The Exchanges

Q if this was a thing that could persist. We had the Fed raising rates, making the economy You know, with the intent of slowing the economy down And then in comes ChatGPT. And what happened since then? I think the S&P 500 is up, what, 50% since then? So, with that context, I want to ask you again, how much is AI responsible for where the stock market is today?

A Yeah. And again, I'm gonna point out, it's the narrative. Like, that's really what people talk about, but it's not even what's not necessarily driving share price gains. I mean, a few stocks have, of course, Done very, very well in terms of share price gains. But the reason I, I'd say it's not necessarily the thing driving the stock market is that there's other narratives that do drive multiple expansion. So for instance, if we had this AI story, but we thought the Fed was going to continue to tighten and actually reduce monetary Liquidity , then we wouldn't actually have a rising stock market. I don't know if AI could power through a Fed that would be trying to kill the economy, or if oil went to 300 because of some geopolitical event and was at a sustained level, and so we had a recession. I don't know if we could have, um, a market doing well, and I don't, as strange as it sounds, I think it would be tough for the AI trade To work just because cost of money would be so high, or, you know, you'd have a lot of companies getting super cautious, and then AI would be forking and developing somewhere else outside the US. So, the answer is narratives drive prices, but AI isn't the only sort of story in the stock market.

AI assessment note: “narratives drive prices, but AI isn't the only sort of story in the stock market.”

Q And just quickly, at a very high level, so when you're ready to say, okay, the S&P is gonna jump and there's like an 80% chance that's gonna happen, what signals are you pulling from? Like you said, you're looking at the sensitivities and different evidence.

A Yeah. Well, a lot of times, um, markets make big moves because of surprise. So we have to, like today, we're seeing it today with like Tesla. And, but the reason there's a surprise is that, in a general sense, there's something that, say, anchors the valuation of a company. Let's say it's earnings, or this S&P. Like, let's say that what anchors it is the Fed's dovish, ok? But then we worry about tariffs and, and recession. So like, that's pulling down the market. You can always look for what will counter that argument of recession, and like for us, this year, it's, was the high-yield market, because high-yield spreads need to widen to like, 800, the spread over treasuries has to be 800 basis points, so if, if the tenure is at four percent, high-yield need, would need to be at 12%, to tell you that a recession is almost guaranteed, but high-yield during the tariff Turmoil only widened by a 150 basis points or so, maybe 200, which is just a growth scare, if even. So the reason we stayed bullish into the April low Was because high yield said the chance of recession is probably 10%, whereas the economists were saying it was 60, and we could tell by positioning and what stocks were selling off, the S&P down 25% has priced in like a 60 or 70% chance of a recession. So that's how we can kind of go on and say the market could make a full recovery because high yield It's telling us ther…

AI assessment note: “for us, this year, it's, was the high-yield market”

Q is different in the private market, but, um, OpenAI is in the middle of this. We know they're at least getting ten billion, maybe 20, maybe 30, maybe 40. They're losing, they lost six billion last year. They're probably gonna lose money this year. They're not gonna make money according to their projections till twenty-twenty-nine. Now, if they work and they reach AGI, great. Uh, if they don't, What happens?

A Yeah. Well, fortunately, like, let's say, you know, the open AI and the, the peer group collectively isn't multiple trillions, right? So it, but it is, you know, nearly a trillion ultimately when we get to the peak evaluation for all these things. It's not that different than, um, what happened to when the internet bubble burst. Fiber industry really was Required, consumed so much capital. I don't know if you follow the Celex back then, but they were digging up rail lines, um, digging up cities to lay fiber, and then people said after the internet bubble burst, there's so much fiber, we're never going to use any of it. Like, we have so much excess capacity. But after the bubble burst and fiber prices collapsed, Couple things happened. You know, the second owner of a hotel made money, so the, the people who ended up owning these, and then, because you lowered the price, there was a lot of innovation. It created travel companies, you know, like Expedia wouldn't exist without, Netflix couldn't exist without collapsing fiber prices. Although, Netflix actually never paid for carriage, but, you know, I mean, like, internet streaming became profitable, and, um, so I think that will happen with A lot of code that it may be re-rated, as you said, because it's so open sourced, and I'm not making a prediction. I'm just saying that that's

AI assessment note: “It's not that different than, um, what happened to when the internet bubble burst.”

Q we basically have a president in the White House that is, you know, as Pro crypto as you could ever get who's launched his own coin. Maybe we could talk about that another time, but, ah, basically the question is everything that Bitcoin maximalists have want to happen has happened. It's not being traded by mainstream financial institutions. So why does it have a opportunity to go up from here?

A Um, I think Bitcoin's use utility is going to go up exponentially in the next 10 years. So one of the reasons Bitcoin has risen to a 100,000, uh, is just simple network value. Um, when we first wrote about Bitcoin in 2017, and Bitcoin was under a thousand, we had said it could get to 25,000 by 2022, because it's a network value asset. So we just said, If you model number of wallets and activity per wallet, which explained 90% of the move of Bitcoin from 2009 to 20 17, you would get to 25,020 22 and, you know, you can get to the six figures later. And that's true. It's still like 87% explained by those two variables. But Bitcoin is now about to become a lot more useful for two reasons. One is it's Becoming less regulatory burdened, right? The White House is really creating it as a strategic reserve asset, and companies are putting it on their balance sheet because it's the way people used to have real estate owned in retail. Like, that wasn't a thing, but then people realized it was valuable to own the real estate. Like, some retailers are more valuable because they own the building. That's what Bitcoin is, your working capital is. And then, but banks, Are also quite interested in Bitcoin because of stable coins. So stable coins might be the Web three app that's really recreating financial services because one, a stable coin works better than a regular dollar.

AI assessment note: “I think Bitcoin's use utility is going to go up exponentially”

Q And so what does that shakeout look like? Seems like it could be ugly.

A Oh yeah, it's gonna be, well, we know that you have to create capital loss for investors, like the internet bubble bursting. So when the internet bubble burst, it only triggered a mild recession. That was like in 99, because the loss was concentrated in tech mainly, and some telecom, and it really hit some geographic regions very specifically. The reason we had a bigger recession after that was because of nine 11, but it really would have been a mild recession. You know, like, that's why The, the GDP data was fine, and actually like, 90% of stocks were doing okay. In fact, small mid-caps actually positively gained during that period of time, because the internet bubble bursting didn't take down the economy. I think if the AI bubble bursts, you're not winding the clock back to zero, but it may have burst because, it may be bursting because someone decides to do containment, like pull the brakes on this and saying like, We're too close to generative AI, or we're too close to sentience.

AI assessment note: “we know that you have to create capital loss for investors, like the internet bubble”

Q story that the AI companies tell is that We'll have abundance, and everybody will have exactly what they need, and you can have one person that will do whatever they want, because they'll have these warehouse, data warehouses of geniuses behind them. Um, why, why, why, so when you went to the Black Swan, uh, possibilities, you didn't take that side, you took almost the other position. Why is that?

A Well, I think it's possible that it's exactly what you described, which is all of our needs are met without needing to work. So housing and food and, um, I don't know, a lot of recreational activities. It means the monetary system probably ceases to exist. I mean, because then, for instance, do you need to go to get an Ivy League education? Or do you need to be the best student in your class when your robot's always going to be smarter than the smartest human in the class? You know, like, it's going to change what we define as achievement. Like, why do we work hard? I mean, it is, It's some people might consider it nirvana because let's say the 10% of the people do aspirational like that they live their life aspirationally. Like that's when we grew up, you know, not everybody wanted to be the best, but when you look at societal impact or in a company like at my former employer, which had 200,000 employees, the adage was always 20% did 80% of the work, or really, like, eight percent did 90% of the work, right?

AI assessment note: “Well, I think it's possible that it's exactly what you described”