Prof G Markets
00:28:14 · Robert Armstrong
[00:28:14] S6: Yeah. No. It makes sense. Yeah. And, you know, and it's supposed to be that when when equities get jumpy, bonds do a little little bit better, and they have, and that's really nice. And there's more evidence for your claim that this is a flight... There's part of this is a flight to equity trade, which is the staple stocks would have been... Which have been, like, the worst performing stocks in global markets, in general, in The US market. So I'm talking about the people who make paper towels and deodorant and tomato sauce. Right? The the real consumer basics, tobacco, whatever. These... You know, this industry, especially in The United States, has been having its struggles just to grow. And so that's one reason it's been doing it. But nobody wants anything to do with these very safe, boring companies. Look at how those performed in the last week or two. Over the whole world, it... It's like the the line just, like, leaps off the chart all of a sudden. Right? So that's fear at work. When you're starting, like, maybe I'll sell that tech stock and buy Kimberly Clark. That's the... That's fear talking
00:29:26 · Ed Elson
[00:29:26] S3: right there. You know? Until Kimberly Clark pivots to data centers in in some way, which I don't think is off the table. I think the... Perhaps the the the most jittery signal that we got last week, I think, came from Elon Musk. He he posted this this tweet on X, which I'd like to read to you and get your reactions. He said, quote, as of the past few weeks, debt markets have almost entirely shut off access to the money for any company that doesn't have revenue independent of AI data centers. He continued. He said that means 200 plus neo clouds are going to see Guppy level death and consolidation. Some will make it through, but not many. He seems to be saying something which I think I agree with, which is that the bond markets are deciding, okay. We're anxious about this data center build out now. And without us, a lot of you guys are screwed. A lot of you guys need us in order to to build these things, which would suggest as he as he puts forward that some of these smaller newer AI names, the neo clouds that have just become very hot and popular, that they actually risk genuinely going out of business. And perhaps that's how the trade unravels. What do you make of his comments?
00:30:38 · Robert Armstrong, Ed Elson
[00:30:38] S6: He fancies himself one of the consolidators. So, you know, clearly, good, bad, or indifferent results from the AI industry. This first round of, like, a railroad boom like everyone and his dog financing a railroad. This is gonna go through a round of restructuring and reconstruction and consolidation. That's just gonna happen one way or the other. And Elon Musk is talking from the position of, I fancy myself one of the big boys who's gonna come out the other side. Right? And I'm gonna be buying I'm gonna be buying these little guys out of bankruptcy, and it's gonna be great. I'm gonna buy them at 60¢ on the dollar, and it's gonna be fantastic. Whether that's true or not, I mean, you know, we've probably discussed the relative precariousness of the financing of his two companies too, but I'll say this for him. He is a master fundraiser, and someone who is a master fundraiser is gonna have a chance at being one of those consolidators out on the other end. Right? So I I think that's definitely true. [00:31:48] S3: If anyone's not gonna be affected by capital drying [00:31:50] S6: up If it's richest man [00:31:52] S3: in the world and the man [00:31:53] S6: who for for... You know, you may... We may like him, dislike him, be impressed, not be impressed. The guy has proven he knows how to scare up money. Right? That... You know? And he's done some incredible things in my view on an industrial level, But on a financial level, his talent seems to be equally great.
00:31:53 · Robert Armstrong, Ed Elson
[00:31:53] S6: who for for... You know, you may... We may like him, dislike him, be impressed, not be impressed. The guy has proven he knows how to scare up money. Right? That... You know? And he's done some incredible things in my view on an industrial level, But on a financial level, his talent seems to be equally great. [00:32:11] S3: Say this is what transpires. Say we do see that continually that the bond markets are demanding more from these AI data center companies. A lot of them can't make good on those payments. Some of them start to go out of business. Is that how the stock market enters the correction that everyone has been waiting for for so long? Is this sort of the the actually the beginning of the end? Not not Armageddon, but at least some significant drawdown that constitutes anything close to resembling a real correction.
00:32:45 · Robert Armstrong, Ed Elson
[00:32:45] S6: Let me start by taking the other side of the argument. One thing that if you're gonna have a crazy investment euphoria, it's good to start with some companies who have a lot of money and have really good businesses. And so there's five... Four or five of the hyperscalers that whatever happens to AI, they went into the situation having the most profitable businesses in the history of the world. Alphabet, Amazon, Meta, Microsoft, Apple. Apple's not participating, take them off the list. But anyway, so you've got these cash machines at one end, and that's really good. And to the degree that the AI data center bubble starts to deflate, investors might look at those companies and say, great. They don't have to pay for this crap anymore. They can just go back to churning out free cash flow, buying back their own shares, and paying dividends instead of sinking every penny into a data center down in Louisiana. Right? And that and that... Those stocks might go up. That doesn't mean they're... Mean, CoreWeave's not going up. CoreWeave's going to zero under [00:33:48] S3: that circumstance. But who cares?
00:33:48 · Ed Elson, Robert Armstrong
[00:33:48] S3: that circumstance. But who cares? [00:33:50] S6: And... But who cares? So, like, the the big pillars of the stock market might stay standing under that circumstance. The circumstance being like, holy crap. We don't actually wanna finance this much capacity for AI data centers. A lot of people will feel the pain, but those pillars might might stay standing. But you do have another set of companies that have become incredibly important that won't fare so well, and that's the semiconductor complex, NVIDIA, Broadcom, and work work your way right down. Right? Those things would lose a massive amount of value. Right? And that would be a shock. Right? And, a less bigger shock than if it happened to Microsoft. But, you know, NVIDIA right now... Microsoft and the other hyperscalers, but NVIDIA right now is the most valuable company in the world still today, I think. And so those... That would be a nasty shock for those guys. So would it be a catastrophic 2008 style correction? My guess is no, because of the hyperscalers would probably do okay. Would there be some smoldering wreckage to pick through? Yes. Will you be glad you owned some ten year treasuries with a 5% yield going in? Probably yes again. [00:35:10] S3: No. Certainly.