The Cult of the Ultra-Wealthy with Ed Elson

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1:05

call zone media. Hello and welcome to Better Offline. I'm of course your host Ed Zitron. Better Offline subscribe to the newsletter and take part in our annual anniversary newsletter sale. 10 bucks off the annual subscription rate for Life with the sale extended through Sunday, July 26th. Now join now. Support the Greater Zitron Empire and also like this is my main squeeze now it's this in the podcast. I mean here I am. I love doing this show. Sound like I'm doing the world's shittiest Oscar speech. Anyway, on to the episode today I am Joined by the incredible Ed Elson of Prof. Gmarket Zed. How are you doing?

2:07

I'm doing very well. I'm very excited to contribute to the Zitron empire, which is growing by the minute, it seems.

2:54

Yes, it's. It is. It's a dangerous empire full of terrible ideas. But let's talk about a specific terrible idea. You've been going Nutrageous over the SpaceX IPO and I feel like I haven't done the listeners justice talking about how insane this company is. So please lead us in.

3:01

Yeah, well, we could probably start with their proposed valuation, which was supposed to. It was supposed to go public at around $2 trillion. It eventually came down to around $1.75 trillion, which was just flat out insane from the get go because it values the company at more than 100 times sales. And if the point of a company is to make money or to make, you know, more money than it spends, then this is just a very bad company. It lost $5 billion last year. It lost more than $4 billion in the first quarter of this year. And if the idea is that, you know, your revenues are going to grow faster than your expenditures, well, that's currently not the case because their revenue grew only 15% in the first quarter and their losses grew 700%. So this is like, by all forms of standard accounting, this is like genuinely a bad business. And you really have to kind of cross your fingers and hope that something works out in order to believe that this is a viable investment, especially at the valuation that they were pushing for. And that's basically what we learned in that IPO filing, that it was basically just a giant message to tell investors, hey, just don't worry about it. Elon Musk is a genius. Just kind of cross your fingers and hope for the best. And there's a lot in that filing that we can get into kind of a lot of ridiculous language that we could unpack. But essentially that is the problem. It's something that I pointed out as soon as the company went public. My prediction was that it was going to. The stock was going to pop 25% on the first day because of the amount of momentum and the amount of hype and the fact that IPOs are in a lot of ways a rigged game. It's kind of rigged by the Wall street banks to make sure that these things go well and that you have a quote, unquote successful ipo. That is what happened. But the second part of my prediction was that the stock would get cut in half. I think we're down to 45% off its high, so we're not there yet, but we are getting close.

3:20

So it feels like the Musk industrial complex that has kept Tesla afloat just didn't happen here. Because as I look at this number now, and it'll be different by the time this goes live, it's what, 121.9. Normal way of reading the stock price moving on, it's way down from 135, which is what it listed at, popped like 150, went over 200 at one point. But the Muskian bullshit complex that kept Tesla inflated just hasn't happened here. Why do you think that is?

5:22

Well, I think it can only last for so long. Like you look at Tesla for example, which is already kind of commanding a pretty ridiculous valuation, and that is because of the cult of Elon and because of the obsession with his brain and the fact that, you know, he's going to figure out how to build humanoid robots and all of this stuff. So the Tesla valuation is kind of insane, but somehow it has been able to sustain itself for long enough. SpaceX was like otherworldly, no pun intended here in terms of its valuation. At some point that has to end, or at least that is my belief when it comes to markets. I think that when you look at what the story that they were actually selling to investors, you look at what they said in that, in that disclosure, in that filing. One of the things that kind of convinced investors that this might be remotely worth it was this idea that SpaceX had claimed and identified. What they call, quote, the largest actionable, total addressable market in human history.

5:53

Right, and what market was was that? Exactly.

7:01

So that market was launching rockets one, putting satellites into space two. But then the biggest one, and to be clear, they said that this total addressable market was 28 and a half trillion dollars, which would mean that the size of this market is larger than the GDP of Europe or the GDP of China, which is saying what actually contributes to that market? As I said, rockets, satellites, but $26 trillion of that was AI. And of course. Sorry, go ahead.

7:04

No, no, no, I mean, is, is that AI data centers are the AI data centers on Earth?

7:39

That's, that's the real question. So it is AI data centers, but supposedly the next theory, the next, the next stage of AI, is that we're going to put these AI data centers out into space and they're going to orbit around the Earth, and that's why the AI opportunity is so massive. So obviously I Mean anyone who isn't sort of bought into the cult of Elon, Anyone who isn't suffering from what I believe is Elon derangement syndrome, where you buy into this stuff and you believe that any price is worth it because it's Elon. Anyone who has their head screwed on correctly can understand that that doesn't really make any sense. Or at least that you can't expect that you're going to get real returns from that. If they haven't even proven that this makes sen sense, both physically in terms of like the laws of physics, but also financially and economically. They haven't proven that you can get any real return here. And that's where all of the language becomes so misleading. Like they use this phrase the light of consciousness in their.

7:47

What the fuck does that mean? What?

8:47

So that is what they say is their mission statement as a company.

8:50

The light of consciousness.

8:54

It's to extend the light of consciousness to the stars is what their mission is. So it's not about actually delivering payloads into space. It's not about delivering broadband broadband through their satellite business, which is what they should be saying because that's what they do currently. But to get that crazy valuation, they need to hype up the scale of the project here. And so they have expanded that scale not just to the orbital data centers, which they haven't proven yet whatsoever, but also to interplanetary travel, interstellar travel.

8:55

I mean, and they were actually promising or suggesting that they would build interstellar travel.

9:28

Well, they say that they want to extend the light of consciousness to the stars. And if that is their mission statement, then I'm going to take that literally and say, okay, what you're saying then is that you want to accomplish interstellar travel. That's only what that could possibly mean. They're basically saying we want to take humanity and bring them out to the stars. So if that's your mission. So again, they're not promising that that's what going to do. They're just saying this is what we are trying to do. And then as soon as you say that, suddenly all of the investors and all the people on Wall street go, oh my God, this is a company that is, that is trying to do something bigger than any, any company has ever done in history. You look at what deutsche bank called SpaceX. They called this company in their note, quote, the apex of civilizational ambition. They said that SpaceX is quote, bending the arc of history. So when you talk like that, suddenly people's greed glands get. Get going and you start to think about, oh my gosh, what if they do it? What if they pull this off and then you kind of forget about the numbers. You forget about the fact that they are losing money. You forget it. You forget about the fact that the AI business that they say is going to generate, you know, 90% of their revenues down the line. You forget that it doesn't work at all. You forget that it's right two and a half billion dollars in losses.

9:35

So there's two assumptions there. There's one that they'll build AI data centers in space, which is somewhere between wank and bullshit. And then there's the other one, which is that the data center demand exists for that. So just two of them. Two of them at the same time for this data center thing. They haven't proven. All right, maybe this is a more direct question. You kind of hinted at this earlier. What's in it for the banks? Like just on a very, very basic level, why? What's in it for like a Deutsche bank or a Goldman or you to say this stuff that if a homeless person screamed at you, you'd run away.

10:52

So that's the really interesting question. This is where I start to kind of put on my tinfoil hat and get a little bit concerned. That's what this show's about. That's what it's about. Exactly. And we do it in a data driven way. And to be honest, I'll just say this. I'm right. Here's why they're doing it. The reason that Wall street has to be nice to SpaceX is because there is a very, very significant financial incentive to do so. And that is this is one of the largest IPOs in history. And one of the most important ways that banks generate revenue the way that they make their money is they take companies public. So if SpaceX decides to choose the Ed Zitron bank as their underwriter for the IPO, then that means that when SpaceX goes public, Ed Zitron bank will get a cut of the fees that were generated from this. And so that was the fees on the trades.

11:31

Right? So when someone trades, there's like, what are the fees that they make?

12:35

They take a percentage of the amount of equities of the company that was sold. And it depends, the percentages can change. For SpaceX, it was slightly smaller as a percentage of the average IPO offering, but that's because the actual amount that was being raised was so gigantic. So you look at the banks that reported their earnings last week, they made literally billions of dollars off of the SpaceX IPO, because so many of them took this company public. So that's the first thing that you need to know is that Wall street, you know, has an incentive to be nice to the banks. We actually had an example of this back in our favorite era of market history, which was the dot com boom, where there was this guy named Henry Blodgett, who was an analyst at Merrill, the business insider himself, exactly, who went on to actually create Business Insider. And so he actually had a decent career, but he got in a lot of trouble back in the dot com era because he had spoken publicly, very optimistically about a lot of these Internet companies that were going public. He said that they were all buys. He said that he publicly recommended them. And that was kind of his job is to talk about these companies, give price targets, and say, this is what I expect for the company. After the dot com crash, it was then learned there was an investigation into Henry Blodgett. And they found out that actually in private he had been saying that a lot of these companies were trash, or as you like to call them, wank. That was. He said that they were junk. He said they were dogs. He said they were POS's translation pieces of shit. And so the question is, why was he saying one thing privately and then, you know, out of the other side of his mouth, going out to the public and saying, this company is a buy. And the reason is what I said, which is that he needed to. He had to finish financial incentive to make these companies like them so that he would. They would be choosing his bank, Merrill lynch, to underwrite their IPOs. And that way Merrill lynch makes money. So this turned out to be a huge scandal. And there were a lot of other analysts at a lot of other Wall street banks that were revealed to be doing the same thing. And so the SEC looked at this and they thought, okay, this is kind of a problem. We can't have these guys publishing this research where they're basically lying about these companies. And at the same time, we learned that, you know, they actually don't believe in these companies. So they came up with this law called the Global Research Analyst settlement of 2003. And this was basically an agreement that was created by the SEC to address the conflict of interest between the investment banking arms and the equity research arms, the team that Henry Blodgett was on at the Wall street banks. And they basically said that what we're going to do is we're going to separate you two from one another and we're going to say, you guys actually, if you work in investment banking, you're actually not allowed to talk to anyone on equity research at your bank unless we have a chaperone present. Because what we've learned is that if you guys start to collude with one another, then we're going to start to run into conflicts of interest. Then we're going to have the banks and they're going to start pumping these shitty stocks that are going to lose people a lot of money because that is exactly what happened in the dot com crash. So they created this thing and you think, okay, problem solved. Then I go, not really, just, well,

12:39

it seems like you'd have a bloke from just another person in the room with you.

16:05

Yes. So that, I mean that, that's an important point. But at the least you could say that they tried to address the problem. At least you could say, okay, we've created a rule that is attempting to make this less of a problem than it has been. And maybe, maybe at most you put a scare into the research analysts and you say, hey guys, this is a big deal and if you start pumping things up, then that's going to be a problem. Another thing they did, by the way, is they made a law that the equity research analysts compensation had to be completely divorced from the investment banking revenues. So that way you could sort of argue that if you work on equity research, then you don't actually have a financial incentive anymore to talk up stocks. Now you can just do your research and give your honest recommendations. Whether you believe that that actually solved the problem is another question. But let it be known they tried to and that was the law that they put into effect.

16:10

That just feels like the least effectual way to do this though, because I don't know, I read buy side analysts all the time and I've never seen them say anything negative.

17:10

Well, here's where I'm going to kind of burst the bubble here, which is that seven months ago that law was terminated.

17:21

Oh, okay.

17:30

Oh, December 12, 2025, this was the headline from the SEC, agrees to terminate Global Research Analyst Settlement. So they basically decided that we don't need to have this law anymore. And their argument, the sec, the same sec, which has lost about a fifth of its workforce, which is seeing some of the lowest settlements in the history of the agency because they have basically made it their M.O. at this point not to protect investors, but to protect white collar crime. Which is why we're seeing all of the insider trading which has just exploded over the past year they said that we don't need to have this law anymore because there are other laws that kind of do the job for you. Do they, do they come even remotely close to the laws that existed beforehand in that initial Global Research Analyst settlement? Do they have the laws, for example, where you have to have a chaperone in the room for these units to be talking to each other? No, they don't. The laws are a lot weaker, they're a lot more flexible, they're a lot less stringent, so.

17:32

Right, so just we don't even have the half hearted one anymore.

18:36

Exactly. There's basically nothing. Good stuff that happens. SpaceX then files its IPO and then I go and I look at the Wall street price targets that we saw and unanimously, every single bank that underwrote this IPO has said even at that ridiculous valuation that was initially floated, they've said this is a buy. So you had Goldman Sachs, they said it's worth $205 a share. That's a $2.7 trillion market cap. Yeah. JP Morgan, they said that this company is worth $3 trillion. Morgan Stanley, $4 trillion. My favorite. Raymond James, a lesser known investment bank, they say the company is worth 10 and a half trillion dollars, which would mean that this company should be trading at a price to sales multiple of 542 times sales. It would mean that, that this company is the most valuable company on earth. More valuable than Meta and Microsoft combined. More valuable than Nvidia. More valuable.

18:40

Apple and Nvidia combined.

19:41

Than Apple and Nvidia combined. And at that point you have to ask yourself, okay, what are these guys smoking? Or two? Who's paying them?

19:43

Yeah.

19:54

And the answer is SpaceX is paying them there.

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20:05

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20:38

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21:28

And then you might say, well, they've already done the ipo, so haven't they already gotten their fees? Haven't they already collected their revenue? Why would they be incentivized to be pumping the stock now after the company has already gone public? And this is the part that I'm sure you will enjoy, which is this company still needs to raise hundreds of billions of dollars to achieve all of the things that they need to achieve.

22:40

And they're going to raise all of that through the banks.

23:06

They have to do it through the banks. So they have to do that. There was the debt offering that they recently did, which was somehow people bought, but now we're seeing that SpaceX bonds are absolutely tanking, but they're going to have to raise more equity and they're going to have to raise more debt. That's close to, I think it was $200 billion of more financing that they'll need later down the pipeline, which means that's tens of billions of dollars in future revenue for the investment banks. That's revenue that they have literally a fiduciary obligation to pursue. So when you ask me, okay, why is everyone smoking crack when it comes to SpaceX? This is why. And the only analysts who have said that the company is a sell, Morningstar, for example, they're analysts who I've had on my show, Nicholas Owens. The only analysts who are saying that this isn't worth what it is currently are analysts who don't have a financial incentive. I mean, Morningstar as an example, they're not taking this company public. They have no incentive to get these underwriting fees on all of the debt and the equity offerings. So that's the problem here. And I think that investors are beginning to come to their senses. You're seeing a lot of fear now as that that line goes down and down and down and redder and redder and redder. My projection, my expectation is that that number will continue to go down, especially as investors start to lose faith in these price targets and these revenue projections from the Wall street banks. I mean, you look at like the, the Raymond James estimates as an example, they estimate the revenue's gonna rise from $19 billion last year. That was the number that SpaceX. That's how much revenue they generated last year to in 2035, $5.2 trillion.

23:08

Well, Goldman Sachs said that SpaceX's revenue will surge 100x yes.

25:04

By 2030, which, by the way, is conservative compared to some of these other estimates from these legs.

25:11

How is this. The reason I ask that is, is this. Not again, like, I guess that is it that they have financial models that they can point to that say the things they want them to say? Is it that there is a mathematical basis, albeit a rotten one, or are they just. Nobody bothers to check them?

25:19

I think that what we know about numbers and statistics is that there's a lot of bullshitting and massaging that you can do. And the trouble with numbers is that they kind of, they lend a level of objectivity and validity on the surface. But the deeper you dig into them, the more you start to realize that numbers can be completely fabricated and bullshitted out of thin air. And you know this very well because of the work that you've done investigating the finances of an OpenAI, investigating the finances, anthropic, investigating the finances of a lot of these AI companies, which a lot of people are starting to get very worried about. I think credit to a lot of the work that you have been doing. But the same is true of SpaceX. And it's especially true when you have a company whose entire value proposition is predicated on a distant dream that isn't even close to being realized. So as soon as you say, you know, our total addressable market is 28 and a half trillion dollars because we're not only going to pursue orbital data centers, but we're also going to pursue asteroid mining and we're also going to build a colony of civilization on Mars. And as soon as you start saying things that are legitimately, I mean currently, as we speak, that not real, then you can apply any number you want to it. You can basically say, oh, I, I don't know, I think asteroid mining is going to be like a hundred trillion dollar business gazillion. A gazillion. Why? Because if we calculate the amount of asteroids in existence and calculate the amount of critical minerals that may or may not be lying within those asteroids, then we look at the total addressable market, then we can project it out into not just 2035, but 2045, 2055, 2065. I estimate that it's a one bazillion dollar opportunity.

25:40

So this is outside of SpaceX as well, all of these. It goes to any kind of analyst letter about projections for, let's say the AI industry or any capex stuff. It's just all of these projections, despite them being through an investment bank, can be basically manipulated to whatever they want them to say.

27:39

Yes, you can basically set any price target you want. And so long as you come, as long as you back it up with like some semblance of a model, which you can go as crazy as you want, you can say that. And so long as the SEC doesn't find evidence in your emails or in your correspondence with your colleagues that you were lying, then technically you're good. You can just convince yourself just to be specific.

27:59

Being wrong is not a problem.

28:27

Being wrong is not a problem. You can be wrong as much as you like. What I would caution against though, to these guys, I mean for anyone who's listening to this and thinking the whole system is rigged, the Wall street banks, they can just do whatever they want. Their equity research is completely compromised, which I'm not disagreeing with, eventually at some point I think these people have to lose their credibility. And you and I have discussed this in the past, but when you have a drawdown like the one we've seen with SpaceX, which currently we're down 45%, but I think it could go a lot lower, I think that this thing could, could, could fall, you know, 70 or 80%. When that happens, there are going to be a lot of investors out there, a lot of capital allocators who read that Raymond James equity research report on SpaceX and they'll think hold on, this guy is a fucking idiot. And at that point they're going to start to realize I'm not, I don't trust the stuff that comes out of these banks anymore. I don't think that any of this really makes any sense. And you know, it seems as though this was compromised to begin with because it seems as though this was incentivized by this ridiculous fee structure that related to the IPOs and the deal making process. Right. And at that point I think that the banks will have to do a lot of work to win back their credibility. And if this bubble bursts in the way that you have been warning about, then the same thing will be true for all of the Wall street banks. Not just as it relates to SpaceX, but as it relates to all of their research surrounding AI companies. The same will be true of the financial media which I know that you've been talking about. At some point the chickens do have, must come home to roost here and I think that eventually the credibility will deteriorate to a level that is not sustainable at which point it'll be on them to, to win the credibility back. That's what happened after 2000 and we created the regulations for a period.

28:30

I don't know. The thing is the analysts who were pro Enron still have jobs like the people that like though there were some of the software ones around the dot com bubble and around Enron who gave bad recommendations but a lot of them got away with it by just saying yeah, well we just believe the companies and I, the, the only cope I have with this is that social media was perhaps not as it was not a thing at the same scale back then and that might hold it because it goes so much further than SpaceX though it goes into. I've now read, I, I think I've read my third straight. What is it? TD Cohen's one of, one of the, yeah, yeah. Another thing from them saying oh yeah, we've got all of these channel checks that we've seen. All of these data centers are being built. They are talking about 20 gigawatts of data centers being under construction while another fella out, what was it one of the climate ones, Sideline climate. They're saying oh only 5 gigawatts is under construction. And it's just, it feels like an alarming amount of analysis is just pulling things out of your ass and saying its analysis at this point. But you work at an analyst group, so it's kind of established. It's just very weird because who is going. Who are the. Actually, yeah, this is a good way to take it back to a main question. Who are the actual customers for these analyst letters. Is it retail investors, so regular people with Robinhood account or what have you, or is it institutional investors? Because I think the victim there is going to directly inform whether anything changes.

30:34

The big money is the institutional investors. So I think those are the priority clients. But as we're beginning to see, there's a lot more money coming into retail. And I think a lot of these banks and a lot of these financial institutions are doing a lot of work to offer more and more retail products and retail funds because they know how much money is gushing into that, that side of the industry. So I mean, the way to think about it is, I mean you would hope that the job of a, an equity research analyst is to any sell side analyst is to sell their research. It's to sell the stuff, the information that they have gathered. But increasingly what it seems like it is being sort of morphed into which it was supposed to be, it was supposed to be solved by that global research analyst settlement is it's now just getting into selling the securities themselves or at the very least selling optimism about a given company that you know is about to go out and pursue a lot of deals. Insider trading, though, I think it's pretty much insider trading. But I think one thing we've learned about the past year or so is that insider trading is legal now. And we hear just want to be

32:20

clear that it's not legal advice, but people are acting as if it is. I mean, the fact that someone seems to get ahead of oil prices every time that Donald Trump says there is or is not a ceasefire.

33:50

I mean, it's 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 is saying something. And it is coming from the top down. It is coming from an administration that has not only normalized it, but they have gutted any semblance of regulation and protection that we used to have to prevent this kind of stuff from happening. I mean, for anyone who doesn't believe that the SEC is compromised, I would just encourage you to search up the name Margaret Ryan. And Margaret Ryan was the enforcement director for the sec, who seemed to be one of the only people at the agency who was actually interested in enforcement. She started to pursue what was some very obvious leads on insider trading and essentially, essentially criminal behavior among the Trump family. She started to pursue these leads, and then suddenly she got message from someone higher up than her saying, hey, you have to stop doing this. You're not allowed to do this. She got into a little bit of a fight, and then the next thing you know, she was mysteriously disappeared from the sec. And it's not just her. We saw the same thing with the doj. We saw the same thing with Gail Slater, who tried to pursue some, what she believed to be some fixing in the antitrust department that was being done by the Trump administration. What do you know? She got a mean letter from her bosses, and then suddenly she's ousted as well. And you just look at the amount of people that have been laid off at the sec. Not just the sec, but the cftc, the doj. I mean, all of the white collar crime enforcement agencies in our government, they've all been gutted. And then you look at the fact that Trump made one and a half billion dollars on crypto last year. He made more on crypto personally than any of the largest crypto firms in the United States. He made more money on crypto last year than Coinbase made on crypto.

34:04

That's fucking insane.

36:16

It's unbelievable. It's to a level that we've never, ever seen in our lives. It's, I mean, to me, the, the stamp of approval on what is actually happening here. The ratification is the fact that last week he decided, or his team decided they're gonna stop putting his face on $1 coins. And you look at who's done that in history. No US Sitting president has done that, but there have been other leaders who have done it, namely Saddam Hussein, Muammar Gaddafi, Francisco Franco. I mean, these are corrupt authoritarian dictators who have done the same thing. It's a very, very small and specific group of people who have done this kind of thing. And the reason that it matters is because of the things that we're describing, or at least the reason it matters for investors, the reason it matters for markets is because it encourages and normalizes this level of insider trading and corruption where people are realizing, like, this is the fastest and easiest way to get rich. This is how I'm going to do it. His teleprompter making $100,000, predicting what he's going to say in his speeches.

36:17

I mean, this is the thing, though. I think it extends even further than Trump. I fully agree by the Way into this realm of if we do not have enforcement, if we do not have enforcement of rules, if we don't even have basic responsibility on the parts of the media and regulators, then liars will always profit. Because I've been writing something, been writing something today where it's just like, it shocks me how little people are actually trying to justify the AI bubble beyond saying it's big, right? And the actual underlying. Nick Suresh, who's coming on the show next week, he did a great piece about how, like, global decision making is being destroyed by AI because nothing is really based on what I can do, just on what people will tell you it can do, because we don't. I would say regulation of fact is what the job of journalism is, or at least some degree. Degree of that. And I think the. I know it's harsh to say. I think tech and business journalism is to blame just as much for this. I think that the way that Musk has been treated, I think the way that AI has been inflated and the fact that even in supposedly objective journalism outlets the world over, I saw so many stories about like, oh, I guess Elon Musk is talking about orbital data centers. What the fuck? If I went and said that Donald Duck was gonna become president of America tomorrow, but I have a big following, is that true now? Because I think Donald Duck has a better chance of becoming president than we have fucking data centers in space. But no, journalists sit there and they go, well, you know, it's okay. It's just, we're just saying what they're saying. We're not going to. Not going to come down with an opinion about it. Despite the fact that the reason that people are sinking money into AI is because they keep reading in the media that AI can do stuff it can't do. And it's just we're watching is just no one thinks they have responsibility for anything. And thus grifters are just running wild.

37:30

That's exactly crazy. I think you've put your finger on the pulse of what is arguably the largest problem in America right now, and perhaps in the world, which is that no one seems to have a spine anywhere you look. No one seems to have an ability to come out and speak with integrity and speak with honesty about what it is that they actually believe is true. Anyone can say whatever they want. And so long as they put a couple numbers behind it, or even if they don't put a couple of numbers behind it, anything's fair game. And I do think, again, if we were trying to reverse engineer why people seem to believe that this is acceptable and why this has become so pervasive in our society. I think a decent argument would be the fact that the father of the country, the role model, the President, has demonstrated that this kind of behavior can yield results not only in the financial markets, but also in politics too. That lying actually works, that lying is actually okay, and that you can do that. I mean, I'll just say, to your point about financial journalism, business journalism, I've been shocked by how I will go on various shows and the amount of times that people have said to me, kind of taken me aside and said, hey, by the way, is it okay if we ask you about the President? Is it okay? Is that fine? As if we're hitting some sort of third rail where I might not be able to speak with any truth or transparency or honesty about what I actually believe is happening in the country. And this is a real problem. I think you're right. I think it pervades our politics and I also think it pervades the technology industry, where we've seen its own generation of grifters and carnival barkers and pumpers who have gotten rich from just pumping whatever it is that they believe, whether it's the crypto grifters or the SPAC pumpers like Chamath Palihapitiya. And none of them actually get their comeuppance. None of them are actually punished at the end of the day because of what we have done to our regulatory institutions, which means that it incentivizes even more bad behavior, even more dishonesty in the financial markets.

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43:15

I think there's an abstraction higher as well, and I think it's the I don't know if a lot of journalism wants to cause problems. And I don't just think it's like, oh, can I say that or not? I think they kind of want the companies to win. I think that they see this as sports team stuff. I think that they judge. Look at, look at Google search. It's dog shit. Look at Microsoft Teams. Look at Facebook, these broken platforms. I read pretty much every article in every major tech company. I don't think I have seen in the last year more than a couple pieces that talk about the actual experience of using these products. Which is bad now. And it's because. And I think that this is a combination of both regulatory authorities dying a death and Trump to some extent. But it was a problem before Trump as well. Where it's. What is considered successful in a company is purely numbers. It's growth at all costs. The right economy, which we've been writing about for years. And this sense that, like, well, Meta isn't a bad. I was at a conference and I said someone that Meta was an awful company. And the person looked at me, a host from a TV show, and they looked at me and went, but met as one of the most profitable companies of all time. They looked at me like a crazy person. I'm like, yes, but have you used the product? And they went, not recently. It's just like, you are a fucking like. But this is. That is the standard.

45:13

It reminds me of the Sarah Ison comment on CNBC where she's like, reacting to our attack on Iran and Trump's threats on Iran is threatening to end a civilization. Is that. Is that bullish for markets or is that bearish?

46:35

Hell, yeah. That's. That's just like your soul is gone at that point, as you don't care about. You're not thinking of human beings, though. But that's the thing. I don't think most of this coverage thinks of human beings. And I said, like, AI coverage does not connect with reality at all. And it's weird. It's like you can either. Sometimes I wonder if when you join the tech media officially through the official channels, whether you get a choice, it's either like, you can go insane about AI, where you just commit yourself fully to everything they say like gospel, or you can only write completely objectively.

46:48

Yes.

47:22

You could just repeat what they've said and nothing else.

47:23

Well, I think this. I mean, 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 that what. That what we are experiencing is a variety of industries that are being led by people who are. And not in all cases, but in many cases who are frankly not very intelligent, who cannot understand this notion that a company could at once be incredibly profitable, one of the most profitable businesses of all time, and also be very bad for humanity in terms of what it's done to our addictive tendencies and what it's done to the mental health of a generation of children. Those two things.

47:27

Yeah, go on.

48:14

Those two things can be true at the same time. And if you were to say Meta is. If you say Meta is evil for this reason or Meta is problematic for this reason, that can be true. While the company still is a very profitable company and is a very investable asset. Those things can be true at the same time, but. And so I think that's what they're struggling to grapple with.

48:15

Sure, but there's also the other thing of if a city had great tax revenue and the economy was booming, but every single street was just bathed in piss, I mean, without exception, and the mayor was doing coke with the CEO of Lockheed Martin every day and throwing dogs and giraffes into wood chippers on camera. Would the media look at it and say, well, you know what, the city's doing great though. No, they'd say crime rates are up, whatever, blah, blah, there's piss everywhere, yada yada yada. They don't do the same thing with tech, despite the fact that I think we spend more of our lives online than we do in the real world these days. And it's just. And I think that what that does this is obviously a long term theory. I think what it means is they don't include that in the analysis because it doesn't matter to the price for now. But at some point I think it has to because the reason, like what's missing is no one wants to discuss the reason that they're growing so fast, which is. Or not growing even that fast, growing reliably despite the products. It's because of monopolies. It's because they've not got any other business. There's no one else that's really competing meaningfully with Meta or Google or Microsoft or Amazon other than those four companies which don't really compete with each other.

48:38

Correct.

49:58

And it's just.

49:59

But by the way, that's not it. That's not a bearish statement, that's a bullish statement. Monopolies are incredibly profitable businesses. The more that you can maintain a monopoly, the more profits you can yield over the long term. So I mean, I look at those things, I think it's a bad thing for the long term economic health of America. I think that it is generally a bad thing for markets. And I don't like the fact that, that we are so increasingly reliant on the profits or this market is so increasingly reliant on the profits of a handful of companies. But what we also know is that it's really good to be a monopoly and it's really good to be a shareholder of a monopoly. And I think that's part of the trouble for financial journalists and people who are in financial media is that if you were to say that, I mean, let's take the Bubble, as an example, if you were to say six months ago, this is a bubble. And by the way, six months ago, I think that was a true statement. I think that it is a true statement today as well. If you were to say that six months ago, as an investor, you have not performed well, you have massively underperformed your peers. If you are a capital allocator and it is problematic for you to go out six months ago and say this is a bubble and therefore I'm going to sell my assets and I'm going to rotate into other assets that have nothing to do with AI. Why? Because the only assets that have yielded the returns that are juicing this market are the assets that are tied to AI. And it's not the big tech companies, it's actually all of those crazy names that we're seeing in semiconductor, semiconductors and materials and all of the infrastructure play in AI, right? So that's what people are so scared of, is if you call it a bubble, if you say, if you say that in any sense that you think that maybe this might be a time to sell, then you are making a bold claim that you will then be compared against for the rest of your career. And so that's part of the fear, I think, that a lot of these people have. It shouldn't be the case, it shouldn't be as pervasive as it is in financial journalism because actually your job is just to call balls and strikes if you're covering this stuff. But if you're an investor, that's what you're really frightened of.

50:00

But how much of the price action though? And maybe with the semiconductors it's hyperscalers spending all this money. But I think there's a chicken and egg problem here where it's like, would hyperscalers have been able to spend that much money if investors would have dumped the stock when they saw all the capex because the media had pushed back on AI?

52:25

Well, probably not. This is where you come in and this is where it starts to get ugly. And by the way, we're starting to see signals of this. We're starting to see a massive unwinding out of the AI trade, out of the semiconductor trade. There was some report reporting or some research from Goldman Sachs recently showing that the amount of. They're seeing some of the highest outflows by hedge funds out of the tech sector in the history of, of their coverage of technology. Because at a certain point I think the music is going well and then eventually the music starts to stop and they are starting to pay attention to the stuff that you have been talking about because. Yeah, the reliance on OpenAI, the reliance on Anthropic is unsustainable. And how is it that those two companies have so much money to spend? It's not because they're generating cash flows and generating profits, quite the opposite. They're losing money. The reason they have the money to spend that is, as you have pointed out, because they have been capitalized by a handful of wealthy investors, venture investors in Silicon Valley and then also some tech companies who happen to also be their customers. Cue the issue with the circular financing, which I'm not sure how people didn't pay more attention to it.

52:43

It's because it was. No, because it's. There's a childish nature to it. It didn't break yet, right? It didn't break. And I think that you said this recently, we were hanging out, it was like that. This is what happens when you orient the market around rich people and rich people ideas. And the reason that Microsoft, Google, Met or Amazon feel emboldened to spend over a trillion dollars in four years is because they know they won't get pushback. And also, I don't know if you exist in this world where every idea you have is a good idea and every idea against yours is a bad idea. Because the media says that the stock number went up, revenue went up, everything good, you're going to start believing it. You're just going to believe you can manifest everything. And I think that there is something, the thing that people, the mistake that I think people really need to stop making is they're like, well, the richest companies in the world couldn't be wrong. And it's like, why do you think that? What's the underlying thing? And the answer is, no matter what the person says, because they've yet to explode. Yes, it's just like they've yet to explode. They've yet to fall apart, they've yet to really experience any consequences. Because I guess the media is talking about the AI bubble now. Yes, but this is fairly new. And even then, everywhere I read, everywhere I read, it's still, people are still doing the. Well, the dot com bubble, the dot com bubble is worked out. Dot com bubbles, fine. We looked, I looked at history, I looked at the wikipedia for.com bubble, by the way.

54:09

I'm not sure why that's supposed to inspire confidence. I mean that was a period where the Nasdaq lost around 80% of its value. That was a very, very bad stretch of time.

55:45

Yeah, but you know, afterwards it was good.

55:54

Right.

55:57

No one knows what any of this means. But again, media narrative. Look up the amount of times I fucking read someone saying, well, the dot com bubble, after dot com bubble, useful fiber use for this. And it's. I'm, I'm only slightly joking with how colloquial I'm being because some of them really are just like, you know, after dot com, everything with the fiber was used at some point. Is that true? Only partially. A lot of the fiber was used. All the copper was like, there's, there's plenty of times where it didn't work out. And also many companies died, many people got washed out, many people lost everything.

55:57

Yes.

56:36

And it was also much, much, much smaller. Like the American stock market was smaller, the companies were smaller.

56:37

Well, I think that this gets to a cultural issue where we have a cultic worship of wealth, not only because we all want to be rich and we all want to be billionaires, but we believe that if you are a billionaire, if you are a CEO of a large company, if you are wealthy, that must mean you are intelligent. That must mean you understand how things work, how economies work, how the world works. That must mean you must have some insight into the future. And that's not a hyperbolic statement. This is what a lot of people actually believe. This is actually what, this is what fundraising is really all about. It's. I have a degree from Stanford and I studied computer science and I understand how these things work and these things work. And therefore you should allocate hundreds of millions of dollars to my fund. Because I have a vision of the future, I have an understanding of the future that is going to be more correct than anyone and I'm going to make you money. That's kind of how capital allocating works. And the trouble is we've become so obsessed and so reliant on the visions of rich people that we have decided to offset all of the cognitive thinking, all of the cognitive work that you need to be, to do yourself, that you have done in recognizing. Hold on. This whole thing is dependent on two companies and they're going to run out of money eventually. All of that, you shock that. You shock your responsibility to do that. And you say, you know what? I'm going to leave it to Satya Nadella and Sam Altman, and they're gonna do all of the thinking for me because they're smarter than I am, because they are rich. That is kind of the philosophy that has become pervasive now. The trouble will come once they turn out to be wrong. And they're gonna have to be wrong in a big way for the narrative to shift. I believe we are on the precipice of that happening with Sam Altman and OpenAI. I believe that we have seen him make a lot of mistakes and I think that he has flown too close to the sun and I think that he is going to go down in flames. And that is going to remind people, hold on. Rich people aren't always correct. Rich people aren't always right about the future. At which point that will puncture the narrative and make it a lot more difficult to just believe these people without doing any of the homework, any of the thinking on your own. At that point, I think we'll see expectations start to shift. We did see it after the dot com crash. Suddenly there was a lot less trust in these people. A lot of those you mentioned, the people who are recommending Enron. I haven't studied those guys, but I would guess that it was a lot harder for them to get a job post Enron collapse than it was pre Enron collapse. And I think that we saw with the financial crisis too, yes, some people made out like bandits, but overall there was a shift in the way people think about markets, in the way they think about Wall Street. There was a sense of mistrust. There was a sense that these people actually didn't really know what they were doing. And it lasted for a few years. But of course, these things happen in cycles. And so I think that we are kind of at the peak rich people worship phase. And eventually once something collapses, and I think it will, we'll start to reset our expectations and we'll decide. Actually, maybe I should do some thinking of my own. Maybe I should listen to that guy who has a newsletter and an interesting podcast. Maybe he was right about it all along.

56:44

Yeah. And I mean, I think as we wrap up this beautiful episode, I think the thing that might be different here is how balkanized everything. Like. Like everything's very tribal now. Everyone's very aggressive. Everyone's like, you will if this Nick Suresh piece I mentioned earlier, a big thing he's finding. He's a wonderful software engineer and he talking to. He works as a consultant as well. He talked with various firms and he's found this thing where not being pro AI is considered dangerous to one's health. Like if you are not pro AI within an organization, if you are not supportive of AI initiatives and indeed the greater religious thing of AI providing x percent or 100x productivity, you are Upsetting to the people around you because there are all these interlinking things of people just believing that AI is the future and agreeing to things and saying things about it. That's not true. And I think that that's where the real authority crisis is going to break down. Because we are, I think when this burst we are looking at something that could reduce how many LLMs we see on a day to day basis. But also there are people who have staked their entire careers on LLMs being like 10 times the size they are today. Not just like LLMs will continue to exist, but they're like LLMs will literally be the future of everything, everything, everywhere. And I'm not sure how you come back from this. Like Jim Cramer came back from it because he, I think he forgets everything he says the moment he says it. Just, just like Dory from Finding Nemo or Finding Dory, I guess, and coming to Jim. But I think, I think the, I think that other than Kramer, there is going to be a certain degree of. I don't know, I don't know how you listen to somebody who has been pro AI after this. I don't know how you take someone seriously who has been pro SpaceX, who ignored the things that Sam Altman had been promising that went along with it. I don't know how anyone, I've been trying to warn journalists about this. Like this will be an authority crisis,

1:00:26

yes, it'll all depend on the price. Right now I look smart because of my SpaceX prediction and everyone says, oh, Ed was right, Ed got it right, Ed was correct. And the people who were pumping the stock look stupid. And so the authority crisis there, it has flipped. If SpaceX for whatever reason skyrockets to $200 a share, everyone will say, Ed is an idiot, Ed was wrong. They will go wherever the wind blows. The only thing that really matters in terms of the authority, in terms of who to listen to, and this goes back to the cult of worship around wealth. The only thing that matters is the price.

1:02:42

Right?

1:03:23

And so once that price comes down, and I agree that it's going to have to happen for at least a handful of companies, I believe OpenAI is going to implode in some, in some way and it'll be folded into some other company, probably Microsoft. I think you agree?

1:03:23

Yeah, that's, that's kind of what. And I think anthropic gets passed between Google and Amazon.

1:03:39

I think that's highly possible too. Once that happens, then suddenly Sam Altman is the idiot and he will be remembered in history as such. But be clear, people don't have a lot of conviction about what they actually believe when it comes to this stuff. All they really care about is what happened to the price. And we saw it with Sam Bankman Fried in the crypto saga as soon as. I mean, Sam Bankman Fried was only a criminal once he lost the money. Yes, that was, that was when they decided, oh, he's a criminal. Oh, he's a bad guy. Put him in jail because he lost the money. Same was true of the Henry Blodgett thing. He was only punished once the dot com bubble imploded and prices went down. Then they decided he's the bad guy. So it all that matters here is the price and that is when people lose money. That's exactly right.

1:03:43

Well, Ed, it's been such a pleasure to have you. We'll have links to your stuff and then in the show notes. Thank you so much for joining us.

1:04:37

Thank you so much. I enjoyed it and I can't wait to have you on my show.

1:04:44

Hell yeah.

1:04:49

Do that soon enough.

1:04:50

That's right, the Ed Exchange. I'm of course Ed Citron. I'll be back with a monologue this Friday. Thank you all for listening as ever. Subscribe to Newsletter Download the podcast Gut Me on Slob. That's where I get my goods, on Slob. Now a lot of you been slobbing me on goo. That's a different social network. Anyway, you know where to find me. Of course. Cheers, my dears. Thank you for listening to Better Offline. The editor and composer of the Better Off Offline theme song is Matosowski. You can check out more of his music and audio projects@matosowski.com m a t t o s o w s k-I.com you can email me at ezetteroffline.com or visit betteroffline.com to find more podcast links and of course my newsletter. I also really recommend you go to chat wheresyoured at to visit the Discord and go to r betteroffline to check out our Reddit. Thank you so much for listening. Better Offline is a production of Cool Zone Media.

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