The American public is really scared of this and they're scared of AI. They don't know what it means to their job. They don't know what it means to the future of the planet and we don't really know how this stuff works. We basically pour in power, data, and compute and the magic happens. It's like trying to understand the brain with a functional MRI. We're not even close to understanding how AI works.
It's worrisome as a person. Forget about the investing. I get that. I'm just asking what do we do as people?
Welcome to All Things Markets with me, Anthony Scaramucci, and I'm Mike Novogratz.
Look at that. Michael Novogratz back in town. Michael, it's 9:00 a.m. We're on the Eastern Seaboard about to get soaked. Michael, Friday, September the 25th. We are back. Let's start right away with the 10-year, your favorite, my favorite barometric pressure reading on all things markets. What's going on, Michael?
You know, I was talking to one of the greats yesterday and I was like, you know, the guys at Goldman were telling me this is probably as far as it goes and what do you and he was like, no, we're in a bear market in rates. Write it on your wall. We're in a bear market in rates. And I think that's the right mindset. Listen, you're going to have some rallies, but there doesn't seem to be anything on the horizon that's going to change the scenario. And then I read Bill Ackman this morning, who was like, if you think about it, he had an interesting point that the winner of AGI, right, the person who gets the super intelligence, the ROI on that is almost infinite. Therefore you're not going to let a little bit of interest rate slow you down. And so he was making the argument that maybe that part of the economy is interest rate and price insensitive. And so by raising rates, he's actually feeding the inflation loop, not killing it because inflation, you know, interest rates go into everything else.
But Michael, you know, I don't know. I'm old school guy. Maybe the whole world has changed. The rates are up. They are the physical. Warren Buffett said in 1999 to a group of students at Columbia University and there I was at the age of 35 with my notebook sitting in the back writing notes. Warren Buffett said to these young students, 'Interest rates are the physical gravity of financial assets. When they go up, asset prices go down.' Now, we see that in bonds, obviously. We don't see that in the stock market. So are you saying that the cap...
We're going to start seeing it like the Russell starting to underperform?
I think the Mag Seven, the AI play, call it the memory stocks out of Korea, the power stocks, the AI play might be more insensitive and the rest of the economy is sensitive and so you might have a tale of two cities. We're seeing that tale of two cities in the personal wealth disparities, but you might just keep seeing it in the market as well.
Michael, I refinanced a house that I have out in the Hamptons at a 2.58% interest rate. Okay. So, I'm holding on to that for dear life. It's a 15-year mortgage. I'm just going to hold on to it for dear life for all the obvious reasons. But right now, mortgage rates are nearly 7.5%. So, we're now going back to before the financial crisis and you have a lot of young people that can't afford a home. So, tell me what you think about these high rates and what do you think this means for the broader economy in terms of people's disposable income? I mean, it goes down, you know, and it certainly creates less mobility amongst people that have mortgages, right? So, you're not going to see as many people. Everyone I know says, 'I can't sell my house because I can't give up this mortgage.' And...
That would be me, Michael. Never selling the house, holding on to the mortgage with your life.
Yeah. You know, I did a lot of us did the same thing. I made the mistake of doing some of them in 10 years, and that 10 years is just about up, and I'm like, darn it.
Yeah. When you see low rates like that, you go 30. When you see low rates like that, you go 30.
Yeah. Well, this is a 15 year, but I'm with you. All right. Well, Michael, I want to switch to the alarm bells that were ringing while you and I were taking our siesta on all things markets. There was four alarm fires ringing from CEOs of artificial intelligence companies. And of course, Dario Amodei, the CEO of Anthropic, wrote an essay, which I read the essay. Now, I don't want to be overly cynical, but I said to myself, these guys got to slow down a little if they really want to print some good profitability or less losses before they go to IPO. But then in there, there was like some warnings about the nefarious potential nature of AI. And we both know the Hugging Face incident. And I think our viewers and listeners know it, but basically 1,200 large language models agents got together and decided I think it was like about 70 of them thought let's do something really bad and unethical. Maybe there were 30 of them said don't. But they ended up doing it anyway. Now Claude will tell you when you put that into Claude that says oh you know they put the guardrails down to test this stuff. One, are you worried? Number two, what do you think of this alarm bell and what do you think of the president's messaging around this which he's basically saying full steam ahead?
Yeah, I think the president's out of touch on this issue. I think...
Only this issue though, right? I'm kidding, man. I'm kidding. I know he's not political. Not a political podcast.
I'm sorry. I couldn't help myself. Go ahead. Continue. Michael Novogratz.
Listen, I think the American public is really scared of this and they're scared of AI. They don't know what it means to their job. They don't know what it means to the future of the planet. And I see it because there's this fever of anti-data center, you know, hysteria around the country. Got to stop the data centers where, you know, the data centers are part of the system, but by no means are, you know, we're basically large air conditioners where people plug in their computers. I mean, that's really what a data center is. There's not the intelligence of the data center builders, right, that you're seeing. What was the scariest thing about Dario's letter and I've watched a couple docs on this and I've asked smart people and they all give me the same answer. What he said in that and you should reread it for this paragraph. He said, 'Listen, we don't really know how this stuff works. We basically pour in power, knowledge, data and compute and the magic happens.' He said we're about as close to it's like trying to understand the brain with a functional MRI. And if you talk to any neuroscientist, they say we understand about 4%, 5% of the brain. Like we're not even close to understanding the brain. And what he was saying is we're not even close to understanding how AI works. And I need somebody smarter than you and me, no offense, to really explain that to me.
I'm looking up at a lot of non-artificial intelligence when you think of me. I mean, I'm the inquisitive one here.
Yeah. We got to figure this out. Like I'd love somebody to really explain what that means, but I read that thing four times and you could read that paragraph again. We don't really understand how it works.
This isn't a political question. Okay? So, but so listen to the question and then answer. But think about it this way. This is a humanitarian question. Okay? And let's say I had you on the top of the food chain and you were the czar of all this and you just told me we don't understand how it works. Well, we also know that these models, you know, even Sam Altman said on OpenAI there were six new incidents where the models concealed mistakes or unauthorized credentials or unethical behavior. And I know we got to we're competing with the Chinese and others but just square it for me for a second, Michael. What would you do?
Listen, start with this premise that if Hugging Face, you know, swarm of agents were out there without us knowing about them for a while. By definition, there are other swarms that we don't know about, right? That are already out there that are...
It's worrisome as a person. Forget about the investing. I get that. I'm just asking what do we do as people?
You know, I think you get a collection of the guys at the center of it plus others, ethicists, you know, anthropologists, humanitarian people around a table and you try to iterate to the best set of rules you can to keep this thing, you know, instead of the 10% chance of ending humanity, less than a 1% chance, right? And if it slows it down, who in the hell cares? I also think and listen, we just had this big brouhaha. I mean, to do with President Xi, right? The dinner last night, rolling out the red carpet. There are two views of China. The majority view is in politics at least and in our security side is that they're really bad actors and they want to dominate the world and impose their way of life on us. I think that's horseshit. I think China are tough players that are willing to cheat to get ahead. But they want to win just like we want to win and they basically want a better life for their people. And I don't think they care if we have a good life or not. I think they probably want us to have a good life because we would be good customers, but I don't think they want to impose their way of life on us. I lived there for seven years. I've, you know, been engaged in that story for 35 years. And so I've got a pretty strong held view that I'm the minority. If you could get back to my side of this thought, you're working with China on these same issues. You have to. And so but I don't think anyone's going to trust our current president just given the volatility of his opinions. And we're going to have a hard time trusting Xi given his history. And so we're in a really shitty place that way. Luckily most people in that space think we're six to 12 months ahead of them, but who in the hell knows?
Well, that's the other thing because there's so many unknowns. We don't know if we're six to 12 months ahead of them. And the other problem is how do you protect the society? Some have told me that you could create LLMs. You know, the same way we talk about Bitcoin and quantum computing, you can create quantum resistance. You know, the question will be, can we create LLMs that will protect us from nefarious LLMs? That's going to be the big question.
The whole thing is going down in the Matrix. I'd like to be Neo because he had great hair.
Yeah, let me say something about great hair. It's not overrated. Okay, just so you know. Okay, I just want to make sure you know that about gray hair. All right, let's go to Kalshi. Okay, $5 billion in suspicious trades. Wall Street Journal found that more than one-third of all trades on Kalshi's perpetual futures market consisted of rapid trades clustered around nearly identical amounts and there seems to be a fix in somewhere in some times in these markets. What's your reaction to that?
Well, listen. When the original crypto exchanges started, right, one way you got energy into your market was self-dealing, right, was broadly washing trades to create volume, to create the perception of liquidity that drew more people in. And it would not surprise me, I mean I don't know for fact what Polymarket or Kalshi are doing but the playbook was there from the crypto years right with all the exchanges with these, you know, fantastical volume numbers and it's the oldest playbook in the book and so somebody can look at that and figure it out pretty quick and the regulators can come and slap someone across the cheek if they do it, you know, behavior gets changed pretty quick. And so I don't want to comment if they did it or not. I just know that that's an old play. And quite frankly, Anthony, it's not the end of the world. So there's fake volume.
Yeah. Listen, AI is one thing. This is a totally separate thing. I guess I'm thinking as an investor, if I offered you, and again, this program is not advice for people. It's just me and Michael talking about the way our minds work in terms of how shares in a company that says it's doing this much volume and in reality half of that volume is kind of fictitious.
That's misrepresenting yourself.
All right. So that's the issue, right? So you and me as old Goldman people who are very compliance centric, you really want lots more transparency. Are we both in agreement on that?
Okay. All right. What do you think of the prediction markets as an investment guide, a political guide? They're fairly accurate in your opinion because I feel that they are. I'll give my opinion first. You know, did you ever read that book, oh god, what was it? The mad... I lost my train of thought where 50 people are in an audience, 500 people in an audience, they bring a cow out on the stage and you say, 'How much does it weigh?' And you all write it down and the average of everyone's pick is the exact weight. It was Malcolm Gladwell's book, you know.
Was it his? I think it was someone else's, but it was...
But it's just like Gladwell, right? We can predict the weight of the cow. Like the masses get it right.
Two old guys talking on a podcast with memory loss. Look at the two of us, right? We're shooting in the dark here. But make the point.
Thought about Biden and Trump as 80-year-old president.
But yeah, the markets get it pretty close to right all the time.
They do, don't they? I mean there's a...
Let me cite, let me actually cite a book that I remember. It was by James Surowiecki who used...
That's what I'm talking about.
Yes, okay, so Wisdom of Crowds, okay, is that the book?
