Scotty Doesn't Know

Hello listeners welcome to another episode of geopolitical cousins. Oh, I didn't warn you, but I'm having a beer cousin. It's good to you. Wait a minute, wait a minute, wait a minute, hold on a second. I can do that. You can do that too. Let's do it. It's been a long week. I'm going to drink an oxymoronic beer. What's that? It's a Texan plastic shiner. But light. Oh, very nice. I think that's an oxymoronic and a shiner block free advertisement. Let's throw me at least six back for free. Yeah, please reach out for sponsorship opportunities everyone. I'm still trying to get the spotted cow people to pay attention. I keep on blowing them up on Twitter and everyone's a while they like something that I put on there. But not quite yet. I want to do like an episode with them. I want to go to the new glorious brewery and like walk around and talk about the geopolitics of beer. So if anyone knows anyone who is in is that new glorious, please, please connect them. Okay, so cheers to cousins, cheers to Fridays, cheers to my favorite cabinet official Scott Besson. We're starting with you Scotty. We're starting with Scotty because the US Treasury announced two days ago that it would at least double the amount of longer dated Treasury bonds that it would buy back from investors from $2 billion to $4 billion per operation between September 9th and November 4th. Yeah, exactly. The news came after the 10 year in the 30 year US government bonds both hit 20 year highs in terms of yields yields went down a little bit there back up to where they were before the intervention. I know we'll talk about that as well. Well, my favorite moment though is when he was speaking to the media and he uttered the sentence, I'll quote him, we have a spike in oil prices that I don't really understand and quote which confirms what I've been saying on this podcast here for over a year. Because in Scotty just doesn't know he doesn't know he's admitting he doesn't know we know he doesn't know he doesn't know what's going on. This is a little more investing than we normally get because usually we're trying to go for the layman. But this is really important like when the Treasury like reverse his course like this and also when the Fed and the Treasury are they on the same page or they not on the same page. This affects everything in the economy. So I think we have to break it down. I mean, some many listeners will know what the stuff means because I think we should approach this from the point of view of somebody who doesn't know what we're talking about. Doesn't know what it means for the Treasury to purchase back fonts. Doesn't know why it's important that the 30 year is at a 20 year high and back into it that way. I hope that you spliced in your favorite clip. Matt Damon, don't worry. I will I will be telling our producer to splice in Scotty doesn't know as much as he wants. He has car boys just throw it in the middle. Is that the greatest cameo in Hollywood ever. I mean Tom Cruise in Tropic Thunder. I mean, but that's not a cameo. He's actually like he has a role. He's part of the cast. But Matt Damon as just a random punk rocker in your trip. The whole worries just good for that song. I mean, it's really been it's a forgotten true American classic. But it both Tom Cruise and Matt Damon. The reason it's so good is because they both went for it. A thousand percent. It really like nailed it. The reason that you don't like Scott Bessent is effectively because you do suffer fools. You give them slack for being foolish. And you you believe that Scott Bessent should actually know better. And I actually think he is the best cabinet member because I prefer that the world does not descend into caties. So as far as I'm concerned, Scott Bessent is holding off Cerberus with one hand. And pushing, you know, what's his name? Sharon back into the boat of the river sticks. So he is the only thing that really calls us away from from certain doom. So I hate to break it to you. If Scott Bessent is the only thing holding us back from certain doom, doom is upon us. You might want to start prepping. Well, look, I think let's go back to your point. So basically what's happening 20 year high for the 30 year. The 10 year is also making, you know, highs. And the reality is that if you extend both of those to the 90s in the 90s, they were higher. And so like, it's okay. We will somehow survive. Why does this matter? It matters because the 10 year yield and the 30 year yield, the yield, the price, the little percentage point you see quoted is effectively the interest rate at which most of the US economy, including the government's borrowers. Now, you, dear listener, if you have a mortgage, you don't borrow at a 30 year or at the 10 year, you borrow at some sort of a spread between the 30 year and what the mortgage rate is at. So that's also gone up, by the way, Jacob above 7%. And the whole premise of what Scott Bessent was trying to do last year was to get the mortgage rates down. In fact, when he got appointed as the Treasury Secretary, one of the things he said was, I don't really care about stock market. I care about the bond market, which is correct, because the consumer borrows at the log ends, the corporate borrows at the log end. And so it is really, it doesn't matter. However, all that said, I think that I think Bessent and many in the media, so both Treasury Secretary Bessent and people in the media, maybe overreacting. Okay, tell us why. Well, so the borrowing rate has been steadily increasing this year. But there's a couple of things that are also going on at the same time this year. Like the US economy is objectively on fire. Last year, we had a little hip-cup in the labor market. Last year, things didn't look that great. Last year, the AI-capic story saved America from a recession. Let's just say, I mean, I don't want to hold on to that very dearly, not a high-conviction view. But I think last year was iffy. This year, it's not iffy. This year, we've got a lot of things happening that suggest that actually, it's not just AI-capic story. The growth is broadening through the economy. And so, yeah, borrowing costs tend to go up when the economic growth is stronger. So, first and foremost, I just want to say that's one of the reasons why I think the tenure is going up. The second reason is going up probably. And again, there's no silver bullet here, and I'm not like some bond, like, you know, maven. So, just, you know, I'm trying my best. The second thing that's going on is that, as one of my good friends on Wall Street and clients said six months ago to me, he's like, "Yo, the tenure yield is going to go up." Oh, why? I wonder why? Because hyperscalers are going to start borrowing a lot of money, hundreds of billions of dollars in order to build data sales. So, what's happened over the last 12, 18 months is that, you know, hyperscalers went from spending their cash, like stuff they had in the cushions of their couch, to having to borrow. So, the US government is now having, is being crowded out. There's more demand, you know, and rather to put it in the correct terms, there's more supply of long-dated quality bonds. So, their price is going to go down, which means the rate at which the government has to borrow is higher. The government now has to compete, in other words, with Google, with Alphabet, with Apple, with Amazon for, you know, willing investors in government debt. And that's where I, that's where I don't think this is about 40 trillion. This is not about deficits. Because it's my good friend Ryan Swift, who's my colleague here at BCI Research said a couple of days ago, when I ask him, and by the way, he is a bond maven. So, legitimate bond maven. When I ask him, "Hey, Ryan, why is the tenure yield or 30 year going up?" He was like, "Well, it's not because of debt and deficits, buddy." Because the US has been in a deficit crisis since I've had a career in finance. So, nothing happened over the last six months to suddenly justify, like panic. And that's where I think, Scott Besson's intervention, I think, is not necessary. And it's actually a form of, like, dovish stimulus, if you will. Because if we do suppress this rising yield, you're suppressing it at a time when the economy is actually okay, where consumers and households and corporates can actually borrow at this rate. So, you're actually going to juice up the economy, right? And then we come to the last bit of why this is happening. And this is the part that is appropriate for geopolitical causes. The part where you were like, "Why when you said that Besson doesn't know why all prices are going up?" It's like, "Look, if Scott Besson. " I know, I know. He said he doesn't understand why. I know, I know, which is beautiful. And obviously, he's trying to say, "This is crazy." You know, like, oil prices should be well-behaved. President Trump is awesome. And God bless him. He's got to do that. Come on, man. He's got to keep his job. Like, give him a break. He doesn't have to keep his job. There's nothing that says he has to keep his job. Yes, he does. He will literally go down the river sticks into Hades. But okay, fine. We disagree. This is fine. We're drinking brews here. It's all good. It's all good. For good fun. Look, the other reason the 10-year-old and the 30-year-old are up is because there's a fucking war in Iran. You know, and you can literally chart the 10-year-old over the last two years. And you can put a little vertical line where the war started. And that was the bottom this year, and we've gone up. So borrowing costs for American consumers and American corporates is going to be great. up for a number of reasons, but of course one of them is because President Trump went into this war, but I don't think, and this is where a lot of bond traders and people in Wall Street are going to disagree with me because I'm going to get a little qualitative in Voodoo. I don't think it's, you know, it's not about mechanics, it's not about inflation, it's not about oil price, it's the vibes, Jacob. The bond market is reacting to really bad vibes. Now, we've had three cell-offs in the bond market over the last 24 months. Three. One I called #sickcall, love it, human steepener, I'm awesome. Literally told all my clients, the Fed starts hiking, and I'm like short duration. That was a big call. From September of 24 to January of 25, the bond market absolutely got its face ripped off. Scott Bessent, as a human being, was worth like 80 basic points worth of a rally. What happened? In September of 2024, the people of the world realized that Kamal Harris is a terrible candidate. Literally, it was in September, and the bond market freaked out because like, oh my god, here comes populous Trump. He's going to spend a lot of money. And then they tried to like, finagle this with doge, like, you know, Elon Musk showed up. He's like, I got it. And the bond market went up even more because like, we don't trust you. And then boom, President Trump finally decides to appoint the Treasury Secretary, and he decides not to appoint Howard Lutnik instead chooses edge fund manager, macro guru, Scott Bessent. And literally that calms down the bond market. It calms down the bond market. The second time, so he was the bad vibes. He was like, oh shit, here comes populous Trump with his populist ideas. bond market sells off. And then boom, he puts a finance minister treasury secretary. This is very Brazil-like. If this sounds to you, if you're an investor, and this sounds like emerging markets, that's because it is. You know, like Lula wins the election in Brazil, and then we're all waiting to see who's his finance minister to know whether we should short or long the rally. The currency. And so that's what happened. Trump comes comes in. The market has a little wobble, not because it hates Trump, like generally speaking, the market thinks Trump is great for stocks, but he is legitimately bad for bonds, and he was last time as well. And so the bond market has a riot, waits for Scott Bessent to get disappointed, everyone's happy. Then fast forward to 2025, the second sell-off of the bond market on vibes was Liberation Day. Now this is a curious one, Jacob, because tariffs are supposed to raise revenue to the government. tariffs are supposed to slow down growth. Tariots are supposed to therefore be good for bonds. yields should go down, but they went up. Why? Because on Liberation Day, Howard Lutnik held up a sign made by Chad GPT that put tariffs on fucking penguins. So again, the bond market reacted now on the math, not all like, oh, how much are we going to make if there's a 35% tariff on penguins? No, no, no, no, the bond market was like, holy shit, you used Chad GPT? Howard, what the fuck are you doing? So the bond market sells off. And then Scott Bessent gets appointed to be in charge of this, by the way, I know you keep criticizing him, but he keeps saving us from the bond market. And then the bond market settles down. Once Howard Lutnik gets sidelined, Peter Nervar gets put in a cage somewhere in the White House, right? And Scott Bessent is now in charge of the negotiations, everything. So those are two sell-offs that I would argue mathematically. If you're like a bond investor, if you're like an old school bond person who comes in, opens a Wall Street Journal after a game of squash, and you read what the F1C minutes were, you know, if that's who you are, you couldn't have predicted these two sell-offs. And then we have this-- I want to be that. Can we play squash in the morning after we read the-- We have to be secure, then steam is a little steam, you know? Like after squash, you and I just like towels around talking to like-- I haven't had a regular squash partner since I lived in the UK. That sounds wonderful. Anyway, sorry, didn't mean to know. To be clear, I cannot play squash, but like I will-- I can't. I'm good. If any listener, if I'm coming to your city, there's a-- You are such an elitist. I mean, no. Yes, I bet you also play golf, Shapiro. Come on. Of course, I had took golf lessons when I was young. I'm quite digging my-- Oh, my God. Scott Bessent, I could play squash while you're out there doing whatever it is. All your credentials as a plebeian have gone out. I do not play either one of those. I never claim to have credentials here. I know who I am. All right, that's fair. Okay, so the third sell-off on Vibes is the war. Now, Scott Bessent is correct, in a way. He is curiously amused by where the oil prices are. I hear you, but it's not about oil prices. The 30-year in the tenure are not responding to the oil prices, which, by the way, have declined. They're reacting to incompetence of the administration, just like they did with the Liberation Day, and just like they did when President Trump went to Vivek and Elon to solve the fiscal crisis. And that's why I think that Scott Bessent overreacted, this isn't going to be solved by intervention by the Treasury. The Treasury doesn't have enough, by the way, firepower to do this. The only the only institution that could actually temper the yields is the Fed, and it would have to do so in a pretty brutal way with Kiwi, yield curve control, and all this technical stuff, which we don't have to talk about. What Scott Bessent should do, easy, easy, he can save us 40/50 base points, just like he did when he got appointed, by the way. Just his mere presence, mere human embodiment of Scott Bessent walking to the White House, lower yields by 50 base points in January of 2025. He can do the same thing this time around if he walks into the White House and tells President Trump, yo, whatever the Iranians want, should give it to them, fuck it. That's it. That's how you're going to calm the bond market, because it's not about oil prices. It is, it is about oil prices, it is about growth, it is about the fact that the U.S. economy is on fire, it is about hyper scalers, but it's also about the vibes coming out of the White House, which is this incoherence, and look, bond traders don't like that. They don't know where the war is going. Bond traders don't know like many bond traders, and God bless them, they know shit I have no idea, but one thing they don't care about is like politics and geopolitics, they're late to this game. Like I once talked to a sophisticated bond investor who asked me what does the American Senate do, and by the way, he was American. The thing is bond investors just skate uncertainty and they're like we don't understand what you're doing in Iran, we don't see when it ends, and quite frankly we're worried you're going to have to triple down on this conflict, commit troops, commit fiscal or jazz, spend more on defense. All of this is uncertain. I'm out. I'm out. And so that's how you fix this. I don't think you fix it with whatever it is that they're doing right now with these interventions. These little, you know, like these little technical moves, like he also JPY intervention, I think Scott Besson did that in Japan, also for the same reason. He's basically telling the Japanese if you defend the end, please don't sell our bonds, sell something else. I'll help you. Everything is designed to keep the lid on this, but like you can't. You cannot keep the lid on vibes. You got to change the vibes. Yeah, he's fiddling while Rome is burning. He's rearranging deck chairs on the Titanic. He's not, I mean, there's a whole bunch of whatever metaphor I can throw at this to say what he's saying. I have a few things to push back on. First of all, you had like a Boris Johnson moment there when you were talking about chat GPT, like you pronounced it the way that Boris Johnson does. I thought that was amusing and I just wanted to hear it. It was nice. Second of all, you said something about him. Maybe that means that Boris Johnson is permanently half a beer in. I'm sure he is. He would be a dream guest. Would he not be so fun to talk to, like no matter what you think about him, it'd be incredible. But so if anybody knows, I actually know somebody who knows Boris, maybe I'll reach out and see if we can to the entice him. But you said, you know, he has nothing better to do. So hell yeah. I think he's plotting a, he's plotting a return, I think. But we'll see. We know the difference between now and the 90s, Bill Clinton balanced the budget in the 90s. And now we have a really, really big deficit and debt out of every one dollar, the US government collects. We now pay 20 cents of that on the debt, more than on national defense. I think what annualized interest payments in the US debt have surpassed, you know, a trillion dollars. So it's just not the same. And it doesn't seem that we're going to get any fiscal responsibility there. So I would, I would first say that. The second thing I would say is, if you can just hold that thought for a second, I'll hold it. I got to, I got to let you know here with all my rebuttals here. Don't worry. Well, you're right that he did balance the budget. We went from a peak of 7.9% down to by the end of his presidency, like 6.7%. So even after he balanced the budget, the 10 year yield was higher than it is today. You know, licking absolute terms. So all I'm going to say is like, let's pump the brakes on like 4.7% being the end of America. Like it's, it's, yeah, it's, it's not the end of America, but, you know, 4.7 whatever it's going to be in the context of the debt that we have today, versus then and the debt that we had then. Those are materially, I think you're comparing apples and oranges there. I would be more worried. You can be worried about something and it not have be the end of the world or the end of the United States, as we know. I would put, I would ask you what your basis is for saying that the US economy is doing well outside of AI and data centers. I was doing some research on this this week. You know, if you look at a June Commerce Department report that I've been obsessed with, annualized outlays on data centers are up 21.4%. 5 billion from a year earlier, outlays on all of the private construction, which includes everything from houses to shopping centers to hospitals, have fallen by 101 billion over the same time period. Data center construction is more now than what we're spending on public transportation. So we're spending more on data centers than we are on roads and bridges and ports and all these other things. And I think part of this is why the data center, I or is coming and I want to talk about that too. It seems to me that if you strip out data centers and AI, things are not going well in the economy, generally speaking, especially with inflation sort of rising. And I would also just go back to what you really made a point about with the second derivative, which is the rate of change. One of the reasons the market has been so blasey, I think you're right about this. You were on it from the very beginning. The market is not just blasey is ripping is because we went from 300 billion dollars worth of investment from the mag 7 in AI and data centers to this year, 700, 750 billion. The big technology podcast, which is hosted by Alex Cantor, it's a former fellow Cornelian throughout that the projection for next year on that is 1.5 trillion, which sounds awesome except to your point about rate of change. We went from 300 billion to 750 billion to one, like the rate of change is starting to slow down a little bit or at least in that thing. Which is why next year, market is not going to look so good. All I would point out when I'm throwing back to you is we've got Republicans and Democrats turning on data centers. We've got data centers that yes, the CAPEX is there, but we've got shortages and on the power grid, on raw materials, on memory chips, on everything else. And if you take the AI story out of the economy, it doesn't look good at all to me. Why am I wrong here? What am I not seeing? Okay, so first of all, 70% of the U.S. economy is the consumer and you're correct to focus on the AI CAPEX story and obsess about it because it's contributing about 0.6 to 0.9 percentage points to quarterly real GDP growth. It's a lot. It's the most since the 90s. So you're right. I do agree with you. I think at some point that second derivative turns negative, negative, not just like lower, negative, that's when we're going to be in trouble. But last year, real personal consumption expenditure was coming down. It's stabilized. So a three month percent change annualized of U.S. real PCE is a two and a half real disposable personal income has come down because of inflation. But real retail sales actually on three month percent change are skyrocketing. And a 12 month change have also rebounded. So in terms of, you know, that really matters to me because it means that consumers are still not retrenching on the consumption labor market. We're starting to see some real movement in the labor market unemployment rate came down, which is obviously backward indicator. However, we have a lot of forward looking indicator at my firm BC research. They're all looking up quite aggressive. So the labor market is looking like it's firming. By the way, jobs plentiful versus hard to get has come down from some of the pandemic insanity. They're still like in a good space, we're not in a recessionary balance on that ratio. Paral's growth is looking all right. It's rebounded. And again, a lot of the weakness in 25 seems to be coming down. And then Fed Capac's intention across different regional feds is also looking back up, which suggests that, you know, the AI Capac story is broadening. And so you're right, when you look backwards, it seems like AI Capac did crowd out a lot of investment in everything else. But that's because a lot of businesses did not have confidence last year to do a lot of Capac's. And so now, Capac's intentions are broadening. Anyways, it's a lot of mumble jump before those of you listening to this for geopolitics. It's not really relevant. I mean, I think you're right, Jacob, the next year we could very well have a lot of questions being asked by the economy, but it's not this year. This year, the stock market's up. Labor market is firming up and it seems like there's a broadening of the economic expansion. So that would justify why the tenure would go up anyways. But I hear you. I think debt and deficits are obviously an issue. They're an important issue. It's just that nothing really happened over the last four months that I would say has taken us to some sort of critical moment where the bond market has to and must riot. I think it's more just the things I've said. Growth is good. A lot of our hyperscalers are crowding out the government. So there's more basically supply of high quality debt, which means that its price goes down, right? Supply and demand. If you have a lot of some product, demand is the same, then the price of that product is going to decline and when the price of bonds declines, their yield goes up. The price of which the issuer of that bond, the price of which they have to basically repay it increases. You have to pay more. That's what's happening and I get Scott Bessent obsession about it. I get why he thinks this is really, really important and I get why he's into reading. My point, which I know you agree with me on, my point is simply that there's an easier solution. If you are worried about all these things, then you have to end the war in Iran. That's it. War in Iran is the catalyst for the bond sell off over the past six months and I don't think that that can really be contended and I don't really think that you can kind of pour out of one bucket to another. The macro context right now is already kind of bearish for bonds anyways. I don't think that you can, you know, reuse technical things with which to calm down the bond market. I actually think what makes this geopolitical because I also hear you, but I think what makes this explicitly geopolitical is China because it's not like, yes, the second derivative is going to turn, but you know what might make the second derivative turn faster if these Chinese frontier models are able to show that they're able to do 80 percent of the performance of the US frontier models at a fraction of the price and with less compute because they're not as advanced as the US models. It seems to me that China's open weight approach to AI hits these US AI companies where they are weakest and is hitting them now at the moment where the only thing that is pushing us through the negative impacts of the war is this story and there are starting to be lots of holes in the story and I think the other problem for Besson and this is really the reason I don't like him and is the reason that I hate myself for what I'm about to say. The only one who I think deserves some credit here is JD Vance because he's the only one who had the balls apparently in the room to say, this is a bad idea. Iran is a bad idea. Yeah. It's terrible. It can't be effective and he's gotten punished by Trump for this and embarrassed by Trump a little bit for this. Scott Besson, if he was keeping us from the River Styx, should have kept us out of the straight of Hormuz, which President Trump is tweeting about as the next US territory. No matter what he does, no matter what song and dance he does or he's going to buy yen or he's going to do this that of the other thing unless he can get President Trump to stop with the Iran nonsense and he has not been able to yet to your point. This is just going to get worse and as the AI story starts to turn and as US populist politicians decide they want to attack the AI story, which I want to get into that because I find it as a nine. Suddenly the problems for the economy start to stack up for me in ways that start to make me nervous. So that's why I'm like, that's why I think it's geopolitical and it's why I push back again. It is very geopolitical. Like, everything's cool. Like, it's not cool. It's bad. No, it's absolutely geopolitical. I mean, I really completely agree with that. I mean, the war in Iran is the reason. It's the catalyst. Look, first of all, you have a bond bearish macro context. That's your point. It's not the 90s. Like, there is more debt. Deficit is large. So you're completely correct. I would say that bullish macro context is also bad for bonds. Like, when things are good, the borrowing rates go higher, not lower because there's more demand for debt. Why are AI companies issuing bonds? Because they are bullish because they're optimistic about the future. When there's optimism in the future, borrowing rates go up because everybody wants money. Everyone wants leverage. That's the way to think about it. So debt is high, as you say, 100%. Things are better than they were last year. That's just the fact, you know, like you were gone. You listened to me spitting a bunch of data. Like, that's the second thing. The third thing is the war in Iran. And you're absolutely correct. Like, what the reason that I have faith is called best and is that the last two times, bond market calm down, he managed to have these conversations behind closed doors, not in public. Clearly, I mean, I, like, I mean, I'm maybe, maybe I'm wrong, but like, who decided to remove Howard Lutnik from terrorist negotiations and make scoppess in charge, but by the way, the Treasury Secretary should not be in charge of negotiating trade deals. That's not their purview. I don't know if the reporting here is true. The reporting on that at the time from the Wall Street Journal and others was, was basically I'm paraphrasing it and making it a little sillier than it is, but not that much more. But basically was that Pete Navarro and Howard Lutnik were down on the other end of the White House and best it likes. not going to the oval and was like, here's all the reasons that you shouldn't listen to these guys, please listen to me and do what I say. But then, okay. So he did it before and I have hope that he's going to do it again. Yeah, although there is, there is something to be said for the reflexivity of like, how many times can he do that? Because the fact that he's out talking to the media and saying, well, I don't know. Like, that means he's not in the room where it happens, telling President Trump what to do. President Trump is doing things and Scott Besson is trying to fix things around the edges to protect. Well, yeah, that's what I'm saying. Like, the tools he's using right now, intervening in the yen and tinkering with how many 10 and 30 year old bonds you repurchased, like that, that is not going to do it. Well, I also, I also, I also just, not to interrupt you, but like, you know, you, you called him a guru. He had what a 90% decline in his hedge funds assets. I'm looking at the performance here of key square over the time that he was managing it. Yeah, but I think managing a hedge fund is hard because I could do better than this. You could do better than this. I know that. I don't know. Oh, yeah, please. There's a difference between being an operator of a hedge fund and a chief strategist. And I think he is like, he knows what he's doing. Maybe the role he was in was not the role he should have been either way. Fair enough. That's fair. I just, can we agree that his performance does not allow him to be called a guru? No, no, I disagree with that. I think he's absolutely like a guru. His performance at the sources fund is legendary. Well, on who is that because of him or is that because of storage? George, it's because of multiple reasons, but look, we don't have to get into this. The reality is that last year we could have gone down the very dark path with the tariffs. He landed the plane of that. I expect that eventually his interventions in the yen and in the U.S. bond market are not going to work. And by the way, that's a consensus view of Wall Street. They've already not worked. The treasuries yield this back at 4.7 percent, which means that at some point there's going to be a conversation in the White House, either by Besson or someone else with Donald Trump. And they're going to say like, "Witman, the bond market is the ultimate constraint. There's a strategic petroleum reserve that's a constraint. There's popularity of this war, which is a constraint. And the ultimate one is the bond market." And that's why this is a geopolitical issue. The reason this is a geopolitical issue we should talk about is because every time the White House fucks around, it's the bond market that helps them find out. Like, right? That's what I'm getting at. Like, that's what is really going on. And there's no way to save that with like little technical, nerdy, you know, tools. Now your point about China and modeling, I actually disagree with them. I think that actually, I actually think that will extend the AI-capic story. And I think it is extending it. Open source model. See, like, the problem right now, the problem right now is that AI is quite expensive for most American corporates. So the top 1 percent of American corporates spend 7,500 per employee per month. The top 1 percent on AI. The top 10 percent go from that 7 and a half thousand U.S. dollar figure to 600. So the top 10 percent spent 600 bucks per employee per month. The rest, the median, the median spent six dollars. No, sorry, 11 dollars, something like 10 bucks per month per employee. So the world you're describing, Jacob, where like open way to open source models show up and are a lot cheaper. It's really bad for open AI and athropic. And I agree with that. I agree with that. That's a reason to like, not be in those two firms, perhaps. But it's certainly not a reason to short the stock market or expect Capix to go down. In fact, what may very well happen as the cost of modeling, as the cost of using AI collapses, a hyperscalers are going to have to build even more data centers. Because they're fine, they don't care how much, like a refiner doesn't really care what the oil barrel costs. They make money off of the crack spread. So hyperscalers are still going to charge for the data, for the compute, for the energy, for the water. They're going to still charge for all of that. So if you are a company using Chinese models to deliver some AI tool, you're still going to have to pay Amazon for the hosting, for the cloud, for this and that and the other. And so I actually think that the world you described, if true, will hurt investors in like frontier models, but actually we lower the cost and then more and more corporates are going to be like, you know what? I could not afford AI when I had to use cloud. But now that I can use this like white label, you know, like got a H E B AI, like, you know, I can actually afford to eat this model. Like, you know, I couldn't do it when it was Gray poop on mustard, but now that it's like H E B mustard, I'm actually going to give my kids this, this condiment. And so that's what I think is interesting about what you're saying. You could actually extend the life of the Capac story. I, I agree where you end, but I think that the road traveled from where we are to where it ends is a little more bumpier than you're talking about. And I think you already said why? Because so much of this is vibes. You said it already because when we're talking about vibes with the AI economy, if it is shown that open AI and, you know, an anthropic, they're not going to get AGI and they've been faking it till they make it. It's, you know, it's a stretch to call it, there are no style, but I sometimes struggle to see the difference between Elizabeth Holmes saying, hey, I'm eventually going to figure this out. And then I'm saying, hey, we're eventually going to figure out how to monetize these things. I don't know if you have that. I know. I'm, I'm reaching there. To revenue, run rate hits 65 billion in the last 65, no, but how, but how are they going to be profitable in the long run is what I'm talking about. I'm saying that if, if the underlying story there starts to collapse, and then we're getting rate of change, you know, deterioration when it comes to the cap X on top of that supply chain disruptions, because yeah, they can say they're going to build more data centers, but you've got to wait five years for transformers and memory trips are sold out till 2027. And by the way, we just announced that we like North Korea more than we like South Korea. We can get back to that. Yeah. So like, you start like, like stacking these things onto each other, like I think you could have a very serious market reaction and even have what you say, which is the net is positive. The net is that more and more people are going to use AI that compute is going to be cheaper and it's going to cause incredible gains and productivity and growth in the broader economy. I think you can have a market that freaks out and still have that happen, but I agree with where you ended. I've just, the path from here to there, it seems to me as a little more. Cousin Jacob, little more. Cousin Jacob, you're 100% going to be right. There's no future where you are wrong, okay? And just so everybody understands, I was a Luddite on AI, like two years ago, skeptical last year, but I changed my view when the data changes and hyperscalers are fucking minting money off of data centers. They're minting it. It's been confirmed that cloud services are going through the roof. And everybody says, yes, Marco, but so much of that is open AI and a thropic false. It's all actually less than 10%. But half of it in the future is unthropic in open AI. True. Yes. More than half of future data center is like based on their needs. But if you're right in Chinese open models came on or whatever French open model who cares, somebody else will have to build those. But here's the truth. Here's the truth. You're going to be right, no matter what. And that's because if you read this book, engines that move markets by Alster Nairn, this is a very Scottish, very bearish economist, you know, no one's more bearish than Comrugene. This cuts this book, which, by the way, my good friend Murray Scott from Auckland, New Zealand helped with all the data. This book tells you 300, 400 years worth of history and it tells you that every capex cycle that was based on the new technology and it in tears. And the reason for that is that we have never as human said we have built enough canals. We have built enough railroads. Let's stop and we've never done that in our entire history. We always overbilt. And part of the reason is that it's not centrally planned. So hyperscalers are competing Jacob for what we'd want another. If they could collude, if they could collude, they could maybe appropriately size the data center build out. But they won't do that. So they will eventually overbilt. The reason that I think it's very dangerous though to have a bearish view on this that's not data informed is that as you said, we've got to find out where that second derivative turns. And what happened over the last couple of months is the data center growth in revenue is so strong. I think that it's been pushed off into late 27 if not 28, you know? And so that's what I'm saying. All I'm saying is like, you know, like for the time being, the numbers are just so juicy and so good. But eventually, of course, and the difference for an investor, you know, for you, if you're sitting just, if you're like just sitting around and thinking about what you do with stocks, it's perfectly okay. to just pull out and do what Jacob is telling you. Why not? Like, there's other ways to invest your money. Save it. If you missed the next 40% upside in the stock market over the next 12 months, but in the stock market falls by 60%, Jacob just saved you 20% decline, right? So like, yeah, I agree with you. But I'm not even saying that. I mean, I feel like you and I are ending up in the same place, but to play devil's advocate a little bit to your view. I mean, one of the, you're right. Like, data center is minting money. Okay, great. We've also those seen that specifically the Mag 7 are shifting from, you know, pure cash funded buildouts to debt and off balance sheet fine because they are thinking about. Which is why the bond yields going up? Yes, true. Exactly. And then we start to get into like timing and when does the revenue happen? And when does the profitability happen? Like, it's nice that Anthropic had a quarter that was profitable. They're not really profitable. These companies don't exactly know. Where have you sat right now, Jacob? Look, cloud revenue jumped 43% in Q2 of this year. 43% off of a base of 350 billion. Do you know how difficult it is to grow revenue by 40% where you're already making 350 billion? Yeah, but what's the profit growth cousin? It's, it's high as well. It's astronomical. In fact, and by the way, by the way, that's unsuscanable. And that is what, and you know what, look, my view is the consensus in a way. That's why the market, well, actually it wasn't consensus. I mean, two weeks ago, we were flat for like two months, three months, over the last two weeks. You know, the market's like gone up quite a bit. Three months, sorry, two weeks, three weeks, whatever. But yes, analysts, they have very, very positive earnings. Like, it's, there is disappointment coming. No doubt, no doubt. I just think you and I maybe, like, if you had a million dollars and if I had a million dollars, I feel like you would definitely, maybe only put 100,000 in stocks, and I would still keep 600,000 in stocks. I think that's where we differ. That's it. And I agree. I would know I, I would get a little more surgical. I would say that the picks and shovels for what you're talking about. Like somebody who makes transformers, get ready. It's gonna be fun, like commodity markets, really interested in commodity markets. Like the actual physical construction part of the economy that has tied to all these things, great. Also, like, would be really interested in small to medium-sized entrepreneurs who are going to use AI to completely disrupt things like accounting and legal services and all these other things. Like, that's the containerization analogy that you and I have gone back and forth on a couple of different times. So I'm not saying, like, get out completely. I'm just saying the Mag Seven has been leading the way. And their CapEx has been leading the way. And the vibe is these huge revenues numbers that you're talking about from OpenAI and Anthropic. And I'm just kinda like, I think there are better places in the market to think about these things. That's what I'm saying. - But can I, can I go back to one of the things that you said about geopolitics? So this is one of the things that you were making to your political, but also the other thing I think is, I think that there's a sense in the White House when it comes to the bond market. There's a real concern that there could be a sell-off of the US dollar. And what I mean by that is bonds, US bonds. So I think the Trump administration, where I give the Trump administration a lot of credit, and so you and I had an episode where we talked about the national security strategy. There's this real, finally recognition that the world is multipolar. I think that's from a foreign policy perspective, at least limited military interventions. I mean, even the fiasco in Iran, one of the reasons it is a fiasco is because they wanted it to be super limited, but that their goals were too big. And now there's this huge gap in that. But for the most part, it's an administration. I've said this before, very similar to the Obama administration that's okay retrenching in some ways, shape, or form. Blah, blah, blah, blah. But I think parts of the administration, particularly those that understand how finance works, also understand that if the world is multipolar, and if America is going to now be more limited, there are potentially financial consequences to that. I mean, one of the things about holding a US treasury if you're a foreign country, it's like a call option. It's like get out of jail free card. If you put all of your surplus that you get from trade, from trading commodities or manufacture goods into US dollars and bonds, then when something goes wrong, you can call up Uncle Sam and say, "Hey, man, these pirates outside are messing up with my trade routes, come and help me." And so I think that that is another portion of that. I don't see a massive sell-off by foreigners in US bonds. China's been very, very careful to do this very slowly over time because they own so much of it, they don't wanna hurt themselves. But I do think that there's this instinct in the administration to kind of like prevent that from being the consequence of a global multipolar regime. And my answer to the Trump administration, like if they asked me, "Well, how would you do it?" I would say, "Well, don't do stupid shit around the world." Like that's easy, even though the world is multipolar. Let me give you a comment, even though the world is multipolar, and America is no longer the headgemon, and you cannot call Uncle Sam and have them come in and save you. Even though that's all the case, there's still reasons to being the US dollar. Number one, it's the most liquid market, which is kind of a lame excuse, but let's just say, there's a lot of it. Number two, everybody accepts the dollar, even though maybe America's not gonna come and rescue you, if you need to buy some fighter jets from Sweden, like the Swedes will take the dollar in exchange for the grip in. Number three, it is a great place to put your money because it's a country that innovates, that has laws and rules and so on. So if you want to retain the dollar as a reserve currency, while becoming a little bit more isolationist, a little bit more selective, a little bit more like cool with multipolarity, just don't do stupid shit. Like be a reliable partner. You know, don't tell South Korea, like, hey, we're gonna stop having exercises because Kim Jong-un is cooler to party with. Like you guys are lame. Kim Jong-un throws great parties, Dennis Ramester. So fuck you, we're gonna go party with him. Like, okay, so that's, you know, by the way, last year, 2020. But because you do realize that like your entire argument is, okay, like you could have this, just don't do stupid shit. And they can't stop doing stupid shit. Like the shit is getting stupider by the day. I was on stage on Thursday and somebody asked me about this North Korea thing. And I even said in my presentation, I was like, I know I'm supposed to come up here and explain geopolitics to you. And I put up a picture of the tweet that he made about North and South Korea. And I said, I don't know how to explain this. And then the moderator afterwards asked me, well, don't you think that's just Trump being Trump and that it's not really like you follow what he does, not what he says? And I even said to this moderator, I was like, you know, I have a cousin named Marco, who, you know, he often goes at me for my Trump derangement syndrome. And we've, you know, diagnosed him with Trump derangement syndrome, derangement syndrome. And dear moderator, you have this affliction. Like this is just an absolutely crazy thing. Like, don't try to find logic in this. Don't try to find the secret. - But you know what it's crazy? But you know what it's crazy? - But let me just let my TDS DS really wash over us. - Yes. - Like the reason it's crazy, cousin Jacob, is that in 2025, you managed to convince South Korea to pay you $200 billion in FDI over the next five years. And by the way, fucking slow clap to Scott Betheson and Donald fucking Trump for getting $200 billion out of South Korea. Well done. But then why would you say this next thing? - Well, in just last month, we were talking about spending hundreds of billions of dollars so that they could help us rebuild the Navy, destroyers and other things like that. And then we turn around and do this thing. I mean, I just want to dwell on this tweet for a second. You know, President Trump said I recently asked the president of South Korea if they would like to join us in the denuclearization of the Islamic Republic of Iran. And they said no thanks. If I was the, whatever the equivalent of the Secretary of State is for South Korea, I would write back a note that says, if you would like to join us in the denuclearization of North Korea, we will be happy to join you in the denuclearization of Iran. But we have bigger fish to fry. That is they have a nuclear weapon. Like what are you doing? - Yeah, South Korea doesn't want to. I mean, they want to make peace. - Look, look, look, look, look, look. Here's my point. My point is this. The British pound remained the world's reserve currency. Well into the 20th century. United States overtook the United Kingdom as the largest economy in the world went. Like 1890s? I might be wrong on this. I'm sorry, everybody. But it was well before, first and second world, I think. And then the United Kingdom, United Kingdom had to help its cousin France in the fucking fields of flanders and all this shit. That was really painful. Then came the Great Depression. By the way, there were strikes, the labor party came in, Winston Churchill, put him on a gold standard again. And I mean, it was just a fucking disaster. And then World War II comes and Britain almost loses and gets invaded by the Nazis. Like all throughout this entire period of time the British pound was the reserve currency of the world. It takes a lot for the rest of the world to abandon. In other words, you don't have to be the most powerful country in the world. You don't have to have the biggest military. You don't have to. to even be the headgemon. You just have to be fucking reliable, have good laws, and let foreigners own your assets, and you'll be good. People will be like, "Oh shit, we like the kind of your gym." You know what? I like to buy a house in Montecito, come with my wife and hide from the British Royal Court. I'm going to do that in California. Like, that's the kind of a place you want to be, even though I'm a clown. Like, that's what you want to do. That's the kind of country you want to be. Or anyone can buy assets, it's liquid, there's a rule of law, somebody impinges on you, and then people will be like, "Yeah, okay, shit. America can no longer be the global policeman. It sucks. Too bad. I guess I'll have to fight on my own with these pirates, but they're still reliable." And that's why I think what's interesting to me is that, you know, the solution to this quote-a-quote problem is very simple. Just don't do stupid shit. And as you say, that's difficult for this White House. They can't stop. He literally can't stop himself. The Germans never invaded Britain, by the way, because they lost the Battle of Britain, so they didn't quite make it that way. But they almost, as I said, they almost, they almost got invaded. I said, they almost got invaded by now. Did you say, "almost"? I thought you said invaded, my bad. No, no, they got almost. And by the way, they lost the Battle of Britain because they made a mistake, thinking that they were losing. They were actually winning. And if had they kept going, the Royal Air Force was out of planes. They were like a month away from losing the Battle of Britain, and then they would have sunk older Navy, and they would have invaded and been successful by Hitler, was also had a pension for doing stupid shit, and then decided to not follow through with the United Kingdom, and of course, in Great Russia. Yeah. Well, I mean, he needed the oil, but yes, you're absolutely right. I don't know. I hear your point, but it all falls down on the on the administration, just not stopping with the stupid things. And I think I said this, did I say this on the podcast? Maybe I didn't say this on the podcast. If this administration was governing like Trump 1.0, okay, it wouldn't be a golden age, but they actually would be killing it. They'd be, everything would be going great. Yeah. And they're not. Maybe you have TVSDS. Well, I have TVSDS for Trump 1. Like Trump 1 was the one who was trying to wind things down. Trump 1 was, yeah, he was speaking loudly and brandishing a non-existent stick. He didn't want it. It was all threats to get to negotiations. Remember the first time around with Kim Jong-un. That's not what's happening now. Like you can't say that he's an isolationist or that he wants to withdraw or retrench. He got us involved in a major conflict in the Middle East that is sapping U.S. strength by the day. And he's continuing even after it's a lost cause. He is upsetting allies around the world and making countries look at the United States and think that it's not so dependable with how volatile that he's being. So I just don't think the argument holds up for him. And like I said, the true irony is that all these other things, like he could be taking credit for this AI boom. And if he had just kept things, everything would have been fine. And it's just not it's not happening. And I don't know what that means. I don't know if things mean is the world naive enough to revert back to normalcy the way that it did after Biden took over after Trump 1.0 or has something fundamentally changed or it's sort of like you're talking about the dollar's reserve status is in some sense part of inertia. It would just be harder to find alternatives. So just stick with the system and let it ride. What if we get a president Rubio in the next cycle who starts to govern like an old school, you know, he is an old school Republican. Like he has closeted some of his views to try and align with Trump and be close to the seat of power. But he's like the old as close as you can get like an old school 1990s Republican. What if he takes over and what if he tries to put things back together? Does the world respond to that or just the world say, nah, you're crazy. Like we've already seen your true colors. I don't know. I've been wrestling with him. I think it's a ladder. And I think that it's the ladder for two reasons. First of all, objectively speaking, Trump is right. The US should retrench. And even this Iran situation, you know, you called it. He got us into a major war. Let's pump the brakes of that. Like you can count the number of Americans. I don't think you can pump the brakes on that cousin. Oh come on. We're withdrawing carriers to take them to the Middle East because the carrier that's been there is on the verge of using them because things are so bad. We're exhausting interceptors. We're not exhausting missiles. It's going to take us years to build things back up. Like this is real. That's before we get to the energy costs and the food costs. How many American servicemen have died in this conflict? Should I use my fingers to count them? I mean, some have. Well, yeah, but like, I've been thinking. More Americans hard lecturing. How many men does it take? Like, well, is more than one enough? Yeah, I hear you. Like, we're not. Yeah, more than one. We're not drafting people. No, but that's what's important. But it's important. Like, literally, like, the reason I, like, that's a very liberal TDS view because liberals and people with TDS must have evidence that Trump starts wars. They must. And yet, I'm saying, like, no, I'm sorry, but this is like, you know, like, this could be ended in like a month. And then your view is going to look really stupid. Like, literally, and we know this, this can be ended like this. Just they're going to give Iran what they want. I mean, that's the point. The bond yield is where it is. The SPR is where there is the reason that people are jumping off of Abraham Lincoln is because we haven't committed enough troops to the region. So today can be rotated out. I mean, the new aircraft carried the PM and also because apparently those problems with resupply because the Iranians have been hitting our bases in the region. So they don't have a supply and they're stuck on the boat for eight months. But that's all, but yeah, they're fine. I know what's disputing the incompetence of the operation. But the incompetence is part of the fact that the US is not willing to make this a major combat. That's the point. It's just isn't. It's not a major combat. And it's off and on. And now we're off again. We were on like two months ago. Like, this is maybe six X NATO's attack on Serbia. And nobody would say that that was a major combat operation. I lasted four months, but it was over and then we moved on. Look, what I'm seeing is this. Why is this important? It's actually not an important point. The issue is they are aware that the world is multipolar, but they're just not willing to play by those rules necessarily. Well, let me push back again here because I actually think it is important. And this gets to why I dislike Scott Besson so much. I agree with you that Scott Besson knows the world is multipolar. The reason he was going after the China prop up the yen is because he knows that Japan holds, I think they're the top holder of US treasuries. Yes, there's a top holder of US treasuries right now. He doesn't. It's China is number three. It's Japan, the UK, China. Who do you think is number four? If it's Belgium, that means China is number one. Belgium is number four. Yeah, that's China. So China is not China. Okay, we have to explain. Okay. Yeah, that's the way that they get away from being number one, but they're actually number one. Yeah. Well, the man. Okay, well, it's close, it's close, then, anyway, but the point is yeah, it's got Besson thinks the world is multipolar. I think people in the administration believe the world is multipolar. President Trump does not believe the world is multipolar. No, I don't think he does. I think he believes the United States is omnipotent and anybody is going to cow to him and his awesome power and to the awesome power of the United States. And he can just tell the military to do things and things are going to get done. And I think that's part of the disconnect here. He's got an administration that is trying to respond to this world and they cannot contain him and he's continuing on with policies that are manifestly unipolar right down to the tariffs. Like the tariffs are not something that you do in a world, at least the way that he has done them is not a policy that you pursue unless you think that everyone is just going to cave to what you're talking about. I don't think he sees a multipolar world at all. Well, I mean, look, there's ways to do Iran then if you truly thought that you were omnipotent. I mean, one would have been to send 200,000 troops. Yeah. Also, so I, I don't know, I think he's he believes so much in American power that he doesn't think he has to do that. He thinks he just has to bomb them in the power plants and they're going to come to the table when and he's been wrong now for how many months and how many more months is he going to be wrong? Well, I think I think we're going to have an answer to this question. And if in three months, like there's a there's basically the end. This is like on the back. I mean, it's already in the backburner. I don't know what to say. Like the United States of America has not increased its true presence in the Middle East in order to win this conflict. So clearly he doesn't want to do that or he understands the constraints. But to me, to me, this is this is a debate that's like the front of the page op-ed debate. That's why I'm not interested in it. You know, like the what you said though was does this continue if Marco Rubio wins? And so to me, like that, that's where like my framework doesn't allow me to give him credence or catalyst or agency, you know, like so and what I mean by that is like, I don't think whether Trump thinks the world is multipolar or not is irrelevant to me. The world just is. And so there's just limits to American power. So I don't understand how Marco Rubio would change this. And to your point, the other side of this, there are too many other countries that number one don't trust the US now. But also, I think that like things are in motion, cousin Jacob, things are in motion. The Germans are spending on infrastructure. The Chinese are building UAE pipelines. Money is being made off of the idea, whether I'm right or you're right, who gives a shit. Money is being made off of the concept that Americans are not here, that Rome is falling and all roads cannot lead to Rome, we need to rebuild and make new roads. And this is why we can't go back to the Joe Biden years. By the way, Joe Biden years were like whatever, like let's leave that aside. We can't go back to Clinton or Obama or Bush years because there's too many people around the world, too many careers, too many businesses, too many corporates or already committed to this rebuilding of Rome's roads. Because now we have to have a road to Beijing, road to Moscow, road to Brussels, road to whatever. And that means that come next president, it could be AOC, it could be also, it could be Buttigieg, it could be one of the Democrats, liberal internationalists, like some of the Buttigieg, who is, you know, Pete is an old school Democrat, he's not a new school Democrat, he worked for McKinsey, he was in the US military, he believes in liberal internationalism or Mark Rubio. Pete put a George Mark Rubio, let's say one of them becomes a president and they go to Europe and say, guys, guys, guys, forget all that. We're back, baby. The Germans are gonna be like, yeah, we're not gonna change, dude, we're already building this infrastructure 'cause we thought you were gone. We're already re-arming 'cause we thought you were gone. And now, too many careers, too many businesses, too many revenues and earning statements are gonna be dependent on this new world. You know what I mean? And that's why I just, I don't see how it changes. - Yeah, I agree with you, too. At least on them. All right, where do we wrap up from here? Is there anything else you wanna talk about before we say bye to the listeners? - Ah. - No, I think that's-- - I know we were flirting with talking about, next episode we're gonna talk about Ukraine and Russia and the Black Sea with a little bit more depth. Oh, the last thing I wanted to touch with you before we go, I alluded to it twice and I didn't come back to it. Is the remarkable political about face on data centers from both parties? I expect it from the Democrats, especially from the left wing of the Democratic Party. But now it's starting to get into the moderate wing of the Democratic Party. I mean, you know, Josh Shapiro, no relation, executive order in Pennsylvania. I think it was banning new data center construction. I forget exactly what it was, but against data centers. But then you had Greg Abbott the next day talk about all the data centers that he had canceled. And you had multiple Republican politicians come out and burnish their credentials on data centers. And I actually, if you look at the latest Gallup survey, 71% of Americans say that they don't want a data center in their backyard. I joked it in an event earlier this week. I think if you do that survey five years from now, 71% of Americans will be pissed off that they don't have a data center in their backyard. But I don't, I'm not a political consultant, but here's some free political consultant advice to both Republicans and Democrats. Data centers and AI are driving the economy and the local geographies that will do best in the United States are those that are most equipped to participate in this economy. This is a great and wonderful time to be a champion of data centers and to force these companies to also improve communities as they build the data centers. This idea that you're just going to ban them because you want to show that you're against them and you're, you're burnishing your populist credentials. A, it's going to be really bad for an economy that is running on AI and data centers. And B, I think it's going to look really bad in about two, three years. But nobody's listening to me on this. There's definitely this grounds. There is such a groundswell of anti-data center sentiment that people are asking, well, is this all Chinese propaganda that is trying to turn Americans against the data centers because they self-sabotage themselves? I got, I got asked that question multiple times this week and I haven't done the work to assess it. I'm sure there is some of that there as well. But I wanted to ask you about that because it's been a real, you know, speaking of vibes. It's been a real vibe shift against data centers. And I'm not one who's going to be on the side of hyperscalers, like, I think I've even set on the podcast. Meta's building a big data center in my hometown in Georgia. It was front page of the New York Times a couple months ago, it's jacking up the water prices there. A couple of guys don't have a couple families that are like down the street from my old house. Like, don't have water now because of all the damages that happened as a result of the installation of these things. But I see the data, like, no, if you, if you have a moratorium on data centers, the economy's going to suck. So is that really what politicians want to stand for? Like, why do we have politicians who want to stand on economic suicide at every single level of government? I don't get it. - What's interesting to me is that, but that would prove your rights to the view of what you want. I mean, this is the easiest way you'll be right. - I guess so. - I don't know. - I guess this is where Jacob just reveals, he is not a nihilist because if I was bearish about AI, I would want this to happen, but Jacob actually cares about humans living in this country. So first of all, I think you're the only human being other than me to have the same view, which is that like, yeah, everyone's against data centers now, but like five years from now, maybe like AI is extremely hate. But it's hated because I think Sam Altman made a really critical mistake and his ilk, the tech bros, they tried to basically raise funding for their models by telling everyone they were creating God. Like, AGI's coming, AGI's coming. And by the way, all this like, all their breaking containment and causing cyber, like that's like, they're so excited to tell us. By the way, they're like, we apologize. Another model broke containment and just like ravaged some poor corporate, you know? And it's like, guys, we get what you're doing. You're trying to tell us how fucking cool you are and you're creating God and Frankenstein. And they did that because one of the reasons you want to invest in one of these, it's like, holy shit, if there's like 0.5% probability that this company's gonna create God, I better throw like 10 billion at it. You know, if I'm like, I gotta throw something at it, just so I have like a chance, you know, if this God decides to launch humans into space. So I think that that advertising and that like real pressure on just regular Americans that they were all gonna lose their jobs, like that's soured the view towards data centers and AI in general. And I think that because I'm not a technical optimist, I don't have this view that AI's gonna like cause people jobs because I don't have that. I think it's gonna be modestly productive. It's gonna be like pretty decent and we're all gonna have to use it. I think that yeah, you're right. I think actually the view is gonna change because you know, like who uses AI? I mean like, I see like my wife uses AI. You know, she uses it to like remodel stuff. Maybe too much, you show. And that's a great example of how I actually do think that there's a corporate case but there's a household case also. I think consumers are going to start paying 20, 30 bucks the way they do for Netflix or Disney. I think like hundreds of millions, if not billions of people on planet Earth will be paying 10 to 30 bucks a month for AI cause it's useful, it's cool, whatever. And so at that point, like 12 months from now, 18 months from now, 24 months from now, 36 months from now when you haven't lost your job because of AI but it's become kind of indispensable. Yeah, I do think you're right. I think the views are gonna change. So it is kind of interesting but my question is if 30% of Americans are okay with data centers next to their home, like America's a very big place and just places where like there's counties in Texas as you know, where like 1000 people live. Yeah. If I'm athropic, I'm going to that county and I'm being like do you all want a hundred K? Cool, can I build six data centers? Cool. And that's it. Like, why are we worried about this as, and by the way, it's funny because the way I say it seems obvious but I would say that every single client I've spoken to this month has brought this issue up. This is now the hottest issue in finance, especially long-term investors, like pension funds and so on. Yeah. Like they are really, really concerned about this. This is something that every client brings up but I just don't see why it's a problem because I don't know, maybe I'm missing something but why don't you just put all the data centers in North Dakota? Or, I mean, this is, this is why we're cousins. I am so, I very rarely have high conviction views but I just don't think this is going to be an issue in a couple of years' time. One of the examples I've been using is you remember, right around the time with the pandemic, everybody was freaking out, not everybody but there were a large number of people who were freaking out that 5G caused cancer and there was actual sabotage of 5G telecom towers because of all the evil or that our headphones are going to give us brain cancer because of Bluetooth. Like we just latch on to these stupid ideas. Like most of the people who say they don't want a data center next door, they don't even know what a data center is, they don't know how it functions, they don't know the parts of it. Like it's just kind of there. So I think that in two, three years' time we'll be on to the next thing. I think it's a populist cudgel for these politicians going into the election and I see how they're using it and I think what they're playing on is kind of what I alluded to earlier. They see all of the capex going into data centers. We have trust in US political institutions has been steadily going down since Lyndon B. Johnson and Donald Trump has proudly carried this trend going forward. So increased mistrust of political institutions inflation rising for the normal consumer. Guys like Scott Besson are like, yeah, markets doing great, everything's doing great. Whereas some consumers, yeah, maybe they're consuming but they're seeing higher prices for everything and they're seeing that more money is going into data centers than their schools and their hospitals. And so it's very easy to get on stage, like a demagogue, and to say, "Ah-ha, I will stop the data centers, the data centers are the problem," whereas really the problem is that we're not having good policy to invest in infrastructure to make lives easier for people, and data centers are actually the thing carrying the economy, which to your point, that's going to come around in two or three years, we're going to realize that, and the folks that are using AI are going to be the ones that are doing well, and the folks who decided not to use AI are not going to be doing well, and then we'll have moved on to robots, or to, I don't know, whatever the next thing is going to be the people, yes, like we'll just move on, so maybe we're off here, but I just have a very high conviction view that this is domestic U.S. politics, and it's stupid U.S. domestic politics, and it will self-sabotage the only thing keeping the economy going right now, and that I'm not worried about it two or three years from now, because you can't stop this AI data center train. If you do that, you're just asking for a massive depression. Oh, sorry, Jacob, we actually forgot to do our first ever ad read, Amazon Web Services, Amazon Web Services, do you need cloud storage, Amazon Web Services, that was joke, because that was such a like articulate, passionate defense of data centers that I was like, there's somebody listening to this who's like, dear, on the fucking take, we are not, I wish I was on the take, I'm going to take a shower after this episode. 100%, you make us feel the take, please. Well look, one thing I do want to say, I think that policymakers, politicians are looking for ways to be populist, because it's winning, and I think that we need to do a whole episode on what's happening at a democratic party, because I find it fascinating. And the Republican Party, if this is not just the Dems, there is a larger faction in the Republicans that is fighting against this, but this is active in the Republican Party as well. And I would say they have the upper hand right now. So, so you're right about the data centers. Yes, correct. But what I'm getting at is like, what I've noticed in the democratic party is something that is much broader than the data centers, which is just old school class warfare. And I think that they figured out that woke 1.0 didn't work. They need woke 2.0, woke 2.0 is just Bernie Sanders. They're recruiting politicians to run for government who are very electable, but they've got this like Uber, Alpha, male energy, like Abdul Orman, El Sayed, in Michigan. What's interesting about him is not that he is a Muslim or that he is left leaning. It's that he deadlifts while doing media interviews. That's what's interesting. The guy they picked in Maine, what was his name, the oyster farmer who lasted like a couple coffee. Well, he flamed out. Yeah. He flamed out. Why? Because every relationship he had, like resorted to violence, and then they replaced him with an actual lumberjack, Jacob. So there's a pattern in the democratic party and it's this Joe Rogan, like, you know, Joe Rogan, Stoller voters, we're going to go after it and AOC is complicit in that. I'm not saying she's wrong. Obviously, this will work. She's smart enough to say, like, cool, the Wisconsin government, a governor candidate hung. Did not get any, the lady who wanted to cancel Thanksgiving. Yeah. But the star that is burning most brightly right now for the Democrats and we'll see if it keeps on is not doing this. And that's John Assoff in Georgia, like what Assoff is putting together is the alternative. It's a, and Mayor Pete is also trying to do this too and there are Republicans who are trying to do this. I think you're right. I think everyone is thinking populism is going to work because it's worked in the last three election cycles. And maybe it's, maybe it will still win out. I actually think we probably have another populist cycle to go, but it's some point being the centrist and the moderate, going to crush the populist and there, like, there are hints. A 100% hurt you. It's just that, you know, I don't think, like, yes, you're right. You're a 100% right. But eventually that will work, but the candidates I'm describing are like very left-wing on bread and butter issues like taxes. So what I think, because I agree with you on data centers, number one, it's kind of silly. Number two, I don't think it actually does anything. It hurts the economy as you point it out, which, like, duh. But I do think that there is a way where the bond market ride from the beginning of this podcast is connected with the election. And it's that America has high deficits. And for the last 20 years, the way to solve deficits has always been like, well, we've got spending. Well, actually, there's another way. There's another way. You can keep spending constant. You just raise taxes way high. And I think that's where what's more important than the data centers. So all our clients want to talk about data centers, but I think they should be just like, hey, man, like, actually, you should talk about the fact that corporate income, personal and also in interest, wait, my brain just stopped. Capital gains. Sorry. Yes. So corporate income and capital gains taxes are probably almost certainly to go up in 2020. That's what I'm seeing from the midterms. So to me, like, yes, I mean, not if Trump has anything to say about it, but Trump's form of taxes. Well, no, in 2019 tariffs, tariffs have been Trump's taxes. Let lay listeners. Do you know what a tariff is? It's a tax. It is a consumption tax. So I absolutely, but I would say that, but that's the whole point. Like Trump started it, just like he started a pro-cyclical fiscal spending in 2017 by lower taxes. He's actually started a new trend. And I think that's where I think too many people are obsessed with the data center thing. And they're missing the big picture, and the big picture is that the Democratic Party has cleansed itself of all the woke stuff that nobody really likes. But what's left, what's been distilled, is the Bernie Sanders at heart, which is class warfare and higher taxes. And I think that we are going to have that in 29, you know, and I would say mathematically speaking, you know, you can't really argue against that. Because as many of my conservative friends and my Republican friends always say Laffer curve proves that taxes are all negative for growth, and I'm like, I'm going to know. That's why it's a curve. It kind of depends. It means that at some point, raising taxes does not increase revenue. At some point, I'm not sure the US, France is there. If Marine Le Pen were to raise taxes, that would be terrible. Like France is an overtaxed country. I'm not sure the US is there. And obviously we're going to lose like half of our listeners now, but like, sorry, the point is, I do think the US can raise taxes and that can contribute to lowering deficits and debt levels. And I think that's coming. Like I think that there's nothing to fold it back. Yeah. I would just, again, just your point. I would point out that President Trump tried to do just that, like you were the one who called it very early. The tariffs were away to try and get more responsible on the deficit. Now it failed because he did it illegally, and it doesn't actually, you know, he doesn't actually know what he's doing, but he raised it like, but they're back on. They're back on, but now there's new legal challenges to that. And like, for sure. Yeah. But you know what's legal? There's just uncertainty. You know what is legal? What's legal is Congress run by Democrats and the White House from Democrats raising your income tax. That's that cannot be challenged, right? And so that's what I'm getting at. What I'm landing this plane on is like, if, if you agree with Jacob, and I agree with you too, like, yeah, it's different from the 90s. Like, yeah, like yields were higher, but death load was lower, blah, blah, blah. This is fine. But like, look, where all of this is headed is America's going to have to like, unfortunately, kind of live within its means. That's where we're headed. And I think that that's what's what the, the, the elections of 2020 set a six, you're not going to do anything. Because of course, as you said, the president Trump is the president for next two years. But the pressure is going to build up. These yields are going to, you know, hover around where they are. And eventually, I think that the US is going to have to become more fiscal and responsible, which if you ask Democrats how to do that, while the answer is going to be, jack up taxes significant. Yeah. The only thing I'll say that 26 can change is that, I mean, I'm assuming the Democrats are going to take the House. And if the Democrats take the House, President Trump has just lost his ability to do most of the things he's been doing. He can still fool around with foreign policy, but the House has the authority to investigate and they'll also probably impeach him like three different times. And they can investigate every single little thing they want. They can investigate, you know, Scott Bessent and the Yen, and they can investigate what's going on with, you know, contracts for new missiles and they can, like, they can basically whatever policy we have the day before the midterms happen, like US domestic policy will be frozen for two years. Well, I just think it's been frozen. It's been frozen because Trump alienated all of the Republican Senate by either forcing them to retire or actively primary. So like, actually, there hasn't been any policy going through Congress at all. Where's the reconciliation bill? There hasn't been even a single one. So like, we are already living in that future, except without the impeachment point. And speaking of investigations, maybe, maybe another thing to investigate will be the sale of my beloved Los Angeles Lakers. But hey, I'm going to leave that to, to what's his name, Pablo Torres. I was actually going to say, I want to do a whole, I want to do a whole episode on this with you because there's Middle East money behind Walter, and then there's Bob Eiger and Kushner, obviously related to the Trump administration and Adam. There's definitely a geo. - You love this, you asshole. - You're just loving this. You're going to paint the Lakers as the evil empire. I know what you're gonna do, your TDS. - Not at all. I think the Lakers are the victim in this. A much cherished US institution is being bought in the crosshairs of this strange geo. - I like this now. - Money, everything else. Like you guys are either innocent. Meanwhile, Luke is like hosting all the Lakers in Slovenia for some kind of training camp. Man, I wouldn't give to be hanging out with Luke in Slovenia. - Hey man, have you seen his hair? Like, you know, he's single, you know? He was looking good. - He is, I mean, that was a whole story as well, but yeah. - Well, listen, I think, you know, we would have to do 60 minutes in the Lakers. I don't know what it means. It's funny to Walter, the previous owner had Middle East money as if that's not Middle East money behind the next group. Like, come on. Like really, these numbers are so high. I think there's Middle East money behind all of it. Celtics, everyone. - Well, yes, but I, like conspiracy, like I cannot prove this. But here's conspiracy, Jacob's inference, the thing that he will be looking for. Perhaps the Middle Eastern money backed Walter at the previous evaluation, then the Iran war started. The Iran war continued. They've got all these problems. They need money to actually build, I'll turn it to pipelines and things like that. And they were like, we need some money back. And we need it back right now. And President Trump-- - I think Walter did. We all know who needed the money. I don't think he was-- - Well, and maybe some of his investors needed the money too. And President Trump was like, well, have I got the, you know, the nephew-in-law for youth or the son-in-law for you that I can deal with, who also has connections to this. And I can do all these things like-- - 'Cause there's a lot of conspiracy. Just two things I take from this. First of all, Lakers 12 and a half billion after being sold for 10 last year. I mean, if you want any evidence that Jacob is right, that you should pull all your money from the market right now, this is it. - Yeah. - You know, like this does seem frothy. But the second thing, I, what's his name, Pablo Torres? Is that the name of the-- - Yeah, Pablo Torres. - Pablo Torres. - Okay, Torre. So Pablo Torres, obviously, Emmy winning, Parkcaster, God bless you, amazing. The scoop in Kawaii Leonard and the Clippers won him, not the Emmy, the Pulitzer. - I think you're right, Pablo Torres. I forget now, it's one of those. - But he won the Pulitzer. - I think I made him French by accident. - Yeah, no, listen, this guy's amazing. Like nothing against him. But he should stick to what he does well. Because he was in a podcast and he started saying, like we need to investigate about all this private equity money means in sports. And the idea of being that like, okay, well, when Kushner and Iger show up, they're gonna want returns. They're gonna want to like focus on like getting back to their investment, as opposed to mom and pop owners who just wanted to win. And I go to that, what the fuck are you talking about? Like literally, because step back. And literally, what are you talking about? Like the whole reason why you had terrible ownership is because owners got involved. Like Sacramento Kings for God's sakes. Like Vivek, like he's made a ton of bad calls. Like Vivek, by the way, brother, like make me your GM for God's sakes, I'll be your GM. Like I'll do a better job. You know, like, I mean, the whole point is, yeah, sure, there might not be like connection to the community. And they may want to, I don't know, like renegotiate the lease of the stadium 'cause they're real estate sharks. Like I get that, there's all sorts of that. And then there are, you know, those very special owners, like Dr. Jerry Bus, like #Awesome. You know, like, like knew what to do. But like, don't sell me this story that mom and pop, like mom and pop, like owners knew what the hell they were doing. Like, are you kidding me? This reminds me of that star, South Park episode. What do my favorite that introduces Tweet and his parents who own a coffee shop? And it's like the love, you know what I'm talking about? You know what I'm talking about? And as Starbucks shows up and everyone's trying to fight Starbucks 'cause they want the local one and then they taste the Starbucks and they're like, "Fuck, this is so much better." And so that's what we're talking about. Come on, man, Eiger, for God's sakes. Yeah, I'd rather have Eiger than like, Jerry Bus is like, Nepo babies running the lake. How is that a cushioner? Fuck yeah, give me, give me both cushioners. As a lakeer fan, what are we talking about here? You know, I think Jerry Bus is not a great job. Like, no, no disrespect, obviously. Like, we all know her brothers are morons. She agrees with this. That's why she fucking fired them. You know, it's been basically secession over in El Segundo for it'll pass like several years. Like, come on, this is not like, there's 99 reasons why this seems fishy. But performance in the future of the team is not one of them. - Well, and we haven't even touched the fact that the Lakers were the consolation prize for the collapse of the FIFA World Cup investor scheme things. I think we have to do a whole episode on this later. I think the obvious answer though is that Vivek needs to call you to become GM. And I'll take over management of Scott Besson's former hedge fund. And both franchises will do better with under new management. - Showing our modesty, I believe you said that you would run a key square better with Scott. And I, well, honestly though, like, I think I could do better than if Lottie and Eva's running the team. - I think I could do better than Scott Besson. This is my opinion. Scott Besson is your opinion of Lottie D.Vatch as a. - And by the way, Lottie D.Vatch is a hero. I have his picture somewhere here. Well, I have an unpack. - Just stay in your lane, Lottie. Like, just, you know. - Lottie is awesome. - Dude, you were good at it. - Lottie is awesome. He's a legend to God bless him, but yes. Like, he should definitely have outsourced the. I mean, not passing over Luca 'cause he's too much of a fucking boy guard. Yeah. Anyways, that's it. (water splashing)