Chapter 1: Why are investors suddenly excited about the markets?
PUSHKIN
It looks like investors are really popping those happy pills. The Iran situation is the Iran situation. It's still bad. There's not a lot of ships moving around over there. Oil is still 50% more expensive than it was at the start of the year. So in general, it's not great. But, like, whatever. Stocks have not just recovered. In the US, they've zoomed up to new record highs.
And there's some classic overexcited silly stuff going on too. Today on the show, euphoria and joy across the land. This is Unhedged, the markets and finance podcast from the Financial Times. I'm Pushkin. I'm Katie Martin, a markets columnist here at FT Towers in London, where spring is in full swing. Lovely stuff.
And I'm joined down the line by the big man, Mr. Robert Armstrong, off of the Unhedged newsletter in New York City, where he's been thinking big thoughts about big tech. Rob... Are you feeling the vibes? The vibes are good. Are you feeling good?
I feel good. I feel exuberant. I am irrationally exuberant right now.
Record highs in stocks, baby.
Yeah, it's true. And it happened so quickly. I mean, the way I was thinking about this is like a week or two ago. you could say grouchily, the S&P 500 hasn't gone anywhere since October, and you'd be right. And then the S&P was like, watch this.
Hold my beer, yeah.
And now we have an S&P 500 that starts with a seven, which is something of a moment. We've never had it starting with a seven before.
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Chapter 2: What led to Allbirds' stock surge of 774%?
We've had a sustained period. of oil at $100 or more than $100, and it hasn't been a disaster. So it's like, okay, we can live like this, the world is saying. You know what I mean? This is a bearable equilibrium. Now, that can, of course, be wrong.
oil nerds keep telling us, if the blockade of the blockade stays in place for a long time, that it's not going to be a linear increase in oil prices, that oil prices will move in spiky ways suddenly and kind of geometrically rather than arithmetically.
So that- Yeah, it will be scary and horrible.
Right. But the market persists in believing that this piece of water is so important to global commerce that one way or the other, people will figure it out and get this thing open. They'll figure it out.
That is the market's assumption. So the market is saying, look, a few things can go wrong. Yeah, one of them is the oil price just hockey sticks, goes to like $200 a barrel and stays there. Yeah. Another is that central banks have a bit of a kind of brain freeze and jack up interest rates really hard to deal with inflation risks, which I think everyone agrees would be a bad idea.
And it's something that they're certainly suggesting they're not going to do just yet. And the third thing is that like the US economy falls into a recession, which nobody thinks is terribly likely. They are things nonetheless that could happen, but they haven't happened yet. So vibes are good, which is why you get really, really stupid things happening in markets. Now, here's a stupid thing.
Rob, you quite often have incorrect views about footwear. However, please tell us about a company called Allbirds, which I'm not familiar with.
So Allbirds made some kind of hippie sneaker made out of wool or hemp or something like that. I don't know. It's a shoe. They were quite a hit for a while, and then it all went wrong and the stock collapsed.
So have you ever worn these trainers?
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Chapter 3: How do geopolitical tensions impact market behavior?
I should know, but I don't know what's happening today. They have long-term liabilities, lease commitments, long-term debt or whatever. So it's like this shell with some liabilities in it. The assets and a few of the short-term liabilities have been sold off. It's this shell. And then, drum roll, please.
Well, then let me tell you the statement they put out yesterday. They said, we are pivoting, and I quote, to AI compute infrastructure with a long-term vision to become a fully integrated GPU as a service and AI native cloud solutions provider. What manner of nonsense is this?
They did fill up the whole bullshit bingo playing card in like one sentence there. They win the prize at the church raffle after that.
Yeah, they're changing the name to New Bird AI. Now, you, Robert Armstrong, hear this, and I, Katie Martin, hear this and think, this sounds ridiculous. However, the stock market goes, hooray, AI, sounds fantastic. So the stock closed 600% higher on Wednesday as a result of this, whatever this is.
Do we have the market cap in front of us of this monstrosity?
It's 100 million plus, I think. And the point is, you know, as of a couple of days ago, this was a corporate shell with negative value, as far as I can tell. In other words, it had some liabilities and basically no assets.
Selling trailers that not even Robin Wigglesworth buys anymore. I've heard it.
And basically, you know, if you read down in that announcement you just quoted the ridiculous part from, they're like, we have $50 million of financing to start being a GPU as a service AI dingbat machine. Right. So now it's like just a big box full of these liabilities and it's worth $100 million now. So what's going on here, Katie? Give me a hypothesis. Yeah.
I'll tell you what's going on here. We have seen this movie before. So when you have like stupid, speculative nonsense frenzies about nothing, people like companies that are basically like have basically failed or have shrunk dramatically for whatever reason, stick a word on the end of their name and hey, presto, their stock goes up 600% in a day.
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Chapter 4: What role does AI play in current market trends?
And then it's self-perpetuating momentum. And then it's like a fun game of chicken among speculative traders where they chase the momentum up and it's like, who's going to get out first and whatever. I just cannot believe, despite the existence of an AI tool that helps you pick your coffee. which suggests that terrible things about humanity. I just don't believe anyone is this dumb.
I don't believe there is one single person, one single trader in the entire world who is buying this story. I don't believe it.
I'm old enough to remember when markets were very serious and very serious things happen there all the time. And now there's just like a whole window of regulated financial markets that's opened up to this sort of just bullshit and it's annoying.
But I think the bullshit has become self-aware is the argument that I'm making to you, Katie, that no one actually buys the story, right? It's a trading event. The markets are exuberant. People have high risk appetites.
There is a community of people somewhere out there that wants to have fun trading this little wave, but they don't think that Allbirds AI is going to be competing with OpenAI and Anthropic anytime soon.
Let's move on from frivolous nonsense to something more serious, which is the thing that you were writing about in the Unhedged newsletter today, which is about like, and it is quite an important question, isn't it? What is AI worth? So there's a lot of, there's a handful of stocks. that are out there that are like super important to the AI ecosystem.
And they're holding up a lot of sky in financial markets, holding up like a large portion of the value of like US stock markets and global stock markets. And part of the idea behind that is that these companies are going to be able to charge good money for this AI. But we don't know that that's a thing, right?
Let me reframe your question slightly, Katie. I would say the question is, there is consensus that AI is going to be very valuable indeed. It is going to be worth a lot. The question is, who captures the value? So the example you might give is airlines. Airlines are incredible companies in terms of generating value for the world. Like, we get to go to France whenever we want, right?
We can fly to Japan. It's like world-changing industry. But we've all captured the value. The companies as businesses stink, right? Because of the competitive situation.
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Chapter 5: How do speculative trends affect stock prices?
is built really big computers, right? Really big places where there's metal and there's GPUs and there's cables and whatever. And that's a business, right? Selling computer power is a business. But it's going to be a business with modest returns, right? It's going to be like running a utility. And the money that's going in to this business right now does not expect utility-like returns.
So that is the question. Are AI models differentiated and can they be kept proprietary? If there's anyone in the audience who's smart enough to answer this question, please write us at unhedgedatft.com. I, unfortunately, am not smart enough to answer this question, only smart enough to raise it.
Yeah.
Because, yeah, you know, as you were writing in your newsletter, if this stuff is actually a commodity, right, and it's like water or worse, it's like air, then there's like a whole heap of money that's been thrown at the wrong thing that is a problem for financial markets, right?
Well, again, it depends what you mean by wrong thing. I never know how you pronounce this guy's name, and I'm going to mangle it, but Dario... Amadei? Am I saying his name correctly?
I believe so.
He's the chief executive of Anthropic, and he's a very interesting guy.
I think it's Anthropic. I think that's the thing you're proposing.
It's amazing they let me come on a podcast. In any case, you know, he has this thing like, you know, he thinks in three or four years, a data center, his term is going to be like a country full of geniuses. Like this guy really believes like, there's not going to be disease anymore.
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Chapter 6: What is the significance of the S&P 500 reaching new highs?
It's so much nicer. It is so much nicer.
And to be clear, the war could definitely get worse and then we'll flip back to talking about that.
But in the meantime, we're going to be back in just one second with Longshore.
Okey-doke, it is time for Long Short, that part of the show where we go long a thing we love or short a thing we hate. Rob, what you saying?
Katie, I am long the Strait of Vermouth. I don't know if you heard this yesterday, but our Treasury Secretary, Scott Besant, was talking about the war and its economic implications, and he misspoke talking about the crucial waterway and called it the Strait of Vermouth. And what I'm advocating here today is that we actually change the name to the Strait of Vermouth.
Remember, earlier in this presidency, we changed the name of the Gulf of Mexico to the Gulf of America. This is correct. Why can't we change the Strait to the Strait of Vermouth? And like put huge olives in it and like pump gin through it as well.
He must have been thinking about martini time.
I would be too if I had his job. I'm never going to call it anything else ever again, by the way, on this show, everywhere else.
He also mused out loud about what the hit to global GDP would be if London was hit by a nuclear rocket, which I think is strange.
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Chapter 7: What insights can we gain from the Allbirds case study?
I think I've got pretty decent taste in shoes.