Full Transcript: Last Call - February 2026
AI Fears, Private Credit Stress, and Global Rotation
Jack: So, Matt, do you think it’s fair to say that Last Call has taken the investing world by storm?
Matt: I not only know for a fact that we’ve taken the investment world by storm. I’m disappointed to let you know I left on the private jet when I just got off. I left — you did the custom cocktails we had made in celebration coming into this second show. You know, after a couple of drinks, we had those blueberry citrus martinis in honor of — probably the toxic Rinni piece. Yeah, yeah, yeah. We’ve taken the world by storm, right?
Jack: Yeah. I mean, maybe like a light rain. Maybe a little bit. Can you work with that? You’re kind of the marketing guy, so can you take like the investing podcast that’s taken the investing world by light rain? Can you work with that?
Matt: We’ve taken the world by a misty haze.
Jack: Yeah, exactly. Is that fantastic? I mean, that’s probably accurate based on the views in the first one. So can you work with it?
Matt: Is it misting or are you just sweating? That’s the story of my life in May. Are you crying? That’s kind of where we are right now.
Jack: Maybe four or five episodes in we’ll have that done.
Matt: So Rinni, I feel like, took over my life for the last week and is certainly the bow on top of the month, because it fits into every other conversation I feel like we’re having. Where were you when you first read the Rinni piece or realized you’d have to be talking about this?
Jack: I mean, think about the people that have responded to it. Citadel decided that they needed to write a response to this. Jeremy Siegel was out this morning with a response to this. Governor Waller on the Fed was talking about it, responding to it. It just shows the power of the internet and the power of writing a certain type of piece. But yeah, everybody is talking about this thing.
Matt: Especially for what is stated at the beginning of the piece, which is basically a science fiction bear case exercise. This is not some piece of new evidence. This is literally a manufactured story from the future, theoretically looking backwards, which I also find just mind-boggling, especially when we get responses from some of these people — because it’s like they’re responding to fiction. And that’s kind of amazing, that we’re all on record now responding to fiction.
Jack: I can just imagine — the first thing I think of, as you can imagine with me, is how many Substack subscribers did he gain from this? Because it’s gotta be a massive, massive number.
Matt: Yeah. And this is like — everybody’s on. You see small versions of this all the time. You see like when Mike Green puts out his piece, which factually people then obsess over, so he gets the biggest push. A bunch of people obsess over it, ride the coattails, pull apart details. In the end, we all agree — hey, he was directionally pretty right, and that it costs more than it used to, which is a simple and obvious observation, but lots of people in the ecosystem ride the coattails. We are firmly in the coattail-riding thing. I wonder how many YouTube views, how many new Substack subscriptions some of these people have gotten. I don’t know if we’re gonna get any of that bump here today, but any takeaways for you? Did the piece inspire?
Jack: Yeah, I think people take these things all completely the wrong way. When I read these things, my reaction is not like, “this is the worst piece that’s ever been written,” or that I agree and the world’s gonna end. There’s always something you can learn from this, and I learned a ton from this — not in terms of what’s actually gonna happen, but in terms of thinking through the progression of AI and AI from the perspective of enhancing labor, enhancing the ability of workers, but also AI from the perspective of replacing them and the balance that we’re gonna face with that. To me it was — and Kai and I did a separate episode that’ll come out the day after this where we spent an hour breaking this down — to me, this is a great learning experience, because it forced me to think about this scenario. Even though this is a scenario that I think Rinni would even tell you, it’s probably not gonna play out this way. If it does, it’s probably not gonna play out nearly this fast. But nonetheless, just thinking about the extremes sometimes helps you learn about the reality.
Matt: We’ve said it a million times: risk means more things can happen than will happen. And I believe even Rinni in this case would tell you this is part of a bear case scenario planning tool, and that’s what’s — I’m gonna say it this way — what’s fun about a piece like this? It’s kind of fun.
Jack: Having fun with the bearishness, Matt.
Matt: I’m having fun with the bearishness. Put some explosions and some fire around me. Because I look at this and I go — I’ve been taught extra expectations investing and thinking about what’s in a price. You should have a base case, a bull case, and a bear case. And maybe put plurals on all those. Have base cases, have bull cases, have bear cases. This is one strand of the spaghetti noodle in the whole pot that we’re pulling out and going, “huh, this one’s undercooked and maybe a little moldy.” This is a bearish bear case that’s in the mix, but at the end of the day — with my planner hat on especially — AI in this build-out has all these tendencies of an inflationary shock inside of it. But on the back end of it, if these tools are really for real, there’s a giant disinflationary element too. And that’s a hard scenario to plan over that curve of being like, “these are all the things that are probably gonna push prices up in the short term, and then these are how far prices could come down in the far term.” And here we have this wild scenario that takes into account demographics, ghost GDP — I love that phrase. Definitely didn’t know that phrase until this report.
Jack: Never heard of that.
Matt: Love Ghost GDP. Send them a Pulitzer for that one. But how cool is this to have all this other color around the scenario? I think I’m with you. It’s neat that they did this.
Jack: And we’ve never had a technology that was a replacement for human intelligence, at least in part. And so nobody has any idea. You can see all these economists and everybody’s writing all this stuff. The reality is you and me, who are unqualified to talk about this, have just as much of an idea as those people do in terms of how this is gonna play out. We don’t know. And when you don’t know, I find the best thing you can do is what you said: realize that the world is a series of probabilities. There are a bunch of different outcomes. Each one has a probability. We have no idea which one we’re gonna get. Let’s think through the range of all the different outcomes, and then let’s try to think about how that impacts us as investors. I think that’s the only thing you can do. And this helped me on the bear side in terms of thinking about that probability, because he worked through it in the story in a way I hadn’t worked through it before.
Matt: In a story. And that’s the key part of it. You worked through it in a story. It was memorable, it stuck. It kind of, sort of, a little bit seems to have moved markets. So it’s our market recap. We’re looking back over the last month and things that happened. We tap some of the smartest people we know to come in with us and actually look, in the wake of this — which they all did. We didn’t even ask them to. Everybody came to the table with at least a hint of Rinni and what they were talking about.
I know you had Brent up first. Just give a little preview before we play the clip, because Brent walked through what I’m assuming were dealer flows and everything else for how this played out.
Jack: Yeah. What’s interesting about this is we’re all talking about our opinions, but what Brent sees is what people actually do with their money. He sees pricing inside the option market, and so that’s what we talked about. We talked about this idea of this Rinni piece came out, all kinds of crazy stuff went on in terms of the pricing of options, particularly around these software stocks. So I sat down with Brent and he’s got a great four-quadrant chart where he can talk about what’s going on with these software stocks and also the way people are differentiating between them. It’s not like all these software stocks are in one spot. So this is my conversation with Brent.
Jack: Brent, welcome back to Last Call.
Brent: Thanks, Jack. I’m super excited for you about the show. I’m super excited to be talking to a person and not some AI for a few minutes, so that’s nice as well.
Jack: Well, I thought you were gonna do a little announcement at the beginning of this, that we’re having a 50% layoff here on our options podcast and you’ve decided to go with an AI host going forward.
Brent: That’s right.
Jack: We’ll see what that means for labor productivity and the economy and all that stuff in the future. But really — I mean, what do I do? I tell a couple bad jokes and then I move on with my life. So you could probably do that with AI, no problem. Right?
Brent: Your spirit can’t be replicated by AI, Jack.
Jack: I hope so, because I want to still be employed when this whole thing comes down. Hopefully.
Brent: We’re all gonna die, is the headline apparently.
Jack: Yeah. Hopefully we don’t see the reality of the Rinni piece playing out. We won’t get into that too much, because I know people don’t want our macro takes. But what is interesting is you see what goes on behind the scenes with all this stuff. And one of the things I want to point out before we get started here — I was just scrolling through Twitter the other day and I was like, Brent is going viral over here. It’s very rare to see a tweet and then see the comments of the tweet actually get more views than the tweet itself. But we’ve seen some misuse of the put-call ratio. Is that what’s going on?
Brent: That’s true. I don’t get a ton of Twitter likes persistently, but this one I did get a decent amount. For some people this is like eating popcorn — it’s just another day. But the chart that is offensive — and I wonder how much of this is CBOE, is AI doom stuff, whatever — this is the chart. And this is the fellow here. He wrote that this is very scary. This is the chart that he posted, and he said, “Do you see this S&P dump?” And he circled out the dump. So what do you notice about these circles here, Jack? What do those seem to correspond with?
Jack: It seems like he circled the absolute bottoms, Brent, every single time.
Brent: And the point is, is that this seems to correspond with stock market bottoms actually. And incidentally there’s a little bit of data to support this. He did call out something interesting — that this ratio is extended. This I believe is a single-stock put-call ratio. But the problem with this is — and I’m getting all these people saying, “How do we hedge the Middle East war?” and stuff like that — I looked at Polymarket. There’s not a big spike in people thinking that the war is gonna take place. Maybe because insider trading on Polymarket has now been taken out. But if you look at where the S&Ps have been trading, Jack — I don’t know how well you can see this, but do you know how far back this sort of range goes?
Jack: I don’t.
Brent: That’s Christmas. So in the last two months we’ve done nothing in the S&P 500. Today futures were down a percent and we’re like, “Finally, this is the moment!” Hopefully none of that happens. And then the S&P just kind of bounces. So if we break 6,800, then I think you gotta do the famous Roaring Kitty lean-forward thing. But at the moment we’re just trading in the range and it’s kind of boring. It’s decent if you’re a call seller and playing those ranges is cool, but Nvidia earnings didn’t really spark anything.
And so that leads us to — there’s really only two interesting stories. One is gold and silver is doing pretty well, but the second one is software, which everybody and their brother and their mother and their bot is talking about. So I think we wanna touch on that a little bit.
Jack: Yeah. Did you see anything? I’m just interested — the Rinni thing, it was weird to see that as a Bloomberg headline, like “Rinni piece sparks market selloff” or whatever. Was there anything you saw crazy in the S&P or anything at all behind the scenes in options when that whole thing was going on?
Brent: It moved options prices in some stocks. Like Merck Express — we’re talking about MasterCard — definitely seemed to have unusually high volatility. But there was no put buying, no signal at all in that options data. That said, this sparked actual fear. And what I think is actually kind of interesting about this, Jack — you bring up IGV. IGV is the iShares tech software ETF. A lot of the names that were kind of pinned in that article show up on this list. And if you zoom back a little bit and look at this — I drew this line right here, and this is when that AI end-of-times article was written. And so it would be kind of a fascinating thing if that actually marked a bottom. And in a way that almost kind of makes sense, right? Everybody sort of knows this trade. Everyone’s talking about how the trade is to short these things. And this is also a level in this index — I think you’re more of a certified market technician than I am, but you know, this has been a level where these software names have sort of bounced.
And a lot of those names are reporting earnings this week, which is also interesting. In fact, on that point — Salesforce, CRM — they announced a $50 billion buyback. I don’t know if they feel like they’re about to get nuked by AI, would they do that? I’m not sure. You’re the fundamental macro analyst when we talk, so I’ll leave that to you to parse through. But it is an interesting moment where maybe that marked the short-term bottom.
Jack: If I’m the technician of the two of us, Brent, we’re in a whole lot of trouble over here. We basically got the value guy and the options guy drawing lines on charts.
Brent: That’s what I saw.
Jack: It does look though — you don’t have to be a chart technician to figure out that that line has been a pretty consistent bottom.
Brent: It has. And maybe this time is different, of course. The last two weeks have been bananas in the AI space. The tools coming out are crazy and I think it’s hard for everyone to sort of pick through. But what we’d like to talk about oftentimes, Jack, is options prices and positions. Because we can talk however we want about the way that AI is impacting our lives and everything like that. But are you actually trading off that, Jack? Are you going all-in short S&P because you think we’re about to hit a 30% drawdown, recession, depression, whatever? Or you’re just saying that, right? If you buy an option or you buy a put, we know that you have some conviction or you at least want to hedge something. If you buy a call, you’re betting on the opposite. So that shows up in one of two places: options positions, which we track, and then also prices.
We talk about this compass scanner a lot in our monthly OPEX reports. What this shows you is options prices on a relative basis. What I mean by that is, if options prices are pricing in extreme movement, you’re at the top of this chart — so high IV rank — and low movement is at the bottom. When you’re really scared, or if you’re uber bullish — like, everyone’s gotta buy silver or gold or whatever — that’s at the top of this chart. And then left versus right: on the left, people are more into puts; on the right, people are more into calls. So top left is as bearish as you can get.
So Adobe, ADSK — as bearish as it gets over the last year of data. You can see the IV rank there is a 95%, and the risk-reversal rank — which is the weighting of the put versus the call — is a nine. So people are really into puts and that implied vol or the estimate for movement is extremely high.
Now two things on this. Both of these names are gonna report earnings — that’s what this little red E is. And so why does that matter? It matters because we know that when earnings comes out, volatility usually comes down and you get clarity on these names. Salesforce says, “Hey, $50 billion buyback” — that doesn’t seem terribly bearish. You even have a situation like Intuit, for example — they reported yesterday, stock last time I checked was down about 3-4%, which is okay, but these stocks are pricing in 8-10% moves in perpetuity. And so if you get anything less than 8-10% moves, then that volatility comes in a little bit. That shock comes in a little bit, and that can be supportive for these stock prices.
So that’s ultimately what I think here — we have this extreme bearishness, and at this point the stock’s already down 30%. So how much more bearish are you gonna get to justify how expensive these options are? And I just think that as that sentiment normalizes and these options prices shift a little bit lower on this chart — normalize, mean-revert a little bit — that could help with these stocks bouncing a little bit.
Jack: Yeah. And two things. One is — what’s really cool about this is we always talk about “the market fears this” or “the market fears that,” but this chart is what people are actually doing, which I think is really interesting even for me as a long-term fundamental investor. This is telling us what people are actually doing with their money. That’s real fear. If I’m buying puts — that’s real fear.
Brent: Yeah. And that’s a hundred percent right. So what you can see here is I refreshed this and put the last three days of history. So there are a lot of lines on this chart, but the lines show you the path. CRM, for example — they reported yesterday. And you can see that into their earnings, they were in this area here, extreme bearishness, as bearish as it’s been in the last year. Remember the tariff tantrum in April — I mean, we weren’t sure the financial system was gonna survive that. And those were some legitimate fears there. So we went through that period within the last year of ranking. So these names were more bearish than even that period. And now that CRM reported, you see that vol come down. The options prices have lost a lot of their elevated pricing — they’ve gotten a lot cheaper on a relative basis — and that tells you that fear is subsiding a little bit. That event is out of the way. So now maybe you can see a little bit of normalization. You’re not seeing people piling into calls yet, and that would be a little bit more of a bullish sign. But that fear — or that sort of peak crisis, kind of the point of the IGV chart we were looking at before — seems like it’s coming down.
And again, you have Adobe reporting next week as well as ADSK. And so that can just sort of let the whole complex breathe a little bit. And maybe that generates a little bit of bullishness in a market that has had a hard time finding a bullish narrative, quite frankly.
Jack: Yeah. And just as we wrap up, one other thing that’s interesting to me about this is there’s this narrative that all software stocks are in trouble and they’re all gonna fall apart. And what you wanna see, I think to some degree, is differentiation. And you’re seeing that here — people are reacting differently in the options market depending on what’s happening with that actual business, not just what’s happening with software stocks in general.
Brent: That’s right. It can be hard to parse this stuff out. And I was thinking about this too — we all want to catch the ultimate AI investments as that grows, right? And is that the memory space or GPUs, or what is the sector you want to go into? And if you can look at those options flows and you can see, okay, call prices in these names are pricing in better movement in the future, you could start to glean which names bigger funds in theory think are gonna win, because they’re positioning in those specific ways.
And the same thing works with these stocks, right? Where you see Microsoft now starting to catch a little bit of bounce, Shopify moving a little ahead — Zoom, clearly. You know, these aren’t super bullish things at the moment, but you compare that against something like Palantir. Palantir can’t get off the deck. So the idea that Palantir has something special here seems to be a little bit of a stretch. So those prices are definitely forecasting much more relative bearishness versus something like a Shopify or Zoom.
Jack: Well, Brent, thank you for doing this. It’s always good to see what’s going on behind the scenes. We see the headlines, but this is what people are actually doing with their money. So it’s always great to see it.
Brent: Yeah, thanks so much, Jack. And congrats again on the show.
Jack: Thank you.
Matt: Next up we have Ben Hunt from Epsilon Theory and Pursuant. What’s really great about this commentary from Ben is he’s gonna talk about how it’s just another boom-bust cycle. The Rinni piece is there, it matters, it affects, it’s moving the narrative, but we do have a credit boom-bust cycle that’s underway. There’s an update about private credit in here, and make sure you pay extra attention to this anecdotal story he has from his trip out to San Francisco, meeting a consumer-facing company founder, and what happens when they couldn’t renegotiate their terms. This is my clip with Ben Hunt.
Matt: Up next we’re joined by Ben Hunt of Epsilon Theory and Pursuant. Ben, welcome back to Excess Returns.
Ben: Great to be back. Thanks, Matt.
Matt: So Rinni — we’ve all read this piece. You’ve been writing and you’ve said recently: you don’t need an AI apocalypse to break private credit. A classic, good old-fashioned boom-bust credit cycle will do, especially if it’s hypercharged by 15 years of zero interest rate policy and liquidity. Explain the nuance here.
Ben: Not much of a nuance, right? It is just that I like the Rinni piece. To recap for the five people who haven’t read it out there — the idea is that, okay, if AI eats the world, by which I mean does all the software jobs in the world, does all the white-collar jobs in the world — and honestly, I think there’s more than a small grain of truth to that; I think it’s gonna have an enormous impact in those ways — well, if that happens, then the software companies, the consultant companies, all these private companies that private credit has been lending money to, well, that’s a problem, because there’ll be defaults. They won’t get the money back. And that’s not good. So I get that.
I don’t think, though, you need to imagine an AI apocalypse for that dynamic to take hold. So on the one hand, I’m both — I guess maybe even more pessimistic, if you can imagine such a thing, than the Rinni piece — but I’m also less apocalyptic than the Rinni piece. I think we’ve got plenty in just a hypercharged — because of everything that’s gone on over the last 15, 20 years — but I think the ordinary boom-bust credit cycle of financial markets can do most of the work here.
Matt: And to that extent — we just saw the Blue Owl news, we’re seeing UBS post these numbers of 15% potential default rates. Are we just sort of working through that part, kind of like we were in 2005, 2006, 2007?
Ben: Well, yes and no. We’re not in ‘06 anymore. We are in ‘07 going into ‘08. And what I mean by that is — back then we were talking about homeowners defaulting on their mortgages. Here we’re talking about defaults by companies that have borrowed money. What’s similar, though, is that in the same way that the contagion spread — remember that was Bernanke’s famous line, “The subprime is contained.” Just contained. Just a fence around it. It’s just the poor people who are having a problem paying back their loans. And when that proved to be not true, that’s when the debacle really began. Because loan books are set up to withstand some defaults. Maybe 15%, like UBS said — that’s a lot of defaults. And to get to 15% defaults, it can’t just be from one little corner of the world. It has to be from much more diverse sources of defaults.
So in that sense — what’s happening with AI and putting stress on software companies, which make up a big part of the private credit world, it’s meaningful. It is more than just working something out. What everyone is trying to figure out is how bad is the spread, how bad is the contagion from all sorts of different sources.
And what I’m saying is that the excess of lending by these alternative asset managers — we used to call ‘em shadow banks, but we don’t call ‘em that anymore — the excesses of that and the way that it’s been structured and levered in different what we call BDCs or CLOs, it’s another kind of alphabet soup, the same way we had around mortgages being levered and structured. It’s that. Right, it’s that that makes for a bubble that gets popped. It’s real-world rising and falling, and companies doing well and companies going bankrupt — that’s kind of normal. And so you get normal market responses from that. The bubble inflating is when Wall Street — which Wall Street always does, because it’s what Wall Street does — takes that cycle and ramps it up to 11. That’s what’s been going on. And that’s why I say that even kind of normal default cycles — which we haven’t seen in a long time — that’s bad enough. But against this backdrop of leveraging — which just means borrowed money — and structuring — which just means different ways to sell it to different people — I actually still think it could be a lot worse than people are even thinking.
Matt: You put this in a pro note that went out — and if you’re watching this and you’re not subscribed to Pro, this is your invitation. Go to Epsilon Theory. Check out Pro, look at the service, because you get stories like this in your inbox with all this data and way, way more.
So I want to pull a story out of the pro email from today — you were just on this trip to San Francisco, and I know this is an anecdotal example, but this is a really powerful anecdotal example of what’s happening at this frame in the cycle. Tell me what the experience was. Tell me the story.
Ben: I haven’t been to San Francisco in, I don’t know, four or five years. And it’s fascinating. Right now San Francisco has an energy and a vibe that I haven’t seen since dot-com. There’s a belief that they’re building something important. So the technology — everything you hear, I think is real. At least people really believe it. And yeah, I got a chance to have dinner with an old friend of mine. He’s been the CEO of a consumer-facing online company for a couple years now. And this is one of those companies that was bought by a private equity group. And I’m not gonna go into all the details to maintain some anonymity here, but the private equity group is part of a — let’s call it a name-brand Wall Street firm. So they bought this online company and then they do what you do: you borrow money on it, and you’re borrowing a lot of money, because you’re basically borrowing it at close to 0% interest rates. That’s the playbook. And you borrow the money and it’s fine. The company is a good, solid operating company, makes enough in cash to pay off the debt — until you’ve got to refinance the debt, because today you can’t refinance at as low an interest rate as you could four or five years ago when they took out all these loans.
Now, what often happens in these situations — it’s not like, oh, you’re a homeowner and you’re going hand-in-hand to the bank, “Please, bank, can you give me a better deal on this mortgage?” No, no, no. You get what the bank offers you. Well, in this case — and this often happens in this sort of world — the private equity guys from the name-brand firm said, “You know what, we’re just gonna steamroll the lenders, right? Yes, we gotta refinance, but they’ll give us a ton of breaks because we are the name-brand firm, and these are just some, who knows, lenders. And besides, what are they gonna do? They’re gonna call us on this? They’re gonna force the company to basically default? They’re gonna force a workout? They’re gonna take possession of the company? Come on. They’re a lender. They’re not gonna do that.”
Well, they did. The lenders didn’t blink. They weren’t going to give them a big discount. And so the private equity said, “Well, okay, here are the keys.” And so the result of this is — the company will survive. It’ll just get downsized dramatically, and it’ll be managed to throw off cash. Won’t be growing, it’ll just be boring, and basically in runoff mode. They’ll just get what they can out of it. Obviously nothing left there for my friend, so he’s gonna find something else to do.
But there comes a time in every credit cycle where the money — the lenders, the investors — where they say no more. Where they get skittish about whatever. Maybe it’s the economy, maybe it’s “AI’s coming, we think there’s some threat,” and they say, “You know what, I would rather take a manageable, certain loss today and move on, than re-up for more money that could be a potentially existential loss tomorrow.” Every credit cycle this happens, where the money says “I’m out.” I think that’s where we are. I think that’s where we are in this. And there are lots of reasons for it, and there always are. AI is gonna undermine the ability of these companies to make as much money in the future as they’ve done in the past. The consumer’s really stretched. So we don’t wanna lend money to these companies that are facing a stretched consumer. All these reasons, and they’re all true. But what’s really true — and this is what I mean by it’s the constant boom-bust credit cycle — is that we had basically free money for a long time, and the world was just awash in money. And now that tide’s going out and the cost of capital’s going up. And this is what always makes people with money say “I’m out.” That’s what I think is happening today.
Matt: Ben, people wanna see some of these things themselves. They wanna track this along with you. Where do you wanna send them?
Ben: Go to Epsilon Theory, as you say. Go to Pursuant Pro. And this is what we do — we try to track the stories, and this is one of the biggest stories out there: when the money says no.
Matt: Thanks, Ben.
Ben: Thank you.
Matt: Rupert Mitchell, Blind Squirrel Macro — always with the counter-takes. He does a little bit of an intro game. I want you to appreciate that with me. He’s slippery, when wet, that squirrel.
Jack: He turned it on you. The intro.
Matt: He flipped it on me, man.
Jack: Oh, he did.
Matt: That’s the first time anyone’s done that, right? He came in hot, caught me off guard, made me on the fly think of a bunch of Bon Jovi jokes. I’m always there for that. I’m always there for that. So Rupert goes through not only the standard chart that he always shows us — the S&P relative to the rest of the world — but then he talks through: Rupert was one of the guys early, early, early on this software story cracking. So now he’s looking at the software stocks after the comedown and saying, “Well, this happened quicker, faster, and farther than I had predicted on the heels of this report. What’s likely priced in? Should I be bottom fishing here, or what’s going on in the rest of the world?” Spoiler: he’s very intrigued still by where this is settling out outside of the US right now.
Rupert Mitchell, tell us something smart.
Matt: Rupert Mitchell, Blind Squirrel Macro, welcome back to Excess Returns.
Rupert: Hey Matt, I’ve got something for you. I’m on with the pinnacle of Pennsylvanian planning and the John Bon Jovi of financial forecasting. This is what I’m here for.
Matt: Well, if anybody ever called you a mid-curve defender, you’re ready to defend the mid curve because you’re taking some people off this week with this whole idea that we should just — don’t throw the babies out with the bathwater. You were early to paint the picture on what you saw with the software companies. And then tell us where we are now, because you kind of said this was at risk, now it’s happened, and now you’re diving in and researching and revisiting some of these names. What’s going on with software? Why are you mid-curve in defending it?
Rupert: Well, I first started writing about the impact of AI on SaaS businesses a couple of years ago, and started getting much more aggressive about it in the last three and four months. And it’s worked very well. I saw a snarky tweet on Twitter yesterday basically using the classic mid-curve meme, and the topic was Adobe. Left quadrant: “Adobe’s a cheap stock.” Right side: “Adobe’s a cheap stock.” And mid-curve — i.e. me in the middle.
Rupert: So I go, “You know what, I’m gonna red-team myself.” That’s what I’m working on this week. The sad thing is I’m doing all the work and I’m pretty comfortable that, yeah, it’s trading at four times EV to sales. I could easily defend a multiple that’s half of that. So potentially got a long way to go. And should we look at something like Photoshop, Premiere Pro, and Acrobat as interesting sort of potential annuity businesses that could be owned inside some kind of evergreen capital vehicle? But it ain’t worth a hundred billion dollars. The ticket for that is a lot lower.
So I’m doing the work on this, and the irony’s not lost on me that it probably doesn’t make a huge amount of sense — Adobe as a funding short. It has moved aggressively from here. The argument really is sort of just passive aggressive indifference toward names like that, rather than trying to stay in the arena on the topic. And you wonder why I’m spending a week of my life doing this instead of looking for cheap stocks that are gonna go up internationally, because that’s really what’s working.
Matt: Well, let’s talk about that. You were also writing about this round-tripping since Liberation Day, basically, of US stocks relative to the rest of the world.
Rupert: Yeah. So my favorite chart of truth that we always talk about is just the ratio chart of SPY versus the MSCI EAFE, and the ETF ticker for that is IEFA. So it’s SPY versus IEFA. And up to Liberation Day last year, the SPY chronically underperformed international stocks. It then retraced a classic Fibonacci retracement where it hung around for about five, six months. And we are now below the Liberation Day lows.
So I see all the debates about how real or not real the “great repatriation trade” is. But the chart’s pretty clear, and it’s not all the currency move.
Matt: How do you stack that up now? How do you explain it — noting it’s not all the currency move — and where do you think this is going from here?
Rupert: Well, I have a bias for a weaker dollar generally, but that’s become a consensus view that would normally bother me a lot. But I actually see how it benefits everyone for the dollar to weaken slightly. And while they can’t say it out loud, this is more suited to achieving the administration’s aims — having a weaker currency. It’s just not good for the ego.
And meanwhile — real or not real — I think marginal dollars are staying at home in less liquid indices that are cheaper. And there is a kind of forced re-rating going on. The dirty little secret is that equity markets go up where governments are spending money. That’s the reality. And governments are spending money all over the world now, and it used to be a sort of unique achievement by the US. Japan’s the poster child for that. China’s gonna have to carry on doing fiscal, and they are now cheerleading their own equity market as well. That’s a double winner. And there are plenty of reasons to be excited about a Europe that’s starting to spend money properly in the wake of all this.
Matt: Where’s gold fit in?
Rupert: Listen, I think gold has really stomped its supremacy in the last 18 months. And I wrote about the gold miners last week. I joked that I’d turned into my dad — my friends and I always used to tease our fathers about pouring over financial newsletters about junior gold miners. And now I’m doing it myself.
I actually wrote a really long piece. Talking about mining beta, talking about how — you really need to know what you’re owning in these ETFs, particularly as you think you’re diversifying by owning some seniors and juniors of silver and gold. There’s actually so much cross-ownership across those ETFs. If you do what I did last year — I basically bought a silver fund unintentionally. So I tore those apart and put together my own bespoke basket, really to leverage on the expertise of professionals. I believe in team expertise. And so I looked at what are the active managers, specialist mining active managers — what do they own? What do the major sort of gold newsletter writers like Fred Hickey like? And put together a basket that lent on their expertise, what I call sort of institutional beta. At some stage, big grown-up active management is gonna reach for the miners. And there are only about four or five stocks that they can own in large portfolios. And again, if you just owned the four mining ETFs, you’d be chronically underweight in the likes of Newmont and Agnico Eagle. Barrick — although you don’t wanna own Barrick, because they gave up the gold ticker. Idiots. Idiots. Idiots. They had it right there in the palm of their hands. Idiots.
Matt: You can check this out on the website too if you wanna read this whole piece. You still see a lot of room for this to continue as that flow story evolves, especially around these names?
Rupert: Yeah, I really do. I think it’s more than just a flow story. These stocks are still incredibly cheap. And if you think that a global all-in sustaining cost for gold is about $1,500 an ounce, right — these balance sheets are in great shape, so they’re not gonna dilute you to death. The margins are just amazing. If you compare multiples versus the last gold peak back in 2011, the miners are trading at massive discounts to the broader market, versus the premium they were trading at back in 2011.
And I’m not worried about the price of the metal itself coming down to challenge the all-in sustaining cost when we’re in a world of $5,000 gold. You also don’t have to worry about conventional anxieties like the oil-to-gold ratio. Let’s take that $1,500 AISC. Let’s jack up energy prices by 20-30% — you’re really only impairing margins at the AISC level by about 5-9%. So you can’t get punctured beneath the waterline by a spiking energy price, which is good news. Because I actually think I’m back in the energy bullish camp. Not in the WTI $250 baseball cap world, but I think we’re gonna see generally rising energy prices over the next couple of years.
Matt: Well, you sir are a cowboy. People should look you up. Where do you wanna send them?
Rupert: BlindSquirrelMacro.com is the easiest place to start. And send me a message if you wanna trial. I’m not putting a button out there that you can just blindly press and then ignore. Get in touch with me and I’ll put you on a trial. Between the software stuff and the gold miner stuff, you wanna check in on this work.
Matt: Rupert, thanks for joining us.
Rupert: Thanks, Matt.
Jack: So Matt, whenever anybody is saying “this time is different,” I can’t think of anybody better to talk to than Meb Faber, because nobody has better data to look at that situation — and especially what they’re doing with the Idea Farm.
Matt: Especially with the Idea Farm, because it’s always a survey back to what we were talking about at the beginning. Risk means more things can happen than will happen. One of the great population of my base case bull and bear cases is leafing through the Idea Farm and getting a bunch of different takes from a bunch of different outlets. So I love that Meb’s doing this for us.
Jack: And that’s what we did. We picked three of the articles they’ve highlighted recently. All of them are around this same theme of “this time is different.” We’ve got a Schroders article, we’ve got Grantham’s new AI piece. So here’s Meb breaking that down with me.
Jack: Meb, welcome to Last Call.
Meb: Great to be here.
Jack: When we came up with this idea, you were one of the first people I thought about because we’re trying to do the opposite of what a normal market recap would do — like, “here’s what the S&P did this week.” We’re trying to highlight great research. And I think the Idea Farm in terms of the quality of the research you guys find — I think it’s the best site out there. I would recommend anybody take a look at what you’re doing. It’s theideafarm.com. You guys always find papers that I can never find myself.
Like when we did our episode on 22 market wraps — we wanted to figure out what the consensus was for the year, so it’s like we read 22 market wraps so you don’t have to. We just went to the Idea Farm and you had 22 market outlooks for this year, and we just found them all and we read them.
Meb: So the cool part is we’ve now built out an archive, so it actually has all the research pieces we’ve sent out going back a decade. And we’re going back year by year, so we should be done with that project by July 4th. We have all the top podcasts — some of yours — that we’ve sent out over the past 10 years, so it’s all searchable. You can kind of dig through. So if you’re looking for a master’s in investing, skip the MBA. Just go hang out on the Idea Farm and download a bunch of those pieces. Listen to this show. Get you all the way there.
Jack: Yeah. We’re gonna talk about three pieces here, and I would recommend everybody read all of them. They’ve kind of got a similar theme, because this idea of “is this time different” is one that’s out there right now. And we’ve got three different pieces you guys highlighted. One’s called “Decoding Markets: So Obvious It Hurts” from Schroders. One is “Bayes and Base Rates” from Michael Mobin at Counterpoint Global. And one is the Grantham piece on decoding AI — “Extreme Bubble, New Growth Era, or Both?” And they kind of have similar conclusions in terms of this idea of “is this time different or is it not?”
The struggle for so many people is they want to end up in one camp or the other. You have all these permabears out there — the sky’s falling, doomed, the stock market’s super expensive, everything’s gonna crash. And you have the optimists on the other side — we’re gonna do 20% returns a year in the stock market, on and on.
Meb: And as an investor who’s studied history — not just 10, 20 years, but a hundred, 200, 300 years — you learn these various cycles, and there’s this constant push and pull of how do you participate in the boom but protect yourself in the bust. And so I think all three of these pieces give good historical examples, good frameworks on how to think about that. And we can dig into each one and talk about it now. And that’s the challenge — because these things are so hard to time, it’s easy to look back at all these charts and say, “Oh, it was obvious the way it was gonna end.”
Jack: The problem was it wasn’t obvious when it was gonna end.
Meb: Yeah. And so if we start with the Schroders piece — Schroders consistently puts out some pretty good charts. They go through three or four famous periods globally in investing, and they stick to stocks that had a boom period. So the Nifty 50, which was the late 1960s — amazing period. A lot of names from our parents’ generation. GE, Coca-Cola. The old phrase, “nobody got fired for buying IBM.” All of these just blue chip stocks you bought, put ‘em away, you didn’t have to worry. Well, that was until the 1970s, when you had high inflation and all of a sudden stocks got pummeled. These high multiple stocks got re-rated and other things like gold did well, or things like value stocks. So you had this sort of rinse-repeat.
And the granddaddy we love talking about — I was just over in Japan — was their boom in the 1980s. My goodness, what a monster run. Japan was gonna take over the world. Nintendo, Toyota, Panasonic. And their stock market, I think in terms of size and scale, was the biggest bubble we’ve ever seen. The P/E ratio was double what the US had in the late nineties. And then of course — we’ve all seen, everyone loves the example now — do Japan. The three decades since stocks were stinky returns in Japan. Now they look good, but that’s an entire generation. 30 years. The people that got burned trying to buy Japan after that bubble burst.
Jack: Put up this chart — figure 8 here — which is all of them sort of combined. They looked at Japan, they looked at dot-com, they looked at China. What do you think are the biggest takeaways when we look at this? When you analyze these altogether?
Meb: There’s always the diagnosis and then what’s the prescription. And most of the financial media spends all the time on the diagnosis — “stocks are expensive,” or “it’s dangerous.” But the reality is, if you look at some of these charts that had hundreds or thousands of percent returns, you could have said that along the way.
So to me, there are kind of two prescriptions that are thoughtful and will keep you in the game. The first one is just have a diversified portfolio. Most people don’t — they’re all in on US stocks and bonds. So having global stocks, global bonds, global real assets is a great starting point. Second is strategically rebalancing — that means always trimming your winners, buying your losers. Hard for people to do, but it keeps you coming back to being at least a little thoughtful.
And the last one, which I think is a little harder for most people — you can buy funds that do it, we manage some — is trend following. Trend following at its core, its goal is to try to stay invested during these really long moves and at some point say, “You know what, it’s time — I’m getting out.” And one of the added benefits of trend following is not just missing out on these declines that are, in many of these cases, 50, 75-plus percent — those are tragic, terminal declines for many people. Being able to sit those out. But also, trend following often gets you invested in what we call the right tail — things that you may not invest in, like foreign stocks or gold or silver, and on and on.
So there’s some prescription. I think those steps, in order, for most people can help you, as opposed to listening to your neighbor, as opposed to saying, “I can time the top of this. I know and I’ll be able to get out — musical chairs.” That’s the hardest of all of them.
Jack: So the second piece is the Mobin piece. And anytime Mobin writes anything, I’m pretty much immediately dropping everything and reading it. And this idea of base rates flows through a lot of his work. And it was interesting — I’m gonna put up these two charts here. He looked at OpenAI, and it’s interesting because OpenAI is growing at an incredibly rapid rate right now. And I didn’t even know this, but the market expects OpenAI’s revenue to grow 100% a year between now and 2029. But what Mobin did — as he often does — is he took the outside view and said: of all the companies that are billion-dollar-plus revenue companies, how many of those have been able to grow revenue at 100% a year over this period? And it’s an interesting way to challenge the view from the inside that the company’s gonna grow that fast.
Meb: If I could tell you how many startups I’ve seen that claim to be the fastest-growing fintech of all time — there’s like a thousand of them. You always see these statistics and information, and as an investor you look at it and say, “Okay, I see this projection. Maybe it’ll come true. But how do I gauge this? What is my framework? What is my anchor to compare this to what’s happened in the past?”
And so what Mobin has done — the cool thing he’s done across thousands and thousands of securities — is to say, “Okay, let’s classify this company, this stock, this market cap, this sales. Here’s what it looks like. Here are other companies that have looked similar in the past. How often does this happen? Is it a coin flip? Is it likely? Is it unlikely? Has it never happened before?” And then at least you have a framework of saying, “Okay, I can make an educated bet on this outcome.”
It’s like a football game. If your team’s down — the Broncos are playing the Raiders and the Raiders are down 40 points and it’s the fourth quarter — you’re like, well, this has probably never happened before where someone’s come back by that amount. Probably not a great bet, even at a hundred to one. And you can compare it to all the times in history. And so what he finds — not surprisingly — this paper is that it’s kind of unlikely that OpenAI and Oracle and some of these are gonna hit these targets. It goes back to some of the Cathie Wood projections on GDP and funds doing 50% a year. You kind of take a step back and say, “That sounds great, but is it likely?” It goes back to the Dumb and Dumber movie. There’s a chance, but not much of one.
Jack: Yeah, I think it’s great because it makes you ask the question: if you have one of these forecasts, how much confidence do you actually have in your forecast? Because it doesn’t mean it’s impossible. If we had put up this chart of the base rate chart before the Mag Seven, when they were smaller companies — they’ve blown onto the right side of this chart. Something that would have been very, very low probability. But if I’m projecting that for a company in the future, I should at least have the context to say: in the past, how many companies that were in a similar situation were successful in doing this? And if that number is exceptionally small, I need to have a high confidence in my forecast.
Meb: Imagine — we did this on Twitter not too long ago. JP Morgan has a nice chart of world market cap over time. Going back to the Japanese example: Japan was the largest stock market in the world in the 1980s, bigger than the US. So not that long ago, in our lifetimes. And I go, imagine going back to the eighties — Japan holds the crown, US is number two — and imagine telling someone, “In 30 years, Japan is gonna go from whatever the number was, 40% of world market cap, to five. And the US is gonna go from 25-30%, whatever it was, to two thirds.” People would be like, “No way. What happened?”
But you take a time like today and you say, “Okay, well, what’s most likely to happen? Can you fathom a scenario where the US goes from two thirds to a quarter?” And you’re like, “Oh my god, that sounds like the Great Depression or something.” Well, a quarter is US GDP currently of the world, right? So it’s not that out of the ordinary. I think the challenge for investors is at least fathoming the outcomes, because we all know with investing — with life, with relationships, with anything — it’s your expectations versus what happens. When you have this like, “Oh, this is definitely gonna happen, this is the total outcome, I am completely confident” — and then that doesn’t happen, that’s where the fractures — mental, emotional, psychological — happen. And a lot of times, particularly with investing, think back to 2009. People said, “I can’t take anymore. I have to sell everything.” And then never got back in. It can be traumatic.
Jack: So we won’t get through the whole Grantham piece, but there was one chart I wanted to talk to you about because it’s really interesting to me. This idea of the number of companies trading at 10 times sales — I didn’t realize this, but we got above dot-com.
Meb: Going back to Mauboussin’s work on base rates, like the base rates in terms of a lot of things are not very good for these companies that trade at 10 times sales.
Jack: It’s fun to look back at a lot of the historical bubbles, because you see so many commonalities. I mean, the Grantham piece — they talk about RCA. Nobody’s talking about RCA anymore, but they talk about how that stock went crazy. They talk about UK railways. Professor Shiller has a great old paper where he looks at the sector CAPE ratios during the 1920s and how people went full for railways back then and utilities. Imagine getting all hot and bothered about railways and utilities. That’s the boring part of the Monopoly board. Nobody wants those today, but we’ll look back at this period and probably say similar things.
And I was laughing at the Schroders piece because it was talking about the Nifty 50 period and they’re like, “People were crazy — they were paying 30 to 50 times earnings for some of these stocks.” And I was like, well, today it’s not 30 to 50 times earnings, it’s 30 to 50 times sales on some of these. And so when you look at the percentage of the market cap trading over 10 times sales — I never thought I would see something like the late nineties again. And here we are, not too, too far into the future. So it’s kind of priced for perfection.
Now, all this having been said, the US market still sort of floating around all-time highs. But you’ve seen this massive rotation over last year, this year, into other things — particularly being foreign stocks, foreign value, gold, precious metals. And then this year it’s even rotating into things like small-cap value in the US, basically anything other than market-cap weighting.
There’s an interesting piece recently on Twitter from D.E. Shaw where they were talking about — everyone talks about how expensive the market cap, the big names are. What no one talks about is how volatile they are. They’re actually much more volatile than the market, which is interesting.
I’ll leave you with one more thought on this topic. As we look around the world, my least favorite phrase is “the easy money has been made.” You hear this on CNBC all the time. They’re like, “The easy money has been made.” And I’m like, bro, there has never been easy money made in markets. In fact, I’d use the opposite. I’d be like, “The hard money has been made.” And people are like, “What are you talking about?” And I say, well, who owned those at that point? Because if you owned deep value stocks ex-US, that meant since 2009 you underperformed year after year after year after year after year after year. I could keep going about five more years. The hard part was holding, buying, re-upping.
I actually went on CNBC and Bloomberg a couple years ago, and I was trying to make this example. I said very quietly, “Look — I love your TV show, but all you do is talk about Nvidia all day long. Nvidia, Nvidia, Nvidia. And as you should — record profits, execution at this scale is astonishing. Maybe the world’s first $5 trillion stock. We’ll see.” But I said, “How many times have you guys mentioned the stock Hana Micron Semiconductor?” And they’re like, “What are you talking about? Did you just sneeze? What are you doing?” And I say, “Well, this is another semiconductor stock that’s outperformed Nvidia over the last 1, 3, and 5 years. But it just happens to be located in South Korea.” Nobody’s paying attention because it’s somewhere else. That stock has been a 20-bagger or something, but very quietly. So nobody knows. When you look at a lot of these trends — if we did this show a year or two ago, we were still in this “to the moon forever” period. But very quietly underneath the surface, you’re now seeing the rotation into lots of other things. So maybe the bull market in diversification has begun.
Jack: We’re hoping so, at least those of us that are value investors. We weren’t able to get into a lot of these papers, but they’re all really, really good papers. I’d recommend theideafarm.com. Check it out. There’ll be new stuff every week. You can get the email. Thank you for doing this.
Meb: It was great.
Jack: Now that we’ve heard all these arguments on both sides of this — now the question is, this is going to play out in the real world. How do we think through it? And I think one of the things I’m thinking about is: what would I look at? What would I see in the data to tell me how this is playing out? I don’t know if you have any ideas, but I’m thinking about what I might follow going forward to see if anything close to this Rinni thing is playing out, or if we’re getting a completely different version of the world.
Matt: So I think what’s really interesting is I haven’t heard the conversation you just had with Kai. I’m very, very excited to hear that conversation because I’m curious — the way we can actually look at corporate filings and further understand — because Kai’s already been on top of this with some of the intangibles work. How can we understand what companies are actually doing and pinning to their use of AI? Their upkeep of AI, the percentage of spend, the percentage of return that they’re getting on that spend. I think corporate filings are a major, major, major one. What about you? What are some other areas?
Jack: That’s a good one, and by the way, that didn’t come up as much in our conversation as it should. But Kai does that — Kai does a really good job of that. In our previous conversation with Kai, we talked about it. He’s looking at what people are saying in their filings in terms of actual ROI with AI. So that definitely would be one thing you could look at.
We pulled stuff for our conversation. A lot of it was from the Citadel piece, and Citadel took the other side of this. But they were looking at the types of things you might look at if you wanted to say, “Is this playing out the way Rinni thought?” And one thing you would look at probably is some degree of AI adoption. And this is something Kai and I push back on a lot in terms of the article, which is: there’s one thing about the pace of growth of a technology. There’s a totally different thing about the pace of growth of adoption. Just because the technology’s going crazy and growing at a rapid rate does not mean that my dad is gonna let an AI agent make his purchases. That’s a long way away. And so I think it’s important to look at both of those things — not just what the technology’s doing, but are people actually using it and are they conceivably gonna use it the way it was phrased in this piece?
Matt: It’s a very interesting nuance. Part of it is I see a lot of things on the product adoption lifecycle curve where they’re saying this probably doesn’t grow in scale in the same way, because we might not end up in the scenario where your dad is using it — or they might be using it in the basic ChatGPT way that we see people using things now, where it’s like, “Where do I go to lunch when I’m on vacation?” That’s very, very different from the enterprise software decision to drive, “How do we recode the CRM for our entire department?”
Jack: Yeah. And it’s very different than what was in the piece, which is this idea that basically AI has taken over as the buyer of choice for everybody — this low-cost buyer that’s just deciding what to buy for you. That seems to me like that’s a long way away. Not that the technology might not be that far away, but your average person agreeing to let that happen is probably a long way away.
Matt: So also interesting inside of this is on the employment data side — and I think Eric Pakman at Data for the People’s been doing an exceptional job of this, because he’s been flagging this already before any of this came into the picture. He’s saying, look, where we’re shedding jobs and in a lot of places we were hollowing out some of that white-collar market. I’m not saying that’s definitely going to continue, but I think that trend has already started in the data. If you’re looking through the BLS statistics, if you’re looking through the survey data, it’ll be interesting to see if that continues and goes to what depth. He’s got some tools on a national, state, even town and local level, where you can drill in and see which jobs are going in which directions for people losing jobs, filing for unemployment or not. Yeah, lots and lots of wrinkles inside of this. But this might be the great fourth-turning wealth distribution that we’ve been promised.
Jack: Well, it’s funny too — I’ll put the chart up — but Citadel cited this Indeed job openings thing in software, and they were showing that actually software jobs are going up right now. And right when I got on with Kai before we recorded, he’s like, “You know, that’s a massive chart crime.” And I’m like, “What?” And he went to FRED and pulled the whole thing, and basically they had just centered in on this recent period. But if you take the data back to 2020, it’s like this massive peak in software jobs and then this huge move down. And so there’s nothing to do with AI in there. Like, it hasn’t gone up or down because of AI — it’s barely moved at all. But it lost the full picture of the entire thing since 2020.
Matt: We do a decent amount of work with clients in and around this space — the tech sector and software jobs — and we talked to enough people in this space to have a feeling. Pre-COVID, so like 2019 to 2023, you basically had this massive hiring boom in these areas. And even with seeing some of the early layoffs and whatever else, it’s like we’re doing an adjustment off of a massive base where we had a giant multi-year hiring boom followed by a flattening to a slight decrease. But they were hiring in that sector like two to three times the national average of additions for four years in a row, and then that kind of petered off. And now some of those people being let go — the adjustment on the back-up where there are openings at a handful of companies — it’s very disorienting if you’re not zooming out.
Jack: Yeah. So I think the reality is that data is telling us absolutely nothing about the Rinni thing, one way or the other. And I think that’s true of all the data right now. We were talking before we recorded — like productivity. The ability to measure productivity in the internet-technology-based world. When we have Jim Paulson on the Jim Paulson show, he’s talked to us about how he thinks that data is basically useless now. The productivity data is not even valuable. And also by the way, even if it is valuable — go pull that up on FRED. It’s basically a straight line across, bouncing up and down. There’s nothing there.
So all this is backward-looking. There’s nothing in the data yet, I think, to indicate that we have this type of scenario playing out, other than what Jack Dorsey did yesterday. That type of thing you’re starting to see, and whether you see more of that is probably important in terms of figuring out what might happen.
Matt: Jack Dorsey’s another case, though, of where they had a massive hiring boom. And then they held the line and now they’re finally letting some people go. There’s also a really weird stat about some corporate party — it was like some multimillion-dollar corporate party. People are like, “How do I get invited to that event?” I’d like to know too. But some of this is just normal corporate behavior. You overhire in a boom and then you cut back when something gets tight. There’s a lot of wanting to read through the exact reasons for this decision. And much like every time you talk to a Brent Kochuba or a Kevin Weir or any market maker, it’s like, “Yeah, somebody’s kid was sick and they weren’t in on Monday for the rebalance, and some stuff happened.” That’s all part of this.
I wanna ask about this one to you too, just in case you saw it in any of the other conversations or stats. It doesn’t feel like we had a lot with the CapEx build-out and basically the energy boom. This part still really troubles me on just the inflation stats — like AI data centers as a portion of electricity consumption are like mid to high single digits, heading into double digits by all the projections in the next couple of years. It’s like we still need to spend and burn a lot of energy and get a lot of compute to get anywhere near this scenario. It feels like you gotta move some mountains.
Jack: You need the inflation to get the deflation, right?
Matt: You need a lot of inflation to get the deflation, and you need a lot of compute build-out and you need a lot of energy consumption. And it’s not clear that we can get even all the way to the stage where that’s feasible in the next few years, outside of inventing nuclear power plants or putting solar farms in space — which I’m sure will happen soon.
Jack: And by the way, Gavin Baker’s really good to follow on this too. He was one of the people who — he didn’t attack the Rinni piece, but he did say, “There’s just not nearly enough compute for this to happen on the type of timeframe they’re talking about.” Even if this could happen, we’re not gonna have compute for a very long time for something like this to go on.
Matt: Alright. I think it’s time for us to leave the office, get back onto the private jet. Yeah, we gotta get down to the Caymans. Check out all of our undisclosed positions and things — I shouldn’t even say that.
Jack: Now you’re making me think I gotta make a private jet video of us getting back on to put at the end.
Matt: We need the closing video where we get back on, wiping the sweat from our brow.
Jack: I do like that. At least one person — who shall remain unnamed — actually believed the private jet video, which is great. I think there’s more out there.
Matt: There’s more out there who definitely believe it.
Jack: It was worth all that time. If one person —
Matt: If you believe that video, I have a copy of Jason Buck’s special book, Pimp of Bull, just for you.
Jack: We still get comments that people wanna buy that book.
Matt: As they should. As they should.
Jack: And the best way for that story to end is for him to actually write the book, because that’s how it has to end, I think. Right? He had no intention of writing the book. You made the book up, but now he’s gotta write the book.
Matt: I’m holding my breath, Buck. I’m holding my breath.
Jack: Well, thank you everybody for joining us, and we’ll see you next time.