In their latest episode of the VALUE: After Hours Podcast, Tobias Carlisle, Jake Taylor, and Bill Brewster discuss:
- China vs US: Tech Race and Consumer Edge
- Intellectual Property, AI, and the S-Curve Debate
- Hong Kong, Malls, and the Global Sameness of Wealth
- Market Volatility, Tail Risks, and Trend Funds
- Energy Prices, Oil Politics, and Strategic Manufacturing
- Gödel’s Theorem, AI Limits, and Machine Logic
- Tariffs, Fiscal Policy, and the Decline of US Hegemony
You can find out more about the VALUE: After Hours Podcast here – VALUE: After Hours Podcast. You can also listen to the podcast on your favorite podcast platforms here:
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Transcript
Tobias: I think we’re live. This is Value: After Hours. I’m Tobias Carlisle. Hey, we got the band back together. Jake Taylor and Bill Brewster, we’re all here. Markets in turmoil special edition.
Bill: They’ve calmed. They’ve calmed.
Jake: They’re back. Yeah. We’re all. We’re back– [crosstalk]
Bill: Dustin said that “Apparently, this current situation is unsustainable.” So, that’s news.
Jake: What does that mean?
Bill: No one knows what it means-
Jake: I know it’s provocative.
Bill: -but it’s provocative. [Jake laughs] It adds a trillion in market cap.
Jake: I did see a funny little meme that– and it’s the one that’s like from Friends, that’s she’s explaining something and then Joey’s saying the answers on the other panel. And it was like, who has the lowest interest rates right now?
Jake and Tobias: China.
Jake: Who’s going to drop the biggest stimulus?
Jake and Tobias: China.
Jake: And then, it was like one other thing, China. And then it was like, “So, what should we invest in? Buy big tech.”
Bill: Yeah.
Tobias: Mag 7.
Jake: Yeah, Mag 7.
Bill: Well, I don’t know how the China thing works. I don’t know if they have off balance sheet stuff and they’re suppressing the rates. I’ve read a couple comments that they are– I’m not smart enough to know all that. Toby, I thought it was interesting. I may have misheard you, but did you refer to some of your experiences a little bit scary, like eye opening?
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China vs US: Tech Race and Consumer Edge
Tobias: Yeah. Oh, yeah, for sure. For sure. I’ve thought about this a little bit more. I’ve talked to more people since– I think in terms of hard tech, which is high tech or deep tech or whatever you want to call, like the stuff that’s really bleeding edge or cutting edge or however they describe it, America is still ahead. I think when they say that, they mean AI.
I think OpenAI is the leader, but OpenAI has dropped an absolute megaton of money into this thing. And then, DeepSeek is like 5% behind. They’re 95% of where OpenAI is, and they’ve done it at 5% of the cost. I think that that’s representative of high tech US versus China. US is still ahead, China’s just a little bit behind.
But in terms of consumer tech, the stuff that we’re all buying, I think China’s a generation ahead, and they’re doing it much cheaper than the US is. So, their cars, their phones, their TVs, they’re better and they’re cheaper. And so, that to me, I’m having a little bit of trouble processing that at the moment.
Bill: Yeah. I don’t know the DeepSeek stuff. I guess I should have read the paper by now, but I don’t know about the– I know the cost is allegedly that much less, but I don’t know how much of that is real verse marketing. But yeah, I’d–
Tobias: We talked to VCs there. We talk to these hard tech VCs. And then, many of them have been educated in the west and spent time in like Facebook, or they’ve come out of big organizations like that. And to me reading these guys, like, they don’t know either, they’re speculating like we are, but they’ve probably got more expertise than we do. They were saying–
Bill: I think that’s a safe assumption. [laughs]
Jake: Yes, it’s a low bar.
Tobias: I’m not even in a position to assess that. I can’t even assess their expertise. I’m just saying this is my rough impression. But they all seem to say that they take– This guy at his word, that is how they’ve done it. And the thing that they use as evidence for supporting that is how open– Like they said, there are two types of openness. There’s openness with the model itself, where you can see the model, and there’s openness with how they train the model. I think that they say–
Jake: The weightings.
Tobias: Yeah, they can see the weightings and they think that they’ve done it the way that they said that they’ve done it. And so, I think that they really, we find out– We get confirmation with the next round. The next thing out of OpenAI and the next thing out of DeepSeek tells us whether we’re on that S-curve of– They’ve now fed every single bit of information that humanity has ever written down since the dawn of time into these things, and they’re still not smart enough. So, now they’re creating synthetic data. So, are we at the smoothing part of that S-curve? You guys know that S-curve goes like that. And then, the question is, [crosstalk] are we on the top part of this S-curve rather than this part of the S-curve.
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Intellectual Property, AI, and the S-Curve Debate
Jake: I did think it was a little funny about the– Oh, sorry, Toby, go ahead.
Tobias: I was just going to say, and then is it DeepSeek or is it OpenAI, like who’s ahead? That’s the– [crosstalk]
Jake: Who is wearing the daddy pants? Yeah.
Tobias: Yeah, that’s what we’re going to find out. Sorry, JT. Go.
Jake: Oh, I thought it was a little funny that people were complaining about maybe DeepSeek stealing OpenAI’s data and structure or whatever, and yet OpenAI probably stole all kinds of stuff to begin with on everyone else’s IP.
Tobias: The internet.
Jake: Yeah, the internet, basically. So, it’s all just stealing IP turtles all the way down. [laughs]
Bill: Well, it’s all about who’s stealing and are they on your side?
Jake: Oh, okay. It’s okay then.
Bill: Yeah.
Tobias: What does it mean though? Do you care that they’ve been trained on– Isn’t that what we’re all doing anyway? We go and read something, synthesize it, rewrite it new. There’s no intellectual property protection as long as you reformulate the way that you express it. If you’re using their words as they’re written down, it’s copyright. There are other ways of like you can breach some– Process patents, that’s why Amazon had that–
For 20 years, Amazon was the only place where you could one click buy. Everywhere else, you had to go through like a payment page. But now that’s gone away, so everybody can one click buy everywhere. Maybe they are stealing, but it’s not protected under any intellectual property law.
Jake: I don’t know. Literally, I’ve never had an original thought myself, so I don’t know how to answer that.
Tobias: There’s nothing new under the sun. I mean, that alone is– That’s 2,000 years old, at least.
Jake: Yeah.
Bill: Yeah. Well, this is a totally different thought. We’ve known that China was stealing IP, and we’ve all been okay with it while stocks go up and margins go up and costs go down. So, not that it’s fun once there’s real consequences, once you think that there’s a national security risk to them stealing stuff. That’s when maybe you realize that letting it go this far may not have been that smart, but–
Tobias: Maybe they leap ahead of us. The theory for Taiwan. So, they say, why would we– We heard this theory while were there. They say, “Why would we invade Taiwan when in 30 years-time or less? Taiwan will want to join us, because we have the best standard of living in the world.”
Jake: Yeah. Poll instead of push kind of–
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Hong Kong, Malls, and the Global Sameness of Wealth
Bill: Yeah. Well, what was interesting for me is my wife actually had spent 11 days in Hong Kong, probably concurrently with you, guys. When she came back, she had very similar reactions.
Jake: Yeah. What did she say?
Bill: Well, I think Hong Kong started out her favorite city. She had gone 14 years ago or so. When she came back, she was just like, “It’s what It was when I left, and then it’s just advanced even more.” One of the things she was telling me was the narrative that it’s not a consumer-based economy, which I understand outside of the cities, it may not be. But she was like, the size of the malls and how busy they are and the robustness of the consumption was just shocking to her. And she said it felt like the malls in the 1990s times 10 and equally as vibrant. People everywhere buying things, which I thought was interesting.
Tobias: Did you notice that they were unusually– Like there were lots of really nice malls that we walked into that they would say, “Oh, this was a concrete factory. This was a cement factory three months ago. [Jake laughs] And now, it’s a fully leased out mall,-
Jake: Five-star mall.
Tobias: -where you can get any kind of food anywhere from anywhere in the world, any kind of luxury good that you want, plus there’s a Huawei store at the bottom which is like a Apple store with cars and TVs and phones and iPods and all that sort of stuff in there.”
Jake: I was a little disappointed though in that I was like, “Oh, when I’m over here. Maybe I’ll get another suit jacket. Maybe even like a tailored one for cheap, because I know that’s a thing.” But then we go walk around and it’s like, “Oh, this is the same Nordstrom’s I have at home, and all the same shit.”
Tobias: That’s it.
Jake: This isn’t doing any me.
Tobias: The rich places of every country are all exactly the same. If you go to Mexico City, you go to Polanco, it just looks like Beverly Hills. All the rich places everywhere are exactly the same. You got to go outside, which I guess we didn’t really do, because it was more of a business. We’re more interested in the business stuff. But I agree, it’s hard to find something that’s uniquely local when you’re in those areas.
Jake: Yeah. Is it like that quote about, “All happy families are the same, but all unhappy families are individually unhappy”?
Bill: Hmm.
Tobias: Unhappy in their own.
Bill: Yeah, we could double click that, but let’s not.
Jake: [laughs]
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Market Volatility, Tail Risks, and Trend Funds
Tobias: Bit of volatility in the markets?
Bill: Yeah, there was volatility all right, especially on Liberation Day. I was liberated from my gains.
Jake: Yeah. That’s right. Not all of them though, I would imagine.
Bill: Well, that’s the interesting thing, huh? I don’t know. It would seem to me that if one were inclined to rotate into value at any time–
Jake: [laughs] Today’s the day.
Tobias: Let us hope.
Bill: This would seem to be-
Tobias: Let us pray.
Bill: -one of those times.
Jake: Don’t fill Toby’s head with ideas like this, get his hopes up.
Bill: Yeah, well, I don’t know, it’s interesting, right? The stuff that still appears safe has traded pretty strong. It’s come down a little bit, but just look at a one year 12-month chart, it’s not the end of the world at all. But I think some of the more valuey type stuff–
Tobias: We had a giant volume spike.
Bill: Yeah.
Tobias: I I don’t like using historical, like at the bottom there’s a big volume spike, and so we’ve had a big volume spike, therefore it’s the bottom. I don’t know if that reasoning works because– Before we came on, JT and I were talking about 2007, 2009– The drawdown started in June 2007, but nobody really knew that anything was going on until Q4, 2008, because we fell and then it rallied. It was almost back to all-time highs by full year.
Jake: Summer [crosstalk] probably. Yeah.
Tobias: Yeah. And then–
Jake: Flushed.
Tobias: Everything started coming loose much, much later. So, by that measure, we’re very early days here. But I don’t know, it’s just a run of the mill drawdown. JT, you say the tail risk funds haven’t been paid off.
Jake: I don’t believe VIX has gotten high enough to trigger the most of the very, very asymmetric versions of those guys.
Tobias: What did we get to?
Bill: That’s crazy.
Tobias: Yeah.
Bill: I would be like, “This is why I own a tail risk fund.” And then, if they’re like, “You don’t get paid,” I’d be like, “It’s not what I thought I signed up for.”
Tobias: Well, I think that happened in 2022 as well, didn’t it? They didn’t get paid in 2022.
Jake: Yeah. No, you’re basically– And again–
Bill: Super convex. Uh-huh.
Jake: It’s a speed. Yeah, it’s super convex. It’s a speed thing, like how quickly does it draw down. You’re really self-insuring the first probably 20% of the losses for your– And then after that, you’re covering the 20% to 50% loss range for the portfolio, that’s typically how those are structured. So, we didn’t quite get there. It got there quickly, but it didn’t get quite fuck deep enough, I think. You probably need a volume more like 80 or something like you saw in 2008 and not so much whatever we get to like 55 or something.
Tobias: And 2022 was a tough year, because the volatility funds didn’t pay off, the tail risk didn’t pay off, because the treasuries were rallying. So, you didn’t get that usual– The treasury yields were up, so-
Jake: Yeah, prices were down.
Tobias: -the bonds were down.
Jake: You lost every which way but– [crosstalk]
Tobias: Hedges got hosed, your longs got hosed.
Jake: I think CTA might have been the only thing that worked.
Tobias: Is that the trend following guys?
Jake: Yeah.
Tobias: Was it a trend following year?
Jake: Yeah. But those guys, that’s their time to shine. The rest of the time, they’re a little bit tougher to–
Tobias: What about tail risk? I mean, not tail risk. How the PE guys go? How’s PE?
Jake: Just [crosstalk] other end.
Bill: PE is always good. They’re fine. They’re fine.
Tobias: They haven’t acknowledged the volatility–
Bill: The gold guys are finally having their moment in the sun.
Jake: Yeah. Gold is–
Bill: Oil, less so.
Jake: Surprising. Huh. A little bit, that disconnect.
Bill: Oil in 2008 dollars, it’s 22 bucks.
Tobias: Yeah.
Jake: Of course, the oil price today is a reflection of what people expect for the next, whatever, six months or something. So, is that you think it’s just a demand destruction argument?
Bill: Dude, I don’t know. I don’t own gold and I own some oil exposure. So, it’s my fault.
Jake: Nailed it.
Bill: Yeah. Yay.
Tobias: I’m in the same boat. I’m up to my risk limits on oil at the moment.
Bill: It’s been a rough ride.
Tobias: No gold– [crosstalk]
Bill: Riders.
Tobias: The question is, is it weak because we’re going into a recession, like the market thinks we’re going into a recession?
Bill: What, oil sold off, bonds sold off at first, stock sold off, doesn’t scream bullish– [crosstalk]
Tobias: Oil’s been selling off since 2021, 2022-
Bill: Yeah.
Tobias: -something like that.
Bill: The one thing about oil that I think is backed up with data, its usually Republican administrations are not the best for oil prices and Democratic administration tend to pretty good.
Jake: Dude is talking about drill baby drill?
Bill: Yeah.
Jake: Don’t we need to feel bad-
Bill: They release a lot of–
Jake: -that SPR backup again though?
Bill: Well, it would be a good trade.
Tobias: Have we filled it? No, it’s still.
Jake: It’d be a good time to do it if it was a $22 inflation adjusted. Just think about the modern marvel that that represents. A big drum of oil that could– I don’t know how far that takes your car, but quite a while. Pretty far for 22 bucks. Geez, what a world.
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Energy Prices, Oil Politics, and Strategic Manufacturing
Tobias: But to be fair, it’s actually 90 bucks in the States to get it out of the ground. It’s not 22 bucks. This is one of the problems that we’re having at the moment, is that the rest of the world produces oil much more cheaply than the States produces oil. I saw a chart on this when I was watching one of the China guys. I think China and the Middle East, Saudi Arabia, they’re all producing at 20, 30 bucks, 40 bucks, and the US is punching it out at 90, so that makes it– That’s a problem.
Jake: That high, huh?
Bill: 90 feels high.
Tobias: Well, that’s where the break-even is. I had in my mind that break-even was 65, 70. And then, we spoke to someone, JT, I thought who said it was 90.
Jake: Yeah.
Tobias: Josh–
Jake: Yeah, on the show.
Tobias: Josh said it was 90. I was shocked. At a 100 bucks, which used to be like– When it hit 100 bucks, that used to be–
Jake: Yeah. Batting down the hatches– [crosstalk]
Tobias: Yeah, it’s front page news and we’re in a lot of trouble when that happens. And 100 bucks here, they’re making 10 bucks a barrel.
Bill: Seems low, but maybe. So, what do you think– Did you guys watch the car charge in five minutes in China?
Tobias: No, we were–
Jake: No, I didn’t see it.
Tobias: We saw somebody ask the question and get the answer in Chinese.
Bill: They announced another car. They’ve really been announcing a lot of tech news since Trump was elected, which is interesting. I don’t know, if they can make cars like that are that cheap, I don’t know, do our automakers stand a chance?
Tobias: No. European automakers first.
Jake: [chuckles] So, gosh, the counter argument to that, I think is– And it’s a little bit dire, but do you want to give up your ability to make food strategically as a country? Probably not.
Bill: Yeah. No.
Jake: Do you remember World War II where GM made a boatload of tanks?
Tobias: Yeah.
Bill: Yeah, you need the car manufacturing.
Jake: Do we need to just keep these things for other reasons than purely like, because you want to drive a car that’s– It’s the only one for sale in your neighborhood, because we don’t let BYD in.
Bill: Yeah.
Tobias: The two arguments that I’ve heard are, one is US don’t– [crosstalk]
Jake: At some point though, economically, isn’t that become somewhat foolish? I don’t know. There’s some number there where it’s– You’re hurting the consumer so much. I don’t know.
Bill: Look, this is the– I’m sorry, go ahead.
Tobias: No, you’re fine, I just meant there’s one argument that I have heard that the US owns all of the that are very hot– the intellectual property of the manufacturing chain. So, even though they don’t, we don’t make the– [crosstalk]
Jake: What does that even mean?
Tobias: Bits and pieces.
Jake: We know how to put it together?
Tobias: But you can outsource the make of all the components.
Bill: We make the blueprints, they make the things.
Tobias: You outsource all the components of the iPhone, and the iPhone costs whatever 100 bucks to make, and then you sell it for 2,000 bucks, because you’ve created an object of desire in the States. And that arbitrage is like, that’s clearly all the money in the chain goes to Apple and not to the manufacturer. But then, that does leave you vulnerable if you go to war with the manufacturer of all of that stuff.
Bill: Especially, if they can build something like ships and you can’t. Or, drones or whatever.
Tobias: They’ve got the biggest fleet. They’re the biggest manufacturer. Yeah.
Bill: I think what makes it hard for me to get super bowled up on the US market, is I think that this is a pretty– We were between Trump and Kamala. So, to me, that’s two people that basically ran on the idea that–
Tobias: Not being the other one?
Bill: Well, but economically, I don’t think either– I think Trump, I think his argument is, “We’ve economically optimized for too long, and it’s left us strategically vulnerable in a few ways, not least of which is sometimes maybe it makes sense to be less economically optimal and have people employed, because it’s socially more optimal.” I understand that may not be true or whatever, but that’s what I perceive them to be thinking.
Tobias: Just say that one more time.
Bill: Well, outsourcing and doing everything for the optimization of margins and stock prices, I think, has left us strategically vulnerable, and I think he’s addressing that.
Tobias: Yeah.
Bill: I think in other ways, if people are like, “Well, the heartland’s not going to come back.” I agree with that, but there is an element of social fabric that exists that maybe optimizing for multiples, is not the way to have a strong society over the longest term.
Tobias: I don’t know if I want to live in the world where the stock market’s not the most important thing.
[laughter]Bill: I don’t know that I do either, to be fair. I’ve been saying to my friends like–
Tobias: That’s Rudy Havenstein, I’m quoting there. That’s not my original thought. Keith Smith says, “$90 is total cost of oil, but marginal cost is closer to 40 bucks.” Okay.
Bill: Yeah.
Tobias: Also, “Standard of living quote China is $14,000 per capita US is $89,000.” Here’s the problem though that it seems to me that the cost of living here is two times-
Jake: The rent’s too damn high
Tobias: -or more than– I thought Japan was pretty cheap while we were there. Japan’s like a very modern, scientifically advanced, technologically advanced country. China too, like the parts of China that we’re in, I get that there are other parts of China.
Bill: The dollar lost 8% on your flight home.
Jake: [chuckles] Yeah, no doubt. We got out– [crosstalk]
Bill: So, that hurts.
Tobias: As long as it doesn’t go down, that’s probably the only thing we want.
Jake: This is the last chopper out of Saigon.
Tobias: Well, we were there on the Monday when the– We were there on Liberation Day or whatever it’s called.
Bill: Oh, God.
Tobias: Woke up that Monday down 8% or something. It was great.
Jake: Yeah, that’s fun.
Bill: It’s good that you got out.
Jake: It’s nice because you just sleep through most of it and then you wake up and-
Tobias: That’s it.
Jake: -the market is already had its day, and then you’re like, “Oh, okay.”
Tobias: Market closes at 06:00 AM. It’s perfect.
Jake: [laughs]
Bill: Yeah. The other thing that I think is interesting is, I do think Trump cares about his approval rating, but I think he’s got a higher risk tolerance than the average market participant. I think there is a world where he truly believes he’s doing the right thing and that he truly believes that short-term pain is worth long-term gain. I don’t know that the average market participant believes that. I think a lot of people are still anchored to Trump 1.0. I don’t think this is the same playbook.
Jake: It’ll be very interesting to see how history rates this eventually. He might not be wrong on a lot of these things, but just the way that it’s being done feels like a little suboptimal.
Tobias: It’s very early days. Ritholtz said that last week that the Fed likes to give everybody a lot of notice about what they’re going to do. I don’t know if that’s true and I don’t know if that’s necessary. I think–
Jake: I think the Fed has ended up training a bunch of market participants into being somewhat Pavlovian in how they handle themselves, because they’re–
Tobias: Aggressively buying the dip?
Jake: Yeah.
Tobias: And that strategy has worked for 17 years now.
Jake: Yeah.
Bill: I’m also not convinced that they don’t have– This is an MMT thought. I finally figured out who had the thought. I just had it in my head. But to the extent that there’s a bunch of–
Once you exceed some level of debt to GDP, there’s so much private savings that interest rates– like the savers marginal propensity to spend the next percentage increase in interest rates I think is quite high, and at the same time, it can constrict business spending. So, I actually think that their toolkit may be wrong and too backward looking.
Jake: I’ve heard Peter Thiel make a similar argument to that. He said that “It’s possible that Keynesian priming the pump,” which was another name for MMT before it was called MMT, but “That it might work in a sort of rapidly industrializing where there’s a lot of money being spent on infrastructure and that pulling that forward may make sense, but eventually you may run out of those kind of projects. And then, if it’s like financing consumption, then it’s like pushing on a string at that point for your economy and might not be a very good tool to use.” But I don’t feel like, we don’t really have those kind of conversations as a nation, do we? We’re just like, “Hey, marked down, control PE, let’s go.”
Bill: Well, I think the other thing with MMT is it was taken so far that it’s like– We spent too much. But Warren Mosler calls “Interest rate increases universal basic income for the rich.” I don’t think that’s necessarily wrong.
Tobias: Interest rate increases?
Bill: Yeah. So, think about a saver that’s got $5 million in the bank. Every 1% increase of interest rates drops 50,000 bucks into their pocket. Now, they’re taxed on it. I don’t know, that’s a pretty good raise.
Tobias: The argument has been that it goes the other way, it inflates all of the assets, and the rich happen to own all the assets too. So, the rich are going to win whether the assets go up or income goes up, so-
Jake: Yield or appreciate.
Tobias: -they win both ways.
Bill: Yeah, that’s not untrue. I guess if rates go down, in theory, you should be able to build things. But I don’t know, maybe get shortages.
Tobias: Let’s talk about–
Bill: It’s probably more complex than one variable.
Tobias: Because my favorite subject is the curve. Well, it’s normalized. The inversion has normalized [crosstalk]
Jake: We’re un-inverted now?
Tobias: We’re currently un-inverted. Yeah, we’re normalized at the moment.
Jake: Oh, God.
Tobias: After spending half, that’s right. Keeping up foreign relations.
Jake: [laughs] How long–
Bill: Yeah, the finger. [laughs] That’s what we’re doing right now, giving everyone the finger.
Jake: Hmm.
Tobias: We’ve been inverted for half of the last five years, for two and a half years, other than a handful of little days. So, we were going through the inversion. Then we un-inverted, we’ve re-inverted, we’ve un-inverted again. When I look at the front end of that curve, it actually hasn’t moved that much, which I think is the end that the Fed controls. They’ve not lowered it very much. Are you surprised at all that they haven’t sort of responded to this?
We had a lot of fiscal spending. We’ve got a big fiscal deficit. It doesn’t look like that any of this Doge stuff is going to cut that deficit at all this year. It’s like $100 billion or something on some giant number. So, we’re clearly still priming the pump on that side.
Jake: Yeah, I was going to say like, you can make the interest rate kind of whatever you want. But if you’re still spending a trillion dollars more than you’re bringing in, that’s stimuli. That’s the definition of stimmy. [crosstalk]
Bill: The rate of change though slows, you know? It’s less stimmy. But I agree with you. If you’re drunk and you drink less, you’re still drinking, right?
Jake: Yeah.
Bill: It’s not healthy.
Tobias: [crosstalk] to be a drunker.
Bill: Yeah.
Tobias: Unless you get to that point where you’re drinking as fast as you’re processing.
Bill: I guess the argument that Doge may if you wanted to be bullish for– I don’t know if it would be bullish or not. If you wanted to be optimistic about whatever fiscal responsibility, you could argue that Doge illuminated some of the waste and whatnot. I’m pretty sure somebody said that on Steve Eisman’s podcast.
So, if you go through $6 billion in your budget and you’re aware that there’s a lot of fraud going on elsewhere, maybe you sharpen your pencil in other places, $6 trillion, not billion, that would be quaint.
Jake: Yeah. I think that’s probably maybe right. Even just being able to have the discussion of like, is every single one of these dollars totally necessary? which I felt like hadn’t really been a discussion for, boy, I don’t know, maybe back to the 1990s. I don’t know. [laughs]
Tobias: Well, Clinton–
Jake: Yeah.
Tobias: Clinton balanced the budget using a little bit of sleight of hand, but it doesn’t matter.
Jake: For like a week.
Tobias: [crosstalk] and then, we still got there.
Jake: And then, we got back to selling off the farm.
Bill: I don’t know that you want a balanced one, but you definitely don’t want to be spending this much.
Tobias: I would like low taxes and a balanced budget.
Bill: I’d be okay with a 1% or 2% deficit that you just run a levered growth model on the economy.
Jake: That’s probably okay if you keep the deficit rate under the growth rate.
Bill: But you de-lever.
Jake: Yeah.
Tobias: We’ve got a problem this year that–
Jake: We’ll make it up on the top line.
Bill: Correct.
Tobias: Yellen brought all of those treasury issuance to the bill, so it’s all front end loaded. So, I don’t know what the number is. I’ve seen different estimates. But it’s between $4.5 trillion at the low end and $10 trillion at the high end that they have to roll this year.
Jake: This year? Is that maturity?
Tobias: Yeah.
Bill: Yeah. What was she doing?
Tobias: Well, she’s out here saying that this new administration lacks fiscal responsibility, [Jake laughs] which I thought was pretty rich coming from someone who ran the Fed at 0% interest rates and then ran the treasury–
Jake: All short dated too.
Tobias: Who is running a treasury at–
Bill: But we had countries that people would never lend to 20 years ago issue [crosstalk] the bonds.
Tobias: Argentina got 100-year bond away.
Bill: What are we doing? Come on, folks. Well, I gather what they may try to do is force terming out via security promises.
Tobias: It’s going to be tough. Look at all of this– Whatever Trump’s doing– Nobody knows what Trump’s doing. Let alone people who are– You want a 30-year treasury? [chuckles]
Bill: Well, look, so Stephen Miran wrote a paper. And in it, I believe this is what he articulated. He basically said, like, “We pay for security zones. So, to the extent that you’re the EU and you have underinvested in your security, you’re going to pay us for security going forward. And the way you’re going to do it is you’re going to buy bonds. You may not like the interest rate that you’re going to pay, and it may below market. But if you don’t like it, we don’t have any security promises anymore. So good luck,” which is bound to piss a lot of people off, but you don’t default. I don’t know that they’re wrong. It’s not nice, but–
Jake: Why do we go through the treasury mechanism to– like financial repression to get some money back from them? Why not just send an actual bill? Because then the citizens there will be like, “We’re not paying for that.” But if you do it from treasuries, then you’re– No one knows really.
Tobias: To insurance.
Bill: Well, I don’t know that they would care very much. I think to your point on the bill, it’s like a tariff. Trump likes those.
Jake: They actually send an invoice to Germany–
[laughter]Jake: “In arrears for about 50-years-worth of–”
Tobias: What about Epsilon Theory? Ben Hunt saying that we’re moving from a world where the US was– I forget the word that he used, but it’s from a world where everybody was together, and now he’s saying it’s every man for himself, America first.
Bill: I don’t know.
Tobias: Pax Americana to America first.
Bill: Well, Zeihan has been speaking about this a lot. People don’t–
Tobias: Zeihan ever said anything true or right.
Bill: Well, he said that we were going to pretty much disconnect economically from China. That’s looking directionally correct. But I don’t know that we’re going to be able to do it.
Tobias: That’s impossible, really.
Jake: Yeah.
Bill: Yeah. Well, that’s the problem, right, if you’re us.
Jake: Yeah. Enjoy that $9,000 iPhone.
Bill: Yeah.
Tobias: Where’s my Nokia? Get that $50 brick back.
Jake: Oh, man.
Tobias: Indestructible.
Bill: Yeah. I don’t know, I think that’s the risk of the strategy. My perception of what’s going on is like– I think the tariffs do not apply to USMCA-compliant goods, but goods that go through China, like the China sends to Mexico and then they send to us, those are what are taxed at 25%. The poor penguin island. Like, somehow the penguins sold us $50 million of equipment and they were. Somebody was like, “The penguins didn’t make that, so you’re getting tariffed.” [Jake laughs] Yeah, I think we’re trying to isolate China. I don’t know that it’s the wrong thing. I think it’s too late though.
Tobias: I don’t know if we can isolate China. That’s the problem. We might isolate ourselves in doing that.
Bill: Mm-hmm. High Stakes Poker.
Tobias: On that cheery note, let me give a shoutout and then, JT, you got some veggies for us?
Jake: Of course.
Tobias: Brandon, Mississippi. What’s up? Bendigo. Good early start for you, Hamish. Nokia, Finland, you’re in the house. Good. This is a shoutout to you– [crosstalk]
Jake: Send it to me fast.
Tobias: Guatemala. William the Wizard of Waterloo. Mac’s in Valparaiso. Kerava, Finland. Kerava. Rochester. Stockholm, Sverige. Bangalore. Bellevue. Stockholm. Luleå, Sweden. Lausanne, Switzerland. Water Park, Florida. Cincinnati. Jupiter, Antigonish, Nova Scotia. What are your tariffs up there? Mendocino. Cromwell. Kennesaw. Madeira. Portugal. Tampa. Jackson Hole. Toronto. High for Israel. Barrow-in-Furness, England. This is a good spread. Manchester.
Bill: Some people are like watching this at dinner time with their families.
Jake: Can you imagine the–
Tobias: Colorado Springs. Nashville. Saskatoon.
Bill: Their wife’s like, “What are you doing?”
Jake: “Oh, God, I’m so sick of these guys.”
Tobias: Look at these. Insane.
Jake: “They don’t even make any sense.”
Bill: Yeah, just talking about things that they don’t know about.
Tobias: I had CNBC on with Bill Ackman when he got the call from Icahn on the phone. My wife said, “Who’s the crazy old grandpa on the phone?”
[laughter]Bill: We need Bill to tweet. I know that the bear market rally indicator is high, because Bill is not tweeting. We need the Bill bottom.
Jake: Is that the crying one?
Bill: Yeah. But the crying, I still think he said what he was doing and I think he said, “I’m buying.”
Jake: You get max long when he’s crying, right? Is that–
Bill: Yeah. He told you what he was doing. This time, he’s very silent. It’s got me nervous. Bill likes to table pound.
Jake: All right.
Tobias: “Zeihan predicted the Ukraine war.” Sorry to Zeihan for that. He got that one right. Sorry, JT.
Jake: Shall we–
Bill: It’s hard to be right when you’re prognosticating about very hard things to be right or wrong about.
Tobias: Ah, that might be [unintelligible [00:35:06]
Jake: Yeah. 40% chance, that’s what you always say.
Tobias: There you go.
Bill: It’s good for ratings.
Jake: And don’t put any time limit on it either, because then you can always go back and say you predicted it.
Bill: Indeed.
===
Gödel’s Theorem, AI Limits, and Machine Logic
Jake: All right. So, for today’s veggies, we’re traveling back in time to 1931 to meet a quiet genius who reshaped how we understand certainty itself. His name, Kurt Gödel. He was not exactly the most flashy figure. In fact, he was pretty reserved and very introspective. Austrian mathematician born in 1906 in what’s now the Czech Republic. As a child he, asked a lot of questions. In fact, his nickname was Herr Warum, which is Mr. Why, because he was always asking why things were the way they were.
Fast forward to his early 20s, and Gödel’s at the University of Vienna. He’s immersed in this philosophical group called the Vienna Circle. These were thinkers that were obsessed with logic and language. This dream of reducing the universe into this very clean, logical system of rules is very utopian. The idea was that one day, everything could be fully explained if you had the right system.
So, Gödel actually didn’t agree. And at the age of 25, he published what would become one of the most important theorems in the history of math, and it’s called the incompleteness theorem. He showed that any formal system that’s powerful enough to express basic arithmetic, let’s say like one plus one equals two, there will always be true statements that can’t be proven within that system.
So, let me see if I can give a little bit of a– Well, and let me cover too that he has a second– There’s a Gödel second incompleteness theorem. It’s basically that you need a bigger frame of reference to confirm the rules of the current one. So, this is all like gobbledygook right now, but let me just see if I can make this less abstract.
Think of this classic paradox. This statement is false, okay? Now, if it’s true, it’s then false. But if it’s false, it’s then true. So, you end up in this self-referential loop that a system can’t resolve. Gödel basically used a very similar move, except instead of using it in words, he encoded in logic as numbers. He assigned these logical statements that this is actually a technique now called Gödel numbering, which allowed him to build math that could bizarrely talk about itself.
So, let me give another concrete example that might help with this bring this home. Imagine that you’re creating the ultimate encyclopedia and your goal is to include every single fact, every true fact in the universe. No exceptions. Okay. But now consider this sentence that you might write in the encyclopedia, and that is quote, “This sentence does not appear in this encyclopedia.” All right.
If you include that sentence, then your encyclopedia now contains a falsehood because the sentence explicitly says it does not appear, so your encyclopedia fails. If you exclude the sentence completely, then you’ve missed a truth because the sentence correctly describes reality, it indeed doesn’t appear. So, your encyclopedia is now incomplete. So, you either have not true or incomplete that you can choose from.
So, you end up in these weird reductionist absurdities and contradictions. But either way, perfection is mathematically out of reach for these systems. Now, why bring this up now nearly 100 years later? Well, I think it’s interesting to think about AI and GPT, specifically LLMs. And in someways, it’s actually quite instructive for what are really modern Gödel machines.
So, LLMs work by taking language, converting it into numbers, processing those numbers through a bunch of mathematical computations and probabilities and then spitting out more numbers which are finally decoded back into words. So, in a sense, it’s like words into numbers, numbers into math, math into numbers, numbers back into words. It’s actually quite eerily close to what Gödel did. He’s turning language into numbers, running logical operations and then translating back to something that’s human readable.
So, just like Gödel’s formal system could create statements about its own limits, LLMs can also generate statements about themselves. They can tell you things like, “As an AI, I don’t possess consciousness, or I was trained on a data set up until 2023.” To us, this feels like self-awareness, but it’s really not. The model doesn’t know anything. It’s not reflecting. It’s simply predicting. So, when it says “I am not conscious,” it’s not verifying that against some internal truth. It’s just offering the most statistically likely sentence in response to the prompt that you gave it. So, LLMs, they can simulate this self-reference, but they don’t have access to any actual self-knowledge.
So, this is why sometimes you see the LLMs hallucinate. They produce these confident sounding, but completely false information. It’s not that they don’t know that they’re hallucinating, because they don’t know they’re doing anything. They’re just following these patterns.
So, it’s interesting to think as a thought experiment as AI becomes more powerful and it’s more able to reflect reason and simulate logic, the more it enters Gödel’s world, because the more expressive it becomes, the more it resembles a formal system, and Gödel’s theorem applies even more strongly. So even if we had a hypothetical super intelligent AI, like a God mode type of AI, it was still going to run into these limits.
So, Gödel tells us that it can’t know everything and stay consistent. So, just to close this up, it means that a perfect AI is mathematically impossible. Gödel’s theorem isn’t just a piece of math, it’s a philosophical mirror held up to every system that tries to explain the world. And now, we’re building AI systems which are living proof of this.
So, I would say Gödel didn’t really close doors, he opened them. As humans building machines in our image, it’s important to remember that perhaps these limits aren’t walls, but they’re invitations to explore beyond there. So, a little bit of historical trivia of Gödel and this incompleteness theorem and how that relates to AI and where that’s going.
Tobias: What’s a perfect AI?
Jake: Well, assuming that it had all of the truths of the world gathered together and could provide them, reference them, sort through them, create logic.
Tobias: This is the problem that we have, isn’t it, that we’ve fed everything that humans have written down since the Epic of Gilgamesh through to whatever anybody was writing on to–
Jake: The Acquirer’s Multiple?
Tobias: Yeah, that’s right. That’s eight years old now. There’s some stuff that’s been written since then.
Jake: Fair enough.
Tobias: It’s still not able to reason at a– It hasn’t reached that– I forget what the test is, but it’s not yet reached that level yet. So, it clearly has access to a wider information than we do, like why does it not, why is it struggling?
Jake: I don’t know. It gets like graduate level answers right at this point.
Tobias: I still want to go mid to– [crosstalk]
Jake: It’s smarter than most of us already in a lot of ways. Although there is some question marks about whether a lot of the test materials were actually in the training data, so it basically turns it into an open book test. [laughs] Yeah. It didn’t even really have to look anything up, it just already had the answer in the book.
Tobias: But how would a human learn the answer to that inferentially? Doesn’t the human have to have seen the kind of analogy for it, at least?
Jake: Yeah, pattern–
Bill: But a legal problem, you need to reason your way through. That would be different than a multiple-choice test that you were fed the information. But yeah, you would think AI should be able to– I’d be interested to read a legal answer from AI on a test.
Tobias: It should do pretty well, shouldn’t it?
Bill: Yeah, you would think so.
Tobia: Like, it should be come up precedent.
Bill: Could do the issue, rule, analysis, conclusion thing. Pretty okay, I would think.
Tobias: [crosstalk] How funny.
Bill: Yeah, Iraq, baby.
Jake: I’d have to defer to the two lawyers on the program.
Tobias: I think I’d get there. I saw that it got admitted to Mensa in the Netherlands or something like that. Maybe they got a lower threshold there. Sorry [unintelligible 00:44:03]
Jake: [laughs] Probably, rightfully so. What do you guys think about AI and creativity? Does it enhance creativity or does it make us all dumber because we’re just asking the AI how to do things?
Tobias: I think it enhances it. I think you can use it like, you can pose it questions with things that are similar but not the same and have it answer what are the similarities between these two and get some interesting abstraction out of it when it does that.
I find it useful. I feed stuff into it just to see what it says. I think it comes up with some good stuff. I also think it can’t count. I’ll say, “Give me 20 examples,” and it’ll give me one through 15 and then go to 19 and then 20 and I say, “You’ve missed a few there.” So, it says, “I’m sorry, I missed.” It’ll do a count. “I missed 16, 17, and 18.” And then it’ll do it again and it’ll just miss some different numbers. I find it bizarre.
Jake: Yeah, there are little super annoying things.
Bill: Yeah. I have that with Gemini.
Jake: I was making a little GPT, and I fed it a bunch of material and it was working really well. And then, I just wanted to have the little picture of what it shows for the model. It was giving me a man and I wanted like, “Okay, don’t put a beard on this man.” [Tobias laughs] It was like, “Okay, I’m removing the beard.” No joke. Like, I tried 15 different times prompts to like, “Get this goddamn beard off of this guy in this little picture.” And it could not do it. It just would not remove the beard. It would tell me it did. It would give me like, “Oh, you should see clean jawlines.” I’m like, “No you don’t at all.”
[laughter]Tobias: Everybody looks better in a beard.
Jake: It could do all this magic, but yet somehow the little things like it’s not– [crosstalk]
Bill: I do like how productive it helps being. I’ve been using like FinChat. I signed up, I got a 14-day trial. I like going through that. AlphaSense gives me access to their stuff. So, I’ll be using that.
Jake: Yeah. What’s the use cases that you’re doing right now?
Bill: Well, if you were to just–
Jake: Just [crosstalk] on a company.
Bill: Yeah. If you were to just like go through a checklist, it can just get you the information much faster than I would be able to go out and retrieve it. And then, you still have the onus on you to like click citations or something. Google Deep Research will return you a pretty decent report and not that long. You’ve got to verify it. It’s not like, just because it wrote it doesn’t mean you understand it because you read it once. But it’s a lot better than me taking three days to put it together and then still not knowing it, you know?
Tobias: Yeah, it’s excellent for research. I agree. It gives you the line and then the citation, so you can click on the citation. I think that’s super useful.
Bill: Yeah. It’s how I wish people wrote.
Tobias: Yeah.
Bill: It’s like, “Okay, then I can actually see what you’re talking about.”
Tobias: Yeah, that thing where you can see it reasoning is great.
Jake: What percent of people are going to do the extra step of verifying the references and going through the logic that it was using to do those things. How many people are going to hit send?
Bill: Most people are in [crosstalk] Yeah.
Jake: That’s fair. I kind of meant more outside, not necessarily investing only, but just everything that’s going to come out now is how well referenced will it be.
Tobias: I think it should be– [crosstalk]
Bill: Yeah. Well, I think to your point– Sorry, Toby, go ahead.
Tobias: No, no, I think you should have to argue like that. I think you should have to put your sources in your arguments.
Bill: Yeah.
Tobias: Footnote it. Footnote each sentence.
Bill: It’s because you were trained.
Tobias: Because many of these arguments that I like, the current one that everybody’s having about the tariffs, like I have no idea whether tariffs are a good thing or a bad thing. I’ve read lots and lots of arguments, but I’ve seen nobody– I don’t know, everybody’s speculating, but– [crosstalk]
Bill: Yeah, I don’t think anybody does. Speaking of AlphaSense, they actually had a tariff thing. It’s like four parts. I’ll drop it in the show notes. It’s reasonably good. But it’s four hours of your time and you’re not going to get the answer. It’s just a way to think about it. So, I don’t know.
Jake: I’ll skip that and go to the answer– [crosstalk]
Bill: The hard thing about the tariff thing is you need– Like, to have the whole picture come together, I think you need tax policy to come together, and I do think you need Powell to cooperate and the sequencing of those things. There’s a lot of variables that are moving around that I don’t think anybody knows how this all plays out. I know that if the market goes up, people will say, “You always buy the dips. And if you didn’t buy the dip, you’re a moron.” And that’s what you have to do.
Tobias: [crosstalk] Yeah, that’s right.
===
Tariffs, Fiscal Policy, and the Decline of US Hegemony
Jake: All right. Give me a possibilities–
Bill: [unintelligible 00:48:49] until it’s not.
Jake: Right now.
Tobias: And you can’t say 40 or below.
Jake: Yeah. Odds that US hegemony, US empire has peaked and we’re on the backslide. Perhaps long and gradual, but we’re on the back now.
Bill: I don’t know that it would be a bad thing.
Tobias: Talking past the sale. Like Charlie Munger, there’s plenty of joy to be found in a declining empire.
Bill: Yeah. Well, look, I certainly don’t want standard of livings to go down, especially my own.
Jake: All your guys is– [crosstalk]
Bill: Yeah. For thee, but not for me.
Tobias: You go first.
Jake: Yeah.
Bill: Look, I don’t know. I think the dollar is going to be the reserve currency. I don’t know why–
Jake: That’s another way to answer the question. Yeah.
Bill: Yeah. As many problems as it’s got, I don’t know that you want other ones. Do you want more gold? Yeah, that’s why gold’s shooting up. I’m glad I didn’t see it a year ago. That would have sucked to have that kind of gain in my portfolio.
Jake: [laughs] How about the miners? You’ve been following any of these–
Bill: They don’t move like the metal does. So, in theory, they should be cheap.
Jake: They’ve started to a little bit.
Bill: Yeah.
Jake: Yeah. It hasn’t been as dire as it seem.
Bill: It’s all about when you buy them. From the bottom, that’s– [crosstalk]
Jake: Right before they go up. That’s the answer. [Bill laughs]
Tobias: It’s the first time I’ve ever thought that gold’s looking a little bit stretched, but it is looking a little bit stretched. But who knows.
Jake: How do you tell that? Like, what’s against what–
Tobias: It’s back to peak in some measurement. Not in dollars. I don’t know, what’s something–
Jake: One man suit, I think is the–
Tobias: Yes, that’s exactly right. Hours to buy an ounce of gold or something is at the peak that it was last time, whenever that was in the 1970s or something like that.
Bill: If you just threw up a stock chart, you’d be like, “That looks a little overbought.”
Jake: [laughs] That’s a little too spicy right now.
Bill: Yeah. Just not to say the long-term trend won’t still go up, but–
Tobias: it’s a long way above its 200 days well for whatever that’s worth, who gives a shit.
Bill: Yeah, I bet the RSI is pretty high. [Tobias laughs] Maxi is probably high.
Tobias: That’s really high. [laughs]
Bill: Yeah. [laughs]
Jake: But really aren’t we just saying that the dollar is the opposite of all those things and not really–
Tobias: Yeah.
Bill: That’s how it’s traded lately.
Tobias: You guys want to–
Bill: But a very strong dollar is not good for our manufacturing. So, the extent that tariffs are trying to offset that, I get it. I just don’t know that it works. Viscerally, it makes sense to me, but unfortunately, sometimes the feelings in the mind are different.
Jake: Well, how long is it going to take to get all these factories up and running?
Tobias: Re-industrial–
Jake: Yeah.
Bill: Oh, a very long time. Especially, if you have an executive branch that can operate without the Congress, like how do you have– What happens if the next guy comes in and you don’t like what he does?
Tobias: He just reverses course.
Bill: Yeah, that’s tough. I’m not going anywhere, but my dog is growling, so hang on.
Tobias: The globalists have been taking some Ls recently, but it seems to be more of a nationalism coming back.
Jake: Yeah.
Tobias: Everywhere.
Jake: That, Klaus, didn’t he step down?
Tobias: Yeah. World Economic Forum.
Jake: That’s a shame.
Tobias: I’m in in two minds about that. One is that I think it’s amazing that he’s been able to create this idea in the mind that in the world that he’s got this power. I’m in awe of that ability. So, he just fronts this like, this thing that people pay him money to come to his conference and somehow– [crosstalk]
Jake: Somehow that’s–
Tobias: Because he dresses up like he’s some sort of Bond villain.
Jake: Yeah. [laughs]
Tobias: He’s able to fool the rest of the world into thinking that he’s got this incredible influence. But then, part of me also thinks that he does have some of that influence, which is not good.
Bill: I think the problem with the globalist thing is like, fundamentally do a bunch of different people get along over forever. I just don’t know that there’s any history to show that tribes don’t eventually battle.
Tobias: Well, they’ve been able to– Europe was like a hotbed of war for thousands of years, and so-
Bill: And they all look alike.
Tobias: -calmed down for the last-
Bill: And they don’t even like each other.
Tobias: -1970 or so. There’s not been a lot of hot conflict in Europe. California and Texas and New York are all totally different.
Bill: Yeah.
Tobias: The Midwest, Florida, they’re all little tribes. Every city’s different. San Francisco and Los Angeles are different. I don’t know if the actors would take the tech bros. I don’t know that’d be the hikers. They’re all hikers. I don’t know. [Jake laughs]
Bill: I don’t know either. I hope the other side of this is positive for everyone. I have a feeling it won’t be.
Tobias: I saw PMI has come in or there’s some leading indicator for the manufacturers in the– Purchasing, manufacturing. What is that, PMI?
Bill: All the soft data is awful.
Tobias: Yeah. Yeah, that’s right. That’s right. The soft data is awful. We haven’t seen any of the hard data yet, because it’s too soon.
Bill: My wife’s feeling the hard data or the soft data, rather. I’m like, “We are not spending.”
Tobias: I think I can fix that.
Jake: Oh, sorry, I thought you were-
Bill: No, no.
Jake: -confessing other sins.
Bill: No, that would be–
Tobias: [laughs]
Bill: That’s not a lot of data.
[laughter]Bill: Anyway.
Tobias: Big data.
Bill: No, that’s not my situation. But anyway, I don’t know, I’ve got a couple of friends– [crosstalk]
Jake: What do you mean? You cut the credit cards up or what are you saying?
Bill: Yeah, I’ve just been like, “We’re not spending unless we have to spend.” I’m just not doing it. I’m not the only one that’s having that conversation. Now, on the other hand, I am saying like, “If you want electronics, you may want to buy them now.” [Jake laughs] Like, I’m open to certain things.
Jake: Yeah, let’s get in front of these tariffs a little bit.
Bill: Bought a second pair of shoes. I looked up they were Adidas made in China. I was like, “I’m going to get that now.”
Jake: [laughs] Well, I do wonder about that. Because a lot of companies like last quarter or the quarter before all this started, they stocked pretty heavily. But that only buys you some time and you’re just hoping that things settle down by then and you skated through. But the consumer doing somewhat the same thing. Maybe it doesn’t show up in the data for even a little bit more of a lag, because everyone’s trying to get out in front of it.
Bill: It’s almost like Trump saying that Powell is always late, might have a point.
Jake: [laughs] Of course, these guys are– No one knows what’s happening. You’re always going to look late.
Bill: Yeah. I think they probably should. But I can understand why he’s maybe a little bit concerned.
Jake: No one ever complains about them being late to take the punch bowl away.
Bill: Yeah, that’s true.
Tobias: Well, except for the misanthropes on this podcast.
Jake: Yeah. Except for some guys wearing tinfoil hats on this podcast.
Tobias: I was upset about 0% interest rates for a long time there. Yeah, “How much of this tariff crisis is perception versus reality?” That’s a good question. I assume that this is kayfabe a little bit that Trump’s got some plan to get the rest of the world to do something to take tariffs off and then we’ll reciprocate with taking tariffs off. That’s one argument. The other one is that we’re trying to re industrialize and that’s a– If we re industrialize, we’re getting– Corporations are paying for the re industrialization.
Bill: So, I think–
Jake: About those profit margins.
Bill: Yeah. Well, I think they’re going to try to offer tax incentives to build, and then I think they’re going to try to loosen lending standards, so you get banks to actually– Bessent has said they want to re-lever the private sector. That sort of get the spending out of the public– [crosstalk]
Tobias: Re-lever the private sector.
Bill: Yeah, those are the words.
Tobias: Has he had a look at the balance sheets?
Bill: They’re pretty good post-COVID. A lot of the crap went to the public sector.
Tobias: Hang on. We’re saying private sector, is that households or is that businesses?
Bill: I think he is more talking business community. Have them invest, have them create the jobs, get off the government dime– [crosstalk]
Tobias: Who’s going to want the buybacks? Who’s going to carry the boats? Who’s going to do the buybacks?
Bill: I don’t think these guys care very much about the buybacks. I think this is the first time that you truly have an administration saying, “We don’t care about Wall Street. We care about Main Street.” And I think people are like, “No, they care about Wall Street.” And it’s like, “Well, they definitely did spike the football when the stock market rallied when they paused the self-inflicted wound.”
Jake: Yeah. [laughs]
Bill: I will not say that they didn’t, but I don’t think that’s where their focus is.
Tobias: But wasn’t there also a moment when something was down, and Trump got told in the press conference and he said, “That’s a shame.”
Bill: I don’t know.
Tobias: It’s down 4%. He said, “That’s a shame.”
Bill: As in like, “I don’t really care’? As in like, he actually meant it?
Tobias: No, as in like, I don’t care.
Bill: Yeah, I don’t think he cares.
Tobias: He said, “That’s a shame.” “That’s a shame that happened, but I’m not going to stop what I’m doing.”
Bill: Yeah. I think that that’s the conversation that I don’t have with a lot of people is like, “What if you were a 78-to-80-year-old man that had $50 million to $100 million in cash, much less what you had in equity and you were playing for your legacy?”
Even if everything crashes, you got 50 million to 100 million bucks in cash. And if you’re playing for your legacy and you want to reorder the world, I don’t know, maybe his calculus is a little bit different than the average person that needs 8% a year on their retirement fund, because they didn’t save enough.
Tobias: Berkshire had a press release that said that, because I think Trump said that Buffett had said something favorable about tariffs, which he may have done a long time ago.
Jake: 2003.
Tobias: Yeah. And so, Berkshire released a statement saying that none of the quotes [Jake laughs] of Buffett on social media are true. I just thought which one. That’s like–
[crosstalk]Bill: Poor Buffett doesn’t stand a chance in an AI world.
Tobias: I felt personally attacked.
Jake: One thing I was trying to figure out was, we have all these subsidies for green energy still from inflation reduction act. And then, we also are throwing these huge tariffs on solar panels from China.
Bill: You see the one from Cambodia? 3,500%, baby.
Jake: [laughs] This feels like driving around with the parking brake fully off on.
Tobias: This is a fun hour. We’re coming up on time, Billy.
Bill: Yeah, I enjoyed it too. Nice to see you, guys.
Tobias: You want to plug your podcast, see how people contact with you?
Bill: No, I’m good. Same old, same old. I got to figure out what I’m doing with the pod. I want to get into different stuff. I’m not going to be at Berkshire.
Jake: Oh, you’re killing me.
Bill: I went back and forth. I will be at Markel, but love everybody. I just love my kids more.
Tobias: I won’t be at Berkshire either and the podcast’s off next week, because I have to take my daughter to her end of school science camp.
Jake: You guys are both dead to me.
Bill: I’m sorry, man. It was very hard for me. But some of it’s the budget. Some of it, I’m like, “I’m not going.”
Jake: Oh. Damn it Trump
Tobias: It’s Trumps– [crosstalk]
Bill: Yeah. Got to tighten the belt.
Jake: Oh, boy.
Bill: So, anyway, but nice seeing you all.
Tobias: JT will be there, so look out for the tweets. He probably put something out on the– Or not.
Jake: I might not. I don’t want to carry the load by myself in a meetup. That’s too much pressure.
Tobias: Thanks, Billy. Thanks, JT.
Bill: Yeah. Thank you, guys.
Tobias: We’ll see everybody two-weeks-time. We’ll be back. We’ve got Richard Pzena booked.
Jake: Oh, gee.
Tobias: Hoping to see him come on. He stepped down a little bit, so he’s got some free time, he’s going to come have a chat.
Bill: Hey, we need to get on here some small cap value guys, holler.
Tobias: There’s none left.
Bill: Well, for the two that are.
Tobias: All right, dudes, see you everybody in the two weeks. Peace.
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