The Cult of the Ultra-Wealthy with Ed Elson | Better Offline

[00:00:00]Welcome to the Better Offline podcast. With you, of course, is your host Ed Zetron. Subscribe to our newsletter and join our annual anniversary subscription sale.

[00:00:20]$10 off an annual subscription forever, promotion extended until Sunday, July 26. Join now. Support the great Zitron Empire. And this is generally my main thing now. That and this podcast. I mean, I'm here. I love doing this show. It sounds like I'm giving the worst Oscar speech in the world. However, let's move on to the episode.

[00:00:39]Today I have the incredible Edson with Prof. Ed, how are you?

[00:00:44]I'm fine. I am very excited to contribute to the Zitan Empire, which seems to be growing by the minute.

[00:00:51]Yes, it is a dangerous empire, full of terrible ideas. But let's talk about one specific terrible idea. You're just going crazy about the SpaceX IPO, and I do n't think I've fully explained to the audience how crazy this company is. So please, get started.

[00:01:09]Um, yes. Well, we could start with their proposed valuation, which was to have it go public for about $2 trillion.

[00:01:18]Ultimately, the amount came down to $1.75 trillion, which was absolutely insane from the start, as it values ​​the company at over $100 billion in annual revenue. And you know, if the goal of a company is to make money, or at least to make more than it spends, then it's a very bad company.

[00:01:38]Last year, it lost $5 billion.

[00:01:41]And in the first quarter of this year, it lost more than 4 billion. And if the idea is that your income should grow faster than your expenses, that's not the case right now, as revenue has only grown by 15% and losses by 700%. So, by all accounting standards, this is really bad business. And you'll have to cross your fingers and hope something works out to believe in the viability of these investments, especially at the valuation they were trying to push. That's basically all we learned from the IPO filings: it was just a huge message to investors: "Hey, just don't worry." Elon Musk is a genius. Just keep your fingers crossed and hope for the best. And there's a lot in that document that we can talk about. Um, there are a lot of nonsense statements here that could be parsed, but essentially—that's the problem. This is something I pointed out as soon as the company went public. My prediction was that the stock would skyrocket 25% on the first day due to the huge momentum, hype, and the fact that the IPO is largely a rigged game.

[00:02:52]Wall Street banks do everything they can to make these cases successful and for you to have, so to speak, a successful IPO. That's exactly what happened. But my second prediction was that the stock price would fall by half.

[00:03:04]I think we're already down 45% from the peak. So, we're not there yet, but we're close. It seems that Musk's " industrial complex" that kept Tesla afloat simply didn't work here. Because when I look at that number now, and it will change while this is on the air, it's 121.9.

[00:03:25]The usual way to read a stock price.

[00:03:27]Let's move on. This is significantly lower than 135, the price at which they started. They jumped to somewhere around 150 and at one time exceeded 200. But the “ Moscow” nonsense complex that supported Tesla’s value simply didn’t work here.

[00:03:41]Why do you think this is so?

[00:03:43]Well, I guess it can't last forever.

[00:03:47]Take Tesla, for example, which already has a pretty ridiculous valuation. This is because of the cult of Elon, because of the obsession with his genius and because he supposedly will figure out how to build humanoid robots and everything else.

[00:04:05]Tesla's valuation is a bit crazy, but somehow it's been able to hold on for quite some time. SpaceX was something otherworldly, no pun intended, in terms of its valuation. Sooner or later this has to come to an end.

[00:04:21]At least, that's what I believe when it comes to markets. I think if you look at the story they were actually selling to investors. You look at what they stated in their disclosures and documentation. One of the things that convinced investors that this made even a little bit of sense was SpaceX's idea that they had supposedly identified what they said was "the largest available market in human history." Yes. And what kind of market was this, actually?

[00:04:54]This market is a rocket launch, for once.

[00:04:58]Launching satellites into space, two. But then the biggest one, and to be clear, they said that this total market size is 28.5 trillion, which would mean that the size of this market is bigger than the GDP of Europe or the GDP of China, which is just crazy. What actually goes into this market? Like I said, rockets, satellites, but 26 trillion of that was for AI.

[00:05:26]And, of course, it's not Sorry. Continue.

[00:05:29]No, no, no. I mean, are these AI data centers? Are these AI data centers located on Earth?

[00:05:37]This is a real question.

[00:05:40]So these are AI data centers, but I think the next theory, the next stage of AI development, is that we're going to put these data centers in space, they're going to orbit the Earth, and that's why the possibilities of AI are so huge. Obviously, anyone who is not a member of the Elon cult, who does not suffer from what I call Elon Derangement Syndrome, where you buy into it and believe that any price is justified just because it's Elon.

[00:06:09]Anyone with a head on their shoulders understands that this makes no sense at all. or at least you can't expect real profits from it if they have n't even proven that it makes sense both from a physical law perspective and financially and economically. They haven't proven that there's any real profit to be made here, and that's where all this rhetoric becomes so misleading, like using the phrase " light of consciousness" in their essay.

[00:06:37]What the hell does that mean? Which yes, is what they call their mission as a company.

[00:06:44]consciousness.

[00:06:46]Their mission is to spread the light of consciousness to the stars. So, it's not about actually delivering cargo into space.

[00:06:53]It's not about providing broadband through their satellite business, which is what they should be talking about, because that's what they're doing right now. But to get such a crazy rating, they need to inflate the scale of the project. So they expanded this scope not only to orbital data centers, which they have yet to prove, but also to interplanetary and interstellar travel. I mean, that and they actually promised or hinted that they would build a means for interstellar travel.

[00:07:24]Well, they say they want to spread the light of consciousness to the stars. And if that's their mission, then I'll take it literally and say: okay, so you want to achieve interstellar travel. that's the only thing it can mean. They are essentially saying that they want to take humanity and take it to the stars. So, that's if that's your mission.

[00:07:45]Again, they don't promise that this is what they will do. They only say that's what they're trying to do. And as soon as you say that, suddenly all the investors and all the people on Wall Street say, "Oh my God, this is a company that's trying to do more than any other company in history." Look at what Deutsche Bank called SpaceX.

[00:08:05]In their note, they called this company, and I quote, "the pinnacle of civilizational ambitions." They said that SpaceX, quote, "is bending the arc of history." So when you say that, people suddenly get greedy and you start thinking, "Oh my God, what if they do this, what if they succeed?" and you kind of forget about the numbers.

[00:08:26]You forget that they are losing money. You're forgetting that the AI ​​business, which they say will generate, you know, 90% of their revenue in the future. You forget that it does n't work at all. You forget that this is two and a half billion dollars in losses.

[00:08:42]So, there are two assumptions here. First, they will build AI data centers in space, which is somewhere between delusional and stupid. And the second is that there is demand for this from data centers. So, just two of them, two at a time for this data center thing that they haven't proven. Okay, maybe that's a more direct question. You hinted at this a little bit earlier. What does this mean for banks? Well, just at the most basic level, why would it matter to the likes of Deutsche Bank or Goldman or whatever to say things that if a homeless person shouted at you, you would run away?

[00:09:20]So, this is a really interesting question. This is the moment when I start to put on my tinfoil hat and get a little conspiratorial.

[00:09:27]That's what this is about. That's right. And we do this based on data. And, honestly, I'll just say this. I am right. That's why they do it. Um, the reason Wall Street should be friendly to SpaceX is because there is a very, very significant financial incentive to do this.

[00:09:53]Namely, it is one of the largest IPOs in history. And one of the most important ways that banks generate revenue, the way that they make money, is by taking companies public.

[00:10:08]So, if SpaceX decides to choose Ed Zitron Bank as its underwriter for the IPO, it would mean that when SpaceX goes public, Ed Zitron Bank would receive a share of the fees generated. And that's why these are transaction fees, right? So, when someone trades, what exactly are the commissions they receive?

[00:10:30]They take a percentage of the amount of company shares sold, right? And it depends on the circumstances. These percentages are subject to change.

[00:10:39]For SpaceX, it was a little less in percentage terms than the average IPO offering, but that's because the total amount of funds raised was simply gigantic. So, if you look at the banks that reported earnings last week, they made literally billions of dollars on the SpaceX IPO, because so many of them took the company public.

[00:11:00]So that's the first thing you need to know: Wall Street has an incentive to be nice to the banks.

[00:11:08]We actually had an example of this back in our favorite era of market history, during the dot-com boom, when there was this guy named Henry Blodgett, who was an analyst at Merrill Lynch, the same one from Business Insider.

[00:11:21]That's right. Who later created Business Insider, and he had a pretty decent career, but he got into a lot of trouble.

[00:11:31]during the dot-com boom, because he was publicly very optimistic about many Internet companies that were going public.

[00:11:41]He said they were all worth buying. He publicly recommended them, and it was his job to talk about these companies, set price targets, and say, " This is what I expect from this company." After the dot-com crash, an investigation was launched into Henry Blodgett, and it turned out that in private he had called many of these companies garbage, or as you like to say, junk.

[00:12:06]He said it was junk. He said that these were bad assets.

[00:12:10]He called them pieces of [ __ ]. So the question is why he said one thing privately, and on the other hand, publicly stated: "This company is worth buying." And the reason is what I said before: he had a financial incentive to please these companies so that they would choose his bank, Merrill Lynch, as the underwriter for their IPOs, and that's how Merrill Lynch made money. This turned into a huge scandal, and it turned out that many other analysts and banks on Wall Street were doing the same thing.

[00:12:45]When the SEC saw this, they realized: yes, this is a definite problem. We can't allow them to publish studies like this where they are essentially lying about these companies. And at the same time, we learned that they themselves don't actually believe in these companies. So they passed a law known as the Global Analysts Agreement of 2003. This was an agreement created by the SEC to resolve a conflict of interest between the investment banking divisions and the equity research departments where Henry Blagett worked. They essentially said: we will separate you, and from now on, if you work in investment banking, you are not allowed to interact with your bank's equity research department without a supervisor. Because we understood: if you start colluding among yourselves, we will have conflicts of interest.

[00:13:40]Then the banks will start inflating these worthless stocks, causing people to lose a lot of money, because that's exactly what happened during the dot-com crash. So they created it, and you might think: okay, problem solved. And I will say: not at all. It just seems like someone else is present in the room.

[00:14:00]Yes. So I mean, this is an important point. But at least we can say that they tried to solve this problem. At least we can say: okay, we created a rule that tries to make this less of a problem than it was. And at most— you scared the analysts and said, "Hey guys, this is serious, and if you start inflating the stock, you're going to be in trouble." Incidentally, they also passed a law requiring that equity analysts' compensation be completely separated from investment banking income. So you could argue that if you work in stock analysis, you no longer have a financial incentive to praise stocks.

[00:14:48]Now you can just do your job and give honest recommendations. Whether you believe that this really solved the problem is another matter, but let it be known that they tried, and this is the law they implemented.

[00:15:01]This seems like the least effective way because I don't know, I read analysts from the side all the time and, well, I've never seen them say anything negative.

[00:15:13]Well, I'm going to disappoint you a little here, because seven months ago this law was repealed.

[00:15:20]Oh, of course. Oh, December 12, 2025. Here is the headline from the SEC.

[00:15:26]Quote: "SEC agrees to terminate global agreement with research analysts." So, they essentially decided that we no longer needed this law. Their argument is that the same SEC that lost about a fifth of its staff, that is seeing some of the lowest settlement amounts in the agency's history, because they have essentially made their style of work not about protecting investors, but about protecting white-collar workers, which is why we see so much insider trading that has just exploded over the last year. They stated that we no longer need this law because there are other laws that supposedly do the job. Do they even remotely approach the laws that existed before in the original global agreement with research analysts? Are there laws there, for example, that a supervisor must be in the room when these units communicate? No, they are not. The laws are much weaker. They are much more flexible. They are much less strict.

[00:16:25]So, it's clear. So, we do n't even have that half-baked law anymore.

[00:16:29]That's right. There is, in fact, nothing there.

[00:16:32]Perfectly.

[00:16:33]This happens. SpaceX files for an IPO, and then I look at the Wall Street price targets that we've seen, and unanimously, every bank that underwrote this IPO said, even at that ridiculous valuation that it was at first, they say it's a buy. Here's Goldman Sachs, they said it's worth $25 a share. That's a market capitalization of $2.7 trillion.

[00:16:59]There was JP Morgan, they said this company was worth $3 trillion.

[00:17:02]Morgan Stanley—$4 trillion. My favorite, Raymond James, is a lesser-known investment bank.

[00:17:08]They say the company is worth 10.5 trillion, which would mean the company's stock should be trading at a price-to- sales ratio of 542. times sales. This would mean that this company is the most valuable on the planet. More valuable than Meta and Microsoft combined, more valuable than Nvidia, more valuable than Apple and Nvidia combined.

[00:17:33]than Apple and Nvidia combined. And at this point you have to ask yourself: is it okay that they smoke there? Or second: who pays them?

[00:17:44]Yes.

[00:17:45]And the answer is— SpaceX pays them. And then you can say: well, they already did the IPO, did n't they get their commissions? Have n't they already collected their income? Why would they be interested in inflating the stock now that the company has already gone public? And this is the part you'll definitely like: this company still needs to raise hundreds of billions of dollars to achieve everything they want to achieve.

[00:18:25]And they are going to raise all of this through banks.

[00:18:27]They have to do it through banks. So they have to do it. There was a debt offering they did recently and people somehow bought it, but now we're seeing SpaceX bonds plummet.

[00:18:40]But they will have to raise even more capital and even more borrowed funds. That's about $200 billion in additional funding they'll need in the future, and that's tens of billions of dollars in future revenue for investment banks. This is income that they literally have a fiduciary duty to pursue. So when you ask me: Okay, why is everyone going crazy when it comes to SpaceX? That's why. And the only analysts who said the company was worth selling—Morning Star, for example, their analyst who I had on my show, Nicholas Owens— the only analysts who said it wasn't worth what it is now are analysts who don't have a financial incentive. I mean, Morning Star, for example, they're not taking this company public.

[00:19:33]They have no incentive to receive these underwriting fees on all the debt and equity issues. So, that's the problem. And I think investors are starting to come to their senses. You see a lot of fear now as the line goes down and down, getting redder and redder. My prediction, my expectation, is that this number will continue to fall, especially as investors start to lose faith in these targets and earnings forecasts from Wall Street banks.

[00:20:07]You look at, for example, Raymond James ratings. They predict that revenue will grow from $19 billion last year—which is the amount SpaceX generated last year—to $5.2 trillion in 2035.

[00:20:24]Goldman Sachs said SpaceX's revenue would increase 100 times.

[00:20:30]Yes. by 2030, which, by the way, is quite conservative compared to other estimates.

[00:20:38]How is this even legal? I ask because isn't it true that they have financial models that they can refer to that show what they need? Is there a mathematical basis behind them, even if it's false, or is it just that no one bothers to check them? I think we know that numbers and statistics can be manipulated a lot and tailored to the desired results.

[00:21:07]And the problem with numbers is that they somehow provide a certain level of objectivity and credibility at first glance, but the deeper you delve, the more you realize that the numbers can be completely made up and taken from the ceiling. And you know this well from your work investigating the finances of OpenAI, Anthropic, and many other AI companies that many people are starting to get very worried about. I think it's worth paying tribute to your great work. But the same goes for SpaceX, especially when the company is building its entire value proposition on a distant dream that is still a long way from being realized. So as soon as you say: our total market is $28.5 trillion, because we're not only going to build orbital data centers, but we're also going to mine asteroids and build a colony and civilization on Mars.

[00:22:18]And once you start talking about things that are n't real at the moment, you can assign any number to them, like: I don't know, I think asteroid mining will bring in a hundred trillion dollars. a gadzillion.

[00:22:34]A gazillion—why? Because if we count the number of asteroids and the amount of critical minerals they may contain, and then estimate the market, we will be able to project numbers not only for 2035, but also for 2045, 2055, 2065. I rate this as a one in a bazillion chance. And this does n't just apply to SpaceX. This applies to any analyst reports on forecasts for, say, the AI ​​industry or capital spending. All of these predictions, despite coming from investment banks, can simply be adjusted to any desired outcome. Yes, you can set any target price you want, and as long as you back it up with some semblance of a model, you can act as crazy as you want.

[00:23:35]You can say that, and as long as the SEC doesn't find evidence in your emails or correspondence with colleagues that you lied, you're technically safe. You can just convince yourself. Well, to be precise, being wrong is not a problem.

[00:23:49]Being wrong is not a problem. You can be wrong as much as you want.

[00:23:54]However, I would caution those who listen to this and think that the whole system is rigged and Wall Street banks can do whatever they want. Their stock analysis is completely compromised, and I don't argue with that.

[00:24:08]But eventually, I think these people have to lose their authority; We have discussed this in the past. But when you have a decline like SpaceX, which is currently 45%, I think it could go much lower. I think the price could drop, you know, 70 or 80%.

[00:24:34]When that happens, there are going to be a lot of investors, a lot of capital allocators who read that Raymond James report on SpaceX, and they're going to think, "Wait, this guy is just a [ __ ] idiot." And at that moment they will begin to realize: I no longer trust what comes out of these banks. I don't think all of this makes any sense. And you know, it seems like it was compromised from the beginning because it looks like it was driven by a ridiculous fee structure associated with IPOs and deals. And at this point, I think banks will have to make a lot of efforts to regain trust. And if this bubble bursts as you warned, then the same will apply to all Wall Street banks, not just SpaceX, but all their AI research companies. The same will apply to financial media, which I know you talked about. At some point, you will have to answer for everything. And I think that eventually trust will fall to a level that becomes unsustainable. and then they will have to regain their trust. That's what happened after 2000, and we created a period of regulation. I don't know. The fact is that the analysts who supported Enron still have jobs.

[00:26:01]For example, people who, although there were some software companies from the dot-com era and Enron that gave bad advice, many of them avoided responsibility by simply saying, "Well, we just trusted the companies." And I... the only thing that comforts me is that social media probably wasn't as developed back then.

[00:26:27]and it can be a deterrent because it goes much further than SpaceX.

[00:26:32]This goes to...I've just read, I think, my third in a row, uh, like this, TD Cowen, one of them. Yes.

[00:26:41]Yes. Another thing from them where they say, "Oh yeah, we have all these inspections, we see all these data centers being built." They're talking about 20 gigawatts of data centers being built, while the other one, who was that?

[00:26:56]One climate resource, Sideline Climate, says, "Oh, only 5 gigawatts are under construction." And it's just, it feels like an alarming amount of analytics is just sucking data out of your finger, called analysis, but because you work in an analytics group, it's considered established. This is very strange, because who actually...yes, this is a good way to get back to the main question.

[00:27:23]Who are the real customers of analytical reports?

[00:27:25]Are these private investors? So, are they regular people with accounts on Robinhood or something like that, or are they institutional investors? Because I think the affected party will directly influence whether anything changes.

[00:27:39]Big money is institutional investors. So I think those are priority customers, but as we're starting to see, a lot more money is coming into the retail sector. And I think a lot of these banks and financial institutions are making a lot of effort to offer more and more retail products and funds because they know how much money is pouring into that side of the industry. So, I mean, the way to think about it is... You would hope that the job of an equity research analyst and a sell-side analyst is to sell their research. This is the sale of materials, information that they have collected. But increasingly, it seems that what was supposed to be resolved by this global deal with analysts is now simply selling the securities themselves, or at least selling optimism about a particular company that is going to do a lot of deals. this is this is really, I mean although when you think about insider trading I think it's, I think it's largely insider trading, but I think one thing that we've learned in the last year or so is that insider trading is now legal and we can I just want to clarify that this is not legal advice but that people are acting as if it is. I mean the fact that someone seems to be ahead of the curve on oil prices every time Donald Trump says there is or is not a ceasefire.

[00:29:25]I mean, this is one of the most egregious periods of financial corruption, probably the most egregious period of financial corruption in the history of the United States. And that says something.

[00:29:36]And it goes from top to bottom.

[00:29:40]This is coming from an administration that has not only normalized this, but has also destroyed any semblance of regulation and protections that we had to prevent this kind of thing from happening. I mean, for anyone who doesn't believe the SEC is compromised, I would just advise you to look up the name Margaret Ryan. And Margaret Ryan was the SEC's enforcement director, who seemed to be one of the few people in the agency who was truly interested in enforcement.

[00:30:17]she began pursuing some very obvious leads about insider trading and, essentially, criminal behavior among the Trump family.

[00:30:28]She started pursuing these leads, and suddenly she got a message from someone higher up: "Hey, you have to stop doing that.

[00:30:36]You're not allowed to do that." She argued a little bit, and then, you know, she mysteriously disappeared from the SEC. And it's not just her. We saw the same thing with the Department of Justice. We saw the same thing with Gail Slater, who tried to investigate what she believed was antitrust malfeasance by the Trump administration. And what do you think? She received an angry letter from her management, and suddenly she was fired too. And you just look at the number of people who have been fired at the SEC, not just at the SEC, but at the CFTC, at the Department of Justice, all the authorities that fight economic crimes have been effectively destroyed. And then look at the fact that Trump made half a billion dollars in cryptocurrency last year. He has personally made more from crypto than any of the largest crypto firms in the United States.

[00:31:31]He made more money from crypto last year than Coinbase did from crypto business.

[00:31:35]This is, damn it, madness.

[00:31:37]This is simply incredible.

[00:31:40]This is a level we have never seen in our lives. This, this, this, to me, this... is a sign of approval of what is really going on here, evidenced by the fact that last week he or his team decided to stop minting his face on the $1 coin. And look who else has done this in history.

[00:32:04]No sitting US president has done this. But there were other leaders who did it. Namely Saddam Hussein, Muammar Gaddafi, Francisco Franco. That is, these are corrupt authoritarian dictators who did the same thing. This is a very, very narrow and specific circle of people who were involved in such things. And it's important because of what we're talking about, or at least it's important for investors.

[00:32:30]This is important for markets because it encourages and normalizes a level of insider trading and corruption when people realize that this is the fastest and easiest way to get rich. Here's how I'll do it.

[00:32:43]His prompter earns $100,000 by predicting what he will say in his speeches. I mean, it's... Well, that's the thing. I think this goes even further than Trump. By the way, I completely agree that if we don't have law enforcement, if we don't have compliance with the rules, if we don't have even basic accountability from the media and regulators, then the liars will always win. Because I wrote today that it shocks me how little people actually try to justify the AI bubble, other than saying it's big, right? And Nick Sash, who's coming on the show next week, wrote a great piece about how global decision-making is being disrupted by artificial intelligence, because it's all based not on what AI can actually do, but on what you're told it can do. Because we are not, I would say, regulating facts— that is the job of journalism, or at least to some extent. And I think, and I know this sounds harsh, but I think technology and business journalism is just as guilty of this. I think the way Musk was treated. I think the way the AI ​​topic has been hyped up, and the fact that even in supposedly objective publications around the world, I've seen so many stories like, "Oh, I guess Elon Musk is talking about orbital data centers." What the hell, if I go out and say that Donald Duck will be president of America tomorrow, but I have a large audience, is that now true? Because I think Donald Duck has a better chance of becoming president than we have goddamn data centers in space. But no, journalists sit and say: “Well, you know, that's normal. This...we're just retelling what they say. We will not express our opinion on this matter." Despite the fact that the reason people invest in AI is because they constantly read in the media that AI can do things it can't do. And we just watch as no one feels responsible for anything, and therefore scammers simply act with impunity.

[00:34:49]That's quite right. I think you've hit the very heart of what is probably the biggest problem in America right now, and maybe in the world, which is that no one seems to have a spine. No matter where you look, no one seems to have the ability to speak openly with honesty and directness about what they truly believe. Anyone can say anything, and as long as they back it up with a couple of numbers, or even if they don't, it's all considered acceptable. And I think again, if we tried to understand why people find this acceptable and why it has become so prevalent in our society. I think a strong argument would be the fact that the father of the nation, a role model, the president has demonstrated that such behavior can yield results not only in financial markets, but also in politics. that lying really works, that lying is completely normal, and that it's okay to do it.

[00:36:04]I mean, I'll just say, in terms of your comments about financial and business journalism, I've been shocked at how I come on different shows and how many times people have taken me aside and said, "Hey, by the way, can we ask you about the president?" Is it possible? Is this...is this normal? "It's like we're touching on some taboo subject where I might not be able to speak with any truth or transparency or honesty about what I think is actually happening in the country, and that's a real problem. I think you're right. I think so. I think it permeates our politics, and I also think it permeates the tech industry, where we've seen our own generation of scammers, fair-talkers and manipulators who have gotten rich just by promoting what they believe in, whether it's crypto scammers or SPAC manipulators like Chamath Palihapitiya. And none of them really get what they deserve; none of them, none of them are ultimately punished for what we've done to our regulatory institutions, which means it incentivizes even more bad behavior, even more dishonesty in the financial markets. I think there's an even higher level of abstraction. And I think it's... I don't know if there's a lot journalists want to cause trouble.

[00:37:40]And I don't think it's just a question of, "Oh, can I say this or not?" I think they want companies to win to some extent. I think they see it as cheering for a sports team. I think they judge.

[00:37:51]Look at Google search. It sucks. Look at Microsoft Teams.

[00:37:56]Look at Facebook.

[00:37:57]These broken platforms.

[00:37:59]I read almost every article about every big tech company. I don't think I've seen more than a few articles in the last year that talk about the real-world experience of using these products, which is terrible right now. And that's because I think it's a combination of regulators dying and Trump to some extent, but it was a problem before Trump, where a company's success is measured solely by the numbers. This growth at all costs, the economy that we've been writing about for years, and this feeling of, "Well, Meta is not bad..." I was at a conference and I told someone that Meta is a terrible company, and this person looked at me—he was a TV show host—and he said, "But Meta is one of the most profitable companies of all time.”

[00:38:43]And they looked at me like I was crazy. I said, “Yeah, but have you used their product?” And they're like, "Oh, not recently." It's just... you know, but that's the standard. It reminds me of Sarah Eisen's comment on CNBC, where she's reacting to our strike on Iran, and she calls Trump's threats against Iran a threat to destroy civilization—is that a " bullish" or " bearish" signal to the markets?

[00:39:08]That's right. It means your soul is already dead, you don't care about people at all, you don't even think about them. But that's the thing, I don't think most of this reporting is about people at all, and the coverage of AI, to me, has nothing to do with reality at all. And it's strange. I guess sometimes I ask myself if you have a choice when you officially join the tech media through official channels. Either you go crazy about AI, accepting everything they say as the ultimate truth, or you write in a very dry and objective way.

[00:39:41]Yes.

[00:39:42]You can just repeat what they said, and nothing more.

[00:39:46]Well, I think one of my favorite quotes from F. Scott Fitzgerald is that his definition of intelligence is the ability to hold two opposing thoughts in your head at the same time. And I think we're seeing a situation right now where industries are being led by people who, not in all cases, but in many cases, are frankly not very smart; they can't fathom the idea that a company can be incredibly profitable, one of the most successful businesses of all time, and at the same time be very harmful to humanity, given what it's done to our addictions and to the health of a whole generation of children.

[00:40:32]Those two things.

[00:40:33]Yeah. Go ahead. Go ahead.

[00:40:35]Those two things can be true at the same time. And if you say that Meta is evil because of that, or Meta is problematic because of that, that could be true, and at the same time the company remains very profitable and is a good investment. Those things can be true at the same time. And so I think that's what they're trying to deal with.

[00:40:58]Sure. But there's another point: if a city has great tax revenue and the economy is booming, but every street is just covered in urine.

[00:41:08]I mean, every single one, and the mayor is doing cocaine with the CEO of Lockheed Martin every day and throwing dogs and giraffes into wood shredders on camera. Would the media look at that and say, "Well, you know what?

[00:41:23]But the city has excellent indicators. No.

[00:41:26]They would say the crime rate is so-so, blah blah blah.

[00:41:28]Urine everywhere, and so on, and so on.

[00:41:30]They don't do the same with technology, even though I think we spend more time online than in the real world these days. And it's simple, and I think what it gives is, obviously, a long-term theory. I think this means they are not including it in the analysis because it does not currently affect the price.

[00:41:52]But someday, I think, it will have to, because the reason, no one wants to discuss the reason why they are growing so fast, well, not even that fast, but growing steadily despite the quality of the products. This is because of monopolies. This is because they have no other business. There is no one else who really and significantly competes with Meta, Google, Microsoft, or Amazon, except for these four companies, which do not really compete with each other.

[00:42:17]Right.

[00:42:18]And this is just By the way, this is not a " bearish" forecast. This is a "bullish" forecast.

[00:42:24]Monopolies are incredibly profitable businesses.

[00:42:27]The longer you can hold a monopoly, the more profit you can make in the long run. So I, I mean, I look at these things. I think this is bad for the long-term economic health of America. I think that's generally bad for the markets. And I don't like the fact that we are becoming more and more dependent on profits, or this market is becoming more and more dependent on the profits of a handful of companies. But we also know that being a monopoly is very good, and being a shareholder in a monopoly is very good. And I think that's part of the problem for financial journalists and people who work in financial media is that, you know, if you said, well, let's say, let's take a bubble for example. If you had said 6 months ago that this was a bubble, and by the way, 6 months ago, I think that would have been a valid statement. I think this is a valid statement even today. If you had said this 6 months ago, as an investor, you would have performed poorly. You would be far behind your colleagues. If you are a wealth manager, it would have been problematic for you to say 6 months ago, "This is a bubble, so I will sell my assets and transfer the funds to other assets that are not related to AI." Why?

[00:43:51]Because the only assets that have provided the profitability that fuels this market are AI-related assets. And it's not just big tech companies. In fact, these are all the crazy names we see in the semiconductors, materials, and all the AI ​​infrastructure.

[00:44:10]That's what people are so afraid of when they call it a bubble.

[00:44:16]If you say, if you even hint in any way that it might be time to sell, then you are making a bold statement that you will be compared to for the rest of your career. And so, I think, that's part of the fear that a lot of these people have. It shouldn't be like that. This shouldn't be so common in financial journalism, because really your job is just to objectively assess the situation if you're writing about it. But if you're an investor, that's what you're really afraid of.

[00:44:44]But how much does it affect the price, especially with semiconductors, because hyperscalers spend so much money. I think there's a chicken-and- egg problem here: would hyperscalers be able to spend as much money if investors dumped stocks after seeing all this capital spending because the media was against AI?

[00:45:03]Well, probably not.

[00:45:06]This is where you come in.

[00:45:08]Yes. And this is where things start to get unpleasant. By the way, we are already starting to see signs of this.

[00:45:16]We are starting to see a massive exit from investments in AI and semiconductors. There was a recent report or study from Goldman Sachs that shows that they are seeing some of the largest outflows from hedge funds in the technology sector in their history of observation.

[00:45:41]Because at a certain point I think the music sounds good, and then eventually it starts to die down and they start to pay attention to what you were talking about. Because yes, dependence on OpenAI, dependence on Anthropic is unsustainable. And how is it that these two companies have so much money to spend? It's not because they generate cash flow and profits; quite the opposite, they are losing money. The reason they have the money to spend, as you mentioned, is because they're capitalized by a handful of wealthy investors, Silicon Valley venture capitalists, and some tech companies who are also their clients, which points to a problem with circular finance that I think people have n't paid enough attention to.

[00:46:29]Well, that's because it's not, because there's a certain childish naivety to it. It didn't break it didn't break it. And I think you were telling me about it recently when we were spending time together.

[00:46:39]It was like, this is what happens when you market to rich people and rich people's ideas. And the reason why Microsoft, Google, Meta or Amazon feel confident spending over a trillion dollars in four years is because they know they won't meet resistance. And also, I don't know if you live in a world where every idea you have is good and every idea against yours is bad, because the media says stocks are up, income is up, everything is fine. You start to believe it. You just start believing that you can make anything happen. And I think there's something, a mistake that I think people really need to stop making, is thinking, well, the richest companies in the world can't be wrong.

[00:47:23]And the question is: why do you think that?

[00:47:26]What is the basis of this? And the answer is, no matter what the person says, they haven't exploded yet.

[00:47:34]Yes.

[00:47:34]It's just like you, they have n't exploded yet. They have n't fallen apart yet.

[00:47:39]They haven't felt any consequences yet, because the media seems to be talking about an artificial intelligence bubble right now.

[00:47:47]Yes.

[00:47:48]But it's pretty new, and even then, everywhere I read, people still say, well, the dot-com bubble, the dot-com bubble, it worked, it's okay. I looked at history, I looked at Wikipedia about the dot-com bubble, by the way. I'm not sure why this should inspire confidence. I mean, this was a period when the NASDAQ lost about 80% of its value. It was a very, very bad period of time.

[00:48:14]Yes. But you know, everything was fine after that, right? No one knows what it all means. But again, the media narrative.

[00:48:21]Look how many times I've damn well read someone say about the dot-com bubble that fiber was good, it was good. And I only say that jokingly, because I'm speaking quite colloquially, because some of them are really saying, "Hey, you know, after the dot-coms, all the fiber was eventually used up." Is this true? Only partially. A lot of fiber optics was used. But not a lot of copper. There were many cases when nothing worked out. And besides, many companies went bankrupt.

[00:48:51]Many people went out of business.

[00:48:53]Many people lost everything.

[00:48:55]Yes.

[00:48:56]And it was also much, much smaller. The American stock market was smaller, the companies were smaller.

[00:49:04]Well, I think that brings us to a cultural problem, where we've become—we have a cult-like worship of wealth.

[00:49:16]Yes. Not just because we all want to be rich and billionaires, but because we believe that if you're a billionaire, the CEO of a big company, if you're rich, it means you're smart. This means that you understand how things work, how the economy works, how the world works. This means that you must have a certain vision of the future.

[00:49:45]And this is not hyperbole. This is something that many people truly believe. That's what fundraising is really about.

[00:49:55]It goes like this: " I have a Stanford degree, I studied computer science, and I understand how these technologies work, so you should allocate hundreds of millions of dollars to my foundation because I have a vision for the future." "I understand the future better than anyone and I will bring you profit.

[00:50:12]" This is roughly how capital allocation works. The problem is that we've become so obsessed and addicted to the visions of the rich that we've decided to abandon all cognitive thinking, all the intellectual work that you have to do yourself, that you've done, realizing, " Come on, this whole thing is down to two companies that are going to run out of money eventually."

[00:50:42]all of this. You avoid this. You avoid responsibility for it and say, "You know what?" I'll leave it to Satya Nadella and Sam Altman to think for me, because they're smarter than me, because they're rich.

[00:50:57]It's a kind of philosophy that has become ubiquitous. But the problems will begin when they turn out to be wrong. And they have to make a big mistake for the narrative to change. I believe we are on the verge of this with Sam Altman and OpenAI. I think we've seen him make a lot of mistakes, I think he flew too close to the sun and I think he's going to crash, and it's going to remind people: wait, rich people aren't always right. Rich people are not always right about the future. At this point, it would destroy the narrative and make it much more difficult to just believe these people without doing your homework, without thinking for yourself. At this point, I think we'll see expectations start to change.

[00:51:45]We saw this after the dot-com crash.

[00:51:47]Suddenly, there was much less trust in these people. Many of those you mentioned were people who recommended Enron. I haven't studied these guys, but I'm guessing that after the Enron collapse they had a much harder time finding jobs than they did before the collapse. And I think we saw this during the financial crisis as well. Yes, some people made a lot of money, but overall there was a shift in how people think about the markets, how they think about Wall Street. A feeling of distrust arose.

[00:52:15]It felt like these people didn't really know what they were doing. And this lasted for several years. But of course, these things happen in cycles. So I think we're at the peak of the rich-people-worship phase right now, and eventually, when things start to fall apart, and I think they will, we'll start to reevaluate our expectations and decide, maybe we should start thinking for ourselves.

[00:52:38]Maybe I should listen to that guy who has a newsletter and an interesting podcast. Maybe he was right from the start.

[00:52:45]Yes. And I mean, as I wrap up this great episode, I think the difference here might be how fragmented everything is, how very tribalistic everything has become now.

[00:53:00]M-hm.

[00:53:01]Everyone is very aggressive.

[00:53:03]Everyone's like, you're going to... If this Nick Sesh stuff that I mentioned earlier is a big deal, he's a great software engineer, he works as a consultant as well.

[00:53:15]Talking to various companies, he discovered that being on the wrong side of AI was considered dangerous to one's health. Like, if you don't support AI in your organization, if you don't advocate for AI initiatives and, in fact, for a general religious belief that AI will provide a 10x or 100x increase in productivity, you're annoying to people around you, because all of these interconnected things make people believe that AI is the future, and agree with everything and say things about it that aren't true. And I think this is where the real crisis of authority will erupt, because when it does, we'll see something that could reduce the number of LLMs we see every day.

[00:54:01]But there are also people who have staked their entire careers on ensuring that LLMs will become 10 times bigger than they are today. They are saying not just that LLMs will continue to exist, but that they will literally become the future of everything, everywhere, and for everyone. And I'm not sure how to play back after that. Jim Kramer did it because I think he forgets everything he said in an instant—just like Dory from Finding Nemo or Finding Dory, I guess. And, um... getting back to Jim. But I think that apart from Kramer, there will be a certain amount of...I don't know.

[00:54:41]I don't know how anyone can listen to someone who was an ardent supporter of AI after this. I don't know how you can take someone seriously who supported SpaceX while ignoring all the things Sam Altman promised that went along with it. I do n't know how anyone—and I tried to warn journalists about this— how this would become a crisis of authority.

[00:55:02]Yes, everything will depend on the price. Now I look smart because of my SpaceX prediction, and everyone says, “Oh, Ed was right. Ed hit the mark. "Ed was right." "And those who ' dispersed' the shares look ridiculous." So, the crisis of authority here has changed to the opposite. If SpaceX for some reason soars to $200 a share, everyone will say: Ed is an idiot. Ed was wrong. They will bend wherever the wind blows. The only thing that really matters in terms of authority, in terms of who is worth listening to—and this brings us back to the cult of wealth worship—is price, right?

[00:55:44]And once the price drops, which I agree is inevitable for at least a few companies, I believe OpenAI will somehow collapse and be absorbed by another company, probably Microsoft. I think you agree with me. That's about it, and I think Anthropic will change hands between Google and Amazon.

[00:56:03]I think that's also quite possible. When that happens, Sam Altman will suddenly become an idiot, and history will remember him as such. But let's be honest, people don't have strong beliefs when it comes to these things. All they really care about is what happened to the price. We saw this with Sam Benkman-Fried in the crypto saga. Just now— that is, Sam Bankman— Fried only became a criminal when he lost his money.

[00:56:33]Yes, that's when they decided: oh, he's a criminal. Oh, he's a bad guy.

[00:56:37]Throw him in jail because he lost money. It was the same with the story of Henry Blodgett. He was only punished when the dot-com bubble burst and prices fell. Then they decided he was a bad guy. So, all that matters here is price. And this is the moment when people lose money.

[00:56:55]Absolutely correct.

[00:56:56]Well, Ed, it was nice talking to you. We will leave a link to your resources in the show description.

[00:57:01]Thank you very much for joining us.

[00:57:03]Thank you very much. I enjoyed it and I look forward to seeing you on my show.

[00:57:08]Of course.

[00:57:08]We will do this soon.

[00:57:10]That's right. "Ed Exchange". With you, of course, is Ed Zitron. I'll be back with a monologue this Friday. Thank you all for listening.

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