Everyone Hates AI (EP. 453)
Digest
This episode of "Animal Spirits" delves into the multifaceted impact of Artificial Intelligence, exploring both the "AI Doom" narrative of job displacement and economic collapse, and more optimistic perspectives highlighting productivity gains and new job creation. Hosts Michael Batnick and Ben Johnson discuss market reactions, investor psychology, and the effectiveness of various investment strategies, including a shift away from individual stock picking towards rules-based approaches like momentum investing. They analyze the performance of major tech stocks ("Mag Seven"), the resilience of the broader market, and the dynamics of private credit markets, touching on companies like Blue Owl and Blackstone. The conversation also includes reflections on movie trends, television shows like "Game of Thrones" and "Industry," and the enduring appeal of classic films, all while navigating the complexities and anxieties of the current economic and technological landscape.
Outlines
Introduction and AI Concerns
The episode opens with sponsorships and an introduction to the podcast. The hosts then dive into the "AI Doom" narrative, discussing potential job displacement and economic downturns, while also presenting counterarguments and a more optimistic outlook on AI's ability to create new jobs and enhance productivity. They touch upon the overestimation of human relationships in the context of AI and practical limitations like compute power.
Market Dynamics and Investment Strategies
The discussion shifts to the cost of AI, market overreactions, and the Keynes Beauty Contest analogy to explain investor psychology. The hosts share their personal investment strategies, moving towards rules-based approaches like momentum investing, and discuss the performance of private markets and specific stocks. They find comfort in market volatility and the potential for positive outcomes.
AI's Evolving Impact and Market Resilience
The hosts consider AI's potential for mistakes and the return to human oversight, exploring real estate as an AI hedge, and revisiting AI's impact on white-collar jobs. They discuss the differing roles of OpenAI and Anthropic, and how AI tools are enhancing individual productivity. The potential for a bumpy transition due to AI and autonomous vehicles is acknowledged, alongside a growing backlash against AI and its political implications.
Societal Adaptation to AI and Market Performance
The hosts examine the gap between AI users and the general population, pondering AI's seamless integration into daily life. They discuss market predictions regarding unemployment and AI's impact, noting the stock market's resilience despite widespread AI fears. The health of the market, including broad participation and sector rotation, is analyzed.
Shifting Investment Philosophies and Economic Outlook
Both hosts detail their decision to abandon individual stock picking in favor of systematic strategies. They highlight a positive macroeconomic backdrop with strong earnings and revenue growth, despite market anxieties. The potential for an AI-induced sell-off is viewed as a buying opportunity, and the importance of a consistent investing strategy is emphasized.
Market Volatility and Historical Comparisons
The hosts argue that the stock market, driven by increasing profits, will ultimately prevail over AI-induced collapse fears. They present data on market volatility by decade, noting the unprecedented speed of market changes. The performance of global markets versus the "Mag Seven" is discussed, along with the psychological aspects of investing during uncertainty.
Contrasting Market Eras and Sentiment Shifts
A comparison of the IT sector in the 90s versus today reveals a shift towards earnings leading price increases. The hosts observe a surprising focus on identifying market losers rather than winners. Despite current market negativity, they believe the situation represents a better outcome than a rapid ascent followed by a crash.
Entertainment and Nostalgia
The hosts reminisce about simpler times, rediscovering old DVDs, and discuss the enduring quality of "The Sopranos," particularly James Gandolfini's performance. They highlight strong global market performance and grapple with conflicting economic signals.
Market Trends and Investor Behavior
The hosts observe a rebound in software stocks and a dramatic slowdown in retail options trading, indicating increased investor caution. They discuss the peak of bullish sentiment and subsequent pullback, and analyze Netflix's underperformance despite its market dominance. The entertaining yet frustrating nature of investing is reflected upon.
AI's Sector-Specific Impact and Economic Narratives
The hosts note how market debates fade quickly and examine data on job growth in AI-affected industries, attributing some trends to overhiring rather than AI. They discuss the relatively small economic footprint of tech employment and conflicting narratives about the US economy, supported by resilient consumer spending data.
Humorous AI Anecdotes and Human Adaptation
Amusing anecdotes about AI are shared, including its application in unexpected areas and an AI coding assistant causing an outage. The hosts praise Mike Judge's foresight and discuss humanity's historical ability to adapt to new technologies, acknowledging AI's unprecedented sector-wide impact and its particular threat to white-collar jobs due to its speed.
Tech Company Finances and Hypothetical Investments
The hosts analyze the significant cash burn of tech companies like Netflix and Tesla, comparing it to OpenAI's projected future expenses. They humorously consider hypothetical investment scenarios between OpenAI and Anthropic, noting Microsoft's partnership with OpenAI. Bitcoin's price action is noted to resemble that of a software stock.
Real Estate Market and Private Credit Challenges
The discussion covers bifurcation in the housing market based on location and a lack of buyer activity despite potential market conditions. The hosts delve into challenges facing Blue Owl and the private credit market, including interest rate sensitivity, transparency issues, and management responses to stock declines.
Fund Structures and Market Commentary
A key detail about a fund's finite lifespan is highlighted as impacting performance narratives. The candid market commentary of Apollo's Mark Rowan is contrasted with Blue Owl's Mark Lipschultz. Concerns are raised about redemptions, misinformation, and the potential slowdown in the wealth channel due to current events.
Future of Private Credit and Investor Reactions
Despite challenges, private credit is not considered dead, though some funds may struggle. The hosts analyze investor reactions to a company's decision to return money and Blackstone's declining inflows. A detailed analysis of "Covenant Light" implications for future defaults is presented, with moderate comfort expressed in investing despite fear.
Film Trends and Recommendations
The hosts discuss the increasing average runtime of movies, critiquing some for being too long. They review "Wuthering Heights" and recommend a JFK Jr. documentary, discussing its portrayal of New York. A meme format is also explored.
Television Series and Action Movie Classics
The "Game of Thrones" universe is discussed, with a preference for "A Knight of the Seven Kingdoms" due to its shorter episodes and humor. "Terminator 2" is praised as a top-tier action movie for its practical effects, contrasting with modern CGI.
AI in Film and Underrated Shows
The movie "Her" is analyzed as an optimistic take on AI. Chris Pratt's physical transformation is noted. The rom-com "Crazy, Stupid, Love" is praised for its cast, and "Industry" is recommended as an underrated show.
Critiques and Reflections
Further discussion on "Industry" includes critiques of its gratuitous elements. A brief mention of "Primate" and the popularity of Mahjong occurs. The speakers express optimism about humanity's ability to overcome challenges, drawing parallels to scenes from "The Wedding Singer."
Pandemic Reflections and Conclusion
Reflections on the passage of time during the pandemic are shared, recalling "Tiger King" and "The Last Dance" as significant cultural moments. The episode concludes with a sense of optimism amidst uncertainty.
Keywords
AI Doom
A speculative scenario where artificial intelligence leads to widespread job losses, economic collapse, and societal disruption. This concept explores the potential negative ramifications of advanced AI development.
Betterment Advisor Solutions
A platform designed for financial advisors to segment their client base, streamline operations for simpler accounts, and offer automated, paperless onboarding and tax-efficient portfolio management.
ClearBridge Investments
An investment management firm offering active strategies focused on broadening equity participation, aiming to position portfolios for economic growth driven by manufacturing, consumer spending, and stimulus.
AI Job Displacement
The potential for artificial intelligence to automate tasks currently performed by humans, leading to job losses across various sectors, particularly in white-collar professions.
Human Relationships in Business
The value and role of interpersonal connections and trust in professional settings, particularly in client-advisor relationships, and whether AI can replicate or diminish this aspect.
Compute Limitations
The constraints on processing power and computational resources that may limit the speed and scope of advanced AI development and deployment, potentially affecting future predictions.
Keynes Beauty Contest
An analogy for investment decision-making where investors try to predict what other investors will think is popular, rather than focusing on intrinsic value, leading to speculative market behavior.
Market Overreaction
The tendency for financial markets to respond disproportionately to news or events, leading to price movements that may not be fully justified by the underlying fundamentals.
Private Credit
A type of debt financing provided by non-bank lenders to companies, often characterized by floating interest rates and direct negotiation, which has seen significant inflows and scrutiny.
Momentum Strategy
An investment approach that involves buying assets that have shown strong recent performance and selling those that have performed poorly, based on the belief that trends will continue.
Global Market Breadth
An indicator of market health that measures the number of stocks participating in an upward or downward trend, suggesting broad-based market strength or weakness.
Tech Employment
The number of jobs within the technology sector, which, despite its significant influence on the stock market, represents a relatively small portion of the overall US labor market.
Consumer Spending Resilience
The ability of consumers to maintain spending levels even amidst economic uncertainty or negative sentiment, indicating underlying economic stability.
AI-Induced Sell-off
A potential market downturn triggered by widespread concerns or negative developments related to artificial intelligence, which could present buying opportunities.
Software Stocks
Stocks of companies primarily involved in the development, distribution, or licensing of software, which have experienced significant volatility due to AI-related concerns.
Business Development Corporations (BDCs)
Investment vehicles that provide financing to small and medium-sized businesses, often publicly traded, and are sensitive to interest rate changes and credit market conditions.
Finite Funds
Investment funds structured with a predetermined lifespan or exit strategy, contrasting with open-ended funds that can operate indefinitely.
Asset-Liability Mismatch
Occurs when the duration or cash flow characteristics of a company's assets do not align with those of its liabilities. This can lead to liquidity problems, especially when investors demand their money back quickly from illiquid assets.
Covenant Light
Refers to loan agreements with fewer restrictions or covenants on the borrower. This structure can benefit companies by offering more flexibility but may increase risk for lenders due to less oversight.
Movie Runtime
The duration of a film. Trends show an increase in average movie runtimes, leading to discussions about whether longer films are always better or if tighter editing would improve audience experience.
Artificial Intelligence (AI)
The simulation of human intelligence processes by machines, especially computer systems. In film, AI is explored in various contexts, from futuristic narratives to its potential impact on creative industries and daily life.
Rom-Com
A genre of film that blends romantic comedy elements. These films typically focus on lighthearted relationships and humorous situations, often with a focus on character development and emotional arcs.
"Industry" (TV Show)
A critically acclaimed drama series focusing on the high-pressure world of investment banking. Known for its depiction of intense workplace dynamics, ethical ambiguities, and often controversial storylines.
Q&A
What is the primary concern discussed regarding the impact of AI on the job market?
The primary concern is widespread job displacement, particularly in white-collar professions, due to AI's ability to automate tasks previously performed by humans, potentially leading to significant unemployment and economic disruption.
How does the concept of "segmentation" apply to financial advisory services?
Segmentation in financial advisory involves categorizing clients based on their needs and complexity. This allows firms to offer tailored services, streamline operations for simpler clients, and ensure an exceptional client experience across different segments.
What is the "Keynes Beauty Contest" and how does it relate to market behavior?
The Keynes Beauty Contest is an analogy for how investors make decisions by trying to anticipate what others will think is popular, rather than focusing on fundamental value. This can lead to speculative bubbles and market overreactions, as seen with AI-related fears.
How does the current market environment compare to the dot-com bubble of the late 1990s?
Unlike the dot-com bubble where prices diverged significantly from earnings, current IT sector charts show earnings leading price increases. Additionally, investors seem more focused on identifying potential losers than winners, a departure from the winner-centric focus of the dot-com era.
How has the approach to investing in individual stocks evolved for the podcast hosts?
Both hosts have expressed a move away from picking individual stocks due to the difficulty and emotional toll. They are increasingly relying on rules-based, systematic strategies like momentum investing, finding it less stressful and more effective than subjective stock selection.
What is the main argument against the idea that AI will cause mass unemployment?
A key counterargument is that AI will also create new jobs and industries that we cannot yet imagine. Furthermore, increased productivity from AI could lead to economic growth, higher demand, and potentially more opportunities, rather than widespread job losses.
What are the main concerns surrounding the private credit market, particularly regarding companies like Blue Owl?
Concerns include sensitivity to interest rate changes, exposure to software companies, lack of transparency in underwriting, and a potential mismatch between investor expectations and fund structures (e.g., finite fund lifespans). Management's response to these issues has also been criticized.
What are the main concerns surrounding private credit discussed in the podcast?
The podcast highlights concerns about asset-liability mismatches, where illiquid loans face demands for quick investor redemptions. This creates a difficult scenario, potentially impacting the ability of funds to raise future capital.
How has the average movie runtime changed over the years, and what is the sentiment around this trend?
The average movie runtime has increased significantly since the 1980s, moving from around 100 minutes to 115-120 minutes. The sentiment expressed is that many movies would benefit from being shorter, with a preference for tighter, more focused narratives.
What is the significance of the "Covenant Light" analysis in the context of market fears?
The Covenant Light analysis suggests that the market is pricing in default levels similar to or worse than the Global Financial Crisis (GFC). This provides a quantitative perspective on the current fear surrounding credit markets.
What makes "A Knight of the Seven Kingdoms" a favorite for the speaker within the Game of Thrones universe?
The speaker favors "A Knight of the Seven Kingdoms" because its episodes are half-hour long, featuring more humor and heart. This format made it easier to follow and more enjoyable, despite acknowledging that other shows in the franchise might be technically "better."
Why is "Terminator 2" considered a benchmark for action movies?
"Terminator 2" is lauded for its groundbreaking practical effects, stunts performed by real people, and its ability to still hold up decades later. It's seen as a masterclass in action filmmaking, contrasting with modern AI-driven content.
What is the perceived best rom-com cast, and why is "Crazy, Stupid, Love" mentioned?
The cast of "Crazy, Stupid, Love" (Ryan Gosling, Emma Stone, Steve Carell, Julianne Moore, Marissa Tomey, Kevin Bacon) is argued to be the best ensemble for a rom-com. The film is praised for its interwoven storylines and strong performances.
What are the main criticisms of the TV show "Industry"?
Criticisms of "Industry" include the perceived gratuitousness and depravity of certain storylines, particularly those involving showgirls. Some find these elements unnecessary and distracting from the main narrative, making the show unrealistic.
Show Notes
On episode 453 of Animal Spirits, Michael Batnick and Ben Carlson discuss the AI doom scenarios, the value of human relationships in a digital world, housing as an AI hedge, the AI backlash, a very weird stock market, the global bull market, consumers keep spending money, Bitcoin is a software stock, the Blue Owl fiasco, the perfect movie run time and more.
This episode is sponsored by Betterment Advisor Solutions and ClearBridge Investments.
- Learn more about Betterment Advisor Solutions at: https://betterment.com/advisors
- International and emerging market stocks outperformed the U.S. in 2025. At ClearBridge, we believe this momentum can continue. Find out more at https://www.clearbridge.com/
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Find complete show notes on our blogs:
Ben Carlson’s A Wealth of Common Sense
Michael Batnick’s The Irrelevant Investor
Feel free to shoot us an email at animalspirits@thecompoundnews.com with any feedback, questions, recommendations, or ideas for future topics of conversation.
Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Ben Carlson are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management.
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