The Exchanges

Q So let me push back before we go and ask you to identify any risks or threats or downside risks in all of this. What should we be worried about, if anything, with regard to AI usage?

A Well, I think there are Orwellian scenarios, uh, of AI that I think we should be concerned about, and again, I, I tend to think that those scenarios were described by George Orwell, not by, you know, James Cameron and the Terminator, and specifically, it's misuse of AI by government. I do think that AI could be used as a tool to, um, surveil, to censor, To even potentially brainwash the population. This is why the administration has taken such a firm stance against what it's called woke AI, which I almost think that that name maybe trivializes the magnitude of the problem we're talking about. We're talking about AI having a political bias built into it. Um, and the bias can be so subtle that people don't even necessarily notice over time, but it has a huge impact on what people are allowed to learn and think and know and what, you know, children learn. And so I think it's very important that we try to make sure that AI was blatantly unbiased. Um, there, just in this regard, one of the things that we were so concerned about with that by an executive order on AI that we were sending in the first week is that it had 20 pages of language on DEI, and it was promoting this idea that AI models need to build in a DEI layer. Well, you know, this is how you ended up with, you know, the, the, the Black George Washington Uh, you know, story where the, the first version of, of, uh, Gemini c…

AI assessment note: “I think there are Orwellian scenarios, uh, of AI that I think we should be concerned about”

Q versus the modern left. It's a Volkswagen, uh, bus with a bunch of hippy dippy flowers, and it says free speech, free love, 1971, no CIA, screw the establishment, resist authority, and then it shows like a modern SUV with 2021, it says masks up, I heart the CDC, obey the establishment, no free speech, do what you're told, obey, basically. You have another poll you want to share sex?

A Well, yeah, this is a really interesting one. It says a majority of voters, 55% say COVID should be treated as an endemic disease, while a majority of Democrats say it should be continued, continue to be treated as an emergency. And then there was a similar poll, the Monmouth poll just came out, where 89% of Republicans, 71% of, of independents, say that it's time we accept, we accept COVID is here to stay, and we need to, uh, get on with our lives. Only 40% of Democrats. Sure. The reality is that the rest of the country, I think, has moved on. It's ready to move on. The split is not between Democrats and Republicans anymore. It's within the Democratic Party. The Democratic Party is now divided on this question of whether we should move on as a country past COVID. Half of the Democratic Party still believes that COVID should be treated as this emergency.

AI assessment note: “Well, yeah, this is a really interesting one. It says a majority of voters”

Q But will he drop out is the question we're asking you. Will he drop out?

A No, he's already said he won't. Look, the problem that people in the Democratic Party have who have this concern about Biden losing the election because of this cognitive issue is that there is no mechanism to replace a candidate who has won all the necessary primary votes against his will. Biden has said he's going to be the nominee. He has no desire to drop out. So unless he changes his mind or there's some act of God, he's going to be the nominee. The time for Democrats to make this change was a year ago. It required mounting a primary challenge to Biden the way that Dean Phillips has done. The problem is that the Democratic Party elders and the powerful people in the party said, we're going with Biden. And so no one wanted to run against him. And they basically Set up the primary calendar so that Biden would win, and he is going to win. He'll have all of the primary votes he needs locked up by the end of March. And Dean Phillips is not going to be able to basically stop him. So there is no mechanism to remove Biden. He's going to be the candidate, you know, barring act of God, unless he can be persuaded to step down. So it's not going to happen.

AI assessment note: “No, he's already said he won't.”

Q And what's your prediction this year, Sachs? Biggest business deal. Sachs, what do you got?

A My biggest business deal is whatever the Fed decides to do to replace or extend BTFP, the Bank Term Funding Program. Um, remember that the BTFP, which is what the Fed used to bail out the regional banking system, Last year. And was it like March or April? It was only supposed to last for one year. It's supposed to be a temporary program, but I do not think that the balance sheets of regional banks are healthy enough to survive without this continued liquidity from this program. So I think the feds can have to do something to either replace the program, extend the program. They're going to have to do something. And I think that regional banks are still in pretty bad shape with You know, impaired commercial debt portfolios, and they need this liquidity as long as the yield curve remains inverted. So, I think the Fed is gonna try and somehow figure out a program to keep these guys Liquid until they can de-invert the yield curve. And I think the Fed's trying to massage all of this into place without there being a recession.

AI assessment note: “My biggest business deal is whatever the Fed decides to do to replace or extend BTFP”

Q Well, first of all, I'd be very, very empathetic. Um, I'd probably want to understand how someone could lose money, um, when they couldn't buy a stock at the all time high. So I think the details around that, I mean, if you look back, uh, and obviously this had nothing to do with the decision, right? But Thursday was the all time high.

A Yeah. Yeah. But that's, but the reason for that is because the ability of wall street bets to continue the trade was It was basically interrupted, right? They were, they were engaged in a short squeeze against these big hedge funds. And in order for this to keep driving the squeeze up and up and up, they needed to basically to, to be able to buy. And then once they got frozen out of all the online broker accounts, not just you guys, but all of them, that was that, that, that, that broke the trade, right? That's when it, that's when it crashed. But that's what they're so, but that's what they were so upset about is because they got, they got locked out of the buy side of the trade. They weren't locked out of the sell side, right? They got locked out of the buy side, and that allowed the, the big hedge funds, 24 hours to regroup and, uh, and cover the trade. The price went down, and that basically cracked the whole thing.

AI assessment note: “they got locked out of the buy side, and that allowed the, the big hedge funds”

Q Sachs, uh, we'll give you the, the final word here. Uh, is this a good thing for humanity, for international relations, that China is, you know, having a little bit of a hand check here, like, hey, there's going to be a limit to how you can operate in the West, uh, or is this a personal vendetta from Trump, and then what do you see going forward?

A Um, it's, it's true that, I mean, first of all, our social networks are not allowed over there. So I don't think we need to feel bad about, um, you know, not allowing their social networks over here, but besides reciprocity or the lack of it, um, I think the deeper reason for this is just around, uh, data security and, and how the, You know, and I think that the CCP has given us adequate grounds here to ban not just TikTok, but, you know, apps like that, um, because President Xi himself declared this policy of civil military fusion, which means that any business, um, in China, any business asset there, including data, can be appropriated to serve the, the ends of the Chinese military or the Communist Party, and, you know, the, the CCP has set up this vast surveillance Apparatus over its own citizens. It's, um, asserted, um, extraterritorial sovereignty over former Chinese citizens, meaning dissidents. Um, so the, the Chinese diaspora anywhere in the world, uh, they've asserted sovereignty over that. And, um, you know, recently there was a pretty remarkable speech by the FBI director, Christopher Wray, describing, you know, Operation Foxhunt, which is the Chinese effort to track down and presumably Ultimately punish Chinese dissonance anywhere in the world. And as part of that, that the Chinese have sort of weaponized AI and social media. And so, uh, he also described, I mean, t…

AI assessment note: “I think the deeper reason for this is just around, uh, data security”

Q on to worst performing asset. We're cooking with oil. Worst performing asset. I went with energy, Chamatho and tech energy, junk debt. Sachs went with office hours in San Francisco, and Freberg went with consumer credit. Wow, I think we nailed it in almost all those cases here. What do we got for 2024? It's actually got a 2024 prediction of worst performing asset. Again, this is not investing advice.

A Yeah, so I'm not going to trade on this, so just take it with a grain of salt, but I would bet against the magnificent seven just because I believe that what goes up must come down, and the hotter they are, the harder they fall. I'm not saying that the magnificent seven are actually going to go down. I'm just saying that the S&P four 93 Are gonna catch up a little bit. So I would book this as a spread trade where I would bet on the S and P four 93 over the magnificent seven, because again, I just think that there's gotta be some catching up here and the huge gains made by the magnificent seven were really based on story, you know, based on AI. And I don't see why those gains should be limited to The Magnificent Seven if AI is going to play such a big role in the economy.

AI assessment note: “I would bet against the magnificent seven just because I believe that what goes up”

Q missive. And, uh, he was not swayed. His central question sacks is will AI be used to concentrate power in the hands of a few, or will it serve everyone? Something you brought up when you mentioned monopolies, duopolies, et cetera, two weeks ago on this very podcast. What's your take on the Pope and his interest and his, uh, missives on AI and promoting a bit of AI regulation?

A Well, I very much agree with the Pope that the biggest risk of AI is a centralization of power, and then it's misuse against us, um, in some Orwellian way. I think it's government that's gonna do that. Um, not Necessarily an individual actor, because it's governments that ultimately have the power. So I do worry about the potential for AI to be used to surveil us, censor us, control us, as Orwell described in 1984. So if that's where the Pope is going with this, I very much agree with him. Maybe where we end up in different places is he thinks that government regulation is the way to prevent this, and I would just say that we have to be careful not to empower government too much, because if you give government the power to regulate or approve AI development, If you create, say an FDA for AI, as many people are calling on, that will give government the power to approve models and therefore give notes to model developers. And very soon this definition of safety will expand because the government always takes an expansive view of its powers. And we saw this during the social media wars where the definition of trust and safety expanded to Issues like psychological safety, microaggressions, disinformation, transphobia, and so on that, you know, again, the social media companies were told that they had to stamp out all of those threats to safety, and it ended up becoming a censorship…

AI assessment note: “I very much agree with the Pope that the biggest risk of AI is a centralization”

Q Which is why we're watching what China is doing. Let's talk a bit about China and where it is relative to the United States. Are we winning? Is it about chips? What's the race specifically really about?

A Well, I, I think that in general, we're ahead of China. There's different layers of the stack. So you've got the, the, the models, then you've got the chips and, you know, then you've got the chip making equipment, you know, so you go down the stack. I would say that the deeper in the, in the stack that you go, the greater the American advantage. Um, I think on models, most people would say that we're, our models are maybe six months ahead or so, plus or minus the Chinese models. You look at chips. Maybe two years ahead. You go to the semiconductor manufacturing equipment, it could be like five years. So the US does have significant advantages. There's only maybe a couple of areas where I think China has an advantage. Um, one is on energy production. If you look at their grid, their grid has roughly doubled in the last 10 years, whereas ours has only grown by about two to three percent. Energy production in the US has been A relatively sleepy industry before AI came along. And a lot of that had to do with regulations and the antipathy of the previous administration towards energy production. Obviously president Trump had a very different view on this. I think he was prescient on this issue. You go back 10 years and he was talking about, we got a drill baby drill. And, um, and I think he understood that energy growth was The precondition for economic growth, and it's definitely …

AI assessment note: “Well, I, I think that in general, we're ahead of China.”

Q And I love the Draghi report because it was so clearly, uh, identifying companies that are in Europe that, you know, like Novo Nordisk is, like, Three hundred fifty billion or a four hundred billion dollar company. And in America, we've had companies of trillion dollar companies, Nvidia hitting five trillion dollars. So, so what is the path to innovation?

A Well, I, I think part of it is, and I, I think this is the difference between maybe the American mindset and the European mindset towards this is that ultimately the innovation in the United States comes from the private sector. It comes from the entrepreneurs, the founders, the innovators, the geniuses with an idea. And I think that the government sees its role, at least when it's thinking properly about this as being an enabler. And it's just setting the rules of the road, um, and maybe putting in some guardrails, but basically it's letting the entrepreneurs cook, and that's how you get innovation. And now I don't want to bash our European hosts too much, but you know, when, when, uh, when the EU talks about AI leadership, they're talking about the regulators, and they think their value-add is, well, we're gonna, we're gonna show the whole world the regulatory model for AI. So It's kind of a bad case of, um, main character syndrome where, uh, you know, where like the regulators think they're the main characters in this. No, look, the regulators are the supporting players. The main characters always have to be the entrepreneurs. It's gotta be the innovators. That's how you unlock innovation. When the, when you start to see yourself, I mean, the, the regulators and the policymakers as the, as the main characters, that's not a great recipe for innovation.

AI assessment note: “basically it's letting the entrepreneurs cook, and that's how you get innovation.”

Q Saks, you have any thoughts on it and what you're seeing, you know, in the field right now?

A Yeah. I mean, I, I think in having conversations with enterprises and businesses, what they basically want is to be able to throw all of their data somehow into a LLM and be able to ask you questions. So they've seen ChatGPT and they basically want to be able to do that, but with their own enterprise data. And it sounds easy, but it's actually like pretty hard to make that happen. One problem is that the LLMs Don't have that big, what's called a context window, which is kind of like, you could say, it's almost like active memory or something like that. And we're in the early days of, it's like in the early days of computers where the, you know, you had to worry about your RAM. It was like eight megabytes, 16, and then 32, then 64. Remember that? We had floppings and then three and a half inch discs or whatever. And eventually just people stopped talking about RAM because it went away as a constraint. Yeah. But we're still in the days of you have to be selective about what you feed into the model because it just can only absorb so much information. So if you give it all of your enterprise data, how does it even know where to look? And so you've got to figure out how to optimize it so that you can give the, the AI model, the right chunks of data to give you the right answers. And that's actually, uh, it's a complicated problem right now. And, and, uh, we're dealing with it at glu…

AI assessment note: “having conversations with enterprises and businesses, what they basically want is to be able to throw”

Q All right. There you have it, folks. Uh, all right. Uh, Manesh Deva asks us, how do you view AI and how it will influence your kids' education? Sachs, uh, I know you're super involved in this, so what are your thoughts? You have three kids, by the way.

A Well, I think, I think the way that AI is going to influence education is that you could create highly customized AI tutors. And so I think the revolution could be that every kid can now receive, again, specialized, bespoke, custom education as opposed to being on an assembly line. I mean, the way that we make education today is the same way that we make, you know, Fords or, uh, Or McDonald's hamburgers, right? It's a big assembly line where you create a large batch, and you just move it forward. And some people need to go at a different pace. Some people need to go slower. Some people need to go faster. Some people need to be on a completely different type of conveyor belt. And you don't get any of that right now. And with AI, you have the ability to cost effectively deliver, again, a highly customized education experience for every Child. So I think that's where it's going, uh, but it's going to take several years to play out.

AI assessment note: “the way that AI is going to influence education is that you could create highly customized AI tutors”

Q Like. All right, fine. Sax, what are your thoughts?

A I think it's a good thing that they're launching this. Like you said, it is a deviation for what they've normally done. They normally don't release a product unless they believe the entire world can use it. So their approach has been only to release mass mass market products and have a very small portfolio of those products. But when those products work, they're, you know, billion user home runs. This obviously can't be at a 3000 dollar price point. And it also seems like it's a little bit of a early prototype where the batteries are like in a fanny pack around your waist and there's a ways to go around on this, but I, I, I give them credit for launching what is probably going to be more of an early prototype so they could start iterating on it. I mean, the reality is the Apple watch, the first version kind of sucked and first five versions. Yeah. Now they're on one. That's pretty good. I think. So look, I think this is a cool new platform. They get knocked on for not innovating enough. I think Good. Let him try something new. I think this will be good for meta to have some competition.

AI assessment note: “I think it's a good thing that they're launching this.”

Q I wonder, it's obvious people, they've been sending these balloons over here for a while. I just thought your framing, as it was errant, As in, like, well, we don't know. Do you think it was, I'm sincerely asking, do you think it was, Aaron, it was an accident?

A Well, here's the thing. It's such a harebrained scheme to send a balloon flying over American territory that the Occam's razor explanation here is that they somehow lost control over it. And these things are not steerable. So, like, my guess is that it probably wasn't deliberate just because of how stupid a plan it would be and how, like, obvious it would be. But it could be, I don't really know. What I do know is that the whole nation got in a lather and a tizzy and sort of hyperventilating about this balloon. And it just shows how reflexively hawkish the media is, you know, it's like, Hey, can we just wrap up this war in Ukraine before we start another war with an even more formidable super power?

AI assessment note: “my guess is that it probably wasn't deliberate just because of how stupid”

Q would agree with that. But explain why you think there's going to be a war because I think a lot of people think there's way too much at stake here for there to be a war. So there is going to be some sort of negotiated settlement in the South China Sea. So why would you think, you think the majority case is there's going to be a war, really?

A You, you have to look at it, first of all, from the Chinese point of view. They view Taiwan as sacred territory, and for decades now, they have said in every single meeting, diplomatic meeting with the U.S., Taiwan is always their number one issue. They are hell-bent on the reunification of mainland China with Taiwan, and they would like to do it peacefully through coercion if they can, but I think they will do it militarily if they must. And the only question is when they feel that they will be strong enough to basically take the island by force. So that's, I think, the Chinese point of view, and I think America is increasingly committed to the defense of Taiwan. So, you know, we have contradictory statements on this. The one China policy says that We respect that there's one China, but on the other hand, the Taiwan Relations Act commits us to help in the defense of Taiwan.

AI assessment note: “they will do it militarily if they must”

Q Do you feel that's not the case now?

A I think it's, I, no, because we have now defined our objectives in a much more expansive way, and I'll let Glenn speak for himself, because I think he would not go as far as me. I'm sort of in, I'm willing to do a little bit more, but, um, but no, I mean, look, you have the President of the United States saying that he wants to basically topple Putin. You've got Austin saying that our objectives here go beyond Ukraine. It's basically to kick Russia out of the League of Great Powers, And moreover, you've got the State Department declaring that we're in a global struggle between autocracy and democracy. So we've defined the struggle in Manichean terms. And if somehow Ukraine were to lose, there's like this domino theory where dictators are going to take over the whole globe. And so I think we've invested Ukraine. I would give them some help, but I would not allow the, we, no American president has ever claimed that the United States has a vital national interest. In Ukraine. Name of the president who's done it before.

AI assessment note: “no, because we have now defined our objectives in a much more expansive way”

Q up, and then there are security guards outside, and you have to make an appointment to go Christmas shopping, and literally there have road blockades of multiple cars at every intersection because these smashing grabs have become so brazen and dangerous. There were 30 or 40 people involved in that one at the Louis Vuitton store. Can you imagine you're shopping for Christmas and 40 people run through the windows?

A This is the logical result of everything I've been warning about since the beginning of the year. You have prosecutors like Jason Boudin who have essentially decriminalized theft by refusing to prosecute it. After the Louis Vuitton, uh, looting, he comes out there and says, well, don't bring this noise from out of town. That's what he calls crime is noise, and he's trying to pretend like it's, it didn't arise in San Francisco, like somehow it's come from out of town. No, you created it by refusing to prosecute These types of crimes. And then after talking tough, the first thing he did, he already released. They, the police actually caught some of these looters at the, of the LVMH. He has already released them on zero bail. Exactly. The prison, the jail is a revolving door. They have zero bail. And so the people who did this are already out on bail. Chase, it talks tough when he, when he charges them, but the charges are never actually brought the prison thrown out. And it is dystopian.

AI assessment note: “This is the logical result of everything I've been warning about since the beginning”

Q I think a good jumping off point here might be the Supreme Court eviction moratorium, uh, and the Supreme Court not upholding it, and what are your thoughts on that, Sachs? Because it does relate to this never-ending free money train, no repercussions, Of personal behavior and, you know, spending insanely forever, it seems like we're never going to stop with the stimmies.

A Yeah, I think the stream court threw out Biden's eviction moratorium as unconstitutional. Look, I think it's great. You know, the, the government should not be, uh, preventing, uh, eviction, you know, especially not the federal government. I don't understand how this is supposed to work. I mean, all you do look, I don't want to see anybody get evicted, but the reality is you have to pay your rent. And if, and if there are groups of people who can't pay their rent and the government decides that, uh, that those people should be helped, the right way to help them is to give them the money to pay their rent, not just to tell landlords, sorry, Like, you can't collect rent anymore.

AI assessment note: “Look, I think it's great. You know, the, the government should not be”

Q Uh, and so you don't think that this Woodward book and that kind of stuff plays into the election or the debates in the coming weeks?

A I think it's sort of priced into the stock. You know, I mean, look, if it weren't for COVID, I think that if you go back to like January, February, when Trump gave that state of the union speech, his ratings were the highest they had been. The economy was on fire. Um, you know, he kinda, it looked like he was on cruise control to winning reelection and then COVID happened. And, you know, um, And his ratings went down to their, to their lowest point. And, um, and so I think he already paid the price for, you know, the, the, let's call it inconsistent leadership that, um, that Woodward described. So I think that's priced in. And now the question is if the economy gets good enough, fast enough, um, and the other side is on the side of lockdowns and Trump is on the side of reopening, um, you know, I, I, again, I think COVID policy becomes a net plus for him.

AI assessment note: “I think it's sort of priced into the stock.”

Q And it becomes, just gets subsumed into the Amazon web services, cloud businesses, Elon's web service, et cetera. Saks, where do you think this is going? And then we're going to go to our second story, which is the IP story. Third story is going to be the markets and Google specifically in Tesla and SpaceX. Look, there's been a lot of violent agreement on this show so far.

A So let me just make the counter argument. I think that both open source and closed source will be big winners in this. I think the market is huge and they each serve their purpose. What happened is with the introduction of community K three, there's a little bit of a panic in which everybody said, oh my God, all the Chinese models have caught up and they're giving them away for free. And they're going to destroy our leading American frontier labs and anthropic and open AI are running around saying, listen, we can't continue to invest billions of dollars. If Chinese companies can just steal our weights, right? So that's the argument that they're making that government officials are responding to. The truth of the matter is that look, when Kimmy K three first launched, I was concerned about it because I was like, oh, has China caught up? Are they now able to produce a much cheaper frontier model? Then the details started coming out. So Ben Thompson on his blog went through some of the cost numbers and it turns out that Kimmy K three is not that much cheaper to run. There's not a significant cost advantage to it. So that was, that's point number one. Point number two is That China has not caught up. It's true that Kimmy K-III scored really well on the arena battleground for front-end coding for web development, but that's just one test. That's just one dimension. There are areas w…

AI assessment note: “I think that both open source and closed source will be big winners in this.”

Q Meanwhile, you've got some people pushing back after wanting to see the innovation and growth of data centers. Now they're saying, not in my backyard. What about that? Is that an issue?

A Yeah, I mean, we got a letter recently from Bernie Sanders saying stop all data centers, all data center development, and you know, if we do that, we will lose the AI race. I mean, you do need this infrastructure. Uh, other countries are building out this infrastructure. China's building out. I think they're, um, spinning up a new, uh, nuclear power plant or, um, or coal plant, new energy every single week, and a lot of that is going to power their data center. So, It would fundamentally, I think, cripple the United States in the AI race if we just stopped building data centers altogether. At the same time, there are concerns about affordability, about whether consumers would have to pay a higher electrical rate because of data centers. President Trump's been really clear that consumers should not have to pay higher rates for electricity because of data centers. You saw just last week Microsoft stepped up and made a pledge that it will, that its data centers will not cause Residential rates to increase. I think you'll likely see other tech companies stepping up and making similar commitments. And in fact, when I've talked to the hyperscalers and when I've talked to the AI companies, it was never their plan to draw off their grid. They all are, uh, saw standing up their own power generation as part of their build out. Um, and what Secretary Wright, the, our Secretary of Energy h…

AI assessment note: “President Trump's been really clear that consumers should not have to pay higher rates”

Q It's an important point that you make in terms of exporting AI to the rest of the world. Is it true that China is telling its companies don't use American chips, don't use American AI right now?

A It's, it seems so. Um, I mean, China's developing its own models. Obviously, about a year ago, you had the DeepSeq moment where you, you had a powerful model released by DeepSeq, and I think that kind of put Chinese, uh, AI on the map in a way. I think people in the West didn't realize, in a way, how good China was at producing models, and there was a little bit of complacency, uh, towards our relative position. People weren't really talking about the global competition Two years ago. It wasn't really discussed at all. I remember when, you know, the Biden administration created this, you know, a hundred page Biden executive order regulating AI. No one was talking about whether this might slow, whether all this regulation would slow us down vis-a-vis China. It wasn't even part of the conversation. Then DeepSeek launched, and I think we did realize we're in a global competition and we have to win, and that's why we have to actually be quite careful about how we regulate this and not make sure we're not Over-regulating it, but I think, you know, China definitely wants to compete. Um, there have been some stories recently. I think, uh, Bloomberg and Reuters reported that they actually are not allowing Nvidia chips into their country, and the reason for that, we think, is that they want to indigenize chip production. They want to stand up Huawei as their national champion, and effec…

AI assessment note: “It's, it seems so... reported that they actually are not allowing Nvidia chips”

Q next quarter? And to the extent that Google is saying, look, we're going to keep our big infrastructure spend, seventy five billion dollars. You know, full steam ahead, which is great for the ecosystem, great for NVIDIA, great for, great for everybody in that world. Do we think that holds up if we think there's a hiccup between now and whenever all this tariff stuff gets sorted, if it does?

A I think it's going to hold up. I mean, look, I just think that this investment in, in CapEx and the data center build outs is so strategic right now. I mean, I think that the hyperscalers, it's only good for their, their businesses, but I think they see it as so strategic to their survival that they just have to do it no matter what. In other words, I think they're totally inelastic on this. But let me just go back to Google. Nick, can you throw up this chart? I mean, I think the problem that Google has with respect to ChatGPT is that Gemini is just not getting the usage and ChatGPT is just growing like crazy. If you look at how these models perform according to the benchmarks, Gemini is actually really good. I mean, Gemini has made substantial progress It's catching up to chat GPT, but they have not caught up on the usage side. Now to Jamal's point, you could just Make Gemini the default interface in Google search, but that is true innovator's dilemma, because if you do that, you could be giving up more than half the search revenue. So I do think Google is, is in a really tough spot and the longer they wait to make Gemini front and center, the worse this usage problem gets. I mean, what's basically happening right now is users are learning a new habit. I mean, they're learning to go to chat GPT to get their questions answered or just their searches answered in a completely dif…

AI assessment note: “I think it's going to hold up. I mean, look, I just think”

Q Should the government be doing this or should private industry be doing this?

A I agree with Jermath about the wars, but this is all money we don't have. I mean, we shouldn't be spending the money on wars and we shouldn't be spending it, I think, on industrial policy. So first of all, one of our friends who's an energy investor, uh, we should beep his name, but was telling me that the energy subsidies that were in the You know, misnamed Inflation Reduction Act. It is like the biggest bonanza of all time. He said that the energy sector is going crazy now trying to figure out how to exploit these incentives. And his view is that although I think it was supposed to cost about three hundred fifty billion dollars, he thought that it would ultimately cost the government somewhere around a trillion. Because the way these subsidies work is that you just qualify for them and then you get the subsidy. It's not like the credits run out. So if you qualify, you get it. So this could end up costing the government way more than what was originally projected. And so the question is, well, what are you going to get for all of this money? And in this article on Ford, they were talking about these 7000 jobs that are being created at a cost of 440,000 dollars per job. So it's great that the jobs are being created, but if you look at the efficiency of that, that spend Per job. Doesn't really make sense.

AI assessment note: “we shouldn't be spending it, I think, on industrial policy.”

Q Let's go back to the uses and how AI is changing our lives. You, you mentioned earlier, um, all of the uses and, and, and the impact that AI is having. What do you see as the most important use and where AI is being deployed and implemented best right now?

A Well, it's interesting. I think there's been an evolution. So I think we started with, you know, AI chatbots like ChatGPT, and in a sense that was kind of like better web search. Um, it was really great for research. You ask it questions and give you answers to anything. Then we saw, um, we saw models add chain of thought and they could start to do, you know, deeper reasoning. Then we saw coding assistance. This is real. And I think over the past few months, there's been A real breakthrough. If you talk to people, software developers, it really seems like there's been, you know, a major shift and just improvement in the quality of the coding assistance. And I think where that's going next is, um, tools for knowledge workers. So the same types of assistance that have been outputting code can now output any type of format. So whether it's like Excel models, PowerPoints, websites, you name it, knowledge workers are now able to generate Uh, all these different types of things the same way that coders have been, that software developers have been using AI generate code. I think that's one of the big things you're going to see in 20, 26 is again, this, this, um, this productivity boom for knowledge workers. So I think that's like one of the things you're seeing on the ground. And then separately, there's, there's a bunch of things happening in industry verticals. So different industr…

AI assessment note: “major shift and just improvement in the quality of the coding assistance.”

Q have some sort of, uh, competitive advantage and it's not clear to me that I have any sort of competitive advantage in crypto. But three, David, I am curious, for the stable coins, is it, does the Genius Act limit them to dollar backed stable coins? So it's not like you can create the stable coin and then swap in something other than a dollar. Is that, is that true?

A Well, I mean, anybody can create a stable coin that's backed by anything. And in fact, I think there are like Euro backed stable coins out there, for example, but nobody uses them. I think if you look at the stable coin market share, it's like 98% US dollars, two percent euros, because there's a flight to quality. I mean, everyone wants to use the best one, right? And this is why it's in the interest of the United States to basically enable this technology to continue flourishing is because As the best fiat currency, we're the one that's going to get used the most. There's no reason to have multiple fiat stablecoins, not really. So that this is going to accrue to the benefit of the United States. Jake, let me go back to something you said. So I don't necessarily agree with your criticisms of that particular company, but where I will agree is that this bill will provide additional comfort for consumers and additional protection for consumers, because now all the stable coin companies will have to operate in the United States. They'll be subjected to quarterly audits, and we will know that every stable coin that's been issued is fully reserved or backed up by a dollar in a U S bank account. And so, therefore, when a stablecoin holder eventually wants to cash out and they go to basically an off ramp, The money will actually be there. Now, I'm not saying that the money isn't there …

AI assessment note: “we will know that every stable coin that's been issued is fully reserved or backed”

Q Define a lot. A book a month? A book a week?

A Well, it's more like if I got interested in something, I would go down the rabbit hole and just kind of read about it until I Completely exhausted that. I remember, I think in like, 10th or 11th grade, I learned about Darwin, and I had never been exposed to that before, and so I ended up reading, you know, the, the, the, um, teacher recommended Um, Stephen Jay Gould and Richard Dawkins as other authors that I might want to read if I was interested in the subject matter. I ended up reading every single book by Richard Dawkins, every single book by Stephen Jay Gould, not one of them, like all of them. And, um, at the time, this is what I was interested in, so that's why I read it. But looking back, that was clearly an outlier behavior.

AI assessment note: “if I got interested in something, I would go down the rabbit hole”

Q If we want to go into conspiracy corner and put our tinfoil hats on, you mentioned The IRS, the CFTC, right? These government agencies are owned, like, over twenty billion dollars. If all this crypto profits, if they're higher in the stack, they would be going directly to the government, and the government is handing them the process here, so it doesn't look.

A Right, right, but I don't, I don't think, I don't think it's, that's driving it. I think that, I think bankruptcy rules are very specific, and they're completely designed around, again, assessing What the value of each claimant is at the time of bankruptcy and then creating a pecking order for distribution. So I don't think there's any foul play here. I think that this is just the way that the cookie crumbles, but I think that it's simply wrong or misleading to say that the depositors were made whole. And I think the reason we thought that is because of these statements that were promulgated through the media, including the judge to give people that impression. And I think it really just underscores that the media always has an agenda and you gotta be so careful About imbibing their narratives, because without knowing exactly what their agenda is, you can imbibe their bias.

AI assessment note: “I don't think there's any foul play here. I think that this is just”

Q Because it's not variable, right? It's a variable, right?

A Yeah, exactly, because so much of it is, is, um, It's not locked in in long-term rates. So because interest rates have gone up so much, the debt service gone up and interest rates are still going up. And so, you know, Druckenmiller had those points around how the debt services within a decade is going to eat up practically the whole federal budget. So Chamath is right that we've never really had to choose between guns and butter before in the past. It was just, let's just do both and we'll rack up more national debt. I do think there will be more and more pressure to question This type of spending and why we've already given Ukraine eighty billion dollars in handouts when we can't afford to basically pay for, you know, major entitlements at home. So I think there'll be more pressure. Now, I think, I don't know if that pressure is going to come in time, though, to de-escalate this Ukraine war.

AI assessment note: “Yeah, exactly, because so much of it is, is, um, It's not locked in”

Q What were you guys talking about in this breakfast?

A Keith and I just talked about how we're about to enter a very different kind of macro environment for growth stocks. And we don't know how long it's going to take, but, uh, but, uh, there's no question that multiples and valuations are going to come down. And there's a lot of younger founders and investors who never lived through a bear market or a down cycle, and they're about to get a rude awakening. So look, I think it's a little different for us, because we're all principals at our firms. And so therefore, if we're not happy about something, we could simply effectuate a change in strategy. But if you're one of 20 partners at a giant firm, even if you're the most successful one, it's hard for you to move that ship. And, you know, your returns get divided by, you know, it's one over n, where n is the number of, like, full partner shares. And, you know, if you've just made a ton of money over the last 10 years, and you're thinking about whether you want to sign up for going through a bunch of choppy waters, uh, there's a lot of good reasons right now for people to reevaluate. Um, now look, Keith and I were both discussing this in the context of, hey, this would be great for us because we're not going anywhere. But, um, but Keith did think that because the macro picture is changing, that is one more reason for people who are on the fence and thinking about retiring to Move forw…

AI assessment note: “Keith and I just talked about how we're about to enter a very different”