Why My Article Just Tanked the Market

0:00John Coogan:And without further ado, we'll bring in our first guest of the show, Alap.

0:04Alap Shah:How are you doing? What's going on? Doing great. How are you guys? Doing great.

0:09Jordi Hays:Is this your first time triggering a global sell-off? The first time so far, but I'm just the messenger is the way I look at it. We've got a lot of opportunities and a lot of scary things coming down the pipe.

0:23John Coogan:Okay. So, yeah, take us through the thought process. How long has this been simmering? what was the actual process of putting together this report? And then what do you want people to take away from it? And then maybe we can go into some of the reactions and your reactions to those reactions.

0:39Jordi Hays:Absolutely. The process ultimately is that I've been building in AI for 15 years and I've been an investor for 20. And so especially the last six months, as I've just been using agentic coding myself and my teams have adopted it, it's just been a step change function in how much we can get done. and just thinking through, hey, how is this going to, we're early, we're a startup, we're going to be at the leading edge of how people are adopting things. Assume the corporate world is a year or two years away, it's going to be pretty profound. And I think the underlying thing as sort of an amateur macroeconomist is we're just not producing white collar jobs to begin with.

1:17Jordi Hays:I hadn't actually seen the extent of that until I kind of looked at specifically what we call like the information sector, so different parts of kind of technology. those jobs are down 8 % from the peak in 2022 already. Those are the places where people are adopting the most aggressively already. We know every week there's firings out of big tech. In that world, what happens when the technology that big tech's been using for a while has gotten a lot better and now your average corporate starts using it as well? It can get quite scary. We wanted to think through the implications of that. But how much of those layoffs do you think are, you know, we've talked about a bunch of those layoffs on the show.

1:57Alap Shah:They're usually attributed to AI. But if you dig under the hood, it's like they just wanted to kind of resize or get more efficient or they're reprioritizing resources. And not actually because they just launched some new agent and suddenly everything's changed. Hey, we don't need these thousand engineers anymore.

2:18Jordi Hays:So I think those are all great corporate euphemisms, and of course that's how they're going to say it. But I think the way I would think about this is it's not necessarily like agentic powers happened and now everyone's going to get fired. Agents and LLMs broadly are just sort of on the tech tree as a continuum from software. And so software has been making companies more efficient for decades, and that has caused a lot of downstream effects. And now that software has just become much more intelligent. And so in that sense, I think companies that are efficient have been doing a form of this for a really long time.

2:51Jordi Hays:And we think about the age starting now in 26 is just something that's going to accelerate that.

2:57John Coogan:Okay. So, yeah, what else was key in the thesis or maybe potentially overlooked that you think people should be really focusing on?

3:09Jordi Hays:I think the problem, A, the first thing, the most important thing is just the labor market dynamics. We've just been in a really weak labor market for a while, and that's before these things roll out. But then you put that together with the fact that we just have a very structural environment where what is the thing that drives our entire economy? It's wages. Most of those wages that are ultimately driving all the discretionary spending is coming from the white-collar worker. And the problem with that is that we're now entering this place where you made all these assumptions on like loaning money to all these companies, you know, to mortgages and everything else.

3:48Jordi Hays:Like white collar economy is our economy. If you all of a sudden just take a leg out of that economy, it has a contagion effect into basically every asset in the world. And so that I think is the part that people haven't thought about because when, you know, people were making these loans, no one ever consumed a world in which, wow, okay, now like white collar jobs are in sort of permanent decline. If that's at 2 % a year, then I think we can skate through. But if it's at 4 % or 5 % a year, then we need action a lot more quickly.

4:15John Coogan:Is the white-collar economy actually the full economy, or is it more just like the stock market? Because it feels like white-collar workers are disproportionately allocated to assets versus consumption. And you see things like there's a lot of health in more blue-collar sectors. health care is growing and then you also see dynamics like just you know like we've seen like like jitters in the in the consumer market for a long time and then we just see the health of the American consumer just continuing continuing continue and it feels like it's maybe driven by something like lower level and there's always this disconnect in my mind between like the economy and the market?

5:00Jordi Hays:It's a great question. I think the issue here is that it's all just one labor market. And right now, blue collar is doing better because there are not firings there. I think robots are probably 24 to 36 months behind other forms of LLMs that are just diffusing through society. But the problem is, let's just say that it's one labor market ultimately. If the white collar jobs are going away, let's say in our scenario, we talk about 5 % of folks might get fired in a couple of years. those 5 % if there aren't white collar jobs for them to relocate into then they're gonna have to move into the gig economy and the blue collar labor force and so that puts pressure yeah on the entire labor market not just the white collar one and to answer your other question health care is growing education is growing yep the reason those things are growing ultimately and we did some work in our piece to try and isolate white collar that is not government driven and so the government continues to spend more yeah that's why health care is growing they're the biggest payer in in health care they're they're guaranteeing all the loans in the education industry.

5:59Jordi Hays:And so those sectors continue to grow because government spending grows. But again, it gets very circular if government spending is coming primarily from taxes and primarily payroll taxes, because the average worker pays a lot more in taxes per dollar than the average corporate does. And so some corporates make a lot more money, workers' payroll taxes go down more, then there is a bit of a contagion effect into bonds as well there too.

6:23Alap Shah:on saturday john and i were going back and forth about uh some of the really wild predictions around the impact of the internet that were being made in the 90s there was clicks replace bricks

6:34Jordi Hays:people were predicting total die off did well i mean to be fair i mean to be like i'll just finish

6:41Alap Shah:they were expecting a total die off of all brick and mortar stores in five to ten years which was like widely discussed prediction. It was like, why would you ever go to a store to buy something if you could just get it online sent to you directly? Yeah. A couple others. So like, not as relevant to your piece, but people were predicting like permanent high growth, the end of business cycles. There was the like media disintermediation narrative, which was like the Napster era, everyone was going to get all media for free forever. Newspapers would die off. Record labels would die off.

7:23Jordi Hays:Aren't you guys the media disintermediation narrative? Yeah, we are.

7:28Alap Shah:But 20 years later and CNBC is still a much, much bigger business than all business media, at least in our world.

7:39Jordi Hays:But newspapers, magazines, completely gone, right? and all of that has moved to the internet.

7:45John Coogan:Totally, totally.

7:46Jordi Hays:It's just like 5 % employment shock in a quarter is way different.

7:51John Coogan:I mean, like a 5 % unemployment shock is completely different if it happens over a quarter than if it happens over two decades, right? Like these are just fundamentally way different things. The other thing, yeah.

8:02Alap Shah:The last thing I would say is like there was like this concept of like frictionless capitalism, meaning that like middlemen would be eliminated because you could just go directly to the source and that would push pricing pressure down. My question, and I know you guys are not writing your piece saying like, you know, this, we believe we will stake our entire reputation on this sort of narrative. But what do you think, what, how much did you pay attention to like the 90s, early 2000s Internet predictions? What do you think they got wrong? Why is this time different in terms of how a new technology will diffuse the economy?

8:43Jordi Hays:I think the difference is if you just plot what's happening to technology, it's all just going exponential. These are all just continuous timelines of like, we have microcomputers, we have the internet, we have mobile phones, and today, you know, we have very, very powerful AI. And so I think most of the predictions that you ticked off there, it's kind of interesting. I would, you know, just looking at them today, you know, I would say they couldn't really happen until you had proper AI. Because if you have the ability to just freely have commerce the way you do today, it doesn't work if you still have to do all the work.

9:19Jordi Hays:Ultimately, you have to go and you have to log. And think about the amount of friction there is in buying a product for most people today. You still have to go to the website. You have to put your credit card in. It's all work. We only have gotten to the tech required for those predictions, I think, this year. And that's why this is the year that I think it really begins. Because now it is completely seamless. you just and no one's really doing this yet but it's gonna happen I think you know in the next six months is just tell your agent you know tell Gemini tell chat GPT go buy these things it has your credit card and now that world that they were describing is truly gonna come to pass yeah what about the canary in the

9:54John Coogan:coal mine analogy I was looking at unemployment statistics in India and the Philippines and it doesn't seem to be doom and gloom over there I don't know I I didn't dig in super far, but would you at least expect that the unemployment rate would spike overseas before it spikes in America? Or do you think this all happens simultaneously?

10:20Jordi Hays:It's a tricky question. I think ultimately white collar work is a lot more of our economy than it is the economy of India and the Philippines. And they are much sort of like more immature economies that are growing through investment and things like that. But certainly, I think we called it out, the consulting sectors in India are certainly going to be challenged in other places as well. But the reality is, the timing is everything in the markets, clearly. But the trick here is, if you're a corporate and you are hard-pressed to get AI into your organization today, ChatGPT and OpenAI will send you a forward-deployed engineer if you have a billion dollars in budget.

10:57Jordi Hays:If you have a$10 million budget, they're not going to. And so who are those folks turning to? they can't usually do it themselves. And so they are going to the outsource providers, the Accentures of the world. And so I think those businesses are likely going to be in a lot of trouble over the medium term, but they probably will have a big bump from people really putting that AI into their organizations first. And so it's a bit of a tricky timeline there.

11:20John Coogan:What moats do you think hold beyond this? Because I think a lot of people latched on to like the DoorDash example as something that they thought had a moat and that in the post you sort of underline like how that could maybe not be as durable as a mode as people thought. But in the long case, like what what modes do exist? Like do network effects stay? Do complex coordination, intellectual property? Like what what doesn't break down?

11:53Jordi Hays:You know, real brand value, where people are choosing you over other things because of the brand and the status signaling across brands matters a ton. network effects are more powerful than ever, I think, in this world. So things like Meta really have a lot to sort of gain in that sense. But I think things that look like they're network effect businesses, but in fact are just the ones that are doing the hard work of aggregating demand and supply, I think will be more challenging. So DoorDash is a good example there. It's not necessarily the biggest risk versus some of the other things, but I just was in a thread with Gavin Baker talking about this.

12:25Jordi Hays:But the problem for DoorDash and Uber and folks like that is right now they're doing two jobs. They're doing the job of aggregating demand and the job of aggregating supply. They're both hard jobs, but the demand side is the harder side. And we think the world of the future, there are lots of folks in, let's say, food delivery. Instacart wants to get a bunch of market share. And Grubhub wants to get a bunch of market share. And so let's say the agents are the ones doing the buying. It's 2028 and 40 % of the sales are through agents. you just tell Gemini, hey, order me some noodles. In that world, it's going to go to each and every provider.

13:03Jordi Hays:And right now, there are four providers that do that. But now it's very easy. If I'm building a startup in this space, previously, I had to get all the drivers on board, get all the restaurants on board, and acquire customers. Now, Gemini and ChatGPT are acquiring the customers for me. And all I have to do is get the supply side going. So it makes it much easier for new entrants to come in and for existing, you know, second, third, fourth tier players can really sort of say, I'm going to like relax my margins, try to get more top line. And so you think that, you know, whatever the 15 % VIG is that DoorDash gets today, maybe it's more than that.

13:36Jordi Hays:You know, some of that, I would think Gemini and ChatGPT are going to ask for themselves, wherever I send the traffic, I'm going to get a piece of that. And then some of that's going to go back to the consumer.

13:46John Coogan:Yeah, it feels like, was this the most like stretched or controversial prediction?

13:54Jordi Hays:It seems like it was certainly the one that got, you know, that's getting the most chatter. And I think we did it for a reason. We wanted to be a little provocative in thinking, thinking through because, you know, it's an amazing business and they're gaining a bunch of market share. But the fundamental idea that you're, because what did the lock-in, right? Like do the drivers have lock-in on DoorDash or on Uber? Not really, right? They're, you know, most drivers are doing Lyft and Uber, so they're not locked in. The real lock-in, And the real business value, the franchise value of an Uber or a DoorDash is the customer lock-in.

14:23Jordi Hays:Because the customer gets comfortable. They've got everything saved. They want to hit a couple buttons. They don't price shop. Agents are happy to price shop as much as possible. And so if you take that away, then it's a real problem for businesses that are ultimately built on customer lock-in.

14:35Alap Shah:Yeah, I don't know. I think the interviews that we've had with Lyft, I mean, again, take it with a grain of salt. They have a narrative that is important to their business. But like if you ask these people, what is the greatest challenge? It is managing managing the supply side. It is not the demand side is not where they're saying like, hey, like this is really what we need to solve. It's like, hey, as we get more drivers on the platform, revenue naturally, naturally goes up. And so I'm just hard pressed to imagine a world in which, you know, somebody, think about if somebody in my town, which is like 15 ,000 people, like Vibe codes a delivery app.

15:22And I go into ChatGPT or with another agent and I say, like, I want food.