Hey, what's up, Toby? We made it another week.
Nice. Hey, Brian. How's it going? I hope we've
got another topic. I think it's your week to
come up with a topic. Oh, my gosh. Oh, my gosh.
If you could think of a topic that was popular
in the business world, imagine a world in which
every CEO and every employee are talking about
one thing, and they're talking about a different
thing. Or they think they're talking about the
same thing. What would that thing be? I think
what they would probably be talking about is
the railroad race and the golden spike of the
1800s. Or perhaps any version of that over the
last many centuries as you've industrialized.
What I've been thinking about a lot Is is a guy
named Michael Burry. Okay. Yeah, and I don't
think that that's a super familiar name. Okay
was folks but Author Michael Lewis made him famous
in his book the big short Okay, Michael Burry
is this is this savant like number cruncher that
the housing market take an absolute crater Mm
-hmm long before the rest of us did and that
Michael Lewis attempted to explain the complex
world of of collateralized debt obligations and
crap mortgage and so Michael Bury made his small
stack of a gazillion dollars and disappeared
and so but his names turned up in the news again
alongside folks like Peter Thiel as of PayPal
fame and, you know, political puppeteer extraordinaire,
making the world the place he wants. But these
guys, their names are showing up not often together,
but as individuals that are taking a look at
AI and specifically some of the components of
this AI boom. And they're starting to ask, at
what point is this thing overheated? And so,
these two individuals are both publicly recognized
as guys that have started to take very short
positions or selling against the companies that
are so swollen in valuation and Vita being among
them. And what it's made me think about, and
I don't think that every employee and their employers
are talking about, should we be shorting in Vita
right now? But I think a lot. It's funny you
call it. You say, you pronounce it differently
than I. Yeah, I pronounce it invidia. Oh, invidia.
I mean, I don't know if I'm right or wrong. It's
probably my accent. I'm from a little further
south than you are growing up down in central
Idaho. Twin flats. Yeah. In the big city though,
invidia. Yeah. I think yeah, I just assumed it
kind of went along with in God of the Vita, you
know, there you go Hey another iron button lies
long. So, you know, the other the other thing
that's happened this week is the Metas chief
AI scientist Yan look kind look lacuna. Yeah,
he plans to leave Right into the guy going to
look at Bezos are probably who knows those guys
just it's like horse trading at the highest level
that's - Oh my gosh. Next level. So why do you
think Mr. Burry's selling shorting AI stocks?
I have to wonder, we've talked at different times
about our career history and I remember in the
late 90s and the boom of that first dot com magic,
I remember thinking software, schmoftware, I
want to be in the infrastructure game. I want
to, I want to be where the, the demand will never
slack. And so I went into it's all calm where
we were laying, you know, thousands of miles
of fiber optic cable just in time to watch all
of this incredible investment in infrastructure
implode. Yeah. And so the correlation that I
can't help but observe is all this conversation
about, you know, how many gallons of water and
megawatts of electricity does it take when we
say thank you to AI? And so the infrastructure,
the swelling of it, and to bring it back to our
purpose, which isn't just idle musings of two
crazy middle -aged guys, but rather process.
The thing that I keep thinking about, though,
is every enormous leap forward in industrialization
comes at a cost. And that cost is either dug
out of the small pockets of a small handful of
individuals, but more often out of the masses.
And just like the Temple Palm crater, you know,
there were huge... So take people back, because
it's possible that, you know, our listeners that
do not know about that crater, they may have
heard about 2008 and the housing problem. the
housing shortage, but they may not have known
kind of what happened. Like what was the process
that took place when it came to telecom? And
let's tie those two together. I love it. Yep.
Yeah. So for those folks that aren't turning
a little bit gray around the edges, in the early
2000s, right around, it was spring of 2000 exactly
when this very hot dot com driven market where
we couldn't put enough fiber in the ground and
lay it across the oceans, All of a sudden, it
caught up. The lack of capacity that drove pricing,
all of a sudden, the capacity started showing
up. And there was such a fervor that all of a
sudden, what may have cost $10 ,000 a month in
terms of subscription for a company to have this
really powerful, rich access, went from 10 ,000
to 1 ,000, and from 1 ,000 to 500. And today,
we enjoy all kinds of insane speeds. digitally,
but it's because innumerable companies went bankrupt
in the early 2000s because it's so much investment
in the ground that we couldn't catch up. And
so a little bit of this is how many chips is
enough chips? And also, can companies like Onagata
DaVita or Nvidia, how much further can their
valuation drive when there's a natural limit,
you know, to how much production is going to
take place. And this is the, I think this is
the confusing part. And the thing that I saw
in telecom, what was interesting was it wasn't
a matter of stretching out fiber optic cables.
They found was that the hardware on either end
continued to get better and they got more value
out of every string. And the software running
on those pieces of components got increasingly
complex. So let's, let's take this big picture,
right? So we're back in college, right? What
did we have to do to call our parents? Oh, we
had an MCI calling card. You call the 1 -800
number, you put in their number and it literally
counted down. And this was, I literally was calling,
I think maybe 40 miles away and that was long
distance. Right? Yeah. And it was expensive.
My grandmother lived eight miles away, growing
up, and that was long distance. Yeah. And so
the cost of communication was astronomical. It
was super expensive. Which, what did that...
Because that NCI nerd made it what, 10 cents
a minute? And we thought that was smoking or
maybe 15? Oh, yeah, yeah. Something like that.
Like it was crazy. Because you were competing
against the quarters that went into the phone
machines, right? You're right. Yeah. And so the
process that's leading up to this is you have...
You have very, very, very profitable long -term
things where you have a cliff that no one saw
that they ran into it. I recently saw an AT &T
commercial and it talked about how AT &T has
been around since Alexander Graham Bell. And
I'm like, hey, you idiots, you forget that you
got bought by someone. Like you were not the
buying party. You were the ones that got bought
and they kept your name for marketing purposes.
not because you were doing such a fantastic job.
100%. That's a great call out, Chris. We may
see names that sound very storied and have stood
the test of time. Oftentimes, we've perpetuated
those names just because they resonate. Because
there's some goodwill there, which is an accounting
entry somewhere. Let's bring this up to the AI.
What is it with AI that Barry sees that he's
like, oh my gosh, or even, you know, met his
chief AI scientist is like, something's different.
Like what, what are they seeing from a process
standpoint that maybe we aren't, or more specifically,
maybe we are seeing it, but the CEOs are not
yet. Right. Well, at a certain point, if you're,
if you're the one driving a train and you told
the team to take the brakes out because it's
slowing you down. then your only option is to
go harder and go faster. Yeah, I'll confess,
Burry didn't call me up to say, hey Toby, I'm
taking a short position. What? I'm a little hurt,
to be honest, but five bucks against some of
these, that doesn't build the position that he
needs to help with that choice. But I do think
here's somebody who takes a very data heavy approach
with this. When we start to see a number of insiders
moving into stronger cash positions. I do think
there's certainly a valuation question at play.
But I also think again and again, we see the
emergence of new technology in this mad rush
to try to limp into the future. And what we're
finding is that it never stacks up exactly as
we thought. When informed investors start making
choices that sound contrary to media, That's
a really good time to take a deep breath and
reassess So what's interesting is I go back to
that whole tech bottle tech bubble the dot -com
thing and what I go back to thinking about is
like If you remember all the browsers, right?
So remember and even before that there was AOL
with the internet thing that just drove like
Yeah, free CDs, right? Yeah. I mean, if you wanted
to watch a two -minute clip, it would have taken
you probably 20 minutes to download it. Like,
it was incredibly slow. But the demand was there,
and AOL was never gonna be dethroned. They just
were gonna own the internet. They couldn't figure
out how to monetize, right? And so then that
basically stripped out. Like, the process there
was like... at a global scale, they had to hook
into that telecom thing, right? Where telecom
got cheaper, right? Then other people came in
and became your ISPs. And then you think about,
I'm also thinking about, remember AltaVista and
all these browsers, Netscape? Basically, they
were really cool at first, and then they became,
they couldn't figure out how to monetize. That's
right. And so you ended up with ads and banner
ads and everything was basically like, hey, get
your attention. And then Google came out with
none of that stuff and a better algorithm that
cost them money. Yep. Yep. And they would have
went out of business if they wouldn't have become
the world's biggest advertiser. Yep. The things
that are done on the front end. the advertisement
where you're exposed to the monetization versus
things that are done on the back end, which is
harvesting the data and starting to organize
it. And so we've been given the most powerful
toy, I think, in our existence as a civilization,
which is now AI, and people are using it to make
custom Christmas lists. What if I am gluten free
and replace all of the ingredients in a recipe?
It's not that they're bad things. It's just that
people are grappling with it and the valuations
have been driven up. And so from a purely a process
perspective, the speculation has gotten so far
out of hand that we start to see folks that have
earned a fine living, an extraordinary living,
assessing human emotion and the way that Economic
cycles actually move starting to make other choices.
And so the good news I think for Joe consumer,
you know in an office place is that The time
and again these things explode. Mm -hmm On a
got a devita valuation has driven all kinds of
crazy Innovation, I'm sure yeah in the chip manufacturing
space that we can't even guess out But everybody
wants a hate of that, you know, everyone's these
AI valuations Correct. And, you know, like we
talked a little bit about, you know, the acronym
pump, right, where it's just process. What is
the process, right? And the process is, as a
user, I go to a GPT or an LLM. I use that, right?
What are the unintended consequences of that?
Everybody's communicating the exact same way,
right? Where does the money go? Not sure. That
is the question right and how much money is there
to go correct? and because eventually if you're
investing as this as a comp as a corporation
into AI you're gonna want some sort of return
and generally return generally companies are
wanting return on the upside on the revenue and
not on not on reduction of labor costs like that
is almost like exclusive Capitalism 101 is the
private equity playbook right drive drive revenue
Shrink expenses and just basically milk as much
profit as you can well that the other piece in
that Chris is is Take good hard assets and put
debt on those Yeah, load up load up functioning
healthy assets with debt Yep, and then pump and
dump till you're right. Yeah, that playbook is
an important one Yeah, yeah, and so you've got
a lot of corporations that are basically I believe
pumping money into AI because they believe there's
an upside on the revenue and I don't see anyone
making more money on AI. You know, I think I
do pay $20 a month for my... I do too. Open AI
subscription. Do you think that's going to be
enough to sustain all this? I don't think so.
I mean, it's just like Yahoo, like Yahoo, right?
They were really cool, but you got to pay the
piper. Yeah. It's fascinating though. And I think
that as organizations, operating entities, and
even as consumers, we derive a benefit. We just
don't always understand the timing or depth of
the benefit. And so I'll say, the trade -off
from MCI cards for 10 cents a minute long distance
to being able to stream entire videos on a handheld
device. We're in a world that was unimaginable
to us as teenagers, right? But the trade -off
is that there's a world out there of information
about us that we don't even know the depth of
which other people are exploiting that, right?
Well, and and then the reality is is like the
last P of the you know, little pump after an
image power right and right now the CEOs Have
the power to invest Because there's still a belief
in the upside of AI Yeah, and so what happens
when that power? Disappears and that's that's
again where we end up with this telecom bubble
this This real estate bubble this Internet bubble.
That's that's where you end up with these bubbles
where it's like it just gets out of whack and
all of a sudden Someone's got to pay the piper
Yeah, and then and the other data point that
I think is kind of arresting Chris along this
paying the piper and the timing of infrastructure
was Another I came across just maybe two weeks
ago, but it was a discussion with open AI Talking
with the government about downside protection
Is one of the challenges well, you know all this
exciting AI, but that's an enormous amount of
computing power Which translates into a demand
for literally thousands of data centers. Yeah,
and so Here's some folks that understand the
cyclical nature of this and they're saying before
we commit to a gazillion dollars of data center
investment We don't want to get stuck holding
the bag. Yeah, it is not cheap. Oh, it's staggering
Yeah, I think we'll see some change. And I think
the customers will get the benefit. I think some
people, some companies will end up getting themselves
in big trouble. And if you think about like,
oftentimes it's not the early company that wins.
It's the later adopter. It's the Microsoft that
comes in and kills Lotus Notes. It oftentimes
it's not it's not the innovation oftentimes because
they They're too busy making a market and it's
the people that come in after like a Nintendo
His historic like the Nintendo NES that we grew
up with Mike Tyson's punch -out which find that
game I would love to own it and probably terrible
as terrible as I was back then But a little bit
of nostalgia. Anyway, so Nintendo didn't use
new tech. They used old tech and they repurposed
it. And I do think that we're going to follow
that same pattern where, with AI, they're going
to have all of these incredibly expensive models
that can do all sorts of things. But my guess
is, is ChatGPT 3 .1 or 4 .1 is going to do just
fine. Yeah. No, it's super interesting. Are you
the blockbuster video? in 2005 or are you Netflix
who you're gone all in on streaming instead of
mailing physical DVDs. And so it's hard to say.
We could have just as easily done this episode
talking about who's bullish on AI and Jeff Betts,
this brand new Prometheus startup with pocket
change that he's dumped into it for like a $6
billion valuation. It's a messy landscape, but
I think if history is any guide, you know, all
the energy and hype suggests that we're going
to have some process surprises. And yet again,
that pump acronym is revealing, right? Well,
and the thing is, is like, it's not super clear,
right? The effectiveness, the popularity is clear,
but the actual getting paid and getting... getting
LLMs built into your systems that add value,
that actually do not require a human, that is
yet to be figured out. And so maybe that's what
we should talk about next time. I like it. Let's
do it. All right, man. In the meantime, let me
know if you have five bucks and you and I will
double the short position I'm prepared to take
out. Let's do it, man. Man, when you swing, you
swing for the fences. All in. All right, see
you.