Is AI a Mistake? (EP. 452)

25:58I know there's a lot of babies being thrown out with bathwater here. I want nothing to do this because I think the back and forth on this is going to go on for years. Yeah, could be. So let's talk about some of the, in defense of SaaS names. So this one was by Finbar Taylor. Ripping out your system is not like switching from one note-taking app to another. ServiceNow implementations can take 12 to 18 months. Workday migrations are multi-year projects. The switching cost isn't the software license, it's the organizational upheaval. Ding, ding, ding. Here's the thing. If the only thing standing between you and your competitors was that your features were slightly better, you were already in a commodity race.

26:36AI coding tools don't change the fundamental dynamic. They just accelerate the clock speed. By the way, S &P Global is not in the crosshairs. Like the market is wrong, I think. We'll get back to that in a second. But here's what people miss. That race is now one that everyone runs at exactly the same speed. If your competitor can vibe code a clone of your feature in a weekend, you can vibe code a clone of their next feature in a weekend too. AI is a symmetric weapon. It doesn't selectively advantage attackers over incumbents. In fact, it arguably advantages incumbents more. They have the existing user base, the distribution, the data, and the brand.

27:11They can ship AI-powered features to millions of users overnight. A startup with a weekend project still needs to acquire every single customer from scratch. And this, to me, was a coup de grace. There's a fundamental truth about enterprise software purchasing that the SaaSpocalypse thesis completely ignores. And this is the human element, Ben, that we say that these people, these tech dorks just might not appreciate. When you buy software for your company, you're not just buying features. You're buying someone to blame when things go wrong. You don't always pick the cheapest option. You don't always pick the most innovative option.

27:45You pick the option that if it fails, you can defend to your boss. We went with Salesforce, is a defensible sentence in any boardroom in America. We went with an app I vibe-coded over the weekend as a resignation letter. This is the same dynamic that kept IBM dominant for decades, and that keeps McKinsey and Deloitte in business despite armies of cheaper, often smarter competitors. Enterprise buyers optimize for career risk, not unit cost. They want a vendor that - I was just about to say career risk. That's like, he nailed it. They want a vendor that will still exist in three years, that has a support team that they can call at 2AM, that has a track record of not losing their data.

28:17So I guess what I think with these names is, yeah, there's more than a kernel of truth. The re-rating is appropriate. I just think that the market will overreact. And in my opinion, it has overreacted. It is interesting to think about how the fact that these, you're right, if this stuff becomes a commodity, what's the differentiation? So Josh had a good piece that talked about the difference between Intel and intelligence. And it's like qualitative versus quantitative. And if everyone has access to these tools, then everyone's on the same level here, right? Like what's the differentiation? So why would a weekend company come and beat the incumbents?

28:53It just ignores like what we know about human beings. Who was the author of the article you shared this morning? I don't know. I'm starting to worry that one of these articles is going to be created by a fake bot in an AI. And it's going to get us all because we never heard of this person. There's another SaaS one. All right. So this was from Nicholas Bustamante at Nick BSTME. And he said, here's the thing the market already understands. And this is very good because this is the stock perspective. mixed in with all of this. So bottom line shit. You don't need revenue to decline for the stocks to crash.

29:31You need the multiple to compress. A financial data company that traded at 15 times revenue when it had a pricing power and 95 retention might trade at six times revenue when the market believes both are eroding. Revenue stays flat. The stock drops 60%. That's exactly what's happening to some companies right now. The market isn't pricing in a revenue collapse. It's pricing in the end of the premium multiple because the modes that justified the multiple are dissolving. So he breaks down these companies, these vertical software companies, into does it have proprietary data? Does it have regulatory lock-in?

30:03Does it have embedded transactions? And then what's the risk level? So if you don't have those things, you are in deep shit. So FactSet, for example, has none of those things. But S &P Global, like a ratings agency, this is like regulatory stuff. An LLM can't slap a rating on any of these companies. well you don't think you can do you don't think you do credit analysis on ai that's not the point these companies need to be right you're right they need it's it's career risk and they don't no it's not career risk it's it's not career risk they need to be rated by a legitimate ratings agency you can't spin up a ratings agency it's not about the technology right okay that that makes sense but i agree here the the whole because one of the things people don't recognize is the fact that valuations are just emotions.

30:50Like, how do you feel about something? How do you know if the valuation should be 20 times or 10 times or 15 times? It depends what people feel. Yeah, you can't. So that's a very good point. Okay, let's move on to talk about the stock market because we're going to keep having this AI conversation for a long time. And again, I'm not trying to poo-poo AI. I'm just thinking, I'm trying to do the beauty contest thing where I try to think about what other people are going to think. And I think, I don't know, call it 60 % of the population within 10 years is going to say, let's go back. I don't want this.

31:20I think that's a real possibility. Inequality is going to get worse. White-collar jobs are going to be disrupted and people are going to go, you changed way too much. I don't like this. I think that's a real possibility. Do you think in 20 years there will be people that are married to robots? Of course. I'm not kidding. I know. Like robots that look and feel human. Yes, and they'll be able to say, you treat me this way and this is your personality. That wouldn't shock me. No. Not at all. It's going to be a weird, weird. And I'm worried about what AI is going to do to just videos and social media and like that kind of that part of the thing scares me.

31:59I don't think that the tech overlords are going to put any guardrails on that at all. I think they're just going to let it be wide open. Netflix will have a reality show with people and their robot spouses. Oh, or can you tell the difference between is it a real person or is it AI, right? Who do you want to date? All right, so you had a chart that went viral last week. This one mega viral, which is kind of funny because this is like a detailed stock market. So you talk about the fact that 115 stocks in the S &P have declined 7 % or more in a single day in eight sessions. Not quite 20 % in a day like I talked about with NVIDIA.

32:33And the average drawdown when that happens is usually 34 % and right now we're basically at all-time highs. And just your whole point was like, seeing this amount of volatility in single names, this is the kind of thing that happens in nasty corrections, in bear markets. and it's happening while we're basically at all-time highs, what the hell is going on? I'm still bullish for the record. I know there is like some late cycle market stuff happening, like the rush into staples. And I don't think that the rest of the market needs to catch down. The fact that the rest of the market is holding up so great in the face of all this disruption that's being priced in, I think that's, you're right, that's a bullish signal to me.

33:10Like I think the macro backdrop is still healthy. And listen, I'm not talking about a 5 % correction, right? Right? Those are always 5 and 10 and even 15 are really always on the table at all times, even in bull markets. But one of the interesting dynamics of this current market is that the bubble we were promised is not so bubbly. So bespoke as a chart, here's a look at the Nasdaq 100's action of the year leading up to and the year after its March 2000 peak versus its action in the year leading up to its 1029-25 peak. So if that was the peak, by the way, that was the Nvidia day, I think, right?

33:46Was that the day that Nvidia opened up 4 % and closed down like 5 % and it was like a really nasty outside day? Anyway, this is a weak-ass market compared to the dot-com bubble, obviously. So I guess just juxtapose that with if people thought that I was comparing this market to the dot-com bubble because that's the last time that this dynamic happened, I wasn't trying to do that. Well, and the fact that the rest of the world is going off right now so mike zaccardi has says u.s versus world x us is off to its worst start to a year in decades so they look at all these different years and this is the spread between the two i i mean we're whatever a month and a half into the year but the rest of the world is absolutely taking off and this this is like the catch-up trade and i know there are a lot of people who poo-poo this and say, zoom out, look at the last five years, seven years, 10 years, the U.S.

34:42has crushed international stocks. And that is a great stance to take over a 12-month period. I get that. But if this goes on longer than that, you can't keep falling back on that event. If this trend really takes hold and equal weight works and small cap works and you can't keep saying, well, what about large cap outperformed before? Eventually, that point loses its luster. Yeah, that's true. I thought this was a really good observation by Vivek Arya, Bank of America. Okay, investors are simultaneously pricing in two mutually exclusive scenarios. Either AI CapEx is deteriorating to the point that it won't deliver ROI, so it's bad for the AI thesis, or AI is so powerful that it will destroy all software companies.

35:30Both can't be true at the same time. If AI is powerful enough to destroy SaaS, then the companies building AI infrastructure are going to see massive returns. And if AI infrastructure spending won't pay off, then AI isn't actually powerful enough to destroy SaaS. See? This is another middle grounder. He's saying, take the extremes out. I'm a middle grounder. There's dozens of us. The market is in a fog of fear, and fear doesn't do nuance. Well said. That's really well said. That last line feels like AI might have written it, though. See, that's... You know, though, I tried, I did, I uploaded every chapter of my book when I got finished it.

36:09I would upload it to ChatGPT or Claude, and I would ask for feedback. And sometimes they would say, can I rewrite this for you? And I'd say, yeah, let's see it. And I can still tell the difference between AI writing. Like, I saw some guy on Twitter the other day say, hey, I just wrote 90 ,000 words today for a book I'm writing with open AI. And I just don't think people are going to want to read that. I don't think people are going to want to read AI stuff. Maybe I'm wildly off base here. I feel like you can still tell what is written by AI. Maybe that'll get better. I just... It definitely won't get better.

36:41Don't you think? Don't you think that... You're going to be able to say to it, make this look less generic. Throw in a typo. Throw in, make it look like I wrote it. I mean, I'm pretty sure it's going to be able to do that. I still think the human touch, like, I don't... I know people will watch slop videos. We're already seeing that. but I don't think we're going to have this paint by numbers where you're going to be able to create your own TV shows and movies and it's going to be high quality. I just don't believe that. All of the best stuff comes from personal experience. All the best movies, all the best TV shows comes from personal experiences.

37:16You can't create a good comedy using AI. I'm sorry, it's not going to happen. It's not going to be funny because the funniest stuff comes from personal experiences that people have had. Super bad was Seth Rogen and his writing partner, Evan Goldberg. it was some of the actual stuff that happened to them in high school. And they wrote a movie about it. Like, AI can't recreate that. It's never going to be able to. That, I will die on that hill. Okay. Gungeon from the Wall Street Journal. The average stock reporting so far this earnings season has moved 5.2 % up or down. The biggest post-earnings move since at least 2012.

37:54And a bunch of stocks moving more than 15 % after earnings. So, yeah. I mean, the individual stock market is getting damn volatile. AI is opening up the VIX, I guess. This is interesting. This is from MauiBoyMacro. I don't know where this came from. Maybe this was one of the chart of the day things. It compares operating cash flows as a percentage spent on CapEx versus buybacks for S &P 500 companies. And buybacks peaked in 2022. Funny and interestingly enough, when ChatGP came out. And then since then, CapEx has taken off. So CapEx went from, sorry, buybacks went from 46 % to 15 % of CapEx operating cash flow.

38:34So way more money is being spent on CapEx now than buybacks. It totally reversed. And it's funny because for years, people kept saying, buybacks are pointless. What are they doing? How much good in the economy can these be doing? And now companies are finally investing. And there's certain people who hate that. This is like, I think this is companies finally saying like, okay, fine. We're doing something. Warren just wrote about this too. And I can't remember exactly what the max seven were doing. Like obviously an overwhelming amount of the buybacks, which was definitely helping put a floor into these stocks or tail end or whatever.

39:11And if that's going, if that's going now the other direction, yeah, could make for some more volatility. All right. This is news to me amongst all the crashing stocks. Yeah. we are in the middle of the highest quarter of revenue growth for the S &P 500 since 2022. Huh. 9%. Or 8.3%. 9 % is expected for next quarter. Is that wild or what? Like lost in all of this because we're just looking at the stock prices. And this is as inflation is stabilized. You can't say it's just higher prices. because it's continued to go up, even as inflation has been falling. That's interesting. Okay, so remember a few weeks ago, we talked about are Japanese bond yields rising good or bad?

40:05And you said, no, maybe it's neither. And then I went and listened to that podcast about the PIMCO CEO on OddLots that you told me about. And he was saying, no, I think this is a great thing. This is good. The Japanese economy is opening up. No more like financial repression. And so I pulled some of these things where people compress the charts and show like, oh no, this line is going up. It's really scary. And it was like, this one tweet was like, at what point does something break because Japanese bond yields are going up. They surged to a new record of 3.5%. And this other guy says, oops, the slump in Japanese bond yields deepened, sending yields soaring to records and saying like, this is bad.

40:36And then look at Japanese stocks. They are going nuts. This is absolutely a good thing. There's no more financial oppression. Japan is allowing rates to rise. They're allowing inflation to rise. And Japanese stocks are going crazy after going nowhere for 30 years. So people that worry about, oh no, line going up, bonds, that must be bad. this is actually a good thing because in the Japanese economy, they're pricing in higher inflation and higher growth. Fair? Looks it so far. How about this for a mind blower? This is just over the past 12 months. In Japanese, this is MSCI Japan is up over 40%.

41:08The S &P is up 16 or something. So it's killing it. The MSCI Japan ETF is outperforming the S &P 500 over the past five years now. How about that for a stat? Wow. Five years is a real time horizon. We were talking about this the other day. International small cap value stocks are beating the Nasdaq 100 over five years. Just crushing. They're going nuts. It's like, that sounds made up. International small cap value stocks. Things that work absolutely left for dead. All right. This is a story from the Wall Street Journal that you and I have been all over. Gen Z, locked out of home buying, puts its money into the market.

41:44Actually, I would say you were all over this because I I think I found this hard to believe. I think I poo-pooed this. Like, come on, they're not actually doing this. But no, they really are. All right. The share of people 25 to 39, making annual transfers to investment accounts more than triple between 2013 and 2023 to 14.4%, outpacing increases from those 40 and over, according to JP Morgan. Share of 26-year-old who transferred funds into investment accounts since turning 22 shot up from 8 % in 2015 to 40 % as of May 2025. These numbers do not include 401ks. So this is just brokerage account stuff.

42:20and they interview these people and two people and because we've we paint a lot of this stuff about not being able to buy a house as a really bad thing and this person says uh what you get for your money right now and how much of it is going to uh interest feels hard this is a 33 year old i can just keep renting and have more flexibility with my money and see she now thinks she could be content never buying a home um i thought and i thought the numbers would actually be worse they have this number for home buyers so the share of young people in the housing market has plummeted since the turn of the century that's not a surprise to anyone right But it says Americans aged 18 to 39 made up 51 % of homebuyers in 99, but only 40 % in 2025, according to Redfin.

42:57That doesn't seem plummeting to me. Don't you think that's higher than you would have thought? The share of those 18 to 39 is relatively high still. That is way higher than I would have thought. Sorry, I just got distracted. We've had this conversation like when your kids start texting you. Yes, it's very weird. so meet us at echo echo is the the restaurant we've been going to for breakfast apparently kobe discovered that he likes pancakes meet us at echo with tip love kobe um because yesterday i was like saying to robin oh no i feel bad i don't have any money uh let me go back to the room and get money to tip these people and kobe's asked me what a tip is.

43:43And I told him, these people work off tips. I was a waiter. I used to work off tips. So anyways, I said, was this really from Kobe? He said, yes. Love Kobe. So I sign off. All right. Let's look at this. So if you look at the labor market, it's funny. We're talking about AI disrupting all these jobs. And I think what's happening now, though, is companies just aren't hiring as much anymore. They're not really laying people off. Because look at this. This is the labor force participation rate from 25 to 54. That's called prime age. It's basically at the all-time high now, which was reached in the late 1990s, back to 84%.

44:21And this is not people dropping out of labor force. There's more people than ever in the labor force in this prime age. Because you want to look at prime age because so many baby boomers are retiring. So 25 to 54, this is back at an all-time high for labor force participation rate, which was falling pretty much since the turn of the century until the pandemic. So how do you square this with the fact that AI is changing everything? Because obviously it's not happening yet. Let me post you two possible outcomes. Surely neither of these will be right. But option one, everyone's head is in the sand.

44:53They're not head in the sand. People are just naive and oblivious to what's happening. And we wake up and overnight wipe out. Like unemployment goes quickly from 4 % to 8%. option two, same course. People are naive, don't understand what's going on because they're living their life. They're not listening to our podcast and every other podcast. They're not reading a million subsets. They're just living a normal life off of the internet. And in 12 months, all of these fears have dissipated because all of these companies are the ones benefiting from AI and they're incorporating into their workflows and life goes on.

45:29And yes, in option two scenario, people will be displaced the email earlier jobs like that um i think it's a very plausible outcome so i guess you you could say what if what if ai takes the unemployment rate from four percent to six percent and six percent was about what it was for most like the 80s and 90s and there are that's i don't know three million jobs disrupted and it's painful like is that doesn't i don't know It doesn't, I know AI is different because it's the culmination. It's the, it's the whatever, the ultimate technological disruptor. It's the end. It's the, it's the, it's the, it's the Mike Tyson.

46:13It's Bowser. It's the final boss, as they say. But doesn't, doesn't history just show that with every technological advancement, things get better? This is maybe, and maybe this is the one that proves everything else wrong. I think you could say social media is the first one where we go. I think if we could snap our fingers and get rid of social media, society would be better. I agree. I mean, that's not controversial. No. I think that's one. But you're right. And I think this is a different – this is way different than social media, obviously. All right. No, I guess just specifically, I'm talking about just this dystopic fear that we're living with of massive, massive job destruction, end of times type stuff.

46:58That's not the course of human history. No, the course of human history is there are people - We figure it out. We're resilient. We survive. We're dynamic and we will make up new jobs. That's kind of probably where I land on this whole thing. And people will focus more on the downside because yes, nobody's minimizing job casualties and real people's lives. And like, you know, that's the way the world works. All right. I think the way the world works now is that economic data is so granular. And again, I hate that word, but it's really useful here. That I think economic data is so detailed now that it exists to only make certain groups mad all the time.

47:35Like you can't have economic data and not make someone mad. So Axios has this piece on the share of U.S. consumer spending by age group. And it's 54 and younger and 55 and older. And 55 and older is slow. it was below 30 % back in the turn of the century, and it was over 70 for 54 and younger. Now it's almost converging. And I'm guessing in the next 10 to 15 years, this thing might even flip. And so now it's like 55 and 45, where 45 is 55 and older. And it seems like you look at this and you go, oh, those damn baby boomers. They get to spend everything. They have all the money. They have all the wealth.

48:10Is this healthcare spending, or is this like they're just, they're enjoying their life more because they're healthier? Well, look at the next chart. I had Gemini make this for me. The percentage of U.S. population 55 and older. It used to be way lower. Now it's higher. Oh, okay. Well, there you go. There's more older people. That's part of it. You cracked the code. I mean, part of it is, yeah, boomers are, but it's a bigger percentage of the population. All right. Credit to you. Okay, good news of the week. I feel like we've been kind of dire today. But the thing is, here's the thing. The tech people, they're the ones fear-mongering.

48:43They're doing this to us. I don't feel dire. I feel like... No, I don't either. I'm of the mind that, with you, the U.S. economy is dynamic. We're going to figure this out, even if it's painful to get there. But you have to call it like it is. The fears are not unfounded. It's not crazy. No. But I think we need to push back a little bit and not give in. All right. This is from Gail Pooley and a subject. Someone shared this on Twitter. Discretionary time, so it's the amount of hours you spend in a life. How many are work hours? How many are leisure hours? And in 1880, something like 20 % of all your time was spent in leisure.

49:2280 % of your time was spent working. And it was really hard and it was bad conditions. By 1995, it was more like 60 % leisure, 40 % work. And by 2040, people think it's going to be, it's estimated it's going to be like 76 % leisure and 24 % working. So this is kind of the Keynes thing about in the future, we can automate a lot of stuff and people will do less. I think this is one of the reasons that people are so miserable though because we have way more time to spend in our head and think about stuff and complain. In the past, people's lives were so much harder. They didn't have time to complain and think.

49:59It was like, I'm working because I have to work and I'm going to work till I die. And now like having so much time on your hands and being so much - I don't know about that. You don't think having time to like just sit and be alone with your thoughts is bad for a lot of people. No, but I just, I don't, I think I might reject that premise that people used to work and not have time to think. And now we, I just, people are people. Everyone, we all, like awesome people 50 years ago have the same fears and the same this and the same that. Yeah, we have more, I mean, there's obviously differences in the way that we live, but I think just psychologically, it's the exact same.

50:33I just, my whole contention is that I know people think like, oh, nostalgia for the youth. Like things really were different in the 90s because you didn't have all this stuff shoved down your throat all the time. I think that's a big part of it. Yeah. A lot of it is better, but... But a lot of that leisure time is spent scrolling through your phone and looking at it and going, oh my gosh, look at how bad this is. I don't know, man. We've said this before. A lot of my leisure time was me staring at a window. I vividly remember staring at a window, my front window, and just being bored. And my friends are away or whatever.

51:08Just nobody was around. and boy did i watch a lot of movies on usa and tbs when i was growing up he was like fine that's how i know the whole 80s catalog i'll watch macgyver i guess right um speaking of uh thanks from our youth by the way rest in peace bobby duvall 95 years old what a life underrated performance is i've watched again over the holidays was four christmases as the dad he's great I know everyone like he's gotten all the classics fine but Four Christmases he was great was that Vince Vaughn yep and Reese Witherspoon um they're making a sequel of Demolition Man with Sly Stallone and Wesley Snipes I don't know why I call them Wes Wesley Snipes what about Sandra Bullock she's definitely too big for that true she's not she's not playing that role again um Although maybe her and Stallone got married, right?

52:06They were a love interest. I saw it in a theater. I don't think I ever watched it again because it was me. Yeah? You're a Demolition Man guy? I mean, do you really have to ask? All right. Love Demolition Man. All right. Anyway, they're making a sequel to Face Off. Are you kidding me? You need to take his face off. How would that work?

52:35yeah i can't do that a i can't come up with something so utterly stupid that's by the way um dvd uh remember this remember the movie um over the top i don't know if we ever spoke about this on the podcast yes what about it all right so here's the premise it turned 30 this this week the premise of over the top was sly stallone is a truck driver who has to win a national arm wrestling contest to save his son in a divorce. And the guy he fights in the last one, the bald guy, is from Muskegon, Michigan, my dad's hometown. No kidding. That's the claim to fame, yep. Okay. The 80s were a crazy time. All right, we did this last week.

53:21Duncan did a survey. You won in a contest. You get a$3 million house,$3 million portfolio. It was 91 % said they'd take the portfolio, which is what we said, 90%. Someone said, Ben, a few people said, I agree with your position in the house. My question is, which would you say has better prospects for returns, housing or stocks? I would say probably sell stocks. Especially if you got a house and you didn't have leverage on it, you got it free and clear, you don't have the leverage component, I would say stocks all day. Although I do think there's something to real estate being an AI hedge. Like in a technological world, I think real estate is going to be even more important than ever.

53:58land i i think the i think that's a good ai hedge um it's not it's 10 o 'clock and silver is crashing again this is weird what is happening why silver is down six percent uh just because strange strange times um by the way you know that amc getting back to if silver is like the a reddit thing now um which it never got to the point of like game stop or any of that stuff i don't i don't think Like, remember AMC? People were, like, painting AMC on their garages and their cars, and that stock is down 97%. Yeah. Remember how many people that was, like, that was, like, this is how we're going to stick it to the man.

54:34We're going to buy AMC. Yeah. Yeah. No, 99%. Sorry. It's on 99%. All right. So the prediction markets are doing to gambling stocks what AI is doing to software stocks. So DraftKings reported last week, and they show the wallet share of leading sportsbooks and leading predictions operators. And they show as a percentage that the prediction markets are at 1%. But it doesn't matter. Right? It's the same thing with software. It's like, yeah, it's 1%. DraftKings is in a 60 % drawdown right now. So if you're a sports podcast, you're getting a little nervous, right? All right, DraftKings. Revenue increased 43 % year over year.

55:30Holy moly. Market doesn't care. The stock still got smoked. Wow. Market doesn't care. All right, so I feel like there's been these... The prediction markets have been becoming a bigger and bigger part of the conversation. Giannis took a stake in Kalshi. There's going to be more scandals. Vlad keeps talking about it like on every earnings call it's a bigger and bigger story so Vanity Fair wrote a long piece over the week last week and sort of the New York Times so Vanity Fair said that these prediction markets seem destined to last for two reasons first is that these markets have found unusually warm support in Washington okay and the second reason and this is sort of the part that like don't love this but it's true prediction markets are gaining momentum in an era when experts have been burned, have burned through their authority, institutional knowledge is almost universally scorned, and shared reality is splintering into an algorithmic hall of mirror.

56:31The pollsters missed the polls, the networks can't agree on the facts, and the Trump's government is backpedaling on Tuesday. All right, that part of it is kind of shitty, but it's a big part of it. So I guess it makes sense that a lot of people in the future are just going to say, I trust whatever AI tells me, and I trust whatever the prediction markets tell me. It's going to be interesting to see because eventually the prediction, because these are percentages or probabilities. Eventually, the prediction markets are going to say 60%, this presidential candidate is going to win. And then they lose.

56:56And people are going to go, see, prediction markets were wrong. That's going to happen. Yeah. Yes, it will happen. Like, there's going to be a close one and it's going to say prediction markets were wrong. And it's not necessarily wrong. It's just those are the odds. But it doesn't matter because the experts are always wrong. Like, that's the point. So hold on, put a pin in this. In terms of people looking to these markets for a source of truth, they found a 22-year-old who studies philosophy at Berkeley and said that when he wants to know what's going on in the world, he is more likely to check the odds of Calci than to watch CNN.

57:27Interesting. Okay. Yeah. I mean, who cares about news when it's all about opinions? It's like, just show me the numbers. All right, here's the New York Times. Over the five years that Calci has existed, its thousands of gamblers have proved as accurate on average at predicting certain economic indicators as the highly trained forecasters. A working paper published last month by the National Bureau of Economic Research found, okay? So not exactly a company that's like in the pocket of big prediction markets. The crowd is also pretty good at predicting interest rate decisions from the Fed. Bettors, he realized, have one advantage.

57:59They don't, and this is the thing, why I think that this is going to be a thing and not go away. Bettors don't have to make a prediction if they're not highly confident that they're right. Professional forecasters don't have a choice, right? Even if the data are confusing and they don't have much conviction in the number, they guess because they have to. It's their job. Another paper by the London Business School and Yale found that polymarket bettors as a whole forecast corporate earnings more accurately than the analysts who are paid to advise investors on whether to buy or sell. This is just wisdom of the crowds.

58:32Wisdom of the crowds. I was going to say that. Yeah. So some of the stuff that like I saw that now you can bet on like five-minute increments on the price of Bitcoin, like nonsense. sense. Nobody should be betting on the price of Bitcoin on five-minute increments. But actually, let me give the final word to Thomas Pederfey on this. All right. So Vlad Tenev. Vlad said, I think we're just at the beginning of a prediction market super cycle that could drive trillions in annual volume over time. Vlad has been very, very, very bullish on this and driving results. So I forget what their prediction markets have been.

59:08Is it a... I don't want to make up the run rate, but like it's getting massive, massive traction. Don't you think that this just can't, if that's true, that it just cannibalizes the rest of their business, like you can't have both high stock trading and high crypto trading and high prediction market trading. Like can't we, it can't all happen. I totally agree. I totally agree. So it's also very similar to, Josh was saying Netflix, which I finally pulled the trigger on. I don't care what happens. If I'm buying Netflix in a 40 % drawdown, don't care. There's just too much competition. Netflix, YouTube, Spotify, Prime, whatever it is, Prime Video, whatever it is.

59:44And so maybe it's like a similar argument. It's like it's crypto. It's stock trading. It's predict on this, predict on that. So Thomas Pederfee has been around the markets for a long time, okay? Thomas Pederfee is a legend on Wall Street. He's the founder of Interactive Brokers. Listen to what he said on this. This was at a conference recently. I am extremely bullish on the prediction markets. I think this is going to be the biggest thing that happened in our business in the last 100 years. I take this guy's word seriously. So I look at prediction markets as the ultimate synthesis of human imagination and economic incentive.

1:00:23Our participants are rewarded for accuracy and penalized for error. This transformed guessing about the future into rigorous analysis that forces a continuous real-time collaboration. I'm sorry, calibration of expectations based on the new data. If you aggregate a diverse pool of incentivized rational actors, the resulting consensus is mathematically likely to be the most accurate proxy for reality available. By assembling these forecasted facts, we are mapping the future with high resolution. Let me read that again. By assembling these forecasted facts, we are mapping the future with high resolution.

1:00:57We create a model of which we can plan our investments, our businesses, and our lives with better results. This is the most significant utility of instantaneous global communication, decentralized voluntary collective that replaces a government fiat with free individual initiative. Eventually, all traditional markets will operate within the framework established by the prediction markets. I'm not really sure what that means. But he said, he goes on to say, I think sports betting is a distraction from all this. I totally agree. I think right now we're focusing on a lot of the nonsense because that's – the reality is most of these markets right now, when you look at the stuff that's available on chain, it is sports betting.

1:01:41That is where most of it is taking place, and I am much less interested in that than I am the economic ramifications of people able to not rely on the think tanks for opinions about whatever. Just make a market. So I've been thinking about this. So you're talking, hey, prediction markets will help me forecast earnings better for Netflix and Tesla. Prediction markets will help me predict the direction of interest rates in the future. That sort of thing, that's going to be more helpful. Everything. Everything. But there's been a lot of shitty things about the prediction markets that need to be cleaned up.

1:02:14The CEO of Cal, she was asked recently about some of the halftime stuff, and he couldn't give a straight answer. He was squirming. He should have just said, yeah, we need to work on this. And obviously, they've thought a lot more about it than I have. Here's some of my solutions for getting rid of just breaking down public trust, right? Because I think like sports is like a sacred type of thing. If people can't watch sports without thinking that there's all sorts of illegal shit going on, here's how you fix one of them. Make prop bets illegal. Sorry. Right. How many points you're going to get?

1:02:47How many rebounds you're going to get? That sort of thing. You cannot bet an individual athlete performance. Just remove it. I agree. That's fair. Okay. Okay, no bets where there can be a leak at all. So for example, the prediction market should exist where nobody knows the outcome. So who's going to win the Oscars? Sorry, people know that, right? Like, yes, it's a small group of people, but it could get leaked and you can't trace it. The thing where you bet on, will this person say this word, right? Take that out. So anything that can be known in advance by one person, by a group of people. Can't have game systems.

1:03:28Eliminate it. You can't bet on that stuff. So what can you bet on? The weather. The price of an H100 chip in the future. Right? Like that sort of stuff, I think it's fair game. Or fine, let's say that you could bet on something where maybe there can be a leak for the Oscars. All right, so cut it off. You can't, so a week before, make it so that you can't bet in the seven days leading up to the Oscars or make a max wager. Right? You can only bet a hundred bucks on this. I like having some guardrails. You're right. There needs to be some sort of rules here. Good points. Barry sent me this podcast called If Books Could Kill.

1:04:11I'd never heard of it before. And someone else asked me to. It's about The Millionaire Next Door. Apparently the whole thesis of this podcast is like this, this collective wisdom from this book, it's wrong. We're going to do a takedown. Okay. So it's a little, it's kind of cynical in a way, but I think it's a good pushback. And someone asked me for my thoughts on this. And the millionaire next door, they're basically saying like, listen, this whole idea that people are rich because they're disciplined and they save and they're frugal and people aren't rich because they're not, they're undisciplined and they don't save.

1:04:38And like, that makes them poor. That's the wrong way to think about this. And I felt like that, that's a little bit of a stretch. Like I think a certain percent of the population, yes, they do spend too much and they could be rich if they didn't otherwise. And a certain percent of the population does get ahead by being frugal, but it's not a big percentage. Like most people get ahead because they have high income. That's it. Right? Like if you have a higher income, it's 10 times easier to save. And it's not like if you double your income from a hundred grand to 200 grand, your savings doesn't necessarily double.

1:05:05It could like quadruple because it just, it's more disposable income. Right. And obviously there are certain people who spend too much and some people don't, but they're, I thought their biggest point of takedown on Miller next door, and they're, they're kind of saying like, listen, the whole idea is just, it's, it's, it's a little too simple and neat and easy. And listen, I read this book when I was like 23 years old and it was my Bible for probably the first 10 years of my career. And I was, I was overly frugal and I saved a lot. It probably helped me a lot. But then I realized like, what am I doing?

1:05:30I just need to make more money. That's the thing. I, that's, that, that's 10 times easier than being frugal. And, but their takedown was actually a survey thing. Like, listen, this is like, this is a survey of like 3000 people. And they, they think the survey went out to people who are ultra frugal and they didn't go into people with like in nice neighborhoods. They went into people who they thought they could find or millionaire next doors. And so it was kind of targeted and direct saying like, this isn't everyone. This is just a select group of people so that you can have, I don't know. Anyways, it was kind of interesting takedown of a book that I know a lot of people use and love.

1:06:04I like that takedown. I don't love the frugal mindset. And you know what? This is just like people's personality. So if that works for you, I don't want to like judge people, right? Some people just, they get pleasure out of saving money, and fine. That's not my mentality. But that's not even like, I kind of wonder how much of that is something that you learn in a book versus like, oh, yeah, this is how millionaires do it. It's like, I just think that's your personality. And yes, if you read in a book and it's already, and you already jive with that, it'll maybe resonate stronger. But I do, I'm not a fan of the frugal mindset.

1:06:35I think life is too short for that, but that's, you know, I think at a certain point of your life, it's okay, but you should probably graduate from that adventure. That's what I did. I had that for a certain point in my life when I needed it, when I didn't make a lot of money out of college and I needed to be frugal. But then you realize you can graduate from that mindset. I think that's the thing. A lot of people never graduate. And I don't like the celebrating, hey, this rich person drives a 1998 Honda Accord. I don't think we celebrate that. Me either. Anyway. Okay. Story time. All right. I've reached some middle-aged dad milestones I want to talk about.

1:07:05We have some teens on our block, you know, that drive and they have their friends come on. And we just, you know, you've seen where I live. It's a little cul-de-sac. The posted speed limit's like 17 miles an hour. Like, go slow. There's a lot of kids around, a lot of young kids. And these teens drive through the neighborhood so fast. And when there's like snow piles and stuff around the corner, you can't really see. And these kids drive so fast. And I want to like shake my hand at them. Like, slow down, you kids. And there have even been emails going around like, hey, tell your high school kids just to take it easy in the neighborhood.

1:07:34You're going way too fast. So I'm an old guy who now wants to yell at teens because they're driving too fast. I get it fair or unfair F them kids yes thank you and finally who's gonna side with the kids yeah let let teenagers drive dangerously I mean I know they always have we were teenagers once but so one of the things that being a middle-aged dad now I'm realizing I'm always very sarcastic with my kids and one of the things I'm most proud of I think is the fact that my kids all have a pretty decent sense of humor like they kind of get when I'm messing with them but one of the things that they've been doing lately is like and I don't know how they got into this school they like to roast each other right like hey hey, we were roasting each other today.

1:08:09And we were like, just careful. Don't want to say anything too mean. So anyway, we went out to lunch yesterday because it was President's Day or whatever, and the kids had school off, and I met them for lunch by my office. And my oldest daughter, Libby, had a friend with her. And in front of the friend, they have to now show off. And so guess what? For the whole lunch, I was getting roasted. Just everything was dad doing wrong. In front of the friend to show off, all my kids are roasting me. What are they saying? I don't even really, they just constantly were attacking me. and some of the stuff was kind of funny and I'm like oh man that's totally a dad thing I'm at that dad stage where I get roasted out by my kids you know for doing stuff and that's just another milestone that I've reached I can't believe it and by the way one of the best roasts I finally let my kids watch Christmas Vacation this year it's my all time favorite Christmas movie I think it's the best one ever made I watch it every year and there's the part where the neighbor the yuppie neighbors say hey Griswold we're gonna put a tree that size and he says bend over and I'll show you and so now every time I ask my kids for something like hey George where's your shoes and he'll go bend over and I'll show you and it gets me every time and I just it's just such a great line alright recommendations you probably have some movies from the plane ride down um nothing okay I will give you I'm gonna give you a plane movie I've flown on Delta too much lately I am out of Delta they need to like recycle I don't what the hell did I watch did I not watch anything I might have just listened to the Dwarkech podcast.

1:09:36Okay. I started downloading movies on my iPad because, yeah, there's a great— Oh, I'm sorry. I was so dry. I remember what I watched. I'm so dry with Delta's movies. I watched Curb. Okay. A TV show. Yeah, I'm a movie-only guy on planes. I don't watch TV shows. Robin told me to stop laughing. She said, watch something else. You're on an airplane. All right. I've got an airplane movie for you for the way home. It's on Apple now. It's called Eternity. It's got Miles Teller and it's got Elizabeth Olsen, the younger Olsen sister, and Callum Thomas, some newer actor-ish guy. And it's a rom-com and it's about this old couple dies, but the wife had a previous husband who died in war.

1:10:20And they get to heaven and have to figure out who they want to spend eternity with. And it's kind of a fun little, it's kind of got some funny parts about how to spend your eternity and how to think through heaven. And it's a great airplane movie. I really enjoyed it. Some funny parts that made us laugh out loud. I watched it with my wife. Really good. I think The Pit is the best show on TV. It just keeps getting better and better. And I think season two is better than season one. And Robbie is the most likable TV character on right now. It's so good. It's so beautiful. Yeah, it's just so good.

1:10:51One with the Louis guy who was the alcoholic, and he died, and what happened with his family. And it was really, really good. I took my boys to the movie on Thursday. and Kobe has been dying to see Goat. Like dying to see it. My kids went and saw it yesterday. And what did they think? They loved it. Yeah, it was very good. Was it? You liked it? Okay. Yeah, it was very good. They enjoyed it. All right, before we sign off here, let's take the market's temperature, shall we? You're looking for some more knives to catch. Software is down another 3%. Yeah, okay. Not all heroes have hair, Ben. Software and silver, huh?

1:11:33Software and silver. Listen, if I lose money on these stocks, it won't be the first time. I'll tell you that much. Are you losing money in the casino?

1:11:46So, I was ready to bring this up on the pod because I lost at the first three tables. And I'm like, why do I keep losing? I mean, I hit what I'm supposed to hit it. I say what I'm supposed to say. And I don't play games. You've seen me gamble a million times, right? I hit on 16s when there's a 10. Sometimes you just have to eat it. You have to eat your losses, just like the stock market. Yeah. No, I'm a professional loser. I don't get mad. So I was down to my last$300, and I said, all right, I feel like this is enough losses, I think, on my fourth table. And I ran it all the way back to even. And now I'm down a little bit, but who cares?

1:12:19Not exciting. That's a great feeling. That's a great feeling. So honestly, I feel like if I lose it all again, I still won. That's right. There we go, man. I think that's what I'm trying to say. All right. Thank you, everybody. Sorry for a bit of a rambling. Maybe some fence-sitting, but what do we know? I feel like having strong opinions is probably not going to serve. Now is the perfect time for Grand Rapids Hedge. This is a Grand Rapids Hedge situation. I don't think you should be pounding the table either way on AI. The only thing I'd say, if you're pounding the table, that AI is not going to do anything and it's going to be useless, you're wrong.

1:12:55That's the only thing I can say definitively right now. Fair? That's a good way to end it. All right, animalspurts at thecompoundnews.com. Thanks for listening. We'll see you next time.