The Compound and Friends
00:49:21 · Michael Batnick, Josh Brown
[00:49:21] S1: Uh-huh. [00:49:22] S0: It's in The Wall Street Journal on October 28. Quote, there was a narrative for a while, maybe even in this room, over the course of the last several press conferences that tighter monetary policy is, quote, not going to have any effect on AI because the returns that investors are expecting are so different, Warsh said, quote, I was skeptical of that view. Interest rates get in the cracks. Interest rates affect, directly or indirectly, almost everything, end quote. What are your thoughts? [00:50:05] S1: So that certainly was the narrative. It's not anymore. Wasn't. Yeah. And two weeks ago, when the Neoclouds really fell out of bed, Last week, we played the clip from the CEO of, of Nebius saying that certain certain debt is just closed. Just certain funding is just not available anymore. And so it took everything down with it. Yeah. But I don't know [00:50:32] S0: In the cracks being the interesting part. Like, the the the Neoclouds, which I have more on later in the show, that's what he means. That's what's in the cracks. [00:50:42] S1: So I don't I don't know that it is effect. I don't know that interest rates today, certainly not overnight rates. I know everything is priced off of that, I suppose. I don't think interest rates today are impacting the hyperscalers. I think it's a lot of other shit that's impacting the price. [00:50:56] S0: I would just say it's part of the story. And maybe it's the most unexpected part if you were to rewind back to January. Was anyone worried about interest rates impacting the financing costs for all
00:50:56 · Josh Brown, Michael Batnick
[00:50:56] S0: I would just say it's part of the story. And maybe it's the most unexpected part if you were to rewind back to January. Was anyone worried about interest rates impacting the financing costs for all [00:51:09] S1: these Let me a quick 180. Let me just take this out of what I just said fifteen seconds ago. Here's where it's impacting it. Here's where it's impacting. Listen, hand up. I'm... Yeah. Hand up. I'm man enough to disagree with myself. [00:51:21] S0: It's a livestream. It's... You're allowed to not agree with what you just said. [00:51:25] S1: Okay. So here's where it's making a real impact. Higher cost of capital. Actually, you know what? We're not gonna we're not gonna issue more debt. We're actually gonna... We're gonna do some dilution. We're gonna raise some money through through Yeah. [00:51:39] S0: It's an impact. Equity cost has an impact. [00:51:41] S1: That... That's an obvious impact. Stock... The stock market does not like that. [00:51:44] S0: So Wall Street Wall Street Journal, everyone... This is a big article on Sunday, I think, or Saturday. Everyone's looking for insurance against their AI bets. And I would just say, not something you typically say at the top of a bubble. So take that for what it's worth. The title of the article is AI investors are racing to get insurance on the biggest market bet in history. Okay. So I sort of like that that's the way people are thinking now. It's, all right, we're going to make these huge bets on CapEx and credit and blah, blah, blah. Let's go. [00:52:18] S1: I'm looking space
00:52:18 · Michael Batnick, Josh Brown
[00:52:18] S1: I'm looking space [00:52:19] S0: to get some protection on. [00:52:20] S1: I love the headline, but the substance of the article, they're buying puts on CoreWeave. [00:52:27] S0: Chart on. You're right. And not that many. This is priced in the y axis is 1,000 of contracts. So 800,000 contracts traded on core we've put options. I guess that's over the last two weeks or so. So [00:52:49] S1: as you've been saying all year, a bull market takes out its own trash. Yeah. [00:52:54] S0: I like that. I think that's good. You rather see call options? Would you rather see 800,000 call options on CoreWeave? I know I wouldn't. And then the article talks to a whole bunch of people at Jump Trading and Susquehanna who are creating basically using options, creating insurance for various investors and traders and companies. Again, you don't typically see things like this in an active bubble. So it's all fair statement. Right? [00:53:28] S1: Yeah. Okay. Last thing before we do make the case of mystery chart. So Aswath Damodaran came out with his inputs. And of course, it's a model and every model is bullshit, but whatever. His bullshit model said that he values he values anthropics equity at 1,475,000,000,000. Again About [00:53:48] S0: where about where everyone else values it?
00:53:48 · Josh Brown, Michael Batnick
[00:53:48] S0: where about where everyone else values it? [00:53:50] S1: It's not precise. But what I thought was interesting is you can see the guesstimated market cap on Hyperliquid. There is a ton of volume, like, I think 20,000,000 in the last twenty four hours. Whatever it is. It's it's a ton of money being traded. Look at this. So Anthropic, they have they have it pegged at 1,770,000,000,000, and they have OpenAI at 1,400,000,000,000. Or if they [00:54:20] S0: roughly what The Wall Street Journal is saying, according to investors. [00:54:25] S1: And so if they if they if the IPO price at $1.1500000000000, yeah, there would be a pop. I mean, at least that's what is being implied today. So Matt Levine was writing about this today. He said the perps are we're talking about the perpetual futures on hyper liquid. He said the perps are in a sense, just a recreational prediction market on the price of the stock, not a derivative instrument tied to the price of the stock by arbitrage mechanisms. But a really important thing we have learned about finance in the last few years is that prediction markets are pretty accurate. That is if you have a platform where people can make real money bets on some outcome, their bets will tend to give a pretty accurate and well calibrated estimate of the actual outcome. End quote. And it was pretty damn right about SpaceX. I know it's pretty right about Cerebras. And I know that's only two, but we don't have a million a million of these in the history. I think I think of guessing at [00:55:14] S0: where the open's gonna be?
00:55:14 · Josh Brown, Michael Batnick
[00:55:14] S0: where the open's gonna be? [00:55:15] S1: Where the market cap is. This is a pretty good approximation where the market is today. One point seven seven and one point four. [00:55:21] S0: I guess the only thing I want to know is how deep and how wide these prediction markets are and whether or not they can be actively manipulated by somebody with a vested interest. And if you tell me it's millions of people trading, then I'm okay with that. [00:55:37] S1: The open interest is $100,000,000 There's $31,000,000 in twenty four hour volume. Dollars 31,000,000. [00:55:42] S0: That's fine. Then I am satisfied with that statement. Lot. And [00:55:47] S1: And and guess what? It's not it's not morons trading this. Like, the... It's it's it's it's Susquehanna. It's Jane Street. It's professionals that are trading this. [00:55:56] S0: I agree. [00:55:57] S1: Alright. Let's let's let's keep moving. Make the case. [00:56:00] S0: Well, do they anthropic chart? ChartKitMap did this. People are pissed. Shared this. People are mad about this too. What do you think people said when I posted it? [00:56:13] S1: Well, they have $800,000,000,000 in commitments. I don't know. What do they say? [00:56:16] S0: Yeah, that's no, they have a trillion dollars in commitments. Who cares how much cash they have? Showing ChartKitMatt of Exhibit A is showing actually Anthropic has more cash on its balance sheet than any of the Mag-7s other than Alphabet at 100 because 31 [00:56:35] S1: guess what? Well, people are [00:56:36] S0: saying money raised is not the same as cash flow generated. We
00:56:36 · Josh Brown, Michael Batnick
[00:56:36] S0: saying money raised is not the same as cash flow generated. We [00:56:40] S1: know Genius. Well, guess what? There will be more money raised. Right? Maybe another $100,000,000,000 that's gonna be on the balance sheet. And I think what's impressive is that everybody says the cost of compute, they're burning cash, they're burning cash, they're burning... They lost $80,000,000,000. No. They didn't. That's impressive. They have... They're doing a lot better job managing the cash than I would have thought. I know that they have a lot of commitments. Everybody knows that. I thought this was impressive. [00:57:07] S0: Alright. That brings me to make the case. Here's what I have to say to all the Internet tough guys and all the Substack bears that are rooting for the collapse of the human race and everyone else that is somewhere along the spectrum of skeptical to rabid dog. Do yourself a huge favor. If you're so sure at how this is all gonna turn out, you know it in your bones that this is 1999, about to turn the clock over to the year 2000, and we are going to see a historic collapse in the stock market or in AI stocks or both, what are you so mad about? You're about to become a fucking billionaire. Look at you. Start picking out interiors on that Lamborghini Urus. How do you pronounce it? Is it Urus? [00:58:12] S1: I don't [00:58:13] S0: even know what SUV. That's ugly as shit that that everyone in Miami has. Is it a Urus? [00:58:20] S1: Don't