Climbing the AI Bubble Wall of Worry

[0:00] Friday afternoon. Let's get to it. Uh going to go through this relatively uh as fast as I can. I'll probably speed through a lot of the charts just because I have quite a bit. I'll let you guys read through the agenda here. Uh but let's just say a lot going on still. Uh the disclosure we go through every week. Uh especially theformational educational side. I'm going to emphasize that a lot today. First of all, thank you to everyone. I've now been to uh a bunch of
[0:32] events the last three weeks, another one this week. Uh for everyone who's been stopping me on the street, and for the people I saw at the event, uh thank you. Uh it's been a good time getting to know everyone. And uh I'm glad you're getting a lot on the educational side and you're finding ways to uh get the most out of it. And for those of you since I know I don't do this all the time and maybe you've never seen the research, um the whole goal of the video is that and especially as I take you through this
[1:02] one, uh we are in an exponential time and we've been in this for a long time. Uh I'm going to take you guys through a little bit of something I've referenced verbally, but I've never shown you some details on it. But this journey for me as a macro person began in 2012 2013 when I stopped traveling to China and I started to realize that we had already hit an inflection point where the digital economy was getting too big. It was growing too fast and the only way to make money or the easiest way to make money uh which is what I'm always trying
[1:32] to do was to jump in the macro lane that is flowing the fastest. Uh it's a lot easier to make money when you identify a macro theme that is playing out for the long term and the exponential race is happening. Luckily, the majority of people that have the money in the world, their biggest fear is losing it. So they are worried consistently about bubbles and recessions and depressions and everything along those lines. Which is why I keep showing you barely 2% of people uh do anything in AI above the
[2:03] age of 50. even smaller amounts use it for coding or building which means they have absolutely no knowledge of the power of AI or what it's doing and what the future will look like and so they spend their time telling you how bad things are going to be. So the first thing that you get from the video is facts not stories about what's going to happen in the future. Um, I don't believe in most of the things that are talked about, but I went to Silicon Valley for a reason, which was to see how fast things were going to be moving
[2:34] and make sure I didn't fade that. Amazon didn't make sense to me in 2012. It did when I left there because I started to understand Moore's law at a much much more important pace and how long this had been going on. But it was really the inflection point that happened after the iPhone uh where the digital economy started to accelerate and it continues to accelerate and it will continue to go and go. It's why I say I don't believe any company that has lots of people meaning public stocks will be growing in 5 years. None of them I don't believe in
[3:04] that. Um it probably will happen. I'll probably be wrong but I just want to make sure that you guys go along for the ride and understand what that means. the alpha side. Um I want to highlight today how concentrated the alpha has been not only since 2007 obviously the mag 7 have dominated but you wanted to be long the digital economy short anything that had survived in the old economy because of debt. So when rates go higher we should have bad breath and if you listen to people say this is a this means the economy is going to fall off the map it
[3:35] did when the entire fiat system was based on credit but that is not the case anymore. or the debt is held by the governments. So, I'm going to go through what has been alpha. This week, I will do a video for the subscribers on the portfolio. I'll kind of pick out the names that I think are going to benefit the most from the agentic side along with the ones that have the best technical side there. The agency side, which is where people have been the most um I would say uh pleasant to to hear from. uh not only for them the agency side again is to teach you guys
[4:07] uh give you tools give you prompts make sure that from an AI side you're gaining empowerment for those of you that have followed the same role that I've done with my own son where your kids have become empowered by giving him the stuff that I do having them watch this video but also giving them the tools the prompts having them build them on your own it's just a way to build a stack um as I like to say but also to avoid having to work in a big organization that will continually be looking to cap pay and use agents. So the agency side
[4:38] has been important. Again, for those of you who have not subscribed or are interested, reach out to Mark Whailing. There's his address. You can go out and see him. So this week, signal verse the noise. How to navigate this. It starts with one of the wealthiest hedge fund managers, ex hedge fund managers. Ray Dalio says we're nearing a point where AI bubble may burst. Key word there is may burst. Um he warned that artificial intelligence is a classic bubble that is nearing a bursting point thanks to rising interest rates and the need to turn wealth into cash blah blah blah. Um
[5:11] he happens to say this the same week. Will bonds blow up? I'll take both of those as uh possible reversal signs in bonds but certainly in the thing sensitive to rates at this point. Uh, how many times has Ray Dalio called for a bubble over the course of since 2020? Um, a lot. And from 2012 to 2019, a lot. There are three different kinds of bubbles at least that myself and chatbt
[5:43] can come up with. A speculative bubble like the.com bubble where things were trading at 100 PE like Cisco. Obviously with Nvidia trading at 15, we don't have that. a capacity bubble where we're building way too much supply before demand. And again, I'm going to say this again and again. I was at a dinner this week and I I made this point and I will keep saying it. Historically, during the fiat bubbles, the demand was from humans. Humans bought houses.
[6:14] Humans were the ones building the companies for the.com, for all the apps that we were eventually going to use. But humans were the demand side. The supply side was also humans. Now what we have is something different. The demand side is coming from agents. And right now there's thousands of them. There will be billions next year. There will be trillions. There will be as many agents working five times the amount of time as humans. So we will be in a deficit verse supply. So no matter what people tell you about the story they give you, everything shows that right now demand
[6:46] is greater than supply. We can also have a credit bubble like the housing market and that's where everyone tries to go with the mag seven and all of this stuff. But again, if they're borrowing money and a lot of the debt that's being taken, not the corporate bond ones that are part of the cap structure, but a lot of the things that are being done, they're assetbacked. Um, and asset back means it's against compute. So, as long as compute prices are going up, it doesn't matter. [sighs] The question for AI is supply getting ahead of demand. And again, I
[7:16] I'm just going to say over and over again that right now, we don't have any of that showing up. Demand is still greater than supply. Now, what I did do is work with AI, give all of my data, all of the things that I use in these slides, basically a jordy brain, and I just put all the information and said, "Okay, you go through all the data of the stuff I provide on a weekly basis, and let's put a score in. You do it on your own. I don't want to be involved. You just tell me where the risks lie." Demand strong, the physical side,
[7:49] compute still scarce. The capital side is on watch lists. So there you go. And that makes perfect sense. We are coming to the market with tremendous amounts of needs for capital. It is definitely putting pressure on bond yields which is moving things up. But again, that shouldn't be too much of a surprise. So it's on the watch side in terms of going through it and it bears watching. I don't have a problem with that. Uh evaluation side, there's no way you can tell me that there's a valuation problem with the PEG ratio there. Ray Dalio has
[8:20] an endgame bias, as almost everyone you will see on the videos that I provide here, uh that basically are perma bears. I just there's no other way around it. Most of them are selling something. Uh the reality is they already have an endgame and they're waiting for signs in the market to start raising their voice. We saw that this week when we got OpenAI stuff, which I'll talk about. I do believe there's a bubble and again I'm going to say it again and again and again. The digital economy is where the future is. It's what you want to be long. The short side is everything that
[8:51] needs rates to be at zero. There is a bubble in companies that would have been gone a long time ago around the globe if it wasn't for the fact that rates kept them in business. That's it. That's the bubble we have. That's why 400 stocks go down and 100 go higher because there's way too many of these old economy stocks that can't survive without rates being low. That's what's happened. So rather than call the digital economy a bubble, the bubble is this other side. The
[9:22] difference is most of them have termed out their their debt way out. There's an excess of liquidity out there. There's no problem. The major borrowers in the world are the biggest equity companies in the world and their equities are making all-time highs. Here's a view of it. Jason Ferman put this out. I think this was a good thing. Now, most people would say this is a bubble. I would say this is long AI short the rest of the world. These are all things that depend on
[9:52] rates in some way. They depend on oil prices not going up. whatever the case is. But the economy is fine and AI is good. Consumer spending is good. The Johnson red book is still humming along. Everything's fine. Here is the Morgan Stanley leveraged uh index or leverage factor, the white line overlaid with the S&P. It's going down while the S&P is sitting at highs. Now, you could sit there and say that this means that this is going to fall down. I would say that what's happening is rates go higher and it becomes an
[10:24] issue for these things. Now, we'll see what happens when rates start going down again. But because this is a different scenario than here where we were taking the Fed funds rate up and coming out of the biggest ridiculous bull market, out of COVID where we just printed tons of money, this made sense. This also makes sense to me. AI is accelerating. AI didn't exist here. AI started here. This is when chatpt was launched in this part in here. So this
[10:54] Morgan Stanley leverage thing is fine. Here is the triple C's relative to the high yield. So the weaker part of the credit is weakening, but the tripleB's are not. And again, the reason they're not is because we're getting rid of the weak, which we should be. Here's that Morgan Stanley levered ratio index. Here's the hyperscalers. Like I said, when the hyperscalers fall at the same time as this, I'll be worried. Getting back to the breath. 18% of
[11:25] utility stocks above their 200 day moving average. 18 uh 33% of staples above the 200 day moving average. Household durables only 30% above. Autos only 12% above. Again, all interest rate sensitive areas. This makes perfect sense. But these are not important to the economy anymore. Technology 73%. Financials 74%. So here is um for all the same people that are telling you that uh there's a
[11:57] depression or a recession or bubble or whatever just remember that these were the same people saying you should be long Europe at the beginning overweight Europe Europe relative to the US which I'll say as Europe relative this is the AI trade or the exponential innovation trade in reverse the reason I started this in July 1st of 2007 is because that is when the iPhone was released And that is when everything changed in the world. I went to Silicon Valley here to change
[12:27] my mindset. I didn't want to be worried about things the way I did before. And I wanted to understand why Amazon could trade at infinity PE for such a long time. You get you have a fall once, you think it's a bubble, it should unwind, then a second time. It didn't make any sense to me. So I went out Silicon Valley. I am not a person that sits there and continues to do the insanity trade of thinking the same thing is going to happen over and over again and never admitting when I'm wrong. There is a way to make money and I'd rather understand what's happening. So that's why Europe underperforms the US because
[12:58] the US is 56% technology. IWM verse Q exact same trade. So again when you're playing the broadening out trade you're playing something which doesn't exist anymore except for brief periods of time where you get small cap. So, we all basically tried to win by playing this and it didn't work. Now, in terms of the bubble, I will just say what do people want? We had a almost 40% correction during COVID. Came back to the new
[13:28] all-time highs quickly. We had an almost 30% fall in 2022. We had a 20% fall in the tariff. What's a bubble? Is it have to last for, you know, like we did in the do post.com bubble and post GFC? Again, when did the iPhone come out? I hate to tell you guys, but it came out in here. I don't think these exist anymore, but I think corrections exist. In fact, this period here, there's been quite a few of them relative to this period in here when the internet came out. So,
[13:59] to give you an idea how big the 2022 was, meaning that was really a bubble unwind right there. the longest periods without a new all-time high. So from December of 1969, these are the four longest times that it took, which to me would be the definition of an unwind of a bubble. 73, we didn't get back for seven years. 2000, we didn't get back until right around the iPhone. Then 2007, we fell. We didn't get back till 2013. In 2022,
[14:30] it took us only 500 days, but that was the fourth longest period between all-time highs. So again, you can sit there and say that something else is going to happen, but then you go to the facts. If we really had a bubble because of debt, because of all of the things that have gone on, a pandemic couldn't take us down. The fastest rate hike uh since the 1980s couldn't take us down. The largest bank run in history in the fastest amount of time couldn't take us down. The tariffs couldn't take us down.
[15:00] The 200 everything's going to $200 oil straight of Hormuz. At some point, you have to admit there's no bubble burst. So why are you listening? What's going to happen now that's different than this? What what what worse thing is going to happen? Will there be corrections of 20 to 30%? Yes, there will be. Is there one right now? No. Here's the math in case you guys have never seen this. So this is from Ray Kurszswwell and this again is when I went to Singularity University in
[15:30] Silicon Valley. This is what he put out back around whatever it was 2000. So this is the whole thing about the speed of computing and where we should be based on this exponential curve. And look what's right here. One human brain basically where we where we are with AI in 2021. ASI all human brains by 2050. Basically, everything has happened
[16:00] because of math. And that's what I needed to hear is that this is just the compounding of Moore's law. That's what this is. We are at the inflection point right now. A year ago, nobody thought we'd have AI agents, including Andre Karpathy famously during the Darkh interview said, "It's not going to happen for a decade." I was going to post some of these in here, but I have too many slides. Everyone underestimates the power of AI. If you choose to be bearish, if you choose to say AI is a bubble, you are
[16:32] entering a world right now where the innovation next year will be equivalent to like a decade. And the S&P 500 to me at the end of the day is an innovation index. The more we have productivity gains, the faster they happen, the more the profit margins grow. That's what we've seen since the iPhone. That's exactly what we've seen as productivity gains as we had the iPhone. We got into an argument about OpenAI, whether they solve one math problem. Well, now since then, hundreds more math
[17:02] results. But that doesn't get the news. This silly thing does. Are people just out of their mind? And they print this stuff and they go through it. This is like everyone keeps looking for some negative news story to just make it none of this made any sense to me. I was coming out of a podcast. I didn't even know what people were talking about when they're sending me stuff. I just knew to say this is ridiculous. I have always in my head had 70 billion in annualized revenue for OpenAI at the end of this year and a hundredish
[17:34] philanthropic. So I don't know what everyone is doing. They're just looking for some story. Here's Aaron Levy. I think this puts it best. I'm going to read the entire thing. The compute needed for the stage of AI we're about to enter is going to be insane. Personal agents, agent swarms defending enterprises, agents that review all of our code for security issues, agents that process nearly all enterprise data and workflows, background agents working on task 247 and on and on. This will take a mix of inference volume. We're only in the early stages of what this
[18:05] buildout is going to look like. And again, this is in response to how much hardware is needed for Muse to be able to serve a 100 million users. Forget the three billion that they have. If you don't pay attention to how much compute is needed and you don't think of it as this is oil, if you look at an oil consumption chart, it continues to go higher. And the only reason we're able to keep supply and
[18:36] demand in check is because we've been able to have humans keep up with human demand. If you ask anyone on the oil side, how does oil grow? It grows with nominal GDP. Well, how does nominal GDP grow? Agents are not nominal GDP. They are growing at faster than rabbits and cockroaches. You are having billions of them. They need to eat tokens. How can you not understand that there isn't enough tokens for them? Oh, there'll be
[19:06] efficiency gains. I heard that one last night. I'm telling you, these it's all hocus pocus. Can it happen? No, it can't. You can't have efficiency needs to solve the problems today. And why would you listen to someone who's writing, who's bearish all the time, and doubt the people that have been the most successful in technology, that see all of the real- time data, that are spending all the money. Why are you listening to people who don't use AI, the companies who do use it, who are
[19:38] making money off it, how come you're not listening to them and believing this? When the housing market was blowing up, that made sense to doubt that. That was ridiculous. the people that were buying them didn't have the money to buy them. Right now, what's happening is agents are consuming the compute, not humans, agents. This is from the instinct AI person. Just to remind you again, the amount of compute that is going to be needed is going to honest be honestly orders of magnitude more than what we thought we
[20:08] needed. The physical infrastructure challenge becomes critical. Software adoption can compound extremely quickly. This is something I showed last week again for those of you who watch this and are still worried about the bearishness. Just go back always and look at this chart. This is where we are. We don't have enough tokens for what's coming. We barely consumed any tokens now. We have data center delays. There's no way that we will have enough compute.
[20:38] Cloudfare forecasts AI bots overtaking web traffic by 2027. And again, this is what he expected. This was from March of 26. And then he had to say it's already happened. The agents are already here. You want to be trading alpha. You want to be long agent trades. Most of that is compute. Most of that is my 100 index as I'll show you in a little bit. Paul Graham emphasized something. So when everyone talks about Meta and calls me
[21:08] up and says, "Is that to trade for agents?" No. No. No. Compute. do not play the game of trying to figure out who's going to win the personal agent game. Amazon is making it difficult for Muse. Why are they doing that? Well, they don't want them to get too far ahead of their agent. They have Alexa. Then you've got Apple with Siri. You've got Google. They're all competing on this. They're all playing for the same TAM. I just don't see this as being the game because that means there's going to be extreme competition. I don't know how these guys are going to make money off
[21:38] of it. I talked about PO with Pomp on on this this week. I just don't know how you're going to. Uh, everyone else can try to figure it out. Uh, Henry McVey, uh, who I haven't referenced in a while. Uh, someone who I would sit down with usually about once a year. We used to be on a call together all ex Morgan Stanley guys. Very smart and he kind of controls the balance sheet or at least he did at KKR. Well, whenever he puts a piece out, I go through it. Thoughts from the road. He just came back from Europe and Asia.
[22:08] More importantly, I now think that the global investment cycle is broader, more durable, and probably more inflationary than even I had appreciated. Don't take the inflationary thing is there. He didn't think inflation was going to be at this level. Now he's saying things are going to stay there. The conundrum, corporate profits are rising rapidly while labor's not. This will become more of a story as time goes on. I think it is a major story for next year. I do think the job situation is going to be the thing that again applies pressure at some point soon uh to the bond market,
[22:38] but we'll get into that in in a future time. Uh he basically went through the places that are strong and what's going on and he did say that Europe is stronger than he expected. Asia is strong. This is important when you go through but it's the breath of things. It's not just about AI. He talked about what is happening. This is happening for uh defense. This is happening for fixed in infrastructure. So he's basically saying earnings are strong enough to overcome higher interest rates focused on the relationship between higher nominal GDP and EPS and nominal interest
[23:10] rates. Don't just look at nominal interest rates in isolation. Thank you, Henry. Um I this went around and I got asked about this. Uh these things are so dumb. I mean literally and I wrote a paper about it because this particular thing in going through the article of how they do this math to try and come up if you're sitting there trying to calculate the math on what is needed in revenues. I I literally it's it's like people
[23:40] don't they've lived in a linear world. They were taught in school that you can do this not in an exponential world not in something that hits so many places of efficiency. So I went through it and you guys can go read it on your own. The math is right. The future is completely wrong. And I go through it. One of the things that's most important about it. How can you read a paper and quote a paper that was written six months ago? Six months ago, we didn't have personal agents. We barely had coding agents. We
[24:10] barely had adoption. All right. The alpha side. These are the two places you're going to make money from this point going forward. We had the first phase to make money was Nvidia. That was the brain side. So that's where you had your Vistra, that's where you had the turbines, you had all this stuff because we had to build some data centers and we needed to start ordering compute because we needed the IQ to go higher to get to the Agentic side. Well, we got to Opus 4.5 in November. And guess what Micron did? We needed more memory. And I watched the
[24:41] thing go from 100 to 200 over the course of seven months. And then over the course of the next five months, it went from 200 to,400. Everyone missed the memory trade. everyone will miss these two. Again, this is not going to be as big in my opinion, but there's certain components that I think will get you three and four baggers. Um, but this is where obviously on the crypto side where I think everyone should be doing their homework. For those of you who work at hedge funds and mutual funds, I understand you don't want to do homework on this. For you that are sitting at
[25:11] home that are trying to make money, do your homework on the stuff I'm giving you. I am providing you with a ton of research. I the crypto video will go out probably Monday for the next installment. Take the prompts, take the research. I'm teaching you guys how to do this. I'm trying to actually do a demo, complete demo of some of the systems to use. You have to understand the crypto side. That is where in my opinion the big money will be made because the financial guardrails have not been used. The compute side we're building and it's already been
[25:41] discounted by hedge fund people and by mutual fund people. They're not going to buy the crypto side until they have to. Trust me, it will not be there until they have to. If you want to be early to this, that's the only way to go through it. Now, SPW, equal weight S&P verse cap weighted S&P, this is when chatpt came out. This is the relationship between those. So, equal weight S&P to S&P versus credit spreads. This is when the
[26:12] world changed. So, I'm going to keep saying this that if you don't start knowing what changed at this point where AI came in, if we didn't have AI or, you know, we didn't have some sense of where we were going progress-wise, I think we might be having an issue in credit as well. But we don't. So, I highlighted this week on a post if you guys didn't see it because this is the bare market, meaning equal weight S&P, whether that was when uh Apple destroyed Garmin and
[26:46] destroyed all of these companies, camera companies, everything. So, think about Apple destroying companies, then Amazon destroyed every mall. Then you had Google destroyed all the newspapers and all of the ads. Then you had Netflix come in and destroy. Think about how technology during this period has destroyed so many established legacy businesses. Now, they're still around, but they're not things you want to invest in. But what you do want to use them for, whenever equal weight is oversold and you get a MACD buy signal, which happened this week. So, when it gets oversold, that means guess what's
[27:17] happening? Everyone's telling you breath is bad. No, breath is great. Breath is like a high VIX. When breath is bad during the innovation digital economy, that means all of the zombie companies that grow 2 to 3% a year in revenue are oversold. And all it takes is a reversal for a second. So on the day that open AAI fell or everyone's panicked, go look at what Equal Weight did. It was up because the hedge funds had to reduce their shorts on one side and pick up on the other side. Here is what happens
[27:48] when you get a MACD buy signal on SPW. since 200 I don't whatever that was 2007 since the iPhone 22 out of 22 6 months later 100% is pretty good 3 months 91 12 months 90 those are pretty good numbers those are usually good buy signals it's oversold here has what has worked so far this year the S&P is up 14% energy and tech are the only two sectors outperforming
[28:18] the index meaning if you own anything else in here you're losing money relative to the index. So, it's been a very tight alpha year. Here's what you want to see from 21 to 26. What are these again? Here's energy again. Here's the industrial trade. This is your AI trade right here. And guess what? Those are basically except for media and entertainment, which includes Netflix and Google. Let's leave them alone. They're about market performers. If you wanted to outperform the market, you had to have the AI trade on since 2021.
[28:49] Makes sense. That was chat GBT. So in the last five years semi tech energy or this hardware energy and capital goods all the physical economy stuff that's the only way to make alpha. So oh sorry since 2016 10 years nothing's changed. The only thing that changes software is in there for the 10-year trade. It's not in there anymore. It's come down a lot. If you would have looked at this probably two years ago this would have been number one. Basically what's happening is you
[29:21] only have two things to make money on right now effectively outperforming the index which is the semis and the tech side. Now I wanted to show the problem with this from an alpha perspective. So what I did was I took my agentic AI trade. I took all of the ones that are in the S&P 1500. Now, the ones that are not, for the most part, are overseas, but 59 of them are in there. 71% of my names in
[29:53] the basket have outperform the S&P 1500 since the launch of ChateBT in November of 2022. So, if you buy mine, any of them, shoot darts, 71% over that time period. The S&P universe only 24%. This is the problem. Now when you go through this and you look at the average returns, you also get the massive dispersion. So the median of the winners, so if you're taking the 24%, the average winner in each of these sectors is a big number, especially in technology,
[30:24] especially in financials. The median winner, again, big numbers, but when you get to financials, now all of a sudden it's a little bit lower. But regardless, still good. I'm I'm winning in in both of these. So the names that I selected have benefited. Uh, and this is the stuff that I think still will. This is the compute trade. This was all built for the agentic AI. The losers, the lagards. Look at the spread between the winner median, the winner average. These are massive numbers. So from an alpha perspective, again, very difficult to do
[30:56] if you're running name by name. If you're running 40 by 40, you're going against it. This means that the alpha for the most part except for picking the agentic AI is the agentic AI versus basically short a lot of names. I just want to remind you that all I'm trying to do is flow with this river. I don't this is why when I went to Silicon Valley I was like oh my gosh. So you can't not only do you have to understand and again look at the exponential speed of this same thing with profit margins.
[31:26] The economy has changed, which again is why I showed this before this week. I did put out there the bank apocalypse because Bloomberg decided to take my video, not even ask me a question, and just tell me what I was saying. So, first of all, I love creating the name bank apocalypse, which is just stealing it from the SAS apocalypse. But SAS has not gone to zero. I'm not saying banks are going to collapse. I'm not saying I am bearish on banks from the perspective of go out and short them. What I am saying
[31:57] is I think banks are going to go through the exact same thing at some point over the next nine months. And I say nine months because I think the consumer agent side will start to impact things next year. Not this year. It might this year, but it's going to take a while. And I think when Siri and all these are coming, I think that's when you're going to start to see the changes that happen. And all it takes is a flinch in revenues and then everyone starts going, "Oh my gosh." So what I did was I wanted to really go through that one company
[32:27] explains why I believe in this. And this is Stripe. Now for those of you who don't read my Substack, June 30th, 2020 uh six, Stripe sessions and the coming agentic commerce economy. You can go read my papers. My papers have always been ahead of what's happened in AI because that's what I do for a living. I spend all of my time using it and all of my time listening to podcasts with the smartest people in the world on seeing it. Stripe is one of those because they do what's called Stripe sessions in the first quarter of every year. It is a
[32:58] phenomenal thing. All of the videos are on YouTube multiple days. It's a conference they have. I've never met a person never. Now again, I don't meet everyone, but in the industry of Wall Street, I've never met a person that's watched it. To me, it's one of the most important things. And for the banking system, it is absolutely important. So, machine payments and the protocols behind Agentic Commerce. Again, this is from 5 months ago. AI agents are already economic actors. Go watch that one.
[33:28] Strife builds out the economic infrastructure for AI with 288 launches. launches wallets for agents powered by link and support for AI native businesses. In this letter they put out in February, they go through what's going on. Again, this stuff is heavily worth it, but they acquired Privy for wallets, metronome. They've been doing deals all for the last two years. They bought bridge for stable coins with Privy. Companies like ramp and Dell have a single API to
[33:59] provision easytouse wallets. If you don't think this is coming as agents start to rise, they have built the infrastructure. Again, this is why the crypto side fits in with this five levels of agentic commerce. All you have to do is go read what they put out there. They just acquired Open Router. That's probably a company you've heard of. That is the thing to optimize token routing and usage. Why would Stripe care about that? Because AI and crypto are connected, especially for the company
[34:30] which controls the banking system for startups, all AI native businesses. My business is on Stripe. Here's a letter of why they bought Open Router. So, as you go through this, January 1st marked the beginning of the singularity. It became evident to us that building economic infrastructure for the internet is mostly the same thing as building the economic infrastructure for AI. AI's rise in the economy is yielding new
[35:00] challenges such as new kinds of theft and fraud which require sophisticated advances to be effectively mitigated. I've said this before. I showed it to you last week. The biggest problem in the system is the Swift system is too old. It is too easy to hack. Your money is just sitting out there like a sitting duck. It needs to be settled in transactions instantly. We need same day settlement. We need second settlement. I wired money from my bank account to Robin Hood. It
[35:30] took 5 days. I moved money from Robin Hood to Coinbase. It took 5 seconds. This cannot exist this way. And that's what will change. Existing businesses are adapting their business models. They're doing metered billing. Everything is going to be in ten of a penny, ten of this. Think of API touches with again agents. So they got open router because everything is changing and everything is going to be done on a basis of the most efficient side. So everyone believes that companies are going to spend less money
[36:01] through tokens. That is their bare case. But when it comes to crypto and me saying the same thing's going to happen with agents in crypto, they go no it's not. Mastercard and Visa is the only place this is going to work. So again, there's this denial factor of not accepting that you can't have it both ways. But that just again for the people who want to focus on crypto as many of you do, this creates the opportunity because at the end of the day, the only thing that will make crypto go higher has nothing to do with fundamentals. It has to be fundamentals plus the money
[36:32] flowing over from other people on the investment side. That will happen. uh all of these things with financial capital businesses must reason about cost and the return of every unit in a deliberate and granular way how valuable is this task with which models can be best handled I don't think people have thought about how deflationary everything is going to be over the past few hours just like every morning thousands of new businesses have launched on Stripe just think about what they said in their letter over a few
[37:02] hours thousands of new businesses every person that asked ask me what's to do. What to do? You use AI. You start growing businesses. You start having apps. You put them on Stripe. The first one might make you 2,000. The second one might make you 10,000. You might have 10 of them that now make 12,000 each at 120,000. And then you quit your job. Then you keep building and you keep building and you keep building. You're disrupting the established legacy companies. And if 8 billion people do this around the world, it kills the
[37:33] growth of every public company with the friction and the legacy business model. Stripe's first half net revenue increased 41% year-over-year. Their billing grew 71%. Their free cash flow grew 43%. Stripe Capital reached more than a 100,000 active loans. Stripe Connect, new platforms are activating in Stripe at more than twice the rate of a year ago. Stripe Treasury, for example, is one of the fastest growing products we've ever launched.
[38:04] And again, this is the way you don't need the banks. So, if you put your money in a bank, great. But this is going to allow you to effectively do things without having to put it into a bank. Here's the competition for Stripe versus the traditional banking model. So, all of these things that I just mentioned, the all set up for this. They're they're growing rapidly. When's the last time you saw a bank growing at 41% topline revenue? Forget it.
[38:35] They are the fast. They are getting everything from the fast businesses. The slow businesses are the ones who are banking. There may not be a ton of these now, but just like I said in 2007, the digital economy was small. This is the token economy, guys. This is the AI native token economy. In 10 years, this will be big and these companies will either be gone or just not growing and tokenization will merge them all together. Think Ford verse Tesla and humanoids.
[39:05] Literally, think Ford. It's it's a company that you see lots of trucks on the road. It's not a stock. You don't want to invest in it. It doesn't go higher. And if it does, it goes back down in five years. You want to be out of the slow companies from an investment standpoint. You want to be in the fast companies. The S&P 500 and the QQQs are not going to do it in my opinion. Cityroup 226,000 employees. Stripe 10,000 employees.
[39:35] Equity valuation 214 billion. 160 billion at last valuation. Valuation per employee 15 times. You don't like that one? Google 199,000. Anthropic 6100. How did Anthropic be Google, Alph Go, Alpha Fold, Deep Mind, Emma Sasabis, Jeff Dean, and yet somehow Anthropic is also 15 times. Uh, in terms of the agentic portfolio,
[40:05] only one thing I'm going to show this week. The light CEO Lummentum went on TV and said, "We are completely sold out through 2029." Again, for people who say there is no demand through 2029, my agentic portfolio continues to have a beautiful looking I don't know what you call it at this point cup and handle formation. Whatever it is when it gets back up here and the breakout occurs probably in after the midterms. I don't
[40:35] know. S&P made another new all-time high this week. 10-year rates. Hm. We have a triple RSI divergence against prices making new highs. So, I'm not saying I don't want to call bonds to go down, yields to go down, but I do want to say it's acting like it's getting more tired. And even if it just sits here and is about the same yield a year from now as it is today, um I don't think you want to be bearish on stocks if that's the case. The move index, Bonval had an
[41:07] outside reversal week. Hm. Oh my gosh, will bonds blow up? Second time I show this. All of that coincides with the economist, one of the best contrarian signals. Uh here's the equal weight S&P and there's that MACD buy signal. Last week I showed you this one RSI on breath oversold levels that only been happened this many times and these were the returns going forward. average
[41:38] return positive, blah blah blah. All good. Um, I'm just going to highlight this because I think it's time now to start talking about humanoids and FSD because that's what happens when you get to the point of that Ray Kurszswwell exponential thing and the situational awareness. When you hit consumer agents, that means we are getting closer and closer to humanoids and full self-driving. SpaceX makes a big play to become a wireless carrier. SpaceX stock. You don't hear the bears
[42:08] on that anymore. [sighs] If you haven't seen the Optimus Factory, it doesn't seem like Elon has any uh doubt that this is going to be a big business. Uh Wall Street is raising humanoid robot forecast. Sam Alman, the world isn't ready for humanoid robot moment. I don't think it's very far away. There's going to be a visceral moment of oh man, this is going to do a lot of things people used to do. 2027 could be the first year when the productive work done by AI agents exceeds the work done by roughly
[42:38] four to five billion people. Essentially the entire workforce. Pay attention to agents, guys. 2027 could feel like 100 years worth of progress compressed into a single year. That is not a time to be bearish. Yes, it's a time that there's going to be a lot of chaos next year, but it's not time to be bearish on earnings. Uh why tech companies are racing to put AI data centers in space. Another thing that people talked about how crazy it had gotten, uh, Google and Constellation announced a big agreement on nuclear
[43:08] capacity. Uh, I was basically writing this because I'm sick of hearing people write about AI slop when I have to show you guys Ray Dalio saying there may be a bubble and all the other people that go on podcasts. Human slop dwarfs AI slop in my world. Uh, just something to keep in mind. This is nothing new. Um, I've talked about it, but I think Warren Pies is just highlighting that we already have job losses. I'm bringing this up because the health care side both on openings and
[43:39] the actual jobs have started to slow over the next last 6 months. If we're not creating health care jobs, I start to worry about us having negative payroll prints on a regular basis because that's been the only thing keeping us positive. So I'm highlighting this because these numbers are not going to get better if the agentic side is going to increase. And this shows up again in the jobs plentiful versus hard to get the white line. This is the unemployment rate. So again, the job
[44:09] market's far weaker than economists want to tell you. People don't feel like they have a job. More importantly, even though claims don't go up, which I don't think will, nobody's hiring. And I think that's bad for wages. And I think especially this is a problem for that chart I showed which is labor verse capital agency the helpful side for you guys. Help yourself, help your business, help your children. I'm doing a ton of things now for raas. I've got more presentations this week. You guys need to be preparing for 2027. It will be a
[44:40] compute year. It will be an acceleration and AI year. And it will be a crypto year. If all of those things are not part of your portfolio in terms of the thought process, they should be. Um, just as a reminder, everything I put all this up last week. Some of you said it was too much. Well, guess what? This week I didn't do a lot. Um, I am going to put up two videos probably over the weekend. Um, I do have some prompts and some things for crypto to go up. If you can't keep up, just remember it's on a site. You can go to it when you want. Um, most importantly, if you just
[45:11] download it and upload everything into an LLM and then come back to it later, that's also a great way to do it. This is um a presentation that I've been doing for mutual funds and for uh discretionary managers subscribers that uh are at RAAS to their group. Uh this is on the market structure change. This is about how you're going to have to adjust. There are so many changes happening. Um, this is the way that I think the world is going to be substituted. So, let's just use my bank apocalypse. Bank pop banks are right
[45:42] here for me. They are not an AI winner. They kind of edge this way. This is the way we used to do things when there was no disruption like AI. But now there's three buckets. You're kind of hanging in there. You're an adapter. You're a winner like the semi-names or you're being disrupted like the SAS names. Those are the buckets you're in. And I think in here you will eventually get thrown into one of these. When you get thrown into here, you're talking about a massive drop. And that's what I think the bank apocalypse is going to do. In here to me is crypto. So again, this is
[46:13] the way the portfolio has been. That's why when I showed you the alpha, if you don't think this way as a portfolio manager, I think you're in trouble. You have to be more concentrated. If only 25 24% of the names are are going up. for you derivative guys. Um, when time failed, LTCM, Axi Infinity, and a repricing of risk in a tokenized world. I don't meet enough people that have fully thought about what tokenization means. I think it is horrible for market neutral hedge funds. I think it is horrible for options traders. I think at
[46:44] this point people haven't thought about what happens when you've got things trading around the clock. You're going to have to start preparing for that. you're going to have to price options differently because instead of 32 and a half hours of regular equity trading, we could move to 168 hours and obviously the liquidity differential will be dramatic. And that's why I brought up the LTCM. When you go through leverage, which is where most of the large multistrats make their money is on the leverage, that risk to me is going to
[47:14] grow and we've already seen pockets of it this year. This is the reason why I believe what AI has done to the single name equities versus the index is going to be a continuous issue. When you go back to that bucket, you're either in the adapter side, you're in the winner side, or you're in the disrupted side. Now, you're going to add tokenization to it. I would be very, very forwardlooking. You want to bring me in to talk about it at least at a minimum to hear what I have to say. Tokenization's coming and I don't think
[47:44] enough people are prepared for it. Um, okay. So, a report I did this week, which again I will upload. I just have to finish everything. I ran it this week. It's on the 46 index, the crypto guardrails for the agentic economy. So, this is combining my crypto names with the agentic economy so people can go through it. I also have a multi- aent prompt because I had a lot of people saying, "How do I do agents?" I'm going to show you I'm going to give you a prompt so you can go do agents in Claude Code or in Codeex. And I highly recommend having those um just as an example. So, it's a long one, but agent
[48:15] one will do XYZ, agent two, and it describes what they're going to do. This way, you can do this with whatever you want. Uh, if you didn't see it, Catrini, uh, which is had a great call on AI and and and great thematic ideas. They're on the back of the same ideas as as I am, um, and I've been on for some time now. But they did finally publish something called Breaking the Wall. Has blockchain finally reached its moment? Here you got the banks. So, this isn't bank apocalypse, but I would say the DeFi
[48:45] side versus this. Stripe vers City Bank. Think you should go read it. Uh, IMF acknowledging tokenized assets have grown rapidly. That line there is when chatbt was launched. Uh, OKX files with the SEC to launch tokenized stock trading. All right, this is where um the only podcast that I'm kind of showing this week is Vitalic Bdderin. uh spoke at OKX now in Singapore. He also did another speaking. I think you have
[49:17] to go listen to this. He he's he definitely is um a little difficult to listen to. Um but you have to hear what's going to happen to the banking system, but in particular, you have to hear what's going to happen with privacy. What's going to happen all the needs, the problems that AI brings again for the banking system and the reason that cryptography needs to be involved. the reason that privacy needs to be involved that AI agents AI agent agentic AI turns privacy into a control problem not just a policy problem he gets into specific things like Zcash
[49:48] but the main point I want to get to you guys on this you should go listen to it if you're cryptofocused but you should go listen to it if you're a banking person as well says the agentic world makes privacy more essential because AI does not just get information interprets behavior reconstructs basically people are not thinking about how much privacy is going to become major issue. This is a major investing point. I want to be long privacy as a theme. That is where Zcash falls in. That's where Near fits in. That's where other ones fit in. The theme of privacy to me gets very
[50:20] important. There's other tokens out there that fit in with that. But I'm just bringing up that in this new world, this isn't about utilities or those sectors don't matter. That's why I created a crypto sector and an agentic AI sector. that sector doesn't exist. That's why I put it up there as a separate one. If you want the best names to study through his framework, these are some of the best ones. Samsung adds USDC stable coin to support Samsung wallet. So, Asia is moving pretty fast. Standard charter
[50:50] Singapore custody for crypto. What's next? So again, if you guys want to now follow in Jord's footsteps, go to Singularity University, join the executive program. I've talked about this relentlessly, but if you guys didn't know, that's where Moonshots was. That's where Peter Diamandis set up with some of these people. Um, and if you didn't know, the way this
[51:20] connects back to Bitcoin is that Michael Sailor and Peter Diamandis were college roommates and fraternity brothers at MIT. That's what makes it ironic for me that the podcasts I listen to the most from the people I the most happen to be the people who are setting the world of where the alpha is. So again, signal alpha agency. best way you can help me since you people ask and you're saying thank you for me helping you. Not only subscribe but give this to your kids,
[51:50] give this to your family, have them watch the videos, sign them up for um for one of the subscription levels to help them with either understanding crypto and be able to do it for you or AI. Remember the way this stuff was set up, crypto was just bolted on to everything. So the beauty is even for the lowest level, everyone is getting the AI plus the crypto side because that is the world we're entering into. But the agency side bringing empowerment for people that feel like they're being disrupted is very important to me. And again, thank you for those uh people who heard me on Pomp. I am going to start
[52:21] going on uh conferences next year to talk about this more and more. I am an introvert. I don't like going out if I can handle it. Uh but the bigger conferences, the ones where I can add some value, I want to be doing them. So reach out. And again, disclosures, disclosures. You guys have a uh a great rest of the Sunday and I'll see you next