The Week We All Found Out

25:50This idea of democratizing a sophisticated asset class, but by definition, somebody that's got a great product is not like, how fast can I get this in the hands of regular people? They only want – very successful hedge funds want to work with the top, top, top investors. They don't want to have to educate investors in the middle class. Yeah, but there is a difference between hedge funds and private credit and private equity. It's not the exact same thing. There is capacity with these headphones. It's a little bit different, but point taking. But listen, whenever anything needs to be democratized, of course your antennas go up.

26:25How could it not? Yeah, I mean, you know, how different is this from, you know, the last back boom, right? Like at the beginning, it sounds really interesting and it attracts a ton of money. Democratizing the IPO process. Yeah, exactly. And then when everyone realizes it's a disaster, then, you know, it disappears. So maybe this is a conversation that doesn't last very long because - That could be a disaster. That could be a disaster. Like for a million, I don't know. What do you think is the, how did the crypto guys sneak in on this thing that Steve Schwartz negotiated? You know what, the big difference?

26:59At least the private stuff, at least you can't sell it. They bring a gold-plated Bitcoin to the White House. The average person will lose money in crypto, in an informal case. Listen, if we as a society are taking a very permissive stance towards what I would loosely call speculation, then this is a pretty logical endpoint of it, right? crypto as a, you know, asset to qualify. And in some respects, I agree. Like, is crypto any more speculative than a very small biotech company when it comes to serving as a source of funds, perhaps, or recourse when you're applying for a mortgage? No, it's not.

27:34So, in a lot of senses, the only place that I worry is like the classic joke about crypto is like, crypto is just, you know, learning all the lessons we learned about the fiat system and they're doing it on speed drive. Like, I would like the banking system, the traditional banking system to not have to relearn lessons that we already know because crypto is getting, you know, sufficiently adopted and in places where there's either more leverage or consumer exposure. You can't buy a standalone biotech stock in a 401k because the guardrails that exist are like you're buying funds, fund administrate, plan administrators.

28:09They're putting in these menus of like very diversified funds. They're not really doing sector bets per se as like the menu. But now you're going to introduce like, okay, here's a Bitcoin sleeve. You can either opt for it or not. I would imagine like most young people that have a 401k at work and all of a sudden they could put 10 % into Bitcoin, they're going to do it. I mean, I think one of the bigger risks is this idea, this implication that because it's available in your 401k. It's safe. It's safe. Yeah, I agree with that. I agree with that. That's like the unspoken thing. It's like, well, they wouldn't let me blow myself up with something in a 401k.

28:51Right, right. Not necessarily. It's the same with like all the big asset managers that are bringing crypto onto their platform. It's like, that's when I'm going to invest in crypto. It's a philosophical debate. Like we view the 401k as sacred. Like do not mess around. You can do whatever you want in your brokerage account, on-chain, whatever, but not in your 401k. The other person would say, well, why not? This is their money. why can't they do what they want? Right. Let's talk about the stock market. We have a whole bunch of charts. Who wants to take over and steer us through what's going on?

29:23Luke, this is your stuff. This was the week that everybody posted the same thing. And I think it's not a mystery why. It's because we had the AI earnings reports and you had the shitty jobs report. And so this was the week that every content creator did the same thing. And Luke, you're one of those people. But you did it very well. Absolutely. You did it very well. So the messaging is like the consensus now is that AI is powering the entirety of economic and stock market earnings growth. And everything else is kind of falling by the wayside. Do you agree with that conclusion or no? I think it requires a lot of caveats around it.

30:01And, you know, caveats that I decline not to focus as much when I'm trying to tell the best possible story. But so a lot of the story, I think you can summarize last week as the week where a lot of people said AI is eating the US economy and the stock market, and it completely deserves to. Yeah. So that is where we have now set the bar. How did we get there? It's a combination not just of the jobs report, but I also think the GDP report, which then showed when you add up Q1, Q2, first half of the year, you have ancillary AI spending as broadly defined. as overpowering consumption in terms of the contribution to growth.

30:41Now, like that's where one big caveat is needed. And that's where I would point to a company like Texas Instruments. Not AI, not really AI, really more the industrial automotive. But it's going to show up in terms of a lot of the chip ordering equipment that was done in Q1 when a lot of people are fearing tariffs. So that's when actually the big spike in a lot of this was. Oh, that's interesting. So people just equate anything semiconductor related with AI now. So that is part of the reason why it shows up so bigly in the GDP data. But the timing, Mike said, it was just delicious and perfect. But I think the next part of the story is, okay, that's where we set the bar.

31:20We set the bar at, you had Azure, you had Alphabet absolutely killing. And then what happens when we've set the bar at AI is the economy, it deserves to be the economy. Amazon comes out. Nobody was expecting Amazon to grow faster than Alphabet or Microsoft on the top line. In its cloud business, no one was. And then all of a sudden, after its earnings apart, it's like, well, what have you done for me lately? You're number one, but you're losing market share, these other companies. So it's a bit of a double-edged sword in that I think the theme got a very, very big, very big narrative boost. And it's a little bit of a barred that's charter to clear from here.

32:00Okay. Show me these charts. What are we looking at, guys? John, chart us. Chart us up. What is this? This has been one of my favorite charts lately. The blue on the right-hand side is the annual change in consumer spending. The green line on the left hand axis is the change in S &P 500 CapEx year on year. One thing you'll notice in this chart, and it kind of has a logical underpinning, is you get CapEx booms for three reasons. One, it's the lagged effect of a big increase in consumer spending. Consumers want to spend a lot. We got that. Okay. So consumers want to spend a lot. So you have to produce more.

32:39Second is a big boom in commodity prices that tends to be more localized. That's, I would say, really no longer an issue at the S &P 500 level because of how small materials and energy are just as a share of the overall index. So we can basically throw that out. It's not happening. But even if it were not a great explanation for what's going on here. commodity though? Fair enough. On the data center side, that's definitely filtering through on the S &P 500 CapEx. And the third reason is our tax policy changes. So you do see into 2017, 18 there, you do see a big jump in CapEx and that I would tend to associate with changes in tax policy.

33:19But what you have here is a multi-year nearly streak of S &P 500 CapEx accelerating as consumer spending decelerates. Like this is... So this is it. This is the inherent tension in the market. It's how long... If at the end, all we care about is the end user, like the hyperscalers, customers, by and large, are everyone, right? But it's enterprises. Every large institution. Enterprises are people, my friend. No, they're not. People work at them. No, they're not. People work at them. People are customers of them. There's a K-shaped economy, which we spoke about in 2022, I guess, right? The K-shaped recovery, people with assets, people without, that theme has continued, and it's now inside the stock market in a big way.

34:00And I think you can see this continuation of the S &P 493, no margin expansion, although maybe that's coming with AI. But I think that this is the biggest question. Can the stock market survive a consumer slowdown on the shoulders of the hyperscalers? And I think the answer is yes. It has been. So far, the evidence is completely in your favor. We're running at last six months, nominal consumer spending past six months up 1.4%. That's the slowest pace since August 2020 on a six-month change. And stock market seems to be doing pretty darn well through this time. Yeah, real consumer spending is actually down, I think, right?

34:37But you know what's weird? In real terms, it's down, yeah. Like, there's such—consumers are slowing down. They are picking and choosing, as they always do, but to a greater degree. Disney just had their record-breaking third quarter for the theme parks. How many years ago would you have thought that would have vanished? Like, all right, like they went to Disney. People got it out of their systems. They still had a record at the theme parks. So people are maybe not spending on Chipotle bowls. Now, I know it's like a different thing, a Disney World versus a Chipotle bowl. But you hear from a million companies and they're all saying something a little bit different depending on where they are and where they fit in the value chain.

35:11Yeah, the anecdotes are not helpful. Like they're spending at Disney, but not spending at Nike. Or they're spending at Disney, but they're not spending at Six Flags. Or Josh's MGM Las Vegas strip down 4 % year on year. So, you know, that's a big one right there, too. Somebody made an interesting point about Vegas. I forget who tweeted this, so forgive me for stealing this. Like, Vegas is not the thing. People can gamble anywhere now. This is an artifact. We should not look to Vegas as a leading indicator. I mean, this is an issue with any kind of sort of historical context. Vegas is having its worst summer, though.

35:43Yeah. Yeah, yeah, yeah. They literally have double-digit declines. And that's with the Backstreet Boys. But you're saying that's not the economy. That's new outlets for that gambling drive that people have. That is a take that I lifted from somebody else. I thought it was astute. Yeah, I think that's about right. Well, they would probably—Vegas would probably say that. Can I give you another astute observation? Where is this? Oh, wait. Just one real quick thing, though. I think it's really important what you said. The key word here is growth, right? Like responsible for economic growth, the economic growth story, responsible for the stock market growth story.

36:20It is still the case that the consumer is massive. Like it's still 70 % of the economy, whereas like the spending on AI CapEx is missing. It's 16 trillion of consumer spending versus 1.5 for CapEx. Right. So if we're talking about like the economy, it's still the consumer. But if we're talking about what's defining the growth story right now, yeah, it's AI. And the stock market, the earnings growth is coming from the AI CapEx build. Even today, like the Dow is down triple digits. The best performing sector is utilities. And like the third or fourth best is tech. Like that's it. That's it. It's all one thing.

36:59There's nothing else working. So the stock market might be able to shoulder this, but can the economy? And you would probably not. My answer is consumer always wins, right? Consumer always wins. and the consumer either wins by being so bad that it drags everything else down. I do not think you get the same rates of AI spending growth in an environment where the consumer is outright retrenching for a prolonged period of time. You're right. There's no way. Or the consumer wins because, hey, we're getting some productivity increases down the road or now from this. The wealth effect is lifting consumer or supporting consumer spending sufficiently in the near term.

37:35You can make the case that as long as that coasts, that there's room for effectively there to be a decent floor under AI spending. But the consumer will always win in my mind. And that's why so many people pay so much attention to myopically consumer labor market, because that is going to be, in the end, a huge beta driver. So I want to caveat what I said earlier. If there is sluggish spending, I think the stock market can survive. If it falls off a cliff, then of course, I mean, not of course, I don't think it could. All right. Brendan Duke tweeted, I've seen a lot of takes about how AI-related investment is preventing the economy from falling off a cliff.

38:13He said, I think this is wrong. In a still strong economy, my guess is that less AI investment would mean lower interest rates and, for example, more housing investment. I thought that was a good— Oh, because the stock market would stop going up and the Fed would feel better about cutting rates? absent the hyperscaler spending, you would have a slower stock market and perhaps slower growth rates and then therefore a stronger impetus to cut rates, which would maybe spur the housing market. I thought that was interesting. But to what the great - Except that the Fed is not supposed to be paying attention to the stock market.

38:47Right, right. So - But they broadly pay attention to financial conditions, whatever that means. Yeah. But I mean, I'm sure that the wealth effect of a sluggish stock market is going to affect a person's desire or ability to buy a house, right? I would agree. Let's do chart two. AI spending is eating the US economy. So walk us through what we're looking at here. So it's spending in green on information processing equipment and software. So again, broadly defined, there's going to be a lot of semi and computer equipment in there that is not necessarily purely AI, but you have to aggregate or disaggregate somewhere.

39:25That's the decision made here. and this is, I was on the phone with Neil while he was making this tweet and this chart. And he was just like, I really want to show how much AI is juicing the economy. Neil Cavuda? Neil Diamond. So this is personal consumption expenditures in blue. And then - It looks like a nosedive. I don't know. It could bounce from here, but like - Yeah, I'm not going to do any TA on the economic data. No, broke support. But hey, like the - The broke support. But again, this is the story of something that that green line in once you aggregate, it's 6 % of the economy and it's adding more to growth than something that's 70 % of the economy.

40:06This is very rare if you go back and even just want to sum up residential investment and consumer spending. We're running a lot closer to the lows of what we averaged through 2022 in real terms than even what we got during the new normal, which was this perilously slow time of we're never growing fast enough. We're never generating enough inflation, yada, yada, yada. So it's a bit of an about face just in the composition of economic growth. And I think it leads to the question that is the Q3 question. So is the slowdown in consumer spending, is that uncertainty about tariffs? And we're now prepared to bounce now that we have certainty of what may not be the best situation, but hey, at least you know.

40:53Or is it the impact of slowing income growth and a bite from higher prices that will continue and perhaps accelerate in the current system? It's prices have not come down, right? They have, they're not rising as fast as they were a few years ago. I think prices are down 8 ,000%. Yeah. Prices, right. Prices will not come down stubbornly, staying high. Summer is still accelerating and people aren't getting the wage growth that offsets it anymore. And their biggest investment for 55 % of the country, all of their net worth is tied up in a house that is still difficult to sell. And you have job creation.

41:33screeching to home. Right. And now we're averaging 35 ,000 new jobs a month for the last three months. And that's new because last year it was still gangbusters. So you have a less confident worker base. You've got homes that can't be sold. Prices are still high. And most of this tax reform that we just saw was just an extension of what already existed. It's not really a stimulus. it would have been a negative stimulus had they not extended it so like yeah the consumer is the consumer is running on I mean not running on empty but like running on fumes for sure yeah a lot of those drivers are just not there running on empty is a great song Josh now is a good time this just dropped we announced the feature proof musicians it's out it's official alright let's do it at the end of the show let's hold it let's hold it alright what's this two cyclical pillars put this chart up chart three this is what I was just talking about I stole this from Connor Sen at Peachtree Creek Investments.

42:33And this is just the average quarterly contribution to GDP growth from residential investment and consumption during different periods. So 2025 year to date, those two things that, you know, hey, Ed Leamer wrote the famous paper, housing is the business cycle right before the housing market crashed. So very good timing on that one. Consumer spending, we all know, huge chunk of the economy. Adding a half percentage point to growth on average. were very close to 2022 when it was about 22 basis points added to growth on average. And again, doing so, so much better and steadier during a completely slow growth era.

43:09I really do think this underscores just how precarious the real spending and the frozen housing market is for the US economy. Because I think for these things to have to change, you have to either think that job and income growth will pick up or long-term interest rates will go down a lot. But interest rates are going to come down. So what if we get this beautiful handoff of the consumer slowing down their spending and then all of a sudden we get a housing boom? It's not inconceivable. Not at all. Not at all. The thing working against that is we've already cut rates a few times and bond yields went up.

43:43Why did they go up? I would argue a combination. I don't... But there was one rate cut, right? It was a year ago? We got a few last year. We're down 75 base points off the peak. So where mortgage rates now, like 6.5-ish, 6.3, if it comes down under 6, I think you're going to see an explosion. I just feel like, though, in the bond market, there is a Trump premium in the front end because there is the idea that whoever the incoming Fed chair is, is going to be more predisposed to Fed cuts. That's something that predates the kind of recent bad jobs report that's caused a lot more pricing to get pulled forward in terms of rate cuts.

44:23It's going to be Waller. And he's already on the tape saying it's time to cut. I hope so. So there's that. There's a Trump premium in the front end. There's a Trump discount in the long end, right? Like it is more difficult to own US bonds in a world where the administration has talked about taxing capital flows more, where there is more inflation risk because of some of the measures that are being pursued on tariffs. So 70 to 75 % of the time, the two-year yield follows the 10-year yield. We haven't been doing that for a bit. And we have some policy reasons why. Generally, I would expect that to be right.

44:56Mortgage rates to come down on FedGuts. But we've run this experiment pretty much over the past eight months. And it has really happened. You think we could have 50 basis points worth of interest rate cuts between now and the end of the year and the mortgage rate doesn't fall? That'd be surprising. Is that possible? That's not great. I think that's possible. Again, I'd go with the 70 % heuristic. But I have to acknowledge what we've just lived through. the possibility of that repeating itself. And there's still inflation out there too. So what if we are cutting rates? Well, I don't think the interest rate causes the inflation that exists.

45:33So I have this huge disagreement on that with several people that they think the Fed can wave a wand and create either inflation or disinflation with a Fed funds rate. And it's just not the thing. So right now, if you ask, why is there still inflation in the system? I don't think it's because rates are too low. Like I don't think anyone would say that. I think it's just a situation where we don't have layoffs. We have baby boomers retiring or being retired, but we don't really have like mass layoffs. That's the only way that you would actually get disinflation. And we just don't have it. And part of that is no immigrants in the labor force.

46:15Part of that's policy decision. And part of that is just the demography of the country and the types of things that people want to do for a living. So it's like, if you really want disinflation, be careful what you wish for. You need much, much lower employment. I don't think the Fed can really do that. So I don't know. If I have one regret from the pre-pandemic cycle, it's the myopic focus on, oh, core PCE is 1.8. That means the Fed needs to ease policy because we really need to get that up to 2%. They can't do that. The idea that there can be fine tuning, the idea that like there isn't an acceptable range.

46:53Like for me, it's I think it's Greenspan who said it. But like inflation is a problem when people think it's a problem. People are talking about it when people notice it. I think there's a pretty decent range in which people don't notice it. And that's oftentimes the best you can do. Right. And it's not a thermostat. It's not the Fed can't dial it in what they want their like inflation targeting. They actually don't have the power to do it because they have nothing to do with the housing market other than the rate of mortgages. They can't make more houses. So if you think like shelter is this like sustained cause of inflation, what do you really want the Fed to do about it?

47:30You want them to crash the housing market? They can't fine-tune what the inflation rate is. They also can't print more people. So if like labor is the cause of inflation, what do you want them to do about it? that go back in time 20 years and create more births. It's like almost a ridiculous concept. I understand they can hurt it or help it a little bit, but like in the end, they're not as powerful as we thought. They tried to create inflation for 12 years. It couldn't do it. It rates at 0%. Still couldn't get inflation. So I just, I find that whole conversation where we're like ascribing magical powers to 12 people who decide the overnight rate.

48:09Could the Fed cause a crash? Yeah, totally. But they can't fine tune the rate of inflation that they want to say. Show me this AI didn't hear no bell chart. This looks unsustainable. This is what I do think this shows is two things. So this is the year over year change in the forward CapEx estimates for hyperscaler. So, you know, where CapEx will be in one year's time, change over time. So that's Amazon, Oracle, Meta, Alphabet, Microsoft. What I think this shows is two things. One, that there is some implied economic sensitivity to CapEx estimates. The only time this rolled over was when, effectively, the post-Rose Garden scenario.

48:52Liberation day, you're right. Yes. So the market assumes that AI spending is economically sensitive. That's like, let's take that as a given. That's something I would stipulate from this chart. The second is it bounced right back up and probably has a little further to go, perhaps in the near term, but you're right back up to the same rate of growth of more and more spending. Now, that in itself is not - What happened here when it dipped? What happened when it dipped? Well, we got a policy reversal or a temporary policy reversal. Nvidia fell 40%. That's what happened when it dipped. So we're just looking at the share prices of the five biggest spenders.

49:28It's the estimated CapEx, what they'll spend in CapEx over the changing debt. The dialists lowered their estimates on CapEx spending that fast and then raised it right back up. Yes. Hysterical. Yes. But I do think this is a dial that both tells you, hey, AI CapEx is going to be economically sensitive. And also, law of large numbers, not to Andy Jassy it up, but law of large numbers is not applying yet in this instance, that you're still getting pretty immense increases. It will in the growth rates, though. You can't triple and then triple again and then triple again. And like at a certain point, you won't be able to see that level of CapEx growth percentage-wise.

50:07I don't know where that is. No, no, exactly. I don't know where that is. And it seems to be longer than anyone had expected. I also think a pretty slept on story is just the OBV8. One thing it did do is some of the changes to effectively how free cash flow will be treated. Yeah. Incredibly beneficial for these companies. So if you think about how the expensing of the build-out. Full expensing, some changes around a plant that's put in place this year, full expensing of that as well, and some changes to the treatment of foreign taxes. That effectively unlocks, hey, if you needed to tap debt markets for XYZ, you don't really have to as much.

50:50The need isn't as great. I don't think there's any lack of desire to finance projects related to AI. out there, but it's just another window that will allow this to go on. All right, we've been 40 minutes on this topic. Is there anything else important that we want to hit on? Yeah, any of these other charts before we move along? I mean, there's a lot in here. It's all the same. They're spending a lot of money. It's all line go up. Line go up. Yeah. Okay. Catlex is driving growth. Okay. Now, I do want to hit the deck. Let's pivot from AI to AI. Yeah, no. I do. Wait, what else did I definitely want to get to?

51:28Let's see, golden apples. Oh, one more chart for me, if you will, on this topic. Paul Kodrosky full on said, this is a bubble. And he made a couple of really interesting points that I hadn't read or heard elsewhere. But let's put this infrastructure capex as a percentage of US GDP by era. All right, this is the railroads of the 1880s telecom. it says 2020, but I'm not sure if he meant 2000. This is data from Jens Nordvig, who's also been on the show. And then AI data centers. So this is infrastructure capex as a percent. So he has AI data centers as 1.2 % of US GDP right now. And for the people listening, not watching, the railroads at the peak of their bubble got to 6%.

52:23but Kudrosky makes this point. Here, let me read this. Compare this to prior CapEx frenzies like railroads or telecom. Peak railroad spending came in the 19th century. Peak telecom spending was around 5G fiber frenzy. It's not clear if we're at the peak yet or not, but we're up there. These are raw CapEx numbers unadjusted for multiplier effects. In other words, just the purchasing and building of that stuff. And one of the things he points out is like, if you lay railroad tracks, it's pretty durable. You end up with something that's still usable 30 years later. At the rate at which these chips are like useful and then, oh no, there's a new generation, there's a new generation.

53:05I don't know what the long-term effect is of a lot of this equipment that we're spending money on. Like what becomes of a situation where a lot of this stuff becomes obsolete. So that's one element of this particular CapEx, you can call it a bubble or not, versus some of the prior ones. When we laid all that dark fiber 25 years ago, it was still usable. It just took a while before there was an actual use for all that video. I don't know. Any thoughts on that? You know, maybe this is really great for the earnings of these companies because all this shit has to just continue. You just got to keep making more shit.

53:40You have to keep making more and it keeps getting upgraded. It's a nightmare for people who have to pay for it. But maybe that's what keeps the economy going. All right. All right. We're good on that. um but wait what else you have more what's the what are these railroad charts are we doing these should we throw these in oh yeah i think i think we're it's again it's all like kind of the same story but um so a different sort of angle on this instead of like talking about how massive all this stuff is what i take away from this is it's possible for there to be an industry that completely takes over the economy the stock market um the growth narrative or whatever and maybe a couple years from now we're not talking about ai infrastructure and that goes away but i don't think that necessarily means that it's the end of the stock market economy or whatever like something else is going to eventually emerge so that's that's just sort of the short version of this and the chart after this was um uh you know sort of another or i guess after this one um is another angle on this you know this whole idea of oh like stock market dominance no next one look up well oh this one yeah stock market that's another one too but this one i think is interesting in that you know this was a study that was cited by a goldman sachs research note a couple weeks ago And basically the story here is, actually, I have the exact stat here.

55:1060 % of workers today are employed in jobs that did not exist in 1940. 60 %? 60%. So over 85 % of the employment growth over the last 85 years is from technology-driven creation, new positions. So the story being that in the process of emerging technology, destroying all these jobs and creating this nightmare for the workforce, it also figures out a way to create all these new opportunities for people. So, again, this is just for the people who feel like there's some sort of doom story coming with AI. And maybe there is a doom story. But the historical record is whenever there's something that destroys jobs, something else comes through on the other side.

55:58I don't know. I think we're seeing it already. You look at the last couple of jobs reports. I just don't think it's a coincidence. Yeah. No, I think short term, it's absolutely going to be a nightmare. Yeah, we'll create new jobs. I don't know when though. Yeah, yeah. I don't know when. I mean, and it has to happen because if there are no people who are employed to buy stuff, then none of this stuff matters. Do you worry about this? I've been now tested directly against AI by multiple bosses in very different careers. So far, I've won both with flying colors. I don't know if I'll always keep winning it.

56:32But on the investing side and… Do you worry about this for society? society. Like, do you think that because we last week we did a show and we looked at the rate of college graduate hiring and it's way down like kids right out of school, you would think those are the people that are most likely to be replaced by AI would be like a recent college grad. And it's exactly like what people feared. Like they're just not being hired at the same pace. Now, I don't know if that's cyclical or if that's the the AI revolution or maybe a little bit of a mix of So I'm curious what you think about that. It's incredibly difficult for me to disentangle that with some of the trends that were in place, I think, well before AI was really getting up and running.

57:18We've had a low hiring, low firing job market for years now. Tough for me to disentangle. I await with interest, though I don't look forward to. Whenever the next downturn is, companies are always making decisions on OpEx. But doesn't common sense just say that like the new entrance, the, what's the first job called? Entry level. Yeah, there we go. The entry level positions, maybe we don't need those anymore. I mean, that's like the death thing. Anecdotally, it sounds like, yeah, that's absolutely the case because there's at least an economic justification for, you know, entry level person because they can put together a draft of something that you don't, like do work that you don't want to do.

58:00They're the least useful employer and now you don't need them. And what happens when you don't need young people? It's catastrophic. And I don't want to go there, but how could you not start thinking about that? It's, you know, you're perpetuating your own demise when you do that. Yeah. I agree. But you think like it's too early to say if we're already seeing the effect of it. I think there's the companies who are adopting it the most aggressively are still basically saying, hey, we've done this and we've slowed hiring, we've frozen hiring. The use cases of companies that are out and out saying, we've cut jobs and it's because of AI.

58:31Those numbers are still - They're not going to say that. there are a couple who are still willing to uh klarna said it but then they reversed themselves yeah so um you know who's not going to ever say that amazon will never say it because politically why the hell would you say it it's right it's a crazy thing to say yeah like good news we no longer need to hire uh for the following positions ever again like no one's going to really a few companies are saying it because they're pre-public, like they're not, they're like pre-IPO and they sort of have a window where they can be honest. Elon would say it if it were true.

59:09Yeah. Well, all right. So we don't, but we don't think that's definitely, I don't, I'm starting to think it's like sort of very much. I think it's obvious. All right. Let's do this. Let's do this thing from JP Morgan. What did you guys think about the commissioner of the BLS getting fired?

59:30I mean, I think it's been pretty well argued that it's not great. Somewhere between not great and terrible. Why? If the person's not doing their job, you get rid of them. Yeah. So I think since everyone kind of agrees on that side, I'll go on the third rail and sort of try to advance what some of the counter arguments are. Like the decent counter arguments. Dalio said that the lady should have been fired. I don't know if the person had to be fired. I don't know what process had to happen to get to whatever the end point is, but there seems to be a lot of arguments to be made that there is a way to overhaul the process and the workflow and the way they analyze data so that it becomes more tight and more efficient.

1:00:11Yes, only Republicans can count jobs from now on. That's the way that they want to. In other words, if you are an appointee of a previous president and that president wasn't Donald Trump, you can't be in that position. That's like the irony of the announcement, like him accusing the former commissioner of being tainted politically. But he's going to replace them and like it's not going to be a tainted position anymore. Hey, any projections on next month's jobs number? It's going to be amazing. Revisions, upward revisions all over the place. This is Michael Ferroli from J.P. Morgan. Yeah, what did he say?

1:00:46Potential politicization of the Fed has been much discussed over the past several months, but the risk of politicizing the data collection process should not be overlooked. To borrow from the soft landing analogy, having a flawed instrument panel can be just as dangerous as having an obediently partisan pilot. Here's the part in bold. As users of these data sets know, even small changes in the market share of private data providers can distort the signal on the national economy. The$2.1 trillion market for TIPS, that's treasury inflation protected strips is built on a foundation of trust in the construction of the CPI data, which is produced by the BLS.

1:01:28As such, the integrity of this data is at least as important as the employment data. So now you had a whole raft of people come out and say, well, we never believed in this data. And the quality of the data has been deteriorating because it's a lot of it's survey based and people just don't respond to the survey. So the amount of people contributing to this data is down. And now you add on a layer of, well, Biden appointed this person who's responsible for the official tally. Therefore, it's bad data going in and it's a f***ed up politicized conclusion being drawn as a result of it. And I have to fire somebody.

1:02:05Okay. I feel like we could do that once. Are we going to now go through every single data point that the government collects and fire the person who's in charge of it? Because I don't think the market's going to love that. What do you guys think? Well, if AI spending goes up. No, I won't make a return to that. AI data collection. I'd pose like a couple of rhetorical-ish questions. Do you think you could collect - Oh, the Socratic method. I love it. Let's do it. Do you think you could collect, like accurately collect data on how many jobs are changing in a month in an economy with a couple hundred million jobs?

1:02:40I don't think I can. I think most people who would say yes are delusional. My partner Barry says no. Exactly. This can't be done. Two, if you think you could, would you like more information to do so or more money to do so if given the opportunity? I think most people would answer yes to that. So do one of those two things. It's not just the response rate that's been going down. There's also been funding cuts in this regard. And the response rate is down. You can mandate responses. So you have less need to revise. A big reason for revision is responses coming late. But you can't maintain the quality.

1:03:14What if people are like, ah, click. Well, we already, the quality is already suspected. There's seasonal adjustments. There's like, like we have ADP. So we have like private providers of payroll data. They don't diverge that much. The BLS stuff and the ADP stuff, do they? On a year on year, they don't diverge. But there's a, it's almost a joke now in markets. If ADP beats, you know, NFP is missing. Like it's just, it's just happened too many times in a row. So it's now just a fun joke to tell. But over time, on the private side, year over year, they track pretty darn closely. Like it's there. I don't know if this, I thought COVID would be like the golden age of alt data.

1:03:55I hope this doesn't spur the need for another one. But like that's still a TBD. I'm actually, I'm getting breaking news now. It looks like the new chief of the Bureau of Labor Statistics has been announced. So Scott Baio. So I don't know if that affects any of your. All right. Can we talk about Joe and Tracy before we get out? Yeah. Let's do that now. How proud of Joe and Tracy were you guys when you saw them this Sunday on the cover of the New York Times Sunday business section? I was so excited for us and for our little world to see them get that recognition. Did Joe hire you? Joe hired me at Business Insider in 2011.

1:04:37For those who are not sure what we're talking about, But the Odd Lots podcast was featured in the New York Times. And the co-hosts, Joe Weisenthal and Tracy Alloway, friends of ours, and people that I think represent what we all do out here in investing in economic podcast land. Yeah, I think what's great about this is I think we all listen to the podcast, and it's really good. Yeah, it's great. Every once in a while, you'll see some random piece about someone you've never heard of, and then you download it, and it's just garbage. But like this is this seems very appropriate and yeah, absolutely.

1:05:11I'm proud of these guys. And you worked with… Were you at the FT with Tracy? No, I worked at BI with Joe and then I worked at Bloomberg with Joe and Tracy for a while. And like god, it is amazing to see them get recognized for their amazing work. What this piece and no piece will ever capture is how many people they brought along the way. It never will because it would take, you know, how many sections of the New York Times to do that? I don't know. Joe is someone you can learn from example from incredibly well. Tracy is someone who will take the time on every piece, not just to give you a fish, but to teach you how.

1:05:49In every case, she's made me such a better reporter. I've been so lucky to have these two as mentors. They're absolutely amazing people. I literally sat across from Joe for years. And I remember there would be times when like, you know, an intern or a junior person would sort of like creep up behind them and then ask him if he would take a look at a draft that he was working on. Yeah. And every single time he would turn around and be like, hey, how's it going? Oh, yeah, sure. I'll take a look at it right now. Send it to me right now. He had time for everybody. No matter how busy he was. Leadership.

1:06:22That's how he became the… Like Henry put him in charge of the newsroom. Yeah. Because he had that quality about him. Like he was there to make sure the finished product that they put out as a newsroom was like up to speed. Can I tell you my favorite business inside of Tweet of all time? I think… Do you know what I'm going to say? I'm not sure. There's a lot of them. I'm actually really worried. I'm nervous about this. I'm nervous about this. I think Joe tweeted it and it was a video of you watching the World Cup. You might have been eating food. And it was like an insane… It was an insane play.

1:06:57And you just very calmly said, that's a nice goal. Yeah. Do you remember that? Yeah, those were good times. That's not the best business. We spent a lot of time. No, for me it is. Like, I just, that stands out. Those are simpler times. This is the best business insider tweet ever. And I think it dates back to Clusterstock. That's literally what the website was called. This was unforgettable. Henry Blodgett tweets an article that he wrote, article, LOL. A column, I suppose, or a blog post. Why do people hate Jews? and Twitter exploded. Like just like these days, actually, you would be celebrated.

1:07:35This escalated quickly. Yeah. Why do you hate Jews? So wait, he fixed it. So he went back in. You're laughing because you know what he did. He changed the title. He changed the headline. Why do some people hate Jews? And then that made it even worse. And then it was, what are the root causes of anti-Semitism? Anyway, well done, Henry. I don't want to add too much to that, But this is the inside sort of an anecdote from that period. Yeah. So the business inside of the newsroom was in basically something the size of an auditorium. Yeah. Very tightly. I was there. I came to hang with you guys. It's very noisy.

1:08:12There's a lot of typing. People are yelling. When that post went up, dead silence. And all you can hear, all you can hear were keystrokes. And people opening their seltzer. Everyone was G-chatting everybody. Yeah, because of the boss. And he stands right in the middle of the newsroom. We'll say in Henry, just in general, Henry Blodgett defense, tall man standing in middle of newsroom at standing desk. Clearly, A, running the company and B, contributing to the editorial product. Best management style I have ever seen undefeated. Do you guys know, did Henry start reinvesting his dividends yet? I think he's okay on that end.

1:08:53Okay. Probably. But yeah, no. Financially, he will recover from not reinvesting his dividends. But yeah, no, he was great. That was the first time I was at a company where the CEO was right in the middle of the newsroom with everybody else doing this exact same thing. All right. Shout out to all the BI alums. They have the biggest coaching tree of any reporter. Can we put this photo up? Huge reach. This is Joe and Tracy at your wedding, Luke. Yeah. When did you get married? Got married in, I should get this right, 2023. Is Tracy pounding a Corona? Yes. And not a Corona light. I love her. She literally is the best.

1:09:30And Joe looks like he's mid-dance maybe, perhaps. I went to Joe's house in the Hamptons last summer for his birthday party. Were you there? I was not there last year. I've been there the past couple before that. All right. So here's what's cool about Joe. So I'm walking around the party. I don't really know anyone there, right? And I can't spend that long. So I'm there for like an hour. But I spoke to like a lot of people there. People come up to me. And it's always like, how did you meet? like, how do you know Joe? He makes friends with everybody. Like, these are people that are like, oh, he used me as a source on a story seven years ago.

1:10:01Or I sent him a DM and wished him a happy birthday last year. And he remembered me and invited me this year. Like, Joe is the true everyman covering economics, which is mostly covered by extremely elite kind of academic people who don't touch the crowd, don't get really deep involved in the subject matter, kind of look at spreadsheets. Joe like puts people on the show. Who do you have on the other day? A guy that makes pizza in Midtown? Right. Like that, I think that's why the show is so lovable. And he had a baker. Yeah, yeah. They go very, very narrow. They're the best. One of his, he actually, this is, I guess, the last thing I'll say.

1:10:40He had a birthday party once at Business Insider where he actually sent out like a tweet and a Facebook post and just had it open to everybody. He said, anyone who's going to show up, we're going to go to this Chinese restaurant. and we're all going to have dinner here. And I think there must have been like 80 people showed up to this place. I was just saying, think about how insane that is. Yeah, and splitting a check with strangers. Are you insane? Yeah, yeah, yeah. And somehow it worked out. All right, guys, this has been so much fun. Thank you guys so much for being here. We always end the show asking people what they are most looking forward to.

1:11:12So this could be anything. I'll go first. Dinner with Warren Buffett. I can't wait. That's going to be awesome. Living or dead or alive. How'd she ask you? Either way, I don't know. Living or dead. I'm trying to be alive. Alright. What are you looking forward to? I'm doing some late summer house cleaning. Yeah. Good timing. I'm throwing crap out like crazy. I'm turning into a full minimalist. Okay. What can you throw out? Clothes? There's definitely… There's way too many random t-shirts. There's too many random pairs of shoes. There's too many… There's all kinds of kitchenware that I only used once.

1:11:46I mean, I'll give this stuff away. I'll donate to Goodwill. Give it to friends and stuff. How many ladles do you need, right? You only need one. Yeah, you only need one label, man. What are you looking forward to? Yeah, what are you throwing away? I'll do a twofer. Okay. First, Neil Dutta getting appointed to the Fed board. That'd be nice. Looking forward to that. On a more serious note, I very, very delayed honeymoon planned for 2026, going out on safari. Still very in embryo, but I am a lion lover, lion tattoo. Have a parallel screenplay for The Lion King planned at some time. I could not look forward to that more.

1:12:24I think it's going to be an incredible adventure. What country do you fly to? It is that embryonic that… Okay, you have to figure that out. You have to get shots for that too. Yeah. It's a lot. It's a big thing. Yeah. All right. I've never done it. I've never done it. And you never will. That's amazing. I don't think I… If you met my wife, you understand why not… You'd shower you going at a safari. No, it's never going to happen. Maybe Six Flags. Animal freedom. I'm looking at going back to my bubble on Monday. I'm going back to Boca. and I need to kind of get away from it all. The pre-Future Proof warm-up.

1:12:56Oh, you didn't? You never told us the musical guest. So I've been requesting this for years. Yeah, this is a big one for you. I agree. Bush. All right. Bush is the headliner. Drum roll, please. All right. No, you can do the opener because this is your— So Bush is the headliner, and you guys might not know this. The opening act. Wait, slow down. Josh. Back up. Literally. People don't even know what you're talking about. All right. Stop. They do. Future Proof. They heard us. So there's a musical act. Bush is a headliner. And the opening act, Josh literally discovered them. They were like, Josh was walking in Merrick.

1:13:30Invented. And he saw them in somebody's garage. He said, you guys should be a rock band. That did not happen. Oh, I know who this is. Wait. Josh invented them. Go ahead. Tell the story. Let's back up. For people that are listening have no idea what a Bush is. The band Bush is going to be the headlining act at Future Proof festivals. Why are you infantilizing the audience? They know what I was talking about. Not everyone listens every week. Some people listen for the first time. We got Bush. All right. Wait, wait. Who's the headliner again? Oh, my God. The headliner is a band called Bush. And the opening act is Blues Traveler.

1:14:09So what do you think about that? I remember hearing your story about Blues Traveler. That's amazing. Yeah, dude. That's my story. I pretended that I invented Blues Traveler. It's not a real story. All right. Guys, if you are working in finance or wealth management and you weren't sure whether or not you're attending Future Proof this coming September, now you know that you actually are coming. And we're going to get Michael up on stage at one point, I think, to accompany Gavin Rossdale on Glycerin. Absolutely. Can we do that? Yeah. All right. Duncan, are you psyched for that lineup? I am. That's pretty good, right?

1:14:46I'm more of a blues traveler person myself. Yeah. Those of them are good. I think both are going to absolutely destroy. I think it's going to be an amazing night. Yeah. So that's the Tuesday night of Future Proof. All right, guys, this has been so much fun. I want to tell the audience where they can follow you for more of your writing and insights. Sam, we did you, the ticker. If you're not subscribed to the ticker, I don't know what you're doing. Sam, what's your handle on Twitter? Is it at Delta One? That's right. D-E-1-T-A, yeah. Are you Walter Bloomberg? Wait, x.com slash Sam Rowe? Yep. Okay, Luke, where do we follow you?

1:15:20How do people get your insights? LJK, AWA, everywhere, pretty much. And Sherwood.News. Read us. We got a lot of great folks. Not just me. A lot of folks a lot better than me. You guys are killing it. A lot of breath. And very impressive. Yeah, shout to Sherwood. And follow at LJKawa everywhere on all social platforms. And subscribe at Sherwood.News. All right, guys. Thank you so much for being here. Thanks to the audience. please like and subscribe and we'll see you next time