MacroVoices #526 Matt Barrie: Pay To PrAI

[music] This is Macro Voices, the free weekly financial podcast targeting professional finance, high net worth individuals, family offices, and other sophisticated investors. Macro Voices is all about the brightest minds in the world of finance and macroeconomics telling it like it is. Bullish your bearish, no holds barred. Now, here are your hosts, Eric Townsend and Patrick Sarrezna. Macro Voices episode 526 was produced on April 2nd, 2026. I'm Eric Townsend. We've got another Macro Voices double header lined up for you and it's going to be a doozy. President Trump gave an address Wednesday night that surprised the markets. So I'm recording earlier than usual this week on Wednesday night about an hour after President Trump's speech in which he said that if no deal can be reached, the US plans include targeting all of Iran's civilian electric power generation plants, probably simultaneously. That's exactly the red line that Iran has previously said would cause it to retaliate by targeting desalination plants and the UAE's Baraka Nuclear Power Station. Now, we know the President's negotiating style is to make dire threats and then walk them back once a deal is reached. So hopefully the threat of targeting civilian power generation infrastructure will come off the table soon. But overall, my take is that this conflict is heating up, not cooling down as the market was interpreting before President Trump's Wednesday evening speech. And the President was clear in that speech in saying that the US would be hitting Iran very hard over the next two weeks if no deal is reached. We're going to kick things off with an exceptional performance by Freelancer.com CEO Matt Berry, who returns as this week's feature interview guest for a full interview on the latest developments on artificial intelligence, what they mean for private credit markets, why the AI business model is setting the stage for an eventual market dislocation on the scale of the 2000 dot combust, why paper-token inference pricing is inevitable and why it will collapse the current AI business model and much more. Then for this week's Iran conflict update, energy outlook advisor's founder and managing partner, Dr. Anis Al-Haji returns as this week's second feature interview guest and it's going to run just as long as our first feature interview because there was so much to cover after the president's Wednesday night address. So this is going to be a long episode but a very important one. So sit back, relax and expect some really exceptional content from both of our guests. Then be sure to stay tuned for our post-game segment when Patrick's trade of the week will take a look at private credit markets and how to play them in public markets which you can actually trade. And then of course we'll have our usual coverage on all the markets as of Wednesday's close. Please bear with us this week folks. I've asked our production team to prioritize getting this episode out as quickly as possible and given the length of both interviews and editing literature to just might slip through the cracks. And I'm Patrick Sarasna with the macro scoreboard week over week as of the close of Wednesday April 2nd, 2026, the SMP 500 index down 24 basis points training to 65 75 markets put together and oversold bounce but will rallies fail with this geopolitical backdrop. We'll take a closer look at that chart and the key technical levels to watch in the post-game segment, the US dollar index down nine basis points trading at 99 55, the May WTI Crude Oil contract up a thousand and 85 basis points to 100 spot one two, the May our Bob Gasling up 439 basis points trading at 309, the June gold contract up five 100 basis points to 48 13, golds approaching its 50 day moving average bouncing from its oversold conditions, the May copper contract up 162 basis points trading at 565, the April uranium contract down 12 basis points trading at 84 30 and the US 10 year treasury yield up for basis points trading at 437, the key news to watch this week is Friday's jobs numbers and next week we have the ISM services PMIs, the core PCE and CPI inflation numbers and the FOMC meeting minutes. This week's feature interview guest is freelancer.com founder Matt Barry, Eric and Matt discuss the sustainability of the AI business model, why rising risks and weak unit economics could lead to a shakeout similar to the dot com era and how AI's impact on software and private credit could create broader market stresses and stay tuned for a special follow-up with Dr. Nas Alhaji where we break down the escalating Iran conflict and its implications on global energy markets, Eric's interview with Matt Barry is coming up as macro voices continues right here at macrovoices.com And now with this week's special guest, here's your host Eric Townsend. Joining me now is freelancer.com founder Matt Barry. As usual, Matt has written an excellent paper about AI. This one is called pay to pray. Let's pay to PR AI. You can find that linked in your research roundup email. If you don't have a research roundup email, it means you're not yet registered at macrovoices.com. Just go to our homepage macrovoices.com. Look for the red button above Matt's picture on the homepage that says looking for the downloads. Matt, before we even get into all of what's going on in AI, we've got some news just as we're recording this on Tuesday evening, US time. There's some recent news just in the last day or so, which is a lot of companies before they IPO, they'll do a little bridge round, 10, 20 million bucks just to cover some expenses until they get to their actual IPO. Open AI is planning an IPO. They did a little bridge round, 122 billion with a B dollars, all time record for a private fundraising round. And what is that? Something like 100 times bigger than any private fundraising round has ever occurred like before 2025. Why did they need 122 billion just to bridge them from now to their IPO, which is expected in less than a year? Thanks for having me. It truly is stupendous. Before 2025, the largest private venture rounds were in the single digit billions. The headline number is 122 billion raised on the 730 billion pre-money valuation. When you get down to the actual segmentation of what's going on, it seems that it's only about 25 billion dollars with a cash. It seems to be more of a vendor financing than an actual straight cash injection. You've got Amazon, Nvidia, and Softbank, primarily putting the money in or the in-kind in. Amazon's putting in 50 billion, but that's contingent on Open AI spending 100 billion. I think over the next eight years on their compute, which I'm sure Microsoft happy. It seems like a good deal, at least on paper, for Amazon. The 15 billion going in up front and 35 billion is further more contingent on the company either going public by 2028 or achieving artificial general intelligence. I'm not sure how they're going to really define that. I think the underlying definition is a panel of experts will make a decision, yes or no, which is a bit strange for a financial decision. There's 15 billion down up front, 35 billion contingent on going public or a GI for 100 billion commitment in the way around. It's a bit like a procurement round. Softbank loves doing the electrical and Russian stents where they lead rounds and mark up valuations to the moon. We saw it with WeWork, we're seeing it again with the end run. I'm in Open AI. They've already put in about 40 billion. They're putting another 30 billion in, but to raise that money, they don't actually have the cash on the balance sheet. They've taken a 12 month bridge loan for 40 billion, and they're tranching 10 billion at a time over the course of the year for a total 30 billion. Obviously, that's just getting them through to the IPO, so they've got an equity event. In video, it's putting in in kind as they tend to be doing in all these circular economy deals in the AI space where GPUs and infrastructure will be provided to the tune of 30 billion into the rounds. There's actually a 25 billion dollar round of cash is up front and 10 from Softbank 15 from Amazon. We'll see if the rest of the money comes in that the rest is in kind. It seems from looking at this, and if you look at the compute numbers, I mean, they truly are astronomical that are being contributed in the form of either Nvidia credits, I think there's like three gigawatts of inference, and two gigawatts of training capacity as part of this investment. That's sort of the power that is drawn by a small country. It seems to be what they're trying to do is scale up the spend on compute so much that they can find a way to bring the unit economics down, because that's really the key problem in the space that nobody in the AR compute space is making any money other than really Nvidia who does about 160 billion of revenue and 100 billion of earnings and then TSMC are providing the chips to Nvidia, but the rest of the space is actually negative on using the products in terms of the going to economics. So the more you use the product, the more you lose the money. So I think they're trying to make it up on volume. Matt, I can't imagine any responsible business executive signing off on a $122 billion deal unless the underlying business model was rock solid. It didn't have any major risks in it. Just happens that you wrote this message over the last couple of weeks called pay to pray. I don't think that's actually the conclusion that you reached. Tell us about the economics of the, I'll call it the consumer AI business model, offering AI through chat to people like me who sign up for a max subscription on Claude or a pro subscription on open AI. How much money are they making or losing on that? The AI industry is consuming an absolutely bonfire of money. It's about $600 billion a year that's being spent by the hyposcalers on CapEx. It's reaching a kind of a point now, which is kind of incredible where the other CapEx is higher than the kind of internal free cash flow. The fundable business model that's being pushed in the consumer market and the software development market up until now has really been a venture capital style subsidized model where you pay, you either use the free product and then hopefully upgrade to the $20 month product or you use a $20 month product if you're a consumer or a $200 month product. If you're a power user or if you're starting to do programming. But the problem with these models are that they take an incredible amount of money to train. I think we've talked about that in previous episodes where you've got training runs north of $100 million a run approaching half a billion dollars a training run that requires a huge amount of data center build out. Incredible, it's a tremendous amount of data needs to go into these models. Because the cheap data that scraped off the internet for free is basically drilled out to an extent that have to do licensing deals to get access to that data. Sometimes they do dodgy things like anthropics, you know, scraped a whole bunch of books and scanned them in and they got caught and they had to pay the biggest, that's fine. I think in copyright history, I think it's about $1.5 billion for the illegal scanning of all that data, etc. So it's incredibly expensive to train. But the fundamental problem is that when you actually use the inference, you basically put queries into GPT or queries into Clawed and you run them. Those queries are lost making. You can't make it up on volume under the current models. Well, we do see, you know, the underlying hardware is on sort of a Moore's Law sort of trend and Moore's Law for those who don't know what it is is, you know, every 18 months to two years or so. Effectively, the technology that goes into chips allows semiconductors to be produced with finer and finer feature sizes, which effectively allows that the compute capability in terms of processing power to effectively double-order or the cost to to to halve every 18 months. While you are writing on that sort of Silicon Moore's Law trend, because the models are in such a brutally competitive environment where there's literally zero lock-in, there's a zero switching costs. So I can do it. If one day, chat GPT five comes out, I'll switch to that, but then Clawed 4.6 Opus comes out and that's better. I'll switch to that. So there's nothing stopping me overnight, really, just changing the models because of the competitive environment and so forth. What the situation basically is that each generation of model is being rushed out to kind of get the top of the scoreboard so that all the customers flock to that. And as a result of that, the actual amount of inference or tokens burned, if you will, per useful query with each generation of model, while the underlying compute is getting cheaper and cheaper in terms of what you can get done on the chips, the amount of inference you have to burn for a useful query is actually going up quite dramatically. And so you're actually not seeing a reduction in the cost of inference you're seeing an increase. And that's before you consider the issue with energy and constrained your build capacity for building data centers and power gear and all the other things. And so a few people have done various models of how much costs for GPT to deliver their 20 dollar plans. And even if you ask Clawed itself, you just type of query into Clawed saying how much is the underlying compute costs for another 20 dollar plan required, it will tell you, you know, 15 to $20, maybe $18, maybe a bit more. So effectively, there's no money being made on these 20 dollar plans. And when you're a power user, you can burn up to several hundred dollars on the 20 dollar plan. And it gets even worse on these 200 dollar plans, which you use by programmers now because the nature of programming is you're streaming tokens almost forever. And you know, the average user on a 200 dollar plan can burn, you know, many thousands of dollars of underlying compute. And in fact, there's a there's a leaderboard called ViBranque, which where people compete to see how much money, how much underlying compute they can burn on a 200 dollar plan. The leading guy on the on the leaderboard is burnt 51,000 US dollars in a single month on a 200 dollar plan. So the issue is, as these models get more and more competitive and new versions come out, you know, you're getting an exponential increase in the amount of inference you've got to burn. And you know, that is, is meaning that these models are not getting cheaper and you're not making up on unit economics. And so it kind of feels like this funding around is especially with the amount of vendor financing that's kind of packed into it. It feels like this is an attempt to really try and scale up the underlying infrastructure and GPU capabilities. So that potentially, you know, some sort of threshold can be crossed in the underlying economics. So inference can be profitable. But there's one big problem with all that, which is, is the demand there. And, and that's where we are. Matt, you said it's a 122 billion dollar capital raised on a pre-money of 730. So I get 852 billion is the current enterprise value, assuming an up-round, which is what everybody assumes. We're going to go just, let's call it an even trillion for the IPO. Because hey, what's 100 billion here, 100 billion here, and eventually you're talking about real money. But holy cow, let's say that the open AI goes ahead and IPOs sometime this year for $1 trillion. Are you going to be long, short, or flat, and why? It really does feel in the space that we're really in the moment where a supernova is starting to explode. And we're probably going to end up with a giant black hole like we did in the dot com, the first time around. I mean, that's a trillion dollar evaluation at IPO is absolutely gigantic. You know, they've raised a 120 billion here in this round. They were noting that the IPO earlier, earlier in the year, was going to be a 60 billion dollar raise on about a trillion. But you could probably imagine that that number is possibly scout up a little bit, although they want to keep it tight. Obviously, because once it gets the public markets, you don't have too much stock unload on to the market. But a bigger problem for them is the fact that you've got Elon Musk and the wings who's not just suing open AI because it turns out you can't IPO a charity and they've converted open AI to a for-profit model. And there's a lot of complications around that. But he's also IPOing his SpaceX for, I think it's 1.75 trillion valuation. So there's a big possibility that a lot of the heat's going to be taken out of the market when he does his 75 billion dollar, you know, and a 1.75 trillion dollar raise. And it looks like he's going to be open AI to going public because you kind of look at the news and what's happening with the ETFs and the allocations and so forth. He's a lot further along. I don't know. In the olden days, you know, if you were investing Amazon, when it went public or Microsoft, when it went public, you know, you get the ability to make a lot of money. I don't know how much is left on the table for the general public when the when the companies they being valued a trillion dollars when it goes public. You know, what are you going to do? Get to 2 trillion, 10 trillion. I think Nvidia is what? 4 or 4 and a half trillion valuation and they're the only ones making money in the space. Matt, the parallels between this and the late 1990s.com boom before the 2000.com bust are just striking to me and it occurs to me before I go on that we probably have listeners. They weren't even born when that happens. So for anyone who's not familiar with what happened there, Wall Street became absolutely obsessed with the idea that the internet is going to be a really big deal. And the thing to him, it's really important to understand about this is they got that call exactly right. The internet, the public internet was going to change the world we lived in in ways beyond what anyone could even conceive. And they got the call right that it was a really big deal. And I think they're getting the call right again that AI is a really big deal, maybe as big or bigger than the public internet. But the thing is, even though they got the call right, they started throwing money at dumb ideas without thinking and it just turned into a complete frenzy. It seems like that's happening again here. But in the late 90s, it was every tiny little company that had.com in its name and it didn't really matter whether they had a business model. It's different here. It's the big players which frankly have a business model. But as you very eloquently explain in this excellent piece, I recommend everyone read called Pay to Pray. That business model isn't viable for the reasons that you just described or it's not profitable or not likely to be sustainable. How should we think about this? Is it inevitable that a.com bust like we had in 2000 is coming for AI? And does it have the same dimensions as the one in 2000? Does it is it bigger, smaller, worse, better? What do you think? So if you think about the.com boom and I was there actually in Silicon Valley in 97, 98, 99, 2,000, I saw it all, there's a hypothesis the internet. was going to be a big thing. And it turned out to be a enormous thing in terms of the benefits to humanity in society. And we'll continue to grow in terms of its applications. And AI is the same thing. AI is going to be absolutely transformative for humanity in terms of what we can do. At that time, a company whose valuation went through the roof was Cisco. And their tag line was, we networked networks. We talked about it, I think, at last macro voices. Every time you plugged in a bit of the internet, you needed to have a router to connect up by the network. And Cisco equipment was going to be everywhere. And why wouldn't it be the most stable company in the world, right? And the same is with OpenAI. And to an extent, you think, okay, they've got the best AI models. AI is going to be everywhere. Why wouldn't OpenAI be the most stable company in the world? But then at the same time, you also had AT&T. And up until about 1996, AT&T, you had a 60% market share. It basically built the network using Cisco equipment to connect up the world. You had three players in the market. And I think it was mentioned at the time by an analyst that they had margins that would make drug dealers blush. But the problem was that in 1996, the Telecommunications Regulation Act came in and deregulated the market. And then you started having fourth entrance and fifth entrance and so forth. And people buying companies buying some capacity to each other, et cetera. And when you started having the fourth entry and come in and competing on cost, the Union Economics fell apart. And if you think about the AI compute space. Well, Amazon had a pretty good up until the AI boom. I think it's CapEx as a percentage of earnings was down to about 6% at one point. Now these hyper scalers are spending, you know, the cloud computing companies are spending, you know, 60% of earnings on CapEx, over 100% of earnings on CapEx. They're sending $600 billion a year at the moment into the run rate in CapEx. And it's hypothesized that by 2030, it's going to be $5.2 trillion of CapEx, right? Now when you just had Amazon really dominating in terms of a cloud, you know, it was sitting pretty and nothing about about 60% market share. Now you've got Microsoft who's taken over and they're market leader and so forth. Now you've got entrance such as Oracle that's competing on price and you've got core weave in the near clouds. And the Union Economics are starting to look a little bit shaky. And then you had a big bust in the dot com bust where, you know, all these companies had money being thrown. You see that right now, and the company has AI and its business plan is getting these stupid seed rounds and the hundreds of millions dollars. I remember when seed rounds were hundreds of thousands of dollars now, hundreds of millions of dollars. And you had through the early 2000s, you had a real trough in the technology space where everything blew up and an uninvestable for a period of time. But through that period of time, you had companies like Google and Amazon continue to grow and double down and Microsoft and so forth and ultimately today became very, very big companies. So I think we're seeing this on steroids right now with AI CapEx and Compute and the Open AI funding rounds and so forth. And it's unquestionable. AI is going to be completely enduring and just absolutely game changing for society. But I think the kind of circle jerk of money that's sloshing around between a very very small number of companies that's stupidly high valuations and it's a scale that is just as dependents is going to potentially end up and a big bust. Now I want to focus on that because a lot of people are going to miss here what you just said and they're going to say Matt Berry said, "Immanently tomorrow there's about to be a great big bust in all of the AI stocks." That's not what you said and it really rings home for me because the reason that my partner is a nice sold our software company in the summer of 1998 is because we knew it was a bubble. And my plan at the time was to take all of the proceeds and short the NASDAQ because I knew it was a bubble. Fortunately I got talked out of that but if I hadn't I would have lost everything because even though we were right it basically the NASDAQ doubled between 98 and 2000 before it crashed exactly like I predicted it was going to crash. What do we do here? Do you go long? Do you go short? I'll ask the question this way. Open AI and a Thropic are both expected to IPO probably in 2026. When they do is it time to go longer? Is it time to go short? Because I could make either argument. It seems to me eventually you want to be short but how do you time that? That's the trillion dollar question right. You've got SpaceX going public which obviously has GROC and X.AI within it. You've got Anthropic going public and you've got Open AI going public. That's why I think it feels like it would be like a supernova. So you end up with a big bang in one way or another. I think the issue is going to be that some of these valuations like the Open AI valuation is kind of predicated on the fact that it's going to capture an enormous amount of value out of the world in order to justify these valuations. These funding rounds are so large and the valuations are so high that you need to pitch a revenue line that matches them. At the moment Open AI is doing about 2 billion a month in revenue. I think it's a run rate of about 25 billion. I wish they'd stop using the word run rate because I think you've actually got to recur once before you can call something annual recurring revenue. It's doing about 2 billion a month of revenue losing 14 billion this year. I think the burn rate that came out today was about, is expected to lose 70 million dollars a day this year, scaling to 156 million a day lost next year. In order to cross the value of death and get to the promised land, they've got to show a business model make sense. And I think what their business model is going is twofold. One is that they're going to take a substantial amount of white collar jobs away from humans. Some substantial percentage of jobs in the world are going to go to AI and that's kind of the top one revenue number. And then in terms of generating earnings at the other side, the justification is that the infrastructure that's being contributed as part of this 122 billion dollar round is at such a scale that only open AI will have the unit economics that will make the inference profitable. So in combination with taking everyone's job and having the only infrastructure that can run this stuff profitably, I think that's the argument for justifying these trillion dollar valuations. Now, I don't think open AI is going to capture, for example, hypothetically, the value and the AI power drug discovery market any more than AT&T captured the value of the iPhone. You know, the underlying technology phenomenal, but as Ilya Satskever said himself, who is one of the founders of open AI, that you can just read 40 academic papers, 95% of what's out there in AI is published in the public domain. That's why every couple of weeks there's kind of a new foundational model that's top of the leaderboard and every once in a while. And so, a team of people that you have never heard of, 160 engineers in the room, like Deep Seek, that comes out of nowhere and suddenly leads in the leaderboard because it turns out that there's no sustainable competitive advantage in the underlying foundational models. And what you do need, though, is you need access to data. Those data sets are now kind of out there in the public or in the case of the Chinese, they probably don't care too much about copyrights, so they always have a standard competitive advantage. And I think there's incredible and tremendous opportunity in AI, but it's probably not going to be in these models that haven't really figured out what the business model is. Matt, I think there is a very distinct difference between this scenario and the late 90s to 2000.com story. And that is this. Let's say we don't know whether it's 97, 98 or 99 right now, but we know that March of 2000 is coming at some point. There's going to be a wash out in this commercial AI space where they just realized that the business model wasn't sustainable and it all starts to fall apart. Well, what happened in the.com bust is we went in a good solid couple of years of kind of a technology recession where there wasn't a whole lot of progress on the public internet because we had to basically shake that malinvestment out of the system, get back to efficient capital allocation and then, you know, after 2002, 2003 things started to really take off again. Okay, what if the US government steps in and says, no, wait a minute, the military applications of AI create an existential threat to the country. If we don't stay ahead of this, we can't tolerate a 2000 to 2003 pause. You must continue. You must do it under US government funding, but we're not going to fund the giving away stuff for free to max subscribers on Claude. We're going to take it over and, you know, it's just for the military now. We're not going to have consumer AI anymore. Is that a realistic scenario or do we need consumer AI in order to train the models in order for the military to get the benefit? You know, what would happen in that scenario where the military says, no, we can't allow a stock market crash to slow down progress on the military applications of AI. I don't think it's realistic that we're not going to have consumer AI. I mean, the Chinese are open sourcing their models. And the fact that they've got their strategy to open source both the software and the hardware and there's been previous leaks of Metas Lama and so forth. I think the interesting thing here is that it won't be the government stepping in. I think there's one big company that's kind of been sitting in the wings that has a God awful AI product and it's never on its pockets and that's Apple and the iPhone. I think in our last chat, we talked about how God damn awful series for supposedly being your kind of your original chat by AI assistant and we hypothesized that will continue to be awful in the next year and here we are and it continues to be pretty bad. But they've kind of avoided this whole getting sucked into this whole capex bonfire and they've It's really got to leave. is they can pull. One is they're sitting on this cash and they can sit back and watch. And as with the dot-com bust, there was a lot of infrastructure that went through to the second and third owners where maybe the first owner that builds out the optical fiber network goes bust. And the second owner comes in and makes it to be break even after purchasing a cheaper price and washing out the underlying sunk costs. And then the third owner comes in and makes money out of it. And I think you might have that situation in the hour-compute space where if there is a problem, with some of these large foundational model companies, there might be a second or third owner and Apple would be ideal for that. At the same time, what they've been doing is they've been putting in some AI silicon into their products. And a lot of this compute that's currently being done in data centers, by OpenAI, by Anthropic, etc, is going to go to the edge. And it's going to go to the edge for a variety of different reasons. One is that you don't want Sam Altman training on your data. And we've talked about before that I think an emperor has no clothes moment. It's heading into SAS where I think at large enterprises start thinking themselves, "I don't want my data in Google Drive and Gmail." It might get trained on. And you're certainly seeing all the major SAS companies quietly flicking on a switch in the settings without telling you where they're saying, by default now, we can train your data potentially. And then you flick it off, but by then it's too late and your data's been sucked down. So a lot of that compute is going to go to the edge, it's going to go to on-prem in the enterprise, on compute devices. So it doesn't go into the cloud, it's going to be on your phone, it's going to be on your Macbook, it's going to be on your Mac Studio or whatever it may be for privacy, for confidentiality, for latency reasons, and the fact that there's some models now that can actually be fit on that. And then, well, it might be one or two generations away. At some point, I think, real soon, a lot of that load and a lot of that compute that's going to AWS Data Center, as an Azure Data Center, to run Anthropical Center, to run OpenAI, it's going to go to the edge, it's going to be on Apple's devices, it's going to be on Apple's laptops, it's going to be on-prem at the same time, Apple's cashed up and might end up being the second or third owner of some of these companies. Matt, the title of your misive that you just written, pay to pray or pay to pray, PRAI, is actually a reference to the inevitability in your prediction of something called paper token monetization. What does that mean? How does that relevant, explain what that's about? Well, the fundamental business model of Silicon Valley venture capitalists is to try and win markets by financing companies with astronomical amounts of money, such that that money gets spent on marketing and a subsidization of the product to such a scale that nobody can compete with these Silicon Valley investor companies or unicorns. So total nuclear war is launched on a market, so you can think maybe Uber and free rides in China or whatever it may be, or Door-Dash delivering noodles to people in Indonesia or grab whatever it may be. So what we have here in the AI space, the subsidization model is that you have a free product, being GPT or Waview, and then you've got a $20 a month product, which I've said earlier, probably cost them $20 to serve, and the $200 a month product, which probably cost them $2,000 to serve. This can't continue forever. So the question is going to be, can we get the unit economics down to do inference to such a point that these models are profitable before these companies run out of funding? Now, the problem is that as we've moved into, for example, software development, which consumes a never-ending amount of tokens to write code because every company in the world is powered by software now. There's this huge token burn that's happening in these $200 plans, and if you were to try and make some sort of reasonable software like margin, like 80%, etc., you would have to price these plans not at $200 a month, but maybe a thousand or $2000 a month, or higher. At some point, the money is going to run out, and I think they had a near-death experience in the last couple of weeks. Anyone who, I know you're constantly using GPT and Clawed, etc., and you probably noticed the same thing. In the last couple of weeks, there seems to have been a bit of a panic from these companies where you log into your $200 plan, you type a couple of queries, and then you run out of credit. You've always known that these companies aren't making money on the inference because instead of saying put your credit card in and top up your credit, it puts you in the Nordic corner for seven hours or longer. The inevitable destination for these subscription models, which are basically massively subsidized, silicon value financed, and increasingly debt-financed business models, is that they're going to have to move to a per-torque and pricing. That is going to cost a lot of money. I think there was some comments in the last couple of weeks on Reddit where someone who's on a $200 plan ran out of credit pretty quickly. You had to get it done, you had to get something done for that night. He moved to the API pricing, which is using the programming interface, and that was costing $200 now instead of $200 a month. And he thought, gee, a couple of hours have used $500, $600. The problem with that pricing has several dimensions. The first is that already at $20 a month for a plan, which is $240 a year. That already prices the product out from over half the world's population. I mean, the median global income in the world is about $2,000 a year. So at $240 a year, you're already 10% of the pre-tax income for half the people on the planet. So you're already quite expensive. The second point the problem here is that these programming models, which realistically to make any margin, need to be priced in the thousands of dollars a month or maybe $10,000 a month. You have a bit of a problem in the fact that these models do hallucinate. And when they do hallucinate and throw errors, they're very different from humans. When you use a higher freelancer, for example, on my website, france.com, you put in some money, okay, I'll pay you $200 to build a website for me, and you don't release that milestone until the job is done. And if the human can't figure out a problem, they'll ask their friends, they'll try and find a more senior engineer for advice, they'll get on our forums and ask other people how to solve problems. They'll browse the internet. They'll kind of who climb their way out of solving problems. And look, they may take the may ultimately not get there. And you might get frustrated with them and want to find another developer to do the job. But ultimately, the failure modes are very different from AI. With AI, sometimes when it hallucinates, it can do wildly crazy things. About three weeks ago, I had a problem with my VPN on my computer. I was using ClawD to kind of help me through figuring out how to get it fixed. I'm a software developer by background. I've got an engineering degree from Stanford. You know, I do know how to program quite well. But I kind of viewed into PowerShell commands in Windows 11, which I don't know very well. And I was blindly pasting in ClawD and it made me delete my entire networking stack. And you know, so you have these very crazy failure modes where they are where you either go in loops, or it goes away in thinking and it goes and you know, it burns, you know, tenets, the inference, you know, trying, you know, these reasoning chains trying to figure out what's going on. Or it just has these crazy suggestions. And it will look at you in the eye with the eyes of a sociopath on a first date in some regards, trying to, you know, gaslight you into thinking that its answer is true when it's clearly not the case. It's just hallucinated something rather. And the issue here is that in a paper token pricing model, it really turns software development into a slot machine in that if the, if ultimately, you're writing your app and you kind of need to get called to do something rather, you're really pulling the slot machine handle. You don't know how much going to cost you the time the tokens are all burned. And you don't know if you're actually going to get a solution at the end of the day. And so, you know, I mean, I guess only in Silicon Valley because they turn software development into to generate gambling because that's that's kind of where you end up. And the frustrating thing that I think will happen is when you're on the $200 plan, you've got a certain amount of capacity and maybe it tells you to time out what have you, you kind of know you, you kept it $200, right? It's very frustrating when it runs out of credit, you've got to find alternative ways potentially of doing things, you kind of know what you, what you're up for. When you're pulling the handle into the Pay Per Token model, it could be $50 per spin. You may go on a circle, you may go on a circle 10 times, you know, there's always examples of people go over X of radical crazy things that the, that the, the chord does to your code base. And I think people are going to get very, very frustrated if they have to kind of put a coin in the machine, pull a handle every time and they get a non-deterministic outcome of whether, you know, whether moving forward in a hill climbing sense to this, to their final solution and their final apple, the final bit of software being developed or whether they're going in circles, you know, round and round, round, round again. And I think people are going to get frustrated, they're going to go try and find open source models, they're going to try and find alternative ways to get things done. And I think that's really the problem. And while the hallucinations are reducing as part of, you know, each new generation in terms of, you know, the engineering of the infrastructure around the foundational models to reduce those hallucinations, what is actually happening is the token spend is going up exponentially because you're doing more more complex things. So you have a much bigger surface area in which you could generate a narrow. So what I mean by that is, you know, while the probability of a failure, you know, pulling the, pulling the handle on the slot machine is getting reduced with the, you know, the engineering from each subsequent generation of model, the number of handle pulls you need to make is going up exponentially. And so you've got a multiplicative effect in terms of potentially the impact of errors. I just think it's going to, the question that basically needs to be solved now with this 122 billion dollar fundraises, can you get the cost to compute way down to get this whole model profitable? And will the market tolerate software? development as a slot machine. A lot has been said already by lots of people about the incredible rate of progress and how quickly AI itself is getting smarter. What I don't think has been discussed enough and I'd like to get your comment on is the rate to which professionals are becoming dependent on it. I think more than, you know, this, it's more addictive than cocaine. I remember our first interview on AI when Chatchy PT had just come out and I remember thinking to myself, boy, Matt's really into this stuff. To me, it's, it's novelty, but I don't think I'd ever actually pay 20 bucks a month for it. I mean, it's just, it passed a touring test big deal, but I, I don't think I'd ever buy a subscription. I'll tell you, Matt, in the last several weeks, there's been a lot of stress in my life because of this war and family that are affected by the war and waking up double digits down on a percentage basis on my net worth because of something that happened in the market overnight. Okay, look, I'm a big boy. I've been through that stuff before. I've been through the 2008 crisis. It's not that big of a deal, but Claude 4.6 was going offline and the server wasn't available. And I was freaking that out. I couldn't handle it. I was losing, it, it don't you dare insult me by suggesting that I go back to Chatchy PT 5.4. I don't drink perhaps blue ribbon and I don't do Chatchy PT. Okay. I mean, I've gotten to the point where I can't live without Claude. This is, this seems like a risk. When Claude went down, it's quite interesting actually because the first time it had a bit of an outage was when the data center's got blown up in Dubai and you kind of have to wonder yourself what potentially was being run on those data centers in the Middle East that caused the outage of Claude. And I do think those companies did have a bit of a near-death experience in the last couple of weeks. In that, all of a sudden you had Sam Altman kill Sora, which was this hyped up video modality model where you could generate clips or you know, the whole point was you're supposed to be able to type in a prompt and get a movie out the other side. In fact, Disney paid a billion dollars to open AI for use of the technology and only found out half an hour before a meeting that's the whole thing was going to be canceled. At the same time, Sam Altman killed instant checkout. He was working on some sort of a erotic model as well, which is a bit strange, but it's probably one of the big markets is pornographic. And he thought maybe he could make some money there. He killed that as well. And at the same time, Claude had this big changes in terms of how they did the plans and they were giving out, you know, extra tokens in off-peak, but in peak, they were kind of coming back, etc. And then ultimately, it seems that they've cut back a lot of the token budget you get in these models. And on the path to this sort of paper prey, paper token sort of business model. So I do think they all had a bit of a new death experience. And that new death experience obviously is what I was feeling, what you've been feeling when you kind of see these models, you start using them going, "Gee, is my access to going to start getting restricted?" You know, you'll have to pay a lot more money. You'll have to add a zero to it to my monthly subscription. What I'm going to have to pay per query, what's going on. And then of course, you've got this financing round, which is less cash and more infrastructure. And perhaps it's a way to kind of help the company kind of limp towards IPO. So there's the equity event. So the original investors can kind of make a bit of a return. It turns out that, you know, this whole, it's pretty funny that this whole AI compute space is predicated on $600 billion a year of CAPEX, which is incredibly energy intensive. When at the same time, you're bombing the, you know, an area where 48% of the world's energy is and, you know, you're a lot of energy being shaped in order to have this area AI boom work. Let's move on to private credit. There's a lot that's been said is a lot of private credit funds are gating investors that this is AI driven or it's related to cloud code, specifically creating fears that software companies would no longer be profitable. And I have a hard time with this one because this sounds like the claim I remember hearing in the 1970s when supposedly the introduction of the Hewlett Packard electronic calculator was supposedly going to put every accountant out of business and create vast unemployment of bookkeepers and so on and so forth. And it was the exact opposite. It created more productivity. It seems to me that cloud code just gave the software industry the biggest productivity boosting tool that they've ever had. And that's the reason that private credit is blowing up. Is that really right? Are my mistakes something? Well, I mean, there's a few things going on. First of all, these funding rounds are getting too big for equity. So, yeah, as we saw with 120 billion and all the infrastructure, you know, the end of financing in there. And so you've increasingly these companies are turning to debt. Even meta had to go and get 30 billion from blue out, not so long ago, in order to fund data centers because they can't do it off the balance anymore and the numbers are starting to get too big for equity raising. So they're borrowing the money. And not just are we seeing record equity rounds. We're seeing record debt rounds that blew off financing of meta was the biggest private credit round ever. The problem is that private credit in these portfolios has got SaaS businesses. And one of the big pitches that these AR compute companies has is that SaaS is dead, which is kind of ironic when chat GPT on a $20 a month subscription is a SaaS business. So it's kind of funny that they're saying SaaS is dead when they actually are SaaS business themselves. But there's been some warnings that have come out around these private credit portfolios that pack in the AI debt as well as the SaaS debt because AI is actively pitching the future of the SaaS companies will be eroded by the fact that AI is coming. So it's causing some instability in the private debt markets. And of course, what else is causing instability is rising interest rates in an uncertain world and a war in Iran amongst other things. Matt speaking of data centers blowing up, let's talk about the Iran conflict. It's connection to AI and particularly in your latest misive you express some concerns that there's a risk that potentially this Iran conflict kind of pulls the rug on the whole AI business model. What do you mean? What's going on? Well, this is where the fifth industrial revolution meets the Islamic revolution. Right. A lot of the financing for AI has come from the Middle East and you can imagine now if you're Saudi Arabia or you're the UAE and you have a fiduciary duty to protect your nation and your citizens and your economy, are you going to be putting it into hyper rounds of Sam Altman's highly inflated evaluations or were you spending on defense energy, rebuilding your civilian and industrial infrastructure and potentially going to war to fund an army. It's quite problematic when you've got a country that sits right in the middle of 48% of the world's energy infrastructure controls the straight where 21 million barrels of oil goes through every day that can fire 20,000 dollar drones at scale into anything within a 2000 kilometer range and my great, not just your data centers in the region but potentially your energy infrastructure into the cloud literally in a puffer smoke. Matt, another theme that you have in the latest misive is that you've got to be pretty smart to really get the most out of AI. What do you mean by that and what are the consequences? When I look at deep down a kind of what's happening in the space, I mean that despite you've got a conflation of a few things happening right now. You've got the AI companies trying to justify these huge valuation rounds and they're doing that by saying they're going to take away a lot of the world's work. Then at the same time you've got sort of mass layoffs happening in the market with block today with Oracle. I don't know if you saw overnight but Oracle as an ounce 18% of their workforce has been has been cut, etc. And so you would not be surprised that the general market has kind of conflated these things and thinking that AI is taking people's jobs away. Now I see AI instead as a tool. It's a very very powerful tool. It's yeah, but it's a productivity tool. Much like the world was when you went to work and there's no computer on your desk and then you went to work and there was a computer desk or you didn't have mobile phones and you have mobile phones or you didn't have the internet and then you have the internet. Yes, there is incredibly disruptive and transformative time and some jobs are lost but just like the format of all forms of technology more jobs are created over time. And what I mean essentially by you could be smart to use AI is you know AI is a power tool and so is a chainsaw, right? You give a chainsaw to a carpenter and they can do a skilled carpenter and they do amazing things. You give a chainsaw to a novice and you can cause all sorts of problems right? And so what I am observing both across my platform as well as within my engineering team is the people who are benefiting most from AI are the ones that are highly skilled and intelligent and know how to use the AI and they're seeing productivity gains which are astronomical. They're seeing you know double to triple their productivity and you can measure that in different ways in terms of what they're achieving. And then as you go down the skill level you do you know it is a rising tide lifts or boats so if you are an average copywriter you can now be a good copywriter if you're an average illustrator you can be a good illustrator using these various tools. If you yeah I make a joke if you're an average programmer well you certainly are a confident programmer now using these tools but to really get the best out of them the people who are highly skilled are the ones that are really really driving the outcomes and I see I see that for example with your work and what you do you know we're writing these mischievous and books and and so forth. And so I think just like Just like technology has over time, created a bifurcation in society where you have the people who are skilled and can create technology, and that's where all the wealth flows. And that's where you see these companies with huge valuations and the ultra-high net worth and the technology industry. And then you see a general deterioration at the low end of society. I think this is going to drive even further to an extent. People who really, really know how to use AI well are going to capture incredible opportunities and also see different market segments where they can control that customer interface. Well, I definitely agree with you. I just finished a writing project or I should say, "Clawed and I just finished a writing project that was considerably bigger than writing my book beyond blockchain." It required a lot more research 'cause Beyond Blockchain was just my own opinions. It was a lot to it. And Beyond Blockchain took me more than three months. This project took me less than two weeks. And it's just amazing how much you can accomplish. Although you definitely, as you say, it takes some skill to learn how to manage context window exhaustion and recognize symptoms of it occurring and so forth. So I couldn't agree with you more. It kind of scares me though, Matt, because I think one of the biggest problems that society faces in the mid-2020s is the K-shaped economy, the tendency that the rich get richer and the poor get poorer. It sounds to me like AI really is going to exacerbate that in the sense that the smartest people are going to really benefit in productivity from AI. They're going to be a whole lot smarter and more capable than they used to be. One guy will be able to do the job of 10 or 12 guys. But the 10 or 12 guys that weren't that bright and really didn't figure out how to recognize the symptoms of context window exhaustion and their LLM. I think it really does take their jobs. And it seems to me like this could become the basis for deeper division in society. So Matt, I want to ask you this because as the CEO of Freelancer.com and for any listeners who aren't familiar with Freelancer, it's basically a marketplace where people can hire independent workers, whether they be high-end expert consultants in their field who are the leaders of their field, or if it's just a guy who will design a logo for you for five bucks, you can hire all those different people in Freelancer. Matt has a very unique perspective on AI because first of all, he's running a company that uses AI. So he leads an engineering team that's building AI-based solutions. But some of the people that his customers are hiring are AI experts that are helping companies to implement AI at a corporate level. And then some of the more mass Freelancer, larger group of graphic designers and people that are making logos and so forth, are users of AI that are leveraging their logo design contests and all that. So Matt sees all of these different dimensions of different people using AI in different ways, corporations and organizations adopting it versus an individual guy in Indonesia who's just trying to make a buck as a graphic designer, suddenly becoming much more productive and being able to work in different languages that he doesn't even speak. So Matt sees all of these different dimensions. Matt, from that vantage point that you have, what would you say are the top three things that you've become aware of that the average person who can't see all that stuff, probably wouldn't think of? The amazing thing is we're gonna see the ability for you to get things done that you could never possibly think of before, right? Rather than just getting a website built, you get a whole business built, the ability for, you know, I think we're gonna enter a whole new world of explosive entrepreneurship where now, you know, you really just need to have an idea to start a company and your ability for you to be able to execute on that using both AI and also accessing humans powered by AI. But we'll be unprecedented, you'll be able to do the cost that's cheaper than ever before. So we're gonna, I think, enter into an explosive period of hyper-competition and, you know, thanks to the internet and the ability to distribute products or services at the internet at SCAL. So quickly, if you've got a great idea, that great idea can take off and you can make a billion dollars as fast than any time ever in the history before. So I think it is an incredible time. I certainly haven't seen as yet the complete replacement of someone in a job. I don't know, you know, if you ask around, does anyone know any graphic design as the complete list of job? Where the dislocation will occur is where you've got highly paralyzable workflows, where you've got thousands of people or hundreds of people doing the same job. So maybe in a call center where there might be 10,000 people or 1,000 people in a call center, doing the same workflow, which is custom support, answering your phones, et cetera. With AI, you'll be able to take it from 1,000 people down to maybe 100 people. You know, if you've got 30 junior lawyers drafting legal agreements in a room, maybe you'll be able to take it down to 13 people in a room. But I don't see because of the way AI works and goes in circles and the failure mode and the fact that as you burn more tokens, you've got more chance. Even though the unit rate of errors goes down, the fact you're burning all these extra tokens means that ultimately an error becomes more catastrophic in an way that a human never would make an error. What that means is that I think the ultimate combination is humans and AI. I think it's probably one of the greatest proctivity tools known to man. And I think it's going to open up in a whole amazing golden age of building and creating businesses and hypercompetition. Well, Matt, I can't thank you enough for a terrific interview before I let you go. You run freelancer.com, a public company that trades under ticker symbol FLN on the Australian stock exchange. Tell people who are not familiar with it, what freelancer does and how to follow your work. Your latest piece, again, it's linked in the research round up e-mail. It's published on Medium. It's called Pay to Pray. You write quite a bit of interesting stuff for people who want to follow your work and learn more about freelancer.com. Tell us about it. Well, we run the world's largest cloud workforce. So there's about 87 million people in that marketplace. We can do any job we can possibly think of from $10 to $10 million jobs. The main streamed jobs are things like Bill Meer website or Bill Meer an app or it basically helped me start a company or grow my company. The biggest things we run, we've got a moonshot innovation challenge program at the high end where we help all sorts of US government departments and enterprises around the world solve scientific and technical challenges. So it gives you the hardest scientific or technical challenge and will solve it or you don't have to pay the prize out. So the biggest thing we're running right now was the $7.5 million US dollar gene editing challenge for the central nervous system of humans, which we're doing for the National Institute of Health and also working with NASA. Actually, ironically, when our office goes up in the next 24 hours into space, we worked with NASA to crowdsource the mascot from kids all around the world that's going up with the astronauts to basically inspire kids about space and so forth. If you want to get anything done, you come to our site, we can get it done and no job is too small to be able to complex and adranges through to mechanical engineering or electronic design or whatever you need. And if you want to follow my writing on AI, there's a series of obviously a podcast that we've done together on macro voices on AI. I think this may be the fifth or the sixth. And if you've got a medium or sub stack, you better find me and see my essays. And if you just put Matt's name in, Matt Berry at the search box at macrovoices.com, you'll see a list of all of the previous AI interviews that we've done right here on macro voices. Patrick Sarresna and I will be back as macro voices continues right here at macrovoices.com. (upbeat music) Eric was great to have Matt back on the show. Now Dr. Anas Alhaji is next on deck for a special second feature interview on the developing Iran conflict and what it means for the oil markets. Then Eric and I will be back for our usual post game chart deck and trade of the week. Since this extra coverage format seems to be a hit with listeners, we'll do our best to continue it for as long as the situation in the Middle East warns. Now let's go right to Eric's interview with Anas. (upbeat music) Joining me now is Energy Outlook Advisors Founder and Managing Partner Dr. Anas Alhaji. Anas, it's been three weeks since we had you on the program for the first Iran war update. It's been one month since this conflict started. President Trump just moments before we began recording this segment gave an address to the American people. Let's start with the big picture update. Since this began, how has everything evolved? How have your views evolved since we had you on three weeks ago? And what did President Trump need to achieve in this address and did he achieve that? - Well, generally speaking, we got to frame what has been going on at present of basically did not frame it. So either this is about Iran and its nuclear and it's right to make it that way, or Iran part of a bigger picture and the audience basically can choose one of those two. So either it is about Iran and its nuclear program and the outcome of that basically and its impact on the market are completely different from the idea that Iran is part of a big picture if you look at trade wars, tariffs, sanctions, Venezuela, Panama, the Red Sea, China, Greenland, et cetera. So is Iran and this war is part of it? Or Iran is completely separate. The president today basically tried to make it about Iran, but all of a sudden he deviated from that and he started talking about we don't need the Middle East, we don't need oil from there, by oil from me. And this makes. The second option, basically, kind of more credible, in this case. Anyway, we'll go back to that later on. And the other issue is who closed the Horma Street? You have only two answers. It's either the United States through the insurance companies or Iran. And it's up to you, the audience, basically, to believe in one of them. There are evidence on both sides. But one of the ironies here is that when we talk about the details of who closed the Horma Street, and we say Iran has no power to close it, then people say, well, this is a conspiracy theory. It turns out it's a bigger conspiracy theory to say Iran closed the street. And we heard the president today saying that Iran's navy is gone. Literally said that. And he said they have no radar. He has to talk about the total devastation. Of course, their leadership is gone, all that stuff. So to believe that we have all these attacks and the aftermath of this devastation that happened to Iran, we have 28 countries are in charge of protecting the Gulf and the Horma Street through an organization that is based in Bahrain. You have the US Navy, you have the Indian Navy, you have the British Navy, you have the French Navy, you have the Saudi Navy, you have all the other countries, the Navy is in the area. And then after all this devastation, Iran still control the Horma Street. This goes against everything that President Trump said to them. So the story does not match, in this case. So to sum up, either you look at this war as it's either Iran and nuclear or it is part of the bigger picture of the changes going in the world. And then you look at Horma Street and say, well, it's either the United States and the insurance companies close it and the main beneficiary of this is the United States and we heard President Trump talking about it today. Or Iran closed it, but that does not make any sense and that is a bigger conspiracy theory. Because how is Iran able to do that after what we heard from President Trump today and the existence of all the other Navy's? Unfortunately, President Trump today failed to deliver to the nation the message why the war is still going. Many people basically expected that he will announce some sort of an end to the war. We told our clients a couple of weeks ago that all the indications point to a long war. And today we got the information. This is nothing to end soon. And if it's not going to end soon, there is another question mark about what President Trump said. If everything is destroyed in Iran, then why is this war continuing? What is left to be destroyed? So the impression I got out of this speech is that the people around President Trump are not telling him the truth. And he is living in his own ivory tower without looking at what's going on in reality. And we have countries around the world that are literally having blackouts countries do not have propane to cook. Countries basically are struggling to get food products, etc. Many countries are worried about food supplies. And the President did not even mention it today. This is a global crisis. This is the largest global crisis we have in our lifetime. And the President even did not talk about it. And he did not explain to the American people why this war is still going. And to now if everything is destroyed, why the war is not ending? Honours, who is actually in charge in Iran and calling the shots? Because we've seen so much conflicting news in the last few days. President Trump before this speech had said very clearly in his truth social posts that what the speech was likely to be about is that Iran had requested a ceasefire and that Trump was likely to agree to that ceasefire. Now preempt apparently trying to preempt this speech. The guy who is still technically the president of Iran, although the President is not really the head of state who's in charge in Iran. It's really the supreme leader who calls the shots. But this guy who is the president issued a letter to the American people in which he says, look, we don't want any ceasefire. We would not agree to a ceasefire. We want the war to be completely over and we won't accept any end until we have a promise of no further attacks. So it seems like if nothing else that whether that was a true statement that reflecting the Iranian government or just the guy who's not really in power anymore expressing his view isn't clear. But it seems like it did have the effect of taking the ceasefire discussion out of President Trump's speech. Meanwhile, we're told that who's really in charge of Iran is the supreme leader. But that would now be the killed supreme leader, Ayatollah Kamenis son. Nobody's seen him since he supposedly took power. Nobody's heard from him. We're told that he's still alive, but we don't know that for sure. Who's calling the shots in Iran? And how should we interpret the various messages that we're hearing out of the media? The reason why we call it the Iranian regime, while in other places we call it government, but in Iran we call it the regime. Because we have the official government and then we have the support coming from various militias and groups of that government. If you sum them up, we call that regime. So the Iranian revolutionary guard are not part of the government. But once you put them together, they become a regime. And what we've seen, historically, is that there are, of course, differences between the government itself, the official government, where you have Prime Minister and you have President and you have a Prime Minister. They are more diplomatic. While most of the military actions and attacks and everything else comes from the revolutionary guards who are not part of the government. So, historically, we've seen that division. But even within the revolutionary guard, there are not really one unit. And what happened is that after the killing of most of the leadership, including Ayatollah Hamid, who is the religious leader, they decided to, at least for a short period of time, to work independently. So they told them, okay, we have no leadership at this stage. So every group you are on your own. So we've seen various groups, basically, acting on their own, attacking on their own, based on their location, based on their beliefs, based on whatever their leaders basically believe about other countries. So we've seen attacks on the Galat nations. We see more attacks on some relative to the others, etc. And then the Kornemelis came in and said, we know nothing about it. Probably he is right because they were completely disintegration of the system at least for that period of time. At this stage, he is very clear that the revolutionary guard basically took over the government. So now we can say that, alike in the past, where we have a government and then we have the revolutionary guard and the others. Now the revolutionary guard basically literally took over the government. So they are one unit right now. And the whatever kind of nice messages we get, we get from people who have no actual power on the ground. And so everything you hear about the Iranian parliament, this is just a joke. This has no impact. So they say, oh, we are going to install a tool booth, a tool booth, for example, and we got to charge $2 million per ship, etc. This is coming from people who have no power on the ground at all. Unfortunately, the Western media basically took them seriously and spread the misinformation all over the world. But they have no power. And speaking about Iran's ability to charge for it under international law, there is no way that they can charge. There is no way they can charge. And whatever they are doing, if they are getting any money from anyone, this is an extortion. And funny part here is, if there are governments that are literally cooperating with Iran and paying them so their ships can pass. So we are talking here about Pakistan, we're talking about India, we're talking about Malaysia, and probably others. Why present Trump is not mad at them? Because they are cooperating with those terrorists and the regime that is killing people who killed 40,000 people of its own people. Why? Because if they are paying the money, then they are supporting the regime. Why would not hear a word about that? Simply because probably it does not exist in the first place. Unless I want to follow up on a really important point that you made in your last interview three weeks ago. What you explained is that most people assume that Israel has nuclear weapons that they could use against Iran, but Iran doesn't have have a nuclear weapon that they could be using retaliation. You explained that Iran really does have the equivalent of a nuclear weapon in terms of the consequence of using it, which is that Iran could target the desalination facilities of both Israel and other allied Gulf countries, which unlike Iran itself, which only gets 3% of its drinking water from desalination. Israel and other countries in the region are extremely dependent on desalination. So if Iran attacks their desalination, they are forcing starvation and just horrible, horrible humanitarian outcomes. They don't have that same vulnerability with their own desalination plants because they only get 3% of their own water from desalination. So you made the argument that Iran could potentially, if they really wanted to use the proverbial nuclear option, they could escalate to targeting desalination facilities. Now about a week after you made that prediction, Iran made a formal announcement saying, if our energy, our civilian energy infrastructure is targeted, we will respond by targeting the enemy's desalination facilities, which could bring about that horrific humanitarian outcome that you described. So it seems like this is escalating and escalating quickly. Do I have that right? And how do you see this playing out? How serious of a risk is this? Yes, you are absolutely right. And one of the issues that we have to really realize is when we say this is historic event, it's not only in terms of impact, it is historic and various ways. One of them is there are no deadlines. All one basically had any deadlines. The United States, Israel and the Iranians, noted lines. And if you look at the attacks of the other countries in the Gulf, it's just right, they were not deadlines. So on every part, on the part of everyone, there are noted lines and that make it more, in a sense, for another reason to be historic. But one of the other reasons why it is historic, because of the nonsense, there are a lot of nonsense going on that we cannot even explain at the state. We don't know what's going on. For example, Iran is heading the GCC country, that is six countries in the Gulf and some targets in Iraq. They are heading them because they said, oh, you are cooperating with the Americans and the Israelis. And therefore, we got to hit you. Well, if that's the logic, then we need to explain this. The Israeli planes that are heading the targets in Iran and the Israeli rockets, physically, that are using the fuel. That fuel is some of it is coming from, and every region is next to Iran. It's a neighbor. And Shubran is the largest oil company operating there in an oil field. So it is an American company. We saw Iran heading, for example, a Reweigh refinery in the UAE. A Reweigh refinery is a joint venture between Outnote and European companies. So there are no American presence there. And there are no military bases there, yet they attack it. But why they are not attacking Israel, who is literally giving the oil to Israel to bomb targets in Iran, think for Kazakhstan, the same thing for Turkey. Because that oil coming from Israel, basically, is coming through Turkey. People saying, "Well, Turkey is a NATO member." Well, I can tell you, we know that Trump does not care about NATO and Trump does not care about Turkey if Iran attacks Turkey. But there are, this all this confusion and all those issues that do not make sense at all, for example, attacking Salada oil depots in Oman. Salada is like, if you are in Iran, Salada is at the other side of the world. And it's an oil depot. Why you are hitting it? There are no Americans there. There are no Israeli there. There is no military base there. And how come literally a drone will go all the way across the Emirates, across Saudi Arabia, across the Empty Quarterm, who all the way to the end of Oman to the other side where Yemen is and hit the target precisely? So there are too many questions. There are too many things that do not make sense. For example, hitting this refinery, if the Horma straight is closed and the refinery cannot export, why you are wasting ammunition, why you are wasting drones or rockets to hit it, why the refinery is basically useless? Why hitting a tank or like the Quity Tanker yesterday? That's being in the same place for a month. It's 200 miles away from Horma straight. It cannot go away. It cannot go through the Horma straight. It's not even moving. Why hitting it? Well, you know, it's not going to go anywhere. And was it the mistake? Was it was the objective something else? What whatever the case is, there are too many questions that have no answers. But the bottom line here is, the Horma straight is still closed. And that is a big failure for the US policy in the region, regardless of what from the clean area in the speech. The fact that the Horma straight is closed, even at this moment, regardless of who learns that, it's a failure of US policy. And there are strange things, again, when we talk about historic event, there are very strange things. I'm going to tell you some. For example, if we go back to the National Security Strategy, it was released in November about four months before the war. So I'm going to read this to you from the strategy. So I'm reading right now. American will always have core interest in ensuring that Gulf energy supplies do not fall into the hands of an outright enemy. Because the straight of Hormas remain open. That the Red Sea remain the vehicle that the region not to be an incubator or exporter of terror against American interest or the American homeland and that Israel remain secure. Let's look at this one because this is kind of a really strange statement. Khrushan Trump said we don't need the Horma straight. We don't need the gold. We don't need any of that. The strategy said we don't want it to fall into enemy's hands. And he did not say that today. This was one of the biggest failures of the speech. He should have said that. But there is a strange statement in this strategy. Of course, the strategy is really conclusions of a larger document that remains secret. We don't know what's in it. And therefore this paragraph, sublime paragraphs that been omitted. And here is why I'm saying this. The United States, historically, if you look at various strategies over the last 50 years, always talked about freedom of navigation in those waterways or the choke points. Notice the following. This is the first time we see a document like this four months before the closure of Hormas straight saying the straight of Hormas remain open. It never be closed. This statement makes sense if the Hormas straight was closed just once in history. So whoever wrote that statement there, they must have something before this paragraph open. If it wasn't the closed in history, why you are using this statement remain open. And the other thing is you are talking about Hormas straight. Why you are tying Israel to it. You look at what we have in actual life. We have Israel basically attacking Iran right now. And the Hormas straight basically is part of it. But the question here is if an Asal Hadgi wrote in June and July that months away, months before the war, months before the closure of Hormas straight. And people who can go to our daily energy report and they can go to the war and use that and they can see I wrote the 12th of the war in June. Israel attacked Iran. China had no problem. Everyone was expecting Israel to attack Iran for the last 20 years and finally they did. But once the Trump administration started attacking Iran, that changed everything. And China was ahead. They knew in advance what's going on. So China basically stopped importing LNG from the United States. Stopped importing oil from the United States. They were ahead and on Venezuela before the blockade. They were ahead on Venezuela before the Metro, etc. But they being and if you go back to the previous shows we had probably the last three shows or four, we've been talking about how China was building those massive inventories or inventories and everything else in preparation for either war, sanctions or a major introduction. Now we know. China knew and China one of the least impacted countries by the way by the closure of the Hormas straight right now, at least in the short run. Once we look at those events and look at the 12th day war, what I've written was China God the message. out of the stories that been published in major, in news media outlets and very prestigious outlets. We've seen a number of stories talking about Iran closing the Horma Street. Again, we are talking about June. And if you look at those stories, you will find something kind of very strange about them because all of them have the same token points, some of them in the same sequence. Like me, there is a public reneging company, basically, was directing that. Why they were doing it? So what I wrote at that time was China got the message. And the message was, the Horma Street would be closed. But it's not Iran who is going to close the Horma Street. It's in the United States. Again, this is written in June and July. So we have the November documents after that talking about keeping the straight open and the straight never been closed. And then in June and July, we were talking about the United States basically closing the Horma Street. And then we have the insurance viasko that we've seen until now. I know that many people were pushing against this idea, calling it a conspiracy theory, etc. And they tried really hard to debunk this idea. Here is the issue that they need really to answer. The issue is this. And if you send the Navy to escort ships out of the Horma, ships are not going to move without the insurance. If the insurance remains nonexistence or extremely expensive, ships are not going to go along with the Navy because shipers are going to tell Trump or Modi or anyone else who wants to send those Navy bussels telling them, look, if I go with you and I get attacked and I lose my ship and I lose everything on it, will you compensate me? And Trump is going to tell them now. Modi is going to tell them now. I'm just providing a service for you. You should pay me for it. I don't have the convincing. They are not going to go. They need that insurance to exist and to be cheap enough for them to move. So anyway, you look at it. You say it's conspiracy theory or not. It doesn't matter. They need that insurance. So it is an insurance story anyway. You look at it. On the other side, those who are claiming that Iran flows the Horma straight again. Trump told us today that Iran has no Navy, has no power. Iran, we heard the old talk. So either someone is lying to present Trump or Iran has no power. Honours, there's one more nuclear option that we need to talk about, which is so far in human history. No military force has ever intentionally targeted an operating nuclear reactor. In other words, the horror scenario, the terrorism scenario of intentionally dropping a bunker buster bomb on top of an operating nuclear reactor to turn it into a dirty bomb of sorts. Now one of the things that has already occurred, and by the way, Article 56 of the Geneva Conventions very clearly prohibits the intentional targeting of any nuclear electrical generation station. You can not target nuclear electrical generation stations by international law, except either the United States or Israel, I'm not sure who has already made at least three attacks, air strikes on the bus share nuclear power plant, which is Iran's one operating nuclear power plant. Now those were not targeting the reactor. If they had intended to blow up the reactor and breach its containment, they would have succeeded. So they weren't trying to do that. They were probably trying to take out the infrastructure and prevent it from generating electricity and supplying it to the grid. But it does seem that they're already violating the Geneva Conventions by targeting a nuclear power plant. Where is this headed? I'm just really concerned about the escalation that could occur from here. Again, this is a historic event for several reasons. And one of the reasons why, because there are no red lines. And what you describe is a red line that's being crossed and is going to be crossed again and again. And as a result, Iran is going to cross this red line on the other side. Because as you know, they already listed the four reactors in the UAE as a target. This station, like you said, is probably not the reactors because they need kind of special bomb, bussters or others, et cetera. But they literally put that as a target. So there are no red lines. And with a war with no red lines, everything is possible. The issue that I experienced firsthand was when I woke up in the morning here in Dallas, and I got a flood of messages and emails. People scared to death from, oh, what if Bushar basically explodes and would we get nuclear? And literally some high net worth individuals basically sent me a message that said, should I put my family in a car and lead to a man or any other country? So people basically be in panic again. That panic alone could cause massive problem because if you are talking about millions of people taking the highways, the rumor on its own is enough to cause problems. Let alone if it becomes reality. Well, as you said, honest, Iran has announced that if their civilian power generation infrastructure is targeted, they will respond number one by targeting the desalination facilities of neighboring countries, which you've described as a nuclear like option because of its consequences. Number two, that they will target the United Arab Emirates operating nuclear power station at Baraka or the Baraka nuclear power station, which is outside of Abu Dhabi. They've already said that will be a target. And then in tonight's, this is Wednesday night that we're recording in tonight's address from President Trump. He said very soon and possibly simultaneously that the United States might target all of Iran's civilian power generation stations. So it sounds like the event that Iran said they would respond to by targeting both desalination facilities and nuclear power plants is one that President Trump just signaled his intention to escalate to. This is a very scary moment. Is feels like a replay of the Cuban Missile Crisis, except this time we actually know about it. Am I exaggerating to say it's that big of a deal? No, but I think we should be very aware of the fact that today after Trump speech, I am completely convinced that the people around him are not telling him the right picture. The way he described things, I've caught away from reality. Let me give you another example on how far away from the trade of the road. He said, "Drill baby, drill." Okay. Drilling activities in the United States being down since he came to office. US production being declining the recent months. So he is completely out of reality. And I am afraid that the people around him are not telling him the truth. Before the speech, all prices were down. Right now, after the speech, all prices are 5% higher and they are going up. So the message, the main message of the speech, basically that this is a long war and this is going to continue and the market is pricing it. And I think by tomorrow morning, probably many people who were counting on probably it would be a matter of days to change their mind. And that's when the impact of course the markets, whether you talk about oil, gas, energy or anything else. Honest, let's move on now to what everyone's waiting for, which is, how do we bring this all together in terms of the outlook for oil prices, LNG, energy markets generally. If the US is basically from what President Trump said very directly in tonight's public address, he said the US will probably walk away from the situation in the hormones straight, leave it to other countries that depend on it. It sounds again, as you suggested, that maybe President Trump isn't getting the full story from the people around him because of course oil prices are set globally. If the hormones straight is not reopened, energy prices are going to stay high for everyone, including US voters through the midterm elections. So it seems like the story doesn't add up, but it does seem like the President intends to walk away from the situation in the hormones straight. Once they've finished their military operations against Iran and it's unspecified exactly what that is, but the one thing he did say that was a specific indication of intentions was to target potentially simultaneously all of Iran's civilian energy production capabilities, exactly the thing that Iran has said if it happens is what's going to cause them to target desalination and nuclear plants. What does this mean for energy prices and what does this mean for global energy markets more broadly? When President Trump is talking about others basically coming and protecting the Gulf and opening the straight, he means only the people he know and he's talking about European leaders. He's not talking about China. He's not talking about the rest of Asia. So let's be clear about that. China will be happy to bring its Navy and have control of the straight. This will never happen and the United States will never allow this to happen. He just mad that the Europeans because they are not helping him. They told him this is his war and he should literally work it out because they have nothing to do with it. Even the Gulf States basically told him that. This is not our war. This is your war. So he is angry at those, but for him to walk away from the Horma straight to leave it to the Chinese, that is impossible. Because if you take the second view where the attack on Iran is part of that bigger picture in the world and all the changes we are seeing, that does not fit with it. And it does not fit with the strategy, the national security strategy. But let's talk about the impact. Right now, we have major problems. Of course, if you look at the shortages, we have the shortage right now after all the mitigation, whether you talk about the pipelines, so the Saudi pipelines, the Amalaki pipeline, the Iranian pipeline, the Iraqi pipeline, and then you add to it the strategic petroleum reserve releases. We are still short about 10 to 12 million barrels a day. That will push prices up. But as prices are going up, we see demand destruction, we see demand decline. So that will eat up a couple of, probably a couple of million, three, four million, whatever the amount is. So that will leave us with a shortage of about eight million barrels a day. That's for oil. Of course, we are short on other things. So we are short on a link view. We are short on NGOs. We are short on helium. We are short on fertilizer. We are short on meat and all, and all kinds of things. But this is a global crisis, a cross industries, cross countries, and we've seen the impact of various countries that are suffering right now from all short areas in, we've seen put together plants, closing fertilizer plants, closing, etc. And prices will continue to go up simply because prison Trump exhausted all his options. So what are the options? The strategic petroleum reserves used. That's it. Now the Secretary of the United States said, oh, we can draw more. Yes, drawing more is one thing. But the technical ability to withdraw on databases is not going to change. Draw more means we can draw for longer. But not on databases. So that option is gone. The second option is giving, giving exemption to Russian oil. All they get to do basically just to extend that on monthly basis. So that oil is already in the market anyway. So it has no impact. And then the same thing for the Iranian oil. And that has no impact. And then we have the Jones Act. Companies, every finance, been working around the Jones Act for decades. So the impact of it is very limited. So there are no levers basically for President Trump to use to mitigate the prices, except making those statements that to manipulate the market as we've seen in the last couple of weeks. And basically that's it. And you can use those statements only for a while and then people will again crying wolf here. People will not believe it anymore. And therefore the market is number three out. So prices will continue going up. I'm talking about oil here until we reach the level of demand destruction. And we talk about demand destruction. We also talk about demand decline. The difference between demand destruction and decline is that destruction will never come back. The decline will come back. So we have those two two actions. Based on our model, demand destruction basically and many of our demand decline happens when Brent reaches 160. But again, this is modeling. Modeling could be different from reality, which means that the reality could be way lower than that. So there is no nothing to stop or price from going up, except the destruction or the decline and all the other part of the story is if this is going to drag on until May, our modeling shows that the whole globe basically is going to suffer a major recession and probably stagnation. When you talk to economists about the current about the impact of the current crisis, the difference between them, both of them, both views say a recession. But they disagree on inflation. So are we going to have stagnation or just a recession? That's where the difference is all. So some people say we are going to have a recession with inflation. I'll just say no, that recession basically is going to destroy inflation. Regardless, this global recession basically is going to reduce global or demand significantly to the level where prices will decline. So yes, we see prices going up until we have that recession and then prices will decline again. Whatever we said about oil will apply to LNG and natural gas. China for now is immune for the next probably two months. But all other countries, the suffering, if you look at India, for example, if you look at Egypt, if you look at Kenya, if you look at countries South Africa, for example, Bangladesh, Vietnam, the suffering is just beyond imagination if you start looking at the national impact of this crisis. So the world is heading toward that major crisis that we have never seen in our lifetime. Whatever we have right now is not like the early 70s. It's not like the Iranian revolution in the late 70s. It's not like the Iranian war. It's not like the invasion of the weight. It's not like the invasion of Iraq. It's not like the invasion of Ukraine. This is completely different. And the impact is cross industries on every level. And so when we look at the oil market, for example, right now because of the massive impact of the crisis, we are not seeing the impact of changes in inventories, for example, or these little things that we used to focus on before the crisis. All of this basically is heading under that big, big gorilla that is impacting the market. Once everything settles and once the recession is over, once all of that basically is done completely, we are going to see a major change in energy markets worldwide. And that change basically, it's going to be so strange to us because we, the thought leaders in the market, the analysts and others are completely out of it. Why? Because what China was doing in the last three years or so, energy sources to national security. And therefore, economics and finance does not make any sense. So they focus, for example, on increasing domestic demand of oil and gas, regardless of cost. They went like massive investment in solar and wind and electric vehicles, not because of climate change, because of national security. So what happened is when Trump threatened Europe with the LNG weapon because the United States weaponized LNG. And told them, look, if you are not going to give me a green line, I'm going to cut off LNG supplies to you. What was the reaction of Europe? Immediately they got the message, so you know what? I need to work on lowering my LNG imports from the United States. How to do it? Well, one way to do it is to focus on solar, offshore wind, and battery storage, and of course, nuclear, which is your favorite subject, by the way. And as a result, if you look at offshore wind, does not make any sense. Battery storage on a massive scale does not make any sense, whether it should look at the economics and finance. But when they tell you, look, this is a natural security matter. Your economists and finance guys basically are out of it. Complete out of it. This is the natural security matter. Canada is doing the same right now. So what we are going to see after the recession or the stagnation does not have to hit the world, that we are going to see every country doing the same. So most countries in the world basically took forward our argument to link energy sources to natural security, and they are going to emphasize domestic sources. So Trump unwittingly, all of a sudden, he gave the climate change people the biggest gift of their lives in Iran and Hormuz. And before that, of course, the trade wars and the threat of LNG. Honest, but when President Trump began speaking this evening, West Texas Intermediate Crude Oil Futures for May delivery were trading at $97.40 a barrel. We're speaking in this moment right now, less than an hour after the president stopped speaking. I'm looking at 104 spot 50. So more than $7 higher in this last hour and a half or so since the president was talking. Where is it going to be next week? Higher or lower? Logically speaking, because we are going to have two different forces. We are going to see because the various governments in Europe and the United States started releasing oil from their SPR. So in the last few days, last week, basically we've seen the United States government releasing oil from the strategic petroleum reserves and the amounts are going to increase, especially by next week. So that's going to have an impact. But what we will have to pay attention to, especially traders and investors, is that the impact of this is mostly on price differentials rather than the overall price level. So price differential is basically going to impact this. What that means is this price differential between prices of medium-sower crude in Asia and deputy T.I. and the United States is going to remain very large because in the flood of oil coming from the strategic petroleum reserve is going to maintain that difference. And therefore, this idea that Trump been talking about and what the national security strategy be talking about is going to happen. What does that mean is this strategy and what Trump is talking about is I want my prices, my energy prices in the United States to be the lowest among all my competitors and that is a fact right now. Prices in the United States are the lowest among all other competitors and the difference is large because there was a time when Asian economies basically were paying over $170 for medium-sower while you as companies basically were paying around nine. So whatever being said in the national energy security document and whatever Trump said basically it's already happening. So people say whether this is a conspiracy theory or not forget about it. This is reality right now. It is no price differential. We should, the story is in the price differential, not in the price level and that where people should focus on. The other issue is when we talk about price differential, whatever is going to be released from the strategic petroleum reserve, we have to know by the next week whether they are going to release any light sweet crude because what you as refiners basically want is really the medium-sower. They've been filling the SPR with medium-sower. That's what you as refiners want. The problem with releasing the SPR is that most of the SPR releases are in Europe and the United States while the shortages are in Asia. So that where the impact on price differential is, if you want to take that oil to age, you are talking about four to six weeks, well with the war end by that time. And that is of course question mark by then. The other related issue to this and of course we don't have to attempt to focus on it. Since President Trump basically lifted the sanctions on Iranian oil and water and Indian companies start buying it. Until now we don't know what the method of payment is. This is India going to pay Iran directly. So give Iran more power. That does not make sense here. It's going to work through a different system where they can circumvent the payment system and Iran will get some goods and services from India. Why Trump will remain silent on this? Because anyway, Iran is getting some benefits out of their oil and he does not want that to happen. So there are big question marks on these trades and what's going on. And it is very clear that Putin is very happy because he sold more natural gas to Europe and Russia's exports of pipe gas and energy to Europe is going to increase substantially in the coming weeks. And of course with oil prices jumping from that makes everyone happy, not only put. Well there's so much that we could talk about. We do have to cut this off for the sake of time as we've already gone longer than a feature interview. We'll get you back again shortly in another few weeks time for another update. Meanwhile for people who can't wait that long to stay on top of things that we didn't get to today. Like what this could mean for Russia, given that this really been a cash cow for them. This whole conflict is going to only strengthen Russia's position. It's going to create massive shortages of finished products, particularly diesel fuel in Asia, Australia, New Zealand. For people who can't wait for your next update, give us the quick rundown of the various different levels of service that you offer at Energy Outlook Advisors. How people can sign up for that service? For the last four weeks, I'd be spending a lot of time giving talks and presentations via Zoom to the largest financial institutions and Fortune 500 companies around the world and to various clients, etc. So those Zoom talks, basically for those who are interested, we can arrange for it and we can talk about the fees and the timing and all that stuff. I'm giving several of them every single day. So we can arrange for it. They can get the updates. They can get, of course, our talk today was general. We talked about general issues. Those presentations are more specific and the answers to the questions are more specific. Also, we have the our publications. We have the daily energy report. That's mostly for all the individual traders and those who are interested in the stock market and the financial market, etc. It's relatively cheap. And then we have the institutional investors. Basically, we have the EOA newsletter. It is more detailed and people can subscribe to that. And we have the Twitter subscription too. I put a lot of materials on Twitter, by the way. These subscriptions on Twitter are very cheap. It is for everyone who just wants to grab an idea and headlines on what's happening every single day. But most of the work I'm doing these days is giving those Zoom presentations. Of course, if someone wants 10% we can talk about that too. Patrick, Sarresna and I will be back with the trade of the weekend. The post game chart deck is macro voices continues right here at macrovoices.com. Now back to your hosts Eric Townsend and Patrick's brings on second guests as conditions warrant until the Iran situation eventually settles down. Now you'll find the download link for this week's trade of the week in your research roundup email. If you don't have a research roundup email, it means you have not yet registered at macrovoices.com. Just go to our homepage and look for the red button over map berries picture saying looking for the downloads. Patrick, one of the most interesting points Matt Berry made this week is that AI may be destabilizing not just software evaluations but the private credit complex that financed so much of that software as a service growth. Is there any clean way to express that theme in public markets? And what's your trade of the week? Yeah, and the way I want to express that is through the B.I.Z.D., which is one of the cleaner public market proxies for the B.D.C. and private credit space. Matt's point is that these funding rounds are getting too large for equity. More companies are leaning on debt and a meaningful chunk of private credit exposure sits against these SaaS businesses whose economics are now being challenged by AI. The problem is the B.I.Z.D. has already deteriorated materially last year and even year to date is down 15 plus percent. So I don't want to chase it with a simple outright short especially because the fund carries a high distribution yield which makes a physical short a pretty expensive negative carry position. So to me the cleaner expression is through options where we can buy downside convexity and make a more direct market call on the next leg lower. Now the way I'd actually structure that is through the May 15th, 2026 in the money $13 put option which has about 43 days to expiration. With the B.I.Z.D. trading around $12.10 that option is offered at roughly $1.10 which means we're buying about 90 cents of intrinsic value and only paying around 20 cents in time premium. With a starting delta of roughly $0.65. So what that does is give you immediate downside participation without having to fight the negative carry from the dividend and you're doing it with very limited premium decay. In practical terms it behaves like a synthetic short but with defined risk. If the trade works and the B.I.Z.D. continues to deteriorate you've got direct downside exposure but if the thesis is wrong and the market stabilizes or rallies your loss is capped at roughly $1.10 premium paid which is effectively similar to running about a 10% stop on the underlying over the 43 day window. So the idea here is to express Matt's private credit stress thesis with convex exposure avoiding the negative carry of a physical short while still maintaining meaningful participation if this develops into a broader repricing of credit risk. I'm more than just a little bit concerned that futures markets are at least at the time of recording late Wednesday night. Not taking the potential outcomes in Iran as seriously as I am. President Trump didn't signal a ceasefire or immediate end of hostilities as was widely anticipated by markets and instead he doubled down and said very explicitly if no deal is reached that the U.S. would be hitting Iran very hard and he went on to say that that would include targeting Iran's civilian electric generation plants. Probably Simultaneously, you know, simultaneously take them all out at once. That would cause massive civilian casualties and bring rise to humanitarian objections from other nations and the United Nations as to why the U.S. had taken that form of escalation. So I'm really hoping that this is just part of President Trump's negotiating strategy and not his true intention. Over to the point, that's exactly the move targeting Iran's civilian power infrastructure. That Iran has said in previous statements would cause them to retaliate by targeting both the Barack nuclear power plant in the UAE and the desalination facilities that many of its neighbors, including Israel, rely heavily on for their drinking water. And of course, three weeks ago, Anas Al-Haji explained why that was such a big threat in our episode just after this war conflict broke out. So in other words, the escalations that are being threatened now by both sides and being threatened imminently by both sides would lead to massive human suffering and civilian casualties and would be characterized as war crimes well outside of international law. Of course, we can hope that the President is just employing his usual tactic of making dire threats that are going to be walked back just as soon as a negotiation comes about. But in my opinion, we're playing with fire here and the President's threats could provoke Iran to retaliate immediately, even before the threatened attacks on its civilian power infrastructure are undertaken by the United States. I'll be the first to admit, folks, that my own personal, very strong anti-war politics might be biasing my interpretation of these events because I'm definitely reading them to be worse that it seems like the market reaction we've seen so far after the President's speech would indicate based on what future markets are doing. But I see this as a much bigger deal and a greater risk for widespread human suffering than other analysts seem to be willing to acknowledge. So I sincerely hope that I'm wrong. They will laugh at me and ridicule me on Twitter and we won't have millions of people dying needlessly. I'm just fine with that outcome. If I'm right, we could be headed toward a big escalation rather than the wind down of this conflict that markets have been anticipating based on the President's prior statements and social media posts. So my strong hope is that the White House will have walked back the threat of simultaneous attacks on all of Iran's nuclear electric power generation capability before you even hear this podcast and I'll probably sound like the idiot in this story who overreacted and again, I'm just fine with that outcome if it means that we're not going to escalate this conflict. The S&P is trading only modestly lower about two hours after the President's speech as I'm recording this so far indicating that nobody else is as concerned as I am about what maybe is about to happen here. So let's all hope that they're all right and I'm completely wrong. Eric, I'm going to keep my analysis very simple from a technical perspective. We had a very significant march decline that saw almost a 10% drop in the markets close to 700 S&P points. We were quite oversold. We were close to 400 S&P points below the 50 day moving average. So typically when the market is stretched that way, it often has a retracement and so that's what we got here a bounce on the upside that took a shot towards its 50 day moving average even though we haven't hit that yet, which still lies around 6800 on the S&P. Bottom line here is that this is an oversold bounce. There's zero evidence that a market bottom is in and so if this entire rally here fails and stays below this 50 day moving average, we have to anticipate that another leg down in these markets is entirely on the table. All right, Eric, let's touch on this dollar. The Dixies 99 spot 77 two hours after Trump speech, not a huge dislocation. No further evidence that the market again is as concerned as I am about what felt to me like a much more escalatory speech from President Trump than I and the market were expecting. I don't really have any strong view on what happens next year. I think that the stage is set once this conflict is over for the dollar to weaken and weaken a lot. I think the US is losing ground in terms of its international reputation and there are signs of other central banks really questioning their commitment to US treasuries as a principle reserve asset. Whether or not that actually results in the dollar turning down soon or if we get a massive increase in the dollar index in a flight to safety trade that's brought about by a war escalation, I don't know. I could easily see up before down, but I think the ultimate resolution to this for the dollar index is going to be down and down to new lows. Well, Eric, I'm a little more technically bullish here on the dollar than most. Overall, we've been consolidating along the top of an eight month trade range, but the dollar has now a tailwind. We continue to see obviously the geopolitical landscape pivot, which is causing all sorts of intermarket influences, including stresses on economies like the Eurozone, which could see the Euro weaken. If this dollar can sustain above this hundred level and especially break out to a fresh high, which is just slightly above the one hundred and a half level, we can see a little bit of a shoot on the upside of this dollar to one, two, one, three very easily. I think there's some room for dollar to go and I'm definitely watching for that follow through on the upside or Eric, let's touch on this crude oil chart. West Texas intermediate crude spiked up about seven dollars on the president's speech. It had started to retrace around 10 pm or so, Eastern time. As I'm recording this, it looks like we're pushing back above one oh five. So we're we're up to almost eight dollars of higher oil price than before the president's speech. I think it's headed considerably higher now if we get the deal that the president has alluded to, if they really do have a negotiation underway, which the president didn't really comment on either way, he just said if no deal is made, the consequences would be dire. Hopefully they're he's just using that as a threat to push a negotiation along and perhaps by the time you've heard this, the negotiation will be over and we'll be back down to $90 crude oil or $80 crude oil. I don't know, it could go down really hard if this is ending rather than escalating. So the question to ask is whether this conflict is finally winding down or if it's about to escalate form your own opinion. As I've said, mine is admittedly biased, but I'm just concerned by the very, very aggressive approach that the president is taking to doubling down on his threats to escalate to attacks on civilian power infrastructure. Well, Eric, there's no denying that this is going to be directly based upon the escalation and what is happening here in the Middle East. From a pure technical perspective, this uptrend is very pronounced. All dips are being bought. The crude oil continues to edge higher at this stage when we're looking at the West Texas intermediate here. We could easily see us retest $120 high here where it printed on an intraday basis in an early March. All right, let's touch on gold here. Patrick Gold has rallied very strongly over the last few daily sessions, seemingly anticipating a wind down of the Iran conflict and a removal of the threat of the Fed's hands being tied by oil driven inflation, basically taking rate cuts off the table. And that's really what the risk is is if there's going to be oil price driven inflation, it means that it's not possible to cut rates. And that really gets in the way of gold being able to rally because gold doesn't produce any return and it competes with treasuries. So as treasurer returns are getting higher, gold still doesn't yield anything and the cuts that would make gold more competitive by bringing down that yield on treasuries are off the table for policy reasons. So that's the mechanism for why it's happened. And indeed gold has been down. I'm recording a couple of hours later now as we got into this from 48, 17 all the way down to it bottomed at 45, 79. And as I'm recording, we're back up to about 46, 65 or so. We're talking multi hundreds of dollars down more than $220 down. It looks like at the worst moment there on gold. I don't think it's going to go all the way back though because what we have seen is a change of correlations when this whole crisis started, you were seeing oil goes up, gold goes down and it seemed to be a very tight correlation that more and more people started unwinding gold. One thing led to another, the CTAs were unwinding a very, very crowded gold trade was forced to unwind. I think that big forced unwinding has pretty much played out now. Most of the people that were going to get washed out of that trade already get washed out of that trade. Some of them started stepping back into it over the last week. They're paying for that this morning. As we're seeing gold prices moving back down as oil moves back up as President Trump has made it clear that he's not done yet with this Assault or situation in Iran So coming back to the big picture though in the end are we really going to see Treasuries become all of the central banks favorites and they don't want gold anymore I really don't think so so in the short run There's plenty of room for a oil price driven inflation signal to create a tailwind for gold that pushes us back down But I don't think it's going to get us back down to that 4100 level where the 200 day moving averages I'll be very surprised if we end up moving below that level So my interpretation is that gold is ready to rally back to new all-time highs back up you know up to 2000 just as soon as the threat of persistent oil induced inflation is taken completely and totally off the table and the Fed is able to consider Cutting again the market thought that might be just around the corner and then President Trump's announcement Wednesday night Pretty much next to that one at least for the short term So now it's no longer looking like oil driven inflation is off the table gold is going to correct lower It's already down a couple hundred dollars just since the president spoke The question is whether the lows below the 200 day moving average are coming back into play and I don't think they will be what we've seen Since that test of the 200 day moving average is a change of correlations where you see oil prices and gold prices going up at the same time like they used to So that inverse correlation seems to be coming out of the system the hot money that pile back into gold over the last few days is Probably piling back out this morning, but I think that we're eventually going to set the stage here for a sustained rally Back up to $6,000 gold. I just don't know when it starts I don't know how deep we dip before we get there But I think last week on the show I was saying you know we could see gold all the way down to 3000 or 3500 I'll be really surprised if we get a Sustain move below 4000 at this point, but anything's possible Eric so that test of the 4,800 level on gold was a direct hit of the 50% retracement and the 50 day moving average overall we are in the precious metal space in a correction phase Now I remain big picture quite bullish gold and silver But the price action is showing that we're in the midst of some sort of aversion We went through a two-year bullface on gold that was quite an uninterrupted advance and what we clearly have here is the first Legitimate market correction in two years on gold and so at this stage We want to see how this plays out. These could be a multi-month consolidation We'll lead to an extraordinary buying opportunity But here if we're failing and trading below 4800 then a retest of its previous low near 4200 or even a test of 4000 is entirely plausible Again, I would use all those types of drops as buying opportunities, but these are the short-term risks in terms of the flows All right, let's touch on uranium here Well Patrick the fundamentals are super uber bullish couldn't really be much better and they are getting better day by day as we see more and more US government nuclear announcements more commitment to nuclear energy more and more people coming around and looking at this oil crisis And using that as justification to say boy we really need to rethink our strategy and focus on nuclear energy is where we make our big investments So it's all going super strong, but I have to acknowledge there is a new risk a new elephant in the room if you will and it's a big fat Element that new risk is the outlier risk of one side or the other intentionally targeting and operating Civil nuclear power plant as a military target now that would be in direct violation of article 56 of the 1977 additions to the Geneva Convention, so be an active war if anybody did it But guess what we've already done it somebody's already done it What the article 56 says is you cannot target any nuclear electric generation power plant There are some exemptions for military plutonium production reactors and so forth that can be Military targets, but if it's a civilian nuclear power plant like the bossra Power plant that they have in Iran It is a article 56 violation of international law to target that well, guess what they've had three air strikes I don't know if it was US or American air strikes are both But they've been hit three times in what as far as I can see is an article six violation now so far They're not aiming for the containment. They're not trying to breach the reactor containment which would Have the effect of splattering radioactive contamination across a wide area and creating a disaster that's bigger than Chernobyl by maybe a full order of magnitude That would be the risk if say iran were to send one of their ballistic missiles right through the reactor containment building at The baraka nuclear power plant in UAE as they have threatened to do already Now when they built baraka they saw this coming they've done a lot to harden that plant But at the end of the day with your dealing with Mach 14 supersonic or hypersonic missiles They can go through a lot of armor and they cannot be Shot down with normal missile defenses So far it is unthinkable that anyone would violate international law and do such a horrible thing then again Just a couple weeks ago. It was unthinkable that anyone on any side would do a truly horrible War crime like oh, I don't know. Let's say Targeting a girls elementary school But they did that twice in 40 minutes major nuclear accidents like Chernobyl when they have happened in the past as accidents Have set the nuclear power industry back by 15 years when they happen the public gets irrational and fears That a nuclear Accident is somehow going to cause the nuclear plant to blow up like a nuclear bomb You know, it just doesn't work that way. That's not a realistic risk But the public perception goes in that direction So an intentional breach of containment of an operating nuclear power reactor Like the ones at Bashaire in Iran or Baraka in the UAE Could cause a contamination event an order of magnitude worse than Chernobyl We don't know exactly how the public would respond if that happens, you know, would they say oh well It was just an active war and acts of war happen or would they say we shouldn't have these nuclear power plants because they could be targeted During acts of war No military in the history of the human race is ever intentionally Targeted a operating nuclear reactor core and tried to breach its containment intentionally as an active war That's always been off limits nobody's ever crossed that red line I sure hope that they don't in this conflict, but as Anasal Haji said There's a lot of people that don't seem to see any red lines and they're crossing every line I consider this still to be an outlier risk It's uh something that could happen, but if it did it would sabotage the entire nuclear power Renaissance which in my opinion is the only viable option that humanity has to avoid a global energy crisis in the 2030s and 40s So we really need nuclear energy. We need it for our survival It is absolutely essential to the future of humanity that we not screw this up And the way to screw it up potentially is not some accident or poorly designed reactor But somebody firing a missile at a perfectly good nuclear reactor Will make a mess and if that happens public sentiment could change on a dime So as long as the unthinkable doesn't happen any weakness on uranium stocks from this war is a by the dip opportunity It's uh the the story couldn't be brighter for nuclear energy than it is right now Unless we actually have a military strike that blows up a nuclear power plant and splatters radioactive core material all over the countryside That would be a really really big deal Well, Eric uranium is turning up here on the charts overall. It's been a structurally bullish chart It's been consolidating for almost two months, but we'll see whether or not this uh can potentially create this breakout on the upside certainly Looking for that uh bullish follow through at the stage with the primary trend being intact Finally, let's touch on copper here Well, Patrick we're bouncing nicely off the 200 day moving average, but still well south of the 50 day moving average Which is now turned down It's pointed down toward the 200 We're still more than a month away from a death cross risk on that chart But a prolonged escalation of the Iran conflict could bring that outcome Let's hope that we get this aron thing wrapped up soon and can move uh move on here to my eye markets across the border Coiled up and ready to respond to the upside as soon as we get a real true all clear, you know It's what we're wrapping this thing up Iran has agreed we're all in the same page a treaty was signed We're gonna wrap this uh this thing up. I think it takes uh the stock market back to new all-time highs I think it takes copper up I think it takes uranium up. I think everything goes from there The thing is president Trump's latest uh news. He's he's playing a tougher ball game than Ronald Reagan was in terms of playing hardball with competitors and it worked for Reagan. He managed to do some bluffing tactics that a lot of people thought were reckless and he ended up winning in the end. And I hope that President Trump can be so lucky or so successful. But to my eye, he's taking some pretty reckless risks. To me, Eric Copper has been tracking the precious metals markets for some reason. I mean, it's an industrial metal. I'm not sure why such a correlation should exist. But it seems like tick by tick. We're tracking copper with things like gold. Overall, we got a bounce about the same time as the precious metals did approach its 50 day moving average. We're in the midst of some sort of bigger global economic slowdown with the behavior on the technical charts, looking like this. There's room for this correction and copper to continue a failure here on copper below 575 leaves lots of room for copper to head back down to the five handle on the downside. Patrick, before we wrap up this week's show, let's hit that 10 year treasury note chart. Yeah, finally on that 10 year treasury yield, we continue to see it trading at multi-month highs. And we're right now trading around that 437 level. Well, certainly there's room for some short term volatility here in yields. But I suspect that the ceiling will likely hold here in this four and a half to four 60 level on the upside. And so we'll watch for that resistance and see when yields actually start to lighten up based on potential economic weakness. Certainly this is the struggle of higher inflation prints and slower economy, which one will prevail in the yields. Folks, if you enjoy Patrick's chart decks, you can get them every single day of the week with a free trial of big picture trading. The details are on the last pages of the slide deck or just go to bigpicturetrading.com. Patrick, tell them what they can expect to find in this week's research roundup. Well, in this week's research roundup, you're going to find the transcript for today's interview as well as the trade of the week chart book we just discussed here in the post game, including a number of links to articles that we found interesting. You're going to find this link and so much more in this week's research roundup that does it for this week's episode. We appreciate all the feedback and support we get from our listeners. And we're always looking for suggestions on how we can make the program even better. Now, for those of our listeners that write or blog about the markets and we'd like to share that content with our listeners, send us an email at research [email protected]. 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