TDI Podcast: Industrial Digitization (#928)

25:42And, I mean, to that point, though, Bill Gates has been talking about nuclear energy for, I don't know, a couple decades, I think. If you look at what he's talked about, he's always been a proponent of it. I think he's been farsighted and seen that. um the interesting thing about nuclear energy though i mean you go weaving back to the to the 70s and um the united states and france in i think was 1973 when we had the arab arab oil embargo we wanted to have energy independence and i mean that was the goal was energy it was in nixon's moonshot or nixon's manhattan project right it was to get energy independence he he had planned to have a thousand nuclear reactors operational by the year 2000 that was a 1970s plan France went that way right France went to 80 percent they didn't have a thousand because they the country wasn't that large but they went to 80 percent of their energy or more from nuclear energy the U.S.

26:43I don't think we ever got above 20 percent so I mean And there's still about 97 or so reactors out there. But yeah, going forward, I think absolutely that's going to be, that's the only way to generate the electrical demand that we need, both in terms of the data centers for traditional, what we're thinking of large language models and charging electric vehicles and even Bitcoin mining. I mean, just that side of it's going to need nuclear. not to mention this, what I'm talking about, which hasn't fully emerged yet, but the digitization of industry. We have more and more manufacturing facilities being made in the U.S.

27:25Ever seen a post-pandemic, we have extreme spending on industrial build-out. It's not going away. That's going to continue. And that takes a lot of energy.

27:35Andrew Horowitz:Mm-hmm. What's interesting about that also is that this is a side conversation in the industrial digitization. In other words, a lot of people, and I've been trying to get people to think about this, right? What are the picks and shovels or the outside the norm thinking process that we should go into when we're looking for an investment, looking for companies that are not necessarily NVIDIA? You know what I mean? That's not just Apple. You know, okay, great. I got it. Those are the right in there. Those are the names. But what are the things on the outside? And I think a lot of people would be pretty surprised to learn that a couple of the names in the SMRs are outperforming NVIDIA, for example, by a long shot this year.

28:17Oh, absolutely. I own Centris Energy, which I don't know what it's up. It's up maybe four times. Yep. And again, people thought uranium refining was dead, but it isn't. Some of that had to do with Ukraine getting invaded and the Russian stuff coming off the market. But it's more than that. And I guess looking for that second or third or fourth derivative trade on artificial intelligence, I mean, it's anything where you're combining the digital to the analog. And again, just like we did in the last 30 years where we took a published printed book and we turned it into a PDF or some kind of a digitized Kindle file or something.

29:00How do we do that? Or what are the other things that are going to happen? And they're right before our eyes. And they're still not fully mature yet. Look at Airbnb and Uber. to seemingly different companies, but all they've done is they've taken an analog service, right? They've taken the consumer and linked them up through an app to a service provider. So we have lodging and transportation, but extend that to all the millions of other service providers that could use an app to link them to the consumer.

29:35Andrew Horowitz:But these are industries that were in existence before. They were stagnant. They were stale. Talk about the taxi business. For God's sakes, for years, You'd go to the airport. You'd have to hop into one of these crickety-crackety, stinky, leather-seated, smoky, nasty-smelling. Am I right online? Does this remind you of the taxi you get into when you get in the airport? Yeah, the only nice taxi I've ever ridden in was in Japan. Yeah. The only clean one. And in England, those black ones. But I agree. And they took this right from underneath the taxi business and basically almost put them out of business.

30:14Andrew Horowitz:The medallions in New York, which were a million dollars apiece, dropped to like$300 ,000,$200 ,000, even less to get a medallion in order to drive a taxi. And it's kind of amazing. You have also the – before Airbnb, there was also some rental businesses here and there. But there was no way to really get out there besides, I don't know, maybe a listing in the local newspaper in the classifieds, house for rent. How else would you do it? Exactly. And look at those kind of rural vacation properties. Their real estate values have skyrocketed because of the rent they can now charge from Airbnb. So it's drastically changed that.

30:56I mean, things like medical wearables, I think that's definitely going to, you know, from a Dexcom to Apple may never get their head fully around consumer driven large language models. But Apple, I believe, will dominate medical wearables sometime in the future. Again, a lot of this regulation, we got to we got to get through, you know, a lot of the FDA type approvals. But a company like Apple, you know, even and again, even companies that are out there today at DraftKings, right? DraftKings has taken gambling and, again, digitized it. It's made that app that makes a consumer product of gambling to link it up to a service provider.

31:39So it's going to be those things. I mean, companies like Disney, I mean, they've been stagnant for a while and finally have come up a little bit. But think of how much more they'll be able to digitize. And they've got that whole franchise, right? They can make the media and they get either adults or kids to go to the movies or watch it on some kind of a screen. And then they got a park or a cruise or they create products that they license. I mean, it's just a whole system that's media driven. And so it starts from the digital media creation, and then it goes to an analog Snow White or Princess doll that a kid buys to play with.

32:22So, or that experience, the experience on the cruiser in the park. Those are the kind of companies that are really going to, I think, continue to thrive. But again, look at Apple's missed a lot of it. Adobe. I'm shocked at how bad Adobe has missed the whole, you know, AI generation of, of both photographs and videos.

32:45Andrew Horowitz:But I, I'm still bet they're going to get it. This Eastman Kodak, you know, part two, right? This is, this is a company that, that thought they had everything that nobody was going to do anything and then all of a sudden film. And then like now, so, so these days, you know, you have a camera. How, how, have you ever thought in your phone that when somebody is taking pictures, you're like, oh, slow down on the picture taken, I'm going to run out of film. It doesn't happen. Right. This is the kind of situation where Adobe thought they had the market cornered from a lot of different areas, didn't hop in.

33:17Andrew Horowitz:Canva came in and just obliterated them. Just stole market share left and right because the prices were a lot. It's the same thing as many companies. It's old as the oldest story in the book in terms of people having security, what they're doing. They thought it was great and then not looking around to what the other options are. I want to switch gears. I want to talk about a couple of different things here. I want to talk about, let's go to interest rates a little bit more, not as exciting. But the interest rate environment, I think, is very much – and inflation, deflation pricing is very much a part and parcel of the story of AI, of technology, of enhancement, of growth, of all of this, right?

34:03Andrew Horowitz:But you've, I think, from some of the things that I read, talked about the case for higher interest rates. I don't know if that's your current outlook on rates because you have a thought on the narrative that we're having today or that there's been around the peripherals about the stagflation. And what are your thoughts on that? Yeah. So interest rates are a funny thing. So do I have a higher interest rate mentality or just do I have a normalized interest rate mentality? You know, where we just saw post great financial crisis through, you know, the pandemic recovery, that 15 year period or whatever it was, we just saw such artificially what I believe to be artificially low interest rates where, I mean, shoot, it wasn't too long ago that Germany, Japan, they were still negative interest rates.

35:05How do you have a capitalist society or any society based on trade where that where where where currency has no value? So so it's not so much that I'm in the higher interest rate camp because I don't think we're going to see the hyperinflation where interest rates go to, you know, double digits or anything like they had done in the. in the, you know, 70s and 80s. But, but I do think there's an argument that, that, that there's a time value to money, right? So if you're holding cash, you should get some kind of a rate of return, you know, is that 3 % annually, 4 % annually? I think we can argue about that, but I'm, I'm just not a believer that, that these, you know, two and a quarter percent, 30 year mortgages are coming back anytime soon.

35:57And I think the, I think the, real estate environment is going to have to adjust to that. We're going to have decades worth of mortgages that people are going to be handcuffed to that they can never get out of because they're never going to get that 2.5 % interest rate again. Right. But I think the argument about even stagflation is wrong is the generals always fight the last war. So everybody goes back to the 1970s and looks at stagflation. But we have polar opposites from where we were in the 1970s. And it gets back primarily to the digitization of automation and manufacturing. In the 1970s, we suffered through the energy crisis.

36:48And at the same time, it's when globalization was really exploding, right? That's the, I think, when the term Rust Belt actually got invented, right? All the jobs, they weren't going to China back then, they were going to Japan or Taiwan or South Korea, whether it was car manufacturing in Detroit or steel mills in Pittsburgh, that stuff was all going overseas. So our dollars were leaving, our dollars were going overseas to buy oil, and our jobs were going overseas. And so we not only had higher costs for energy, but we had lower prospects for jobs. So that was stagflation. Fast forward to today, again, we're an energy exporter of both not only the highest grade light sweet crude in the world, but also natural gas.

37:40And people had said, you can never profitably liquefy natural gas, right? It's only going to travel down a pipeline. You can't export that. Well, you know, technology, again, technology has proved that wrong. We're a major exporter of natural gas. That's in its infancy stages as well. I mean, look at companies like LNG and anybody, even vaguely, an old school company, FlowServe, you know, a company that makes valves. Boring, right? Boring, right? These guys, they're going to have explosive growth. Absolutely. Because of this. So we're not only – our dollars are not leaving the U.S. anymore to buy energy.

38:19They're actually coming into the country because we're exporting energy. And at the same time, the jobs are no longer leaving. And listen, I don't think we're going to get back to 100 % manufacturing or anything like we did maybe even in the 60s or 70s.

38:34Andrew Horowitz:Going to because you just described why we have the digitization of industries. And even if we don't do business with China, it's only because we're going to have cheaper, potentially, labor, which is robots that don't take vacations, don't get stomach cramps and problems, don't get divorced, don't do this, don't do that, don't need 401k plans, et cetera, working 24-7 and all you got to do is oil them. Exactly. And maybe we still want to get our T-shirts from Pakistan or Sri Lanka because it's on a comparative advantage basis, it makes economic sense, right? That makes sense. But it doesn't make sense to design the most advanced ships in the world here and then turn around and make them on a small little island in the Pacific.

39:20I mean, you know, it doesn't make sense politically. It doesn't make sense from a national security standpoint. And it ultimately won't make sense from a labor standpoint once we invest in the automation here.

39:34Andrew Horowitz:Meanwhile, we just did 180 degree turn just last week on the fact that we're going to let the computer, some of the computer chips be remanufactured back in China again. Yeah. What happened? Like, what happened? Hello? We don't have to go through that. Let's not go through that. Trust me, I don't want to go through that. Let's not even go there. Did I say that? I can't believe I said that. Next question. Yeah. So in your book, I keep on talking about it, or the robots are coming. You warned a little bit about automation's impact, right? You talked about the issue and the concern about if we have all this automation, what is it going to do to people?

40:22Andrew Horowitz:Now, let's fast forward that. So take the concept we had there, and I don't know if it's exactly a proper fit, but you take that and you overlay on it the rise of generative AI. Is there a new warning? I don't think so. And, you know, when I wrote that book, and I wrote it in, it's almost 10 years ago now. In there, I talk about decision support systems, which effectively are what we're calling large language models now. I didn't, you know, I didn't know what term that eventually be coined. And that gets to the point of that book was a lot about it's going to be white-collar workers that lose their jobs now because the blue-collar guys had already lost their jobs.

41:08Anything that was easily taken out of a manufacturing factory was either shipped to China for low-cost labor or it was already automated. So it's been the white-collar jobs that had grown over the last 30 years in the US. And those decision support systems, whether you're a business analyst or some type of a researcher, an entry-level attorney that's got to go back and study case law or a financial advisor that's got to put together some kind of an investment strategy. All that had to be done with humans because we didn't have the computing capacity and the logic to figure that out. And the point of the book was that we are going to get these decision support systems where we can tap the brightest minds of heart surgeons or of financial advisors or of attorneys.

42:11And you can use that, use their decision supports, use the methods that they use to make decisions, and you can make a computer do that. I mean, that was, we just weren't there yet. And we're at that point now. So I think that's where a lot of the, you know, we'll call them the lower skilled white collar jobs go away. I mean, look at, look at how many people, Microsoft, these other tech companies are laying off because they don't need, they don't need just average programmers anymore, right? The guys that went to the coding camp for six weeks and suddenly were making six figures, you don't need them anymore.

42:52But you still – that doesn't mean computer science jobs are going to go away, right? You still need high-skilled people that can be creative and fix problems with information systems. So it's going to be more the mediocre things, the manager that just approved expense reports, right? He really didn't create value. He shuffled papers, mid-level manager kind of guys. You're still going to need the top-notch salesman to go out and sell a product, and you're still going to need the top-notch CEO like a – who can I say now? Maybe not Elon Musk. Another named Bezos. I guess they hate Bezos. Let's stick that down though.

43:36Andrew Horowitz:Let's not focus on the big companies. You still need that guy though, right? You need the sales man or woman and you need the CEO person leading the company, but all that bureaucracy in the middle that was not value add. Fat. You don't need that. Yeah, well, that's fat. And we've used things like SAP or other, you know, Salesforce, all these other enterprise softwares to basically train computers to do those jobs, right? We don't need those mid-level managers anymore. We can thank ourselves, by the way, for all of the training that we've done, because basically what we've done is we have created all the training by the years that we've used computers in one area or another, and essentially all this stuff was stolen, put into large language models, and nobody even knows what's happened, so we can't even sue or stop them because done, the big data dump was done.

44:27Andrew Horowitz:But you talk about creativity, ingenuity, entrepreneurship.

44:34Andrew Horowitz:these are maybe robot slash AI proof traits, right? So you've also talked right now about the CEO that can't be replaced, for example, but that's not you and me, right? Let's talk about this level, right, of small business. What should people be doing, your everyday John and Jane, to make sure that they are not displaced in life and shoved aside and just out with the old and with the new. Sure. And it works the same way, right? We're the CEO of our own, in your case, in my case, our own small businesses, our own life. Other people, even if they choose not to be a direct entrepreneur, they think of themselves as an employee.

45:17Well, they really basically just have one customer, but they still have a customer. And then this is where I get into the optimistic side of things. And he's cynically optimistic, but very optimistic, is that technology also breaks down all those barriers. I mean, think of the companies we've just mentioned in the last 30 minutes, from Adobe to IBM 30, 40 years ago that missed it. Sears and Robux are gone. They were all replaced, or in a case like Adobe, maybe going to be replaced by a startup or by something that didn't even exist before. So the barriers to entry are gone. You and I having a Zoom conversation, we couldn't have done that 40 years ago.

45:57I mean, I can remember as a kid in the 1960s and 70s, a long distance phone call just from New York to California cost a fortune. You know, now we don't even think about making an international call, a long distance phone call. So digitization makes everything better. And you can go out and buy 3D printer or a CNC milling machine. or, you know, people are not going to lose their job to a robot or to artificial intelligence. People are going to lose their job because some other human is using artificial intelligence or using a robot.

46:38Andrew Horowitz:So back to the point of making sure that you are well-versed, knowledge, learned, and understand the discussion. I had a podcast I was a guest on a little while ago, and we talked about how a lot of people don't embrace. They're not thinking about, they're like, I'll do it another day, AI. But there's so many practical applications, even at the stage of where we are today, for any individual, for individual personal use, to use this kind of stuff. and that will familiarize yourself enough with it so that at least you're not left in the dark when that other person is possibly displacing you. You can at least be ahead of the curve, right?

47:18Yeah. And new jobs will always form, right? Again, I grew up in Pittsburgh in the 1960s and 70s. And if you were a steel worker in Pittsburgh in 1975, you know, and you were 55 years old, you lost your job and you never got another one if you stayed there. But if you were a 55-year-old guy living in California and you were somehow involved in the tech industry, you had a flourishing career. So it all depends on your skill set and your geography of where you're located. But think in terms of what people can do with their own abilities and talents and then how you can use automation or digitization or any of these things to enhance your skills.

48:06And again, like we talked about, you know, Airbnb, people can now compete with Marriott, right? Or with Hyatt. They could have never done that before. Now they can do that. And just in terms of products and services, we, and the whole decision support system long-term, right? Not tomorrow, but long term, right? We're going to see more medical devices and medical procedures done either robotically or remotely. So, you know, maybe there's only so many good heart surgeons in the world, right? I don't know how many, I don't know what the number is, but let's say there's, there's only 2000 good heart surgeons in the world.

48:44But if we can take the knowledge that those 2000 heart surgeons have, and we can somehow take a company like Intuitive Surgical, right? That makes, makes these operating devices, you'll be able to have, and we're already doing this, but I mean, you'll have a surgeon in Chicago that will be performing a heart operation in Guatemala, right? Because it's done remotely. And that in itself is going to create jobs for all the people in the middle, right? Because even if you don't ever have the skills to be the heart surgeon, you can be the assisting nurse in Guatemala, or you can be the technology guy that's making sure where all the equipment's wired up.

49:23Or, you know, I mean, these dark factories that are coming back to the United States. We're not going to get back to the days where we have, you know, 50 ,000 people working in one factory, but there will be skilled labor in those factories that are associated with these different technologies where you need, you know, you need operators, you need people to maintain them, you need people to organize and fix them

49:49Andrew Horowitz:and put them back together when they break. Yeah. So, I mean, just the whole medical industry, I believe we'll have higher level jobs at a lower cost for things like medicine in the future, which will negate some of the problems that we have with the budget deficit and all the money that's probably wasted or fraudulent in things like Medicare and Medicaid. It's not going to happen tomorrow. So with companies like Tesla and Unitary, there's others they're kind of pushing the humanoid robots into the real world and application use of that is there is there any viable path to mass adoption of this?

50:31Andrew Horowitz:I mean I start thinking about the movie Sleeper and everybody had a little robot of course that was a comedy with Woody Allen or some of these other ones where it was like I am whatever it is there was like with Will Smith and iRobot, I guess it was called. Is this something that's coming? I mean, even Jensen Wang. Wang was talking about this. The next step for NVIDIA is going to be robotics. Sure, sure. And Elon Musk, I mean, that's his big thing. Now he's saying, don't look at the car, look at what we're going to do. Well, that's because car sales sucks. That's right. Remember we talked about have to have a good salesman.

51:09He's the salesman and the CEO. No, this is coming, and we can't put our figure on it right now because the link, that next link isn't there yet. It's like drones, right? You can look at drone technology and everything from what's gone on with using it as a warfare technology in Ukraine to just things that real estate agents do with drones in the US, where they can get three-dimensional and aerial shots of people's homes and things. And exploration too, if you're gonna go put in a new pipeline or a new, you know, electrical wiring system, you're going to send out a drone first, right? You're not going to send out the surveyors and those guys.

51:55You're going to use drones and things. We use drones for fishing.

51:58Andrew Horowitz:For fishing, we go and put it up there and let's see if we see any schools of fish down there. Or let's put a bait on the end of it instead of using a kite or an outrigger and float it out there and we can move it around. Sure, yeah. You know, talk about old school hobbies and things. I'm a ham radio operator. I know guys that use drones to take an antenna and put it up in a tree to like, you know, get up off the ground. So, yeah, I mean, so we know drone technology is going to be a huge advancement. Just again, like, you know, during World War I, aviation was kind of born. We didn't really know where that was going to take us.

52:31But you knew that that sector was going to be a big growth sector. we can see that with drones don't exactly how it's going to go and maybe and the drones maybe merge into these air taxis that we see things like that we might finally get flying cars like the jetsons had hey 40 years ago there you go so you know i think i think we do i think we do merge into those and even with the um the body robotics i think it's going to be more again more apple getting into medical wearables or more things like Dexcom where you can, you have a heart, and again, this will take cost out of medicine, right? So it's not going to, it's not going to, doctors aren't going to lose their job because we have more medical wearables, but the quality of life will improve because your smartphone or your smartwatch will monitor your heart rate or whatever.

53:24And it'll be predictive that, Hey, you know, Andrew's about to have a stroke or Andrew's have a heart attack. And just like the weather reports, right? We didn't used to be able to predict hurricanes. We'll be, you know, your doctor will get a notice saying that, hey, Andrew's, his heart rate is erratic. It's something unusual. He needs to get in either for just a physical or he needs to get to the emergency room. Those are things that are going to, the companies in the future are going to build those products and services. And there will be plenty of jobs in between that address all those issues because you're still going to need the ambulance drive.

54:00Well, maybe you won't need the ambulance driver to come and get you, but, but there will be an EMT in an autonomous ambulance that comes and gets you right.

54:09Andrew Horowitz:Flying one. Hey, by the way, ham radio, is that, we used to do single sideband. We say like CQ, CQ, CQDX, and there's a unit force. Yeah. Is that, do I got that? Still? Yeah. Yeah. Last weekend was the big annual field day. Yeah. There were, there were, you know, a million people out there on their ham radios. Really? Still, still happens. Morse code. Morse code is more, um, you know, years ago, they got rid of the Morse code test cause no one was knew how to take it and people weren't getting their license. So you didn't, you don't need to know Morse code anymore to be an operator, but shoot Morse code's never been more popular.

54:41Really? So let's go over. It's like, it's like a fountain pen, right? You, I get it. You, you, you want, you want that human touch.

54:48Andrew Horowitz:Yep. Let's finish off with um well-steady the well-steady podcast so well-steady tell me we talked about this before you and i but again remind me where'd you get that name it's it's kind of like homesteading it reminds me of uh building a a ranch or something i don't know that's kind of what i envision and it's it's but but tell me what what that is and how it kind of differs from traditional planning sure and as far as well-steady you know fourth of july i i this will be our 11th the podcast 11th anniversary on the 4th of July. Um, so, and it was, you know, 11 years ago I sat down and I was, um, I had been a long-term, just an individual investor.

55:31And, um, I had sat down and kind of came up with the 10 things that really helped me build my wealth. And, uh, that was the first 10 episodes of the podcast. They're still out there in the archives. You can find them, but it's really about learning like with homesteading it's a takeoff of homesteading homesteading is where you work the land and you and you learn to live off the land wellsteading is the modern version of that where you learn to work your assets and you work you live off your assets as opposed to you know just growing food or things and and the reason this this kind of fits into the whole digitization and the things that i've been passionate about over these last 10 to 20 years and seeing all the automation and things is that the companies that are growing and again believe will continue to grow in the future are all adapting that analog to digital because you can move you can move electrons cheaper than you can move physical products um where that big shift is coming and i think again the mundane things that the copper miners the um the companies that laid fiber optics you know years ago those things are coming back into vogue because we finally gotten to the point where we can't just make we we've moved electrons enough by themselves we need to start moving the analog products with them so you still need the railroads you still need either the copper network or the fiber optic network you know the pipes that move the systems around you still need the steel pipes that move the natural gas of the oil so it is it is a merging of the of the analog and the digital well and for me wealth studying is just about putting that all together.

57:12You know, how have I built my wealth? And how do I, it comes down to appreciating assets. I don't worry about inflation because I believe if you invest in appreciating assets, it doesn't matter what the currency is worth, right? It doesn't matter what the US dollar buys or the yuan or the euro. It's, these are, these are just pricing mechanisms. If you own beachfront property in Malibu, you're probably going to be okay, right? If you own a good quality, you own a good quality company that's growing profits every year, there's your asset class, right? You don't have to go work in the coal mines like my grandfather did.

57:49You can make smart business investments.

57:52Andrew Horowitz:I hear you. John Pugliano from the Wealthstanding Podcast. Also great books, great things. You can find out more about him, where to find him, everything about him over on the episode notes, over on The Disciplined Investor. It's episode number 928, by the way. John, thank you so much. Happy birthday to the U.S. And thanks for joining me again. I appreciate it. Always a pleasure to be on, Andrew. Thanks so much. Thanks. And that's going to wrap it up for this week's edition of The Disciplined Investor. I want to let you know that next week we have Larry McMillan coming on. Next couple of weeks, Larry McMillan, Anthony Scaramucci, Jim Rogers, Tom Thornton.

58:32Andrew Horowitz:And Das is going to be back by the end of the month. And pretty exciting, all these great guests. So I want to let you know that I appreciate you. I appreciate you spending your time with me each and every week talking about money, finances, and how to figure out the way to get you towards what we call financial independence. That's all for me this week. Thank you so much for joining me. And I'll see you again next week.

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