Today's number: 13 million. That's how many views a video of RFK Jr. jumping into a pool with jeans on received last week. The bizarre clip was designed to encourage Americans to, quote, "get active," but it ultimately drove viewers to get therapy instead.
Welcome to Prof Markets. I'm Edson. It is February 25th. Let's check in on yesterday's market vitals.
The major indices all climbed as tech rallied out of Monday's sell-off. AMD led the way, climbing 9% after Meta signed a multi-year deal to buy their chips. Meta will also have the option to take a 10% stake in the chip maker. Over a period of time, Meta stock was actually flat on the news. Meanwhile, gold declined. And finally, Bitcoin fell below $63,000.
Okay, what else is happening?
A new Substack piece has sent software stocks into yet another free fall. An article entitled "The 2028 Global Intelligence Crisis," published by Citrini Research on Sunday, outlines a nightmare scenario, and that is: what if AI leads us into a financial crisis? The premise is simple. By 2028, AI displacement has caused unemployment to hit 10%. Spending plummets, the S&P slumps, and the economy becomes unrecognizable.
After this piece was released, the Dow fell as much as 2% and software stocks fell 5%. Okay, here to break down this article and the chaos that ensued, we are speaking with Josh Brown, CEO at Ritholtz and host of the Compound and Friends podcast. Josh, good to see you. I want to get your reaction to this Citrini Research blog post. This is like the second blog that's gone mega viral in three weeks related to AI, and now we're seeing just crazy selling in the markets. Do you agree with the market's reaction? Are you as worried as other investors seem to be?
Not really, but I love the piece. I think it's fascinating. We have people submitting their creative writing projects like it's college, and the market instantly starts repricing Mastercard and Visa by 10%. I think it's hilarious. I think it was very well written, and I appreciated that ability to try to think two years ahead and all the knock-on effects. The thing is, I've seen this before, and I'm not going to finish that sentence by saying I know how it turns out. I just know it turns out differently than every single negative piling on top of each other without an offset in sight. That is very rarely how these things end up. And so I think it's important for us to think through the issues that Citrini raises, but I think it's highly unnecessary for us to all conclude, oh yeah, it'll probably shake out just like this. Every possible terrible externality will occur all at once and it'll be game over for the economy. Like obviously that's not the way these things play out.
100% agree. It was so well written. It was so interesting. It carried through the whole narrative. It collected all of the details, all of the relevant details that we should be talking about. And then the part where it lost me was when the market decided to sell pretty much everything, or at least everything in software. Software was down 5%. You saw very big names falling. DoorDash fell as much as 6%.
Because this guy wrote that AI would essentially replace it. What do you make of the actual argument of the piece, which is essentially that AI is going to be so incredible, so productive, that actually it's going to destroy our economy in all of these unexpected ways? GDP will grow, there will be a lot of output, but the economy itself will be in a state of structural crisis.
This could only be written by someone who employs no people and has no customers and has never really been in business before. It's a Gen Z/Millennial think piece written by very bright people, of course, who don't understand that the frictions in the economy are not just like these annoying things with a friendly face. The relationships in a real world are not just like, oh, here's a friction, but we put a salesperson in front of it and therefore it'll persist forever. Because the thing that business owners understand is that—and I don't mean business owners like I run a hedge fund, I sit in front of a Bloomberg all day—I mean like people that actually run businesses where there is like face-to-face interaction. The thing that we all implicitly know is that every business effectively is a solution to a problem. Even like the most abstract example, because the examples that are right at my fingertips, a hospital is a business and it's solving the problem of people being sick and wanting to get better. Okay, that's easy. What is the Four Seasons? It's a solution to a problem. People want to be entertained, slash they want to travel to places, but they have the means and the standards that are high enough where a regular hotel won't do. So, like if you think of businesses as just solutions to problems, which is really all they are, then what this piece is saying is that we're going to run out of problems, right?
Come on. In 100,000 years of the evolution of human society, do we ever actually run out of problems to solve? So this idea that we're in a post-labor economy and people aren't going to have to work anymore because there's going to be nothing for them to do—like, are we losing our collective minds? There will always be problems to solve, and every wave of technology solves old problems and introduces new ones. And this idea that we'll be able to just turn everything over to agents who will solve problems on our behalf—okay, I'll buy that. A lot of what's going to happen is that great. And you think we're just going to sit in a room quietly and read a book? No. We'll be out creating new problems. Think about a lawyer. The fundamental constraint of a lawyer filing lawsuits is he doesn't have enough associates to do the paperwork. What if that constraint were removed and, utilizing agentic AI, he could file paperwork till his heart's content? Is he filing more or less lawsuits in that scenario?
Obviously more. And more lawsuits means more people defending themselves against lawsuits. And you see how this—I didn't come up with this concept, but it's a very important one. Someone said in 1955, the work will expand to fit the time available. Like the more time we have, the more work we will create for ourselves. And until you process that, you're not going to understand just how misguided these types of sci-fi writings really are.
Yeah. It seems to also say that this idea of friction, friction that we experience in our daily lives, is going to be just totally eliminated as a concept because of AI. Maybe we'll see it less in our daily lives, maybe a little bit, but even so, I mean, the friction is still being handled by someone, and it's just being handled by an AI now. So that's still a business that's still going to create value. That's still going to create a whole ecosystem and an economy around it.
And there were people who used to sit on an elevator all day and they would wear a uniform and a special cap. It was literally only the elevator guy could wear this cap. And he stood there and he pressed people's floors for them. He operated the elevator, or maybe this is before buttons and he used a lever. Is anyone like, "What happened to all the good elevator operator jobs?" There were trucks. There were trucks that drove around Brooklyn. They were knife-sharpening trucks. They had the same bells as like an ice cream truck, and they would roll slowly through a neighborhood. And all the women would come running out of their kitchens, aprons on, with an armful of knives that needed sharpening. And then the technology improved to the point where, hey, we don't actually need to sharpen knives. We throw them out and buy new ones. Of course, we're going to have disruption and entire categories of jobs being lost. The thing that people are worried about is that they all happen at once. The more realistic scenario is that this rolls industry through industry. And as each industry sees lots of jobs be disrupted, it creates new ones in their wake. And look, I think what most people end up realizing is that AI is a better complement to experienced workers than it is a replacement. Doesn't mean no one gets replaced. It means the people that don't get replaced utilize AI and do bigger business, and that leads to more job creation in other areas of the economy. It happens every time. It'll happen this time. It'll be uncomfortable in certain pockets. Nobody's delusional about that.
And the time frame is the question. It's like how many jobs will be replaced, displaced within a certain time frame? How many of them in that time frame? That's going to be the disruption. But the idea that this has structurally changed the entire fabric of the universe—that's where I start to get lost. I think a big piece of this, or at least something that is very interesting to me, is again the market's reaction to a blog that was posted on Substack by, as you call it, a think piece by a very smart person who wrote a very, very interesting and creative article, and it inspired incredible selling pressure, incredible value destruction, which to me says something about how investors are feeling right now and something that you have described.
You came up with this term HALO, which stands for heavy assets, low obsolescence, which is the new type of company that investors seem to like right now, which is companies that have nothing to do with AI. AI won't even touch it. So before we go, could you just describe this HALO term that's gotten pretty popular? The Wall Street Journal wrote an article about it. It's your term. Just describe what that means and how investors feel right now.
So, in early February, I was talking about the types of stocks that were on the 52-week high list. And what they all had in common was they have heavy assets on their balance sheets and they have low obsolescence risk. And it occurred to me that this was a reversal of the entire post-financial crisis period where we fetishized the opposite: asset-light businesses. We wanted companies with subscription revenue, ARR, very little cost of doing business, and almost no assets on their balance sheet. And now it's flipped. It's the reverse. You look at stocks like Anheuser-Busch, Coca-Cola, Pepsi. You cannot type "I want a Diet Coke" into a prompt and have somebody else create that product. It is not disruptible. Natural gas transmission lines, utilities, Caterpillar, Deere, most stocks that are related to heavy industry—in fact, completely HALO. And there were some really fascinating examples inside of one industry. You could say Expedia is highly disruptable by AI. You can plan trips, you can book flights, you can have an agent that scours these airline websites and finds the optimal trip for you, putting Expedia out of business. But within the same sector, there's Delta. Can you prompt yourself an airplane? Obviously not. So, this is a really interesting market. What this does, Ed, just to sum up, it throws out all these old paradigms that people think about in the stock market. It crushes the growth versus value thing that's now irrelevant. It gets rid of cyclical versus defensive. That's irrelevant too. It even breaks the tech versus non-tech idea because certain tech stocks like Apple are extremely HALO. You cannot get around the physical iPhone device, and ChatGPT is probably just going to become a plug-in to the iOS ecosystem. So, Apple is HALO while Adobe is not. So I think that's a really important prism through which to view the stock market, and I think that dynamic will remain important throughout the rest of the year.
Absolutely. Lots more that we could discuss. I mean, again, my takeaway: people are very confused and very anxious right now. All of the paradigms that they've been following are just being thrown out the window, and it's very confusing to see which ones actually work.
Get used to it. Well, get used to it. It's not supposed to be easy. If it were easy, everybody could do it. Get used to it.
That's exactly right, Josh Brown. Thanks very much for your time.
We'll be right back. And if you're enjoying the show so far, be sure to like and subscribe to the Prof Pod YouTube channel at the link below.
We're back with Prof Markets. Blue Owl Capital is at the center of a new panic over private credit. In recent weeks, investors have attempted to pull their money from the asset manager. Those requests are driven in part by concerns over the company's exposure to software borrowers. Now, following the increased demand for withdrawals, Blue Owl is shutting the gates on one of its private credit funds. Investors will no longer be able to ask to withdraw their money every quarter. Instead, the firm will sell assets and offer limited liquidity on a quarterly basis. Shares of Blue Owl plunged 10% on the news, and the sell-off rippled across other alternative asset managers as well. Ares, Apollo, and Blackstone fell more than 5%. So, what exactly is Blue Owl, and why is it preventing its investors from withdrawing cash? Here to help us answer these questions, we are speaking with Robert Armstrong, US financial commentator for the Financial Times. Rob, welcome back to Profit Markets. I want to get into Blue Owl with you. I keep on seeing this name in the news. I kind of know what they do, but not really. Can you just start off for us? What is Blue Owl? Why should we even care about them?
Blue Owl is a large, what would I call them? Fixed income investor. So they run assorted funds that manage credit investments on behalf of investors in various different ways. And they're a big player in the space. They've been around for a long time and they've made a lot of money. So they're a meaningful player, especially in private credit, which is of course kind of the asset du jour of the last couple of years.
So talk a little bit about how it is the asset du jour, because I think that's a big piece of the story here.
The reason why it probably matters to people is because private credit is suddenly a big deal, and it used to not be. It used to not be, and it's not so often that a new asset class kind of appears, right? The last, you know, private credit is now something that an institution, say, you know, a respectable institution, will have a private credit allocation in their portfolio, and that might not have been true three or four or five years ago. And you know, you have to go back 30 years before that when kind of junk bonds became this new asset class that people are getting into. And I think the magic of the asset class has two parts. One is that it is reputed to have fixed income-like returns, like the returns you might get from high-yield bonds, but with a little bump because you are lending to a special class of borrowers. These funds are lending to borrowers who, for one reason or another, would like to avoid public markets. Either they don't want, you know, they want a bilateral relationship with their lender, or their business is such that it's hard for larger markets to understand, or their cash flows are uneven, or for whatever reason they don't want to be buffeted by the daily grind of the high-yield bond market. So they do a bilateral deal with a lender who charges them a little bit more. So let's say you are getting 8% on your high-yield bond part of your portfolio as an institution. Maybe the private credit guy offers you 10. Let's say, I'm just kind of picking those up. But you got a little edge there. And that is called reaping an illiquidity premium, right? You're not in the bond market. You can trade in and out all the time. You go to private credit. In theory, you get a couple more percentage points of yield, but you're like locked into this fund for five years. And everybody likes this extra yield. Everybody loves it. So, what we have here is this massively growing asset class that is interesting to a lot of people for various reasons. One of them being they might not want to go to the public markets.
