The Brutal Honest Truth About An AI Bubble: How Private Equity Will Destroy the Market
Artificial Intelligence has gone off the rails, private equity’s running out of cash, and venture capital’s throwing billions at anything with a “A.I.” in the name... welcome to Episode 304. Chris, Saied, and Rajeil unpack how Sora 2.0 just erased the line between real and fake, how 41 stocks now make up nearly half the S&P 500, and why every startup pitch sounds like a bad ChatGPT prompt. Sprinkle in a dash of market concentration risk, a splash of FOMO-fueled insanity, and you’ve got a recipe for the next great bubble.
➡️ But the gang doesn’t stop there. They dig into the dark side of private equity: the vintage funds running on fumes, the liquidity crunch nobody wants to admit, and what happens when inflated A.I. valuations meet leveraged balance sheets. Mix in a little immature humor, a few uncomfortable truths, and the kind of laughter that comes right before the crash, and you’ve got the brutally honest breakdown only The Higher Standard can deliver.
💥 Have you left your "honest ⭐️⭐️⭐️⭐️⭐️" review?
📩 NEWSLETTER: https://tr.ee/O6FWkv
👕 THS MERCH: http://www.thspod.com
🔗 Resources:
How Much of the S&P 500 Is AI Related Stocks? (Jim Bianco via X)
Venture capitalists have poured a record $192.7 billion into AI startups YTD (The Kobeissi Letter via X)
Private equity in general is totally hosed (The All-In Podcast via X)
⚠️ Disclaimer: Please note that the content shared on this show is solely for entertainment purposes and should not be considered legal or investment advice or attributed to any company. The views and opinions expressed are personal and not reflective of any entity. We do not guarantee the accuracy or completeness of the information provided, and listeners are urged to seek professional advice before making any legal or financial decisions. By listening to The Higher Standard podcast you agree to these terms, and the show, its hosts and employees are not liable for any consequences arising from your use of the content.
Transcript
Sentencing, did he.
Speaker A:I thought you got like four years.
Speaker A:Nah, bro, that's just.
Speaker A:It's gonna get.
Speaker A:He's gonna get all.
Speaker A:All types of discounts.
Speaker A:Yeah.
Speaker A:Two years.
Speaker B:Unfortunately, that's the way the law works these days, kids.
Speaker A:Two years though, you know, Two years.
Speaker B:Is a lot of time.
Speaker B:I mean, time served.
Speaker B:Plus that, though.
Speaker A:New Tom Force classes.
Speaker B:No, these are old.
Speaker B:I had my eyes dilated today and they put that yellow stuff in your eyes and they do like the little like poke your eye test and they do the dilation thing.
Speaker A:Poke your eye test.
Speaker B:Yeah.
Speaker B:Not.
Speaker B:Not really ideal.
Speaker B:Yeah.
Speaker A:Not a fan.
Speaker B:Yeah, I'm not a fan.
Speaker B:Probably put the pressure record button.
Speaker A:Start the record.
Speaker B:This is why I don't bring you.
Speaker B:Anyway, I got it, I got it.
Speaker B:You don't even know the part of the push.
Speaker B:Not one on the bottom.
Speaker B:See?
Speaker B:No, just push.
Speaker B:You're holding.
Speaker B:Don't, don't.
Speaker B:See, Look, There you go.
Speaker B:It was 50.
Speaker B:50, bro.
Speaker B:50.
Speaker B:50.
Speaker B:You picked the wrong button and you held instead of pushed it.
Speaker B:That's 100% if you going 50.
Speaker B:50.
Speaker A:I didn't hold.
Speaker A:I didn't hold.
Speaker B:You held.
Speaker A:I sold.
Speaker B:You hoddled.
Speaker A:Yeah.
Speaker B:All right, boys, shall we?
Speaker A:Let's do this.
Speaker A:Welcome back to the number one financial literacy podcast in the world.
Speaker A:This is the higher standard.
Speaker A:Sitting in front of me is my partner in crime with the Tom Ford glasses, Christopher Nahibi.
Speaker B:Had my eyes dilated, people, because I'm a dilated people.
Speaker A:See what you did there?
Speaker A:Yeah.
Speaker B:Sitting across me, my partner in time, the one and only side, Omar, everybody.
Speaker A:Thank you, my man.
Speaker A:And sitting behind the desk in the production suite, we have the fighting Fijian Rajil.
Speaker A:What's up, my guy?
Speaker A:What's up, everyone?
Speaker A:Thank you so much for tuning in and let's get ready for a great episode.
Speaker A:Yeah.
Speaker A:Love it.
Speaker A:Love it.
Speaker A:Hashtag migraine free today.
Speaker B:Yeah.
Speaker A:Oh, there you go.
Speaker A:Hashtag bless.
Speaker B:All right, so today's gonna be episode of Rabbit Holes that all started with Sora 2.0 being released.
Speaker B:I. I saw some videos I think we all did on social media which showed really hyper realistic but totally unreal scenarios portrayed in short form video format that kind of just went all over.
Speaker A:The Internet just to show everybody the what it's possible, all the capabilities.
Speaker A:Right?
Speaker B:Yeah.
Speaker B:There you go.
Speaker B:This is Sora 1.0, which I currently am.
Speaker B:So I actually know this might be 2.0, which I'm currently signed in for.
Speaker B:I got the invitation code to join Sora 2.0, and let me tell you all Bets are off on everything you see on social media moving forward.
Speaker B:Okay, just make this be 100% crystal clear about tonight's episode and that being your baseline.
Speaker B:Sora 2.0, which is really Chat GPT's visual creation model.
Speaker B:It's not their learning language model or open AIs, I should say.
Speaker B:This has gotten to a point now where with a one sentence prompt, you can get hyper realistic.
Speaker B:Very, very just spot on.
Speaker B:I mean, you're not talking.
Speaker B:Five finger, weird position, hands, you're talking.
Speaker A:Is this owned by OpenAI?
Speaker B:Yeah, OpenAI owns Sora.
Speaker A:Yeah.
Speaker B:OpenAI's learning language model is ChatGPT.
Speaker B:Their visual video model is Sora.
Speaker B:And up until the Sora 2.0 release, Sora was a lagger.
Speaker B:There was a bunch of different other models that I would recommended for video, but this has now leaped beyond, as far as I'm concerned, everybody else, as far as its video creation and capability.
Speaker B:But that really wasn't where the rabbit hole went down.
Speaker B:It started off there of me going like, oh my God, this is good.
Speaker B:This is a problem.
Speaker B:You really can't trust or believe anything you see.
Speaker B: fear is that what started in: Speaker A:Okay.
Speaker B:And the AI bubble that we're seeing now, and I'm going to use the term bubble on purpose, is real, it's meaningful, and it has built to a point that I don't think any of us can ignore it at this point any longer.
Speaker A:Okay.
Speaker A:Yeah.
Speaker B:So to give you a bit of a primer for the show, we're going to go down this rabbit hole with AI.
Speaker B:But there is going to be a point in the show where we have to talk about one of the most requested questions we get anyway, which is to differentiate between private equity, hedge funds and venture capital.
Speaker A:Yeah, yeah.
Speaker B:Now all three of them are playing in this AI realm, one of them certainly heavier than others.
Speaker B:And I think there is another bubble there with private equity which is attached to the AI bubble.
Speaker B:And I think the two of them have happening at the same time may be this unknown catalyst for what, the next financial crisis.
Speaker A:Right.
Speaker A:The perfect starts with the perfect recipe.
Speaker A:Right?
Speaker B:The storm.
Speaker A:Yeah, exactly.
Speaker A:Yeah.
Speaker A:Let's get into it.
Speaker A:So where did you want to start off at?
Speaker B:So we're going to start off with Jim Bianco via X.
Speaker B:Not somebody I followed a whole lot, but he identified something that I actually.
Speaker B:So what I typically do for the show is if somebody points something out, I'm going to go source it.
Speaker B:I did source this data.
Speaker B:This is accurate.
Speaker B:He said that JP Morgan has identified 41 AI related stocks.
Speaker B:So I saw Sora had really come up massively in the last update.
Speaker A:So what, what constitutes a stock being AI related?
Speaker B:There's a ton.
Speaker B:It's not just people who create the models, it's people who create the, the hardware, the, the Nvidias, if you will, the chips.
Speaker A:Okay.
Speaker B:Semiconductors.
Speaker B:There's also people who create the energy specific for this sector.
Speaker A:Got it.
Speaker B:There's a whole plethora and there's all sorts of.
Speaker B:And if you want this list of 41, I will link this in the show notes.
Speaker B:If you're an investor and you want to go down rabbit holes, this is a great place to start.
Speaker B:My only recommendation, anybody listening to the show is don't do the obvious thing.
Speaker B:Go.
Speaker B:I'm going to back in the Nvidia.
Speaker B:All day long, everybody's playing the Nvidia play.
Speaker B:Go farther down the rabbit hole.
Speaker A:Yeah.
Speaker B:Look for people who support the semi, the semiconductors who support the technology in third, you know, kind of third tier spaces.
Speaker B:Those are the ones that are going to come up.
Speaker A:Yep.
Speaker B:And I will say anecdotal here.
Speaker B:Spoiler alert.
Speaker B:Energy is a massive problem there, there is not enough.
Speaker B:You could not supply enough compute to the market right now to really have AI satiate itself.
Speaker B:Compute requires power.
Speaker B:Power is what's going to be the biggest problem.
Speaker B:Yeah, but that's not where the show is about.
Speaker B:The show is about this chart.
Speaker B:This chart shows they are now these 41 AI related stocks.
Speaker B:45 of the S&P 500.
Speaker A:That's, that's a lot.
Speaker B:That's a lot.
Speaker B:And what's really important here is up until recently we started off with the Mag 7 leading the way of the S&P 500 carrying the entire market.
Speaker B:Then in just last week's show we were talking about, well, the technically the top 10 stocks are all, you know, technology related and carrying the way.
Speaker B:Now I'm telling you, 45% of the entire S and P is being carried by 41 AI stocks.
Speaker B:And if we go to the next slide or the next image in the show notes here, which, which makes you.
Speaker A:Feel better or worse.
Speaker A:Where before it was the Magnificent seven that was really propping up the whole, the whole thing.
Speaker A:And for a while it was just one Nvidia.
Speaker A:Right.
Speaker A:But now you got 41 companies, so creating more of a bubble if you will.
Speaker A:But at least it's spread out more.
Speaker A:Does that make you feel any better?
Speaker B:Well, as I went farther down this rabbit hole, as we're going to go down tonight, I can tell you that I went from being somewhat agnostic at this point to going, huh, that's a little bit broader than we thought.
Speaker B:Huh.
Speaker B:That's a little bit more than we knew to.
Speaker B:Shit.
Speaker B:We have a problem.
Speaker A:Okay.
Speaker A:But not how imminent, though.
Speaker B:I think we're.
Speaker B:We're close.
Speaker B:I really.
Speaker B:Yeah, I think, I think the problem for.
Speaker B:Not to get to the end of this too quickly, but I think the problem for the market is not that these stocks carry it, it's how poorly performing everybody else is.
Speaker A:Yeah.
Speaker B:And if you have.
Speaker B:In any investing world, whether you're in real estate or you're in stocks, concentration risk is a problem.
Speaker B:If you were over concentrated in one space, you bear the risk of that space having a singular impact, which could change today.
Speaker A:Right.
Speaker A:Well, that's the whole reason behind having the whole s and P500.
Speaker A:Right.
Speaker A:It's supposed to limit the amount of.
Speaker B:Concentration, but if you have 45% of it driven by AI stocks, that means essentially, let's just round up here.
Speaker B:50% of the S and P could be impacted by bad AI news.
Speaker B:Yeah, that's a problem.
Speaker A:Yeah, yeah, there was that.
Speaker A:There was that episode of Sam Altman that I think he went on Theo Vaughn's podcast and they were talking about it, and Theo broke it down in such a, like, you know, in layman's terms, like just asking him, so what's the, what's the governing body that.
Speaker A:That's protecting us all from this?
Speaker B:There is none, is it?
Speaker A:There is none.
Speaker B:Yeah.
Speaker B:And that's the crazy part about OpenAI is it's supposed to be a nonprofit.
Speaker B:As of today, they are the world's most profitable nonprofit.
Speaker B:Walk that through.
Speaker A:Yeah, right.
Speaker B:Yeah.
Speaker B:And it's insane.
Speaker B:They were supposed to have like this guidance around them, which ultimately led to his.
Speaker B:Sam Altman's being sent off from the company and then subsequently rehired, and now it's weakened massively.
Speaker B:There, There are things afoot here that I don't think we could truly comprehend as a society for the next level.
Speaker A:Yeah, because you think of it.
Speaker A:Because, okay, for the last 10, 15, 20 years, we all, we've all known that anything you put in your Google search engine could get subpoenaed.
Speaker A:So whatever you put into ChatGPT getting subpoenaed, that's not anything new.
Speaker B:Right.
Speaker A:But I think the way ChatGPT or any of these models are used is much more intimate.
Speaker A:And I, it's not used the same way.
Speaker A:Although some people aren't hip to how to prompt, you know, effectively, but they're using it even though they're using it like a Google search engine.
Speaker A:They're also using, we were talking about before the show, as, as their, as therapy.
Speaker B:People will speak to it like it's a person because it responds.
Speaker B:And you think about conversations.
Speaker B:The one thing you want most from conversations is you want responsiveness.
Speaker B:Right.
Speaker B:And if you had somebody who's available 24, seven, seven days a week, you could talk to anytime and get the.
Speaker A:Exact confirmation bias you're looking for and it becomes addictive.
Speaker B:Well, and then there's an interesting play here too that Google recently did.
Speaker B:This is not in the show notes but something that, that I've been reading up on and it was part of my rabbit hole journey.
Speaker B:Google used to have like an infinite results at the bottom.
Speaker A:I saw that they cut it to 10 pages.
Speaker B:They cut it to 10 pages because this way it stops OpenAI from getting infinite feedback and provides value to Google people.
Speaker B:People who use Google.
Speaker A:But aren't they.
Speaker A:Oh, they're not investors into OpenAI.
Speaker B:Even if they are, they still have to.
Speaker B:Their, their main product is search.
Speaker B:And if you can't sell ad revenue and media and content from search, you've severely diminished your earning potential.
Speaker B:So you got to protect home base.
Speaker B:Right.
Speaker B:But again, you wind up in a situation where one of the biggest predictions that I've had for a long time now is becoming a reality is your website's irrelevant.
Speaker B:Your website is just a data placeholder for search and for AI to feed information from.
Speaker B:That's all it is.
Speaker A:That's all it is.
Speaker B:Yeah.
Speaker B:No one is really visiting website.
Speaker B:The only reason people visit websites as opposed to your social media now is that they're actually going to purchase something.
Speaker B:Yeah.
Speaker A:E commerce, right.
Speaker B:Yeah.
Speaker B:And there's lots of reasons why E commerce is better driven through, I hate to say it, Amazon.
Speaker B:Right.
Speaker B:It's a more trusted platform.
Speaker B:Express shipping.
Speaker B:So there's the landscape around E comm search and websites is changing so dynamically in large part because everybody just goes to their AI program now.
Speaker B:Right.
Speaker B:And unfortunately, whether people like it or not, ChatGPT is the highest here.
Speaker B: ,: Speaker B:It's only three years ago.
Speaker A:Yeah.
Speaker B:Okay.
Speaker B:Literally almost three years ago next month.
Speaker B:Since this date, these 41 stocks have accounted for 70% of the increases in the S P's 500 value, which is shown here in the chart in blue.
Speaker B:The other 30% come from the remaining 359 stocks reflected here in orange.
Speaker B:So clearly there is a huge, huge pool.
Speaker B:So if AI accounts for 45% of what we've seen in the S P500.
Speaker B:Right.
Speaker B:And of that 45, 70% of the growth in the S P500 has come from those stocks.
Speaker B:You have a concentration.
Speaker A:Yeah.
Speaker A:A wild concentration.
Speaker A:Yeah.
Speaker B:So the entire market's performance is leaning on a handful of companies and one technology.
Speaker A:But is the hope that the concentration lessens with easier monetary policy?
Speaker B:I don't know that the hope is.
Speaker B:I think the exit strategy for a lot of the money in this game is, is that they might have a pathway to monetize their investments.
Speaker B:And we'll get into what that really means here shortly.
Speaker B:But essentially what's flooded into this market is venture capital.
Speaker B:And we're going to explain why venture capital was the ideal partner to get into this market.
Speaker B:From the Kobesi Letter via X.
Speaker B:Venture capitalists have poured a record $192.7 billion in AI startups just year to date.
Speaker B:Okay.
Speaker B:That's a massive amount of Money.
Speaker B: This puts: Speaker B:In the US, AI share of venture deals has surpassed 60% over the last 12 months.
Speaker B: centage has tripled since the: Speaker B:Overall VC funding has reached $366.8 billion so far this year.
Speaker A:Wow.
Speaker B:With a majority share coming from the US at 250.2 billion.
Speaker B:The AI revolution is growing exponentially.
Speaker B:The chart that Rejeels pulled up here shows the sector compared to everybody else.
Speaker B:And it's pretty clear when compared to mobility, climate change, tech, crypto, social software, fintech, there is nobody even close to the amount of dollars that AI is getting.
Speaker A:Yeah.
Speaker B:And this is why you hear all that, that, that joking sarcasm like, oh, what's your AI play?
Speaker B:What's your AI play?
Speaker B:How are you using AI for this?
Speaker B:Because dollars are just going.
Speaker B:Anybody who's willing to.
Speaker A:There is that stretch.
Speaker A:And I don't think we're out of it yet.
Speaker A:Where if a company was holding an earnings call, you better use the term AI a certain number of times.
Speaker B:That's right.
Speaker B:And it's becoming a real problem.
Speaker B:And bear with us, if this is getting tedious and you're like, well, how is this related to finance?
Speaker B:We're gonna get there.
Speaker A:Okay.
Speaker B:This is all a bit of a Primer to get us to the point where the money problems are.
Speaker B:So venture capital money used to chase the next Uber, Right.
Speaker B:They wanted a, a seed round pre earnings business that they really believed in.
Speaker A:Right.
Speaker A:Think of, think of venture capitalist money where they're all, they're all pooling large sums of money.
Speaker A:But for venture capitalists, it's the early stages of a company.
Speaker B:That's right.
Speaker B:And we're going to explain that thoroughly here coming up.
Speaker B:So now they're chasing anything with AI and neural net.
Speaker B:And when that much money piles into a sector, one sector this fast, it's not innovation, it's.
Speaker B:It's herd behavior now.
Speaker B:Right.
Speaker B:It's the same concept as if you're seeing it on the news.
Speaker B:It's already too late.
Speaker A:Yeah.
Speaker B:Okay.
Speaker B:A.I.
Speaker B:is already too late.
Speaker B:The big money's already in and they're already earning big returns.
Speaker B:Everybody who's chasing at this point is just chasing the Riz.
Speaker A:Yeah, exactly.
Speaker A:Right?
Speaker A:Yeah.
Speaker A:That's good.
Speaker B:Yeah.
Speaker B:See, I'm here.
Speaker B:Yeah, I'm here.
Speaker A:Yeah, you got it.
Speaker A:You got to invest in it.
Speaker A:When like you're at a party and you just hear like, wait, I've heard three or four people say the same thing tonight.
Speaker A:Now is the right time to get in before.
Speaker A:Before it gets too big where it hits mainstream media.
Speaker B:Really?
Speaker A:Yeah.
Speaker A:Oh, that was the, that was the info story of how a Shaq got into investing into Google.
Speaker A:He said, I was, he.
Speaker A:I was at.
Speaker A:At a networking thing and I heard like three or four people toss around this word that I never heard before.
Speaker A:And he went to his business manager and was like, whatever these guys are talking about, I want to invest in that thing that they're talking about.
Speaker A:They're all talking about it.
Speaker B:It's got to be a lot easier when you.
Speaker B:When you got like millions of dollars and you're like.
Speaker A:And your name is.
Speaker B:Got to get into the room and put some money in that.
Speaker B:Yeah.
Speaker B:What is.
Speaker B:Yeah, okay.
Speaker B:How much money you got in it?
Speaker B:Yeah, like my hands is biggest size waist.
Speaker A:That story is.
Speaker A:I don't know if that's a compliment or.
Speaker B:It is.
Speaker B:Is it confirmed?
Speaker A:Yep.
Speaker A:Wow.
Speaker A:1999.
Speaker B:The beauty in this is that Regil is now fact checking you.
Speaker A:Yeah, yeah, exactly.
Speaker A:The question is, the question is, would he have pulled it up if I was wrong?
Speaker A:Would you have still been like, no.
Speaker B:100% he would have wrong.
Speaker A:N. We're.
Speaker B:We're for the record.
Speaker B:If either one of us are ever wrong on something, I expect you to call us out live on the Show.
Speaker A:Yeah.
Speaker A:Yeah.
Speaker A:That's the authenticity of the show.
Speaker B:See, he gets it.
Speaker B:Side.
Speaker B:Why don't you stop lying?
Speaker B:Stop.
Speaker B:Wouldn't have to do this if you tell the truth.
Speaker B:People making up facts.
Speaker B:People.
Speaker B:Since Chat.
Speaker B:Chat GPT Y.
Speaker B: GPT was released in November: Speaker B:We are in the midst of a generational macroeconomic shift.
Speaker B:In the chart that Reil's pulling up here is, I think, meaningful.
Speaker B:This is total job openings.
Speaker B:It is a bit.
Speaker B:These are not natural comparisons because the numbers here are a little bit off.
Speaker B:But you got job openings for the S&P 500 companies compared to, well, Chat GPT's release.
Speaker B:And of course, you've got this divide of.
Speaker B:I want.
Speaker B:I want to find a way to color this the right way because you really got a problem here.
Speaker A:That.
Speaker B:That's not really.
Speaker B:You got two charts that are moving the opposite directions.
Speaker B:Okay.
Speaker B:Clearly, Chat GPT being released and the job open is going down and the growth in the s. P 500 do not align.
Speaker A:They don't align.
Speaker A:But I'll say this.
Speaker A:There was.
Speaker A:So I had something to bring up for the.
Speaker A:For the show too, because we know that with the government shutdown, we didn't get the jobs report that we were looking for.
Speaker A:Right.
Speaker B:Oops.
Speaker A:Yeah, they're all deemed.
Speaker A:By the way, I found something out.
Speaker A:So there's roughly about 2, 000 employees at the Bureau of Labor Statistics.
Speaker A:Right.
Speaker A:The BLS.
Speaker A:Okay.
Speaker A:All deemed.
Speaker B:Thousand.
Speaker A: Yeah,: Speaker A:Maybe a little.
Speaker A:Maybe slightly.
Speaker A:Slightly more.
Speaker A:They're all deemed non essential.
Speaker A:But guess what?
Speaker A:Except.
Speaker A:Except for how many.
Speaker B:One.
Speaker B:One person, bro.
Speaker A:So one person is gonna.
Speaker A:It's supposed to be doing the work of everybody.
Speaker A:Like, come on, what's going on?
Speaker A:That guy.
Speaker A:That guy couldn't produce a report in time.
Speaker A:Okay.
Speaker A:He couldn't do it.
Speaker B:Can you imagine getting that phone call?
Speaker B:Well, David, I'm going to need you to produce all the reports.
Speaker B:Yeah.
Speaker A:Think of the office.
Speaker A:Office base.
Speaker A:Yeah, I need you to come in on Saturday.
Speaker A:Yeah, yeah.
Speaker B:Jill still hasn't seen the movie.
Speaker A:Which movie?
Speaker B:Office Space.
Speaker A:Yeah.
Speaker A:Yeah.
Speaker A:No, I haven't seen.
Speaker A:Shame on you.
Speaker B:Shocking.
Speaker A:We haven't had our movie night.
Speaker B:We got to have a movie night.
Speaker B:Hawaiian rib eyes and movies.
Speaker A:Yeah.
Speaker A:Okay.
Speaker A:Anyways, so the.
Speaker A:That.
Speaker A:That report didn't come out, but on Thursday, the.
Speaker A:Prior to that Friday ADP report came out, right.
Speaker A:Showed that we had.
Speaker A:There was 30 some thousand.
Speaker A:32,000 jobs that were lost.
Speaker A:Right.
Speaker A:And they're a little bit more Those.
Speaker A:The private jobs reports that come out are a little bit more on the pessimistic side than the.
Speaker A:The rosy optimism that we get gen normally out of the jobs report.
Speaker B:Right.
Speaker B:Which is kind of wild when you think about it, because the government just had a bunch of employees that took the voluntary resignation or the voluntary retirement about 100,000 ish, if I recall correctly.
Speaker B:And you've got another 100,000 that has been laid off, really, in the last two months.
Speaker B:September, October, it sounds like, from what I've heard.
Speaker B:Right.
Speaker B:So, I mean, just the idea that the jobs aren't meaningfully impacted is crazy right now.
Speaker A:It's crazy.
Speaker A:So in lieu of the jobs report that came out, there's another report that gets quoted, incited a lot, like in.
Speaker A:In this space.
Speaker A:Right.
Speaker A:It's called the Challenger Report.
Speaker A:Okay.
Speaker A:And what they came out and reported was that there's been 946,000 job cuts so far this year, year to date.
Speaker A:Okay.
Speaker A: That's the highest since: Speaker B:All right?
Speaker A:So the highest amount, that's up 55% from last year, which was around 600,000.
Speaker A:Right.
Speaker A:Now they look at responsible parties that are causing these job cuts.
Speaker A:Number one on the list, Doge.
Speaker A:Okay.
Speaker A:Doge, responsible for 3, 300,000 of those job cuts.
Speaker A:Okay.
Speaker A:Next in line was just market conditions at 200,000 job cuts.
Speaker A:I only responsible for 17,000.
Speaker B:Right now.
Speaker A:Right now.
Speaker A:Yeah.
Speaker A:I know we're talking about what's to come, but so far, from what we've seen.
Speaker B:But see, that's the scary part about this whole thing is, is that.
Speaker B:And it makes sense, it actually works.
Speaker B:Let me explain why.
Speaker B:So if Sora 2 just came out and it is a meaningful improvement over SORA1, so much so that it really delivers on the promise of AI image and video creation.
Speaker B:Yeah.
Speaker B:In a way that Sora1 just didn't.
Speaker B:There was flaws, right?
Speaker B:And we all.
Speaker B:You look at something and go, oh, that's AI you legitimately.
Speaker B:And I'm not talking like wildly crazy, articulate, savvy, you know, engineering, like, responses and prompts.
Speaker B:I'm talking like, hey, give me Theo Vaughn giving Michael Jackson a high five.
Speaker B:Yeah, perfect response, bro.
Speaker A:My wife and I had this discussion the other night.
Speaker A:We.
Speaker A:She was searching.
Speaker A:I think we're looking up.
Speaker A:We're trying to work blueberries into the kids diet.
Speaker A:So we want to make them, like, blueberry smoothies in the morning.
Speaker A:Okay.
Speaker B:Okay.
Speaker A:And like, good.
Speaker A:So we just go.
Speaker A:Yeah.
Speaker A:So do I And she finds this video and it's a, it's a reel of like someone making a blueberry smoothie, right?
Speaker A:And I saw him like, nah, AI.
Speaker A:Right?
Speaker A:And she's like, no way, it's real.
Speaker A:And we were debating on whether it was AI or not.
Speaker B:It was.
Speaker A:So I thought it was clearly AI.
Speaker A:She was like, no way.
Speaker A:This is 100 real.
Speaker B:You know, you can run that through AI to tell you if it's air or not, right?
Speaker A:Yeah, I want to.
Speaker A:And that's what I need to know that we need to have a fact checking AI website.
Speaker B:Let me.
Speaker B:Okay, look, that.
Speaker B:This is a hypothetical, bro.
Speaker A:This is, this is the money maker right here.
Speaker B:No, no, no, no.
Speaker B:Hypothetical.
Speaker B:This, this is a business that someone is going to launch from you and I talking right now.
Speaker A:Why are we not doing this ourselves?
Speaker B:Because we can't.
Speaker B:For reasons that have become very obvious very quickly.
Speaker B:Okay, tell me.
Speaker B:Okay.
Speaker B:There was a period of time, allegedly, Rajeel, you and I know nothing about this.
Speaker B:This is all.
Speaker B:Saeed, stop it.
Speaker A:You know, you just don't do this, Christopher.
Speaker A:Don't do this.
Speaker B:We'll pick somebody we don't like.
Speaker A:Yes.
Speaker B:Fridays.
Speaker B:Oh, God.
Speaker B:Cena from Fridays would tell us that he's having a really difficult time because every single social media female influencer would post these pictures of themselves that are curated, usually airbrushed and very, very well polished to their social media page.
Speaker B:And their, their entire page were photos of themselves.
Speaker B:And up until recently you could say, okay, this person's real because they post like stories or there's some unprofessional, like mildly looking like them, like photos of them there.
Speaker B:But you really, you really couldn't.
Speaker B:Could tell between who's AI, who's not AI.
Speaker B:But now these AI models are so damn good, you can literally prompt it in such a way that every girl who's attractive to someone like Cena, not to me, because I haven't seen a girl since I've been married.
Speaker A:I don't know.
Speaker A:Did they exist?
Speaker B:Do they still.
Speaker B:They're around like the yeti, right?
Speaker A:Yeah.
Speaker A:Is that why your eyes are so dilated?
Speaker A:Yeah, yeah, yeah, yeah.
Speaker B:Side, are you there?
Speaker A:It was a punishment.
Speaker B:Yeah.
Speaker B:You need to create a website which automatically looks at videos and pictures and can tell you whether that's AI or.
Speaker A:A real person that needs to exist.
Speaker B:It needs to exist.
Speaker A:Yeah.
Speaker B:You need to be able to.
Speaker B:The same way you have like plagiarism stuff for learning language models, which is mildly effective.
Speaker B:It's not 100% right.
Speaker B:You need to have.
Speaker B:You need to have ways of doing that.
Speaker B:Or conversely, there's just no more anonymity on social media.
Speaker B:Right.
Speaker B:Anonymity on social media.
Speaker B:And like, media in general, it needs to go away.
Speaker A:Like, I feel like that's something that a government body or a governing body, I should say, that is someday going to be implemented, that needs to be put in place where there's like a watermark or something on the.
Speaker A:On the material where you have to disclose that this AI.
Speaker A:Because there was that stretch, I think it was like two years ago.
Speaker A:Something had happened where it broke the news and then the markets quickly reacted to it, thinking that it was real.
Speaker A:I can't remember.
Speaker A:It was some, like, geopolitical event.
Speaker A:Oh, yeah.
Speaker A:And within it took a couple hours for everyone to recognize that it wasn't real.
Speaker A:And then the market stabilized again.
Speaker A:But you're like, anybody can make that.
Speaker A:Oh, yeah, Anything could go viral.
Speaker B:Well, here's the worst part about now.
Speaker B:You're thinking about it in the context, something like that.
Speaker B:But I think about in the context of the government.
Speaker B:Right.
Speaker B:Aliens could come down right now.
Speaker B:Right?
Speaker A:Yeah.
Speaker B:I don't believe you.
Speaker B:I don't believe you.
Speaker B:Yeah, right.
Speaker B:And they can come out and be like, it's AI.
Speaker B:Yeah.
Speaker A:Not real.
Speaker B:It's not real.
Speaker B:So, yeah, sensational AI, especially that killing of humans thing.
Speaker B:But not real.
Speaker A:Yeah, yeah, yeah.
Speaker B:Not real.
Speaker B:Yeah, yeah.
Speaker B:This is Michael Jackson.
Speaker A:Everyone's doing it with Michael Jackson.
Speaker A:Right.
Speaker A:I see Michael Jackson and Kobe a lot.
Speaker B:Because you can literally say, because these are people with such.
Speaker B:The SORA tag comes up.
Speaker B:I could.
Speaker B:But then I get written up and I like this job.
Speaker B:Yeah, that's crazy.
Speaker A:That is.
Speaker B:But there's enough media out there in video, in film and audio of him to where you can prompt AI and it can pull from that and get somebody with mannerisms, sound, movement, I mean, just everything right on point.
Speaker B:And this becomes a huge, huge problem.
Speaker B:And let's quote somebody smarter than the three of us, Ray Dalio.
Speaker A:Oh, Bridgewater.
Speaker B:Yeah.
Speaker B:Which we're going to get into here shortly.
Speaker B:Being early and right is not the same as being right.
Speaker B:Timing matters enormously.
Speaker B:Yeah.
Speaker B:Okay, so to your point, not a lot of the jobs that have been taken away have been AI.
Speaker B:That's because the timing hasn't been right for that yet.
Speaker B:But we are quickly approaching that.
Speaker B:If you are an animator in Hollywood.
Speaker A:That's what I was going to say.
Speaker A:So let's talk about what.
Speaker A:What jobs.
Speaker A:What jobs do you see being impacted, like, on the front line first, obviously, Creators, the creator space.
Speaker A:Right.
Speaker A:Animations.
Speaker B:Animation.
Speaker B:Yeah, creators.
Speaker B:But here's where it starts to get meaningful.
Speaker B:Everybody who outsourced cheap labor to India.
Speaker A:Yeah.
Speaker B:Those jobs are gone.
Speaker A:Done.
Speaker B:Yeah, gone.
Speaker B:If you're in a call center, you cannot respond as fast or as effectively as well.
Speaker B:Coded AI, if that in the way this works I think I talked about in a previous show is you start with there's.
Speaker B:There's kind of a rollout process.
Speaker A:Right.
Speaker B:Process.
Speaker B:Number one, you got to have the data.
Speaker B:You got to have the data warehouse, you got to have the information.
Speaker B:And companies have been stockpiling data for decades.
Speaker A:Yeah.
Speaker A:And if you haven't been your.
Speaker A:So yeah.
Speaker B:Number two, you got to have a model and you got to train it.
Speaker B:Well, that is where most these companies are at right now.
Speaker B:They have the data, they've been saving it for other reasons and reporting information, especially their publicly traded companies for decades.
Speaker B:So that's there.
Speaker B:Most of them have data warehouses where they can easily access this data.
Speaker B:Right.
Speaker B:So that in and of itself is kind of a non event.
Speaker B:So number two, the models, these models have rolled out and now sort to great example of how good the models are getting.
Speaker B:These models at some point will be internal to JP Morgan, to Bank of America, to Apple for example.
Speaker A:Yeah.
Speaker B:Apple's already actually probably.
Speaker A:Or meta.
Speaker B:Meta.
Speaker B:Yeah.
Speaker B:They're going to have their own AI.
Speaker B:I mean they have Rocket X.
Speaker B:Right?
Speaker A:Yeah.
Speaker B:And those models are going to continue to train.
Speaker B:Continue to train, continue to train.
Speaker B:And they're going to wind up being like Sora.
Speaker B:Where they come out in every single release is revolutionary.
Speaker B:Right?
Speaker A:Yeah.
Speaker B:The next thing for Sora is longer videos.
Speaker B:You're gonna be able to make full movies.
Speaker B:I mean, think about a movie in the context of a movie.
Speaker B:Right?
Speaker B:Yeah.
Speaker B:The Tilly Norwood girl.
Speaker B:This is the first AI actress making very real Hollywood movies.
Speaker B:She's already been signed and stuff and she looks like a normal girl.
Speaker A:Oh, you, you're referring to her like a normal Glenn?
Speaker A:I'm like, what are you talking about?
Speaker B:Yeah, they gave her a name, she had an identity.
Speaker B:But if you're, if you're a Hollywood, you know, major movie house, this person's never going to be committed for some of assault or saying something stupid.
Speaker B:They're never gonna.
Speaker B:Unless there's some kind of weird cliche faux pas.
Speaker B:They're not going to be out there, you know, like Johnny Depp and Amber Heard.
Speaker B:That's just not a risk for you.
Speaker B:And if you want a safe bet this person is not going to get fat over time.
Speaker B:They're not going to retire.
Speaker A:Yeah.
Speaker A:They're not going to age.
Speaker B:They're not going to age.
Speaker B:So now you have this perpetuity and they're not going to show up late to the job site.
Speaker B:I mean, you start walking through some of this stuff now the question is, how do other people interact with this model?
Speaker B:Who knows?
Speaker B:At some point you won't need them.
Speaker A:Yeah, but there is that element that.
Speaker A:Okay, so I do see how this is going to evolve and it's going to take over and it's going to be a big, it's going to be a change and a big part of how we consume like entertainment moving forward.
Speaker A:Right.
Speaker A:But there's gonna, I feel like it's also gonna propel like live events even more for people that want, still want that.
Speaker A:Like you're still the people that want to go to like a comedy show or a concert to, you know, just get that nostalgia.
Speaker A:Right, but that's just your, but to your, your point, we've actually talked about this before.
Speaker A:That's one generation away from being removed now.
Speaker B:Well, and Gary Ve's talking about how Generate Gen Alpha wants everybody to have like more personalized, tactile experiences with one another.
Speaker B:Like they're like walkers who walk with people and have conversations are now like a paid service.
Speaker B:I would do that all day long.
Speaker A:I'm down.
Speaker B:Let's go.
Speaker A:Give me how many people at once.
Speaker A:Yeah, let's go.
Speaker B:Wow.
Speaker B:You leave it alone.
Speaker A:Some jokes are meant for you and I only.
Speaker B:That's a clip.
Speaker B:Mark that down rail.
Speaker B:There you go.
Speaker B:Saeed goes full bly blue.
Speaker B:That's your caption.
Speaker B:And again, I still don't know who that person is.
Speaker A:What's on the forefront of your mind though?
Speaker B:Yeah, forefront.
Speaker B:And the AI.
Speaker B:It's the AI image you were talking about.
Speaker B:Right, right, Videos.
Speaker B:So these three worlds that we're going to talk about tonight are important because like we've been joking and.
Speaker B:Sorry, you follow the money.
Speaker B:That's how you know how this, this is where the jobs go.
Speaker B:This is where the AI implementation goes.
Speaker B:And to finish up, my thought from earlier, just to be clear, you have the data, you have the model, then you have the commitment to rolling out that model.
Speaker B:The commitment to rolling out that model comes from the money.
Speaker B:And that's what we're going to talk about right now.
Speaker A:Yeah.
Speaker A:Yeah.
Speaker B:Okay.
Speaker B:The three worlds that we all hear about all the time and often confuse, venture capital, private equity and hedge funds, these are not all the same thing.
Speaker B:And we're going to clarify what they are, and I would call the not most elegant or eloquent way, but we're going to make this very clear so everybody sitting here listening can understand what these are.
Speaker B:They used to operate in different corners of the market, but cheap money blurred these lines, okay, so where everybody's kind of bleeding in everybody else's territory because money got so cheap.
Speaker B:We lived through 14 years of artificial interest rate deflation.
Speaker B:One of the lowest interest rate environments in American history, frankly, in world history, for that matter.
Speaker B:They all feasted on the same easy credit, the same Fed driven liquidity again, the Fed drove tons of liquidity in the markets.
Speaker B:And that's where the risk really starts to pile up.
Speaker B:And what we're seeing right now is the byproduct of that.
Speaker B:And just to let you know that this is not just my entire like philosophy here, this is driven by other tertiary factors outside of these things.
Speaker B:Gold at an all time high, okay, that has happened leading into almost every single damn recessionary economy.
Speaker B:That is a meaningful thing.
Speaker B:Silver, near unbelievable highs right now.
Speaker B:Cryptocurrency also high.
Speaker B:One of the things I found out really interesting today, if bitcoin hit a million million dollars per coin, it would still be one tenth of the value still in gold.
Speaker B:So I don't think it's going to supplant gold.
Speaker B:But for those of you who are uninitiated, the oldest rumored hedge against inflation was always gold.
Speaker B:So anytime you see people worried about inflation in the economy, yeah, the value.
Speaker A:Of the dollar going down, okay?
Speaker B:And now the dollars drop down super low.
Speaker B:So there are macroeconomic tertiary things in these fringes which suggest that my quote, doom speech that I'm giving people because is it going to be somebody on social media saying, chris, you're just trying to sell the doom like every social media influencer.
Speaker B:Yes, but we're not getting growth from it.
Speaker B:So I'm backing with facts.
Speaker B:Private equity is entire business model.
Speaker B:Their entire business model in private equity, okay, depends on cheap leverage and easy exits.
Speaker B:Two things that don't exist anymore.
Speaker B:Asterisk here for those of you listening to the show.
Speaker A:Why though?
Speaker B:We're going to explain that.
Speaker B:We'll unpack it.
Speaker B:I have had a recent frustration with private equity.
Speaker B:These are not my personal feelings.
Speaker B:I had these feelings independent of this.
Speaker B:But full disclosure, I am a little salty from a private equity experience in my recent not too distant past.
Speaker B:But this is not to knock all private equity.
Speaker B:This is to say that there is a problem that is pervasive in their business which needs to be addressed and we're going to address it right now.
Speaker B:Rates are higher today.
Speaker B:Okay.
Speaker B:Buyers have vanished today.
Speaker B:Okay.
Speaker B:And the IPO window is basically welded shut right now.
Speaker B:M and A activity has come to a crawl.
Speaker B:I think it's going to come back in the banking sector in the next couple of months, in years, because I think the people are looking at this as their opportunity to exit what would otherwise be troubled situations because they don't be in it long term.
Speaker B:All right, so let's start with the easiest one.
Speaker B:Venture capital.
Speaker A:Yeah, let's do it.
Speaker B:Venture capital is startup whisperers, if you will.
Speaker B:And I gave everybody a cute little name who place early bets on companies to be big names.
Speaker B:They're going to create new markets.
Speaker B:Think Uber, think Lyft.
Speaker B:Right.
Speaker B:They put money in when these things had no multiple, no established business that even mirrored this.
Speaker B:And they knew they were going to, quote, disrupt the space.
Speaker A:Yep.
Speaker B:Yeah.
Speaker B:Right.
Speaker B:Not really betting on the business.
Speaker B:They're betting on the concept and the pedigree and versatility of the founders.
Speaker A:Yeah, it's.
Speaker A:That's a good point.
Speaker A:And they do multiple rounds, Right.
Speaker A:They call them seeds.
Speaker A:Right.
Speaker A:So A, B, C. And then you seed abc.
Speaker A:Yeah, seed A, seed B, C. And typically the investors that come in during that time are gaining ownership.
Speaker B:That's right.
Speaker B:And hence equity.
Speaker A:Right, yeah.
Speaker B:So VC firms are really early stage money, like say noted here, but they invest in startups, in high growth, young companies that are usually unprofitable or losing money and have big upside potential.
Speaker B:There's a classic cliche joke from a couple, well, one television show in particular, Silicon Valley.
Speaker A:Okay.
Speaker B:Where.
Speaker A:Which I've been told by a lot of people, like, I need to watch this.
Speaker B:It's really good show.
Speaker A:Is it too late, though?
Speaker B:No, not at all.
Speaker A:Okay.
Speaker B:Yeah.
Speaker B:I mean, there was still a bit of a venture capital.
Speaker B:There was more venture capital.
Speaker B:Sexy like sensationalism back then, but it still applies today.
Speaker B:Okay, but one of the really well known venture capitalist, very successful guy, comes in and he's talking to this young budding entrepreneur about his company.
Speaker B:He put money in and he goes, well, yeah, we want to, we want to start going public and make money.
Speaker B:And he goes, no, no.
Speaker B:Why would you do that?
Speaker A:I want to make money.
Speaker A:Yeah.
Speaker B:And he goes, well, isn't the point of a company to make money?
Speaker B:And he goes, no, it's not.
Speaker B:No, it's not.
Speaker B:The point of your company is to build a bus.
Speaker A:Yeah, yeah, yeah, yeah.
Speaker B:To build the future.
Speaker A:Sell the dream.
Speaker B:Sell the dream.
Speaker B:That's how you get the big valuation, baby.
Speaker B:That's true.
Speaker B:Bigger the dream, the more money you can get.
Speaker B:Once you start making money, you're not making enough money.
Speaker A:Yeah.
Speaker A:And these venture capitalists, they're really smart and clever by, okay, not getting all of their investments through like one set of investors.
Speaker A:Right.
Speaker A:They like to spread it out to where you have mo, all these big players investing.
Speaker A:And then when so many people are investing, guess what they're not going to let happen.
Speaker A:They're not going to let it fail.
Speaker A:They're going to find a way they.
Speaker B:Can easily go back to them and say, hey, we need more money.
Speaker B:Keep to keep growing this.
Speaker A:Yeah.
Speaker B:And when you think about that, the early pre profit models, Tesla, right.
Speaker B:Tesla was running out of economic loss for a long period of time.
Speaker B:But people believe so fundamentally that their technology was going to change the world that it built almost like a cult like movement.
Speaker A:And if you're venture capital, it wasn't Amazon too.
Speaker A:Amazon's famous was a bookstore.
Speaker A:Yeah, Amazon was a bookstore and famously never turning over a profit, yet somehow just growing and growing.
Speaker B:That's right.
Speaker A:And growing.
Speaker B:You want something that's going to change the paradigm.
Speaker B:And right now, in order to change the paradigm, in order to sell the sexy to venture capital, two letters got to be associated with your kickoff.
Speaker A:Oh, AI.
Speaker B:AI.
Speaker A:Yeah.
Speaker B:And that's where if you came to and said, hey, I want to start a financial services company, then I go, oh, really?
Speaker B:That's cool.
Speaker B:How is AI going to be implemented in that company?
Speaker A:Yeah, yeah, right.
Speaker B:That's legitimately how these conversations go.
Speaker B:So I've broken these sections out for each one of these in the, the way the companies think.
Speaker B:Um, we're going to talk a little bit about just their overall perspective.
Speaker B:Then we're talking about the major firms and the major individuals in the firms.
Speaker B:Because these guys are all across the board, private equity, venture capital, you know, they're all celebrities now.
Speaker B:So we want to tell you who the names you've heard of are and where they play.
Speaker A:Oh, there you go.
Speaker B:So for venture capital in particular, think we're betting on the next Tesla before it's Tesla, hence the model, the reference that I use here, the goal, find the next breakout success and 10x to 100x your money.
Speaker B:So that's the kind of profit windows they're talking about.
Speaker B:And they're taking that in the form of equity, usually vis a vis an ipo and they're selling their public stock.
Speaker B:They'll sell off some, you know, pay the, you know, debt off, whatever they might do with it and then they'll keep some of it there to watch it grow if they believe in it over time.
Speaker B:And they usually do because it's usually a paradigm shifting model.
Speaker B:The risk.
Speaker B:Most startups fail, so you're swinging for home runs knowing you'll strike out a lot.
Speaker B:And a lot of venture capital backed companies do fail.
Speaker A:Yeah, they do.
Speaker A:And I was speaking over the weekend to someone who's distantly related and they're a software engineer for like a startup company and they've been going at it for years now.
Speaker B:And a lot of those startup engineer companies also get stock in form of payment.
Speaker A:So that's where I was going.
Speaker A:And the thought process was, okay, this thing is going to blossom in and boom.
Speaker B:Right.
Speaker A:And they were just recently all diluted down.
Speaker B:Yeah, that's the problem is if you have to raise more capital, you have to do unless you set up your capital stack where you have extra stock.
Speaker A:So maybe, maybe, maybe we just quickly go over that for people that are looking for jobs like that.
Speaker A:Like, because I know for some people it's a risk.
Speaker A:They, they say, okay, I'm coming out of college, I don't have a family, I have this degree, let me take my shot.
Speaker B:So what you do is you work for less money in the form of monthly payments, but what you get is you get stock and that stock can be meaningful.
Speaker B:A great example of this is I had friends who were at early Robin Hood were for Vlad and Bijou.
Speaker B:And they got, you know, modest salaries to start with.
Speaker B:They work in that old Architectural Digest building right across from one Hacker way up there and down the street from it, I should say.
Speaker B:And they made a good amount of money because they're, I think their original offerings were like sub $5 a share or something.
Speaker B:They were, they were pretty low and actually maybe even lower than that depending on what stage they joined.
Speaker B:So yeah, and what they did is they waited to the company, got public and then they left and moved on to different jobs at that point in time that paid them more money.
Speaker B:And they also have the name cache of having been there.
Speaker A:Yeah.
Speaker B:And they use that on the resumes because in Silicon Valley it's all about the name cachet.
Speaker B:You'll see people, how can you come.
Speaker A:In what you create over there?
Speaker A:How can you come help us create it over here?
Speaker B:Yeah.
Speaker B:And you're used to that ecosystem, that, that working lifestyle and culture because startup is also a lot of different hats you're wearing.
Speaker A:Right.
Speaker B:You're not going to get a role and Be like, all right, I'm head of hr.
Speaker A:Right.
Speaker A:But then if you do so.
Speaker A:But then a venture capital comes in, or not even venture capital, but some investors come in where they have to raise more capital like that.
Speaker A:Right.
Speaker B:You'll get diluted down.
Speaker B:So basically what they do is they take like, for example, it's not uncommon to say, okay, we're going to dilute you down like a 2 for 1 stock split, where every stock, that piece of stock that you own is now two, but they're worth less.
Speaker A:Yeah.
Speaker B:Right.
Speaker B:So.
Speaker B:And that becomes dilution, effectively, and I'm paraphrasing a much more complicated financial process here.
Speaker B:There's only two ways you exit venture capital.
Speaker B:It's either IPO or you sell a company.
Speaker B:Right.
Speaker B:That's the successful exits, generally speaking.
Speaker B:And there's obviously a third exit, which is the company just doesn't work out.
Speaker B:Yeah.
Speaker B:You lose your money.
Speaker B:So VC is basically speculative optimism with the term sheet, the art of gambling on innovation.
Speaker B:In my experience.
Speaker B:And this is my talking here, not.
Speaker B:Not the notes.
Speaker B:This usually has more to do with founder pedigree and sponsorship than it does the actual conceptual idea.
Speaker B:Right.
Speaker B:Which is also why the guy who started WeWork, you know, had money from SoftBank, didn't work out.
Speaker B:WeWork had its issues, but yet venture capital's backing them again.
Speaker B:Yeah.
Speaker B:On his next multifamily project.
Speaker B:They believe in his pedigree.
Speaker A:They believe in him.
Speaker B:Which is crazy when you think about it like, this guy just shafted us for tens of millions of dollars.
Speaker B:And they're like, you know what?
Speaker B:It wasn't him.
Speaker B:It was a marketer.
Speaker B:I was this and that.
Speaker B:And that happens.
Speaker B:Yeah.
Speaker A:When stuff like that happens, my ears perk up and I'm like, oh, there's.
Speaker A:Where there's smoke, there's fire, there's something.
Speaker A:There's another story there.
Speaker B:Oh, yeah, 100.
Speaker A:There's something else going on there because people don't like.
Speaker A:Unless you're.
Speaker A:Yeah, I'll.
Speaker A:I'll leave it alone.
Speaker B:Yeah, let's not get us canceled yet.
Speaker B:Yeah, let's get wealthy first.
Speaker A:Yeah, There you go.
Speaker B:Yeah.
Speaker B:All right.
Speaker B:Sequoia Capital, they backed Apple, Google, Airbnb, and WhatsApp.
Speaker B:Tough life.
Speaker B:I think they made some cash.
Speaker B:Andreessen Horowitz.
Speaker B:Also a 16Z, depending on how you see the name.
Speaker B:Display Blade.
Speaker B:Early investors in Facebook, Coinbase and OpenAI.
Speaker B:They're not doing so well, are they?
Speaker B:Benchmark helped scale.
Speaker B:Uber, eBay and Twitter.
Speaker B:Kleiner Perkins, legendary in Silicon Valley, early Google and Amazon, backer And.
Speaker B:Well, let's just talk about some people.
Speaker B:Mark Andreessen and Ben Horowitz from Andreessen Horowitz, founders of the company, outspoken tech visionaries.
Speaker B:You hear about them all the time in the news, often interviewed.
Speaker B:Right.
Speaker B:Peter Thiel, co founder of PayPal, early investor in Facebook.
Speaker B:He's a venture capital guy.
Speaker A:So how did these.
Speaker A:So is this one of those things where it's like not a boys club but where you get invited into.
Speaker B:Oh, it's a boys club.
Speaker A:Yeah.
Speaker A:And you get invited into these like early stages.
Speaker A:And because you're invited early, you better prove up because, yeah, this, even if this one doesn't hit, you know we're going to put you on something later.
Speaker B:That will hit you get into the network.
Speaker B:Right?
Speaker A:Yeah.
Speaker B:Peter Thiel has a close relationship to like Y Combinator, which is kind of like a think tank for these young VC companies and founders.
Speaker B:So founders will go through Y Combinator, which is a program literally designed in Silicon Valley to push these early stage creators through with ideas.
Speaker B:You submit your idea, you submit some information about yourself.
Speaker B:And it's kind of this rigorous process.
Speaker B:They look a lot for like Stanford grads or people who dropped out of schools in particular, because those are usually your founders, think Mark Zuckerberg for example.
Speaker B:And they have this profile they look for and they know what these founders, the qualities they have and they kind of farm them through the system and then you get to pitch your idea to major VC firms in.
Speaker B:As part of this program, Y Combinator.
Speaker B:Peter Thiel got in a lot of trouble with some of his comments around Silicon Valley bank, who also banked a lot of the VC firms.
Speaker A:Yeah.
Speaker A:Who arguably it could be argued that maybe sparked the contagion period.
Speaker B:No, he did not argued.
Speaker B:He did.
Speaker B:Yeah, write that down.
Speaker B:So there's a couple of people here, but let's move on to hedge funds, shall we?
Speaker B:Hedge funds are another sexy term now, you know, venture capital gets in early stage and they want to seek out that big sexy, you know, win.
Speaker B:They're hitting, they're hitting the home runs.
Speaker B:Well, hedge funds are market magicians, as I like to call them.
Speaker B:That's my term of endearment for this one.
Speaker B:Or the traders, quants and macro thinkers that thrive on volatility.
Speaker B:Anytime you hear somebody go, my quant, this is my quant, quant, hedge fund.
Speaker A:Okay, okay.
Speaker B:And the reason why hedge funds here are quantitative is they're looking at the liquidity in, in the markets, they're looking at trends, they're looking at data and Ray Dalio fits into this category.
Speaker B:For example, spoiler alert there.
Speaker B:They pull capital from wealthy investors or institutions to trade public assets, stocks, bonds and currencies, derivatives, whatever they might want to do, using complex strategies designed to profit in any market condition.
Speaker B:And I use the word any here loosely.
Speaker B:They're supposed to, whether they actually do or not, you know, bit of a question mark.
Speaker B:So the goal is to generate consistent returns while hedging against market risk.
Speaker B:Hence hedge funds.
Speaker B:Right, right.
Speaker B:Hedging against the losses at all times.
Speaker A:There's, I guess, more of a strategy at play that they probably like to implement and.
Speaker A:But are.
Speaker A:Can individuals go and invest into hedge funds?
Speaker B:You can, but you don't have the scales of economy that a larger hedge fund does.
Speaker B:You don't have the technology, the infrastructure.
Speaker B:Unless you are, in and of itself, a sophisticated quant who could make tens of millions of dollars working for one of these companies, then I would suggest against it.
Speaker B:Yeah, it's not.
Speaker B:Keep in mind, hedge funds can trade billions of dollars and make pennies on certain trades and make tons of returns, whereas you don't have that same lever.
Speaker B:All that they do.
Speaker B:Yeah, yeah, writing.
Speaker B:And so many of these have private returns that you don't even really know like the full extent of what they get.
Speaker A:Right.
Speaker A:Because they're not obligated to disclose it.
Speaker B:They don't have an obligation to disclose it.
Speaker B:They're private companies.
Speaker B:They can do whatever the hell they want.
Speaker B:I mean, it's the wild, wild west.
Speaker B:But these guys return major money.
Speaker B:Right.
Speaker B:So they leverage and they like exotic trades that can blow up speculatively when.
Speaker B:When bets go wrong.
Speaker B:But they usually hedge against them.
Speaker B:So investors can usually redeem shares periodically.
Speaker B:Unlike private equity venture capital's long term lockups, hedge funds, you can generally get out at certain points of time and liquidate your investment, depending on who's running it.
Speaker B:Ray Dalio is a little bit different with how he does this.
Speaker B:Hedge funds are Wall Street's high stakes poker rooms.
Speaker B:Hence you've seen some of these books which talk about high stakes poker, that some of these guys play together.
Speaker B:That's where this literally comes from.
Speaker B:It's because that's considered what they actually do is they're gambling in that way.
Speaker B:Sophisticated, secretive.
Speaker B:Sophisticated, secretive and often playing both sides of the table.
Speaker B:That's why.
Speaker B:What's the book?
Speaker B:Is it called Liars Poker?
Speaker B:What's the name of the book?
Speaker B:I read the book too.
Speaker B:I should.
Speaker B:I should know the name.
Speaker A:Brigitte.
Speaker A:Got you.
Speaker A:But I was looking this up right now because I Remember seeing this on social media one day?
Speaker A:The CEO of Blackstone and how much.
Speaker A:How much they made him?
Speaker A:What you made last year, 20, 24.
Speaker A:$84 million salary.
Speaker A:In addition, from his ownership stake, he received 916 million in dividends.
Speaker B:Yeah.
Speaker B:Yeah, it's pretty wild.
Speaker A:One year, 916 million in dividends.
Speaker B:In just dividends alone.
Speaker A:Yeah.
Speaker A:Guess what he does with those?
Speaker A:He reinvests them.
Speaker A:Yeah, I would.
Speaker B:You're making enough money.
Speaker B:You don't need to worry about paying tax on those.
Speaker A:It's.
Speaker A:Put it back in there.
Speaker B:Let it.
Speaker A:Let it compound.
Speaker B:Put that in the chest.
Speaker B:I'll get back to it later on.
Speaker B:That's not it.
Speaker B:Type in poker.
Speaker B:Hedge fund book.
Speaker A:I thought he was gonna type in.
Speaker A:Poke her.
Speaker B:You can't get away from the connotation of the show.
Speaker B:I try to come up.
Speaker A:You say poker head.
Speaker A:Poker.
Speaker A:Hedge fund liars.
Speaker B:Poker is liars poker.
Speaker A:That's what it is.
Speaker A:Yeah, I don't think that's it.
Speaker A:Michael Lewis is a nonfiction semi autobiographical book by Michael Lewis describing the author's experience as a bond salesman on Wall Street.
Speaker A:Maybe.
Speaker A:Maybe you're.
Speaker A:You're mixing a couple of.
Speaker A:Anyways, what was it that you were trying to get at?
Speaker B:There is a known poker tournament that a lot of these hedge fund guys play in together, and they.
Speaker B:They constantly.
Speaker A:The World Series of Poker.
Speaker B:No, no, no.
Speaker B:Like private parties.
Speaker B:Like invite only, kind of.
Speaker A:Oh, the ones that Jerry Buss used to go to.
Speaker B:Yeah, that's right.
Speaker B:Where you got to have big dollars from the table.
Speaker B:And they enjoy it.
Speaker B:So, major firms in this space.
Speaker B:Bridgewater Associates, the world's largest hedge fund, founded by the one and only Ray Dalio.
Speaker B:Citadel, founded by Ken Griffin, dominates both trading and market making.
Speaker B:Renaissance technology uses algorithms to trade.
Speaker B:Famous for insane returns.
Speaker B:Elliott Management is also one of these things.
Speaker B:Names you probably have all heard.
Speaker B:Millennium Management.
Speaker B:Notable people, obviously.
Speaker B:Ray Dalio from Bridgewater Principles.
Speaker B:Sensational book.
Speaker B:I recommend it.
Speaker B:It is big.
Speaker B:So it's an audiobook in my mind, but whatever.
Speaker B:He also is often quoted on macroeconomic worldviews.
Speaker B:Ken Griffin over at Citadel.
Speaker B:Billionaire trading genius and art collector.
Speaker B:Big in the art world.
Speaker B:But when you're worth billions, I mean.
Speaker A:I mean that.
Speaker A:The art world's also kind of scammy.
Speaker B:Bro, I'm not gonna touch that.
Speaker B:I'm not gonna touch that.
Speaker B:We've got enough scammer problems, okay?
Speaker B:Okay.
Speaker B:Guru.
Speaker B:Guru club.
Speaker B:Jim Simmons, Renaissance.
Speaker B:Renaissance technology mathematician who turned quant investing into gold.
Speaker B:There's.
Speaker B:There's a similarity here of the Mindsets of people.
Speaker A:Yeah.
Speaker B:The really sophisticated mathematicians, engineers, science based individuals.
Speaker A:Master chess players.
Speaker B:Yeah.
Speaker B:Some master chess players are also in private equity as well because the strategy aspect of it.
Speaker B:But largely into hedge funds.
Speaker A:Right.
Speaker B:So the nerds are in hedge funds.
Speaker B:Bill Ackman, Pershing Square is also an activist investor, media savvy and very opinionated.
Speaker B:You see him all the time on, on the news and, and media, non traditional media.
Speaker B:He's, he's also a hedge fund investor.
Speaker B:And last but certainly not least, private equity folks, empire builders who buy companies, restructure them in attempt to flip them for massive gains.
Speaker B:And therein lies the problem.
Speaker B:Private equity is the mature company money.
Speaker B:Right.
Speaker B:You're not buying the startup company.
Speaker B:Yeah.
Speaker B:Like venture capital.
Speaker A:Buy something that's already been established.
Speaker B:Yeah.
Speaker B:You're not playing the markets and moving stock.
Speaker B:You know, from a mathematic algorithmic perspective like on hedge funds do.
Speaker B:Right.
Speaker B:Private equity.
Speaker B:You're, you're buying the mature company and you're going to try to flip it or turn it or make it better in some way, shape or form.
Speaker B:Except there is a problem that we're going to talk about later on with this entire model today.
Speaker A:So I mean how is it, are any of these viewed negatively by outside investors?
Speaker A:So like okay, if, if, if people.
Speaker B:So you're baiting me right now.
Speaker B:I know what you're doing.
Speaker A:No, no, no, no.
Speaker A:We're not doing that.
Speaker A:We're not, we're not going to go down that path.
Speaker A:But just in general like high level stuff.
Speaker A:Right.
Speaker A:Okay.
Speaker A:Obviously private equity, Venture venture.
Speaker A:Venture capitalism.
Speaker A:Necessary evil.
Speaker A:Right.
Speaker A:I mean for some of these companies where you're, you, no company's going to.
Speaker B:Have that much capital.
Speaker B:Give the young kid that kind of money.
Speaker A:Right, Exactly.
Speaker B:Right.
Speaker A:And hedge fund, I, I mean you could argue is very strategic.
Speaker A:Right.
Speaker B:I mean people really don't like hedge funds because they, they're so big now and their trade on algorithms that they could manipulate the market in a meaningful way by trading with algorithms.
Speaker B:Right.
Speaker B:They could trade, the algorithm could trade up or down in the market and really impact it.
Speaker B:So they're not.
Speaker B:No one's innocent here.
Speaker B:But I think the most demonized certainly is private equity.
Speaker A:Okay.
Speaker A:And it just makes people I guess a little bit more fearful of like what.
Speaker A:Because if the, their investments.
Speaker A:Right.
Speaker A:It's not always a, a quick flip something.
Speaker A:It's like a five, ten year horizon.
Speaker B:Right?
Speaker B:No, sometimes it's quicker.
Speaker A:Sometimes it is quicker but I mean it's not, it's not uncommon for it to be like a 5, 10 year horizon.
Speaker B:The problem with private equity is in order to do this, they typically look at streamlining people.
Speaker B:So people lose jobs.
Speaker B:They typically look at scales of efficiency.
Speaker B:Because there's two ways to make money in a company, right?
Speaker B:Spend less and make more.
Speaker B:They want to do both, which usually means less people trying to make more money.
Speaker B:And that's just strain.
Speaker B:Like, that's just a cocktail for.
Speaker B:For difficulty for everybody.
Speaker B:And usually culture suffers as a result of that.
Speaker B:And that's the rhetoric that you hear from most people who deal with private equity.
Speaker B:And frankly, if I'm being candid, has been my experience.
Speaker B:Right.
Speaker B:That's not a knock on them.
Speaker B:I mean, it's a business like any other business.
Speaker B:And like, people hate bankers, I'm a banker.
Speaker B:People hate attorneys, I'm an attorney.
Speaker B:So I'm kind of a douche for myself.
Speaker A:People hate podcasters, I hate you.
Speaker B:Thank you for that.
Speaker B:It's very helpful.
Speaker B:All right.
Speaker B:All right, so PE firms buy established, often struggling or undervalued companies, improve their operations, load them with debt, AKA leverage, because they can, and try to sell them later for a big profit.
Speaker A:So is that.
Speaker A:Is it really only when companies are struggling or they're going through hard times?
Speaker B:That is when the companies are usually weakened enough to make this otherwise savory path.
Speaker A:Otherwise, why would you.
Speaker B:Otherwise you really wouldn't.
Speaker B:You would go to the private debt markets and just raise capital some other way.
Speaker B:You would take on your own leverage and not use them to help get you leverage.
Speaker A:Makes sense.
Speaker A:Yeah.
Speaker B:So PE firms, well, they're special.
Speaker B:Their goal is to boost efficiency, cut cost, increase cash flow, and sell for more than they bought it for.
Speaker B:If you buy it for $5 and you sell for 6, you win.
Speaker B:But if you buy $5 and you sell for 15, you really win.
Speaker B:And that's the simple logic here.
Speaker B:Yeah, nothing really wild.
Speaker B:So if you're looking for like a roadmap for PE returns, I would say different companies have different returns and people have different goals.
Speaker B:But generally 3x at a minimum, in my experience has been where a successful trade would be.
Speaker B:Got it.
Speaker B:Right.
Speaker B:But again, it depends on the size of the trade and how big things are going.
Speaker B:So this is a heavy debt risk.
Speaker B:Rising interest rate environment like we're in right now doesn't help.
Speaker B:Right, because debt was cheaper just a couple of years ago.
Speaker B:Now it's 2x the cost, if not more, and going up.
Speaker B:Bad management can wipe out returns super fast if you bet on the wrong pony to run your show.
Speaker B:Because again, Private equity doesn't come in and run the show.
Speaker B:They usually sit on the board, have board seats, and they put in new leadership.
Speaker A:Got it.
Speaker B:So if that leadership is chosen wrong, that could tank the investment.
Speaker B:And the problem that private equity typically faces at that particular juncture is we can't wipe out the management a second time and put in new management.
Speaker A:But then why wouldn't they, why wouldn't they just be controlling?
Speaker A:I guess if they're, if they're investing into whatever company that they're investing in, then they must feel like they have a good understanding of that business model and what needs to be done.
Speaker A:So isn't it really just.
Speaker B:It's a self fulfilling prophecy.
Speaker A:Yeah.
Speaker B:Right.
Speaker B:You need my money, Saeed?
Speaker A:Yes, I do.
Speaker B:Then you mismanage the company.
Speaker A:Oh, I see.
Speaker B:And even if you didn't, and this is, this is how petty the world is, okay.
Speaker B:Even if you didn't mismanage the company, even if it's the no fault of your own, okay.
Speaker B:The market will react better if I put somebody else in the helmet instead of you because it'll look like, yeah, I'm making changes to the outside world.
Speaker A:Because I know something and I'm.
Speaker A:I'm fixing a problem.
Speaker B:Yep.
Speaker A:Yeah.
Speaker B:Even if, even if you're in sensational.
Speaker B:Yeah, I'm gonna bet on somebody else.
Speaker B:And that change.
Speaker A:They need that headline, that storyline.
Speaker B:Storyline is storyline.
Speaker B:We made improvements.
Speaker B:Look, there's a new guy at the top.
Speaker A:Back to what we said in the beginning with VCs, right?
Speaker A:It's like you're selling a dream.
Speaker B:That's right.
Speaker B:So there's a playbook in every industry that you've seen this play out.
Speaker B:With private equity, there's almost always a leadership swap.
Speaker B:That's the playbook.
Speaker B:Right.
Speaker B:So you follow the playbook of what's given in front of you.
Speaker B:And like they all have their own playbooks for different tactics.
Speaker B:But again, private equity I'm very familiar with and it's still a little salty.
Speaker A:Just.
Speaker A:Just business.
Speaker B:Just.
Speaker A:Just business.
Speaker B:Bite your tongue.
Speaker B:So sell to another buyer.
Speaker B:IPO or recapitalization is the exit strategy for PE firms.
Speaker B:PE is financial engineering with a facelift and the facelift, I. E. Management changes the press side of things.
Speaker B:The how do you sell the sizzle here?
Speaker B:How do you make it look as beautiful as possible?
Speaker B:It's really what it is.
Speaker B:Take something old, polish it up, flip it and collect the carry.
Speaker B:That's all you're doing.
Speaker A:What do you mean by collect the carry?
Speaker B:So collect the carry of the Benefit of you putting your money in, they carried it.
Speaker B:You get a return on your investment.
Speaker B:That's the carry.
Speaker B:Right?
Speaker B:Go get your juice like the mob.
Speaker A:Okay?
Speaker B:Right.
Speaker B:PE is financial engineering.
Speaker B:That's all that it really is.
Speaker B:Major firms, firms that you know.
Speaker B:Blackstone, the biggest PE firm in the world, owns everything from real estate to hotels.
Speaker B: KKR made famous in the: Speaker B:Leverage buyouts of RJR, Nabisco, Carlyle Group, deep ties to government and defense.
Speaker B:Invest globally.
Speaker B:Apollo Global Management, big in credit distress, debt bot.
Speaker B:Yahoo and Verizon Media.
Speaker B:TPG Capital, known for investments in Airbnb, Spotify and Burger King, which is kind of an interesting twist for.
Speaker B:For them.
Speaker B:Steven Schwartzman, Blackstone site talked about billionaire co founder and CEO of the iconic Walber Wall, Wall street figure Henry Kravis.
Speaker B:And George Roberts from kkr, pioneers of a leverage buyout era.
Speaker B:David Rubenstein, Carlyle Group, known for his interviews in philanthropy.
Speaker B:That's what happens when you get really, really, really, really disgustingly rich.
Speaker B:And Leon Black of Apollo, controversial founder with a massive private credit empire.
Speaker B:Yeah, these are all names that you hear less of because there's more of a distaste for private equity.
Speaker B:And I would say Steven Swartzman here is probably the exception.
Speaker B:He gets a lot more media coverage.
Speaker B:But generally Speaking, private equity CEOs are not in the limelight as much as hedge fund and venture capital guys are.
Speaker B:Yeah, right.
Speaker A:But what like the takeaway for, for the listeners though, from, for individuals out there, like every everyday people, like, what would you say, what would you say they could take away from and learn from these PE firms or these hedge funds or vc, you know, venture capitalists.
Speaker B:That it's essentially dependent on cheap leverage and endless exit liquidity.
Speaker B:Right now leverage is not cheap and liquidity in the market is drying up.
Speaker B:Private equity built empires on zero percent money, which was the artificial interest rate deflation period.
Speaker B:Now they're refinancing in a world that starts with a five handle on the interest rates.
Speaker B:And frankly that's low interest rate.
Speaker B:And if you're them and you're big enough, you could probably get it.
Speaker B:And the math doesn't work anymore.
Speaker B:And this is not just my opinion.
Speaker B:Chamath from the all in podcast posted some interesting charts that, that were really kind of the bottom of the rabbit hole that I went down here.
Speaker B:Sorry.
Speaker B:Looking at the clock.
Speaker B:Am I boring you?
Speaker A:No, not at all.
Speaker A:No, I was looking at Rejeel.
Speaker A:What's that?
Speaker B:So sexy.
Speaker A:Yeah, to see him put this, to put this on.
Speaker B:All right, so this is a lot of narrative and he actually screwed some stuff up here.
Speaker B:So I'm gonna do the, the real responsible, mature thing and correct him.
Speaker A:Hey, this is what he meant to say.
Speaker B:Yo, Jamaica, I can't say your last name, but I know the difference between equities and bonds.
Speaker B:So he basically said that private equity in general is totally hosed.
Speaker B:Right.
Speaker B:And this narrative, if you've searched around at all about private equity on social media, on traditional media, there has been a lot of people have called for private equity to be the neck, the next asset bubble that could cause a recessionary event.
Speaker A:Yeah, the catalyst.
Speaker A:Right.
Speaker B:And I really believe this now is more true than ever because they've bought a ton of companies looking to flip them, looking to do exactly what we've just described to you as their job.
Speaker B:And the unfortunate thing for them is it seems like it's too expensive to do.
Speaker B:So M and A is slowed to a crawl and nobody's looking to buy any of these companies out.
Speaker B:Particularly because guess what, most of the companies they bought aren't going to be improved by AI right now.
Speaker A:And the way these companies operate, it's really interesting, I think there was a change recently to everyone's 401k or their retirement plans.
Speaker B:Ah, there it is.
Speaker A:Right where they're, where they're allowed to now invest in, in these private equity firms.
Speaker A:Right.
Speaker B:Which I think is completely inappropriate.
Speaker B:Right.
Speaker A:This is not what this is made for.
Speaker A:But, but clearly there isn't enough money coming, coming in.
Speaker A:So they're making a symbol here.
Speaker A:We're, we're allowing you this benefit of being able to invest.
Speaker B:You take on wild more risk than you should.
Speaker B:And you.
Speaker B:Every time I see that headline, because I, I read that a couple different times, to me all I think is corruption.
Speaker B:How is that not.
Speaker B:How did somebody with massive influence convince somebody in government that had some kind of ability to do this that this was going to be like, who's is this Pelosi again?
Speaker B:Dude?
Speaker A:This is.
Speaker A:Yeah.
Speaker A:I don't understand how, at what point are we going to flip the script on that to where people that got inside knowledge onto like the contracts are going to be signed to help out.
Speaker A:Complete industries can then invest in those industries and make money hand over fist.
Speaker A:How does that make sense?
Speaker A:That'd be like allowing LeBron James to bet on his own games and literally like tossing the game.
Speaker B:I don't know.
Speaker B:I really, I really don't understand it.
Speaker B:Truly, the logic defies me.
Speaker B:And just a funny little anecdote while I was sitting Here.
Speaker B:I've been turning the AC down.
Speaker B:I'm like, why is it turning on?
Speaker B:It's getting kind of hot in here, Right.
Speaker B:I've been turning down the AC at home.
Speaker B:My wife's probably freezing her out.
Speaker A:She's like, what's going on?
Speaker A:She likes it colder though, right?
Speaker B:She does, but not 69 degrees.
Speaker B:My bad.
Speaker B:All right, so Chamath on the all in podcast and I'll link the episode in the show notes said, and I'm going to quote the entire thing here.
Speaker B:That's a lot.
Speaker B:I think the history of this is important.
Speaker B:There was a long standing belief that the best way to generate the best risk, risk adjusted return was to have what's called a 60, 40 allocation.
Speaker B:60 to bonds and 40 to equities.
Speaker B:That's actually supposed to be 60 to equity and 40% fixed income.
Speaker B:But I digress.
Speaker B:Okay.
Speaker B:I'm not correcting the billionaire.
Speaker A:Yeah.
Speaker B:I mean, just luck is a preparation of combination and opportunity.
Speaker B:So hard.
Speaker B:Yeah.
Speaker B:He had the opportunity.
Speaker B:I'm prepared for it.
Speaker A:You're right.
Speaker B:Yeah.
Speaker B:You know, just didn't get.
Speaker B:Didn't come my way.
Speaker A:Yeah.
Speaker A:I hope God's next test for me in this life is how I manage a billion dollars.
Speaker B:You know, I'm.
Speaker B:I don't want to have to.
Speaker A:Let me show you that.
Speaker A:I got this.
Speaker B:Yeah.
Speaker A:Put me in, coach.
Speaker B:Over many years, especially when we artificially suppress rates at zero, a lot of people started to move their allocations away from 60, 40, and they started to make more and more investments further out on the risk curve, private equity in particular.
Speaker B:The biggest beneficiaries of that were venture capital, private equity, and hedge funds, the three institutions we just talked about.
Speaker B:The thing with private equity is that because rates were zero, they had an infinite amount of borrowing capacity at very little downside to them.
Speaker B:And so they were able to manufacture returns much faster from venture than venture capital and hedge funds could.
Speaker B:So to explain this, venture capital and hedge funds aren't borrowing money, generally speaking, to make their investments happen to make their money, private equity is usually borrowing money or getting it from somewhere else and arbitraging the difference.
Speaker B:Yeah, yeah.
Speaker B:And if you're paying effectively 0% for that money and you're making a 10% return, your returns are then juiced by what the borrowing cost otherwise would be.
Speaker B:Yeah.
Speaker B:And now at 5%, let's just say, and I'm using assumed numbers here, you're taking away 40 to 50% of their returns.
Speaker B:Now, assuming they can execute and sell and get out, therein lies the problem that he's alluding to without saying it that way.
Speaker B:So as a result, you had an initial group of people that were defining the asset class, making a ton of money, and then you had all these fast followers that said, well, if they're doing it, I can too.
Speaker B:And that's right.
Speaker B:Private equity is no different than your local realtor.
Speaker A:Okay.
Speaker B:God damn it.
Speaker B:Kevin next door is making a hundred thousand dollars more now because he's selling real estate for three people this year.
Speaker B:Yeah, I'm gonna do it too.
Speaker A:Yeah, why not?
Speaker B:What happens to the real estate market?
Speaker B:Realtors flood out the same pace.
Speaker B:They flood in.
Speaker B:Right.
Speaker B:You see these major mergers going on in real estate.
Speaker B:It's not because there's not problems in paradise.
Speaker B:There are.
Speaker B:Private equity is not different in that regard.
Speaker B:Everybody thought it was easy and now it's hard.
Speaker B:Yeah, okay.
Speaker B:But the execution problem for them is still coming.
Speaker B:The duration, the maturity of their assets, investments are going to come due.
Speaker B:And when that comes due, that is the clock that everybody's worried will strike midnight and cause problems in the market.
Speaker B:Because all this money is tied up in businesses that must succeed.
Speaker B:And by succeed, they have to sell to somebody for a profit.
Speaker B:Okay.
Speaker B:They have to go public, which in most cases they're already public.
Speaker B:Or they have to have some type of exit strategy which makes the money.
Speaker B:If they don't and they give them less money, how are these private equity companies going to pay back their debt?
Speaker A:Well, so then, so here's the next.
Speaker A:The follow up question then is, are they also too big to let fail?
Speaker B:I think the public disdain for private equity is so large.
Speaker B:And I also think that this is not the banking system.
Speaker B:Your checking account is not impacted whether private equity fails or not.
Speaker B:So you as the politicians are going to be real buddy, buddy with private equity as long as everybody's making money.
Speaker A:Yeah.
Speaker B:But if you're a politician and you've got to go back to your constituent base and you've got to say, hey, I want to bail out this private equity company, your base is going to be like, yeah, I don't care whether you're red or blue, but fuck you.
Speaker B:That should be on a shirt.
Speaker B:That's a shirt right there.
Speaker A:I don't care if you're red or blue, but you.
Speaker A:That's impressive.
Speaker A:Yeah, yeah, good job.
Speaker A:Well done.
Speaker B:By the way, this is AI.
Speaker B:This is not actually me saying it.
Speaker B:These are music.
Speaker A:Yeah.
Speaker A:No, I mean, look, you can.
Speaker A:You can see.
Speaker A:I can definitely see certain people at Mar a Lago trying to tell why.
Speaker B:You get his camera?
Speaker B:Got to.
Speaker B:I have to.
Speaker B:I can't advertise this because I'm gonna.
Speaker A:Go this way and then you gotta defend it.
Speaker A:The setup.
Speaker A:It's the setup.
Speaker B:As a reminder to all those who are listening, who are old users and new users, I do not have a political stance on this show.
Speaker B:I often debate with Saeed from the opposite viewpoint that he happens to take at this particular juncture.
Speaker B:I would like to point out the views and opinions expressed from this point forward are not that of my own.
Speaker B:Yeah.
Speaker A:Or anyone on the show.
Speaker A:Yeah, exactly.
Speaker B:They are.
Speaker B:Rejeels.
Speaker B:Rejeel.
Speaker B:@highstandardpodcast.com you can react.
Speaker A:Well.
Speaker A:People there like, hey, we need.
Speaker A:Listen, this guy is stepping out of.
Speaker A:Out of the seat in March or May of next year.
Speaker A:March, May.
Speaker A:Drone.
Speaker A:Drone power.
Speaker A:JP.
Speaker B:May.
Speaker B:May, May 26th.
Speaker A:You got to make sure that next guy that you appoint, he aligns with what we want to happen here.
Speaker B:But if he does.
Speaker B:Okay, align with your.
Speaker B:That could.
Speaker B:We're already top of market in so many ways.
Speaker B:The VIX is doing something interesting now.
Speaker B:The volatility, the fear gauge.
Speaker B:Right.
Speaker B:The.
Speaker B:The VIX is rising at the same time the market is rising.
Speaker A:Yeah.
Speaker B:That is a very unusual trend.
Speaker B:So people are getting more and more scared of the market as the market is continuing to improve from a performance.
Speaker A:Perspective and it's only going to continue to improve.
Speaker A:That's the scary part for, for the short term because.
Speaker A:Yeah, for the near term, because with.
Speaker A:With rate cuts, what happens, these asset values are just going to continue to inflate.
Speaker B:So I should point out there, there is a part two of this that I would like to do, which is a segue from where AI goes from a technology perspective.
Speaker A:Tune into our only fans.
Speaker B:Yeah, Vix is 16.37.
Speaker B:So yeah, it's up a little bit.
Speaker B:But again, I've never seen the VIX move up.
Speaker B:When the market, generally speaking, when the market performs really well, like people's fear goes down.
Speaker A:That's how.
Speaker A:Well, that's how it's supposed to work.
Speaker B:If the market is going up, people's fear is going up.
Speaker B:That to me signals people are worried about a bubble.
Speaker B:And the bubble rhetoric is all over the news right now.
Speaker B:Yeah, I mean, you don't have to listen to us say that.
Speaker B:You can just search bubble and you're not going to get, you know, bubbles and kids toys.
Speaker B:You're going to get market news on the stock market, which is a wildly scary thing.
Speaker B:Let me finish out Chamath's comment But then always what happens is then you have this flood of laggards that just flood the zone.
Speaker B:Speaking of private equity and anybody doing it, and it's these laggards that make it very difficult to generate returns because they start overpaying for assets, they start mismanaging and under managing the assets that they want, they want to own.
Speaker A:Sound familiar?
Speaker B:You overpay for it.
Speaker B:It sounds very familiar.
Speaker A:Real Estate.
Speaker B:You overpay for it.
Speaker B:Right.
Speaker B:And then you mismanage it because you think you can do this like anybody else can.
Speaker B:And what happens?
Speaker B:It doesn't perform.
Speaker A:Doesn't perform.
Speaker A:Yeah.
Speaker B:So that created a lot of competition.
Speaker B:And so that's why you see this hockey stick graph.
Speaker B:We'll get to those in a moment here.
Speaker B:And when you see that kind of graph, it doesn't matter what asset class it is, the returns go to zero.
Speaker B:And we've seen this in venture capital, we've seen this in hedge funds, and now we're going to see this in private equity.
Speaker B:So we've seen a reckoning in hedge funds, We've seen a reckoning in venture capital before.
Speaker B:Right.
Speaker B:The dot com bubble burst really affected venture capital.
Speaker B:Right.
Speaker B:Who was investing in these pre seed companies?
Speaker B:Venture capital.
Speaker B:Right.
Speaker B:We've seen algorithmic trading issues in the hedge fund world that are very well known and documented that cause all sorts of problems.
Speaker B:But again, they're also so closed off to the public that you don't really know how much impact they had.
Speaker B:And only their investors may have felt it.
Speaker B:They're somewhat private in that regard.
Speaker B:But this, the private equity world may be a bigger problem.
Speaker B:Let's pull up chart 1.
Speaker B:Private equity distributions have plunged.
Speaker B:Whoa.
Speaker B: ten all their cash back since: Speaker B:If you invested in private equity as an investor or you got, you loaned them money.
Speaker B:Right?
Speaker A:Yeah.
Speaker B: And that since: Speaker B:That's almost 10 years.
Speaker B:So if private equity's horizon, as you said, was somewhere between five and 10 years.
Speaker A:Yeah.
Speaker B:You're at the end of their horizon and you still ain't got paid back yet.
Speaker B:On.
Speaker B:Those are investors.
Speaker B: Those are investors from: Speaker B:And if you look at this, it's gone down and down and down and down and down.
Speaker B: And at: Speaker B:But I'm not seeing monumental returns.
Speaker B: And look at: Speaker B:Historic returns.
Speaker B:And you're talking nowhere near where it once Was, man.
Speaker B:Let's go to the next chart.
Speaker B:Private equity, the glut firms are sitting on a record number of companies globally.
Speaker B:They're waiting to sell.
Speaker B: This chart shows from: Speaker B: So now you got: Speaker B:People still haven't gotten all their money back almost 10 years.
Speaker A:By own, we're talking about.
Speaker B:Private equity owns these guys.
Speaker A:A percentage of them or they own them outright?
Speaker B:I think it's a bit of both.
Speaker B:But generally speaking, they own a large percentage, a chunk of them.
Speaker A:Okay.
Speaker B:They're not minority investors, but okay.
Speaker B:They own these companies.
Speaker A:Okay.
Speaker B:So these companies, these tens of thousands of companies owned by private equity, they were never meant to be managed long term by private equity.
Speaker B:Ever wonder why your customer service sucks from a company that private equity took over?
Speaker B:Probably because guess what they are.
Speaker B:They're out of resources.
Speaker B:Sources.
Speaker A:Yeah.
Speaker B:How many people in your company can serve on boards to manage and build a company?
Speaker B:And you're not managing for culture.
Speaker B:You're managing to maximize profits.
Speaker B:If you're running a steam engine of a locomotive at full pressure all the time.
Speaker A:Yeah, yeah, yeah.
Speaker B:The probability of that thing blowing up and breaking down is a lot greater the longer it runs.
Speaker A:Yeah, yeah.
Speaker B:Especially when if it ran at a smoother, slower cadence, you'd probably get a lot more longevity and durability out of that engine.
Speaker B:This is no different.
Speaker B:Let's go on to the next slide.
Speaker B:The S P500 outperformed the state Street Private market index on all time horizons.
Speaker B:So basically saying the S P500 is giving you better returns than private equity is at all times.
Speaker B:Okay, that's a big problem.
Speaker B:Looking over 1 year, 3 years, 5 years and 10 years.
Speaker B:So now the returns that you're getting back over that last horizon again.
Speaker B: We know that returns from: Speaker B:Well, the S P would have performed better than you, than private equity would have, on average.
Speaker A:Yeah.
Speaker B:Whoa.
Speaker B:Why would you take that risk?
Speaker B:Why would you take the risk in your 401k?
Speaker A:Right, exactly.
Speaker B:That.
Speaker A:Exactly the thing.
Speaker B:You're making no sense.
Speaker B:But people go, oh, they make big returns.
Speaker B:Private equity, sexy name hedge fund, Venture capital.
Speaker B:Private equity.
Speaker A:Yeah, I'm making money here.
Speaker A:Yeah.
Speaker B:Not so sexy now, is it, chief?
Speaker B:Let's go to the last one.
Speaker B:Low payouts, buyout distributions as a share of net asset value have fallen.
Speaker B:The money you're going to get paid for selling that company.
Speaker B:Yeah.
Speaker A:Yeah, yeah.
Speaker B: and continues to go down from: Speaker B:And I'm sorry I couldn't get something earlier.
Speaker B:This.
Speaker B:Actually, Jamath quoted this one as, well, they've gone down pretty significantly.
Speaker B:So now you're not paying out your investors.
Speaker B:You've got more companies than ever.
Speaker B:Companies are valued at less.
Speaker B:Interest rates are going up.
Speaker B:This is a ticking time bomb.
Speaker A:So investors that are investing in and you're not paying them out, can they be bought out?
Speaker B:They can, but you're not in the business of losing money.
Speaker B:Right, right.
Speaker B:And generally speaking, they don't.
Speaker B:Hedge fund is the only one.
Speaker B:Venture capital and private equity you don't generally get out of.
Speaker B:Your money's in.
Speaker B:You're into the investments out.
Speaker A:Yeah, exactly.
Speaker A:Now, when, when you're, when companies or individuals are investing in these private equity firms, are they.
Speaker A:Do they get contracts with a guaranteed.
Speaker A:A certain return?
Speaker A:No, no, no.
Speaker B:You take the risk.
Speaker A:You're eating that risk.
Speaker B:Yeah.
Speaker B:You don't get guaranteed returns in any of this stuff.
Speaker B:And of course, relating this back to AI, AI looks like the new frontier, but it's being funded by the same risk on capital that's quietly dying in the private equity markets.
Speaker B:The same risk on capital that funded private equity that looks so bleak right now is the same type of money that's funding AI.
Speaker B:We're watching one bubble expand as another deflates.
Speaker B:The AI bubble.
Speaker B:The AI bubble is expanding as this private equity bubble deflates.
Speaker B:If the AI bubble pops and this one has trouble at the same time and isn't managed down over time.
Speaker B: markets in a way that'll make: Speaker A:Yeah, right.
Speaker A:But this way, let's talk about this for a second.
Speaker A:Like, give me a hypothetical scenario in the near term where the AI bubble could theoretically pop.
Speaker B:Sure, sure.
Speaker B:Okay.
Speaker A:Because I think everything right now is still based off of hype and where it could lead us and take us.
Speaker A:Because, look, there's industries out there.
Speaker A:I look at banking, for instance, okay.
Speaker A:It's.
Speaker A:It's so old, they're slow.
Speaker A:So slow to adopt change.
Speaker A:And I know banking isn't the only one, right?
Speaker A:Like, there's.
Speaker A:There are industries out here that are going to be slow to adopt this and bring it in.
Speaker A:And not only adopting it in, but getting it approved by regulators on how to use it.
Speaker A:Right.
Speaker A:It's like, that's gonna.
Speaker A:That's gonna take some time, my naive young padawan.
Speaker A:Okay.
Speaker B:That's a Star wars reference.
Speaker B:For those of you who watch Star Wars, Saeed, unfortunately is not a fan.
Speaker A:What do you.
Speaker A:I'm not a fan, but I am Obi Wan.
Speaker B:You can be my Kenobi.
Speaker B:Yeah.
Speaker B:Okay.
Speaker B:So before I left the banking world, I was already talking to AI companies deploying AI into community regional banks.
Speaker B:But let's forego that.
Speaker B:Right.
Speaker B:They can do some really cool stuff.
Speaker B:JP Morgan Chase already has the data.
Speaker B:They're already working on the models.
Speaker B:They're already curating this now, you know, as they should.
Speaker A:Yeah, right, right, right.
Speaker B:Bank of America, Wells Fargo, they're all going down these paths.
Speaker B:Wells Fargo just announced earlier this week, no, last week, that they're going to refocus on the small and middle sized business segment, which is smart for them, but AI is even more valuable to them there.
Speaker A:Okay.
Speaker B:As these large banks adopt this and show the efficiency that they can get, the money on Wall street is going to demand a return on their investment into these businesses.
Speaker B:Yeah, right.
Speaker B:Yep.
Speaker B:So you have two masters.
Speaker B:When you're a publicly traded company, your primary regulator, if you're in a regulated business, and almost all of them are.
Speaker B:And if not, the SEC is still a regulator.
Speaker B:And your investors.
Speaker B:And your investors are every single holder of stock, you can own one, the.
Speaker A:People you sold the dream to.
Speaker B:Right.
Speaker B:But there's also institutional investors who own a large amount of your stock.
Speaker A:Right.
Speaker B:And you're beholden to them, and you're beholden to the analysts who cover you and explaining how you're going to move the company's needle.
Speaker B:Yeah.
Speaker A:Managing a lot of moving parts.
Speaker B:A lot of moving parts.
Speaker B:And as a result of this Molotov cocktail of disinterested interests that all align in weird ways, you find yourself in a situation where the money is going to say you can make more money if you deploy this technology.
Speaker B:You need to find a way to deploy it.
Speaker B:And then what are the big banks going to do?
Speaker B:They're going to put pressure on their primary regulators to adopt this technology and they're going to show them that they can be the case study for it and then it'll trickle down into the rest of the sector.
Speaker A:Right.
Speaker B:Medium banks, mid tier, small.
Speaker B:I mean, whatever.
Speaker B:Keep in mind, the large bank program as of right now starts at 10, 10 billion in asset size.
Speaker B:It will probably be moved up to 30 billion.
Speaker B:All this to say that AI is going to get implemented whether we like it or not.
Speaker B:Unfortunately, how that impacts the world and what it looks like is still a question mark.
Speaker B:If it isn't a meaningful Impact soon the money is going to get upset.
Speaker B:So we either force a return that isn't there or we have a revolt.
Speaker B:My bigger concern isn't the money in the AI and implementation.
Speaker B:I think AI is going to do unlike the tech bubble bursting, I think AI actually has the implications.
Speaker B:I think it's going to be the tertiary impacts that people are really not thinking about today that are going to cause a revolution.
Speaker A:Okay.
Speaker B:Like you cannot feed the compute power needed for this with the power grid that we have today.
Speaker A:Yeah, it's true.
Speaker B:There are people in areas we talked about on a previous show that are already paying more and more for their electric bill because these data centers move to their market and instead of them paying their shares, the power companies are just passing on extra cost to the individuals in those areas.
Speaker B:Google, Microsoft, OpenAI, they're all trying to get nuclear power plants to power these things.
Speaker B:But this all causes stream in the systems.
Speaker B:Combine that with layoffs.
Speaker B:Oh yeah, right.
Speaker B:What are we doing?
Speaker A:Yeah, combine that with layoffs and lower.
Speaker B:Job openings and you start saying okay, so now we've created this barbell like economy where you've got a working class and a wealthy class and that asset bubble in the middle, well, it blew up, right.
Speaker B:People couldn't buy homes.
Speaker B:So their single largest source of net worth, their that's gone.
Speaker B:Appreciation, equity appreciation.
Speaker B:Their home overtime is gone.
Speaker B:We covered in the last show.
Speaker B:32% of people have more money in stock than ever before.
Speaker B:I mean it's especially the lower tier, right.
Speaker B:Their exposure, even if that corrects down 20%, it's hugely impactful for them.
Speaker B: out again like you did during: Speaker B:Yeah, like what the are we doing?
Speaker B:So a couple of people who are rich and can control the ecosystem and let's be clear, let's be very, very pointed, I'm going to say some unusually and uncharacteristic, sensational, unsavory shit.
Speaker B:Okay.
Speaker B:Why the fuck are we letting Mark Zuckerberg and Elon Musk, two self made billionaires, control the mainstream communication channel for all of humanity?
Speaker A:Yeah, man.
Speaker B:Does that not sound insane to you?
Speaker B:Think about the billionaires that are out there that control everything.
Speaker A:Yeah, exactly.
Speaker B:What are we doing?
Speaker A:Yeah, what everyone needs to get hip to is you got to think why?
Speaker A:Why is it's no secret that Zuck has issues with Apple, right?
Speaker B:I'm not saying like he's a bad person.
Speaker B:Or like, Tim Cook's a bad person.
Speaker B:None of these people are bad people.
Speaker B:No, I'm just saying, like, where do we set the guardrails?
Speaker A:Yeah, but, like, with the recent release of the glasses and all the money that's being dumped into AI, they understand that it's.
Speaker A:It's a race.
Speaker A:It's.
Speaker A:It's a race to where?
Speaker A:Imagine if he can now he wants you out of this iPhone because this iPhone is a gatekeeper into his apps.
Speaker B:Hey, look, I love it, right?
Speaker B:I'm getting fitted on Friday for the meta.
Speaker B:The meta display, right?
Speaker A:But then those glasses, he wants you.
Speaker A:He wants that to be your new way of communicating with the world.
Speaker B:And I love it and I hate it.
Speaker A:Yeah.
Speaker B:One part of me says, okay, I could use that as a teleprompter and walk around when I create social content.
Speaker B:And having cameras on your head, that's cool.
Speaker B:But the.
Speaker B:The earphone function, it's impressive.
Speaker A:It's the best.
Speaker B:It's the best.
Speaker A:It's.
Speaker A:I like it so much better than AirPods.
Speaker B:It's incredible.
Speaker B:So there's lots of reasons why I like it.
Speaker B:And look, if I were him, I'd probably do the exact same things that he has done.
Speaker B:But we as a society have now gone to a point where we're trying to adhere to traditional notions of fair play and rationale that no longer exist.
Speaker B:Here's the fact that whether you like it or not, the market is manipulated.
Speaker B:The next show that we will do will be Austin, a friend of mine that.
Speaker B:That often comments with me on social media and back and forth.
Speaker B:And he's in the real estate business in Florida, I think.
Speaker A:Shout Out Austin.
Speaker B:Yeah, He.
Speaker B:He and I often go back and he.
Speaker B:He brought something back to the forefront of my mind, the dead Internet theory.
Speaker B:And I went down another similar rabbit hole, which kind of led me to this.
Speaker B:But I needed this episode to be the.
Speaker B:The setup for the next one where we talk about dead Internet theory, where we talk about how all these things are being manipulated and the theory is really not a theory anymore because there's been substantial evidence that's come out.
Speaker B:And the attorney in me goes, okay, look, I'm gonna look at the weight of the evidence here and say, this is real.
Speaker B:Okay?
Speaker B:My wife asked me the other day.
Speaker B:She's like, how do you know you're not just following, you know, disinformation?
Speaker A:Okay?
Speaker B:And I said, because me, as the attorney have.
Speaker B:Has gone.
Speaker B:I've gone down the path.
Speaker B:So we know things that are fact, right?
Speaker B:Like Elon Musk has come out and said there's a large majority, and I think he said over half at some point.
Speaker B:I'll give the direct quote of X users were bots.
Speaker A:Oh, yeah.
Speaker B:He didn't want to pay for what was largely fake accounts.
Speaker B:But at one point, and you know this also to be true, that the government had a hard line into Facebook.
Speaker B:They had a hard line into Google.
Speaker A:Yeah, yeah.
Speaker B:I know that we like to think that China and Russia are foreign actors that have these bot farms that control the input and output of media, but what the fuck do you think that hardline was for?
Speaker A:Yeah.
Speaker A:You don't think that they're also manipulating what we.
Speaker A:What we see?
Speaker B:You don't think if they want to send out a narrative like, oh, my God, the President's amazing, they could do that?
Speaker B:Of course they could do that.
Speaker A:Yeah, yeah, yeah.
Speaker B:Come on.
Speaker B:And you don't need a bot farm where you have all these phones and warehouses anymore, like what we're used to seeing.
Speaker B:You could do this now with virtual.
Speaker B:Virtual bots everywhere.
Speaker A:I mean.
Speaker A:Yeah, just look up.
Speaker A:Just look up shadow banning.
Speaker B:It's real.
Speaker B:It's all real.
Speaker B:And what I'm saying is, is if the Internet.
Speaker B:The Internet started off earnest enough, get an AWOL account, you hear the sound, the dial up, you get on there, you start chatting with somebody, Right?
Speaker B:It wasn't.
Speaker B:Not anonymous, but it was anonymous.
Speaker B:And there was kind of like the weird gray area where people start trying to figure things out.
Speaker B:But now anonymity is so pervasive, Instagram and Facebook and X could easily say, hey, look, you need a driver's license.
Speaker B:We only do verified accounts of people who use their real name.
Speaker A:Yeah.
Speaker B:Why are we using fake users?
Speaker B:Why?
Speaker B:Why?
Speaker A:It makes.
Speaker B:Why do we do that?
Speaker B:So people can say things they wouldn't say if they had their real name behind it.
Speaker B:Let's be honest here, right?
Speaker B:Why do you need.
Speaker A:Because they know.
Speaker A:They know.
Speaker A:They.
Speaker A:They understand that the engagement's much higher without it.
Speaker B:I'm all for freedom of speech, but you should be held accountable for the.
Speaker B:You say.
Speaker A:Yeah, yeah.
Speaker B:I mean, you can't say it behind an anonymous.
Speaker A:Enough and enough people.
Speaker A:Enough children have gotten hurt to where there should be enough of uproar.
Speaker A:I mean, we're gonna.
Speaker B:But everybody wants to have.
Speaker A:Be careful.
Speaker B:Yeah, be careful.
Speaker B:Everybody wants to have growth in user numbers.
Speaker A:Yeah.
Speaker B:Right?
Speaker A:Yeah, yeah, yeah.
Speaker B:So what do they do?
Speaker B:They allow this shit because they don't care.
Speaker B:You telling me that Instagram doesn't know about this gray area market?
Speaker B:People's accounts getting taken down and people having bot accounts and spamming in the comments, they know they have ways of saying, hey, do you want to see the spam accounts on the pages now?
Speaker A:Yeah, Hide these.
Speaker A:And then you got exactly what the are we doing?
Speaker A:Yeah, yeah.
Speaker B:You want to see the offensive comments, Chris?
Speaker B:Click here.
Speaker A:Yeah.
Speaker B:Why are you allowing those comments to go there if you think they are largely spam or bots?
Speaker B:Because it increases the activity on your algorithm.
Speaker A:Right.
Speaker B:And now Instagram's rolling out creator awards.
Speaker A:And then they remove.
Speaker A:They remove the whole dislike button.
Speaker A:Yeah, we don't.
Speaker A:You could dislike it, but we won't show you how many people disliked it, only to be only the people that like it.
Speaker B:So I wind up going down this path and I think to myself, if the Internet as we think that it is, is this free area, that is not so free.
Speaker B:Right, right.
Speaker A:It makes you feel like you're free.
Speaker A:Exactly.
Speaker B:I'll never forget a story somebody you and I used to work with had early on in his career, worked at the White House as an intern.
Speaker A:Okay.
Speaker B:And I want to say this is in the late 60s, early 70s.
Speaker A:Okay.
Speaker B:And he was meandering around the White House as an intern, and he was stunned back then that he had this freedom to walk around in meander.
Speaker B:In meander.
Speaker A:It's a great word.
Speaker B:I'm here for SAT vocabulary.
Speaker B:And in meandering around, he opened a door, and he opens this door to this room.
Speaker B:This has got cameras and TVs.
Speaker B:And he's there, there's.
Speaker B:And he said there were.
Speaker B:Every television station was being monitored.
Speaker A:That's ballsy, bro.
Speaker B:Just everything opening doors is wild.
Speaker B:And he said that a Secret Service member came over quietly shut the door.
Speaker B:Right.
Speaker B:And directed him out and reminded him that he was not allowed to discuss anything that he'd seen in the room.
Speaker B:And he's like, that was in the 60s, dude.
Speaker A:Yeah, yeah.
Speaker B:He's like, can you imagine today what they have access to coming in and out?
Speaker B:And to give you an idea, Community, regional banks, like the one that I came from recently, they have somebody who deploys and uses bots on staff to help with efficiency in scale.
Speaker A:Yeah, yeah, yeah, yeah, yeah.
Speaker B:You think the government doesn't have that?
Speaker A:Exactly.
Speaker A:Come on.
Speaker B:You think the government doesn't have, quote, ethical hackers?
Speaker A:Yeah, right.
Speaker A:The best.
Speaker B:So that's the other.
Speaker A:That.
Speaker A:That was the other thing, actually, I had.
Speaker A:I had for the.
Speaker A:The show is with this whole government shutdown that the cybersecurity and infrastructure security agencies also a lot of their employees have been furloughed.
Speaker A:Yeah, that's scary, dude.
Speaker B:Burbank doesn't have anybody watching the planes come in and out right now, dude.
Speaker A:It there.
Speaker B:There are literally no air traffic controllers at Burbank Airport today.
Speaker A:Right.
Speaker A:So there's all.
Speaker A:I don't apply.
Speaker A:There's all these cybersecurity threats that are going on, and.
Speaker A:And here they come out with a statement, and they say, hey, look, the threats that are in place, we have people actively working against them.
Speaker A:Yeah, but here's the problem, dude.
Speaker A:Here's the problem with that.
Speaker A:I like my cyber security team to be proactive, not reactive.
Speaker B:I kind of like them there a lot.
Speaker A:I kind of like them there making sure that nothing happens at all.
Speaker A:Not.
Speaker A:Wait, something happened.
Speaker A:Now we got to fix it.
Speaker B:Here's a problem, dog.
Speaker B:I got cameras on both sides of my phone.
Speaker B:I just.
Speaker B:I just don't want.
Speaker A:Yeah.
Speaker B:How do you do this?
Speaker A:How do you cover this?
Speaker B:And let's be.
Speaker B:Let's.
Speaker B:Okay.
Speaker B:Let's be honest, Jill.
Speaker B:Okay.
Speaker B:You haven't been involved in today's show.
Speaker B:We all take our phones to the bathroom.
Speaker B:Okay?
Speaker A:Yeah, yeah.
Speaker B:And we all use two hands while we're going number two.
Speaker A:Okay.
Speaker B:Okay.
Speaker B:I know some people.
Speaker B:Someone's gonna be like, I'm 30.
Speaker B:Yeah, yeah.
Speaker B:Shut up.
Speaker B:You all do it.
Speaker B:Every single person listening to this show takes their phone with them to the bathroom.
Speaker A:Honestly, if you don't like, why.
Speaker A:If you're not going to the bathroom and not like, taking your phone with you, you're a psychopath.
Speaker B:Regil.
Speaker A:Like, who's just staring off into dead space.
Speaker A:That's kind of wild.
Speaker B:Yeah.
Speaker B:You're not going to raw dog the bathroom.
Speaker A:You're not raw dog in the bathroom, bro.
Speaker A:That's when you read all the Reader's Digest labels on the products.
Speaker A:You're not doing that.
Speaker A:Yeah.
Speaker B:You're not doing.
Speaker B:That's a lie.
Speaker B:A lot of type of test from.
Speaker B:That was a lot.
Speaker A:Yeah, yeah.
Speaker B:Mori Povich rolling over.
Speaker B:Yeah.
Speaker B:Yeah.
Speaker B:So look, the fact of the matter is, you got cameras on both sides of your phone.
Speaker B:Last thing you want is somebody getting the lower half portion of you going.
Speaker A:Number two, you know?
Speaker B:Right.
Speaker A:Yeah.
Speaker B:I need some ethical hackers here.
Speaker A:And you and using that against me because I'll pay all the money to make sure that shit doesn't get out.
Speaker B:Chris.
Speaker B:It was so liquid.
Speaker B:Yeah.
Speaker A:Why did it sound like that?
Speaker B:Yeah.
Speaker B:But all of this to go back to AI.
Speaker B:I think there's a human element here that we're not Unpacked.
Speaker B:Now more than ever.
Speaker B:Okay with.
Speaker B:You see wealth in a way we never saw it before, to the point.
Speaker A:Where you can't even fathom the numbers.
Speaker A:I don't even understand it.
Speaker A:Guy made 916 million in dividends in one year.
Speaker A:What are we talking about?
Speaker B:I know, I know.
Speaker A:What are we talking about?
Speaker B:It's a different world, but we all see it now.
Speaker B:Before, you never saw it, you didn't hear about it, Right?
Speaker A:Yeah.
Speaker B:And now we're in a situation where all these things are happening and it's just blowing people's minds.
Speaker B:And the fact of the matter is, is, well, we can't avoid this in.
Speaker B:People have emotions, they're not going to like losing their job, seeing everybody else get rich at the top, their kids not be able to.
Speaker B:To buy homes and build wealth.
Speaker B:At some point, humanity says this.
Speaker A:I was literally.
Speaker A:I was literally having this conversation with somebody over the weekend, and I was saying, I actually know somebody that's done pretty well for himself running his own P.E.
Speaker A:firm.
Speaker A:Right?
Speaker B:Oh, I know him.
Speaker A:Yeah.
Speaker A:And yeah, I mean, so.
Speaker A:I mean, it takes a different set of cojones to do what he does.
Speaker A:I personally, myself could not be able to sleep at night knowing some of the things that he did.
Speaker A:Not to say he did it with bad intentions, but that's just his business.
Speaker A:That's the name of the game, right?
Speaker A:You go in, you lay people off, you flip the company around, you sell it off in a year.
Speaker A:Right.
Speaker A:I mean, everything from.
Speaker A:You name it from a newspaper company.
Speaker A:Okay.
Speaker A:Like, I'm not gonna name any names, but like big city newspaper companies or the furniture stores in.
Speaker A:In other countries, right.
Speaker A:Where family members, like people's fathers were furniture makers, and now they're furniture makers, and now they're being let off.
Speaker B:Yeah, yeah.
Speaker A:Laid off.
Speaker B:A guy like him, he's got his own money now.
Speaker B:Yeah.
Speaker B:But he's not putting his money into those deals.
Speaker B:He's still using investor money or debt.
Speaker A:Yeah, yeah, yeah, no, exactly.
Speaker B:So he's one of the small PE guys.
Speaker A:Yeah.
Speaker B:That's probably not doing so hot right about now.
Speaker A:Yeah, it's actually maybe.
Speaker A:Yeah.
Speaker B:I don't wish that on them.
Speaker A:No, of course not.
Speaker A:No, of course not.
Speaker A:But I'm thinking to myself, and I was having this conversation with a friend, and I'm like, you know, okay, for.
Speaker A:For those.
Speaker A:For those companies, right.
Speaker A:Those p. Firms that are.
Speaker A:That are not public.
Speaker A:I get it.
Speaker A:When you're a publicly traded company, you have.
Speaker A:You are.
Speaker A:You have producer responsibility to your shareholders.
Speaker A:You got to turn a profit, you got to make more earnings.
Speaker A:And unfortunately, that's the name of the game.
Speaker A:That's capitalism.
Speaker A:And we have a lot of what we have today because of that system.
Speaker A:There's a time and a place for that.
Speaker A:But, like, kudos to the people out there that are running these private companies and are like, people come here, they work here, and they just want stability.
Speaker A:And I'm going to give them that stability.
Speaker A:You know what I mean?
Speaker A:I'm going to make sure that they never have to worry about, like, you're coming to work for me.
Speaker A:Okay?
Speaker A:You have a job.
Speaker B:I met a guy who is a billionaire not too long ago, and he said to me, I want to make sure I quote this the right way.
Speaker B:He said to me that.
Speaker B:And I never thought.
Speaker B:I heard.
Speaker B:I never heard a billionaire say this before.
Speaker B:He said, I got enough money.
Speaker A:That's such a wild thing to say.
Speaker B:He's like, it goes up, goes down.
Speaker B:It doesn't.
Speaker B:It doesn't change my life.
Speaker B:I'm gonna go to my house here, my house there, whatever.
Speaker A:That's perspective.
Speaker A:Yeah.
Speaker B:And he said, do I want more?
Speaker B:Do you want any better?
Speaker B:He's like, yeah, I've got a. I. I personally want growth.
Speaker B:He's like, it's like a retired person sitting around all day long.
Speaker B:He's like, I don't want to watch, like, the grass grow.
Speaker B:He's like, I still want to work and be useful, you know?
Speaker B:Do I like being on vacation 24 7?
Speaker B:No.
Speaker A:Yeah, but it's like you're playing.
Speaker A:You're playing Monopoly if somebody can't.
Speaker A:Like, we've all played Monopoly before where somebody landed on your property and you're like, you, you, you.
Speaker A:You're clearly going to win.
Speaker A:And I'd be like, hey, man, you could pass this time.
Speaker A:Let's just let this game keep going.
Speaker B:Yeah.
Speaker B:And I would say it's not that liberal with him.
Speaker A:No, I know, but I'm just saying.
Speaker A:Yeah.
Speaker B:But he also said something that was interesting to me.
Speaker B:He said that at this point, the company's continuing to grow and keep going, provide stability for the employees.
Speaker B:He's not ever going to take private equity money.
Speaker A:Remarkable.
Speaker B:He's not ever going to put himself in a position where he needs somebody else's money.
Speaker B:He's like, I'm not talking about being stagnant.
Speaker B:I still want to grow.
Speaker B:But my goals for growth are.
Speaker B:Aren't exponential.
Speaker B:They're incremental over time in such a way that I can provide consistency and growth and a culture that keeps these people in place because they've kept me to where I'm at today.
Speaker A:You see what I'm saying?
Speaker A:And that like.
Speaker A:And so the conversation I was having with this friend about this was like, see, if being a CEO at a company means you gotta, you have to be this kind of way.
Speaker A:It ain't okay.
Speaker A:It ain't for me, right?
Speaker B:It ain't.
Speaker A:Not, not the way that you just explained the other way where I got to turn a profit and we're going to grow this company and then, oh, we suffered a bad year, I got to lay off some people and then.
Speaker B:It'S like that 5% of the company.
Speaker A:Yeah, that's not for me.
Speaker B:You want to hear some up?
Speaker B:You know, like we're in extra innings.
Speaker B:I'll tell you right now.
Speaker B:I had, I was getting blasted on social media, blasted for, for this show, for talking about testosterone by assholes who know jack shit about what I was doing every single day and what I was dealing with while taking a massive salary cut, giving up my bonus and laying off 25 of the company because I had to, to save everybody 75 of the company's jobs.
Speaker B:Yeah, I, I'm looking at people that I truly love and liked and had to let them go.
Speaker B:Was I the best person for the job?
Speaker B:I don't know.
Speaker B:But I was the one who did it and I try to do it as compassionately as I could.
Speaker B:Was I good at it the first time?
Speaker B:No.
Speaker A:Yeah.
Speaker A:And unfortunately, that's the necessary evil of running a publicly traded company.
Speaker B:And the worst part was, is meanwhile you've got every on social media who thinks they look at numbers all day long, that they understand exactly how a company runs, the inner workings of the company, the nuances.
Speaker B:And keep in mind, I can't tell you I can't defend myself on social media with non public information.
Speaker B:And of course I'm the fucking idiot who decides that.
Speaker B:I'm going to start making comments every once in a while back saying that's not quite how this worked out or that's not factually correct.
Speaker B:And they want to poke you and they poke you, wanting you to defend yourself.
Speaker A:They know, they know you're limited, but.
Speaker B:They know that I can't defend myself with non public information.
Speaker B:So I have to sit there and take it.
Speaker B:And it sucks.
Speaker B:Yeah, because.
Speaker B:And so all these executives like, I'm not gonna be on social media because I don't want to endure that.
Speaker B:And I'm like, you're a coward, dude.
Speaker B:You're a coward every Single person I laid off.
Speaker B:And I want everybody to hear this.
Speaker B:My personal mobile number was the same damn number I used in business.
Speaker B:You guys all still have my telephone number.
Speaker B:There isn't a single person that I laid off that can't get a hold of me to this day.
Speaker B:And you know what?
Speaker B:I encourage every single damn one of them to do it because it wasn't personal.
Speaker B:I didn't want to do it, and it sucked.
Speaker B:But you know what?
Speaker B:I will help every single damn one of them if I can.
Speaker A:Yeah.
Speaker B:Even the people I didn't like.
Speaker B:And there were some of those people that I let go of.
Speaker B:There was a lot of people I never forget.
Speaker B:One guy I let go of.
Speaker B:He's the reason I became a contractor.
Speaker B:And he's.
Speaker B:He's a wonderful human being.
Speaker B:He stops me midway through me.
Speaker B:And I did try to do it one on one with him personally.
Speaker B:He stops me midway through and said that he was so incredibly proud of me that he had been on my side of the table when he was much younger.
Speaker A:Oh, man.
Speaker B:He knew how difficult it was.
Speaker A:I know that.
Speaker B:I know.
Speaker A:Yeah.
Speaker A:I know.
Speaker A:And I got.
Speaker A:I just got the chills thinking about it.
Speaker B:And it.
Speaker B:It broke my heart.
Speaker B:It took every bit of me not to cry.
Speaker A:That's class, bro.
Speaker A:That's class.
Speaker B:And he shook my hand and it was.
Speaker B:It was so articulate, and it just.
Speaker B:It was unbelievable.
Speaker B:Yeah.
Speaker B:But that's the problem, is that there are parts of doing that job that are unsavory.
Speaker B:And then you have to ask yourself who you're protecting.
Speaker B:And at some point in time, I'll talk about private equity in the previous company and why I'm so upset about it.
Speaker B:But I'll tell you right now, I didn't have a choice then either.
Speaker B:And all the hate and rhetoric and the spin and everything that I got from everybody else because of that was a complete lack of understanding of the facts.
Speaker A:Yeah.
Speaker B:And the one thing that everybody else demonized me for was this.
Speaker A:Oh, this.
Speaker A:Yeah, this show.
Speaker B:This show.
Speaker B:My public image, my.
Speaker B:My ability to have control.
Speaker B:And it wasn't because they didn't like the stuff that we said.
Speaker B:It wasn't because of all the things that we were doing were wrong.
Speaker B:They were actually very good.
Speaker A:Yeah.
Speaker A:Got nothing but compliments.
Speaker B:It was because.
Speaker A:Five stars, baby.
Speaker B:Yeah.
Speaker B:Honest five star reviews.
Speaker B:It was because I had a public platform and that made me a threat.
Speaker B:Yeah.
Speaker A:They don't like that.
Speaker A:Yeah.
Speaker B:You only don't like that if you have malicious intent.
Speaker B:If I scare you because I can Speak openly.
Speaker A:Yeah.
Speaker B:Then the problem is not me.
Speaker A:That's.
Speaker A:And that's just.
Speaker A:That's not just the banking industry, though.
Speaker B:No, it's every industry.
Speaker A:It's every industry.
Speaker A:Right.
Speaker B:But for now, and as soon as.
Speaker B:Here's what's going to happen in the future, we're going to shift to a world where in order to get a CEO spot you have to have a public pro.
Speaker B:Your influence.
Speaker B:Yeah.
Speaker B:Will be quantifiable by the number of followers, real or not as he may be.
Speaker B:That'll be.
Speaker B:Think about it this way.
Speaker B:Who's the CEO of Apple?
Speaker A:Tim Cook.
Speaker B:Celebrity in his own right.
Speaker B:Who's the CEO of Blackstone?
Speaker B:Oh yeah.
Speaker A:That guy.
Speaker A:He's got a long.
Speaker B:Yeah.
Speaker A:Shortman.
Speaker B:There you go.
Speaker B:Right.
Speaker B:You start going to the list.
Speaker B:Patrick David's companies.
Speaker B:What are they?
Speaker B:Do you know them by.
Speaker A:In a pbd.
Speaker A:The entertainment was something valuetainment.
Speaker B:But you know Patrick bet David, right?
Speaker B:Yeah.
Speaker A:It's true.
Speaker B:And.
Speaker B:And here's.
Speaker B:And I'm not saying he's a, you know, a good person, but people.
Speaker B:Personal brands are going way, way more important.
Speaker B:Yeah.
Speaker B:Because people want to know who they're doing business with and why.
Speaker B:Yeah.
Speaker A:Yeah.
Speaker B:And that's the problem.
Speaker A:Yeah.
Speaker A:It's.
Speaker A:It's getting to the point.
Speaker A:And I've always been this way, but I know from speaking to other people that it's starting to become it.
Speaker A:We don't know what to trust anymore.
Speaker A:So it's.
Speaker A:If you're doing business with this person, then I trust you.
Speaker B:Yeah.
Speaker B:Relationships.
Speaker A:Yeah.
Speaker B:The truest form of currency still to this day.
Speaker A:Yeah.
Speaker B:And now the image of a relationship in you feeling close enough in proximity to reach out to somebody.
Speaker B:Values.
Speaker A:Yeah.
Speaker A:Think about it.
Speaker A:If somebody like was Huberman is co signing a company.
Speaker B:Bro.
Speaker B:Yeah.
Speaker A:You're gonna think that that's a clean product.
Speaker A:That's healthy.
Speaker A:That's good for me.
Speaker B:Yeah.
Speaker A:Right.
Speaker A:I trust this guy and then his entire network.
Speaker B:That's right.
Speaker B:But the fact that Huberman's so visible.
Speaker B:And put it this way.
Speaker B:Do either one of you know what Huberman does for a living?
Speaker A:Is he a neurologist?
Speaker A:Nope.
Speaker A:Well, I don't know what he does for a living.
Speaker B:No.
Speaker B:He's a professor at Stanford.
Speaker A:Oh, is he?
Speaker B:Yeah.
Speaker A:Okay.
Speaker A:Teaches what?
Speaker B:I believe it's neurology.
Speaker B:I don't know.
Speaker B:Okay.
Speaker B:What is human?
Speaker B:I think he's a professor of Stanford is my guess.
Speaker B:Okay.
Speaker A:I mean it makes sense.
Speaker A:Is Andrew Huberman.
Speaker A:Andrew.
Speaker B:Yeah.
Speaker A:American neuroscience.
Speaker B:Neuroscience is what he teaches.
Speaker A:Okay.
Speaker B:There you go.
Speaker A:Wow.
Speaker B:Stud.
Speaker B:Fully tatted up.
Speaker B:Stanford University.
Speaker B:He goes.
Speaker B:Huberman is a Stanford University neuroscientist and tenured professor of neurobiology and ophthalmology.
Speaker B:Really did not see that one coming.
Speaker B:He's also the host of the podcast Human Lab.
Speaker B:So there you go.
Speaker B:You know him, right?
Speaker B:Right.
Speaker B:But, you know, most people don't realize that's what he does.
Speaker A:Really.
Speaker A:Stud without a beard too.
Speaker B:Yeah, he's stud.
Speaker B:He's just good looking dude.
Speaker A:Yeah, to your point.
Speaker A:Yeah.
Speaker A:Relationships are everything.
Speaker B:All right.
Speaker A:We ran long, long day 137.
Speaker B:Thanks for sticking in, everybody.
Speaker A:Yeah, I hope you enjoyed if you stuck around this far.
Speaker A:We got to really do this at the top of the show because it really helps the show a lot.
Speaker A:If you haven't yet, please share this video with a friend if you haven't already.
Speaker A:Leave us an honest five star review.
Speaker A:If you're watching on YouTube, make sure you subscribe.
Speaker A:Hit that, like, button.
Speaker A:Ring that notification bell.
Speaker A:Do all the moist goody good stuff.
Speaker A:It was a good episode, man.
Speaker B:Good job.
Speaker B:Yeah, you too, Brazil.
Speaker A:Yeah, yeah.
Speaker B:Sorry that we monopolized.
Speaker A:I. I am you, both of you.
Speaker A:The anti guru guru club.
Speaker A:I. I am lacking, as the kids say.
Speaker A:Yeah, with the sweats.
Speaker A:Yeah, with the sweats.
Speaker B:Yeah.
Speaker A:The new pants I gotta buy.
Speaker A:I'm waiting for.
Speaker A:I'm waiting for my Christmas gift from the company.
Speaker B:Adam from Mind Pump got your Christmas gift.
Speaker B:He got three shirts and a pair of these pants.
Speaker A:Did he already get them?
Speaker B:Yeah, actually, I don't know if he got him because he hasn't said thank you yet.
Speaker B:Sorry, Adam.
Speaker A:All right, until next time, brother.
Speaker B:Okay, bye.
Speaker B:Good night, everybody.
