Why a prediction market isn’t a casino, from a Kalshi board member | Sozzi Unleashed

[music] [music] [music] [music] >> You uh you toss enough crap against the wall, something's about to stick. And uh that's what I was doing this weekend on the topic of AI because it was around-the-clock AI talk on the weekend after last week's route. I mean, you saw Nvidia lost a lot of money, the semiconductor index, the Philly semiconductor index lost a lot of value. And it was this that everything I posted on the weekend, it was this that took off and got a really big response. You can see the likes and the shares right there. At least 47 large data center projects >> [music] >> have been delayed, withdrawn, or blocked in 2026. That's worth uh that came from the uh the FT over the weekend. Very interesting story by them. I encourage you to check it out. And then Bernstein apparently followed up with this. Bernstein uh has said this month, or I should say not followed it up, came out earlier, only 35% of the planned US data center pipeline was credible. I don't know where the other 65% or what that looks like, but didn't you didn't didn't want to see this because this captures the perfect moment where AI, everything related to AI is being questioned and scrutinized at this moment, especially again, like I just mentioned, you saw that core we sell off last week, you saw Nvidia sell off, you saw the stock sell off. It's because of concerns on whether these projects get done. I would be really concerned about that. Talk with that about with your friends over the next few days because that's bothers the hell out of me. Now, I spent half of my weekend when I wasn't on X reading about AI after last week's tech route and the other half digesting people saying on X that today would be another stock market crash. You You always can't make this stuff up. The basis for these folks talking this one up. Today is October 19th. And on this day in 1987, we got Black Monday, which marked the worst single-day stock crash in stock market history. Dow plunged 22.6% on the session, not a week, not a month, one day. The S&P 500 got crushed, the Nasdaq got hammered, and roughly $500 billion in US stock market value went poof, gone. And the panic went global. Hong Kong shut down its stock exchange for 4 days, then reopened to a 33% collapse. I can see why there's chatter on this. It's Monday, and it's October 19th. Interest rates are on the rise today like they were then. Geopolitical tensions are front and center like they were back then. And there's a lot of comfort built into a lot of stocks like at that point in 1987. I'm looking at you, various tech stocks. But here is the reality, and I want to bring all this up because I think a lot of this talk is absurd. The stock market is probably not going to crash today. And this is why. Number one, corporate earnings are rocking. Number two, investors are paying insane multiples or not paying insane multiples to own companies whose earnings are rocking. Nvidia is trading at only 24 times forward earnings, people. You can go on to Yahoo Finance Alpha Spaces and check this out. It's not trading at 100-times earnings. You don't want to find that on video. The Federal Reserve, meanwhile, number three, has signaled within the past 2 weeks it could be done hiking interest rates for the rest of 2026. Number four, Anthropic likely has some of the best market intel right now of any company as it prepares to officially drop its S-1, likely within the week, followed by a mid-November IPO. No way this company would have brought investors to its HQ last week to talk shop and crunch some numbers if a market crash was imminent. And number five, no piece of economic data I have seen over the past month hints the economy is headed for a sharp slowdown at the hands of higher rates and sticky inflation. In fact, the big banks just told us last week consumer spending remains strong. So, let's chill on the Black Monday sequel talk because it's unlikely to happen. And I had to get this off my chest. I was tired of reading this all weekend. It is absurd. Let's keep it moving. First up, my day started with Elon Musk saying this. Now, I I will say, first off, Elon Musk has had a hell of a past 5 days, flying car and now this. Next year, I will give one of my SpaceX shares, each one of my SpaceX We will give SpaceX shares to every kid in America. This will be the first of many. This is a huge moment for Elon Musk. Flying car last week, doing things like this, he will join Michael Dell, uh theoretically, in I guess putting those shares, donating them to Trump accounts. Again, we need a lot more clarity on this. When you crunch the numbers, this could be over $10 billion gift to children in America. And there's Elon, you know, he's should be looking happy. I mean, it's been a happy 5 days for Elon. I mean, they're happy times. And then this comes at the same time as we're about to get SpaceX earnings. And I thought this was interesting because if you go back a couple days, SpaceX didn't have its release date for its earnings yet on its investor relations calendar. Usually when a company gets prepared to purport earnings, they put it on their investor relations page weeks if not months in advance, but SpaceX just dropped it really early. And I thought it was interesting. It was a flag to me possibly SpaceX and Elon want to release these earning results ahead of potential new funding, billions of dollars to help what it's going to do with the Terafab, what it wants to do with SpaceX and launching more rockets. That funding is very likely to come very soon. There's been some reports of of north of 40 billion dollars. So SpaceX might want to get its earnings out ahead of doing that. Number two, a lot of shares a lockup periods expire for SpaceX coming up over the next few few weeks. You can see some of those key dates coming up here that these were in the past and then coming forward you have a couple you have a lot of shares. You have a lot of shares. So it would be my SpaceX might be trying to get that report out there, continue to get people excited about the SpaceX story, get that report out early, get it out of the block ahead of this doing that which could potentially put more pressure on SpaceX shares if these shares were to be sold. So a lot of things going on with the SpaceX, but really this is some tremendous news. I had a lot more to say to this on my Instagram account earlier this morning. You can go check that out at Brian Sozzi. But this is a big deal for Elon. You have Elon and you have Michael Dell really leading the charge and giving this money back and funding theoretically again because we don't have all the details these Trump accounts. Very big deal and a very important moment for all things Elon in the Muskverse. Also, another thing that caught my attention today and this was this just hit about about 45 minutes ago. This Intel upgrade by JP Morgan. You heard the morning show team talk a little bit about it. I want to break it down a little bit further because Intel stock is down about 36% off the highs. It has been I think the highs were hit in June. Two things that stood out to me in this report by JP Morgan. It's not like an enthusiastic upgrade. They're only going to neutral. You can see Intel shares getting a boost on this. Two things. First, JP Morgan calling out that the CEO, Pat Gelsinger, uh I believe he will have his 2-year anniversary March 2027 of being CEO. Execution is starting to improve. I love when a Wall Street analyst finally starts to notice improved execution on the part of a newish CEO. So, Intel JP Morgan calling out improved execution on next-gen manufacturing, 18A and 14A that foundry presents at some point soon might be landing some very big customers and I think you see a JP Morgan and that team trying to get out in front of those potential announcements. And then the last one that other point here that caught my attention was this. And you can see my Sizzling Leash words of wisdom. Like I just mentioned, it's a good sign when a new CEO's efforts are being noticed by Wall Street and being seen in the financials. And that brings me to the second part of this one. You could really see uh really start to see an upgrade in earnings estimates for Intel for the balance of this year. I know they only have one more quarter left, but for 2027 and 2028 as potentially gets customers for 14A and many of the advanced packaging products and processes it's driving within its business. And that's what Intel that's what JP Morgan is saying here today. They see a uh potential price increases leading to more earnings season upgrades. So, this is a very bullish note. I think it's just a more bullish note on Intel at a JP Morgan than the street is believing here. And I would be surprised if Intel doesn't close even higher off of these levels that you're seeing now. So, I thought that was pretty uh caught my attention indeed. What else we got here today, guys? We got Intel, we got some Meta. This is actually just turning into like one big one big tech block here. Um Meta's earnings are out too as well. And I would say this is a very we got Do we have the muse icon here, guys? You got a little muse? Whatever it is. This is a very hard I think Meta earnings report to to handicap. On the one hand, there we go, Zuck. We got uh hold the muse charm. On the one hand, there's been a lot of great news coming out of Meta the past month and a half. You had the new charm, you got some there you I love the new mascot. You know how I feel about that. You have the new charm, you got the new frontier models, you've got new AI agent, and it's not like a lot of these things are going to show up per se in the company's earnings results that are going to be released this week. You're going to hear about them talked a lot about on the earnings call. There's that, but if Meta where the confusing part comes in is if Meta comes out here and raises their capex outlook, how does the market interpret that? On the one hand, if Meta raises its capex outlook again, like it's been doing pretty much throughout this year, it could be seen as a positive because it's going to be fueling all of those positive things we have been hearing from Meta the past month and a half. However, if they raise the outlook, it could spark concerns. And here's the confusing part, that they might be overspending to support products that are not yet showing up in the company's financial results. So, this is going to be a confusing, I think, earnings report to interpret for Meta. If I had to guess because I still, you know me, you know, I was an analyst for over a decade, these these thoughts are still in my brain. I think the market's going to give Meta the benefit of the doubt as it pertains to higher capex. There's been a lot of positive signs on these AI initiatives that the company's come out with, and I think as long as Meta doesn't come out really shock the hell out of everybody with this capex increase, I think they will give the company the benefit of the doubt. So, outside of AI, I want to talk some uh I don't like the fusion of both. Little tech, little prediction markets. I want to welcome in Brian Quintens, uh Kalshi board member. Good to see you. Nice to see you in person. Yeah, I've been following your work for years. >> Thanks for having me. >> Want something to drink? You good? Here you go, we got a >> I'm I'm I'm caffeinated. I'm good. >> caffeinated. All right, come on, you guys. Let's go, let's go. Hop on in. So, as a Kalshi board member, how are you spending your time right now? >> Well, I think it's um a couple fold. Number one, you know, there's uh there's a big policy discussion going on in Washington and I think in the country about how event contracts fit into the legal derivatives framework. And I think, you know, a a lot of people have a first impression of these kinds of things as being not necessarily associated with financial markets. The The the problem with that is that, you know, derivatives and derivatives markets perform a fundamentally different purpose for our economy than the stock market does. These are risk management markets. They are pricing risk, right? They are risk transfer markets. And the idea of, you know, wagering or risking value on the outcome of an event or risk seems to kind of conflate with the idea of gambling and speculation. The issue is is that that is very legal. The law was designed to incorporate these kinds of contracts because events pose risks to businesses, individuals, and entities in the same way that commodity prices and different commodities do. And so I think educating on not only the history of derivatives markets, but the reason the law is designed the way it is, and how these products fit into that is a is a full-time job. >> Hey, it sounds like it. How How do you see regulations panning out for the prediction markets? >> Well, there is a full suite of regulations already. Kalshi, for instance, follows all of the same rules, if not more, than your largest derivatives exchanges like the CME Group or the Intercontinental Exchange. There are 23 different core principles in the law that apply to derivative markets. Kalshi has to follow all of those. They have policies and procedures on conflicts of interest, data, record keeping, reporting obligations, clearing requirements, all kinds of different requirements that they have to meet. So, the regulation is robust. There's a myth out there that these are unregulated. These are highly regulated products. Uh maybe some of the most regulated financial instruments in the world. >> regulated enough given how fast the industry is growing? >> I think there are some nuances to these markets that that could require and and might need a little bit more specificity. Um you know, we've we've heard a lot of news reports around insider trading and how certain insiders are taking advantage of uh their employment or their positions in the government to trade on events over which they actually have nonpublic information uh and over which they have a duty around that that kind of information. Um you know, that's not necessarily a new area for commodities law, but there's a general framework for how to think about that that maybe some more specificity uh could allow for. >> Is it hard Is it hard Is it going to be hard to eradicate those those issues from prediction markets, insider trading? >> Well, so I It's a great question because I think I think there's a mistaken view that that has to be the standard, right? There is an immense amount of insider trading on the stock market. Um and in fact, you know, the way that that is approached is after the fact enforcement. It's surveilled for, it's discovered, it's investigated, and it's prosecuted. Um Kalshi is the only exchange in the world that tries to preclude it before it's happening by screening people that might have that kind of sensitive information and would otherwise be precluded from trading on it. But there always has to be room for after-the-fact enforcement. I I I like to talk about we can't turn ourselves into a Minority Report Society where we're trying to predict bad outcomes and stopping them before they happen. There's some of that we can do, but there always has to be room for enforcement. >> What should enforcement look like? We've seen folks that have you know, taken in what appears to be insider trading, they hit with a financial penalty. Should they have a greater financial penalty applied to them or just frankly, just tossed in jail. >> Well, so I think, you know, it it it's always uh the the consequences are are always going to reflect the degree of the activity, the severity of the activity, the amount of money, you know, that um that was um that was kind of, you know, at risk or that was uh taken uh during that activity. So, you know, the there is discretion there by either a judge or by the, you know, the CFTC, the regulating in uh agency in in issuing settlements. But, the important thing is that I think the more these stories actually come to light, you know, which some people may think is a negative for the industry. I don't necessarily think that's true. I think there's an incredible prophylactic ash aspect to this where it shows that you're not going to get away with this activity. You know, people are trying to do it. They think they can get away with it, but they're not. And the more actually we see of those kinds of stories, and there will be some more, um the less people think that that they can do it, too. >> The other critique of prediction markets, of course, it's it's sports gambling. Where do you fall on that? >> I Look, it it falls under the law as a legal, viable, valuable derivative product because the sports industry is a thrill three trillion-dollar industry around the world. Sports outcomes have real-world financial consequences, right? So, risking money on the outcome of a sporting event isn't fundamentally any different than risking money on the outcome of weather, of cultural things, of interest rates. Um these are all things that the law accepts as posing risks to business individuals and entities. And therefore, you know, they fit within the law, and um there's nothing that precludes those kinds of trades or wagers from also being entered into in a casino, right? But, a casino is a fundamentally different model. You know, the casino business makes its money off of people's losses. They set the odds. The house sets the odds. The house ensures that it always wins. Their winnings equal their customers' losses. They have an incentive to hook their losers and limit their winners, and they do. Meanwhile, they're under a patchwork of state regulations. The casino industry in Las Vegas is going uh through its maybe worst anti-money laundering scandal in decades. But we have an alternative, which is a national derivative market that is open and transparent, where traders are meeting each other and setting prices themselves. Um and that seems like it's an equally viable, if not valuable, system. >> If regular regulation gets pushed to the states, if that is the outcome here at some point, how does that change your business? >> I mean, well, we we fundamentally we can't have states regulating national markets. Um you know, for instance, in the 1980s, the state of Massachusetts banned its citizens from being able to invest in the Apple IPO because they said it was too risky. Right? And it wasn't that long after that It is Well, I mean it's almost hard to even hear that. Uh it it's it's it's hard to accept now. And I think that's the issue, is that looking back it's really hard to accept these things now. But back then or in any given point in time, I mean, it was in the 1880s that the Supreme Court thought that trading in grain futures was gambling. Right? So, looking back, I think we see the natural evolution of markets. Um we can't have states dictating what does or does not happen or what qualifies or what doesn't qualify for a national derivatives market. They can do whatever they want with their own businesses that they regulate, but they can't regulate national marketplaces. >> Would you have Would you be no longer be allowed to call it sports betting for your business if that comes through from like state regulated If it goes If it's pushed back to the states, will you be able to call sports betting? >> Well, so, I think, you know, for for a business model, Kalshi uh is a national derivatives marketplace and is regulated under derivatives laws. And so if you know, the Supreme Court, which I believe will ultimately kind of decide this issue, if they ultimately decide that um uh contracts on sporting events uh are game are gambling or are gaming, actually is what the law says, gaming, and they can only be done in state regulated entities, then to some degree Kalshi will have to stop listing those contracts. But there's an interesting nuance here and I think this gets to one of the heart of the issues. You know, the first contract that was offered by a prediction market on the outcome of the Super Bowl wasn't on who would win the Super Bowl. It was on which city would host the World Championship Parade for the Super Bowl champions. Right. Um how do you start to understand what is a sporting uh event wager and what is a related contract on an event that has financial, commercial, or economic consequences under the law? That's why I think, you know, the idea that the federal framework governing derivative transactions in the federal derivatives regulator, the CFTC, ultimately has to have the say. >> You know, as a as a board member, I mean, part of the role of being a board member of any company is like pushing back on like the C-suite and the management team and giving them guidance and what are you telling the management team of of Kalshi as they're trying to grow really aggressively? Are you pulling them back a bit and saying, "Hey, let's get the proper protocols in place." >> Well, just to just to make sure I'm I'm clear. I'm I'm a board member of the exchange, which is a which is a regulated with the regulated entity. Um you know, the the board level of the holding the holding company board level is probably engaged in a lot more of those kinds of of discussions, but I've been a board member of the exchange and an advisor for Kalshi for 5 years. Um and so we've had a lot of these discussions and interactions. And the thing that attracted me to them and I think the thing that they were interested in me is that we both have an interest in following the law and what the law says. And if the law allows Kalshi to list certain contracts, they should list them. And if the CFTC is acting illegally to try to prevent Kalshi from listing contracts, we should sue them. And in fact, that's exactly what Kalshi did when the CFTC under the Biden administration said that they couldn't list contracts on elections. A court ruled that that was completely illegal for the CFTC to try to dictate and try to prevent that elections are not games and that elections actually do have financial commercial economic consequences like the law allows. So, there's an interest on both sides, you know, my side, their side of following the law and I think that's why, you know, our relationship has worked out so well and I think that's why Kalshi has become the leader in the prediction market space. >> Real quick, what is the difference from how Kalshi approaches its business compared to its competitor Polymarket from a government's perspective that you [music] can see? >> Well, Kalshi has been legal and regulated from day one. There are other competitors in the market that have not been and are still trying to obfuscate whether or not they are. And you know, some of that involves you know, people's claims that they use blockchain technology. I've been associated with blockchain policy advocacy for a long time. I worked in Andreessen Horowitz as the global head of their crypto policy team. I know when things really represent decentralized software and when they really represent a centralized entity hiding behind its use of blockchain to escape regulations. I'm just proud to be associated with a company that has been regulated since day one, has followed the rules since day one and has worked within the system and it's been amazing to see the growth. >> Brian, good to see you. Thanks for coming on. I appreciate it. I really enjoyed the discussion. Thanks, Barry. We'll talk to you soon. >> Okay. >> All right, you are witnessing a major founder moment in America right now. Elon Musk with flying cars and driverless cars, whatever you want to call it, is doing something that I've never seen before. Mark Zuckerberg with new frontier models, Sam Altman and Dario Amodei pushing AI models to new limits. The reality is these people and the founders before them just think differently. That's how they were able to create things where things once never even existed. If you can understand how founders think, it will go a long way in helping to grow your wealth by way of the stock market over time. I truly, truly believe that. In a new episode of my Power Players podcast, I sat down with former Weight Watchers and Home Shopping Network CEO Mindy Grossman. Mindy is a CEO legend in her own uh in her own right, but she has the opportunity, she has had the opportunity to work alongside some major founders in her time such as Oprah Winfrey, Ralph Lauren, and Tommy Hilfiger. Here's what she says makes founders tick. >> It's a part that's real and true and why they've been successful is the part that's authentic and real and true. And they're able to block out the noise of another shiny penny and they've stayed true to what they stand for and what their brands and businesses have stood for. >> It was good to see Mindy, uh always full of uh inspiration and a lot of wisdom. You can watch that episode right now uh on the Power Players page on Yahoo Finance. I encourage you to do so. All right, now the skeptic will say this about Elon Musk has unveiled in the past 5 days. Oh well, Elon decided to show off a car that doesn't technically fly and give a SpaceX stock to gift to kids because earnings out of SpaceX and Tesla won't be great. In the same breath, they may follow that up with uh well, Elon is just trying to get back in the good grace of the country in the wake of Doge. I would tell this skeptic right to their face, go back to life under that rock you crawled out of. Can't we just be normal human beings for a moment in time? In the past 5 days, we have seen the greatest inventor in our time unveil a car that flies and can do mid-air barrel rolls. Keep in mind, this flying car is electric. We have seen this We've then seen this inventor offer a gift of one share of SpaceX to every kid in America starting next year. That may equate to billions of dollars. I didn't have a single stock when I was sucking milk out of a bottle being held by my parents. I'm guessing you didn't either. You know what I had back then? Hope that I would get another bottle. You know what my earliest investing memory is? I'll tell you. Getting a $50 savings bond during the holidays when I was 7 and tossing it in the wrapping paper pile because it wasn't a toy. For one moment, can we just appreciate what we have seen from Elon the past 5 days? I'm not saying he's a perfect human and I am not sitting here fanboying. I am simply looking at the facts as they have been presented and the fact is this. This has been a monumental 5-day run for Elon Musk and the country. Stay Unleased. >> [music] [music] [music] [music] [music] [music] [music] [music] [music] [music] [music] [music] [music] [music] [music] >> Mhm. >> [music] [music] [music] [music] [music] [music] >> Woo! >> [music]