.
And we just thought, you know,
if we could actually make some money,
then maybe we wouldn't have to raise that much more.
It's kind of this...
surreal reality. I don't know. Totally anti-Silicon Valley, I think. Maybe we're just too weird because
we're not founded in the bay. But look, let's get back to Mistral here. I'm actually looking at a
tech crunch article. And I think I figured it out. These guys clearly have deep pockets and they've
invested a lot in cattle.
I mean, that's the best use of $115 million that they've raised or $113.
So, yeah, if we think about yesterday, I mean, this really sums it up.
I mean, case open and shut.
Lightspeed really wants to get into cattle.
For people that don't know yesterday, Robert Rosaki came up here and told us all to invest in cattle.
It was the funniest, funniest experience of my life, instead of talking about the CPI, which is why he was invited.
But Shakar, I got to kind of ask you some follow-ups.
For people that are not aware of copy AI, you guys bootstrapped.
to, I don't know, how many million dollars in ARR and then raise your first round, right?
Like, isn't that how, like, startups are supposed to do it?
It's so fascinating that we are talking about tech multiples contracting,
and these AI startups are now in this environment, in high interest rate environment,
able to do this.
Is this concerning for you, Shakar, for the industry at large?
You know, I actually was thinking about it, and it kind of adds up.
If you think about light speeds, they are pretty...
pretty smart about how they actually think about their overall investment portfolio.
And I think one thing that I'm seeing, one is obviously the trend of wanting to invest in infrastructure.
These companies actually need a lot of money because GPUs are hard to acquire and they likely need,
you know, quite a few of those. But, you know, I've said this a few times in the past.
I think when we start looking at the VC climate, we're going to start seeing changes
probably because more companies want to do what we've done at copy AI.
And ultimately, if we're right about, you know,
lean companies not needing nearly as many employees
and being able to scale using, you know,
the technology that they're building or otherwise component technology
to get by,
then the idea of, you know, someone swooping in like a,
like a, I don't know, Tiger Global at a Series C that's just massive,
just doesn't really make that much sense anymore, right?
It's not to say that companies aren't going to raise money anymore,
but I think, uh,
people that are in an early stage VC will probably stand to clear a whole lot more versus, you know, later stage, if you're able to get to a point where you're printing money, then I don't, I don't really see that as lucrative an investment.
The whole point of building an AI company is that it's supposed to be more efficient to begin with.
Now, again, Matt and I were discussing about GPU costs, and that will drive a significant amount of cost for foundational models.
Companies that are focusing and building foundational models and training them on large sets of data.
There's no doubt that that's really expensive, right, Chakar?
i just want to confirm no that it's a different it's a certainly expensive and you know whether or not
you believe it literally a bull or a bear on invidia um you know the reality is gp upped upped
are in high demand and short supply right now so we only know one thing about what that means for
the actual price and whether or not you're going to be successful in building you know the next
cutting edge model you still need gpUs to be able to get anywhere close to doing that and
I mean, if you look at really what this company's aiming to do, it actually wants to build ultimately what Open AIs said they were going to build, which is, you know, an open, an open AI ecosystem.
Everybody says that.
Yeah, because you get $115 million in a series A without anyone knowing or asking what you're building.
Seed.
It was technically a seed.
Yeah.
It was $113 million seed.
And like Matt said, they don't know how they're going to hire people.
They don't know what their culture looks like.
They don't know what they're actually even building yet.
If you read even the TechCrunch article, because I did read that as well,
they're not sure about what actually differentiates them outside of just the fact that their business model might be slightly different.
Matt, go ahead.
Well, this is what I always love to tell people, like the human psychology of play here is, okay, let's give money to the young people who've never used it before to solve problems and go faster.
Well, what happens is you take that money and you go and hire recruiters and you go hire people to manage divisions.
Right.
Well, the people you're attracting are people who are attracted to that money because that's how they figured out the company is going to be a good place for them to work.
And then all of a sudden you start hiring these people to come and manage people.
Well, first off, they're managers, not makers.
So they can't even actually do the fucking work that you need them to do first before even hiring those people.
And then if the company misses on any type of traction, what happens?
They put their hand up and say, fuck this, I'm out of here.
I'm going to go to another company that has better money with better traction.
They keep jumping and jumping and jumping.
This is the problem when you throw money at young companies trying to do things like
Shocker is probably seen.
Chikar's like, I don't want to hire people who are only here for the money because that's not what we have to offer.
What we have is equity.
What we have is a mission.
What we have as a culture.
And those are the foundational things that early stage startups need to figure out before they actually start offering bigger checks to people that are only attracted by that.
And that's the underlying problem with a lot of this, you know, throw money at an early stage company and let them move faster than open AI.
Like, first off...
Open AI was a nonprofit.
It started with grants, basically, from Elon Musk.
And yes, there was a lot of money there, but they were all there for the problem.
They were all there motivated for the problem because there was no profit on the other side.
There was no value that was originally created for Open AI.
And so I think if anyone thinks that these companies are going to win because they have more money, that's a fucking ludicrous decision.
And the idea that in the early days, having a lot of money is a good thing is so misguided.
I'll give you a simple example.
With my company, we pivoted like four times.
By the way, the first three ones, I could say them in a day.
It was not hard.
It was easy to raise money because there were all three good ideas.
But when we talked to customers and we were grinding it out, we built.
Solution market fit is very different than product market fit.
People don't realize is the solution you promise customers may never live up to the product
that you can actually build to solve that problem.
And a lot of people will tell you this is a great solution.
build that product, it does not up to the solution people have built in their own minds.
And sometimes no product can. And by the way, then you have to test to pay and all of these other
parts of the equation that nobody tells you until you actually build a real business. And so you
iterate and you pivot and you and, you know, everything seems like an overnight success until you realize how
working on it. Like Matt said, Open AI was actually a nonprofit
for a few years before they spun out a nonprofit entity.
And so, you know, with us, literally...
traction, no traction, no traction, no traction,
suddenly one year of big traction and then 20x this year
because we finally found product market fit.
And I'm happy that it was two guys in a truck,
you know, like working in the bag, grinding away
because can you imagine if people
would have thrown a shit ton of money on us
in our original solution market fit,
we wouldn't have built what we're building now,
which I think is much, much more impactful and exciting.
And this is the time to now go raise the large round.
So that is how traditionally it's been built
And to try to change that just by throwing money at it is why, remember when people were talking about things like ghost kitchens and that shit's gone now?
You know, people are talking about, I mean, there's all of these zero interest rate phenomena in tech enabled services that completely failed.
And we've seen this cycle before.
We saw this with Web 3.
I am telling you, my gut is saying we are now climbing up the hype cycle,
the Gartner hype cycle for AI.
It is coming.
And this is going to be detrimental for the AI industry.
Because there are a lot of really good companies building really good products that people actually need.
And that's my business.
But AI has gone through, you know, I definitely agree with you.
And by the way, so I think AI has gone through those waves, right?
I mean, it's like, you know, the death of AI is, you know, is sort of, you know,
grossly misrepresented and, you know, is premature, so to speak, right?
Like, you know, it's had this waves just in, even in 2000s, we already had like three waves
of AI.
So I'd say this is just another one.
One of those.
And, you know, there'll be good times.
It'll be bad times.
But I do have to agree about the money thing.
Yeah.
I think there's that old PDD song from the 90s, I think, like more money, more problems.
And I actually think that's actually true in a very non-ironic way.
I think the more money you have as an early startup, it actually creates more problems.
And it doesn't give you the, you know, like the mission, vision values, you know, purpose principles, whatever it is you want to call it.
But that whole thing, which sounds like, you know, MBA speak per Kyosaki, whatever that actually is, you know, is really, really important, right?
Because those people...
who are there earlier there for that mission
and for the values that your company creates.
You later hire the people who care about money.
I think the people who care of money are important.
They just need to come later once you have PMF,
once you raise more money, et cetera.
But yeah, I don't think they have a place in the early stages.
So yeah, I do think this can be quite toxic for a company?
Too much money can end companies,
can end otherwise perfectly good companies.
I've seen it happen too many times.
All right, we were able to get this done.
Just really quickly, PPI print just came out.
US PPI, month over month, actual, negative 0.3%, forecast was negative 0.1%.
We went from last month being 0.2% to now negative 0.3%.
PPI, month over month, actual, was negative 0.3%, as I mentioned.
US core PPI, year of year, actual, was 2.8%.
forecast 2.9%, previous was 3.2%.
US core PPI month over month was actual 0.2%,
forecast 0.2%, previous 0.2%.
So, you know, this, again, remember for people that are not aware,
PPI is the producer price index versus PPI,
which is the consumer price index.
So think about it in terms of the value chain of money.
producer price index, usually the producers are buying in bulk and building and then selling to the consumer.
And so they often see inflation changes before the consumer does.
So PPI usually leads CPI.
That is at least the dogma in the economics world.
And so just wanted to bring that up.
PPI is out.
Again...
Headline, month-over-month-month PPI is negative 0.3 as compared to negative 0.1.
Core PPI month-over-month is 0.2 as compared to 0.2, which was forecasted,
and for 0.2, that was last month.
So, you know, any initial thoughts, Amy, Mickle, David, any of you all, Michael, go ahead.
Yeah, well, I mean, in my personal opinion, yesterday, when I saw that CPI number coming at 4 and now this,
looking at what the market's expecting.
I think this all but guarantees will probably see a pause later today.
I mean, overall, I've listened to Caleb talk about this a lot,
and I could not be more on his side.
The more and more I look at this, the more and more I see all of these goods and commodities
coming down at a pretty rapid rate.
It really looks like to me we're going into a period where,
inflation starting to come back down to normal levels.
And now if we can dodge a recession or at least maybe just go into a slow economic downturn
that isn't as deep as a lot of people were expecting about a year ago.
I mean, I'm starting to look at this economy right now, look at the innovation that's prevailing
through it and get pretty bullish what could be around the corner in a year or two.
Yeah, Amy, your thoughts?
You know, I agree. I think looking at the CPI and the PPI, I don't see how there's going to be justification for a hike. I think we are going to probably get that pause. But...
In terms of being bullish in any way on economic growth, I don't know that I agree with that.
I think probably what we're going to see is this higher for longer mentality.
I think they're going to try to spend a narrative that we beat it.
We beat inflation.
Look at this.
We've brought it down with our hikes and we did what we said we wanted to do, sort of perpetuating that maybe we can get this softish landing narrative.
Maybe we'll have...
a mild or a shallow recession.
But I just think it's, again, it's going to be the time lag is there's going to be, as they try to hold higher for longer, these things in the economy that can't withstand higher for longer are going to start, you know, snapping and breaking.
And eventually I think there'll be a big enough break that it's going to cause another crisis.
I don't know how long of time that's going to take.
But I think that's probably where we're headed.
And until then, I think we're just going to kind of chop around and have what looks like low growth and just kind of chopping around with these rates being held higher.
Since everybody here is going to stick with the fact that inflation is coming down, I'm going to have to play devil's advocate.
Now, to be clear, this may or may not reflect my actual beliefs, but somebody has to play devil's advocate, okay?
So what we did notice is that while PPI...
headline is down negative 0.3%.
Core PPI was actually 0.2%,
which means it's unchanged from last month.
And if you actually look at the CPI data, we're seeing the same thing.
We're seeing services and core be stickier.
So I do want to push back a little on this whole hypothesis that like, oh, inflation is definitely coming down.
We're going to definitely, you know, see this come down all the way.
I...
I think there is a world in which because services represents the large portion of the economy,
and again, I've put up in the nest sort of a breakdown of this.
And then also if you look at core CPI and core PPI, we're seeing both of them.
be way slower at switching than others.
I do want to caution victory.
And by my prediction is that they say the word skip, not pause, to be clear.
They're going to use the word skip because they're going to say,
hey, we're not putting rate hikes out of the question.
We're going to skip.
Shikar?
There, there.
There's nothing interesting to say here.
Can I address you asking me a question real quick?
Go ahead, Michael.
Yeah, Amy, I was just wondering in terms of rates where they are.
It seems like this has been being talked about probably for about two years now.
The Fed's been forecasting.
This was going to be close to where they end up.
Do you think the market could have already priced in a lot of the expectations for the slowdown you are predicting?
Or do you think that is...
that economic situation you were just talking about would be a new catalyst on top of what we've already seen priced by the markets.
That's a good question.
You know, I think the market priced them in last fall.
I think the market started pricing in something else in January or February.
So I do think that the market will be caught off guard where it's at now if what I said happens and
Um, yeah, in terms of what Donna said about playing the devil's advocate on inflation, I actually do think there's validity in that as well because and the main reason I think that is just because I think the way they've been measuring inflation has they've said that it changed last year. And I think that inflation has actually been running a lot higher than any of the numbers have said over time. So.
I do think there is, you have to leave a little bit of room for that inflation narrative, too, that it is possible that they're going to get it wrong.
You have to admit that there's a possibility that inflation could flare up again and run and you're going to be shocked.
But that's not what I think is going to happen.
David, what are you thoughts?
Sorry.
Yeah, so.
So the thoughts I had was yesterday was the first day in a long time that the real Fed Funds rate using the CPI actually went positive.
And it went more positive than it's been since 2009.
Before the great financial crisis, the real, like the Fed had a higher for longer policy.
They kept the real rates, the real Fed funds rate at a strong, like 250 basis points level for years and years.
And then the great financial crisis hit.
And from that point forward, it's been negative.
The last time it went slightly positive, just a little less than we are right now, was 2018.
And then they halt, like, the market, like, semi-broke in that December of 2018.
And the Fed was like, oh, crap, we went too far.
And they stopped and they stopped their tightening.
They started to ease.
They started to let the balance you rise up.
And then by 2019, they were cutting rates.
They had their quote unquote mid-cycle adjustment in 2019.
And so the market wasn't used to real Fed funds rate then.
Now the question is, are they going to be used to it?
Now we're just barely under 100 basis points now.
at a positive real-fed fund rate.
And the idea is higher for longer.
It's going to go up another 100 basis points at the next CPI print
because that last June of 2022 was the highest month-over-month reading of the cycle.
So this next one that's going to be released in July for the June release
is going to be another big drop in the year-over-year CPI.
But at that point, that's from the drop stop.
because that was at the July month-over-month number in 2022 was actually a negative number.
I was like minus 0.1 or something.
We went from like 1% month-over-month to a negative number month over month in July of 2022.
So the year-of-year declines are going to stop in the July release of the CPI after that.
So now the question is can the market handle...
real Fed funds rate that is nearly 200 basis points when we haven't had that since pre-financial
crisis and and then you know will they and I've always said this before too is the easy part
is getting inflation down and you raise rates you raise rates inflation comes down the heart part
as as Powell has alluded to by saying I'm not going to follow the Burns playbook
is to keep inflation down,
is they keep it from coming back up again.
That's the hard part.
And it's kind of funny to see that as much as he said,
you know,
last year,
we're not going to follow that mid-70s playbook.
They almost are following that mid-70s playbook
by tapering their rate hikes,
by skipping now.
I mean,
that's exactly how Burns did it.
And there's just a lot of political pressure
from the public pressure, I guess it would be the better way of saying it,
to not overdo it.
And so they are tapering and they're slowing it down.
And now the question like Amy said is,
will inflation come back up again?
That's the hardest thing.
It's not hard to get it down.
It's hard to keep it down.
It's hard to keep it from coming back up.
And in the 70s, even in 2008,
when it does come back up,
it actually comes back up to a higher level than it did the first time.
What's interesting is that we're going to see tech continue to rip.
There's no doubt about that, David.
The fact that people aren't seen hikes coming this time, tech is going to rip.
We're going to see certain, I would say, more consumer discretionary continue to rip.
And it's fascinating because it's not congruent with what the consumer is actually doing.
And so it's just based on discount rates and multiples, right, David?
I mean, it's crazy that we're doing.
And house prices are, I mean...
Yeah, and housing is going to continue to. I mean, the mortgage applications data came out this morning were strongly positive for a mortgage rate. This is under 7%. You know, six and, was it six and three quarters, I think they said this morning. Well, a lot of that was driven for financing, right? Because interest come down. I feel like we have to be intellectually. I'm curious. Amy, do you agree?
Yeah, Amy, what do you...
Amy, do you agree with David on that?
Because you and I've talked about that.
Do you think housing is going to continue to rip?
Well, the mortgage demand data came out this morning, Eugene.
So that's, I think, what David was referring to.
But Amy, what are your thoughts?
I think Amy has stepped away.
No, I'm here. I'm here.
Sorry, you may have all heard my daughter scream, mom.
That's been addressed.
So, yeah, in terms of...
Housing, I feel like, is kind of in this weird intermediate phase right now.
And we're seeing like month over month changes where it looks like we're getting little spikes of activity and then they're pulling back again.
I think housing's going to continue to sort of stumble along until we have something larger break in the economy.
I don't see housing come down.
More than just kind of gradually unless we have unemployment go up or unless we have some other major thing in the economy break that's going to cause, going to be a driver that's going to cause it to back off.
Because for now, there's just no reason for people to.
sell their investment properties.
They're not in distress.
Housing's holding steady for the most part of me.
It's maybe down.
I think nationally it's tiny bit down and a lot of regions is not down.
And in other reasons, it's significantly down.
But yeah, I mean, I think housing is kind of
trying to adjust to these higher rates right now.
But again, I think it's going to be that lag effect in a matter of time where it's going
to take a big blow to another sector of the economy, which could be commercial real estate
and that banking sector, that's going to have a domino effect that's going to spill over
to residential housing.
But for the near future, I don't see anything like that's going to cause residential
housing to just like plummet this summer or anything like that.
Oh, interesting. I don't know if I agree completely. That's so fascinating. I'm actually kind of convinced that there's going to be like this contagion effect in real estate. But you know, everybody is. This summer? No, but not this summer. That's fair. I think by the end of the year.
Okay.
That's my crazy, crazy black swan event that I think people think are going to lead to rate cuts.
That is, that is the reason why the market still is thinking possible rate cuts by the end of the year, which is crazy unless there's a black swan event.
That's all, but I don't know.
David, not David, sorry, Bill, thank you for coming up.
I wanted to get your thoughts and have you weigh in as well.
Yeah, thanks for having me.
A few things.
I think inflation is going negative.
I think these...
uh, reports are trailing indicators and they don't actually paint a picture of reality.
And the reality now is, is that, uh, I do think inflation is going negative. I think the, uh,
2% narrative is nonsense. I think, uh, they've managed to break pretty much, they mean the Fed
have managed to break pretty much every growth model I look at. I think, um,
Yeah, I mean, I'm, I think there's going to be a V-shaped recession.
I think it's been priced in pretty much already at the margins.
Everybody looks for how, what's the direction?
And I think we're going to be pricing in more tech gains.
I think crypto's bottomed, you know, maybe, maybe Bitcoin 20K, but but I think it's mostly
bottomed.
And I do think people are going to be very surprised at risk on asset gains.
With the exception of real estate, I think at these levels, even at the margin, if interest rates start to come down late this year, early next year, I think real estate's going to be in the doldrums for a while.
But...
That's kind of the trailing indicator on this type of change.
So I'm bullish on, you know, kind of risk on assets because I think that everything is breaking.
And you're going to basically go from, hey, let's just wait and see what happens, pat ourselves on the back.
We've got it under control.
Yeah.
to wait a minute, you know, all of these high convexity bond portfolios that went to shit, they didn't actually go away.
Everybody forgot about these bond portfolios back in in Q1 and well, you know what? They're still there.
and they're still basically in the red.
And so I think they have a problem.
And it would be interesting to see as they start to fill the Treasury's coffers,
how they reconcile these conflicting nightmare scenarios that they've created.
And I'm sorry to sound negative, but I think the big winner here is going to be the risk on assets
because they're going to have no choice but to pump massive liquidity.
into the system and they're also going to have to fund this re-rating of massive amounts of debt
which at these rates they can't afford to do because everything will just break even more.
Interesting.
David, what are your thoughts on that?
I was going to say that this idea that we've priced in recession,
this might be the first recession that we've priced in,
where long-term bonds are extremely oversold as part of that pricing it in.
Usually good bull markets start with a peak in long-term bonds prices.
But long-term bond by TLT, which kind of gives you an idea of the longest-term bonds.
I mean, it is like...
30, 40% below its 200-week moving average.
It is more oversold than that particularly ETF has ever been.
Totally agree.
It's extremely oversawed.
So that's how typical market starts.
But how does that affect our understanding of how this is going to go?
What does this do to our base case, though?
I mean, does that mean that it automatically points to a more recession?
That would be my...
Nothing's automatic.
Yeah, I mean, nothing's automatic.
What I'd say is...
Yeah, the typical cycle is, you know, you have, from a technical analysis standpoint,
you have the rotation into currencies, into bonds, into stocks,
and into commodities last, like commodities peak last in a normal cycle.
Well, the dollar had its run, its bullish run during that correction.
During last year, 2022, the dollar had a really good run, obviously, going back,
But bonds, before that, the dollar had dropped, bonds had dropped significantly, obviously, with all these rate hikes.
But now bonds still haven't gone up yet.
Like stocks haven't really, like stocks came down to the 200-week moving average last year, but never went through it at all.
So you haven't really had the same move in stocks that you've had in bonds, which typically happens when bonds rallied.
So, you know, at what point in time will bonds rally and put pressure?
I mean, because bonds are a pretty darn attractive alternative right now.
They never have been for like, you know, multiple years,
but now their long-term bonds are pretty darn attractive alternative.
They actually have some yields, not very much, but there are, there is some there.
And, you know, when will that, when will that asset class make a run to the upside?
And what will equities do?
And if they can both go up at the same time, stocks and bonds can both go up together.
But if they do, that is actually a reflection of an inflationary environment, which goes
back to what we were just talking about.
Getting inflation down is the easy part.
Keeping it down is the hard part.
So if bonds do go up with stocks, then that means inflation is going to come right.
That's going to be a situation where inflation is coming back up again.
Yeah, it's fascinating. Jeff, wanted you to weigh in a little on this. What are your thoughts?
at least on the supply side.
I agree a lot of what Bill said, a lot of the other speakers as well in real estate,
Amy and so forth.
On the supply side, I mean, the PPI is telling you that input prices are coming down.
A lot of its energy, but energy drives a lot of input prices for manufacturing.
So, you know, I'm worried that this is going to, you know, this is actually, this could actually accelerate.
further.
So it's something that we, you know, we need to keep an eye on.
And I just, I, I'm totally with what Bill said.
I think the Fed has really overdone this.
It's going to play out over the next couple of months.
It's also getting deep into the political...
season as well. And I was laughing when when David brought up the, you know, he was bringing up
brightly so the comp back to last year and how it's going to roll over from, I think, July to
August. That's when our administration got up and said we had zero percent inflation,
which was funny at the time. And so, yeah, I, I, I,
From a manufacturing perspective, you know, a lot of this is just, is just come off.
And now what they're dealing with are labor rate and labor availability issues.
Those are the those are still, you know, challenges, but at a much, you know, much smaller extent.
So, yeah, it should be interesting to see.
I think if there is a recession, it'll be pretty shallow and quick.
And it'll be.
You know, it could be technically the second one that we've had in the last two years.
If you think about the two consecutive quarters that we had last year of negative GDP growth.
So it depends how you call them.
But, I mean, if you use that as the definition, we've already actually had a very short one.
Yeah, so, you know, pivoting away now to today's big, at 2 p.m., the Fed meeting ends,
and we get comments and we get the new decision.
Is there anyone here that is willing to speak up and tell us that they're going to do a rate hike?
Does anyone believe that there is even a possibility of a rate hike?
Raise your hand. Anyone.
No chance at all.
If there's anyone that's listening...
and, you know, and things that were all wrong and that they're going to do a giant rate hike or a 25 basis point rate hike.
Go to the bottom right.
Say that you think that's going to happen and tell us why and we'll bring you up.
We will bring you up if there's anybody because if nobody can defend that, then, you know, we're not doing a good job.
So go ahead, Nicole.
I don't think it's going to happen, but I'll make the case.
There's a lot of people who have made the argument.
I'm not saying on this panel of the hall, but you hear it all the time that the Fed –
needs to get rates higher because risk assets and AI and all this stuff is running.
I think if the Federal Reserve really wanted to put a damper on that, which personally, I don't
think they do. I don't think they're watching those markets like that. But if they did,
I think this would be the perfect opportunity to catch everyone off guard, hit them with a rate hike,
and really get some fear in those risk asset markets. But that's really all I can see for that.
Can anyone make a case?
Go into the comments on the bottom right,
talking about risk assets.
If you're building a new startup,
which is considered a risk asset,
IBC incubates and accelerates AI companies
that we were just shitting on,
partnering with VCs and funds,
which I think we were also crapping on,
to work with their portfolio companies
in return for equity and zero cash.
If you're interested, please do DM.
Mario and his team.
Of course, lots of jokes here, but they are really interested in AI and Web3 companies.
And if you are building one and it's real, trust me, there's a way to work with IBC on that.
And then they're also doing Shark Tank style pitches on these topics.
And any startup or portfolio company, please do reach out.
That was not one of my best, I will say.
But I'm happy that I got it done.
Go ahead, Jeff.
I was to say, I don't know if anybody's looked at Fed Fund futures real time or not.
I was going to go try to take a peek if it, if July changed.
You know, did June go to 100% basically?
It was pretty much, yeah.
And I think in July, people were expecting, I have not seen this morning.
Jeff, can you do a quick look?
It was last I looked.
It was 65% for a hike in July.
Yes.
I wonder if it changed after PPI came out as my point.
I mean, it's confusing.
It's 55.
Go ahead, Matt.
Oh, it did.
Matt, go ahead.
Yeah, I was just saying it's a 55.9 right now.
Yeah, but the question is why, so to me, right, how does that make sense in terms of a base case, right?
That means that the market is expecting that in July there's going to be a 25 basis point hike.
It's confusing.
It doesn't make inherent sense.
Are people expecting...
inflation to be sticky?
Is that what this means?
Yeah, I think, you know, there's a lot of debate
whether it's sticky or not.
And part of it is it's been referenced today.
We look back one year right now,
and it's easy to say, well, great,
inflation's been half to over one year.
Look at two years, we're up 400%.
you know and again i'm not making the the case for against but i but i definitely can see
how you can make the case that they may want to you know put the brakes on a little bit more
because it's just like everyone's been talking about it's one thing to get it down it's another
thing to keep it down and and i think he said pretty pretty straightforward from day one
you know we're going to beat this long term um so whether they're right to do it or not i'm not
making that case but i definitely could see the case
from the Fed standpoint
why they might want to
and just a little tinfoil a hat
or keep in mind
the Treasury has got to raise
about a trillion dollars
this month
so it might be
kind of a nice little nod
to Janet
to not raise 25 basis points
this month.
Total tip foil hat.
That's not 10 foil hat
that might actually be true.
Jeff, go ahead.
Yeah.
Jeff, you unmuted.
Yeah, no, I was just going to say that Fed Fund, you know, July was, I think, at 75 or 80 percent at some point in the last week or two.
And then it was down to, I agree with like 65 or 67 percent.
And I was just looking it up.
I think it's going on.
So I think we're going, the point is, I think we're going from a hawkish skip to maybe a hawkish pause today.
Yeah, which is a hilarious comment, a hawkish pause. What a weird. So for people that don't
understand the difference between a hawkish skip and a hawkish pause, is
is that a lot of times the Fed doesn't quote unquote pause this skip.
And what that means is that, hey, we're letting you know that this does not mean that this is the end of rate hikes.
We might just skip a month, watch the data because we agree that there is a lag in the data.
And next month, I'm just warning you, we're going to continue to stay hawkish and we might raise again.
It's sort of like a little comment.
conversation between the Fed and the markets and the Fed saying like, look, this is what's going on.
Don't get too excited.
But a hawkish pause is saying, look, we're not taking everything off the table, but we're
pausing for now.
And it's very rare for the Fed to pivot the conversation and say, hey, I know we paused last
month, but this month we're going to raise.
So that's why they use skip versus pause often as a way for people to know.
Just in case you hear that.
Now you know where that comes from.
Bill.
Yeah, really interesting tweet from Zero Hedge a few minutes ago.
Biden has SPRed oil to deflationary PPI levels.
This is hammering headline CPI and containing inflation, containing in quotes.
Meanwhile, Chinese stimulus has a six-month lag.
Fed will pause, in parentheses, maybe even cut just in time for the next commodity shock
as Powell goes full 1970s.
Really interesting.
Okay.
Interesting. I don't know if I agree with that. David, do you agree with that?
No, no, I don't. I think the really key release to watch
until the next Fed Media in July is a jobless point.
Like, we had a big spike last week.
Was that an anomaly?
If it's an anomaly, we go right back down.
And then, you know, as Neely always talks about the revisions to that employment data,
you know, that's going to be the key to watch until July to see whether or not they hike again
or whether they actually do pause for a while.
But if claims start to ramp back up again, that's going to be exactly what they're looking for.
Yeah, and by the way, I'm going to listen to the crowd today.
For people that are listening, if you want us to cover FOMC live, go into the comments on the right and tell us if you want us to cover it.
And by the way, who do you want up here?
You can name anybody and our team can get all kinds of people, even Robert Kiyosaki.
I'm interested to see if anybody will name him.
but please don't
For my mental health
Please do not name Robert Kiyosaki
But go to the bottom right
And tell us if you want us to cover the FOMC meeting
And if so, we'll try our best
But go to the bottom right
And let us know if you want us to cover it live
It'll be around 2 o'clock today, 2 o'clock Eastern
Sorry, Jeff, you unmute it
Jeff, do you want Robert Kiyosaki to join us?
No, you and I are in good terms, so no
Sorry, Jeff. You were about to say something else, though. Go ahead.
No, no, I just think the timing of all this is very interesting.
Is Biden still releasing oil? I didn't know that.
My understanding is yes. I mean, Bill, can you go into a little bit more details on what Zerohead was talking about?
And I actually am kind of curious to hear your thoughts, Bill, about whether you think that that's a real possibility.
No, I actually didn't.
I was just curious, like, why they would post that because usually they don't make,
I don't know if they were being sarcastic, to be honest.
My understanding was they were actually replenishing.
reserves not
yeah because I thought reserves were an all-time low or something right now
yeah no I think I read three days ago that they were replenishing
but I don't know if that was a one-time thing
or if it was just the replenish of a recent release I don't know
but I don't really track that that closely but what they were saying in the
tweet didn't actually make sense to me
I stand by the statement that I think inflation is going negative.
You know, I think Trump was probably right that they should have replenished a long time ago
and bought up reserves when oil was free.
And they missed that boat.
But, you know, 60s, I guess, is better than 110s if they are.
But no, I don't agree with what they were saying.
Yeah, it's fascinating.
Dakota, what are your thoughts on today's meeting?
What are you expecting?
I mean, like I said, I've been calling for a pause for the last month.
You know, I just back to the oil reserves things, the Fed or the government did initiate 6 million barrels of contracts or something.
I think they funded $3 million, and there's an additional $3 million that will buy in the next 60 days.
Okay.
So that's where we're at there.
Interesting.
Is there anybody here still?
I'm listening.
I'm waiting for somebody to let us know why there could be a surprise event.
Okay.
So we made the general consensus is there's going to be a rate pause or skip?
What are they going to say?
What word?
It will matter for the markets, I think, surprisingly.
Stock, what do you think?
They're going to do pause or skip?
The market is pricing in a pause right now, about a 95% chance.
So if we did see a, let me just pause my, if we did see a rate hike, then I think the market would tank.
But so initially what I'm assuming is we'll see a pop and then hawkish commentary on the back.
And when they do Q&A, that's just my assumption.
So do you think they're going to use the word skip or pause, though?
That doesn't matter.
Yeah.
It definitely will matter.
They want to see how the market's going to react to their commentary because we're in an uptrend.
And so if you think about inflation, they said it's here to stay.
You're going to have to put your money to work.
And so the majority of people are living paycheck to paycheck about 72%.
And so really the divide between the rich and the poor is going to continue to grow.
Just because as you've noticed, retail is extremely bearish up until the last 15-point run.
So a lot of people are chasing this run.
And so I think we could see some sort of consolidation, especially when you look at QQQQ as the RSI is about 81.
And so it would make sense to pull back slightly just to continue up this uptrend.
And that would kind of cause people that chased to then sell because they get bagged.
And then it consolidates and then we move higher too.
What I'm going to see is, or what I'm expecting is the top seven stocks that led the market,
those will pull back a little bit.
And then you'll see the other 493 or the SP 500 rotate over.
And so we'll move from tech, probably to health care, is my interpretation.
Just from what I'm seeing on stock charts with the rotation graph and a few other variables as well.
Oh, interesting.
So any final, Cody, go ahead.
Yeah, I was going to say, I do think it is really important to look at China right now, too, right?
They're initiating stimulus.
That kind of gives us, you know, some breathing room to pause here.
You know, do I think that rates could go higher?
Sure.
I mean, there's an argument there.
Do I think they will?
Absolutely not.
Yeah.
You know, I don't think the Fed is as worried about inflation as they continue to claim.
I think they're much more worried about dollar stability, treasury stability, than anything
else. And in some regards, oil, right? That's why we've been releasing SPRs and putting pressure
on the broader markets to drive down inflation because we have those mechanisms. But
But, you know, I think that the treasury markets and the currency markets are really what they're focused on for foreign attacks with regards to where our debt levels are at currently.
Fascinating. Now, I wanted to, I think I put it up there.
Safe excellence, thank you for tweeting it out.
Raid hike because Fed is always behind the curve.
You know, I would disagree with you, but they always are behind the curve.
So on that note, I believe we may be covering FOMC, but if you're interested...
Continue to follow us.
And it might be Rand.
It might be Mario and other people.
But I believe we're going to be covering FOMC.
So we'll see you guys at 2 p.m.
Thanks, everybody.
Have a wonderful day.
See tomorrow at 8 a.m. Eastern.
Thanks again.
