Why Dario Amodei and Sam Altman Are Faking the AI Doomsday Crisis | The Weekly Wrap

Oil prices approached $110. This is sparked more inflation fears and the market is feeling dicey. The crypto world had a bad week and it is unclear where the industry goes from here. FICO wields a monopoly in mortgage credit scoring and its monopoly is going to break. Is AI really going to destroy us all or is something else going on? Dario Amode, the CEO of Anthropic, followed up with his own doomsday thoughts. The entire future of Anthropic and open AI depends on there not being any slowdown. AI won't cause extinction but these two CEOs are creating massive damage. It's a perfect storm, so what's really going on? Here's my theory. Hi this is Steve Iseman and welcome to the weekly wrap. This is for the week ending Friday, September 18th, a recorded Thursday night September 17th. This last Wednesday, September 16th, on our premium sub stack subscription service, we posted part one of a two-part master class on how to analyze banks. I'm providing you with all the tools to understand how banks work and how to think about large cap mid cap and small cap banks and the investment banks as well. Originally, we had planned for part two to drop in two weeks. However, we changed our minds and part two will now drop next Wednesday, September 23rd. On this week's wrap, we will discuss one, the Warren Iran, the rising price of oil, the Fed, and interest rates, two, has Scott Besson lost all credibility. Three, more news on FICO, the credit bureaus and now the mortgage insurers. Four, the crypto world had a bad week. And five, is AI really going to destroy us oil or is something else going on. The Warren Iran continues, with no sign of any lead-up, both sides are bombing each other and doing damage. As a result, oil prices approached $110, but then pulled back. This has sparked more inflation fears with the result that the 10-year yield climbed for a time above 5%. Now, for quite some time, I have been saying that the market will not be able to stomach some level of long-term rates. Originally, I thought that level was 4.5%, and that was wrong. But here we are at 5%, and the market is feeling dicey. Also, because of these renewed inflation fears, investors have been worried that the Fed will raise rates at its next meeting. And in fact, this week, the Fed did raise rates by 25 basis points to a range of 3.75% to 4% to contain inflation. Fed officials also penciled in an additional hike later this year. This rate increased defies President Trump, who has been calling for the Fed to lower rates. On Wednesday, the market was not pleased by the Fed's actions. Not so much because of the hike, but because of the intimation that there would be more. However, it's all about long-term rates, and on Thursday, long-term rates declined below 5%, because the market, at least for the moment, is assuming that higher short-term rates will cause the economy to slow. As a result, the market rallied back on Thursday. For now, 5% on the 10-year does seem to be the demarcation line. A few more points on interest rates. The rise in long-term yields, I believe, is not just due to the war, or oil prices, or even inflation fears. These have all played a role, but there's something else. This year, approximately 500 billion in AI-related debt has been raised. That's a lot of long-term debt, and it is creating a crowding out effect. In other words, some investors would rather buy AI long-term debt than long-term US treasuries. It's a perfect storm for Treasury Secretary Scott Bessent, and I don't envy him his position. Clearly, he wants to drive long-term rates lower. With US debt at 40 trillion, higher rates feed the deficit even more. That is why he announced a program to buy $4 billion later increased to $6 billion in long-term treasuries. Unfortunately, it worked only for one day, and rates have simply marched higher since that. He needs a much bigger bazooka, or an alternative buyer. Now, I don't think that Bessent is going to go off and hide in a cave. He will come back with some new plan. What that plan will be? I am not yet sure. Moving on, I have been short FICO for a while. My thesis was that the company got greedy and raised prices 1,600%. I'll say it again, 1,600% over the past five years. FICO wields a monopoly in mortgage credit scoring, and they have abused that monopoly. What are the keys to the short? Is that the head of the FHFA, the regulator of Fannie Mae and Freddie Mac, agrees with me, and has been criticizing FICO relentlessly. Last year, PULTI created a mortgage pilot program whereby 21 lenders would use the alternative to FICO called Vantage Score. A few weeks ago, PULTI went on social media and blasted FICO and stated that the pilot program was now good for all lenders, all lenders. He also criticized the credit bureaus for price gouging as well. His criticism, and his criticisms, have been very effective from a stock perspective. Year to date, FICO is down 43%, and Equifax and TransUnion are down 25% and 15% respectively. The reason why Equifax is down more than TransUnion is that Equifax has a bigger percentage of its profits from mortgage scoring than TransUnion. I remain short FICO and think that its monopoly in mortgage scoring is going to break. The most recent data indicates that Vantage Score had a 10% market share of new mortgage loans securitized, and I expect that percentage will go much higher. PULTI is not done. He is now going after the mortgage insurance sector, companies like Magic, Essent, and Radiant. What's mortgage insurance? You, the borrower, pay for the mortgage insurance, but it does not benefit you. Mortgage insurance is designed to protect the lender. If your home goes to foreclosure and sells for less than you owe, the insurance pays the lender the difference. PULTI is arguing that the industry, the mortgage insurance industry, should be much more pro-consumer and could do a much better job of informing consumers when mortgage insurance is no longer necessary. We shall see how this evolves. The crypto world has been working on a bill in Congress for quite some time. Years in fact, the crypto industry has invested hundreds of millions in this bill called the Clarity Act. This bill is designed to create a clear rulebook for digital assets and cryptocurrencies in the United States. And a few weeks ago, it looked like the Clarity Act was going to pass, and that explains, I believe, the rally in cryptocurrencies and in the stock price of circle, the stablecoin company. However, this week, senators blocked the bill with Democrats citing concerns over ethics provisions, and with a few Republicans joining an opposition as well. This is a major blow for the crypto industry, and it is unclear where the industry goes from here. Moving on, normally, when I discuss AI, I analyze financials, growth, and balance sheets, and I discuss, for example, how much money and philanthropic and open AI bleed. But the news of late has little to do with that, at least on the surface. In reality, it has a lot to do with it. Let me elaborate. It all started with Jacob Coxson, a 27-year-old artificial intelligence researcher. He resigned from anthropic and put out a social media post claiming that labs, AI labs, are racing towards self-improving superintelligence without proper controls. And he claimed that the people building AI secretly believe it could kill everyone by the end of the decade. In other words, Terminator. This post received millions of views. The media went nuts, and to pour fuel on the fire, Dario Amote, the CEO of Anthropic, followed up with his own doomsday thoughts. It's a warning sign that we need to slow down. Amote called for the industry to slow down the pace of improving model capabilities. And in an interview with CBS News, he stated that, quote, "For too long, the industry lied or downplayed the real risks of AI." Unquote, sounds ominous. Sam Altman of Open AI then stated that he agreed that the industry needs to slow down. Now, before I get to why this is all nonsense at what is actually going on, let me set the stage. When it comes to new technology, we've seen this kind of hysteria before. In his most recent newsletter, Ed Zitron, whom I interviewed on my sub-stack premium service on September 9, discusses the story of Kevin Mittnik. It's a story I heard many years ago, but forgot about, so I thank Ed for bringing it back. Kevin Mittnik was one of the original hackers. He was convicted for various hacker crimes in 1988 and served a year in prison. After getting out of jail, he did it again. and was reconvicted in 1995. This time, Midnick served five years with eight months in solitary confinement because law enforcement officials convinced a judge that Midnick had the ability to get this. Start a nuclear war by whistling into a pay phone, implying that Midnick could somehow dial into the NORAD modem via a prison pay phone and issue nuclear launch commands to NORAD by whistling. You can't make this stuff up. Obviously, this was ridiculous, but it was new technology that was poorly understood by most people, and these lay people could be convinced of nonsense. And that, I think, is what is going on here. There is mounting hysteria because people who should know better, Amode and Altman are predicting Terminator. Notice that neither Amode nor Altman discuss real AI problems like the suicide of teenagers who interact with AI or the illegal hacking of other companies. Those are problems that won't end the world and are solvable with adequate oversight by the management of and thropic and open AI. Hi, Steve Eisman here. Most meetings end with a bunch of action items floating around, but they're not documented anywhere concrete. Someone thinks they're handling something, but it's not actually written down. And a week later, nothing has happened and nobody knows who owns the task. That's why I switched to granola. Granola is an AI-powered note pad that makes your meeting notes useful. It captures what happens in your meeting and turns into clean structured notes with decisions and action items pulled out and made easy to find. And the best part, granola integrates seamlessly with how you already work. No setup, no configuration, no friction. It transforms messy meeting call that to something you can actually reference weeks later. Your notes become searchable, organized, and actionable. You get better notes in a central place while you get to stay present in your meetings with no extra work. I use granola and I have to say that it has transformed the chaos of my meeting information into easy to use and organize information flow. Once you try it on a first meeting, it's hard to go without. You can try it totally free, head to granola.ai/Eisman. That's granola.ai/Eisman to get your time back. Go to granola.ai/Eisman and try it on your next call. Now let's look at a different prediction AI leaders used to make. They argue that AI would cause massive layoffs throughout the economy. That's not Armageddon either, but it would be terrible. It just looks like it's not true at all. Now perhaps there is less hiring in tech because of AI. Perhaps, but there have been no mass layoffs. And AI leaders are not even talking about it anymore. So the AI industry has a tendency to make bold and terrible predictions that just don't come true. Lay people, reporters, journalists, politicians, and others with decision-making power, swallow each rumor whole without a shred of disbelief because it's also new. They have no scaffolding within which to understand what's actually happening. And here we are with monstrous predictions being given total credibility. So what's really going on? I think this is a subterfuge, meaning a trick. Here's my theory. First of all, the claim that Darion Mote and Sam Altman are making about slowing down is just false on its face, the entire future. They both have hundreds of billions of commitments to hyperscalers. Open AI alone represents 300 billion of Oracle 600 billion plus backlog. If they were to slow down, they could not fulfill those commitments. Also, anthropic is going to go public this year. Not just this year, maybe in a month or two. It can't slow down. What would it say to investors on the road show? Are they going to say that growth has been great? But now it's going to slow to a crawl? A slowdown contradicts their entire growth narrative. The only way to fulfill all those commitments is to not slow down. Elon Musk actually put it quite well. He said, quote, "It's certainly some crazy 4D chest to say that there's whatever a 10% chance of annihilating humanity." But by the way, how much allocation would you like in our IPO? I love that quote. So again, what's really going on? Business is potentially slowing or at least getting more difficult. And like a side street hustler, moving the shells in a shell game, a Moda and an Altman don't want anyone to know that businesses slowing or getting more difficult while costs are rising in capital is scarcer. They prefer scaring everyone into creating some kind of regulation that will protect their pricing power in the US. They are moving the shells fast and furious. Business is potentially slowing because token maxing is ending. And open-weight models keep taking market share. There are no pricing moats in this business. Today, I have the best LLM. And tomorrow, yours is better and cheaper. At the same time that business is slowing, the cost of building data centers and the cost of capital are increasing. And frapping an open AI need moats to defend their businesses because they see, I believe, a price war coming. So they are fomenting hysteria. They're by inviting the federal government to regulate the industry. I think they believe that via that regulation, they can create moats that will foster an AI doopoly. That's what's really going on. It's ugly. Lying has unintended consequences. It's one thing to lie to investors. That's old school Wall Street fraud. Lying to politicians can disrupt the entire economy. AI won't cause extinction, but these two CEOs are creating massive damage. At this point, this gambit looks like it's a complete failure. President Trump stated this week that he has no interest in regulating AI. So I bet the entire Doomsday slow down narrative is going to disappear very quickly. However, the damage is done. Data center regulation is the centerpiece of many local elections. And now people actually fear and believe that the product being created in the data center next door is actually going to kill them. Going public into the distortions they keep creating will be very illuminating. It's unclear to me how to keep a shell game going in an IPO process that requires transparency. And now for the mail back. The first question relates to our interview with Ryan Tunis, the P&C, Property and Casually Insurance Analyst at Cantor. The question is from @Sam who asks, quote, maybe I missed it, but I don't think the investment income side came up. P&C insurers invest the float and with rates higher, the bond book keeps rolling into better yields. If rates hold or rise, that's a structural earnings tailwind. Independent of the underwriting cycle is the market still underpricing it or caught up, unquote. Let me get some background to this question. Property and Casually Insurance companies collect premiums from their customers. They then take that money called the float and invest it almost solely in bonds. So if interest rates go up, P&C companies will gradually make more money on this float. Thus far, the viewer is correct. What I think he might be missing is that generally investors and P&C stocks don't care all that much when P&C companies make more money on the float. They care the most about pricing. Is pricing going up or down? That's why if rates are rising, the pricing is declining. P&C stocks will generally come under pressure. The next question is from @mycoass, quote, Steve. How do individual investors diversify away from AI exposure without abandoning equities? And are there any ways to hedge the risk or even place cheap bets against AI? Now, one of the difficulties with this market is that so much of it is correlated to AI. It's not just tech. Utilities are correlated because they provide the power to AI data centers. Industrials are correlated because they build the AI data centers and the power for the centers as well. Large banks, investment banks, and alternative asset managers are correlated as they provide the financing for AI data centers. There are 11 sectors of the S&P 500. And as far as I can tell, the only sectors that are uncorrelated are staples and health care, which combined are only 14% of the S&P 500. So buying a health care or staples ETF would help diversification. Thankfully, almost every sector of the S&P 500 has a subsector that is uncorrelated. So for example, within financials, the property and casualty subsector is uncorrelated to AI into the economy. And there are ETFs that have low volatility stocks that would provide some diversification. Here are three. One, the LVHD, which is the Franklin, US, low volatility high dividend index ETF, SPLV, Investco S&P 500 low volatility ETF. And finally, the KBWP, the Investco KBW property and casually insurance ETF. One more suggestion. Let's say you have a portfolio that has a lot of tech with a large amount of unrealized gains, because the stocks have gone up so much. How can you hedge that risk? Now, one way to do it is to shorten all or part of your positions against the box. What does that mean? Let's say I own 100 shares of NVIDIA and I've owned it for years. So I have massive embedded gains. Let's also say I'm nervous. I want to reduce my risk. My problem is that if I sell my NVIDIA position, I will pay 20% in federal long-term capital gains taxes, plus the long-term capital gains tax rate of my state. Instead, I could short 50 or 100 shares of NVIDIA. That's called shorting against the box. By doing so, I have now reduced my NVIDIA risk and I can wait until I think things will get better and then I can undo the short. By the way, for those of you who have never shorted stocks, you need to make your account into a margin account. It's not complicated. You just have to sign a document. Finally, we got a bunch of comments about my premium sub-stack interview with Wolfgang Munschau, author of Kaput, the end of the German economic miracle. Wolfgang is largely negative on the growth prospects of Europe, but one viewer challenged that view or at least partially challenged it. So at Simon Road, this is heavily focused on the big four, UK, Germany, France, and Italy. I am a bit disappointed not to hear of countries like my own Sweden, with a debt to GDP ratio of 36%, that's quite low, and probably the healthiest capital markets in the EU, making claims that entire Europe has not grown for a decade is not true across the continent. Paulin, for example, was not mentioned once, and I wonder why that is considering the growth they've had in recent times. Overall, I agree with the complexities around Brussels versus capitals and over-regulation, but also felt it was a bit incomplete. Nice to listen, though, and I will give Kaput a read. I saw the book. This is a fair criticism. It is definitely true that parts of Europe have done better than others. However, it is also true that the UK, Germany, France, and Italy dominate the European economy, and their growth remains very weak. These European countries have small tech sectors, and since tech is what drives growth, European growth is generally slow. On the positive side, Europe has a richer welfare system, but it is over-regulated, in my view, and seems almost allergic to risk. Wolfgang was not optimistic that things will get better. This last week, on Monday, September 14, we dropped an interview I did with my friends and big short partners, Vincent Daniel and Porter Collins. We had a wide-ranging conversation about Scott Besson, the deficit, gold as an investment, and why it is more difficult to short-stocks these days. So check it out. This coming Monday, September 22nd, we will drop an interview with George Noble, former PM at Fidelity, and now a sub-stack newsletter writer and podcaster. We discuss interest rates, gold, Tesla, and SpaceX, the precarious nature of the AI revolution, and what would cause this market to unwind? So please tune in. The best way to support the Realized in Playbook is to subscribe to the sub-stack through steveisement.com, subscriptions are free, and we appreciate your support. And that's the wrap. Opinions express on their own and not recommendations. Please do your own due diligence and consult the licensed financial advisors before making any investment decisions.