On episode 225 of Ask The Compound, Ben Carlson discusses: the SpaceX IPO and whether it’s a threat to index fund investors, …
Transcript
Welcome back to Ask the Compound, the show where you ask and we answer. I am Ben Carlson. Markets are getting crazy yet again. Semiconductor stocks going nuts. Huge gains all over the place. By my account, we have 11 trillion dollar market cap companies in the S&P 500. Massive IPOs are coming. So, more to come on that front. Companies are spending enormous sums of money on AI. Is an AI bubble all but inevitable at this point? I'm going to tackle that question and more on today's show. Let's do it. Okay. Ask the compound show@gmail.com is our email. Send us a question. We love your questions. I have a whole huge Google doc full of them. Duncan had something come up at the last minute. Can't make the show, so it's just me today. I know everyone loves Duncan. Uh, send him love. But that means I'm going to be relying heavily on the live chat for feedback today. Follow-up questions. I see you all in there. Don't let me down. On today's show, you're answering questions straight from our compound inbox, straight from YouTube questions, straight from social media, index funds versus a SpaceX IPO. Is it fair? How to invest in bonds during retirement? How would AI job loss impact the economy? Should you support your in-laws if they haven't saved for retirement? How do you balance saving versus paying down student loans in your 20s? Finally, AI has to be a bubble, right? We'll see. Today's show is sponsored by Public. Feels like there are two types of investing platforms right now. You've got the legacy brokerages that look like they were designed in 1997. Then you've got the new wave that looks like looked at investing and thought, you know what, this needs sports betting. Neither seems like a great place to build your wealth. So, that's where Public comes in. It's the modern investing platform for those who take it seriously. Stocks, options, bonds, crypto, they have it all. And the energy they're not spending on building a casino, it's going to AI. Public is the only investing platform where you can create agents that can monitor the market, manage your cash, and execute your trades. Just enter a prompt, approve the workflow, put your agent to work, go to public.com/ATC to get started. It's publicub.com/ATC. Paid for by public investing. Full disclosures in the podcast description. All right. Again, welcome everyone live in the chat on YouTube. Welcome people watching live on Twitter. Hit me with your questions. Hit me with your feedback. I want it. All right. Duncan's not here. I'm reading the question solo. This is like Ben Castaway version. It's just me. Someone said, "Fix the clock behind you." What's wrong with it? I I don't need a clock. I have a cell phone. All right. First question. Let's do it. Ben, I'm a big fan of advice to just keep investing in index fund no matter what. But the past few days, my Twitter feed has been filled with posts about how SpaceX's IPO is breaking the rules and is financial engineering to dump all the stock onto index fund holders. Is this something to be concerned about and act on given the rulebreaking and systematic change and the fact that index holders are being left holding the bag or just ignore and keep investing as usual as it will have little effect on index funds? All right, tons of questions on SpaceX this week. uh all the DIYers, all the boghead people are worried about it. We're getting questions from clients, too. This is this is not abnormal. This is this is uh it's it's fair, right? And part of it doesn't seem fair, right? So, this is a company that's going to have low float, meaning they have all these shares. They're not putting all of them to sell to the public. Just so they're essentially strongarming the indexers into buying the shares so the company insiders can cash out. Sure. Okay. That's the cynical way of looking at it. Now, let's look at like what's actually happening here. All right, so we we had uh Cali Cox and our research team. Our research team is all over this at Riddle. We've looked into this. Okay, it's not nearly as simple as okay, SpaceX is going to be a $1.8 trillion company. So, it's going to have like a three or 4% position in the index. No, doesn't necessarily work like that. Let's look at this this heat map here. Throw it up here. Try it on. This is the S&P 500 companies. This is where SpaceX would fall based on some and we had to make some estimates here because it's hard to know how much is is going to happen. So, um this is from Jason Y. Keep the chart on please. Even after an IPO, nearly all of SpaceX would remain in private hands about 85% in Elon Musk's two hands. If the offering raises about $80 billion, that would rank SpaceX roughly the 130th biggest company if it were included among the stocks in the S&P today, about where Comcast is today. Okay, assuming nothing wacky happens in the meantime. That's a, you know, a4% position. Okay. Anthropic and open ad would probably even be smaller. Chart off, please. So, what this means is that these index providers look at the float that's actually being sold public, not the whole market cap. So, bag holders are not taking all $2 trillion worth. Okay. Put up our next little table here that our our investment committee created. So, they looked at the NASDAQ composite, which gets it essentially right away, right? It's market cap weighted. Boom. In the index. NASDAQ 100. That's going to take a couple weeks potentially. They're going to also float adjust it. That's that's but we're looking at44%. Under the three times float rule. Again, not a huge position. Russell 1000. That's a quarterly review. Okay. The weight is like 10 basis points. S&P 500. Q4 2026 at the earliest. Okay. Okay, we're estimating again like somewhere in the 10 to 20 basis point range. Table off, please. Now, the these are these are estimates. These are not set in stone because it depends on like how much they put out there and how much how many more sales there are. But this is not going to happen all at once. And the index providers are changing some of the rules here to speed up this process because companies are staying private longer. So, in some ways, it feels like there's bag holders here, but in other ways, like it's not as bad as it as it seems. And the thing is, if you're an index fund provider and one of the biggest companies in the world is out there, I don't know. You probably want to own it. The thing is, do you want to own it so fast? And these it's not going to happen overnight. All right? So, it's going to take some time. Now, as as far as SpaceX goes, a lot of people think this is bag holder position, meaning like they're going to dump this on the market and the index funds are going to be forced to hold it and then it's going to fall. That remains to be seen. I want to read two things from Ben Thompson Stery who wrote about this and I want to look at the SpaceX IPO in two different ways. He says, "In all seriousness, the numbers are obviously absurd, but then again, everything about this IPO is absurd. SpaceX is seeking a $2 trillion valuation on a mere $18.7 billion in revenue with $4.9 billion in losses last year. And growth actually slowed from 35 to 33%. That slowdown happened despite the addition of XAI and also X, which is Twitter, I don't call it X, it's Twitter, sorry, which tipped the company from a small profit to that massive loss thanks to 5.1 billion in AI R&D expense. That R&D, keep in mind, went towards building a model that is in fifth place and whose entire founding team recently left the company. But sure, $26.5 billion trill trillion dollar AI opportunity. Okay, that's the oh my gosh, what are we doing here? This thing is done. He also said like, listen, this is what an IPO should be. It's an opportunity for people to contribute capital to actually build the business and benefit if it works out. He says, I can't make a financial model that necessarily justifies this valuation, particularly based on current financials, but neither can a VC investing in a series A of a company. SpaceX has already invented a lot, and it early investors are going to make a lot of money on this IPO. At the same time, there's still much more to invent that remains a lot of upside. And to be very clear, a lot of it risk. It's a testament to SpaceX's ambitions that retail investors get to play VC. So, like, it's still too early to tell. Are we going to build data centers in space? I don't know. We're already landing taking having rockets take off and land. So, we'll see. Am I really super ultra concerned about this? I don't think so. I'm sorry. I can't get worked up about it. I think it's going to be okay. Let me know what you think in the chat. Okay, Dave said he wants to see SpaceX mining asteroids. That's true. Could happen. If Ben Affleck can landed an asteroid in Armageddon, Elon Musk can do it. Next question. I was waiting for Duncan to hop in there, but it's me. I'm looking to help my father, who is approaching retirement, create a 6040 portfolio allocation. Stock side seems pretty simple. Little international, an S&P fund, and some SMID. The bond side is a little trickier since there are so many types. high yield, mortgage back securities, core, short-term, corporates, treasuries, etc. Should we just do a bond ladder or a total bond fund? If a bond ladder, is it better to use individual bonds or bond ETF? All right, I've been talking about this for quite a while. And hang on, I I forgot one more thing about question one. Michael has an entire talking wealth episode that's going to like go hard and hardcore into the details. So, if you really want to know what that SpaceX IPO is going to do to index funds and how it's going to work, tune in to Talking Wealth. All right. 2020 has led to the worst bond bear market in history. Okay. So, a lot of people were caught flatfooted. If you owned treasuries of any sort of duration, a total bond fund, the A, anything like that. Okay? You got smoked close to a 20% loss in something like that. one of the worst the the worst bond bear market we've ever seen because rates went so high, inflation was high. So I want to go through like your options as an investor and I think what that bond bear market did is it made bond market investors realize it's not just a one decision asset class. Okay, there is a lot more that goes into it. There's a lot of other way other things you need to protect than just what happens if there's a recession because if when there's a recession and bond yields fall, bonds do good. It's not that simple anymore. So, the total bond market index fund is simple. It's diversified. It's low cost. There's decent yields right now, right? We're talking 4.7% I think is the last one I saw for the A. It's not bad. Um, and it's good economic slowdown protection. If the economy slows down, there's usually a flight to safety. And this these funds, they hold mortgage back bonds, but it's mostly treasuries, right? Um the risks of course are rising interest rates, high inflation which we saw. The good news is that the mar the margin of safety is bigger now because the yields are higher. Downside there's lack of control in the holdings. Um the index increases holdings where the debt is increasing which some people say why would I want to do that? Why do I want to own more debt where countries are adding to it? Treasuries kind of kind of similar to let's talk about like a 10 year or 5 year treasury. Um, that's the shock absorber when the excrement hits the fan. Okay. Uh, corporate bonds little higher yield because you have default risk. You have credit rating risk. You could get downgrade a little. The spreads aren't very wide right now though. It's like 5.3% for LQD which is the biggest corporate bond ETF versus 4.7% for the A. Uh, that spread can and will change over time. All right. Munis taxfree from a federal income perspective. Depends on your dad's tax situation if you need munis or not. Okay. High yield. Junk bonds do have higher yield. 7.2% right now. But this is equity like risk. I've heard Michael calls this scared equities before. Chart on please. This is the down uh next one. There you go. Uh this is the draw down profile for JNK. And it goes back to 2007. You lost almost 40% of your money in the great financial crisis. You've had multiple 10 15 20% draw downs in this. This has equity-like risk. Not total equity risk, but pretty darn close. Like 75% equity risk. Now, the next one, go back to my other chart tips, okay? Inflation protection, but careful about divers uh duration, okay? Because like the tip fund is long duration. So, when rates rise, see that? See that downturn there in the purple? That those acted more like bonds because they're longer duration. STIP is short-term tips. So, that's 0 to 5 as opposed to like 8 to 10. and they didn't have nearly as much volatility, nearly as much draw down. They've outperformed because you get more of the inflation component. Okay, chart off mortgage back bonds. We it's higher yield in treasuries typically, but you also have prepayment risk if people repay their mortgage early. Not great spreads there today either. Uh I like short-term bonds as a position because it adjusts to higher rates much faster. You are at the whims of the Fed if they lower rates. Um, but there's more liquidity, nominal draw down protection if we're talking anything under like, you know, one to three years. Then there's like securitizer, asset back security. There's, you're right, there's a ton of bonds, right? Bond ladders. We actually went through a few weeks ago. So, go check out that episode. After that episode, DFA actually sent me some of the research on how bad bond ladders can go bad. This is from 2023. They showed me this chart on, please. uh DFA looked at like what if you're doing a bond ladder but then short-term rates the yield scores have been inverted like it was for a long time and short-term rates are better than high higher rates. What do you are you going to abandon the bond ladder? What do you do? So there are there are some downsides. Well, we also talked about using bond ETFs for bond ladders on that same show. So go back and find that one for a more deep dive on bond ladders. That's a lot of options, right? Um here's what I think matters. Think about duration. Like how much risk do you want to take to get your yield right? Higher duration, higher volatility, potentially higher yield, but not promised. What are you trying to protect against? Like what do you want out of the fixed income side of your portfolio? Income, recession protection, inflation protection. Listen, the things that I think matter most, I think inflation protection is the big one. That's your biggest risk for balance. So, I like short-term tips. I also like short-term something. T bills, one to three of treasuries, high yield savings account, money market, CDs, something like that, just to protect you against short-term rates rising rapidly, inflation rising rapidly, and having some sort of nominal protection. And then I still think you need that that anchor of the A or the bond, whatever, something treasuries when the stuff hits the fan and you want rates to fall and it's going to you're going to benefit from it. That makes sense to me. We talked about listen to the bond ladder one from a few weeks ago. That kind of makes sense, too. But you're right that there were way more decisions in fixed income portfolios than people ever realized. Okay, Dave in the chat says duration, duration, duration. I tend to agree. I want to take my risk and volatility where I'm being paid for it and I don't think that happens in the bond market. I don't want to take risk in the bond market. That's a safe safe part of my portfolio. I don't want a lot of duration. I don't want long maturities. Okay. I'm an intermediate to short-term guy. What can I say? Great question, though. All right, another one. Let's do it. If the protected AI job loss numbers are even partially accurate, I'm curious about the impact you believe this would have on the market. For instance, if 50 million white collar jobs are eliminated over the next few years, it would not only negatively impact the economy, but also lead to significantly lower RA IRA contributions and likely higher redemptions. Okay, 50 million would be kind of a lot. Listen, the one of the things that happens when there's technological innovation is people extrapolated into the future. But this has to be the first innovation ever where the people making the the actual tech new technology are making dire forecasts about the future. Right? Dario from Anthropic, he didn't say 50 million people are going to lose their jobs, but he said 50% of all entry level white collar jobs will be replaced by AI. He's like pounded the table on this a few times. I think he's slowly but surely walked that back as the PR department got their hands on like, "Hey, dude, what are you doing? Why are you saying this? stop. Um, but it is kind of scary to think about like machines taking a massive amount of knowledge work. Now, obviously if that happened I if 50 million jobs got lost or even half of that like there'd be anarchy in the streets. You're right. Um, sure the at that point the economy might be so productive that there's just more wealth and people are spending it but that wealth is concentrated in the hands of the few and there's going to be like torches and pitchforks. I just I have a more glass full vision of the future. Okay, I tend to think AI is going to make us all busier. It's going to be more efficient, but it's just going to give us all more work and there's going to be jobs and tasks that are disrupted for sure. I think in the long run, we have a dynamic economy and we figure out ways to get people to work. That's my glass full. And also, as much as people are talking about AI disrupting the labor market, it hasn't happened yet. If you look at the numbers, sure there are tech CEOs who are laying people off and are saying, "Listen, we're doing it because of AI. 40% of our workforce is gone because AI is making us more efficient." Or translation, we overhired in 2021 and 2022 because the labor market was so hot and now we need an excuse to get rid of these people because if you look at the data, AI is not having an impact yet. Chart on. This is from exhibit A. Job openings in the US economy surged. Surged. Okay, maybe not surged. They increased from like 6.8 million to 7.6 million in the past month. That's kind of funny. Job openings are not falling because of AI. They've actually started increasing again. Interesting. Next chart, please. This is layoffs still lower than they were at any point in the 2010s. pretty much not seeing a huge uptick in layoffs despite some anecdotes, right? As the for the economy as a whole, this is still relatively normalish and it actually fell last month. Next chart. I got all kinds of charts. All right. US labor force participation ages 25 to 54. Okay, that's prime age. Why do we do 25 to 54? Because we don't want to include the baby boomers. They're retiring like crazy. And everyone who listens to this show wants to be a fire person and retire early, too. 55. That's why we cut off 54 because everyone wants to retire at age 55. Okay. 83.8%. This is a stones throw away from the high of 84.6% in 2000. Maybe the biggest booming economy of our lifetime. So, and we've increased in the 2020s for prime age labor force participation rate. Okay, that's good. I think I got one more chart here. College grads. Okay. unemployment rates for recent college grads. This is recent college grads age 22 to 27. Still pretty stable. All college grads, young workers, and all workers. Okay? I mean, listen, it's still lower now than it was in the 2010s. Essentially, a little uptick, but we're not seeing a huge divergence there. Okay, chart off. Maybe it happens in the future. Maybe we're still in the early days of this technology. I don't know. despite a handful of tech leaders like blaming AI, this isn't happening yet. Um, so I I I think that like dire economic situation is kind of intellectually stimulating to talk about. Until we start seeing some data, I'm not going to like really worry about it that much. Okay, next question. Wait, hang on. Check question off. Dave says, "Any of today's charts in your new book, or are we getting new charts?" All new charts, Dave. All new 52 charts in my book. Okay. None. None in the show today. All right. Back to the question. I'm 40. Wife is 37. We have two handsome boys in private school. 11K for our three-year-old and 13K for our six-year-old annually. Ouch. We have 400K in our brokerage accounts. 34K and a 529. 2 million in our retirement accounts. In the future, my in-laws may become a burden, for lack of a better word. My father-in-law is 60. Mother-in-law is 58. They are divorced and have remarried. Seems that neither prioritizes saving for retirement. We are doing okay, but we're not rich by any means and we have these young kids. How do you suggest I try to talk to my in-laws about saving for retirement and most likely them having to continue to work after reaching retirement age? Or do I just mind my business? FYI, they have never asked us for money. We do normally pay for a food trip, a food for food, a trip, etc. whenever her parents or my parents are with us periodically. PS, Ben, are you still signing books and shipping to people? All right. Yes. Risk and reward is coming to anyone who has a question for today. And this is the last week I'm doing signed copies. The you UPS is sick of seeing me all the time. What are you doing with all these books, buddy? Um, great question here. Um, listen, between you and me, don't tell your in-laws this. Um, you are doing far better than okay. You have $2.4 million at age 40. For your age group, you're in like the top 4% in terms of wealth just with your liquid assets. So, um, if you don't want them on your budget, keep this between us, okay? Between friends here. Uh, I something I've learned in middle age, I don't think you're changing the habits of people who are older than you. I think at at a certain point, your parents are who they are, and they're probably not going to change who they are. And this is your in-laws, too. So, I I think this is this is dangerous ground you're walking on here. I would not want to say, "Hey, let's have a talk about retirement. What are you guys doing? I'm not paying for you." They're not going to take that very well. Okay? They are the ones in their minds, they're the provider, not you. Okay? So, it's also not only is are they going to be like, "What? What shell shot?" They're going to like it's going to be an ego deflator. Okay? So, I'd say, "Listen, if anyone was going to talk to them, since these are in-laws, that's your wife. That's her job. Hey, what are you guys doing? What you know, where's my inheritance coming from? No inheritance? Fine. We're good. We've got 2.4 million, but you guys aren't dipping into that. Some cultures, they they want to take care of their elderly. Lance here. No, he doesn't want to. Um, I would not be the first one to bring this up. Okay? I would wait for them to do it. And also, don't mention how much money you have if you don't want them on your bill. Okay? Uh, but you're right, they're probably going to have to work longer. Maybe they're going to have to delay taking social security. like it can still be done, but they might not have the lifestyle and retirement that they think they're going to have if this is happening, right? Sean says grandma and grandpa might have to go to farm upstate. Um, harsh harsh. Uh, maybe the robots will take care of him someday. I don't know. I I wouldn't say anything though. I'd stay out of this. No, I do not want to be the one who brings that up because guess what? That gets them thinking like, oh, maybe he want maybe he can take care of us. No, don't do it. Someone says, "Get them a smaller home." Fair. All right, next question. Oh, wait, hang on. Someone says, "If they own their house, they can sell the house and rent or move." That's That's a good question. For a lot of people, especially in the middle class, their biggest financial asset by far by far is a home and they have a lot of home equity. That's a good point. Reverse mortgage, sell the house, downsize, social security later, work longer. They could do this. Start just start making your internal plan. Don't share with them yet. Next question. All right. My girlfriend of five years, I'm 26, she's 27, based in the Northeast, and I are struggling to prioritize the following from a funds allocation standpoint. One, investing. Two, getting married. We we expect to cover most of the wedding costs ourselves. Good for you. Three, buying an apartment or home. Four, paying off student loans. Two specific questions. How would you think about prioritizing these large life expenses? And two, what's a good system for bucketing cash toward each goal correctly while maintaining a comfortable lifestyle? All right, one thing you have to accept in your 20s. I don't care how many financial blogs you're reading, how many personal finance podcasts you're listening to, you can't do it all in your 20s. That's okay. It's okay. You don't have to have it all figured out in your 20s. The first house we had came with an unfinished basement. It was a ranch, split level, whatever you call it, ranch, top level, all finished nicely. Two bedrooms. We needed more. So the whole basement finished, we had to finish it. Uh that cost a lot of money. So my wife and I had to prioritize different financial uh goals. We had to cut back on investing a little bit. Our savings all went into this renovation. It's okay. Sometimes life happens, right? Uh now some people look at this and say, "Hey, don't spend a ton of money in our wedding." Like easier said than done, people, right? Most people want a nice wedding. One of the great memories of my life and not just because I married my wife, but all the people that I love were in one place on a single day. Like, you want that to mean something. It'd be kind of special, right? It was amazing. I have some questions for you. All right. Chris says, "Pay off the high cost debt. Have some fun." That's fair. Yes. Um Oh, Sean says, "Elope and married a courthouse. You'll have so much more money." Come on, get out of here. It's boring. All right. Maybe I I did a courthouse wedding once with someone. It's not not that bad, actually. Uh All right. First question. So, what's your wedding budget? Cuz your wedding should take precedence over saving for a house right now. When you're done with the wedding, take whatever you're saving for that and start saving for a down payment. Let's keep the same amount, right? You're putting aside $500 a month, $1,000 a month for the wedding. When that is done, don't bank it. Put it right into saving for down payment. And I've heard this is a thing now. Young people for wedding gifts are setting up funds so people can for their gift give for a down payment for a house. 70% of the crap you get for your wedding registry you don't need anyway. Trust me, you don't need it. Get a nice set of plates, a nice set of glasses and cups and silverware. That's it. All the other stuff like do you really need a little boat thing for your butter? No. Down payment fund. That's a good idea. All right. What's the interest rate on your student loans? that like you might have to slow your investing to save for the wedding. But like if the student loan rate is I don't know six, seven%. Like that's when you can think about potentially like maybe the investing bucket slowly goes into there. My initial read on priorities. All right. Wedding is number one. All right. Get your 401k match is probably number two. At least save enough for the match. Uh your other investing goals might have to take a back seat for a while, right? Maybe it's just a 401k and not a brokerage account, right? Don't worry about paying off student loans for now. House, wedding matter, way more than that right now. You can't keep investing if it's at a lower amount. I think that's okay. Again, just to get your 401k match, sometimes life gets in the way of compounding, and that's okay. You don't have to do everything all at once. Okay. Some people in the chat say the Northeast is not a great place to uh with a house because it's so expensive. Fair. James says, "Do a tea wedding. Everything is inflatable." I don't hate it. My kids had a birthday party yesterday for the twins and we did an inflatable slip and slide, you know, with like the little pool at the end and it way bigger than the slip and slide I ever did in my life. Um, pretty cool. Not bad. Uh, it's okay to change your priorities, I think, as you have different goals in different stages of life. Like, oh no, I'm not saving enough to compound. Like, I get that feeling. But sometimes life gets in the way of compounding. And it's okay. You can't have it all figured out in your 20s. You have plenty of time to play catchup. All right. Next question. I have one more. One more. All right. We got all sorts of questions today, all over the map. I like it. I've never bought into the idea that AI is a bubble because a technology clearly has real world value. I tend to kind of agree with that. But with companies like Uber and Amazon publicly stating their massive spend has garnered uncertain returns, more businesses like Allirds pivoting to AI, and celebrities like Tristan Thompson promoting AI related investments, the old former cal catches a stray. I'm starting to see some.com era parallels. Could AI ultimately prove transformative and profitable yet still experience a bubble because of excessive spending, hype, and unrealistic expectations? This is the the debate that will never end. And I I I think for good reason. Uh throw out my blog post here. I wrote this in 2023. Okay. Is an AI stock market bubble inevitable? All right. I was talking about this a long time ago. It's kind of funny because the beginning of that blog post I said as of Wednesday's close, Nvidia had a market cap of 755 billion. Just one day later, the chipmaker sported a market cap of 939 billion. We're up only about five times from there. Crazy. Um, here's what allow myself to quote myself on this blog post. Throw the blog post title back up so people don't have to look at me reading. If it makes us even 50% as productive and efficient as some proponents are predicting, it seems inevitable this will lead to a bubble. We cannot help ourselves when it comes to new and exciting technologies. The creation of fiat currencies and new types of equity investments led to the South Sea bubble in the 1700s. The introduction of trains led to the railway mania of the 1800s. The explosion of new consumer and investment products led to the roaring 20s. The advent of the internet led to the do-com bubble of the 1990s. Each of these innovations ended up changing the world in many ways. But the speculation that occurred in the early stages of those innovations led to huge booms and painful busts to get there. There are no guarantees when it comes to financial markets, but human nature is the one constant across all market environments. Okay, take it off. Um I I am conflicted on this one. My my new book I wrote, it's basically like a hundred years of financial market history and all the bad things that can and will happen. And we certainly are checking off a lot of the boxes, right? technological innovation, huge capex boom, uh tons of speculation, stock charts going vertical, way far above average returns. It it certainly seems like a bubble is very very possible. But there's this idea that the the old saying is um those who don't study history are doomed to repeat it. I also think that there is something to the fact that people who study too much history think that it's going to repeat itself automatically. And one of the things that I've learned from studying stock market history is just that you're almost always surprised at the outcomes. And so I want to keep an open mind here even though part of my brain is thinking like come on this has to be a bubble. It has to just it's all the hallmarks. Uh, give me a chart on here of opening anthropic. The growth in revenue, the guys on what are your thoughts did this last night, so I stole that from them. Um, the growth in revenue is insane. And so, here's where I sit on this. I have an open mind about this, okay? I don't really know how it's going to end. um a bubble and a bust would not surprise me, but a great technological innovation that that markets are happening faster and speeding up where we just have, I don't know, a run-of-the-mill correction/bare market or a few of them, but the technology continues to power the markets higher, like that wouldn't surprise me either. Okay, the the whole idea of a bubble, you can do chart off. Uh Cliff Aznes once said that like uh the the definition of a bubble is like you can't get to the future based on what the present numbers are saying. And I think there is a situation where we could get to the future and the present kind of makes sense and all this spending actually does turn into ROI because there's so much demand for AI. Is that my baseline? I don't know. It's too early to say. So, I'm I'm just the I'm telling I'm what I'm asking people is to have an open mind about this. Strong opinions, loosely held. Don't pound the table on this stuff. Okay? I'm talking about AI bubbles. Everyone in the chat is talking about the Kardashians and Tristan Thompson. Um I blame Bill because he's in there, too. Um but yeah, I I don't have a strong take that this has to be a bubble. I think it certainly can be all right, but it doesn't have to be. That's kind of where I stand. Okay. All right. We did it. Just me. Tom Hanks style. The clock behind me is broken. I guess I'll fix it. If you have a question for us, come in the live chat. It's blowing up on YouTube. Watch us live on Twitter. Um, send us an email askthe compound show@gmail.com. We love your questions. Anyone ask a question today is going to get a signed copy from me of the new book. And guess what? We'll see you next week. Thanks everyone.
Is an AI Bubble Inevitable?
Summary
On episode 225 of Ask The Compound, Ben Carlson discusses: the SpaceX IPO and whether it’s a threat to index fund investors, …Transcript
Welcome back to Ask the Compound, the show where you ask and we answer. I am Ben Carlson. Markets are getting crazy yet again. Semiconductor stocks going nuts. Huge gains all over the place. By my account, we have 11 trillion dollar market cap companies in the S&P 500. Massive IPOs are coming. So, more to come on that front. Companies are spending enormous sums of money on AI. Is an AI bubble all but inevitable at this point? I'm going to tackle that question and more on today's show. Let's do it. Okay. Ask the compound show@gmail.com is our email. Send us a question. We love your questions. I have a whole huge Google doc full of them. Duncan had something come up at the last minute. Can't make the show, so it's just me today. I know everyone loves Duncan. Uh, send him love. But that means I'm going to be relying heavily on the live chat for feedback today. Follow-up questions. I see you all in there. Don't let me down. On today's show, you're answering questions straight from our compound inbox, straight from YouTube questions, straight from social media, index funds versus a SpaceX IPO. Is it fair? How to invest in bonds during retirement? How would AI job loss impact the economy? Should you support your in-laws if they haven't saved for retirement? How do you balance saving versus paying down student loans in your 20s? Finally, AI has to be a bubble, right? We'll see. Today's show is sponsored by Public. Feels like there are two types of investing platforms right now. You've got the legacy brokerages that look like they were designed in 1997. Then you've got the new wave that looks like looked at investing and thought, you know what, this needs sports betting. Neither seems like a great place to build your wealth. So, that's where Public comes in. It's the modern investing platform for those who take it seriously. Stocks, options, bonds, crypto, they have it all. And the energy they're not spending on building a casino, it's going to AI. Public is the only investing platform where you can create agents that can monitor the market, manage your cash, and execute your trades. Just enter a prompt, approve the workflow, put your agent to work, go to public.com/ATC to get started. It's publicub.com/ATC. Paid for by public investing. Full disclosures in the podcast description. All right. Again, welcome everyone live in the chat on YouTube. Welcome people watching live on Twitter. Hit me with your questions. Hit me with your feedback. I want it. All right. Duncan's not here. I'm reading the question solo. This is like Ben Castaway version. It's just me. Someone said, "Fix the clock behind you." What's wrong with it? I I don't need a clock. I have a cell phone. All right. First question. Let's do it. Ben, I'm a big fan of advice to just keep investing in index fund no matter what. But the past few days, my Twitter feed has been filled with posts about how SpaceX's IPO is breaking the rules and is financial engineering to dump all the stock onto index fund holders. Is this something to be concerned about and act on given the rulebreaking and systematic change and the fact that index holders are being left holding the bag or just ignore and keep investing as usual as it will have little effect on index funds? All right, tons of questions on SpaceX this week. uh all the DIYers, all the boghead people are worried about it. We're getting questions from clients, too. This is this is not abnormal. This is this is uh it's it's fair, right? And part of it doesn't seem fair, right? So, this is a company that's going to have low float, meaning they have all these shares. They're not putting all of them to sell to the public. Just so they're essentially strongarming the indexers into buying the shares so the company insiders can cash out. Sure. Okay. That's the cynical way of looking at it. Now, let's look at like what's actually happening here. All right, so we we had uh Cali Cox and our research team. Our research team is all over this at Riddle. We've looked into this. Okay, it's not nearly as simple as okay, SpaceX is going to be a $1.8 trillion company. So, it's going to have like a three or 4% position in the index. No, doesn't necessarily work like that. Let's look at this this heat map here. Throw it up here. Try it on. This is the S&P 500 companies. This is where SpaceX would fall based on some and we had to make some estimates here because it's hard to know how much is is going to happen. So, um this is from Jason Y. Keep the chart on please. Even after an IPO, nearly all of SpaceX would remain in private hands about 85% in Elon Musk's two hands. If the offering raises about $80 billion, that would rank SpaceX roughly the 130th biggest company if it were included among the stocks in the S&P today, about where Comcast is today. Okay, assuming nothing wacky happens in the meantime. That's a, you know, a4% position. Okay. Anthropic and open ad would probably even be smaller. Chart off, please. So, what this means is that these index providers look at the float that's actually being sold public, not the whole market cap. So, bag holders are not taking all $2 trillion worth. Okay. Put up our next little table here that our our investment committee created. So, they looked at the NASDAQ composite, which gets it essentially right away, right? It's market cap weighted. Boom. In the index. NASDAQ 100. That's going to take a couple weeks potentially. They're going to also float adjust it. That's that's but we're looking at44%. Under the three times float rule. Again, not a huge position. Russell 1000. That's a quarterly review. Okay. The weight is like 10 basis points. S&P 500. Q4 2026 at the earliest. Okay. Okay, we're estimating again like somewhere in the 10 to 20 basis point range. Table off, please. Now, the these are these are estimates. These are not set in stone because it depends on like how much they put out there and how much how many more sales there are. But this is not going to happen all at once. And the index providers are changing some of the rules here to speed up this process because companies are staying private longer. So, in some ways, it feels like there's bag holders here, but in other ways, like it's not as bad as it as it seems. And the thing is, if you're an index fund provider and one of the biggest companies in the world is out there, I don't know. You probably want to own it. The thing is, do you want to own it so fast? And these it's not going to happen overnight. All right? So, it's going to take some time. Now, as as far as SpaceX goes, a lot of people think this is bag holder position, meaning like they're going to dump this on the market and the index funds are going to be forced to hold it and then it's going to fall. That remains to be seen. I want to read two things from Ben Thompson Stery who wrote about this and I want to look at the SpaceX IPO in two different ways. He says, "In all seriousness, the numbers are obviously absurd, but then again, everything about this IPO is absurd. SpaceX is seeking a $2 trillion valuation on a mere $18.7 billion in revenue with $4.9 billion in losses last year. And growth actually slowed from 35 to 33%. That slowdown happened despite the addition of XAI and also X, which is Twitter, I don't call it X, it's Twitter, sorry, which tipped the company from a small profit to that massive loss thanks to 5.1 billion in AI R&D expense. That R&D, keep in mind, went towards building a model that is in fifth place and whose entire founding team recently left the company. But sure, $26.5 billion trill trillion dollar AI opportunity. Okay, that's the oh my gosh, what are we doing here? This thing is done. He also said like, listen, this is what an IPO should be. It's an opportunity for people to contribute capital to actually build the business and benefit if it works out. He says, I can't make a financial model that necessarily justifies this valuation, particularly based on current financials, but neither can a VC investing in a series A of a company. SpaceX has already invented a lot, and it early investors are going to make a lot of money on this IPO. At the same time, there's still much more to invent that remains a lot of upside. And to be very clear, a lot of it risk. It's a testament to SpaceX's ambitions that retail investors get to play VC. So, like, it's still too early to tell. Are we going to build data centers in space? I don't know. We're already landing taking having rockets take off and land. So, we'll see. Am I really super ultra concerned about this? I don't think so. I'm sorry. I can't get worked up about it. I think it's going to be okay. Let me know what you think in the chat. Okay, Dave said he wants to see SpaceX mining asteroids. That's true. Could happen. If Ben Affleck can landed an asteroid in Armageddon, Elon Musk can do it. Next question. I was waiting for Duncan to hop in there, but it's me. I'm looking to help my father, who is approaching retirement, create a 6040 portfolio allocation. Stock side seems pretty simple. Little international, an S&P fund, and some SMID. The bond side is a little trickier since there are so many types. high yield, mortgage back securities, core, short-term, corporates, treasuries, etc. Should we just do a bond ladder or a total bond fund? If a bond ladder, is it better to use individual bonds or bond ETF? All right, I've been talking about this for quite a while. And hang on, I I forgot one more thing about question one. Michael has an entire talking wealth episode that's going to like go hard and hardcore into the details. So, if you really want to know what that SpaceX IPO is going to do to index funds and how it's going to work, tune in to Talking Wealth. All right. 2020 has led to the worst bond bear market in history. Okay. So, a lot of people were caught flatfooted. If you owned treasuries of any sort of duration, a total bond fund, the A, anything like that. Okay? You got smoked close to a 20% loss in something like that. one of the worst the the worst bond bear market we've ever seen because rates went so high, inflation was high. So I want to go through like your options as an investor and I think what that bond bear market did is it made bond market investors realize it's not just a one decision asset class. Okay, there is a lot more that goes into it. There's a lot of other way other things you need to protect than just what happens if there's a recession because if when there's a recession and bond yields fall, bonds do good. It's not that simple anymore. So, the total bond market index fund is simple. It's diversified. It's low cost. There's decent yields right now, right? We're talking 4.7% I think is the last one I saw for the A. It's not bad. Um, and it's good economic slowdown protection. If the economy slows down, there's usually a flight to safety. And this these funds, they hold mortgage back bonds, but it's mostly treasuries, right? Um the risks of course are rising interest rates, high inflation which we saw. The good news is that the mar the margin of safety is bigger now because the yields are higher. Downside there's lack of control in the holdings. Um the index increases holdings where the debt is increasing which some people say why would I want to do that? Why do I want to own more debt where countries are adding to it? Treasuries kind of kind of similar to let's talk about like a 10 year or 5 year treasury. Um, that's the shock absorber when the excrement hits the fan. Okay. Uh, corporate bonds little higher yield because you have default risk. You have credit rating risk. You could get downgrade a little. The spreads aren't very wide right now though. It's like 5.3% for LQD which is the biggest corporate bond ETF versus 4.7% for the A. Uh, that spread can and will change over time. All right. Munis taxfree from a federal income perspective. Depends on your dad's tax situation if you need munis or not. Okay. High yield. Junk bonds do have higher yield. 7.2% right now. But this is equity like risk. I've heard Michael calls this scared equities before. Chart on please. This is the down uh next one. There you go. Uh this is the draw down profile for JNK. And it goes back to 2007. You lost almost 40% of your money in the great financial crisis. You've had multiple 10 15 20% draw downs in this. This has equity-like risk. Not total equity risk, but pretty darn close. Like 75% equity risk. Now, the next one, go back to my other chart tips, okay? Inflation protection, but careful about divers uh duration, okay? Because like the tip fund is long duration. So, when rates rise, see that? See that downturn there in the purple? That those acted more like bonds because they're longer duration. STIP is short-term tips. So, that's 0 to 5 as opposed to like 8 to 10. and they didn't have nearly as much volatility, nearly as much draw down. They've outperformed because you get more of the inflation component. Okay, chart off mortgage back bonds. We it's higher yield in treasuries typically, but you also have prepayment risk if people repay their mortgage early. Not great spreads there today either. Uh I like short-term bonds as a position because it adjusts to higher rates much faster. You are at the whims of the Fed if they lower rates. Um, but there's more liquidity, nominal draw down protection if we're talking anything under like, you know, one to three years. Then there's like securitizer, asset back security. There's, you're right, there's a ton of bonds, right? Bond ladders. We actually went through a few weeks ago. So, go check out that episode. After that episode, DFA actually sent me some of the research on how bad bond ladders can go bad. This is from 2023. They showed me this chart on, please. uh DFA looked at like what if you're doing a bond ladder but then short-term rates the yield scores have been inverted like it was for a long time and short-term rates are better than high higher rates. What do you are you going to abandon the bond ladder? What do you do? So there are there are some downsides. Well, we also talked about using bond ETFs for bond ladders on that same show. So go back and find that one for a more deep dive on bond ladders. That's a lot of options, right? Um here's what I think matters. Think about duration. Like how much risk do you want to take to get your yield right? Higher duration, higher volatility, potentially higher yield, but not promised. What are you trying to protect against? Like what do you want out of the fixed income side of your portfolio? Income, recession protection, inflation protection. Listen, the things that I think matter most, I think inflation protection is the big one. That's your biggest risk for balance. So, I like short-term tips. I also like short-term something. T bills, one to three of treasuries, high yield savings account, money market, CDs, something like that, just to protect you against short-term rates rising rapidly, inflation rising rapidly, and having some sort of nominal protection. And then I still think you need that that anchor of the A or the bond, whatever, something treasuries when the stuff hits the fan and you want rates to fall and it's going to you're going to benefit from it. That makes sense to me. We talked about listen to the bond ladder one from a few weeks ago. That kind of makes sense, too. But you're right that there were way more decisions in fixed income portfolios than people ever realized. Okay, Dave in the chat says duration, duration, duration. I tend to agree. I want to take my risk and volatility where I'm being paid for it and I don't think that happens in the bond market. I don't want to take risk in the bond market. That's a safe safe part of my portfolio. I don't want a lot of duration. I don't want long maturities. Okay. I'm an intermediate to short-term guy. What can I say? Great question, though. All right, another one. Let's do it. If the protected AI job loss numbers are even partially accurate, I'm curious about the impact you believe this would have on the market. For instance, if 50 million white collar jobs are eliminated over the next few years, it would not only negatively impact the economy, but also lead to significantly lower RA IRA contributions and likely higher redemptions. Okay, 50 million would be kind of a lot. Listen, the one of the things that happens when there's technological innovation is people extrapolated into the future. But this has to be the first innovation ever where the people making the the actual tech new technology are making dire forecasts about the future. Right? Dario from Anthropic, he didn't say 50 million people are going to lose their jobs, but he said 50% of all entry level white collar jobs will be replaced by AI. He's like pounded the table on this a few times. I think he's slowly but surely walked that back as the PR department got their hands on like, "Hey, dude, what are you doing? Why are you saying this? stop. Um, but it is kind of scary to think about like machines taking a massive amount of knowledge work. Now, obviously if that happened I if 50 million jobs got lost or even half of that like there'd be anarchy in the streets. You're right. Um, sure the at that point the economy might be so productive that there's just more wealth and people are spending it but that wealth is concentrated in the hands of the few and there's going to be like torches and pitchforks. I just I have a more glass full vision of the future. Okay, I tend to think AI is going to make us all busier. It's going to be more efficient, but it's just going to give us all more work and there's going to be jobs and tasks that are disrupted for sure. I think in the long run, we have a dynamic economy and we figure out ways to get people to work. That's my glass full. And also, as much as people are talking about AI disrupting the labor market, it hasn't happened yet. If you look at the numbers, sure there are tech CEOs who are laying people off and are saying, "Listen, we're doing it because of AI. 40% of our workforce is gone because AI is making us more efficient." Or translation, we overhired in 2021 and 2022 because the labor market was so hot and now we need an excuse to get rid of these people because if you look at the data, AI is not having an impact yet. Chart on. This is from exhibit A. Job openings in the US economy surged. Surged. Okay, maybe not surged. They increased from like 6.8 million to 7.6 million in the past month. That's kind of funny. Job openings are not falling because of AI. They've actually started increasing again. Interesting. Next chart, please. This is layoffs still lower than they were at any point in the 2010s. pretty much not seeing a huge uptick in layoffs despite some anecdotes, right? As the for the economy as a whole, this is still relatively normalish and it actually fell last month. Next chart. I got all kinds of charts. All right. US labor force participation ages 25 to 54. Okay, that's prime age. Why do we do 25 to 54? Because we don't want to include the baby boomers. They're retiring like crazy. And everyone who listens to this show wants to be a fire person and retire early, too. 55. That's why we cut off 54 because everyone wants to retire at age 55. Okay. 83.8%. This is a stones throw away from the high of 84.6% in 2000. Maybe the biggest booming economy of our lifetime. So, and we've increased in the 2020s for prime age labor force participation rate. Okay, that's good. I think I got one more chart here. College grads. Okay. unemployment rates for recent college grads. This is recent college grads age 22 to 27. Still pretty stable. All college grads, young workers, and all workers. Okay? I mean, listen, it's still lower now than it was in the 2010s. Essentially, a little uptick, but we're not seeing a huge divergence there. Okay, chart off. Maybe it happens in the future. Maybe we're still in the early days of this technology. I don't know. despite a handful of tech leaders like blaming AI, this isn't happening yet. Um, so I I I think that like dire economic situation is kind of intellectually stimulating to talk about. Until we start seeing some data, I'm not going to like really worry about it that much. Okay, next question. Wait, hang on. Check question off. Dave says, "Any of today's charts in your new book, or are we getting new charts?" All new charts, Dave. All new 52 charts in my book. Okay. None. None in the show today. All right. Back to the question. I'm 40. Wife is 37. We have two handsome boys in private school. 11K for our three-year-old and 13K for our six-year-old annually. Ouch. We have 400K in our brokerage accounts. 34K and a 529. 2 million in our retirement accounts. In the future, my in-laws may become a burden, for lack of a better word. My father-in-law is 60. Mother-in-law is 58. They are divorced and have remarried. Seems that neither prioritizes saving for retirement. We are doing okay, but we're not rich by any means and we have these young kids. How do you suggest I try to talk to my in-laws about saving for retirement and most likely them having to continue to work after reaching retirement age? Or do I just mind my business? FYI, they have never asked us for money. We do normally pay for a food trip, a food for food, a trip, etc. whenever her parents or my parents are with us periodically. PS, Ben, are you still signing books and shipping to people? All right. Yes. Risk and reward is coming to anyone who has a question for today. And this is the last week I'm doing signed copies. The you UPS is sick of seeing me all the time. What are you doing with all these books, buddy? Um, great question here. Um, listen, between you and me, don't tell your in-laws this. Um, you are doing far better than okay. You have $2.4 million at age 40. For your age group, you're in like the top 4% in terms of wealth just with your liquid assets. So, um, if you don't want them on your budget, keep this between us, okay? Between friends here. Uh, I something I've learned in middle age, I don't think you're changing the habits of people who are older than you. I think at at a certain point, your parents are who they are, and they're probably not going to change who they are. And this is your in-laws, too. So, I I think this is this is dangerous ground you're walking on here. I would not want to say, "Hey, let's have a talk about retirement. What are you guys doing? I'm not paying for you." They're not going to take that very well. Okay? They are the ones in their minds, they're the provider, not you. Okay? So, it's also not only is are they going to be like, "What? What shell shot?" They're going to like it's going to be an ego deflator. Okay? So, I'd say, "Listen, if anyone was going to talk to them, since these are in-laws, that's your wife. That's her job. Hey, what are you guys doing? What you know, where's my inheritance coming from? No inheritance? Fine. We're good. We've got 2.4 million, but you guys aren't dipping into that. Some cultures, they they want to take care of their elderly. Lance here. No, he doesn't want to. Um, I would not be the first one to bring this up. Okay? I would wait for them to do it. And also, don't mention how much money you have if you don't want them on your bill. Okay? Uh, but you're right, they're probably going to have to work longer. Maybe they're going to have to delay taking social security. like it can still be done, but they might not have the lifestyle and retirement that they think they're going to have if this is happening, right? Sean says grandma and grandpa might have to go to farm upstate. Um, harsh harsh. Uh, maybe the robots will take care of him someday. I don't know. I I wouldn't say anything though. I'd stay out of this. No, I do not want to be the one who brings that up because guess what? That gets them thinking like, oh, maybe he want maybe he can take care of us. No, don't do it. Someone says, "Get them a smaller home." Fair. All right, next question. Oh, wait, hang on. Someone says, "If they own their house, they can sell the house and rent or move." That's That's a good question. For a lot of people, especially in the middle class, their biggest financial asset by far by far is a home and they have a lot of home equity. That's a good point. Reverse mortgage, sell the house, downsize, social security later, work longer. They could do this. Start just start making your internal plan. Don't share with them yet. Next question. All right. My girlfriend of five years, I'm 26, she's 27, based in the Northeast, and I are struggling to prioritize the following from a funds allocation standpoint. One, investing. Two, getting married. We we expect to cover most of the wedding costs ourselves. Good for you. Three, buying an apartment or home. Four, paying off student loans. Two specific questions. How would you think about prioritizing these large life expenses? And two, what's a good system for bucketing cash toward each goal correctly while maintaining a comfortable lifestyle? All right, one thing you have to accept in your 20s. I don't care how many financial blogs you're reading, how many personal finance podcasts you're listening to, you can't do it all in your 20s. That's okay. It's okay. You don't have to have it all figured out in your 20s. The first house we had came with an unfinished basement. It was a ranch, split level, whatever you call it, ranch, top level, all finished nicely. Two bedrooms. We needed more. So the whole basement finished, we had to finish it. Uh that cost a lot of money. So my wife and I had to prioritize different financial uh goals. We had to cut back on investing a little bit. Our savings all went into this renovation. It's okay. Sometimes life happens, right? Uh now some people look at this and say, "Hey, don't spend a ton of money in our wedding." Like easier said than done, people, right? Most people want a nice wedding. One of the great memories of my life and not just because I married my wife, but all the people that I love were in one place on a single day. Like, you want that to mean something. It'd be kind of special, right? It was amazing. I have some questions for you. All right. Chris says, "Pay off the high cost debt. Have some fun." That's fair. Yes. Um Oh, Sean says, "Elope and married a courthouse. You'll have so much more money." Come on, get out of here. It's boring. All right. Maybe I I did a courthouse wedding once with someone. It's not not that bad, actually. Uh All right. First question. So, what's your wedding budget? Cuz your wedding should take precedence over saving for a house right now. When you're done with the wedding, take whatever you're saving for that and start saving for a down payment. Let's keep the same amount, right? You're putting aside $500 a month, $1,000 a month for the wedding. When that is done, don't bank it. Put it right into saving for down payment. And I've heard this is a thing now. Young people for wedding gifts are setting up funds so people can for their gift give for a down payment for a house. 70% of the crap you get for your wedding registry you don't need anyway. Trust me, you don't need it. Get a nice set of plates, a nice set of glasses and cups and silverware. That's it. All the other stuff like do you really need a little boat thing for your butter? No. Down payment fund. That's a good idea. All right. What's the interest rate on your student loans? that like you might have to slow your investing to save for the wedding. But like if the student loan rate is I don't know six, seven%. Like that's when you can think about potentially like maybe the investing bucket slowly goes into there. My initial read on priorities. All right. Wedding is number one. All right. Get your 401k match is probably number two. At least save enough for the match. Uh your other investing goals might have to take a back seat for a while, right? Maybe it's just a 401k and not a brokerage account, right? Don't worry about paying off student loans for now. House, wedding matter, way more than that right now. You can't keep investing if it's at a lower amount. I think that's okay. Again, just to get your 401k match, sometimes life gets in the way of compounding, and that's okay. You don't have to do everything all at once. Okay. Some people in the chat say the Northeast is not a great place to uh with a house because it's so expensive. Fair. James says, "Do a tea wedding. Everything is inflatable." I don't hate it. My kids had a birthday party yesterday for the twins and we did an inflatable slip and slide, you know, with like the little pool at the end and it way bigger than the slip and slide I ever did in my life. Um, pretty cool. Not bad. Uh, it's okay to change your priorities, I think, as you have different goals in different stages of life. Like, oh no, I'm not saving enough to compound. Like, I get that feeling. But sometimes life gets in the way of compounding. And it's okay. You can't have it all figured out in your 20s. You have plenty of time to play catchup. All right. Next question. I have one more. One more. All right. We got all sorts of questions today, all over the map. I like it. I've never bought into the idea that AI is a bubble because a technology clearly has real world value. I tend to kind of agree with that. But with companies like Uber and Amazon publicly stating their massive spend has garnered uncertain returns, more businesses like Allirds pivoting to AI, and celebrities like Tristan Thompson promoting AI related investments, the old former cal catches a stray. I'm starting to see some.com era parallels. Could AI ultimately prove transformative and profitable yet still experience a bubble because of excessive spending, hype, and unrealistic expectations? This is the the debate that will never end. And I I I think for good reason. Uh throw out my blog post here. I wrote this in 2023. Okay. Is an AI stock market bubble inevitable? All right. I was talking about this a long time ago. It's kind of funny because the beginning of that blog post I said as of Wednesday's close, Nvidia had a market cap of 755 billion. Just one day later, the chipmaker sported a market cap of 939 billion. We're up only about five times from there. Crazy. Um, here's what allow myself to quote myself on this blog post. Throw the blog post title back up so people don't have to look at me reading. If it makes us even 50% as productive and efficient as some proponents are predicting, it seems inevitable this will lead to a bubble. We cannot help ourselves when it comes to new and exciting technologies. The creation of fiat currencies and new types of equity investments led to the South Sea bubble in the 1700s. The introduction of trains led to the railway mania of the 1800s. The explosion of new consumer and investment products led to the roaring 20s. The advent of the internet led to the do-com bubble of the 1990s. Each of these innovations ended up changing the world in many ways. But the speculation that occurred in the early stages of those innovations led to huge booms and painful busts to get there. There are no guarantees when it comes to financial markets, but human nature is the one constant across all market environments. Okay, take it off. Um I I am conflicted on this one. My my new book I wrote, it's basically like a hundred years of financial market history and all the bad things that can and will happen. And we certainly are checking off a lot of the boxes, right? technological innovation, huge capex boom, uh tons of speculation, stock charts going vertical, way far above average returns. It it certainly seems like a bubble is very very possible. But there's this idea that the the old saying is um those who don't study history are doomed to repeat it. I also think that there is something to the fact that people who study too much history think that it's going to repeat itself automatically. And one of the things that I've learned from studying stock market history is just that you're almost always surprised at the outcomes. And so I want to keep an open mind here even though part of my brain is thinking like come on this has to be a bubble. It has to just it's all the hallmarks. Uh, give me a chart on here of opening anthropic. The growth in revenue, the guys on what are your thoughts did this last night, so I stole that from them. Um, the growth in revenue is insane. And so, here's where I sit on this. I have an open mind about this, okay? I don't really know how it's going to end. um a bubble and a bust would not surprise me, but a great technological innovation that that markets are happening faster and speeding up where we just have, I don't know, a run-of-the-mill correction/bare market or a few of them, but the technology continues to power the markets higher, like that wouldn't surprise me either. Okay, the the whole idea of a bubble, you can do chart off. Uh Cliff Aznes once said that like uh the the definition of a bubble is like you can't get to the future based on what the present numbers are saying. And I think there is a situation where we could get to the future and the present kind of makes sense and all this spending actually does turn into ROI because there's so much demand for AI. Is that my baseline? I don't know. It's too early to say. So, I'm I'm just the I'm telling I'm what I'm asking people is to have an open mind about this. Strong opinions, loosely held. Don't pound the table on this stuff. Okay? I'm talking about AI bubbles. Everyone in the chat is talking about the Kardashians and Tristan Thompson. Um I blame Bill because he's in there, too. Um but yeah, I I don't have a strong take that this has to be a bubble. I think it certainly can be all right, but it doesn't have to be. That's kind of where I stand. Okay. All right. We did it. Just me. Tom Hanks style. The clock behind me is broken. I guess I'll fix it. If you have a question for us, come in the live chat. It's blowing up on YouTube. Watch us live on Twitter. Um, send us an email askthe compound show@gmail.com. We love your questions. Anyone ask a question today is going to get a signed copy from me of the new book. And guess what? We'll see you next week. Thanks everyone.