¶ Intro / Opening
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¶ Market Euphoria and Geopolitical Reality
It looks like investors are really popping those happy pills. The Iran situation is the Iran situation. It's still bad. There's not a lot of ships moving around over there. Oil is still 50% more expensive than it was. at the start of the year, so in general it's not great. But like whatever. Stocks have not just recovered, in the US they've zoomed up to new record highs. And there's some classic overexcited silly stuff going on too. Today on the show, euphoria and joy across the land.
This is Unhedged, the Markets and Finance podcast from the Financial Times. And Pushkin. I'm Katie Martin, a markets columnist here at FT Towers in London, where spring is in full swing. Lovely stuff. And I'm joined down the line by the big man, Mr. Mr Robert Armstrong off of the Unherged Newsletter in New York City where he's been thinking big thoughts about big tech. Rob Are you feeling the vibes? The vibes are good. Are you feeling good?
I feel good. I feel exuberant. I now that you feel like I am irrationally exuberant right now.
Record highs in stocks, baby.
Yeah. I mean the way I was thinking about this is like a week or two ago you could say grouchily, the S P five hundred hasn't gone anywhere since October, and you'd be right. And then and then the S P was like, watch this.
Yeah.
Yeah.
And now we have an SP 500 that starts with a seven. Which is something of a moment. We've never had it starting with a seven before.
Seven thousand and something on the S P boys and girls.
I don't really know to be honest. You know, the market hit a low at, you know, sixty three hundred. On the twenty seventh of March. So what was that? That was, you know, two three weeks ago, two weeks ago. What changed between now and then that took you from sixty three hundred to seven thousand? I don't rightly know.
Well, I think the thing that does make sense is as you and I and regular listeners to this show will know Markets are forward looking things. Right. So they dropped in anticipation of an energy crunch. So before the oil actually started drying up, markets like dumped. And now they're jumping in anticipation of a resolution. So yes, I know there is no lasting resolution to this conflict in Iran yet.
But if you're feeling pretty bullish about the world, feeling pretty positive in general, then the direction of travel is towards things getting better rather than things getting worse. And that's enough. That's like far
Let me add to that, we've had a sustained period. of oil at a hundred dollars or more than a hundred dollars. And it hasn't been a disaster. So it's like, okay, we can live like this, the world is saying. You're right. You know what I mean? This is a bearable equilibrium. Now, that can of course be wrong. Oil nerds keep telling us. if the blockade of the blockade stays in place for a long time, that it's not gonna be a linear increase in oil prices, that oil prices will move in spiky ways
Suddenly and kind of geometrically rather than arithmetically. So
Yeah, it's it will be scary and horrible.
But the market persists in believing that this piece of water is so important to global commerce. that one way or the other people will figure it out and get this thing.
They'll figure it out.
Is the one.
So the market is saying, look, a few things can go wrong. Yeah. One of them is the the oil price just hockey sticks, goes to like two hundred dollars a barrel and and stays there. Another is that central bank have a bit of a kind of brain freeze and jack up interest rates really hard to deal with inflation risks, which I think everyone agrees would be a bad idea and it's something that they're certainly suggesting they're not gonna do just yet.
And the third thing is that like the the US economy falls into a recession, which nobody thinks is terribly likely. They are things nonetheless that could happen, but they haven't happened yet.
¶ Allbirds' AI Pivot and Stock Surge
So vibes are good, which is why you get really, really stupid things happening in markets. Now, here's a stupid thing. Rob, you quite often have incorrect views about footwear. However, please tell us about a car please tell us about a company called All Birds, which I'm not familiar with.
So all birds made some kind of hippie sneaker made out of wool or hemp or something like that. I don't know. It's a shoe. They were quite a hit for a while and then it all went wrong and the stock collapsed.
So have you ever worn these trailers?
Never. I've heard our colleague Robin Wigglesworth likes an all bird.
Oh, they must be dreadful then. Okay. So
This this explains why the trend came crashing to an end.
If you know Robin Micklesworth, you'll know what him at all.
Everything Robin wears is doomed to die.
Yeah.
We shouldn't be. He's gonna get his own podcast soon, which we should talk about at some point. So he'll have his revenge on us for saying this. That's fine. Uh in any case, that that all goes terribly wrong. The stock crashes. A few weeks ago, I mean they haven't even, you know, reported any financial since the third quarter of last year when the finally they were burning cash at a historical.
And the stock is down like ninety nine per cent or was down ninety nine percent from when it listed. And then
And they sold all the assets. They're like, We're doing an asset sale. We sell the brand to somebody else. We're sending selling the inventories. I should know but I don't know what's happening to the they have long term liabilities, lease commitments, long term debt or whatever. So it's like this Shell with some liabilities in it. The assets and a few of the short-term liabilities have been sold off. It's this shell. And then drum roll, please.
Well then let me tell you the statement they put out yesterday. They said we are pivoting and I quote to AI compute infrastructure with a long term vision to become a fully integrated GPU as a service and AI native cloud solutions provider. What manner of nonsense is this?
They did fill up the whole bullshit bingo playing card in like one sentence there. They they win the prize at the church raffle after that.
Yeah, they're changing the name to New Bird AI. Now, you, Robert Armstrong, hear this. And I, Katie Martin, hear this and think, This sounds ridiculous. However, the stock market goes, Hooray! AI sounds fantastic. So the stock closed. Six hundred percent higher on Wednesday as a result of this whatever this
What is the market do we have the market cap in front of us of this monstrosity? It's a hundred million plus, I think. And uh the point is, you know, as of a couple of days ago, this was a corporate shell. with negative value as far as I can tell. In other words, it had some liabilities and basically no assets.
Selling trainers that not even Robin Wigglesworth buys anymore.
And basically you know, if you read down in that announcement you just quoted the ridiculous part from, they're like, We have fifty million dollars of financing to start being a GPU as a service. AI uh dingbat machine. Right. So now it's like just a big box full of these live. And it's worth a hundred million dollars now? So why what's going on here, Katie? Give me a hypothesis.
I tell you what's going on here. We have seen this movie before, so when you have like stupid speculative nonsense frenzies about nothing
People like companies that are basically like uh have basically failed or have shrunk dramatically for whatever reason, stick a word on the end of their name and hey presto their stock goes up six hundred percent in a day. So For a little while people were just like randomly adding the word blockchain to their company name or randomly adding the word crypto to their company name.
And I just because the the world is stupid, that is enough to send the shares up very dramatically in the very short term. So
¶ AI Hype and Speculative Trading
Katie, Katie, Katie, Katie. I just don't think we live in that world anymore. Right? Despite what the what the S P five hundred has done, it's not been tech that has been leading the S P five hundred higher, really. I mean it's been a tech has been okay and it's had a recovery. But we're not in like bonkers, everything AI is magic time and
Well, allow me to tell you another AI thing then in that case, I read here from the Starbucks website. Meet the Beta Starbucks app in Chat GPT, a new way to discover your next favorite drink. So if you can't if you literally cannot decide what to drink in a Starbucks, which is a situation I can't really
empathize with on any level, you can ask AI and the example that it comes up with from a query saying, What should I try today? is an iced brown sugar oat milk shaken espresso. I mean Is this what this technology is for?
Artificial stupidity, Katie. All bird AI blockchain Wing nut, whatever.
Oat milk shaken espresso.
Shaking espresso. I don't think anyone involved is like, oh hooray, they're gonna make loads of money doing AI AI now. In other words, I think this I think this is a completely self-contained game among speculative traders where it's like this the you know, they make this announcement and people are like, oh, this is a funny thing to trade, or like this will get a little bounce.
Somebody and then, you know, it's self-perpetuating momentum and then it's like a fun game of chicken among speculative traders where they chase the momentum up and it's like who's gonna get out first and whatever. I just cannot believe. despite the existence of an AI tool that helps you pick your coffee, which suggests that terrible things about humanity
I just don't believe anyone is this dumb. I don't believe there is one single person, one single trader in the entire world who is buying this story. I don't believe.
I'm old enough to remember when markets were very serious and very serious things happen there all the time. And now there's just like a whole window of like finan regulated financial markets that's opened up to this sort of just bullshit and it's annoying.
But I think it's The bullshit has become self aware is the argument that I'm making to you, Katie, that no one actually buys the story. Right. It's a trading event. We you know, the markets are exuberant, people have high risk appetites. There is a community of people somewhere out there that wants to have fun trading this little wave. But they don't think that Allbirds AI is gonna like be competing with open AI and Anthropic anytime soon.
¶ The True Value of AI
Let's move on from frivolous nonsense to something more serious, which is the thing that you were writing about in the Unhedged newsletter today, which is about like and it is quite an important question, isn't it?
What is AI worth? So there's a lot of there's a there's a handful of stock that are out there that are like super important to the AI ecosystem and they're holding up a lot of sky in financial markets, holding up a like a large portion of the value of like US stock markets and global stock markets. And part of the idea behind that is that these companies are going to be able to charge good money for this AI. But h we don't know that that's a thing, right? Mm.
Let me reframe your question slightly, Katie. I would say the question is. There is consensus that AI is going to be va very valuable indeed. It is going to be worth a lot. The question is who captures the value? So the example you might give is airlines. Airlines are incredible companies in terms of generating value for the world. Like we get to go to France whenever we want, right? We can fly to Japan. It's like ch it's world-changing industry.
But we've all captured the value. The companies as businesses stink.
Right.
But like the problem with the airlines is like any dingbat with a few hundred millions of dollars can start an airline. Right.
Knock yourself out, Rob.
Yeah, y all I need is
I mean that you know, th this is like the oldest joke in finance, but you know, how do you make a million dollars in the airline business? You start with two million dollars, you know? Yeah. The question is, is the competitive structure of AI more like I don't know, the software industry, which has been brilliantly profitable and created a lot created a lot of value and captured a lot of it for itself, or is it like the airlines that have created an immense amount of value and we got all?
That question boils down to is a brilliant AI model A different from the next AI model down the block. And part B is can you keep them proprietary? Once somebody has found out a brilliant one, can somebody else copy it really easily?
Right. And so if everybody's AI model is the same, all it is is a matter of computing power. And these companies, like the big Mag Seven companies Google, Microsoft, Amazon, Open then the private ones, OpenAI and Anthropic, all they're gonna have done is built really big computers. Right. Really big like places where there's metal and there's there's GPUs and there's cables and whatever. And that's a business.
Right? Selling computer power is a business. But it's gonna be a business with modest returns. Right? It's gonna be like running a utility. And like the money that's going into this business right now does not expect utility like returns.
¶ AI's Vision vs. Investor Returns
So so that is the question. differentiated and can they be kept proprietary? If there's anyone in the audience who's smart enough to answer this question, please write us at unhedged at ft.com. I unfortunately am not smart enough to answer this question, only smart enough to raise it.
That's right. Because yeah, you know, as you were writing in your in your newsletter, if this stuff is actually a commodity, right, and it it it's like water or worse, it's like air. There's like a whole heap of money that's been thrown at the wrong thing that is a problem for financial markets, right?
Again, it depends what you mean by wrong thing. I don't I I never know how you pronounce this guy's name and I'm gonna mangle it. Amade, am I saying his name correctly?
I believe so.
He's the chief executive of Anthropic and he's a very interesting guy.
I think that's the thing you're pronouncing.
It's amazing they let me come on a podcast at all. In any case, you know, he has this thing like you know, he thinks in three or four years a data center, his term is gonna be like a country full of geniuses. Like this guy really believes like There's not going to be disease anymore. We're going to we're good. Like cancer is gone. You know, we're because we're going to have the data centers are going to be so much smarter than that.
The AI models are gonna be so much smarter than us. They're gonna be like curing cancer, uh n nuclear n nuclear fusion, energy, uh teleportation, everything, right? And if that happens The economy is gonna get a lot bigger, right? Things are gonna be good.
So we're going to somehow leap from telling otherwise normal people to drink iced brown sugar, oat milk, shake and espresso to curing cancer. Right.
But all I'm saying is if artificial intelligence allows us to make incredible scientific progress. That is going to be very good and valuable and we will be glad that Google and Microsoft and OpenAI and Oracle and everybody else invested billions in these data centers. However, who will not be glad about that is the shareholders in the companies that did the investing. Because if it's commoditized, their their returns will be terrible. And we'll all be glad that these things were built.
You know, the investors won't be rich. Th there's plenty of examples exactly like this in the history of capitalism. So like basically everyone who invested in the opening round of railroads went bust. And it was the second round investors who made the big money, who who like built businesses on the rubble, right? And it's great for the world that those railroads got built. It was just terrible for investors.
Do you know one thing that I do take some comfort in is like the past six weeks or so it's been War, war, war, war, war. Oil, oil, oil. You know, e the only thing we've been able to think about is Iran. And now it's like, oh, we're back to talking about whether AI is a bubble. Nature is healing. Yeah. We're back to
It is so much nicer.
¶ Long/Short and Episode Wrap-Up
That's nice, sir. And to be clear the the war could definitely get worse and then we'll we'll flip back to talking about that. But in the meantime, we're gonna be back in just one second with long short.
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Okie dok, 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. Rob, what you sayin'?
Katie, I am long the Strait of Vermouth. I I d I don't know if you heard this yesterday, but our Treasury Secretary, Scott Basent, was talking about the war and its economic implications, and he misspoke talking about the crucial waterway and called it the Strait of Vermouth. And what I'm advocating here today is that we actually change the name to the Strait of Vermouth. Remember earlier in this presidency we changed the name of the Gulf of Mexico to the Gulf of America.
This is correct.
Why can't we change the strait to the Strait of Vermouth? And like put huge olives in it and like pump gin through it as well.
I'm not sure if you're not going to
Exactly. I I would be too if I had his job. I'm never gonna call it anything else ever again, by the way. On this show, everywhere else.
He also mused out loud about what the hit to global GDP would be if London was hit by a nuclear rocket, which I think is a strange
I think he was trying to imply that it would be bad in his defense.
Yeah. It's a strange thing to say out loud, isn't it? Anyway, uh I am long kebabs. There are new rules in the UK banning ads for junk food online and uh and on times on TV when kids are awake. So apparently the regulator's already banning online promotions for pastries, but it has allowed ads for kebabs because they are not less healthy.
I do love a kebab. Yeah. I do.
So long, kebabs, and vermouth. It's a winning combination. Hopefully it will get you all through the weekend. Listeners, we will be back in your ears on Tuesday. So listen up then. Unhedged is produced by Jake Harper and edited by Brian Erstadt. Our executive producer is Jacob Goldstein. We had additional help. For Foreheads. Cheryl Brumley is the FT's global head of audio. Special thanks to Laura Clark, Alistair Mackey, 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.
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Hang on. I think I've got pretty decent taste in shoes.