A Perfect Storm has Formed in the U.S. Economy

➡ AI technology is advancing, but it’s not perfect and can make mistakes, as seen with Pizza Hut and Starbucks’ failed attempts to automate inventory. Financial expert Ed Dowd believes that 80% of people in the country are in a recession, and there’s a disconnect between the top of the market and the rest. He suggests following the example of big investors like Warren Buffett, who keeps a large portion of his money in cash, and also recommends investing in silver and gold. Lastly, there’s a discussion about the potential for economic warfare against Iran, but many are skeptical about the reality of this claim.
➡ The article discusses the potential financial crisis due to massive investments in AI infrastructure, struggling economies, and overvalued stock markets. It highlights the issues in the housing market, private credit, and the impact of China’s economic crisis. The article also mentions the government’s attempts to prevent a recession by investing heavily in AI and other measures. However, it warns that these efforts may not be enough to prevent a recession due to various economic factors.
➡ The credit market’s slowdown could lead to economic issues, but it’s unclear if it will be worse than 2008. The impact is mainly on the insurance system, not the banking system. Meanwhile, AI is overhyped and won’t eliminate all jobs in 12 months as some claim, but it’s causing concern among young people. There’s talk of the government investing in AI companies, but competition is seen as better than a regulated monopoly.
➡ The text discusses concerns about data privacy with AI systems, the efficiency of humans versus robots, and the changing nature of warfare due to drones. It also touches on the overvaluation of companies like SpaceX and the challenges of maintaining growth as a company expands. The text emphasizes that robots don’t need to resemble humans to be effective and that Elon Musk’s predictions about robots and AI may be overly optimistic.
➡ OpenAI’s public offering has been postponed to next year, which could be beneficial for average consumers. The current economic downturn isn’t widely acknowledged by the media or politicians, possibly due to its negative implications. However, if the stock market drops significantly, it might be a good time to invest. It’s suggested to follow the example of savvy investors like Warren Buffett, who is holding onto cash and waiting for good deals.

And yes, there will be jobs lost over time, but not, not in 12 months. It’s not. I mean, the AI can do a lot of things, but it’s not going to be able, I mean, still hallucinates, by the way, when, when I say hallucinate, that’s a fancy term for saying AI gets it wrong. It just gets it wrong. And it’s buggy. Yeah. And, and look, there’s already been some case studies. Pizza Hut, there were some Pizza Hut franchisees that sued Pizza Hut because they were forced to implement some inventory delivery system that ended up costing them a bunch of sales.

Because it was wrong. Starbucks tried to automate its inventory through AI. That ended up being wrong. Thank you for listening. Thank you for sharing. And please subscribe below and think about joining my substack@Sarah Westall.substack.com or my newsletter. You can sign up for that as well@Sarah Westall.com and remember to give a thumbs up and to subscribe on the platform that you’re watching. Welcome to Business Game Changers. I’m Sarah Westdall. I have Ed Dowd returning the program for our financial review. We’re going to talk about the reality of the situation. He believes 80% of the people in this country are essentially in a recession and that there is a big disconnect between the top of the market and the rest of the market.

And he talks about all the different factors that are. It’s like where you have a perfect storm. It’s kind of like 2007 before 2008. He doesn’t want like to be doom or gloom. So he doesn’t want you. He doesn’t want to talk necessarily like that because he doesn’t know. Right. They don’t know the timing, they don’t know how exactly how bad it’s going to be. But he, it looks a lot like that and it’s kind of a perfect storm. We’re going to talk about that. And also the fact that the young people are not liking what they’re seeing with the AI.

They don’t feel like there’s a future for them. We’re going to discuss it and what does it mean and is there is a lot of it hype and what are we going to see? And he also says you need to be smart. You need to follow what the big money does. Like Warren Buffett, he has 40% of his money in cash because he knows that we’re entering right before a cycle where a lot of things are going to be pretty cheap. So if you can follow that and you can have stuff in cash, that’s going to be a good idea.

I actually think having silver and gold, gold is like having cash except when the market crashes that’s going to go up and you’re going to be sitting with more cash. I think that’s what’s going to happen. That’s why I like the idea of buying silver and gold. Although having cash is good too. I think maybe having a good stash of silver and gold to hedge your bets is, is a smart thing to do. Of course I buy from Miles Franklin. I think you should do the same because they are going to treat you like a sophisticated buyer.

They are going to give you premiums that a commodity based business demands. You’re not going to be paying more than you should is the bottom line. And if you aren’t comparing prices and comparing what they offer versus what you’re getting from somebody else, then you’re not being a smart steward of your own money. Go to sarah westall.com Myles Franklin fill out that form and you will get access to their special price list. It changes twice a week. Make sure that you’re being a steward of your yourself and you’re taking responsibility for yourself and you’re not overpaying for assets.

A lot of these companies are overcharging you, I’m just telling you. So protect yourself. Go to sarahwestsalt.com Miles Franklin and you will get access to their special price list. Okay, let’s get into this conversation with Ed Doubt. Hi Ed, welcome back to the program. Hi, how are you Sarah? Doing good. I’m always doing good when you’re here and we can talk about issues from another perspective. And I want to ask you, what do you think? We got to touch on this because this is like the biggest headlines of the week and it’s kind of, I mean it is what it is.

Donald Trump’s talking about with the war with Iran that we are going to shift out of the current war. Maybe we won’t even shift, but we’re going to. That’s what he’s talking like. And it’s going to be more of economic warfare against Iran. What do you think about that? Well, look, ever since the war started we’ve had a bunch of headlines and people on Wall street have grown tired of the headlines. The war is going to intensify. It’s not, it’s, you know, usually the, the war is on the weekends. Then when the stock market opens and the oil market’s open, there’s a peace deal on the table.

Increasingly more and more people are ignoring that. They’re just watching other things. So what he says now about a new economic war, you know, we’ll, you know, we’ll have to see if there’s any follow through on it or if it’s just pre midterm rhetoric. It’s yet to be determined. But a lot of people aren’t listening anymore to what Trump’s saying because it’s all over the place. More and more people are listening to like, like Besant and some of his other cabinet members and they’re trotting them out now to help Trump defend what’s going on and trying to, you know, keep this whole illusion going for a little bit longer, at least through the midterms.

Well, the messaging has been so bad. I mean, I’ve been saying that for a while. It’s so bad. And so it sounds like other people that, that finally got to at least aspects of it that we need to fix some of this messaging. Yeah, the messaging has been horrendous. And you know, Trump has said a lot of things that have been taken out of context, but they just sound bad on their own. Like he doesn’t care about gas prices and he’s, you know, he doesn’t care about, you know, the struggles of the average American. I mean, it was taken out of context, but, you know, the Democrats are going to run with that into the midterm cycles.

He’s given them plenty of fodder to take, take back the House. And the way the numbers look, it looks like the House probably goes the Senate is a coin flip and we’ll see what happens. But it’s definitely not good news. But there’s still time between now and then he could get it together and start messaging better. But the messaging has been just horrendous. It’s been bad. It’s just bad. Okay, let’s talk about the money. Where the capital is flowing. The investment capital has been flowing into AI and it’s creating a lot of distortions to say the least.

And I mean, just massive amounts, 70%. I mean, AI, it’s, it reminds me of the dot com bubble where everybody was plowing into the Internet and then there was this huge fallout and then only a certain amount. It became the next gen, you know, the new age. But it was a mess in the process. This is almost that on steroids. Yeah, let’s talk about bubbles. Bubbles are a feature of capitalism, not a bug that throughout history has plenty of examples of great new Transformative technologies that get built with debt capital. There’s a lot of excitement, a lot of hype and the stock market valuations, they go up, they discount the future, but the future unfortunately doesn’t arrive the way that everybody thinks gets over capitalized and the new transformative technology turns into a commodity.

Happened with the railroads. There was a railroad infrastructure boom and bust. There was in the 20s, there was a lot of transformative technologies, radio, electricity. People forget electricity was a huge deal in the early 1900s and it was growing fast like weeds. And there was a character, Samuel Insol who was one of the, he controlled I think at one point a tremendous amount of electricity in the US and he built a holding companies all on leverage and debt and he built it out and then the demand didn’t show up. It showed up eventually, but not in time.

And the dot com, same thing everyone remembers the pet, stopcom and all the stupid companies that had no revenues, that was a sideshow. The real bubble was in the infrastructure build out in the telecom, broadband and companies like Lucent, Nortel, Cisco benefited from that spend. They became the darling stocks and they eventually imploded because a lot of the funding went to companies that were new telecoms that didn’t have any customers yet and they were funded via the junk bond market. The credit markets eventually called BS on that model. The credit market stopped funding and then Cisco and Nortel and Lucent started missing numbers.

So what do we got now? We got an AI build out that’s predicated on two companies, Anthropic and OpenAI that don’t have any profits. So all this infrastructure build out is predicated upon two characters that don’t have profits yet to create an roi return on investment, massive infrastructure build out. Same thing will happen, the credit markets will eventually revolt and then we’ll have a financial reset and I will be real and the real wealth will be created over the next five to 10 years out of the rubbles and the ashes of the investment bust. Timing of it is unclear.

The government knows this. The CapEx requirements are so big for this AI infrastructure build out that it’s competing with sovereign debt, the US and Japan and all such a sovereign debt. So there’s this, there’s chatter that there might be, try, there might be a government backstop at some point, you know, taking investments in these two companies and then you know, trying to come up with a fund to help them with capex. That’ll only delay it, it won’t, you know, this is a manipulation and it won’t hold there’s, there’s too much Capex, not enough profits and it’s, and it’s turning into a commodity.

China has these open AI models that are much cheaper and prices, prices will plummet just like it did on broadband. And this is, this is just, this is the cycle, the boom and bust cycle. And if it wasn’t for AI we’d already be in a GDP recession. This is, this is the whole shebang. And you know Walmart just reported numbers today. They reported the lowest, the slowest sales growth in six years. There was an issue on drugs but still it goes to show that the real economy is struggling mightily. The average person’s not doing well. Then we have private credit which is the new shadow banking system and the difference is at least subprime.

The collateral was a homogenous entity called the home. So people, even when things got bad people could buy these, these loans knowing that there at least there was some collateral backing it. Private credit is a hodgepodge of stuff and no one really knows what’s going on there and they mark their own books. So that’s currently frozen. That started having issues in the fourth quarter of last year with first brands in Tricolorado which I might note those were companies that were reliant upon the lower end consumer. That’s why they went bust. So the lower end consumer has been struggling and this feeds into the credit default cycle which eventually will catch up with AI.

So private credit was a big, was going to be a big, it’s a canary funder of AI and it’s currently frozen at the moment. So a lot of, and the spreads that they’re called credit default swaps, the spreads on the hyperscalers and Oracle and even Nvidia are starting to widen, meaning it’s getting more expensive to fund these and well they’re overpriced. Right. I mean the market caps are just soaring. It doesn’t make sense to have two, three years ago Apple was 2 trillion and now they’re over 4 trillion and Nvidia bypassed everybody and they’re over 5 trillion.

It just, it’s like really? Yeah, well look this isn’t. The valuations are at or above.com levels and when we put out our report last year warning about potential recession, we noted the stock market was overvalued. Then it’s got even more overvalued and even at the valuation levels Last year forward 10 year projections given the valuations from last year indicated that you would over 10 years earn 0% including dividends. In the stock market. So that implies a big drawdown at some point. That’s right. Which, look, if you don’t believe in cycles, you don’t understand how the world works.

There’s cycles in growth are dictated from above, from God, and as above, so below. You can’t avoid cycles. And we’ve been extending and pretending the Biden administration preventative recession by importing 20 million people and spending one and a half to $2 trillion of our government money bringing them in and setting them up. So that’s a headwind because we stopped that. But now we have the AI trying to fill the gap. And I just think that we’re getting to the end game here and a recession is unavoidable. We have a housing problem. The housing market is a disaster.

It’s dead. There’s no sales. The gap between homes for sale versus home sold has never been wider. There’s an affordability problem. 60% of the homes for sale are held by boomers. They’re trying to sell at a prices 20, 22 prices, but the millennials can’t afford it. 30% overvalued. So, you know, 20% of our economy is frozen and prices are starting to come down. So that’s, that’s another headwind. So we have housing AI bubble. And China, of course, is in. It’s a perfect, it’s a perfect storm. I’m sorry, Keep going. With China, you just keep nails, you know, nailing them.

Keep going. Yeah. So we put out some really, we think deep dives in China’s economy. We’ve looked at the numbers. We put out some research reports which are available@finance technologies.com with a pH. And China is in the acute phase of its crisis. Their net fixed investment growth went below 0 in the fourth quarter of last year. They did a little stimulus measure. It reversed it for like a couple months, and now it’s back down below zero. The construction market’s rolling over because the real estate crisis that began in 2021 is finally catching up to the overall economy.

So consumption in China is way down. They’re having a bad internal consumption problem. So their solution to that is to try to export their way out. And that’s why we’re having trade wars, because they’re trying to dump everything on the world markets. Japan is China’s largest trading partner in both imports and exports. So what happens in China is going to affect Asia, which will affect us. We have three huge risks. Housing market problems, AI, stock market problems, and now a capex funding issue. And then China. So all three, you’re kind of, they’re all conspiring to make the situation for global growth.

Not, not, not good. Well, let’s talk about the AI, the market cap. There’s the pure dollars going into this. The, the administration cleared the way for. It was like a wartime investment situation where they’re just clearing everyone all the obstacles away. It tells me they knew that if they didn’t do this there was going to be a recession. So they’re you like the Biden administration used the immigrants and the COVID funding and they’re using AI to get out of this recession. That’s or at least make an illusionary impression that we’re not in a recession. Well, there’s a recession going on for 80% of the consumers and their cash flows are under assault and that eventually feeds up to the whole banking system.

So it’s wobbling. They’re trying to paper it over with the AI growth. We’ll see what happens. But you can’t just paper it over with just the wealthy capitalists. Right. You can’t create an economy. No, no. Eventually, eventually the Joe Six Pack cash flows caused credit issues which spread and that’s what really shut down private credit. Private credit started to freeze in the fourth quarter of last year because of First Brands and Tricolor Auto which were both servicing the low end consumer. They went bankrupt and there was fraud. So that started people scrutinizing the private credit markets which were opaque and byzantine.

And now we’re finding out, the latest news is finding out that a lot of the private credit and private equity guys bought a lot of insurance companies have been stuffing their opaque crazy loans into these insurers. And the Guggenheim situation is basically Mark Walters. It’s discovered about $20 billion worth of loans were done with insurance money that he didn’t disclose. So now he’s in a regulatory margin call. That’s why he’s selling. The Lakers will probably have to sell the Dodgers and Chelsea. Although he made 2 million or he’s going to make what, 2. How much is he making with the Lakers? Because he’s going to make 20% with the Lakers.

That’s the number. Well, but he’s basically getting a regulatory margin call because he did not disclose. Here’s the analogy and I’m going to write a piece on my substack a doubt beyond the narrative on this either today or tomorrow to explain to people what’s going on. So basically it’s like you go to a trusted bank teller, he takes your money and he Makes side hustle loans and invests in things without your knowledge and without the regulator’s knowledge. Then he gets found out. So then he has to sell everything to return the money. That’s what’s going on.

The important point of all this is not so much that this guy got caught and he’s has a regulatory margin call. It’s now that the spotlight is on this game that people have been playing with insurance companies with their premiums and their life insurance policies and their annuities. They’ve been using private equity and private credit, been using insurance companies as a piggy bank. So there’s about a trillion dollars worth of insurance company assets that are controlled by private credit and private equity. So they’ve been stuffing their paper into these, into these loans making fees along the way.

And so this Guggenheim situation, I’m not saying these other characters have done what the Guggenheim guy did, but now there’s regulatory scrutiny. So it’s just more pausing of the credit markets. And credit markets need constant flow. When they stall or slow down, that creates ripple effects throughout the economy and daisy chain problems. Well, and I know the bankers are really JP Morgan, they went hard after the private credit industry. Just what, back in January they started blowing the whistle on it and that they were going to what, weed them out. Jamie Dimon said we’re going to weed them out like cockroaches.

Although he’s not the perfect guy either. But that’s what they talked about. One thing about Jamie Dimon, look, there’s a game that goes on in the credit world. As long as the credit’s flowing, it’s, it’s like, I call it, it’s like, it’s like the, you know, the, the, the series Dune. The Dune series, the spice must flow and credit. The credit must flow and when it pauses, there’s a credit cycle, then there’s defaults. Jamie Dimon looked at this and said early, this looks like a problem. So he’s pulling back and that slowly causes other people in the industry to stop or pause, which then causes losses to increase.

Because a lot of these companies, they just kick the can down the road and refinance bad loans. Yeah, well that’s. Now that’s. So we’re starting to get what’s called the credit cycle, credit default cycle happens at the end of a credit cycle that’s beginning. Pimco, which is one of the largest fixed income asset managers on the planet, their head, their CIO said that we’re in the beginnings of a credit default cycle and losses will be bigger than expected. So this is well known. Do you think it’s going to be worse than 2008? No, don’t. Don’t know yet.

It could be. We don’t like to be gloom and doomers. The good news, the good news is it’s not in the banking system. It’s in the insurance system. The bad news is it’s still going to cause a nasty slowdown in recession whether it goes systemic or not. We don’t know. The Federal Reserve mostly cares about the banks. So the banking system, while they have loaned a lot of money to these private credit and private equity guys, they are first in line should defaults happen so they won’t lose as much. Have you thought about whether your investments are making the highest returns they can, eliminating as much taxes as you can? I think all of us want that strategy, right? That’s the strategy that the wealthiest use.

And my friends at Ironhawk Financial are helping my listeners figure out a strategy to do exactly that. If you want the best returns on your portfolios, you want to eliminate as much taxes as you humanly possibly can, and you want to set up your grandkids, you want to set, set up your kids and you want to set up yourself for having the most amount you possibly can in your portfolios. I highly recommend you look at the strategies that my friends at Ironhawk Financial do for my listeners. Go to sw hawk.com and get information. They are professionals and they will help you understand what those strategies are.

So that you’re looking at portfolios that are making twice, three, four times more than what you would have and paying a lot less in taxes in the process. Who doesn’t want to do that? Go to sw hawk.com and learn about it today. They won’t let them fail. They’re too big to fail, as they said last time. So let’s talk about the young people because I think it’s the 80% of the market that’s being squeezed out that feel the recession. Young people are, with this AI boom, all this money going into it, they aren’t excited about it.

The only the excitement is with the wealthy and the capitalists that are investing in it. And people already have jobs. But these young people who are looking for jobs are pretty much feeling like the market, there’s no place for them in this country. And that there isn’t, you know, the future is, is shutting down. That’s a problem. Look, you know, the two heads of these companies, OpenAI and Anthropic, you know, five, six months ago, their rhetoric was the following. OpenAI and an Anthropic post said, we’re going to eliminate white collar jobs. There won’t be any in 12 months.

That’s not really a good sales pitch. The messaging is bad. Again, the messaging. And by the way, I don’t believe it. No, it’s not true. No, no. AI, like all tech cycles, get overhyped. And yes, there will be jobs lost over time, but not, not in 12 months. It’s not. I mean, AI can do a lot of things, but it’s not going to be able to. I mean, still hallucinates, by the way, when, when I say hallucinate, that’s a fancy term for saying AI gets it wrong. It just gets it wrong. And it’s buggy. Yeah. And look, there’s already been some case studies.

Pizza Hut. There were some Pizza Hut franchisees that sued Pizza Hut because they were forced to implement some inventory delivery system that ended up costing them a bunch of sales. Because it was wrong. Starbucks tried to automate its inventory through AI that ended up being wrong. So you can’t, you can’t. You know, humans are, you know, humans are still needed. AI is with an error rate of hallucination rate of 20 to 25%. That’s unacceptable. You can’t run a business on that. No, no, but the issue still lingers, right? The AI. Well, for young people it does.

And for young people, I mean, look, during commencement speeches this spring, there were a lot of speakers who talked about how great AI was and the audience booed them, the students booed them. I mean, so, you know, the students know what’s. Look, the young people aren’t stupid. And they’re looking at the adults in the room and they’re like, what are these guys talking about? And that’s what Trump. They’re excited to get rid of our opportunities. I mean, what. Exactly. And again, too few people are benefiting from this. I mean, data centers don’t create. I mean, there’s, there’s construction jobs when they build them, but there’s, you know, to run a data center, you don’t need like 2,000 employees.

It’s obnoxious what they’ve been doing. Yeah, yeah. And it requires tremendous amounts of power and electricity. Everyone’s electricity bills are going up. Mind you, there’s not even enough power to plug in all the projected capex into. Well, and it’s been, it’s an overbuild. Right. It’s a bubble. The state these days. Everything is off with this. Yeah. And It’ll burst. But so the chatter I was hearing today from my friend on Wall street is that there is going to. They’re going to attempt a backstop. So may, it may try to. They may levitate this thing through the midterms, but you know, the backstop is going to be wildly unpopular.

There’s not enough. And what I mean. What. The backstop? Yeah. Explain it what I mean by the backstop. They’ll take investments in OpenAI and the government will. Equity investments. You know, they’ll come up with some financing scheme, but it won’t. They’ll sell it as if the public will own these AI companies because the public, they’re built on the backs of the public and it’ll. That’s how they’re going to sell it. Well, yeah, and they’re going to try. Look, there’s precedents for this. Electric utilities. There was a tremendous amount of growth and there were, you know, people don’t remember this because it’s his ancient history, but you know, back when there were competing utilities, there would be like seven different power lines running down a street and you could choose one of seven utilities, but that was ridiculous.

So that’s why electric utilities have regulatory bodies now. And they’re a monopoly. But a regulated monopoly. I think AI, eventually they’re going to go for the model of regulated monopoly. That’s what they’re going to try. I just think that the. From my perspective, I like the idea of competing AIs because different AIs are going to have different flavors, different biases, different people coding what the AI is actually regurgitating. The analogy is not the same because again, running seven different power lines down the same street is inherently stupid. AI isn’t the same thing. You know, I have friends right now.

I don’t. I use AI minimally. Just it’s glorified search for me and research. Like I asked, you’re like, hey, what happened in the 20s? And it gives a good little history. So blah, blah, blah. The power users, and I know some, they’re already like, oh, Claude is becoming too expensive. I’m switching to Codex, which is OpenAI. Oh, Codex. The switching costs are zero and a lot of these people don’t need the frontier models to do what they’re doing. They can do it on deep sea or Chinese. So I’m a big believer competition is best. If they go to a regulated monopoly type of situation, it’ll be bad because it’s not the same kind of analogy as using the Chinese is not necessarily a good Idea.

Because a lot of this is your intellectual property. I mean, the people that I know that are developing financial, like my son, financial remittance systems using Claude, you know, to automate South America, you wouldn’t really want to have the Chinese systems doing it. Well, there’s. If you have a Chinese model on your own servers, not connected through the cloud or the Internet, that’s one thing. Right. Right now the problem with like Claude and Anthropic is there, you know, your data is even though Anthropic will say, oh, we don’t look at your corporate data, they do. They lied about that, your secrets.

And the CEO of Palantir said this, he said that enterprise customers that he talks to are furious because they’re paying a lot of money and they’re giving away their alpha, meaning their own internal secret sauce. Yes, exactly. So, so, but, so that’s why a lot of people are like, if I’m going to use AI, I’m going to host it on my own servers. It’s walled off and I can use my own proprietary. And whatever model you want to use, you use. That’s right. That’s the better way of looking at it because it’s too risky to do it any other way.

Right? Yeah. So we have Elon Musk talking about robots. I know he’s kind of a, he likes to rile people up and it’s. His stuff is about marketing and things, but I’m not so sure. Again, the messaging is kind of bad where he’s saying that robots are going to take over and they’re going to take over your jobs and you’re not going to have to work at all and there’s going to be universal income and ubi, what do you think of that? That’s freaking people out. So let’s, let’s talk about robots for a second and let’s talk about humans.

The energy requirement to keep a human going is so much smaller than it is for a robot. It’s not even comparable. Not to mention all the upkeep, costs of keeping the robot running. Parts, replacements, lubrication, the empowered necessary just to keep the thing charged. Humans are way more efficient on a, on an energy use consumption basis than robots. So the map, it sounds, it’s, it’s, it’s, it’s very futuristic and sounds very interesting. But humans are still the cheapest source, even in the cheapest source. Okay. But even for certain, well, for certain manufacturing positions, they’ve figured it out, right? Where they.

Oh yeah, they can automate. Look, the Japanese were using robots, you know, for years. But not, not, not humanoid robots. They don’t look like robots. They look like they’re just a single arm. So they don’t, they’re not, they’re not as much energy either because they’re very focused. They don’t look like humans. It’s just one little functional thing that looks right, right, right, right. They just do the same thing over and over again. And that’s where, that’s where, where robotics work. And that’s really, you know, what automation was before robots. I mean, that’s, you know, when we started building cars, you know, you had sock, you know, factory lines and you know, Henry Ford figured out an assembly line which is a form of a, a low tech robot, an assembly line.

You know, it’s just, it’s just optimizing functions. If we’re going to have like, you know, a, you know, 500 million robots running around the planet maybe, but that would, but that, that would require some, you know, free energy source. Free energy. The energy situation needs to change, which they are working on. I, you know, but now a human robot in military situations where a life is at risk might make sense. You know, some robot armies fighting robot armies. You know, we’ll, we’ll see. I mean, drone drones are, I’ve already changed the role of warfare. You don’t have to look like humans though.

Right. I mean, that’s the point. But, but drone warfare has really already changed. That’s what we’ve learned from the Ukraine, Russian war is. That’s right. It’s just, it’s changed warfare. And this is why we have problems in the Strait of Hormuz. We have these ginormous platforms. It’s platforms versus projectiles. Projectiles are a lot cheaper. And you can include a drone as a projectile, a delivery system of a projectile so that, so, you know, Iran, their navy and their air force has been wiped out. But not their projectile capability. They’re $8,000 drone that we’re taking out with a $20 million missile.

Yeah, yeah. So that’s the, it’s project, it’s, it’s the misunderstanding that we’ve all these project these, these ginormous platforms versus projectiles so that the nature of warfare has changed. And I guess we, I guess we didn’t figure that out. And that’s why we’re having the troubles in the straight order movies that we are having. Even though they’re, they’re army, Navy and air Force are gone, there’s still these, you know, drones that they can produce secretly in caverns somewhere. And so would you say the takeaway from this is a robot really doesn’t have to look like a human to be a robot.

And we need to rethink really what it is that we’re talking about. Yeah, well look, there’s just a. Look Elon, if you value Tesla on just his car sales, it’s way overpriced. So the multiple in the stock is high because of all of this futuristic talk about robots and this and that and self driving, which it still isn’t quite here yet. And you know, look, if you’re Elon, you do what Elon does. But if you’re like a realist, like myself, you just pause and you say I’m not worried about the robots anytime soon. I mean I’m just not.

I think that’s fair. Now let’s look at SpaceX. They pumped up their valuation and then people, it fell in half and so people took a bath. Yeah, well, look again. Elon was the first to move to ipo. I mean part of the, a big part of the valuation of SpaceX was the AI part of the business. And the models that the sell side came up with, I talk about this, they projected like a hundred billion of revenue like by 2030. And that implied that the open, the, the, the SpaceX AI portion had to double every seven months and so that, that you know, you get to double your revenue every seven months.

That’s a, that’s hard to do. Hard. It’s almost impossible if you’re. Well, well it, it OpenAI and anthropic early days had those numbers. Early days. You know as much as I do. When you’re tiny, it’s easy, when you’re big, it’s almost impossible. Yes, it’s hard. It’s a law of large numbers. Eventually growth slows. It always does. It always does. This is just the way it is. There’s never been a company, if you look at the nature of the stock market over the last 150 years, there’s always different leadership and different companies that are the ones that everyone thinks will be around forever.

Whatever happened to Xerox? It was one of the Nifty 50, you know, it’s Polaroid. That’s right. They’re all kind of. Even IBM is not the big wig that it used to be. IBM has become a consulting company, a ginormous consultant company and service. A company to service their old mainframes. Yeah, they’re just not. But now if you look at the size of These small companies, when you’re small, let’s say you’re a hundred thousand dollar company, you get one contract, you double in size. If even if you’re a $20 million company, you might have to get five contracts you double in size.

When you are a $300 billion business, you have to get thousands of contracts. That’s the reason why it’s, it just doesn’t work the same. It depends on the contracts, what that equals to. But that’s an illustration of the. It just isn’t the same. And the other thing that Elon did, it was smart on his part. He went first to the IPL market and again people say, oh, Elon ripped everybody off. Look, people paid for. His job is to raise as much capital as possible for his company. People gave him the money and then the valuation plummeted.

Isn’t that typical? 70% of all IPOs go down 50 plus percent after the IPO. Even Facebook did. IPOs are notoriously always overpriced. That doesn’t mean SpaceX is a bad company forever, just means it’s, it’s probably, you know, it’s gonna take a while for them. Yeah, it’s typical. I’m glad you’re saying that because I’ve said that. Well, they always are like this. No, this is worse than normal. I’m glad you’re saying 70. This isn’t any worse than 70% of the words. Yeah, and look, and look. You know, when I was at blackrock, one of the executives there, we, you know, they did a lot of closed end funds and he said, when the ducks are quacking, feed the ducks.

So if there’s demand for this capital, you give them what they want. Whether or not they end up making money, you don’t care because your job is to sell it. That’s Wall Street. Wall Street’s been doing this since Wall Street’s been around. Yeah, well, that’s why you have to make sure you know what you’re doing. You got to protect yourself because they sure the hell are not going to be protecting you. Oh no, that’s. Look, and Elon, from a game theory standpoint, he sucked a lot of the oxygen out of the room for OpenAI and anthropics.

And because of his IPO, the OpenAI IPO was delayed until next year. Huh. Interesting. Yeah, well, that’s probably not a bad thing. I think it gives people more of a chance to figure things out for the average consumer. When do you think that this recession that we’re in is it going to ever reach the consciousness of the media? Or is it that politicians have figured out that it’s so damaging to admit that we’re in a recession that they’ll do everything they can to paper it over and the only way the media will, will talk about a recession is if it actually shows up in the GDP numbers, which that’s, that’s suspect.

Or if the financial markets really have a problem. And I’m of the opinion if the stock market goes down 50% and then they say we’re in a recession, that’s when you want to buy because it’s over. I love that. Because they’re protecting their politicians. And it’s one big game, isn’t it? Look, during the great financial crisis people don’t realize this but 2007, the stock market was on fire until December of 2007. But I was at BlackRock and the credit guys were besides themselves losing their minds, the fixed income guys. So they’re, you know, and, and everyone’s in their own little silo.

So the, you know. But I, I used to be, I, I, I come from both sides of the equation. I was a fixed in fixed income before I went to business school. Then after business school I went to equities and I’ve always paid attention to the credit markets because they’re the smart money in equities that are the dumb money. And for all of 2007 the fixed income guys were beside themselves. They were bearish as all get out. That’s where we are now. This reminds me of 07 and the headlines were the housing market was still fine.

And then in 08, even after bear Stearns the subprimes contained Treasury Secretary Paulson was saying everything’s great. They did a stimulus package in the spring and then eventually everything fell apart into the election. And the longer you kick the can down the road and create the illusion and misprice these assets, the harder and quicker the fall. That’s right. So it’s hard to time it, isn’t it? But we just know it’s don’t short the market, just raise cash and sit on it and wait for the bargains. Warren Buffett, it’s 40% cash. He’s waiting for bargains. Do the same.

Be a mini Warren Buffet. Yeah, follow the smart money. So where can they follow you? Yeah, so my Firm’s website is financetechnologies.com where we sell our economic research with a pH. I have a new substack, a Dowd beyond the narrative where you can follow me there and become a subscriber paying subscriber if you want or for free. And the purpose of that sub stack is to try to like, talk about topics of the day in a very succinct way that most people can understand. I’m not going to shoot something in your inbox every day. It’s once or twice a week.

And it’s on topics where I kind of explain as simply as I can what’s going on in 800 to a thousand words. So I’m not going to blast you with a 13,000 word essay. So it’s more educational. And then you can I have a personal website@dao.com and then also I’m on xowdedward. Thank you so much for joining. It’s always a pleasure to have you here.
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