you want to figure out what financial markets are up to what they're trying to tell us the go-to way that professionals try and do that is by looking not at the future but at the past so if you look at the ai boom in markets today the big question is whether this is like the dot com boom and bust of 25 years ago. This game is less about gazing into a crystal ball and more about being low-key a bit of a history nerd. So today on the show, why it pays to know your financial history. This is Unhedged, the markets and finance podcast from the Financial Times. I'm Pushkin. I'm Katie Martin, a markets columnist at the FT in London, where we have a wobbly bond market and a local election coming up. What can possibly go wrong? Joining me today i have a twofer ladies and gents yes i have that big rob armstrong over there in new york rob say hi hello don't put on a funny english accent rob because we also have an actual funny english accent an actual funny english accent from robin wigglesworth who's the editor of ft alphaville and also a card carrying financial history nerd over there in sunny oslo robin hello hello should i do a norwegian accent today then no need for that no no so uh robin i know you are loath to indulge in shameless self-promotion but you've been deep in the weeds on financial history lately the thing you're doing at the moment is this podcast also in the ft stable with gillian tett about the story of money which is about financial history Why would you do such a thing? Who cares about the deep history of finance? Why is this important? Well, I do it because I love it. I mean, I am, as you repeatedly point out, a massive nerd about these things. So I just love it for its own sake. I just think it's fascinating. But like you say, we do learn a lot from the past. You can choose the George Santayana quote or the Winston Churchill quote. We even go back to Edmund Burke. But, you know, those that don't know from the past usually kind of repeat some of the scripts in the future. I've always thought that this quote was absolutely true. But those who do know the past are also doomed to repeat it. So that was a bit of a problem. But bringing this somewhat more up to date, like the thing that is really driving stock markets at the moment, Stock markets have decided that the Iran war is like old news and they are just like plowing on regardless. And one of the reasons they're plowing on regardless is that they are really tightly glued to corporate earnings. And really big companies, particularly kind of AI flavoured, tech flavoured companies, are just making money hand over fist. But that sort of links back to this sort of gnawing thing that people have in the back of their head, which is, is this a little bit like the dot-com boom and bust of sort of 1999, 2000? Or worse, is this like the US railroad boom and bust, which happened sort of from the late end of the 19th century? And I guess you can draw a thread from there through to the proper Wall Street crash of the 30s. You've been talking about this on the pod lately. What, like, do you think there are? Well, first of all, for people who don't know, what was the US railroad boom and bust? Well, essentially, in the 19th century, there was this gargantuan, and I mean it, you know, that's, I'm not exaggerating, it was a gargantuan buildup of railways around the world. It was, you know, even the AI boom today, it looks like a tiny little gnat on the arse of an elephant compared to the railway boom. So, you know, I saw some numbers from Morgan Stanley. They think that the hyperscalers are going to spend maybe a trillion dollars on data centers by 2027 now. But the railway boom, just in the US, just on the bond issuance, there was around five, six billion dollars worth of bonds issued. And that doesn't sound like much, but if you scale it relative to the size of GDP at the time, because the US was a small economy, that's the equivalent of $10 trillion today. Wow. So the railway boom the bond issuance and like some of this was financed by stocks and government grants and so on but largely by bonds was around 10 times the size of today AI Give us time Robin No no exactly Fingers crossed we get there The weak is young But like at the time was there much evidence of like you know the olden times equivalent of miserable people like me saying this all seems a bit ridiculous? Well, you have to remember that the railway was considered a miraculous technology. When it first arrived in the UK, people were worried that people would essentially disintegrate at speeds over 30 miles an hour. People generally thought that humans weren't built for those kind of unimaginable speeds. We'd just turn to dust, or at the very least go mad at around 20, 25 miles per hour. And so it wasn't only considered miraculous technology, it effectively was. I mean, this was... It was. Yeah, yeah. Absolutely amazing the things that changed, right? I mean, the US was the epicenter of it. I mean, people went railway gaga everywhere in the world. and there were railway booms and busts multiple over the 19th century. But the US, because of its scale, right, it was the biggest. It was where they went the most crazy for it. And I'd argue they literally made the United States. The United States were not united until the railways came. And this was a country that basically had a bit of West Coast stuff, a big chunk of the middle that was just frontier country. and it ran along the north to south axis. But after the railways, you could suddenly buy like Maine lobster in California or California apples in New York. You could literally travel across the country. It's something that was unimaginable. It was like Apollo. Well, it's really like 20 or 30 Apollo programs, essentially. So essentially people issued a third of GDP in debt, the equivalent of that. How did that all turn out? Well, it didn't turn out great for all the bondholders. Spoiler alert, though, you probably see it coming. There were multiple busts along the way. There was an epic one, just like a humdinger in 1873. It was probably one of the first big global financial crises because it arguably was triggered by a crash in Austria that ricocheted over to the US. It basically meant that lots of European investors lost a ton of money in Austria and they had to liquidate their bonds. There were massive investors in American railway bonds. So these were some Dutch burgers, German nobles, British merchants. And they started liquidating bonds in the U.S. and then just everything just collapsed at the U.S. So this was it was called the Great Depression until the actual Great Depression made this just known as the Long Depression. Yeah. It's like how the Great War, the Great War became World War I after World War II came along. Yeah, exactly. Yeah, exactly. So, like, it strikes me there's two, like, takeaways from there. One is that everything is connected. And so, you know, a sell off in one particular asset in one particular country may not have any logical link to another asset class in another country. But once one thing starts selling off and people start taking losses, they end up having to sell stuff elsewhere to stay current on their bills. And that is still one of the defining features of global markets today. The other is railroads are quite useful. They help you get your apples and your lobsters and all that sort of thing. The technology itself can be super, super, absolutely indisputably useful, but you can still end up losing a ton of money on it. And that, I guess, is the debate that's going on in AI now. Did that feel a little bit kind of almost like sort of prescient and spooky to you while you were reading up on all this? It did because it's, you know, sometimes you can go a little bit crazy seeing parallels in the past, but with AI, they're slapping you in the face. It's very obviously, it's quite similar, even though the technologies are different, you know, how people think they can be transformative, the physical CapEx buildup, because some financial bubbles are almost purely financial. This was a real one. I do think that, you know, bubbles and bursts get a bad rap, that the reality is that the optimal level of bubbles and bus is not zero. We almost need these. We need people to lose the senses to do these big build And yeah people do lose money And unfortunately sometimes you know there are individual tragedies or even societal tragedies among it But that sort of part and parcel how we move forward as well. A terrific example of this, Robin, is the lesser known bubble of the early 2000s, which was the telecom bubble of the early 2000s. And people spent an epic amount of money putting fiber optic cable in the ground. A lot of companies went bust. Most people involved got crushed one way or the other. But the result was we got this wonderful productive asset, which we're still using today, which is tons of fiber connections and tons of telecom infrastructure. And there's loads of real estate stories like this. There's the railroads, etc, etc, that these booms, if the money that goes bankrupt is spent on a long-lasting productive asset, it can be a good thing in the long run for an economy. The question is, are these AI data centers long-lived productive assets? They're certainly going to be productive. How fast they depreciate all that stuff is another question altogether. Yeah, I'm hopeful that the energy related infrastructure buildup is going to be helpful because obviously you can't just build a data center you need to power it as well and hopefully that may be you know if if ai doesn't quite work out that it you know doesn't quite revolutionize the world we don't need all these data centers well we've built a lot of energy infrastructure and renewable energy and new gas turbines and things like that that you know will be useful so i i'm optimistic though i suspect you You know, people will lose an ungodly amount of money at some point. I hope still 20 years on will maybe say that maybe it was overall worth it for the world. Well, it's interesting, Robin. I'm writing right now a piece about Apple, which is kind of the company that is taking the other side of the AI bet. famously all the other huge tech companies, all the other magnificent, most of the other magnificent seven tech companies are loading money into the AI data center build out. And Apple is saying, hmm, we'd rather rent than own. And we're going to see what happens here. So there is somebody out there, I think, looking at the example, you know, a big money player looking at the example of the railroads are similar examples and saying, we're going to take a little bit of a wait and see here. And it'll be interesting to see whether that's a good bet or not. But I think it's a big bet by Apple. I mean, it could be a profitable one. Just look at how Apple works with Google, right? I mean, this deal came under regulatory pressure, but Apple didn't build its own search engine. It basically kind of got money from Google to make Google search the default. Maybe it'll do the same with Anthropic or OpenAI. I think in many ways, people can make money out of this. Yeah. And I have to admit, the big difference, of course, even with the railway boom of the 19th century, is that, you know, there is an awful lot of debt issuance happening, but by vastly profitable companies. And these tech companies still print money. So even if like they lose every single dollar they are now putting into AI, these companies aren't, for the most part, going to go bust, which makes me slightly less worried than maybe I would have been if I'd been a financial journalist in 1872, looking at the railway boom. The moral of the story is things that seem to be forces of nature and make perfect sense today might not make perfect sense tomorrow. And ways that look like, you know, you're shooting fish in a barrel. This is a dead easy way to make money. You look back on it in a few years time and you think, what the hell was everybody thinking? so it's thinking of you know unhedged podcast in the year 2050 right it's all done by you know people who haven't been born yet or ai or some other thing and they're looking back at this moment in time that we're living in right now in 2026 and what are they going to call this this period that we're going through now because there's a lot of stuff going on there is this ai boom whether it busts or not, none of us know, and we should be honest about that. But there's the situation in Iran. There is what clearly seems to me to be like an unraveling of the global geopolitical order. Multilateral organizations are falling apart. The post-war order is falling apart. Things like NATO and the UN are under huge amounts of pressure, things that we all grown up with that we think are just sort of natural phenomena that come out of the ground They are all actually quite complex organisations that are under strain And I know that like Rob will disagree on this, but there is this push among global investors to think differently about the dollar, differently about the rate profile of US government bonds, differently about the US stock market. Like what do we think is going to be the thing in the Unhedged podcast of 2050 that actually sticks and turns out to be a meaningful moment? Or Or is it none of them? I don't know. Like, Rob, you can go first. I think much depends on whether we have another serious inflationary incident. So we had this big burst right after COVID of inflation. And inflation is like, you know, Robin might disagree, but I think inflation is so often the defining factor of a financial era. And if that was just the first tremor in what turns into a higher inflation, higher interest rate era, that is what we will be remembered for is when inflation returned after 50 years in the wake of the crisis. What do you say, Robin? I'm tempted to answer like Ryan Cohen did, GameStop's CEO yesterday in an interview where he said that we will see. This is not allowed on the Unhedged podcast. No, unfortunately, we are unhedged here. Yeah, yeah. The Iran war feels like it's now on the cusp to be sort of an epochal thing. If we do basically large parts of the world run out of oil, then suddenly I'm willing to say this will go from something that was a defining thing for 2026 as being something I might define a longer time period. AI, I think, definitely is in the mix. If AI turns out to be what some people say it's going to be, this year will be remembered as the foothills of AI, before AI. changed the economy completely. Whether AI is a disaster or whether it's a huge benefit for the world, either way, we're at the foothills of it right now. What I'm hearing here is that we all need to understand history, but that doesn't necessarily help us to figure out what's going to happen next. Nonetheless, an interesting intellectual exercise. Listeners, we're going to be back in just one sec with Longshore. okie doke it is time for long short that part of the show where we go long a thing we love or short a thing we hate robin since you came along today to help us out what you're saying i'm going to be short uh jimmy's deal to try and take over ebay oh that is not gonna work that is the mouse eating the lion and it is not going to work this is the game stop yahoo stock it is a mouse pumped full of medical cocaine trying to eat a massive elephant with a highly confident letter from a canadian investment bank this deal is not going to happen but it's going to be highly entertaining for us to follow it yeah it is going to be entertaining so yeah that is definitely in its favour um well i am long tiny tiny ice creams so shares in magnum ice cream rose quite a lot last week after it said it was shifting to bite-sized portion controlled ice creams for all those people on on the weight loss drugs who don't want large ice creams so now we can all enjoy tiny ice creams instead i kind of like that little tiny ice creams to keep us happy through the course of the day. Listeners, we're going to be back in your ears on Thursday. So listen up then. Unhedged is produced by Jake Harper and edited by Brian Erstad. Our executive producer is Jacob Goldstein. Cheryl Brumley is the FT's global head of audio. Special thanks to Laura Clark, Greta Cohn and Natalie Sadler. FT premium subscribers can get the Unhedged newsletter for free and a 30 day free trial is available to everyone else. Just go to ft.com slash unhedged offer. I'm Katie Martin. Thanks for listening.
