Invest Like the Best with Patrick O'Shaughnessy
· William Hockey
[00:00:00] S1: Sanctions. We had completely collapsed their ability to export oil. We completely collapsed their ability to actually trade with other people. That friction is real. And so when we went in there, Venezuelan people were probably like – yeah okay, we good. We're maybe not going to try to shoot these helicopters from the sky. We're pretty happy here. That is fundamentally so amazing. If France wants to shut down another country in order to go enforce their will, they have an option, or they have like two options, which is don't drink our wine and here's some missiles. The missiles can enforce their will. They have a strong military, they have strong special forces, they can go do that. But their lives, the special forces on the ground, they're going to have a much harder time. because they haven't, in many ways, controlled that economy before. And that is so, so unique to the US. And I think China is obviously developing this with trade and exports. One of the things that China can do is they can start to enforce their will by shutting down a country from exports. That is real. And so I think China has definitely this increasing might, but the strength of the dollar is so fundamental for national security. And in many ways, we don't talk about it because it's a little bit of an uncomfortable truth. The global bank doesn't want to sit up and say, we're part of the national security strategy because if the government tells us to, we're going to collapse this economy. That's not a fun narrative that people want. But I think there's a way to tell that narrative that says, we are a weapon that can be used, like when our citizens come to harm. When we need to do something that is like super important for the US interest, and we are part of that strategy, just in the same way that Palantir is part of that strategy, Lockheed Martin's part of that strategy, Boeing's part of that strategy. And financial services is a key pillar. You can argue that financial services is the first act to war with a country. We start with sanctions. We start cutting them off from the US trade. We start with that before we put boots on the ground.
· Patrick O'Shaughnessy
[00:00:00] S0: What do you then hope is the future of global financial services? Obviously you're actively building the technology backbone for it, but if you think big picture, how do you hope the system changes? What would be best for it?
· William Hockey
[00:00:00] S1: I still hope it's very US bound. And I think we sometimes want to believe this world where there's a lot of people in Silicon Valley that I fundamentally disagree with, that want to put the power of financial services outside of the US. And the US has a lot of problems that we can spend hours talking about – I still think we're the greatest country in the world. And we have a change of power every four years. We change our mind on stuff. Yes, there are some problems, but we are still the best place to be. And I think we are the ones that, we should still have the nuclear weapons. We should still have the nuclear weapons of financial services, which is we control the world's trade. And I hope that continues to exist. And I think if we don't, I think if it just lands in the power of other people, I think that's a scary place. And I don't think people have really thought through the ramifications of that. If you look at most countries, financial services is still power, but it ends up just accumulating to government officials and ends up just accumulating in a very small elite. And say what you will about the US, and there's probably way too much power concentration in certain industries. Financial services is actually quite fragmented. JP Morgan's the largest financial services company in the US, but like, it's not that dominant. It's still pretty diversified. Take Canada. 95% of Canadians have four banks. Take Australia, it's even more concentrated. You go to most countries, it's even more concentrated than that. We do have, a little bit in financial services today, a relatively decentralized financial services system. It should still keep fragmenting, right? We should still disperse the financial power throughout multiple US corporations, multiple US people. We need to do a better job there, but we're actually starting from a pretty good baseline. The other thing I tell people is there's this narrative like, "Oh, financial services is fundamentally broken." Our institutions are actually pretty damn good. There's this narrative sometimes people talk about, it's like, "Oh, US financial services. It's like built on COBOL and stuff like this." It's just not, it's like a fun talking point. I rack my own hardware at the federal reserve and all these places. There's no COBOL in a lot of these places. It's actually pretty good.
· William Hockey
I'll go on the record talking about this. The Fed is a pretty good tech team. Their systems are actually pretty good. You think about the US right now, through the Fed, has a capability to move money and to clear money through all these institutions, 24/7. Faster than stablecoins, faster than crypto. Right now, as we speak. We've had that for decades. Systems are very good, extremely reliant. They're fantastic. I think it's very challenging for Silicon Valley to build something better. The problem isn't in the fundamental infrastructure, it's in our implementation of it. The reason why community banks can't send money 24/7 isn't because the technology doesn't exist at the Fed. It's because there are constraints in those business models that make it very challenging and something to do. Give you an example. If you can send money out of your community bank 24/7 – well, that bank could run on a weekend. I don't know if you guys have ever like been to a rural community, the community bank with 50 people – you can't get people to work on the weekends. If you're JP Morgan, if you're Stripe, yeah, you can manage 24/7 liquidity. But if you're a small community bank, you can't have that. It's why I think people conflate "We don't have something, we don't have access to something," with "We don't have the fundamental ability to do that." But actually the reason is implementation, not the underlying infrastructure.
· Patrick O'Shaughnessy
[00:00:00] S0: I feel like because of your unique setup as a business and your unique focus on the boring problem as you've described, you have such interesting perspective on so many things. Is there anything that we haven't covered, either about company building or the way that the world works, that you think is interesting that we've missed?
· William Hockey
[00:00:00] S1: One of the things that I think about – AI is here. We're probably much closer to ASI than people think. And it's gonna be like a tidal wave through the economy. You have to think about what are the implications for your business. And I think in my perspective – if you're not a researcher, if you're not a lab – how do you play? I actually don't think "AI companies" are very set up for success. That's actually probably not where value is going to accrue. The value is going to accrue in two areas. Most important area I think, do you have massive distribution? Because if you have massive distribution, if you have massive costs, AI is going to be a massive boon for you. And so the thing I think a lot about is, how do you think about – not just from a software perspective, but from a distribution perspective and a brand perspective, what you would best capture to utilize AI? Because I think people talk a lot about the railroads. Yes, the value accrued to the railroads. Yes, the value accrued to the ISPs. Yes, the value accrued to the people like building mobile phones, but the value actually accrued to the people that could harness that the best. The value in railroads accrued to the oil companies. That's a little bit hard to fundamentally understand, that Standard Oil was the biggest beneficiary, biggest boon for railroads by an order of magnitude. What is the equivalent area for AI? And I sometimes don't think we're focused on that enough. Hot take here, I think like the biggest, fattest, most inefficient brands are going to be the best beneficiary of AI, because brands have a massive moat and man, there's a lot of costs to cut there.