US adds just 29,000 jobs: How to find a job in the age of AI, plus Anthropic and Tesla | Market Hang

Welcome to Market Hang. So glad you're all here. We have Eric, [music] we have Kyle, and we have Chad. Thank you all for being here. >> Well, thanks for having >> What are you guys doing? >> Sorry. What did you say? >> I said, "Thanks for having us." >> Oh, of course. Of course. Um Kyle and Eric, um I'm curious. Chad and I, we grew up and we came to Wall Street. There was no email, no internet. We used fax machines. Have you guys ever used a fax machine? >> [laughter] >> I'm not that young. >> I think I might have when I was a kid. >> All right. All right. That's great. >> That's a fax machine. That's what they [laughter] looked at. >> Um, so October's here, right? And October kind of has a bad rap. Uh, there's been a lot of carnage. You know, you got 1929, uh, 1987. I remember being at football practice and someone coming up to me being like, "The stock market crash." And I was like, "Oh, um, who should I take to homecoming?" Right? And then 2008, obviously, you know, I was in the thick of it. Uh, but a lot of people are scared of October, and I'm looking at it thinking things are looking looking pretty good. I think earnings are going to be great. Um, the AI buildout is is really exciting. Oil was down this morning. Uh, I think there's a lot of things to be excited about, but what I think is most important is what is driving the market. And Eric, I think you had a tweet recently that I loved about the bond market. I'm curious what you think is driving the market right now. >> Um, I hope your optimism is correct. I can't say I'm optimistic. Uh, this is the most in the the 10 or 11 years I've been doing this, this is the most bearish I've been other than other than during CO. Um, you have a combination of I think very simply, you have a combination of two wars. Commodity prices are higher than they were in 22. And you have rate hikes globally. And that's just a bad combo for equities. It's a bad combo for markets. So, I don't think everything is going to come unhinged and totally fall apart and we'll enter a recession. But I'm I'm I'm definitely bearish on the market and I could easily see like a garden variety bare market either starting now or happening next year. Um, but that's kind of my >> Yeah, >> it's where I am right now. Um, well, I mean, your your tweet was perfect uh to encapsulate that. Uh, Kyle, I think you're you're on the other side of that argument, correct? >> Yeah, I think the market's kind of seeing through a a lot of that and as you mentioned, earnings are going to be through the roof uh for for Q3. Um, and and I think that's what's driving the market right now is earnings. Uh if you look at what's going on, everything is all about AI and as long as open AI and enthropic continue to generate more revenue, then I think the market kind of sees through a lot of what's happening. I don't think rate hikes matter because the growth is just so fast and so big uh in in AI and within the capex that it, you know, 25 bips here, 25 bips there. It doesn't actually really move the needle. Uh so I'm not overly worried. Uh, you know, oil was definitely a concern, but as you said, it's already kind of coming back down, and the market has seen through it all. We had bonds or or yields, uh, you know, at at record highs. We had oil at whatever it was, $1, $110, and the market kind of just doesn't really care. And so, I think we're now past a lot of the macro fears. And I think the next part is, you know, downside in oil, downside in yields. And so, I think, you know, maybe that's going to bring actually an upside in in equities. So, I kind of take the other side. Yeah, I'm with you. What? >> So, we're slightly overweight equity risk within our tactical allocation, but it depends on what market we're talking about here because it's been narrow leadership. It's been all AI related companies in different sectors, either it be the utilities or the industrials or for example some of the hyperskillers or whatnot. Uh here's the reality. credit spreads historically going back since we were kids after 33 35 years of looking at it right are even even though they widened out a bit high yield credit spreads are historically tight back to where it was in 2007 and in 99 so what that means is that anyone that wants to get money can get money financing is super easy because capital spending is gigantic tsunami wave that's creating operating margin expansion creating earnings expansion which leads to the bullish case for that narrow defined kind of companies. If we are to see whenever that is any kind of modification or even a company like Microsoft saying you know 2008 we're going to start slowing down our capex then forget about it. Okay game over. Also two companies >> I don't want to see that headline. >> Two companies are actually that are not public are driving the AI trade right now [laughter] >> 100%. Um, so you know, combine that with what Eric was talking about, like it it's scary, but I can't like I can't find the sell tickets. You know what I mean? >> What you do is you diversify. You don't need to sell everything. You just not I'm not selling anything. You may not be all AI all the time. You could be on the healthcare side. You could be on the consumer side. >> Let's let's let's just say that there's some massive pullback. I think we're all buying that, right? I mean depending on what they say specifically >> if there's a massive pullback like for example 30% or >> Yeah. Let's say there's like a an an AI financing headline that you know does a does a number on the market. >> I think we're still going to get in line and buy. I mean am I am I putting words in your mouth? Um, so I'm at a tech I've been at a tech VC conference this week and so my tweet was, you know, you're worried about AI killing us. Um, >> right, >> the bond market is going to get us first. And like yesterday was probably the worst day for European bonds since Russia Ukraine. So like last four years before that um you probably can't find a significant one day move like that since 2011 like European debt crisis credit spreads have been super tight and uh that's one of the things that have been I think giving us all confidence that we can manage rate hikes you know we can get through it equity markets will be fine uh if you look at European credit spreads they jumped 60 70 bips over the last 2 days uh European high yield is finally getting towards its highs of the year uh from when the Iran war kicked off. So, you know, people asked the question of like what could break, what will break under higher rates. As of this week, the the answer is Europe. Um, who knows if that will uh persist next week or if it'll come back, but as of today and yesterday, it looks very real like you know, sovereign nations are unable to withstand the current fiscal dynamics uh where rates are. And so if AI keeps driving us down this path where rates are higher than the rest of the economy can withstand, then I think that leads to protracted pain uh for the the XAI economy, which is >> bigger than the AI economy. >> Uh yeah, I I've heard it said, and you you may have heard this also, Chad, when when you get moves like that, it means something else is broken and and usually that's not revealed until later. I don't know if you remember the Bond massacre like back in '94. Do you remember that? >> Absolutely. That's that was something that people were totally caught off sides with. And you're astutely pointing out the behavior of credit and the leakage that goes into the other speculative markets. And thank you for sharing that you were you're at a a a venture capital uh conference because if you could spell the the letters A and I and you have a cage full of squirrels, you can get a billion dollars worth of financing, right? Which is completely stupid. And that's what we all know to be the truth. And I'm, you know, that you got to have first principles about this or you're going to really get hurt financially or you're going to hurt your clients. And that's really where where we are right now, >> right? Um Kyle, I'm curious when when you hear someone like me talking about the markets, do you automatically assume I'm not talking about crypto or when when someone's talking about the markets, do you do you lump them in together? because I'm I have never bought any crypto. I I don't know enough about it. Um but I was just curious when when when I'm talking about the markets, are you thinking crypto? >> Uh I'm not. No, I assume you're not talking crypto. I think there's there's certain people that I would assume they are, but I think most I'm assuming they are not. Right. Right. So when you say markets, I think stock market, although increasingly I think just AI market is what most people are referring to at this point because I kind of like look away from the rest and I'm like well this is where all the money is being made uh in ter in terms of like actual revenue in companies and so I'm like that's where my mind focuses. >> Right. Can you can you link us together like what what are the crypto markets like in terms of the equity markets or the AI markets and or the bond market? >> Yeah. So, if there was one way to start to link it, I would say in in crypto, there is a big thing that's coming right now, which is tokenized stocks. Uh, and so basically, this allows anyone to be able to trade stocks globally. Um, and you can do other things with the stocks as well. That's becoming the big trend and one of the reasons why crypto's done so well over the last couple months. Robin Hood has really gone into this. Same with Coinbase. >> Yeah. >> Oh, sorry. I was just going to say, do you buy Robin Hood off that? >> Uh, I've held Robin Hood for a while. I didn't buy it off that news cuz I I think that was a little blown out of proportion. Um, but I do think there is becoming a world where we've built this financial financial infrastructure. We've had really bad assets on chain for a long time and now we're bringing the world's best assets on chain and I think that is actually going to make a big impact. But it's still a you know another year or two story I think for tokenized stocks to become anything special. >> You wrote something that uh caught my eye. I think you said Coinbase is the apple of crypto. Is is did I make that up or did I read that? Yeah, I think I did write that a while ago. Coinbase is becoming kind of a new software layer of finance. So, they're kind of redesigning the the plumbing of the financial infrastructure. Um, and you can see it right now that a lot of the banks are now using uh Coinbase as customers. So, they're kind of rebuilding the payments infrastructure, you know, with stable coins. Um, and they're building for agents really is what they're trying to do. Uh, and for tokenization and I think they're really at the head of that. Uh, and so I think that's another way that you can actually connect what's happening with the stock market in the real world to what's happening on chain is agents are going to want to use stable coins. They're going to want to use tokenized assets because they're a lot cheaper, they move fast, they move globally. Um, and so I think as agents continue their adoption, um, you're going to start to see and and you know start to include crypto uh inside just the normal market because I think we're building for that. >> Okay, Eric, how involved are you with with crypto? Um, I mean, I wrote a speech for a Fed governor on stable coins uh last year, so relatively involved in the >> the kind of regulatory aspects of it. Um, I'm not like a crypto >> person, so to speak. Um, as far as that goes, stable coins and like Bitcoin probably. Um I'm so part of my like bare market call uh that I put on last week or two weeks ago is a kind of a bullish gold and bullish Bitcoin uh position for like down dollar type of type of reasons. I think the one issue with Bitcoin is at times the correlation to tech stocks can be a little rough and then it could trade separately from from gold. But longer term, I'm I think the issue uh that we saw so I so I was in the White House when we put tariffs on and one of the challenges for a lot of countries was they wanted to move gold either before tariffs or or during it to avoid um future taxes on on those shipments. And a lot of countries realized like gold is heavy. Uh it's hard to move. It's expensive. There's very few places you can put it, you know, put it in a vault. um if you trust a country you put it in a vault. So >> I think like I'm bullish gold but I think for a lot of countries if you want either the form of payment uh you can get to do stable coins if you want the speculative aspect of gold uh you can get that through bitcoin or whatever. So, I think the same countries buying gold, uh, whether they're diversifying reserves or they whatever. Um, I could easily see them also buying Bitcoin and Tether and Circle, whatever. Um, to kind of provide the same thing and just not have to like ship it or worry about custody or whatever. So, that's my very narrow boost. >> I love that. Chad, thoughts on gold? >> Uh, we're long gold in our in our application. long forever. >> We've been long uh you know with a 4% kind of position size and then you know it's it's gone up quite a bit. >> So what what's the main thesis of of of why you own it? >> It's it's a diversified hedge against the US dollar. It's an insurance policy and you know it goes in line with you know the deficit spend and and whatnot. So uh we're we're we like gold. Uh you know are we 40% of our portfolio in gold? hair on fire kind of thing, right? Uh no, uh you know, we'd prefer to be in US equities, international on that side, but but again, you you should have a portion of your assets just as a as kind of a insurance policy. >> Right. Right. Um everyone has mentioned sort of the AI buildout just a little bit and it it being inflationary. Um is that cause for concern >> for on my part? Uh yeah. I mean look you you've got for us the perspective is you have a historic capital spending cycle. Uh is it a real technology? Obviously it's incredibly real but now you have the fin financialization part of it similar to 2007 that you have to be somewhat mindful of. So you have a huge amount of capital that's going out, okay, and disrupting the real economy and the and also the financial system with a lot of over extrapolation about, you know, the growth rates from here until eternity. And I just think that now we're just somewhat more giddy or let's just say, you know, it's just we have to just be somewhat more mindful about the risk and the assumptions that we're taking. >> Right. Right. But by by nature, are you usually pretty like secure in your risk? >> Yeah, pretty much. Because the firm was created in 2003. Credit spreads were not 500 basis points over. They were 800. The reasoning behind me saying that was the NASDAQ was down 80 plus%. The S&P was down 40 plus%. So, we made a decision. What are your first principles? How do you not blow someone up? That doesn't mean you can't make a lot of money, but you have to be mindful about the risks that you're taking and the sizing within your portfolio. >> Right. >> Kyle, what do you think of that? Do do you do you think he's being a little too safe? >> Uh, no. I mean, I think everyone has different risk profiles and I think, yeah, there's nothing there's nothing wrong with that. Depends on who's investing, how much capital, and money, what your time frame is. Who whose money? Yeah. And and what your time frame is, right? And I think that's the biggest thing is what the time frame is. A lot of people have very different time frames and so they have very different strategies and so I got no issues with that. >> Right. Right. Um what did how riskaverse are you Eric? >> Um I mean I'm I'm calling for a bare market. I think so my like world is mostly um allocators and macro funds. That's who I talk to every day other than when I'm at a tech conference randomly, >> right? Um I think the tricky thing for macro this year is everyone's tried to receive rates or be long the front end. Um whether it's in Europe, Canada, the US, wherever. Basically saying like there's only the economy is not that strong. Certainly central banks can't raise rates as much as the markets are pricing. And then each time people go long, you know, rates blow out even further and yields keep rising. So if you're in a world where maybe you're bearish stocks or you just you know valuations will compress whether you know we can meet earnings expectations sure but you know you think valuations will compress uh and you're not getting the hedge or the offset from being long rates you know what do you buy uh and sure like gold like I'm bullish gold but um if you're in a world where the stock bond correlation is not going to give you protection because AI is going to keep going um the fiscal trajectory factory in many countries is is not good. Um, then you just you just ask yourself, what do you buy? And there's not a ton of things to buy. Um, frankly, like I I do invest in great corporate credit, but that's still a hard question to answer. >> Um, all right. I'm just one quick question for you. What would make you say I'm wrong on your >> I hope because I'm, you know, long equities like everyone else. Um I think so what you've seen this year the past year and a half is like a reaceleration in bank lending in the US. So credit expansion greater demand for loans from commercial industrial firms. So it's not just right >> you know >> Oracle uh or whatever you know doing capex it's actually the real economy >> right >> if that keeps going and I so I don't expect it to keep going I think loan growth will stop I think companies will be on pause I think banks will be on pause but if that keeps going we're fine >> right >> uh and that's very possible I think the one big beautiful bill the deregulatory aspects from the admin I'm obviously biased like I was you know that was something I worked on >> um those are powerful and if they keep the economy chugging and the real economy can withstand higher rates, then fine. I'll gladly be wrong, but I just don't >> Right. It sounds It sounds sort of like Kyle's bullish pitch, right? >> I mean, it's it's easy to be like things are okay or good or whatever, but if you're priced for things to be great, like it's not hard. So, in 2022, we had a bare market, but like growth didn't go negative. Growth bottomed at like real growth was 1.3% at the end of 2022. We had an oil shock. We had higher rates, multiples compressed, and then everyone forgot about it because 23 and 24 were great. Um, I think the odds of another 22 are incredibly high, right? >> And it doesn't mean everything's falling apart, but it's not, >> you know, it's just been it's been too bullish for too long. And it's not an reason in and of itself, but >> when you say we're going to a bare market, is that what you mean is another year-long like a 2022 style bare market? And what's your like I'm trying to understand why you think that like what's the exact how do you think this plays out. >> Yeah. So it's basically just a multiple compression story for me. Uh so 22 we went from 21 times on the S&P to 15. Uh this year we've gone from 22 21 to 19 times. I think we go to 15 on rates higher. Uh credit spreads widening. Um you know we have two energy shocks. And the issue with I don't think the Fed was thinking about this when they hiked, but I think the post hawk rationalization is um oil up is basically a tax on discretionary spending, right? Like I spend more on gas, I spend less at a sushi bar. Um when it's diesel and when it's refined products, it's like an inflationary input into everything. AS farming, food, whatever. It's just inflation. And so if central banks are hiking into that, it's like doubly bad. And if the Ian war ended tomorrow, I'd be mega bullish. I'd go super long, whatever. >> But there's zero indications the Iran war is ending tomorrow, right? Um, and we were lucky that China, not lucky, but China not importing crude for a few months during the Iran war kind of got us through the summer. And then everyone forgot that like this is still a really big problem. And I think we're on the other side of that now. Um, and it it's it's all just a function of the war. The longer the war goes, the worse things are. If the war ends, we're fine. >> And that's boiled down. >> Yeah. The framework is astute because what you're seeing is companies that have to rely on those input costs that are going higher. Their multiples are contracting. And it's not that I'm uber bearish on the market. It's just we have to have the setup is credit spread tight. You have market uh market cap to GDP that's historically high right now. You have the S&P 500 earn uh that yield is historically low going back to 1870 if you pair everything up. So, you know, you could see the setup where there could be a a modest setback. >> Yeah. Totally. Yeah. I mean, I guess my my point of view is I'm I'm holding for three, five, 10 years, so I don't really care. So, I'm not going to try to catch a year-long bare market, right? But, uh, obviously, we had a jobs number that came in today. Uh, disappointed a little bit. I don't think it moves the needle. It didn't, it didn't really affect the market. Any any thoughts on the job? >> You just have, you know, you still have a low growth, low hiring rate. You have low wage, low fire, lowire, low fire, low, higher. uh you know you wage inflation is not really the problem here. Uh so the Federal Reserve it gives the Federal Reserve a little bit of runway ever so gently to just perhaps pause in in October. Obviously those those futures have come down from 62% down to 15% for the time being but we believe that the Fed will have to start you know hitting the gas pedal once again. >> Okay. Any what did you guys think about the number? Um, yeah, I'd like to the wage growth component, I think, is the most important thing, right? And this year, you've seen >> wage growth decelerate from like 3.8% year-over-year to, as of today's report, 3%. Uh, so like, you know, nearly a percentage point in less than a year. We're like there's no immigration, right? Like we have negative labor force growth or at least zero labor force growth and wage growth is still decelerating pretty sharply. I think that tells you something about the labor like it's very hard to read the labor market on a month-to-month basis. Uh I think the NFP is kind of like a random number generator at this point and it gets revised too sharply. Uh you never like if you're bullish or you're bearish just wait for the next provision something will happen. um the fact wage growth has been the most telling thing and it's it hasn't there's no aberrations right everything shows you just wage growth falling falling falling in the concept in the context of no labor force growth or no immigration I think that's really important um so I was not I think they shouldn't have hiked I was like on TV saying maybe they won't hike um obviously the odds were were super high before the September meeting um but I think it was wrong and like you know one hike whatever it is what it is but I think the issue for the doves on the committee so like Williams daily Goulsby whomever is that when you hike once the markets start to price in a full cycle and that's what you have and that exacts or that exerts inordinate pressure on the real economy because markets are you know tightening conditions for you essentially and with wage growth falling now 3% year-over-year core CPI is pretty low 2.3 2.4% 4%. [snorts] There was just no reason to hike right now. Like there's no we're not reacelerating. It's not 2022 and home prices are up 25%. And CPI is 6 and a half. >> We're falling to two. It's taking too long. But just because it's taking too long doesn't mean you kind of like >> go on the gas pedal a little faster just to get there two months quicker. That's how the economy works. It's not like this is not a perfect science. Um so I left the Fed in January to to move to LA. Um, and my perspective was like, "These guys are not going to hike." Uh, they had a view of the neutral rate that was a bit lower from here. And I basically think the only thing that's changed is they're like, "Okay, this war is never going to end. And therefore, if we don't do it now, we're going to have to do it more later." Um, that's fine. That's central banking. But if you're hiking into an energy shock that you don't want to hike into, that's just a bad recipe, right? Uh, so I'm I'm struggling I'm struggling to see the bull case from rich valuation. >> But I'm curious, especially with your background, um, you don't think there's a possibility of them trying to to massage something before the midterms in terms of the of the war? You don't think that's even on the menu right now >> at this point? Does would it even matter? >> It it wouldn't other than like trying to get a good headline. I think >> I mean, President Trump does not care about midterms. He cares about his legacy. He cares about Iran from a, you know, a secular structural perspective. Is this issue taken care of in some shape, way, or form. Uh, we're in October. Like, it's not if someone changes their vote because of what happens in the Iran war in the next week, like fine. But I I don't know if the bulk of Americans are going to >> totally change their mind. >> Kyle, how uh how important do you think the midterms are? Uh, I mean it matters for a lot of things, especially around regulation and that, but I think at this point, um, I don't know. I I think the Fed actually could have just raised uh just to show their independence from from Trump because he's been yelling at them to to cut rates because I I agree with you, Eric. I I don't see why they raised at all. You know, raising into an energy shock just makes no sense. Uh, and so um, you know, I'd be surprised if they continue to raise, which is why I don't think we're going into a rate hiking cycle. I think they're going to, you know, they raised once, maybe they're going to raise one more time. Um, but it it really all just depends on on the war at the moment. I think that's the main thing that matters is just the Iran war. Well, not even the war. It just matters about the price of oil because there is a world where the war continues, but we figure out a way to allow the straight to be open and oil to pass and oil ends up coming back down, but the war continues. Um, I don't know if that'll happen. I'm just saying it can. So it's not necessarily specifically about the war, but it is just about the price of oil is what I think matters more than anything right now in terms of uh inflation, in terms of the Fed. Uh and so I think that's the biggest thing. >> That's that's your number one. >> Yeah. At the moment. >> How about you? Do do you think in >> oil? I think oil is a is a component of it, right? And this trader harm is going there. From what we can tell from our research, there's a slow trickle going through and this whole idea that the Saudis can pump through a pipeline. Unless those pipelines can duck and weave like a running back, then they're going to always be there's always going to be some concern there. So, there's going to be a premium on oil. Uh, and when it comes to like the central banks, global central banks right now are raising rates and the fiscal the fiscal austerity, there is none. They're all hitting the gas pedal. So, we're expecting, just observing, we're expecting that the Fed will continue to slowly tiptoe and raise rates and they're going to eventually decelerate that, right? >> But maybe you get one or two more over the course of next six months. >> So, um, thank you for that. Going back to jobs, uh, Chad and I were talking, uh, before the show started and I have a 20-year-old daughter. He has two children, correct? Right. In their 20s, right? any advice how to get a job in this in this market entering into the workforce? >> Yeah, you use AI. Uh I I run two companies. Um we have 60 plus employees. We're still hiring. >> Yeah, we're still hiring, but we're only hiring people that are power users of AI. Um because if you're not using AI, you're an extremely inefficient human, unfortunately. Um, we've actually recycled a lot of people in the company that either refused to use AI or um, just weren't getting it. Um, and by recycled, I mean, you know, brought in people that that were big AI users. Um, because we just find they're so much more efficient. And the more that we hire people that are really good with AI, the more profitable we become, which means we can hire more people. Um, I think there's a lot of fear around AI at the moment, which like is is understandable, but the thing to understand right now at least is AI is only as good as the human that's controlling it and that's like in the loop. And so I think um, you know, whatever it is you're doing, whatever you're taking in school or whatever you're trying to, you know, doing your internships, you know, learn that skill, you know, maybe it's finance, maybe it's, I don't know, whatever science, but then learn that skill and apply AI to that skill. And if you can do that well, you will be very employable for for many years to come in my opinion. >> What do you think of that, Eric? >> Yeah, I mean, we hired two kids this year. Uh, we got a guy from the Fed. Um, and we hired another kid to do like bisdev, and we were definitely like we want them to be AI capable, be better at AI than the, you know, how we are now. I'm kind of coming around to the view that it just like doesn't matter. like there's not either you're good at your job or you're not. And if you could do it in Excel, like you know, if if Quad makes you do it 10 minutes faster or whatever, then like it does my day-to-day doesn't change that much, >> right? >> Um >> I mean like if I was telling a kid what to do, I'd say go study English. Um like learn how to write because no one knows how to write or communicate. >> Yeah. Like just like learn communication skills greater than just being an extrovert, right? like, you know, learn how to actually develop that skill. Um, so yeah, AI is good or whatever and it's great to, but the thing about AI is it's easy to adopt, right? Like if I never used Claude before, the barrier to you to becoming a super user is like incredibly low. I can just do it tomorrow, right? >> So, everyone you hire will be AI capable. Um, I think it's those specific soft skills and also an understanding like if you're going to work for a hedge fund today, um, they want you to know how to use AI, but like it's good because you already learned how to trade markets before AI. If you're like a 22-year-old kid joining a macro fund, >> like or let's say I'm doing equity research at Goldman Sachs and Claude can build a DCF for me. It's only useful in so far as you like you really understand how to value a company and you really understand that. So that'll probably be the tricky thing. >> I I love that you brought up, you know, go study English or I threw out philosophy, but like go study English and then where how does that coincide with, you know, in today's market, you have to pass like an AI resume test, right? And so are they going to be looking for, you know, English majors? >> I mean, I think so. I also like I talked to a lot of people who like, oh, like my kid, you know, is in college. What should he study? And I'm like, oh, where does he go? And they're like, Yale. I'm like, I don't whatever he wants to study, you know, whatever he enjoys. Um, yeah, they'll look for that. Like, I don't know. You know, one of the big discussions is, is AI going to take our jobs as like white collar workers, as you know, knowledge economy workers? I don't really think there's any, you know, there's like relative changes. Some industries will win and lose. But like institutions are run by people. The Fed is run by people. The White House is run by people. Every country is a, you know, a person-based thing. Uh, as long as that is true, which I don't imagine it changes, everyone will be fine. Like lawyers, you know, maybe law firms hire less people, but like lawyers are still going to be in demand because fundamentally we're like social animals. So I don't know. I don't my you know I'm not sending my to college but you know I don't know what I would tell them other than learn be interesting >> right. Is is that sort of the advice you gave your kids or >> Yeah. I think the the the advice of of going and getting an English degree and learning how to write, be able to formulate a, you know, a well spoken or wellthoughtout uh document, right? Uh that is going to advance you, be more personable. Okay? I mean, you know, the a lot of the younger kids coming out are, you know, unfortunately they've been stunted by COVID and social media. So that also is advances them. It's really, but this is really a dystopian kind of world that we live in with jobs now. When I came out, you know, you got your job from a friend or you put your resume in. Now you have to go in and there's an AI overview interview. I mean, this just bananas what's happening these days, which is, you know, a reflection of of society, I guess, right? >> Which is a bummer. >> It is. All right. So, putting jobs Oh, sorry, Kyle. >> Yeah, I was just going to say one other quick. The other good advice is go learn sales. Uh I feel like if you learn sales you learn a lot of different skills which would include you know writing and English because you got to write emails you got to go on calls but you learn failure right which is so important and learn how to get back up you learn how to communicate with people how to be personable there's so many things which and I feel like sales either allows you to you know have a job and be successful there but it also allows you to become an entrepreneur if you want to start your own company. Um, so sales is the other thing where, you know, if my child, if I had a child was, you know, and they were 18, 19, whatever, going into the workforce, I I'd get them into sales for sure. >> Um, thank you. So, speaking of, I don't know if Dylan was an English major, but he is a writer. And, um, we want to talk about Nike, Dylan, what do you what do you >> Everybody does. >> Thank you for coming on. >> Absolutely. Thanks for having me. So, is is is Nike over? Is it like sick of forking him? Like what what what's going on? >> You know, it's it's funny. Over the last few weeks, I had been kind of starting to think that um the pile on and the hate watch was was overdone, right? It's Nike has kind of become the the punching bag that everybody wants to kick. Um and you know, last night's earnings call, they they didn't really give, you know, much reason for for people to to stop that. there wasn't there wasn't a lot of reason for optimism. It feels like you know this this reset is probably in the earlier stages than people had hoped and um it's going to be ongoing for for a ways still. So uh they're probably going to have to get used to being in the hot seat uh until kind of morale improves, >> right? Um, we were talking on our morning call this uh this morning about Nike and I believe that we're never going to see a brand like as iconic as that just because of the the current environment and with competition and just the way that the world is. I I don't think it can happen again. is is is it >> yeah I mean it was such a such an iconic and and incredibly dominant brand and I do still think they have that target on their back but you know by kind of withdrawing from wholesale um and opening room on shelves for for other brands to fill in they they open the door for a lot of competitors to um start to take share and really start to gain momentum among younger younger consumers. You look at the ans and the hocas of the world and you know this is a much more fragmented marketplace than I think it was in the past where there are a lot of options and no single one of them is is the cool one and in fact um if there is one it certainly hasn't been Nike among among younger consumers recently. So um really problematic for them but at the same time >> you know this is an industry more broadly right now that I think is struggling. You know, I mentioned Dawn, um, mentioned Hoka. Neither of those are are favorites of the stock market right now either as as the market becomes a little bit more cautious about, you know, their growth prospects. They've been red-hot growers for years now. But, um, kind of the the the sneaker category is is, uh, struggling broadly right now. Chad, I know you you're are you involved or >> Yeah, for full disclosure, we used to own Nike and personally I own uh Deckers, which owns Hoka. Ask away >> which Yeah. Yeah. So So the what the the internal growth rates, you're seeing a deceleration uh for both an and and Hoka at this point. >> Yeah. And to be fair from you know extraordinarily high levels particularly in comparison to kind of the giants of the space right but um you know I think these are these are really competitive categories and Hoka was obviously very successful in kind of u being the first through the door really in the in the max cushioning kind of running product and and on has obviously carved out you know a really interesting piece of the market but you know there's there's a certain gravity that's the reality of the situation that that's that growth is is tough to keep up particularly in, you know, an environment for sneakers in lifestyle especially, but also to a degree in performance where we're just in a really promotional environment. Um, retailers are having trouble selling a lot of products through um, you know, Nike in particular, but but there's maybe some some signs of weakness um, for those kind of emerging brands. I know wholesale um, situation was a source of concern. and you know they're they're kind of consciously pulling back supply from that channel to preserve their kind of premium status and and still growing very strong DTC but um you know some some I guess more challenging signals in the wholesale market right >> so at what price would you be buying those type of names I mean when you look at a deck uh it's trading like an EV to EBIT of eight times or nine times as well as on at this point because of that internal growth rate compressing Where is it just like a no-brainer to buy these companies? >> I don't know if I'm if I'm your guy for for that question, but it just seems to me like the uh the the narrative in that category is is is really challenged across the board right now. And and we haven't seen many reasons for, you know, momentum to kind of be restored in the short term here. So, you know, I can't get into kind of the the specifics of the uh the valuation as it stands today on either front. you know, not not being an analyst, but you know, I can tell you that it's been kind of a parade of of bad news and and I guess you could say disappointing results across the industry, >> right? Kyle or Eric, are you involved with retail or no consumer? >> Not me. >> No. What do you think? What do you think of a guy my age walking around with Nikes? >> Tell the truth. >> I see nothing wrong with that. >> Yeah, I see nothing wrong with that. >> Do you see me more as like a New Balance guy? >> [laughter] >> No, that's even older. >> Um, so I'm I'm I'm curious, Dylan, is there an anti- AI trade where where people are going to be getting outside more and I don't know, like maybe there's Dick Sporting Good. I I don't know. Is is that possible? And how did their they bought Foot Locker, right? >> They did. Um has not been going particularly well. Um the early integration has been um challenging for for Dick's stock, but it's it's funny you mentioned the anti-AI trade. I think where we're seeing that show up mostly right now is in um sports franchises and and there's not, you know, a lot of that on public markets. You have Madison Square Garden Sports, which is going to be spinning off the Knicks and Rangers um into their own companies in the coming weeks. Um but in in private markets you see um the investment thesis on on sports in general right now and certainly sports franchises is you know in in a world where kind of content becomes abundant there's going to be greater value placed on you know really live organic human content and sports is kind of king. So, um, it's kind of become not not necessarily an anti- AI trade, but, um, to the extent that AI is is going to become the part of our lives that we all think it is, uh, that suddenly becomes a pretty attractive, um, thing that's really hard to disrupt. >> Right. Right. Um, Eric and, um, Kyle, I'm curious on the whole idea of Nike not being cool or the death of cool, like, do you think things can be cool still? Um, I actually want to accentuate uh what he just mentioned, which is like the entertainment economy. Yeah. >> Is it's not an anti-AII trade necessarily, but in a world where you're worried about AI, I think that's the that's the thing, right? And it's a little more zoomed out. Uh, but Josh Kushner at Thrive Capital, you know, buying the Lakers, obviously there was a forced seller. Um, but I think he's, you know, the big AI guy, um, in private markets and for them to go buy a sports franchise, which is obviously everyone wants to own the Lakers, but like I think that's the right thing to do. And you can go to a million Taylor Swift concerts, like these repeatable things, which aren't just like a one-time big box purchase. I'm super bullish on those things. And, you know, it's very funny if you go on Twitter, you see like VCs trying to get reservations at good restaurants. And I find that hilarious as an issue to solve. But nonetheless, people want to go out to eat, like they want to go to a concert, they want to go to sports games. So, I'm super bullish on this whole entertainment economy idea. Um, and if you, you know, if you join a run club. So, I live in Venice Beach in Los Angeles. The Venice Run Club is like sponsored by uh an or whatever, whatever the the name is. I don't know. >> So, they have a partnership. There's like thousands of people who go to this run club twice a week. uh they sponsor people who run in the LA Marathon. And so those events, those activities, I think, are a great bet for a world where you're just unsure what AI is going to do, >> right? Kyle, how how active are you getting outside? >> Uh yeah, very active. I play a lot of different sports. And I think um I think human interactions, whether it's it's active or fun or anything else, is um you know, has always been a big thing, but it's going to be even bigger. Uh, and as AI gets adopted more and, um, you know, the more that we're kind of using things online, um, I think those become even more important. Uh, it's why you're seeing concerts, sporting events, everything get so expensive. That's not stopping. I think that's a huge trend. And, um, so yeah, I think that's going to be a big trend for for the decades ahead. >> Right. Right. That um, have you have you looked at Sphere? >> Oh, in Vegas talking about Yeah. >> I haven't gone yet. >> Yeah. Okay. Yeah. That's That's an event. [laughter] People People love it. Uh Dylan, so how do you how do you think about this anti- well, I'm calling it anti AI, but are people getting outside and doing live events? >> I I think there's there's that aspect of it. And and I also just think there's a an appetite and a desire for, you know, uh unscripted entertainment where, you know, the the outcome is unknown. Um there's there's an element of monoculture still to it, right? And that's that's something that's really limited today, right? Where where nobody's kind of watching the same shows on network television anymore. Everybody's streaming their own things, watching their own things on YouTube. and sports are still kind of that that one element of um you know they have that kind of water cooler power um to to still be kind of a a unifying force and something that's that's attracting you know a huge amount of attention. So it's it's kind of a a tighter fabric of of the community if you will. So it's it's it's things like that. It could be inerson experiences. It could be live events, but you know, things things that are attracting attention in a world where attention is just incredibly fragmented in ways we've never seen before. >> Well, Dylan, thank you so much for joining us. Uh we really appreciate it and uh hopefully you you come back soon. >> Thanks for having me. Can't wait for next time. >> Of course. Uh, so going back to to AI, I feel like every single day, not even I feel like every single day, there are financial headlines. So, uh, the one today was Amazon seeks to offload 8 million of Nvidia chips to investors. And so, I know that isn't necessarily circular financing, but this is this is probably what scares me the most. And I know you had comments on Microsoft um like the the adult in the room. >> Yeah. The well that what we're talking about is the financialization of chips and preack packaging them and then selling them to financial institutions which although is legal, it may be that at the end of the day it's not going to end well for the buyer of that security. So, I'll take the other side of that bet because I'm not I would not participate in that transaction buying that security. Microsoft seems to be the at least a lower risk way of investing in AI and they seem to have a clear pathway to profitability by leveraging their existing client base and offering out uh different models at a cheaper price. So uh this may change but for the time being their capital expenditure side seems to be balanced with their cash flow side. Uh so we think that that is perhaps the more conservative way of playing AI as opposed to some of these other AI projects that do not have the probability of working out >> right. any concern on on your part, Kyle, Eric, on the on the financing of AI. >> Uh yeah, I mean, sure. Uh I don't think it's a catalyst in and of itself, but it just compounds if something does go wrong, it compounds the possible pain. >> I think the the number one thing that I look at to try and get a gauge of what's the risk of this all blowing up is like I look at Oracle CDS. Um I just pulled it up. It's trading at 250. the most it was in the last five years was like 150. So there's certainly certainly someone I like I tend to think credit investors are smarter than stock investors though stock market guys tend to make more money. So who's smarter? I don't know. Um but I will say like that's not good. >> And then you have the local economy issue where certain municipalities can like like this New Mexico data center push back is clearly like a microcosm of a much broader issue. And you can even see it if you read like NIK or or some you know East Asian uh publications there's similar like local economy issues all around the world where people are trying to build data centers or be part of the AI capex boom but if you're a local community and you're feeling either negative effects or you're not benefiting. It's like the K-shaped economy thing but on steroids. So, in so far as midterms matter, like I I don't know if they do, but if they do, I think like this, you know, will AI kill us? I don't know. But if if politicians kill AI, that's certainly um a big risk and something that could happen, you know, in the next year or so, >> right? So, Chad, I think you had a comment maybe in December on Core Weeave and Oracle. Did do you feel vindicated? >> Well, yeah. I wouldn't here's here here's the personal experience that happened 2006 into 2008. What happened was you had credit default swaps at 250 for certain securities and then all of a sudden you wake you went to the bathroom came back and those CDS spreads widened out 500 basis points and it was lights out game over say goodbye. And what I'm just saying and our team is saying is you have to be mindful about the credit risk because what happens is once this happens the equity starts to act like an expiring op uh stock option and the V gets goes parabolic. So you just have to be somewhat more mindful about this. This doesn't mean I'm a Cassandra. doesn't mean our team is gonna say just buy high quality stocks that perhaps don't have credit default swaps that are going up a 100 basis points every other day. >> Um, and I I don't mean to be an alarmist, but for whatever reason, the circular financing has this eerie like familiarity of subprime. Like I just keep hearing it like the same beat as I heard subprime for 18 months where it didn't mean anything until it means something. And that's precisely right. And again, it, you know, because it sounds like I'm a bear, but that's not the case. It's just being mindful about the your risk that you're taking. The circular financing side, uh, that credit channel, uh, they're getting more creative. They're getting cuter with it, and it's perfectly legal, legal, not illegal, right? Uh, and you just don't know. you well it's been reported that some of the insurance companies are taking on some of the private credit side. Yeah. And those marks may not be the marks that they should be. Uh so we just want to you could buy other things that are not AI like go out and buy Proctor and Gamble for God's sake or [laughter] or a company like Illinois Toolworks you know put something like that in your portfolio >> or low momentum kind of trade. Kyle, your thoughts on circular financing or some of these deals? >> Yeah, I think um I mean the risk is there and of course if demand starts to slow down uh and the revenues of of you know AI applications starts to slow down then there's definitely going to be concern. Um but I think there's also um you know the positive side to it too. We've had you know technologies and developments that have happened before with circular financing where it wasn't an issue and then you have the worst case scenario which is subprime. So it could go either way. Open AAI added $30 billion of ARR in the last month and a half. Uh so right now I would say circular financing is not an issue. Uh the question is is does the usage and the demand for AI and the um the enterprises ability to keep paying for a does that continue to grow? If that does I think we're fine. Um if that doesn't obviously it can unfold pretty fast. Those are the kind of risks you just have to weigh. Um and I think the market's just going to keep kind of guessing. Do we have another 6 months left in this? Do we have another 9 months, 12 months? Um, and I think right now we've still got time left and I think the demand is still fairly early. Uh, and so I think we'll still see growth. Um, but at some point uh it's very likely that that it does unwind. >> Um, so how how do you um weigh the difference or concentration versus circular financing? Like what what is more at risk right now? >> All of the above. I mean, you got two companies that have obligated themselves to uh paying Microsoft, Amazon, and all these Neoclouds for compute, and they're going out running around building out uh infrastructure. So, you know, this is it's a it's a concentrated bet and we don't really know the profitability of OpenAI uh when you include uh training the model because the model has to be trained. If it's not trained then it becomes uh like milk old milk in the refrigerator. Uh so that is part of the cost of actually creating the product right Eric your thoughts on the concentration risk. >> Yeah I mean concentration broadly has been a good thing for the US stock market. Uh it continues to be and so now it's kind of funny that concentration is a bad thing. um you know like again it's not a catalyst in and of itself it would just compound if something went wrong it would make it worse but I think broadly what so people talk about like AI crowding out US Treasury or something you know I think what's bad for the rest of the economy is that clearly rates are too restrictive I think the housing market's frozen consumption could be better you can't build anything that's not a data center and the longer AI goes, the more fragile the system becomes because it just it just becomes just AI because nothing else is turnurning. And so in some ways it could probably be healthy if we had a bit of a pullback from this just in AI capex insanity. Um but again if it's another year and stocks keep going and earnings keep being insane and you know the circular financing bubble becomes bigger I think you know you just have less less of a cushion if it ever goes wrong >> and then you you get to a place where if AI falls apart but then the rest of the economy can't respond and then what if because >> we've had too high inflation for 5 years the Fed doesn't feel like it can cut rates promptly and then for the first time ever the Fed is not respond respondent enough to, you know, be accommodative to the economy. That's when things get really bad, >> right? >> Um, so that's not a base case, but I think that's a very real possibility um that people should think about. >> Yep. >> Um, so we'll do a little speed round quick. What is one thing that could pop the bubble if if it is a bubble? just the rationalization by the hyperscalers to say, "Hey, after 2027 or 28, we're going to decelerate our capex spend." then it's lights out and all of those AI enthusiasts are going to have to ratchet down their assumptions on growth and hence you'll start to see a a >> Kyle >> uh I think if we start to see enthropic and open's revenues go down or just stay completely flat without a sort of diversified uh you know other companies other labs uh you know coming in and and bringing in that revenue instead. If we don't see that and we see their their revenues just kind of stall, um, everyone's going to be running away from the market. >> And the big bear, Eric, >> what's what's what's number one on the list? >> Um, number one on the list is a fiscal crisis. Not necessarily in the US, but I think for instance, like let's say France or Italy. The interesting discussion in France right now is should they default on their debt to the ECB? uh which is crazy and would certainly have spillover effects, but I think something weird, something outside of the AI ecosphere breaks or blows up and then you just simply stop lending, >> right? >> Large lenders to the US economy for the past couple years and especially to AI have been sovereign wealth funds in the Middle East, uh pension plans in East Asia, etc. And if they just pause for 6 to 12 months, the AI capex stops. they simply can't get the financing at a rate that makes sense. So, for me, that's the biggest thing. Uh, and I, you know, I hope I'm wrong. I hope it doesn't happen, >> right? I'm I'm with you on the on the capex. Um, but I'm staying long. I'm super bullish and I'm crossing my fingers. You're not supposed to do that in trading, but I I just I think you got to be there. And, you know, down 20, down 30%, down 40%, I don't care. I'm going to stick with it 5 10 years from now. I'll be >> just be diversified. That's all I'm saying. >> Of course. Of course. Although, you know what's interesting about that is people don't realize how how much AI exposure they actually have, >> right? >> You know, >> good point. >> So, you you might think, oh, I just own this fund or, you know, I just own the S&P 500. No, you're you're long AI >> and that's all that's been moving over the last three years. Well, thank you all for for coming. Uh, great great hang. Really appreciate it. Hope you you all come back and thank you. Yeah. [music] >> Thanks, guys. Great time. >> Have a great day. Thank you. >> Take care. [music] [music] Hey, hey, hey. [music] [music] [music] >> [music] [music] [music] [music] [music] [music] [music] [music] [music] >> Heat. Hey. Hey. Hey. [music] [music] [music] [music] Heat. Heat. [music] [music] >> [music] [music]