Latest / Merryn Talks Money / Passive Investing, SpaceX and the AI Boom: Are Markets Too Concentrated?

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Passive Investing, SpaceX and the AI Boom: Are Markets Too Concentrated? · Merryn Talks Money

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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. I'm Marin Sumside, web
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Speaker 1: editor at Large with Bloomberg UK Money and with me
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Speaker 1: this week in the place of John Steppek, who is
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Speaker 1: on holiday again. There's another John John author's John is
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Speaker 1: a senior editor for Markets, a Bloomberg opinion columnist, and
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Speaker 1: he also writes a brilliant newsletter that if you don't
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Speaker 1: subscribe to it yet.
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Speaker 2: You really really should do.
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Speaker 1: So we are going to talk about a couple of things.
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Speaker 1: We're going to talk about, Well, obviously SpaceX, we always
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Speaker 1: talk about SpaceX.
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Speaker 2: We're going to talk about.
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Speaker 1: SpaceX and its impact on passive investing, what it means
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Speaker 1: for the way you invest. We're going to talk a
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Speaker 1: little about Kevin Walsh and his starting out at the FED,
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Speaker 1: what we think about that. And finally we're going to
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Speaker 1: talk about the AI bubble or not. Is it a
0:55
Speaker 1: bubble in share prices? Is it a bubble in earnings?
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Speaker 1: And if it is either of those things, when might
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Speaker 1: it come to an end?
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Speaker 2: John? So good to have you on this week.
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Speaker 3: Great fun to be in London for a change, escaping
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Speaker 3: Nick Spever and World Cup Fever in there in New York.
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Speaker 1: Yeah, I only wish I was in London with you.
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Speaker 4: That we are.
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Speaker 1: We are down the line today because I am in
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Speaker 1: Edinburgh having just left London, So round and round we go.
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Speaker 2: Right.
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Speaker 1: What I want to talk about this week is I've
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Speaker 1: just mentioned your absolutely brilliant newsletter and you wrote about
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Speaker 1: something this week that is an absolute bugbear of this
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Speaker 1: podcast and John other John and I talk about it
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Speaker 1: all the time, which is our fury at people speaking
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Speaker 1: about passive investing as though it's just a passive thing,
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Speaker 1: and it's it's completely different to active investing, and it's
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Speaker 1: a default and you can just say I'm a passive
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Speaker 1: investor and leave this algorithm, index provider whatever to do
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Speaker 1: it for you, and somehow you get exposure to the
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Speaker 1: broad global stock market, or in many cases just the
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Speaker 1: broader US stock market. And of course it's not really true, true,
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Speaker 1: is it? No?
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Speaker 3: And this is one of the paradoxes that well, both
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Speaker 3: of us you have to deal with for our entire careers.
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Speaker 3: Really that, first of all, passive investing is one of
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Speaker 3: the worst monikers ever. I think robo investing might be
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Speaker 3: another one. Nobody in their right mind wants a robot
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Speaker 3: to manage their money, or I hope they don't. And similarly,
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Speaker 3: passive investing, if it were passive, would sound like a
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Speaker 3: pretty miserable idea, and as you just said, it really isn't. Also,
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Speaker 3: there is a problem which is a bit like Kines's
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Speaker 3: paradox of thrift, which is the idea that dinner recession,
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Speaker 3: it pays any individual to save money, but for the collective,
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Speaker 3: you want everybody to spend money so that you get
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Speaker 3: out of recession. In the same way, if you're trying
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Speaker 3: to guide people as to how they should manage their money,
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Speaker 3: they probably should have a fair amount of money in
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Speaker 3: what is known as passive investments, not because they're passive,
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Speaker 3: but because they're cheap. That is the point of a
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Speaker 3: passive investments is that it finds a way of reducing
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Speaker 3: the costs of buying stocks and shares that with you,
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Speaker 3: the client, so that it's a sensible deal that does well.
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Speaker 3: Jack Bogel, the founder of Vanguard, the spiritual and practical
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Speaker 3: father of passive investing in many ways, was referred to
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Speaker 3: what he called the CMH, which is the cost matters
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Speaker 3: hypothesis that you can invest more cheaply if you're just
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Speaker 3: tracking an index.
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Speaker 1: And then you get average average returns and they just
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Speaker 1: compound better.
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Speaker 3: Because there's less costs coming out, which is extremely boring.
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Speaker 3: And it's not necessarily passive. The problem that we are
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Speaker 3: coming up against, and there are numerous problems if there
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Speaker 3: was ever a sense in which it was passive. It's
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Speaker 3: very much harder when passive investing. It's very irritating having
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Speaker 3: to keep using that word because that's the name for
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Speaker 3: these things.
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Speaker 1: Well we have there's a brilliant headline not written by me,
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Speaker 1: but by somebody else on top of my nused letter
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Speaker 1: this week that calls it passive aggressive investments.
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Speaker 3: Yeah, that's fair enough. Thirty years ago, vanguards and a
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Speaker 3: few imitators were growing and they were maybe two three
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Speaker 3: four percent of the whole US stock market, And at
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Speaker 3: that point you could be somewhat closer to passive in
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Speaker 3: some senses, in that what they were buying and selling
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Speaker 3: really didn't affect the market that much at the margin.
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Speaker 3: Now they are considerably more than half the entire market.
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Speaker 3: It's like being an elephant. You can, if you're you know,
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Speaker 3: Daddy long legs or something, you can skate across the
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Speaker 3: top of the water without affecting it. That much. If
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Speaker 3: you're an elephant, you can't. And similarly, with the scale
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Speaker 3: of passive investing at the moment, it's not no longer passive,
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Speaker 3: it will have a huge active impact. Now, that's one
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Speaker 3: big issue with any so called passivity is really no
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Speaker 3: longer possible. And then the other issue, which becomes much
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Speaker 3: more apparent with this this week's or last week's now
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Speaker 3: news on SpaceX.
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Speaker 1: Last week's Yeah, that's why we're talking about this now
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Speaker 1: because of the launch of SpaceX on Friday, bringing a
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Speaker 1: lot of these problems to the forefront and making them
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Speaker 1: much more obvious than they were even two weeks ago.
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Speaker 3: You can't dismiss it as a technical problem. Whether you
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Speaker 3: are going to whether you are going to include this company,
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Speaker 3: which is currently trading at a value that implies it's
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Speaker 3: worth more than two trillion dollars, whether you include it
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Speaker 3: in any given index or not, whether an investor tries
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Speaker 3: to expose themselves to that or not, is material. There
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Speaker 3: is nothing passive about it. I doubt you I think
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Speaker 3: it's worth two and a half trillion either. I certainly
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Speaker 3: don't think it's worth two and a half trillion, But that's.
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Speaker 1: I at least have I have shares, and it's very
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Speaker 1: important to say this that I applied for my shares
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Speaker 1: on Hargouz Lambs and I am the proud owner of
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Speaker 1: nine shares in space.
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Speaker 2: Oh congratulations, thank you very much, thank you very much.
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Speaker 1: And I had dinner with a group of investors last
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Speaker 1: night who told me that they had all done something
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Speaker 1: similar privately, and that they had all stagged from salt them.
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Speaker 1: I was the only one left holding onto my nine shirts.
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Speaker 3: So you are at least being passive in one sense,
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Speaker 3: which is that Elon Musk has structured it so that
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Speaker 3: you can have no active effect on how he runs
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Speaker 3: that company. So there is a nast one pertinent sense
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Speaker 3: in which you are being passive.
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Speaker 1: I will say about that John that you know I
6:30
Speaker 1: looked at what he said about that, and he said, well,
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Speaker 1: you know, he was damned if he was going to
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Speaker 1: have put all this effort into creating something extraordinary only
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Speaker 1: to lose control of it because a pilet of being
6:42
Speaker 1: counters at the proxy agencies felt that there wasn't enough
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Speaker 1: diversity on his board or wherever it was that they
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Speaker 1: would get cross about. He wanted to make sure that
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Speaker 1: in this environment he was able to maintain control of
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Speaker 1: his his company, and I'm very against this kind of
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Speaker 1: thing in general, against it in general. I'm super prochure
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Speaker 1: helder democracy, goodness, I' written a book on sholder democracy.
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Speaker 1: I'm super keen on one chair, one vote. But the
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Speaker 1: truth is that the market tolerates this very very rare
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Speaker 1: and the market has chosen, in the case of Elon Musk,
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Speaker 1: to tolerate it. So I'm kind of I feel like
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Speaker 1: it's a bit of a moral panic. I'm not that
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Speaker 1: bothered about that in this case. I'm bothered about a
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Speaker 1: lot of other stuffs, but I'm not bothered about Elon
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Speaker 1: Musk maintaining control over eighty five percent. Eighty four percent
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Speaker 1: is a note of the voting rights over us.
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Speaker 2: Yeah, company, fair enough, you think fair enough.
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Speaker 3: It deters me from investing in them. That being said,
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Speaker 3: and this is where we're getting into the arguments of
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Speaker 3: how can you be passive or not. I do have
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Speaker 3: some of the money in my four oh one k
7:43
Speaker 3: I'm based in the States. I have a four oh
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Speaker 3: one k is in an s and P five hundred funds.
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Speaker 3: So I have passively made the decision not to buy SpaceX,
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Speaker 3: or rather the index compiler. Who is we were saying
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Speaker 3: before we came on air is effectively a stock picker
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Speaker 3: has decided, for good, consistent reasons not to put SpaceX
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Speaker 3: in there. Had I exposed myself via a Russell index
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Speaker 3: or a Nasdaq index, then any day now I would
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Speaker 3: be buying SpaceX passively quote unquote, because those index companies
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Speaker 3: made the decision again on somewhat defensible grounds. I think
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Speaker 3: I think S and P has certainly been more consistent
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Speaker 3: than they have, but making the grounds that if we
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Speaker 3: want to mirror the market, and the market says this
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Speaker 3: company is worth this much, we need to be in
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Speaker 3: this company. They have made a different decision.
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Speaker 1: Yeah, if you had bad index, you wouldn't have the
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Speaker 1: fomo that I know you have now. You wouldn't be
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Speaker 1: sitting there thinking, Maren's got all that exposure to SpaceX,
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Speaker 1: She's going to be rich with her nine chares, and
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Speaker 1: me sitting here I'm just not going to be so.
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Speaker 1: I wonder if you're thinking, maybe you made the wrongs.
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Speaker 3: I can live without it. I think I might miss out.
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Speaker 3: I think there are all kinds of scenarios where SpaceX
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Speaker 3: does very well. There are many opportunities in life there
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Speaker 3: are some things I am scared of missing out on.
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Speaker 3: I can live with missing out on any given investments opportunity.
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Speaker 3: Just fine. I think my money is tied up.
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Speaker 2: I will wave to you from my retirement yacht.
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Speaker 3: You mean your retirement rocket.
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Speaker 2: Rocket, from my holiday home on the moon. I will
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Speaker 2: wave to you. I may even ask you for the
9:30
Speaker 2: weekend if you play your girls.
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Speaker 3: Okay, okay, okay, thank you.
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Speaker 2: Okay.
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Speaker 1: So here we are having this conversation. SpaceX has prompted it,
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Speaker 1: although obviously I think you've written about it quite a
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Speaker 1: lot over the years, and we've certainly gone on about
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Speaker 1: it relentively on the podcast. But SpaceX really does bring
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Speaker 1: it to the force. And it's not just this business
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Speaker 1: of do you buy an index that has SpaceX in
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Speaker 1: it or do you buy an index which does not
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Speaker 1: have SpaceX in it? By a way, very very active
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Speaker 1: decision you have to make there a one that could
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Speaker 1: make an appreciable difference to your future.
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Speaker 2: Not to your future, obviously, John, but to other people's suits.
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Speaker 1: But there other problem that this kind of throws up
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Speaker 1: that you talk about in your news letter, and I'm
10:04
Speaker 1: afraid I talk about it might as well, because on
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Speaker 1: both our big time great minds is the concentration. And
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Speaker 1: I was at a conference yesterday for Aubrey Capital and
10:14
Speaker 1: a Chilean Group LV and one of the topics that
10:19
Speaker 1: came up again and again and again is how incredibly
10:21
Speaker 1: difficult it is for emerging market managers in particular we
10:25
Speaker 1: were talking about and to outperform their index because the
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Speaker 1: way the MSCI Emerging Markets Index is constructed, a very
10:33
Speaker 1: large part putting fifty percent of the indexes in Taiwan
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Speaker 1: and Career, which I think most of us wouldn't even
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Speaker 1: think of of emerging markets. And in those two markets
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Speaker 1: the majority are three stocks.
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Speaker 2: That's it.
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Speaker 3: And the MSCI Emerging Markets Index, which has don't quote
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Speaker 3: me on it, but I'm pretty certainly it's got more
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Speaker 3: than a thousand stocks in it. The top three are
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Speaker 3: a third even more concentrated than the SMP, which we've
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Speaker 3: been talking about.
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Speaker 1: Two hundred and five I've stocks in there, and a
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Speaker 1: third of it is Taiwan Semiconductor, Something Electronics, ske Hannis
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Speaker 1: it is, and then you've got you've got ten Cent
11:10
Speaker 1: and Alibab bringing up behind right. But it's those three
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Speaker 1: that take up this huge amount. So if you buy
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Speaker 1: an index in an emerging markets index in particularly about
11:20
Speaker 1: MSCIM here. If you buy that, thinking yourself, well, this
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Speaker 1: is great. I've seen a million charts over the years
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Speaker 1: about the growth of the middle class and in the
11:27
Speaker 1: emerging markets, and I'm going to get a piece of
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Speaker 1: that consumption for myself. Or you think to yourself, I'm
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Speaker 1: going to buy this index and get a piece of
11:34
Speaker 1: that greater you know, energy and commodities, et cetera in
11:37
Speaker 1: Latin America. Goodness me, did you see that Latin America
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Speaker 1: abuse is forty percent of the world's copper.
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Speaker 2: I want a bit of that.
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Speaker 1: And you go out and you buy the MSCI Emerging
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Speaker 1: Markets Index, you are not going to get any of that.
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Speaker 1: Which you're actually going to get is a momentum driven
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Speaker 1: AI focused group of companies based in what you don't
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Speaker 1: even think of an emerging market.
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Speaker 3: Maybe right that these companies are worth so much, But
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Speaker 3: because as they are now worth so much, the index
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Speaker 3: is no longer an overall exposure to those interesting macro trends.
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Speaker 3: You could it was used and abused to exploit those
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Speaker 3: trends in particularly in the years ahead of the global
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Speaker 3: financial crisis, and if you got out in time you
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Speaker 3: had a lot of money from making those exact judgments.
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Speaker 3: That's not what it offers you at all now. And
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Speaker 3: you could make an active decision of I want to
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Speaker 3: expose myself to these macroeconomic themes, and I'm going to
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Speaker 3: put together a basket of stocks that will capture it,
12:39
Speaker 3: probably having a bunch of copper miners or whatever in there,
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Speaker 3: I don't know, And then you could call it an
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Speaker 3: index and put money in it. But is that passive investing? No,
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Speaker 3: it isn't it. It's probably quite a sensible cost reduced
12:54
Speaker 3: form of thematic investing which we can maybe it's a
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Speaker 3: good idea, or maybe it isn't to be in that
13:00
Speaker 3: particular theme, but it ain't passive. You have to make
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Speaker 3: some kind of an active call. All you're really talking
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Speaker 3: about is just being sensible about how much money you spend,
13:10
Speaker 3: the costs you devote to try to buy your market exposures.
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Speaker 3: But because these these funds have made a lot of
13:17
Speaker 3: sense for a long time, but they have also been Yeah.
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Speaker 1: Yes, but you're still you're still being brought in by
13:22
Speaker 1: by an idea that isn't really true anymore. You're being
13:26
Speaker 1: told that there's a default option, a sensible, diversified, inexpensive
13:31
Speaker 1: default option which will serve you.
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Speaker 3: And it's very hard to argue that that's truly the
13:37
Speaker 3: case anymore. You can argue that with electronification, with the
13:41
Speaker 3: lower costs of lots of things, that it becomes easier
13:45
Speaker 3: to put together your own bespoke quote unquote indexes or
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Speaker 3: try to come up with ways to overcome all the
13:51
Speaker 3: biases personal biases. We have to mimic at having some
13:56
Speaker 3: degree of emotional intelligence to have disciplined, systematic, low cost investing.
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Speaker 3: But you don't actually call it passive because it isn't
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Speaker 3: in a meaningful sense, and the main vehicles that are
14:10
Speaker 3: currently on offer for you to do that don't in
14:13
Speaker 3: fact do.
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Speaker 4: That for you.
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Speaker 2: If these bubbles burst, let's not argue right now about whether.
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Speaker 4: That's another topic we come on about the minute.
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Speaker 1: How might we come on that in the minute. But
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Speaker 1: you know, let's say that it is a bubble. Let's
14:38
Speaker 1: say that it bursts. Let's say that that that that
14:40
Speaker 1: happens after we've had these other big launchers that are
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Speaker 1: coming open AI, Anthropic, etc.
14:45
Speaker 2: And those to SpaceX.
14:46
Speaker 1: You've had that huge new supply of equity coming into
14:49
Speaker 1: the market after years and years of the equalization, and
14:52
Speaker 1: maybe something prompts a market crash of some kind. And
14:55
Speaker 1: when you have or a sector crash, stay and when
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Speaker 1: you have that extraordinary constant creation at the top of
15:00
Speaker 1: every passive vehicle, that's going to give everyone a horrible shock.
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Speaker 1: As what we're talking about now becomes obvious to the
15:07
Speaker 1: entire investing communditty.
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Speaker 3: It'll be like the dot Com shock, but worse.
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Speaker 1: Worse, much worse, because in the dot Com shock, you know,
15:16
Speaker 1: that was relatively contained, that was contained. It wasn't anywhere
15:19
Speaker 1: near as big people went, anywhere near as invested in
15:22
Speaker 1: these vehicles.
15:23
Speaker 3: It was easier to avoid. There were easier way, there
15:25
Speaker 3: were easier ways to sidestep, and that was that way
15:29
Speaker 3: lay the growth of the hedge fund industry because lots
15:31
Speaker 3: of clever hedge fund managers did manage to avoid it,
15:33
Speaker 3: and then they didn't manage to avoid the GFC. And
15:35
Speaker 3: that's yet another story. We don't need to have to discussion,
15:38
Speaker 3: We don't have to stay, but but this is much harder.
15:42
Speaker 3: You need The only way you can avoid this is
15:44
Speaker 3: by painfully missing out very big time from now until
15:50
Speaker 3: whenever the bubble does best yeah.
15:53
Speaker 1: I mean, occasionally we talk about the possibility of buying
15:55
Speaker 1: equal weight indices instead of the market cap weighted industries,
15:59
Speaker 1: but they aren't nearly as easily available. It's not that
16:02
Speaker 1: you can just go out and buy an equal weight
16:04
Speaker 1: index and everything in anything you like. It's not quite
16:06
Speaker 1: the same.
16:09
Speaker 3: Trade a lot more. I mean it has to. It
16:11
Speaker 3: has to sell a lot of video along the way,
16:13
Speaker 3: because in video keeps getting to be more than zero
16:16
Speaker 3: point two percent of the index, because it keeps growing
16:19
Speaker 3: in an academic, friction free environment which none of us
16:22
Speaker 3: get to live in. It's definitely got a lot of
16:25
Speaker 3: arguments in favor of it. They do weaken when you
16:28
Speaker 3: actually have to again, that's why people got so excited
16:31
Speaker 3: about these vast hippo bottom as elephants s and P
16:35
Speaker 3: five hundred funds. That the economies of scale are enormous.
16:39
Speaker 3: You just set them running and they trundle along cheerfully,
16:43
Speaker 3: and the costs get defrayed over ever larger amounts of money,
16:48
Speaker 3: and their economics get ever harder to beat. But they're
16:51
Speaker 3: like dropping a whale into a bath tub or whatever.
16:54
Speaker 3: Eventually they really do have an impact on the environment
16:56
Speaker 3: around them. What else is on your mind other than
17:01
Speaker 3: the World Cup.
17:02
Speaker 2: Other than the World Cup. There is a firm rule.
17:05
Speaker 2: I'm not going to talk.
17:06
Speaker 1: About the World Cup on this podcast, and there's not
17:08
Speaker 1: going to be any of that stuff about investing with
17:10
Speaker 1: the World Cup, and you know what happens to markets
17:13
Speaker 1: of the teams that win or don't win or whatever.
17:17
Speaker 1: Too many press releases about that and not doing it.
17:19
Speaker 3: No, I'm not doing it. I did find that very tight.
17:21
Speaker 3: I do remember. I actually have a video and I
17:24
Speaker 3: talked to Goldman Sachs's chief economist in the UK at
17:28
Speaker 3: the time ahead of the twenty fourteen World Cup, when
17:31
Speaker 3: they explained all their reasons why their model predicted with
17:35
Speaker 3: high confidence that Brazil was going to win that World
17:38
Speaker 3: Cup and they lost to Germany seven one final.
17:45
Speaker 4: I've already lost interest already. Well, I've lost interest in
17:50
Speaker 4: your story, but I've also lost interest in the whole
17:51
Speaker 4: thing because the team that I was allocated in the
17:54
Speaker 4: neighborhood sweepstake has already lost.
17:56
Speaker 3: Oh dear. In terms of the other things that going
18:00
Speaker 3: on in the markets, it's always very exciting. I think.
18:03
Speaker 3: I think the arrival of Kevin Walsh at the FED
18:07
Speaker 3: is very very interesting, and very glad that he has
18:10
Speaker 3: at least set himself out in his first press conference
18:13
Speaker 3: as not being the Donald Trump stooge that he needed
18:18
Speaker 3: to present himself to be to get the job in
18:20
Speaker 3: the first place. We don't need to have a conversation
18:23
Speaker 3: about Donald Trump. The central bank. The head of a
18:26
Speaker 3: central bank should not be the stooge for any given
18:29
Speaker 3: political leader ever, because you need them to have a
18:33
Speaker 3: degree of independence. That's their job. They have to be
18:36
Speaker 3: prepared to take away the punch bowl. And I did
18:39
Speaker 3: see the way Kevin Walsh presented himself. I mean, he's
18:44
Speaker 3: committed himself to nothing yet and he was lucky to
18:48
Speaker 3: start with a meeting when there's pretty much no case
18:50
Speaker 3: at all to do anything to interest rate, which is
18:53
Speaker 3: very lucky to him. There was no dilemma going on.
18:55
Speaker 3: But certainly the way he chose to present himself as positive.
19:00
Speaker 3: The messaging is actually, I'm serious about being a real
19:06
Speaker 3: independent central banker, and I'm going to be tougher and
19:11
Speaker 3: clearer about the way I operate.
19:13
Speaker 2: Yeah, so I really liked it.
19:14
Speaker 1: A little statement little being the the operative word here,
19:17
Speaker 1: what three hundred and fifty words or something nice short
19:22
Speaker 1: it's very important thirty one hundred and thirty, sorry, not
19:26
Speaker 1: hundred and thirty. And you know, as a as an
19:28
Speaker 1: ex editor, I found it very very pleasing. There was
19:31
Speaker 1: nothing to cut.
19:31
Speaker 3: No. I was actually thinking once once, once he's finished
19:34
Speaker 3: his term, maybe we should hire him a Bloomberg. We
19:37
Speaker 3: need we need something, We need it. We need some
19:38
Speaker 3: more sub editors to to really knock things into shape
19:41
Speaker 3: in the good, good, hard, tight copy. And actually I
19:47
Speaker 3: don't think the FED chairman gets paid all that much money,
19:50
Speaker 3: so we might even be able to afford.
19:52
Speaker 2: Him him over.
19:54
Speaker 3: Yes, it's not an economically rational thing to do be
19:58
Speaker 3: the head of a central bank unless you and cash
20:00
Speaker 3: in when you retire. But that's yet another story we
20:03
Speaker 3: perhaps shouldn't get into just well.
20:05
Speaker 1: Is the is the head of the fad allowed to
20:08
Speaker 1: inside trade in the same way that American politicians are,
20:10
Speaker 1: because in which case it would be very financially, it
20:12
Speaker 1: would be very financial.
20:14
Speaker 3: We had two we had two resignations. What was it
20:18
Speaker 3: was about? When did we've had two resignations in recent
20:22
Speaker 3: history for the appearance of insider trading. There was a
20:27
Speaker 3: very spurious I thought, reports suggesting suggesting that Powell had
20:31
Speaker 3: been insider trading that came out when people were trying
20:34
Speaker 3: to which I thought was nonsense.
20:36
Speaker 1: Yes, I vaguely remember that. One. Imagine imagine if you
20:40
Speaker 1: could do that in the UK. You've got a lot
20:41
Speaker 1: more people clamoring to be MPs these days. You can't
20:44
Speaker 1: drag anybody into it. But if you're allowed to insider
20:46
Speaker 1: trade once you were there, I reckon it become a
20:48
Speaker 1: lot more popular career choice.
20:50
Speaker 3: Yeah, it's the end of the FOMC. You've made your
20:53
Speaker 3: decision which will supplies the market, and then you open
20:55
Speaker 3: up your Charles Schwaber that would Yes, that the mere
21:00
Speaker 3: thought that that would be remotely acceptable is a little
21:03
Speaker 3: is a little scary.
21:04
Speaker 2: Extraordinary, extraordinary carry on.
21:06
Speaker 1: So we're pleased with Kevin watched so far. This looks
21:10
Speaker 1: good so far. Let me take you quickly to the
21:12
Speaker 1: bubble conversation. Is there anything right now? Because I've talked
21:16
Speaker 1: about what an extraordinarily difficult thing it would be if
21:20
Speaker 1: these big text docs came to a sticky end and
21:24
Speaker 1: destroyed all the returns from the indices, et cetera. Where
21:27
Speaker 1: do you stand on the likelihood of matter? And my inbox,
21:30
Speaker 1: probably like yours, is jamfull.
21:31
Speaker 2: Of report after report after reporter for report.
21:33
Speaker 1: And I'm now I would say I'm pretty evenly balanced
21:36
Speaker 1: on the information I received between the AI bold and
21:39
Speaker 1: the AI Bears.
21:40
Speaker 3: My inbox is probably slightly skewed towards Bears.
21:45
Speaker 1: I would say, are you're not signed up to Yardini
21:48
Speaker 1: research that that.
21:50
Speaker 3: There is a point at the point that gets made
21:54
Speaker 3: repeatedly and is correct as far as it goes, is
21:56
Speaker 3: that this is if there is a bubble, it is
21:59
Speaker 3: in people buying at chips. It's the price of chips
22:03
Speaker 3: that has gone up absurdly, and the share prices of
22:08
Speaker 3: the companies that make those chips have actually gone up
22:11
Speaker 3: sensibly to react to the price of those chips. Are
22:14
Speaker 3: the bubble in some ways? Is Are we going to
22:17
Speaker 3: discover that this money that the hyperscalers A companies is
22:21
Speaker 3: just makes no sense?
22:22
Speaker 1: Yes, so maybe that the bubble is not in the
22:24
Speaker 1: share prices, it's in the earnings. But if it is
22:28
Speaker 1: shown that the earnings numbers are a bubble, then obviously
22:31
Speaker 1: the share prices are way too high.
22:33
Speaker 3: Yes, If then earnings numbers prove to be a bubble,
22:36
Speaker 3: if it becomes obvious that one or more of the
22:39
Speaker 3: hyper scalers just can't afford to keep doing what it's doing.
22:42
Speaker 3: Isn't making a return that would become the problem. It
22:45
Speaker 3: wouldn't be the wily coyote moments of people looking at
22:49
Speaker 3: what they've paid for their stock and asking myself, asking themselves,
22:52
Speaker 3: is this really worth it? No bang, which is kind
22:56
Speaker 3: of what happened to the or the most ridiculous of
22:58
Speaker 3: the dot com stocks. That was kind of what happened.
23:01
Speaker 3: This is more about the economics. We need to establish
23:06
Speaker 3: that the amount of money that people are paying for
23:09
Speaker 3: chips at the moment was wrong, was crazy, was in
23:12
Speaker 3: a bubble, and that bubble needs to burst. Could that happen?
23:15
Speaker 3: I don't know enough about chip technology and AI technology
23:19
Speaker 3: to say with total confidence, I think it's a pretty likely,
23:23
Speaker 3: pretty likely outcome. I think the other thing I would
23:26
Speaker 3: say is that I was in New York for for
23:29
Speaker 3: nineteen nine and two thousand. Experience is useful, but it
23:32
Speaker 3: can sometimes skew your view of the present. I suspect
23:37
Speaker 3: we're in ninety nine, not two thousand, though I think
23:40
Speaker 3: you need. If there was any trigger for when the
23:44
Speaker 3: bubble finally burst in the spring of two thousand, it
23:48
Speaker 3: was that lock up periods were over after companies had
23:51
Speaker 3: gone to IPO and you finally, you know, so somebody
23:56
Speaker 3: was worth a billion dollars on paper, and they now
23:59
Speaker 3: that they were allowed to, they try to sell some
24:01
Speaker 3: stock to be worth at least so that they could,
24:04
Speaker 3: you buy their house in Palm Beach and you know,
24:07
Speaker 3: get their kids into school and whatever. And that was
24:11
Speaker 3: the moment, once the real demand, right, real supply of
24:15
Speaker 3: stock at this price came onto the market, that people
24:18
Speaker 3: really just bulked. And to some extent, I don't think
24:23
Speaker 3: Elon wants to sell more than half of his current
24:27
Speaker 3: stake in SpaceX if he were to do so in
24:29
Speaker 3: reasonably quick order. Let's say, so if a trillion dollars
24:33
Speaker 3: worth of stock comes on the market there, and if
24:37
Speaker 3: all the other big IPOs none of you know or
24:40
Speaker 3: all of them were talking about next year before they
24:43
Speaker 3: can really start trying to sell their stock at its
24:46
Speaker 3: paper value. I think the great concern comes a we've
24:54
Speaker 3: had two or three years and let's say Meta or
24:57
Speaker 3: somebody is beginning to groan under the weight of all
24:59
Speaker 3: the money they've been spending on chips and it's not
25:03
Speaker 3: make it not delivering for them yet. And then be
25:07
Speaker 3: all these founders of anthropic and open AI at al
25:10
Speaker 3: as Ala trying to are now trying to sell all
25:13
Speaker 3: this stock at the prevailing price. I can more easily
25:18
Speaker 3: imagine a bubble bursting a year from now. This feels
25:23
Speaker 3: more like the spring of ninety nine than the spring
25:27
Speaker 3: of two thousand. But again, you've always got to be
25:30
Speaker 3: very careful. This is a very different world. The level
25:33
Speaker 3: of positivity in society as a whole is so much
25:36
Speaker 3: less now than it was in ninety nine, and so
25:40
Speaker 3: the world is a very different place. And while I
25:42
Speaker 3: do think that in a sense this could well prove
25:44
Speaker 3: to be a bubble, because AI is really going to
25:47
Speaker 3: have to deliver fantastically quite quickly for all this money
25:51
Speaker 3: to have proved to have been worthwhile, to have been
25:53
Speaker 3: well spent. Those are the similarities I see with ninety nine.
25:59
Speaker 3: But my best guest, transposing from there, knowing that I'm
26:02
Speaker 3: the prisoner of my own experience, it's probably until next
26:05
Speaker 3: year that we I'm more worried about a burst bubble next.
26:08
Speaker 4: Year than this.
26:10
Speaker 1: Okay, that is good to know, heard it here first.
26:12
Speaker 2: Don't worry.
26:13
Speaker 1: Everything's fine next year, brilliant John, Thank you so much.
26:18
Speaker 2: For joining us today. I really enjoyed Twitches.
26:20
Speaker 3: I enjoyed talking to you. Mar Thank you, it's always fun.
26:23
Speaker 1: Thanks for listening to this week's Marin Talks Money debrief.
26:26
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26:31
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26:34
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26:36
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