Discover
Thoughtful Money with Adam TaggartSPECIAL REPORT: Did China's DeepSeek Just Pop The AI Stock Bubble? | Charles Hugh Smith
Thoughtful Money with Adam TaggartSPECIAL REPORT: Did China's DeepSeek Just Pop The AI Stock Bubble? | Charles Hugh Smith
SPECIAL REPORT: Did China's DeepSeek Just Pop The AI Stock Bubble? | Charles Hugh Smith
Update: 2025-01-27
Share
Description
Charles Hugh Smith joins me to explain DeepSeek and what it's potential significance is
BUY YOUR TICKET ATTHE EARLY BIRD PRICE FOR OUR MARCH 15 CONFERENCE at https://thoughtfulmoney.com/conference
BUY YOUR TICKET ATTHE EARLY BIRD PRICE FOR OUR MARCH 15 CONFERENCE at https://thoughtfulmoney.com/conference
Comments
Top Podcasts
The Best New Comedy Podcast Right Now – June 2024The Best News Podcast Right Now – June 2024The Best New Business Podcast Right Now – June 2024The Best New Sports Podcast Right Now – June 2024The Best New True Crime Podcast Right Now – June 2024The Best New Joe Rogan Experience Podcast Right Now – June 20The Best New Dan Bongino Show Podcast Right Now – June 20The Best New Mark Levin Podcast – June 2024
In Channel
Download from Google Play
Download from App Store
United States00:00
00:00
1.0x
0.5x
0.8x
1.0x
1.25x
1.5x
2.0x
3.0x
Sleep Timer
Off
End of Episode
5 Minutes
10 Minutes
15 Minutes
30 Minutes
45 Minutes
60 Minutes
120 Minutes
Transcript
00:00:00
All right.
00:00:02
We should be live.
00:00:03
Welcome to Thoughtful Money.
00:00:04
I'm Thoughtful Money Founder in your host.
00:00:06
Thank you for joining me for this special report.
00:00:09
Right at the end of last week, the world was rocked.
00:00:13
I think it's fair to say by the release of a new Chinese AI platform named DeepSeek.
00:00:21
And it has thrown a lot into question about the future of the AI ecosystem and then by association, the financial markets, which are heavily revolving around all the market cap that's been priced into the AI stocks,
00:00:37
the magnificent seven, if you will.
00:00:39
So to help make sense of this for the layman, I thought I'd have this special report just sort of to explain what we know so far and then to talk about with the potential implications of DeepSeek are both for the AI ecosystem,
00:00:52
but also for the financial markets in general.
00:00:54
And to do that, I have asked my good friend and mentor Charles Hughes Smith to join me.
00:00:59
Charles, how are you doing?
00:01:01
Good Adam.
00:01:02
Thank you very much for inviting me to talk about this super hot topic.
00:01:06
Well, thank you.
00:01:07
And folks, I mentioned Charles.
00:01:09
There's one of my mentors, T and I talk fairly regularly on the phone this weekend while I was taking my dogs out for a long two hour walk.
00:01:18
I spent all that time talking with Charles about the potential implications of DeepSeek.
00:01:25
And so I thought he'd be a great guy to bring on and really just for us to sort of rehash the highlights of what we were talking about.
00:01:32
Charles, I'll also let folks know, you know, this is obviously caught our attention.
00:01:37
If you've been on X at all over the weekend, you realize it's caught the world's attention.
00:01:41
I reached out to Fred Hickey, who many, you know, regular viewers of his channel have seen me interview on technological matters.
00:01:49
I have invited him to come on the program as well when he has something he wants to share with the world.
00:01:55
I believe he's still just heads down, making sense of all this and we'll first let his premium subscribers know, but then I'm hoping he may come on this channel.
00:02:03
I will say he has gone public on X saying that he thinks this is a seminal event in the AI industry and shares a lot of the concerns that Charles and I are about to talk about with you here.
00:02:14
All right, Charles.
00:02:15
Well, look, I guess first, let's just sort of recap for folks.
00:02:18
Let's say somebody was away on a long weekend.
00:02:21
He hadn't heard about Deepseek and Deepseek until they hopped on this call.
00:02:26
Why is Deepseek so noteworthy?
00:02:29
Why is it such a potential game changer here?
00:02:33
That's a great intro, Adam.
00:02:35
And I want to just preface by saying that you're the one that saw the potential here for the classic blacks one, you know, the disruptive event that no one anticipated.
00:02:46
And so you alerted me and then I started digging around as a result of that.
00:02:51
And then my readers started helping me, you know, find resources.
00:02:55
And so it's a team effort to understand something this consequential.
00:03:00
And so there's a lot of stuff out there already.
00:03:02
And a lot of it is great stuff.
00:03:04
And so what we're trying to do is summarize what's already out there.
00:03:08
The basic idea here is that the US approach to AI was sort of brute force, you know, use super fast, super costly, super energy consuming hardware,
00:03:20
you know, processors to process vast amounts of data quickly with high precision.
00:03:28
And that was viewed as a as a monopolistic kind of moat.
00:03:31
In other words, like if you didn't have billions of dollars to invest in this hardware, then then you were out of the race, you know, you were going to be a loser in the AI global race.
00:03:47
So now what deep seek has shown, which shouldn't surprise anybody that knows much about software.
00:03:55
And I don't claim to be an expert, but you know, I'm an observer is that they've they've found relied on clever software rather than super fast hardware.
00:04:07
And so this opens the door to getting the same results without the super costly super energy consuming super expensive hardware.
00:04:20
So that's where the revolution is.
00:04:23
And the point I would start with here is they've deep seek is issued their products as open source.
00:04:33
So in other words, their software is available for people to examine.
00:04:38
And so this is going to be used by many other smart people.
00:04:43
So I'm going to start innovating along these same lines.
00:04:47
And so this is not the end game here.
00:04:50
It's the it's the start of a whole new approach to AI.
00:04:55
So I think that last point I was going to raise if you didn't, but let me just sort of knock three things about it off for people.
00:05:04
Again, if you didn't know what deep sequence before.
00:05:07
Essentially, it's, it's a, you know, generative AI large language model platform that is apparently as good, if not in some cases better than the leading ones that we've all been hearing about so far.
00:05:24
AI Gemini Bard, whatever the ones that were being built by these big AI behemoths, right.
00:05:33
And what's notable about that is it, it was created for a pittance versus what the billions and billions that have been some kind of these existing big models.
00:05:49
So basically you get as good if not even better results for way way cheaper.
00:05:55
It's way way cheaper to build way way cheaper to run in terms of energy as you talked about you don't need and we'll talk a little bit more specifically about this in a bit.
00:06:03
You don't need as expensive hardware to run this.
00:06:05
In fact, you can run it on fairly cheap hardware.
00:06:08
And to your point, Charles, and very importantly, the AI models that we've known of before last week were all closed, meaning they were they were owned by the companies that were developing them.
00:06:18
Whereas this is open source code.
00:06:21
So anybody can copy this, run their own version of it, make whatever tweaks they want, make whatever improvements they want.
00:06:28
So it really kind of has changed the game.
00:06:31
So one of the, you know, it raises some questions about technology, which is wow is AI going to be a lot cheaper is this going to be an accelerant to the future of AI because it's going to be so ubiquitous and cheap and all that stuff and better.
00:06:43
But also it's going to throw into question a lot about the current market value that's in the magnificent seven AI related stocks, most of which are the biggest companies in the world.
00:06:56
And a lot of their market cap over the past couple years, a lot of growth in their market cap has been granted on the expectation that these guys were essentially going to have a corner on the market on AI.
00:07:07
And deep seek is maybe just blowing up those expectations and said, maybe this guy's might not have much of a corner and anything going forward.
00:07:14
You're nodding a bit as I'm saying this, but are those, you know, kind of the seminal parts of deep seek that the average layman should understand at this point in time.
00:07:22
Yeah, I think that's an excellent summary at them and we have to look at the current space to mag seven as quasi monopoly or monopolistic.
00:07:33
And that was the value proposition here.
00:07:36
In other words, was these companies have a lock and they're going to have 20 years of growth or 25 years or 50 years or whatever.
00:07:43
And that, of course, is extremely reminiscent of the dot com era bubble in the around 2000, which was looking at the internet as a permanent growth story with super high margins,
00:07:56
you know, famously in in video has like 75% to 90% margins on their hardware.
00:08:05
So everyone thought that was a forever story.
00:08:07
And so now that's not a forever story.
00:08:10
That's already a past story.
00:08:12
So now it's a new game.
00:08:14
And so we can't rely on valuing stuff as if it's going to grow for decades at its current pace.
00:08:21
And so I think there's a couple of other quick points here, which is I've, and again, this all the information that's coming out is like, you know, trying to drink out of a fire host,
00:08:33
right?
00:08:34
So we're all limited by what we can consume and understand.
00:08:38
Yeah, and this is a real time here deep seeks product can be used on a phone, like in other words, it fits on a smartphone.
00:08:50
So you don't need anything gigantic.
00:08:52
And it can also be downloaded and and taken off line.
00:08:57
So in other words, you know, you're not relying on an internet connection to, you know, the owner or the the the issuer of the software for anything.
00:09:08
And so those are powerful features.
00:09:11
And a couple of other points I want to make here is I've been observing the AI space for like 40 years.
00:09:17
And if anybody remembers this, you know, the language of AI in the 80s and that kind of thing, we've seen this space just disrupted and then crash again and again and again.
00:09:31
And so this is not actually unusual to say that the future that everyone thought was hammered out and rock solid has already dissolved and it's dissolved entirely.
00:09:43
So there's a lot of people going, oh, well, Nvidia chips are now going to be needed in robotics and blah, blah, blah.
00:09:49
Well, all that may very well be true.
00:09:51
But the bottom line is software has eaten the monopoly world that existed before deep seek.
00:09:59
And that's a good thing because monopoly is is inherently strangling, right?
00:10:04
I mean, it what it does is it limits innovation and creates barriers to widespread use.
00:10:11
It's on so forth.
00:10:13
So in a way, the stock market has been overvaluing the mag seven because they thought they had a monopolistic lock on their on their on their markets.
00:10:21
And so now that they're now that it's a free for all.
00:10:24
Then what's the value of of those platforms and so on?
00:10:29
And the answer is considerably less than when they were valued as monopolies.
00:10:36
And again, I can't stress this point what hard enough is it's actually way better for the economy that these monopolies have just been dissolved there.
00:10:45
And in other words, that there that it's more of a free for all now because the core of productivity is two things transparency like everybody's on the same level playing field and two that there's real competition.
00:11:01
And so now with deep seek, there's going to be a lot of different people coming out into the market with software based products that will run on smartphones.
00:11:11
They'll run offline if you need to.
00:11:14
And in other words, it's going to be a wide open space here again, which is good for any economy that's open.
00:11:23
Right.
00:11:23
And let me just, you know, no real quick as far as we know so far right and I'm already seeing some questions here about hey, how do we know this things even for real.
00:11:32
It's from China, you know, it could just be a big hoax.
00:11:35
I do think that we've had enough people banging on it since this was announced.
00:11:38
I think on Friday that, you know, real programmers are saying, no, this thing's actually really pretty good.
00:11:46
So as far as we know, Charles, what you've said is right, but, but folks, you know, they're probably still going to be some curve balls to come out around this over the next couple of days.
00:11:56
So take everything we say with a little bit of a, you know, knowing that we're peering through the fog of war here.
00:12:01
And speaking of war, we were talking about this yesterday, Charles, that, you know, what China appears to have done here is the,
00:12:11
the AI agopoly, right, these magnificent seven companies said, look, you know, we're, you know, we're going to be the, this is a winner take all game,
00:12:22
it's an arms race, we're going to win it like the US did versus the Soviets, where we're just going to spend our competitors into bankruptcy.
00:12:29
And China basically said, all right, well, we're, we're, we're not going to be able to win that war necessarily.
00:12:37
So let's try to fight a different type of war, not unlike, you know, how oftentimes when there's a big military power, the opposition resorts to grill attacks, right.
00:12:46
And China said, okay, look, we're just probably not going to be able to win their win on the timeline we want on a hardware basis.
00:12:53
So let's try to win on a software basis.
00:12:56
And there are two things that you mentioned that stuck in my mind around this.
00:13:02
One you said, this is kind of not unlike a Sputnik moment for those that were alive during the time where the Russians launched Sputnik, which was famously the first satellite ever to go into orbit.
00:13:16
And it was really where, you know, the West had the veil is confidence ripped out of its way from its eyes to realize, wow, someone's just made a technological leap that we didn't think possible and we're now perhaps behind in this race and have to catch up.
00:13:32
So one, I'd love to hear you opine a little bit on that.
00:13:35
And secondly, you were making a lot of direct comparisons to the Voyager satellite, you know, that was sent out in the 70s where they had so little available processing capability in that satellite that they had to get really,
00:13:50
really good with the little bit of code they were able to write for it.
00:13:54
And it has performed remarkably well.
00:13:56
So if you can just sort of elaborate on both those two points of yours because I think they're really interesting and sort of explaining why deep seat could be so big here.
00:14:06
Well, thank you, Adam.
00:14:08
And I noticed on today's scan of the web that famous investor and, you know, innovator in the browser space, Mark Andreessen also use the exact same phrase,
00:14:22
the Sputnik moment.
00:14:24
So I'm not sure whether that's a meme that came to us at the same moment or not, but I'm in good company.
00:14:31
Sorry, I saw Goldman mentioned it too, but again, that was after I'd heard you say it.
00:14:35
So I want to give you original props.
00:14:37
Yeah, I might have, I might have been first, who knows.
00:14:40
Anyways, it's what I think attracts Goldman and Mark Andreessen and myself to this idea is that it, it was a cultural shock.
00:14:53
As well as a geopolitical shock that that our dominance was not guaranteed.
00:15:02
And I think that that's kind of the vibe behind this use of this analogy in AI that our so-called dominance is was not guaranteed.
00:15:16
And to Adam's point, asymmetric advances can undermine brute force kinds of advances.
00:15:26
And I'm, again, I don't claim to be a software guru, but I have observed the space for like 40 years.
00:15:35
And so I refer back to the Voyager mission and you can go further back and say pioneer and so on.
00:15:41
But the Voyager missions launched in 1977, you know, 47 years ago are interesting because they're still out there.
00:15:48
They're 15 billion miles away and we're still communicating with them and they're still providing data.
00:15:54
And they carry, remember, in the 1970s, you know, the integrated circuit chip was new and they were very expensive and modest by today's standards.
00:16:08
So the Voyager one spacecraft carries three little computers and with a total memory of 69 kilobytes,
00:16:20
which is about the size of a low resolution JPEG photo.
00:16:24
So how do you play with something that's that tiny?
00:16:28
Well, you have to be really clever.
00:16:30
And so the Voyager spacecraft, Voyager one, it had a failure.
00:16:36
It lost contact.
00:16:38
And so the last year and so the mission controllers played around with it and just and realized there was one component that it failed in one of the three computers on board.
00:16:50
And so they used software to work around this by chopping it up into little pieces and then finding little bits of memory space where they could put it.
00:17:00
And what I think the point here is that software as Mark Andreessen famously said in 2011 is eating the world because it allows it allows you to bypass a lot of hardware barriers,
00:17:17
if you will.
00:17:18
And so and to Adam's point necessities the mother of invention and we've seen this throughout history where when some sort of abundance becomes goes away and scarcity is the reality,
00:17:32
then people get a lot smarter about how they're using the resource.
00:17:36
And so this I think that the sputnik moment is also powerful because we're talking about an energy, you know,
00:17:46
kind of picture here too where people are talking about bringing online, you know, thousands or hundreds of thousands of more kilowatts of energy to fuel these vast data farms that AI supposedly needed.
00:18:04
And so it's going to change the energy picture because if we don't need those vast new energy sources, then that's that frees up capital if you will for other better uses right and energy for other better uses right.
00:18:21
And can you talk about that for just a moment and again you do a good job of putting this in layman's terms to help me understand it yesterday,
00:18:31
can you just talk really briefly about why deep seek.
00:18:35
You know can deliver equal value at much lower cost it's really sort of a difference in approach right it basically has traded off a little bit of accuracy for a lot of efficiency correct.
00:18:51
Yeah I think that's a good way of putting it and again this is my interpretation all right so I could be wrong you know so but my interpretation of their approach is that precision in getting an answer you know in in the AI process right where you you're taking samples of stuff that you've learned.
00:19:17
And then you're projecting based on on those examples right and so that process.
00:19:23
So that needs to be guided and so that's guided by a system that we call like rewards like the system is rewarded for for increasing the probability that the answer is correct yeah so if the open AI kind of brute force hardware based approaches we're going to go in with extremely high precision.
00:19:46
So I want to think about this as like okay how many how many decimal points are we working with in a number right and so if you're going to and then at the end of that process after it's concluded it's it's answer then it's compressed right like everything else in the digital world it's like your your photo on your iPhone is two megabytes and then you know you want to send it in an email then you compress it down to 200.
00:20:13
But so it's the same kind of thing you lose a lot of that precision in the compression and so what the software approach of deep seek does is it says we're not going to go in seeking 95% you know precision we're going to go in at 85% at the start and we're going to we're going to tweak the rewards elements of the software.
00:20:37
So that the software will if the probability of a correct answer is declining the software goes what wait a minute let's just start over here and so you see the huge advantage of that instead of pressing through like grinding through this really high precision kind of stuff seeking some kind of perfect answer instead the software is starting out at a lower precision and it's looking to see if it's if it's on the wrong path.
00:21:04
And so you can see the huge advantages in that and how it could use 30 to 40% less processing power which is just staggering right I mean that's that's a that's a order of magnitude decline in the use of of energy and processing power so but you can see how these sort of tricks or clever programming could compensate for just brute force processing.
00:21:30
Yeah and and so you know that that's why it's so much cheaper right I think I've heard you said 30 to 5 I think I heard 45 times cheaper something like that and it's something crazy or 45 times less energy usage or whatever but when you look at what companies have committed to cat X so far.
00:21:54
It's in the tens of billions right I mean some of the big companies that's approaching you know 100 billion that they put into these massive farms of Nvidia GPUs and stuff like that what are they saying was the total capital cost of developing deep seek.
00:22:13
Well everybody's some extremely skeptical of this 5 million dollars they put out there and so but you know what let's just add two orders of magnitude to that say actually they spent 500 million but even that's not that that's still modest as you say compared to like and so that and so that's going to change the valuation of these companies and it's also going to free up a lot of capital for them to invest in something else.
00:22:42
But again the whole technology space is always about agility and adaptability and you know a lot of those things are cliches but but they're real and so I think I want to I want to touch on this geopolitical thing to a lot of people are saying oh wait a minute is this mean China's got the lead in AI.
00:23:03
I don't think that it's a state or government run option here to say oh we're going to control the world's AI I think what we really the dominance here is which economy is more open more transparent more open to sharing information and it's going to allow the the greatest number of people to start innovating with these new tools.
00:23:31
That's really what it will how weird would it be if that country were China it's just not historically culturally those are not adjectives that are used around China.
00:23:42
And so what's interesting is the whole world really is has an equal opportunity here it it's like the so it's like there's systemic issues here it's not just the software or the hardware whatever it's which economy as a system is more open more transparent more adaptable more flexible.
00:24:00
And it's going to give rewards to somebody working in their garage famously.
00:24:08
That comes up with a product that that people love now the other thing is what's the pricing of of this of these tools in other words the the monopoly idea or the quasi monopoly idea was we're going to charge a couple hundred bucks subscription rate for access to our tools.
00:24:27
And now if there's a tool that's free and can be downloaded on any smartphone that subscription model is dead in the water it's gone.
00:24:35
So I was going to ask you about that so so I have the memory of it's funny I've told folks here that I might try to get Brad Garling house the CEO of ripple on this program.
00:24:45
At some point because I knew Brad when I worked at Yahoo way back in the day he used to wait we ran several departments, but I knew investment is running Yahoo mail and I remember the day when.
00:24:59
Yahoo was you know you got kind of a base mail for free but if you wanted like some substantial storage so you didn't have to keep deleting email she had to upgrade the Yahoo mail plus and Yahoo was really trying to build a you know a premium revenue stream off of that because it had so many users.
00:25:19
And I remember the day where Gmail came out with unlimited storage right and so basically was that they just declared emails going to be free unlimited emails going to be free for everybody forever right and I just remember the sense of panic going on around Yahoo.
00:25:34
That day where they just saw you know this this revenue stream that they had in all their professional models just to go up and smoke is this kind of that moment for a lot of the the mag seven AI players that open the eyes of the world who had a business model they were counting on and all the sudden you know China said look.
00:25:54
This price of AI to the consumers go to zero.
00:26:06
I think so and let's look at the successful subscription models which are basically supported by monopolistic modes in other words Microsoft can charge a subscription rate for office 365 because they control 80% of the operating systems on the planet.
00:26:20
If you don't have a monopoly mode that forces people to subscribe to your service well then the fact is digital material is basically free to copy and so you know the web is famously a giant copy machine so I don't see any scarcity value that anybody can use to charge any kind of premium for these tools.
00:26:49
And again it we can come back to the precision element of it which is if something works 85% is good as something that's super expensive.
00:26:59
It's probably going to be good enough for 85% of the users right and so I don't see the use value in in AI in a lot of cases like a lot of the big mag seven or thinking it's going to it's they're using it to improve their search.
00:27:15
But we're not paying a premium for that search it's just costing them a fortune to run it you know we're not offered some platform where we have to pay money for a better search engine it's it's so I think a lot of the AI tools are in that category that the big players are thinking that that that there's going to be a revenue stream somewhere down the road you know per your example of email which doesn't materialize because there's no scarcity value.
00:27:44
No scarcity value in this.
00:27:47
All right so again folks that's one of the reasons why this deep sea clunch has just caught so many people's attention that literally you know overnight changed people's expectations of the technology but I think it also changed their expectations of the economics of this space.
00:28:02
Okay so there are some pretty big negatives that I want to talk about with you big potential negatives coming out of this but before we get to them let me just ask you on the positive side you mentioned this earlier that you said like this is great for the consumer right it's great for commerce that this new tool is going to be perhaps much more ubiquitous much more quickly much more cheaply it's going to require less energy inputs all that stuff.
00:28:28
So you see this as the it's a potential catalyst for really unleashing you know an economic boom not necessarily tomorrow but but maybe over the next five 10 years you know so is this something we'll look back as sort of a watershed moment of when you know AI became democratized.
00:28:43
Well that's a great phrase Adam democratizing AI and it's unknown because as you and I discussed privately yesterday.
00:28:53
There's a downside to the efficiencies of AI which is replacing human labor that can be automated now not all human labor can be automated but whatever can be automated will be automated and so.
00:29:11
There's some excitement around using AI say to optimize small business supply chains and if that means being able to have fewer employees or ideally a one person operation that used to require five or 10 people then that's the way that it's going to go but then the question that you raised which is well what do people who have been displaced by.
00:29:40
AI automation what are they going to do for a living and and a lot of the sort of standard responses oh well they're going to find jobs in AI and it's like no i'm sorry this is not that kind of revolution.
00:29:54
By the way this is one of the negatives that I have on my list so yeah yeah anyways it's it's it's like AI will just get better at doing its own work and so we're not going to we're not going to fill that employment void with 10 million programmers of AI.
00:30:09
And so that's that is an issue but on the other side of that coin is a lot of people are assuming that virtually all human work can be automated or done by robots or something and so there's but actually there's a lot of human labor that requires intuition tacit knowledge and.
00:30:34
Therefore it's not really that easy to automate it you know you can you can have some tools that might help the human do their job quicker faster better but the human is still going to be cheaper and better than than than the robot so.
00:30:50
There's upsides to that and so we can talk about that almost for another couple hours like well how do you deal with the employment unemployment issue here.
00:31:02
Okay alright so but if I if I if I took from what you said there Charles there are lots of reasons to have some excitement about what the future holds both commercially and also just you know hopefully we're going to see all sorts of breakthroughs and medical science and you know all sorts of things that will hopefully.
00:31:22
In richer lives and stuff going forward okay now let's get to my list of worries and and AI as a job killer is really high on that list as folks have heard me talk about in the past I don't want to start there though I want to start here and regular viewers of this channel have seen me put up.
00:31:42
This image before but you know this is a meme for those that are listening on the podcast to me of an elephant balancing itself on a beach ball and the elephant represents global capital the beach ball represents US equities so we've never had so much of global capital inside the US equity market there's just been huge inflows to the US stock market from the rest of the world over the past several years.
00:32:10
Yet we've never had the US equity market so concentrated and so few stocks so the in the image here the beach ball that the elephant is balancing on is itself being held up by a couple of ants which I've labeled the magnificent seven stocks.
00:32:24
I think it's something like they represented just those seven stocks themselves represent like 38% of market cap or at least they did at the time I made this meme here.
00:32:35
So I've been sharing this because I've been very concerned about how dependent the entire global equity market was on so few stocks and that's the question hey if one or more of those stocks start to stumble you know that could will that bring down the global stock market.
00:32:57
Here we may be about to find out the answer to that question and as we're talking here let's see that so this is you know Monday it's the these are the first couple of trading hours.
00:33:08
That the market's been open since deep seek was released at S&P's down 2% the Nasdaq's down 3.5%.
00:33:15
I mean honestly Charles we've seen markets down much greater at previous corrections.
00:33:23
It is funny that people kind of running around with their hair on fire at the moment when the indices aren't down by all that much yet but Nvidia is down 17% as we're talking I mean that's that's a lot that's a few percentages points away from a fifth of its value being gone and you know a single trading open.
00:33:41
I'm going to see if I can share this on my screen and if I can't I will stop trying to do this but bear with me one second if you can share screen share screen zero hedge.
00:34:00
Alright so hopefully folks you can see some of these headlines here but Nvidia hot money turns dead money Nvidia is crashing below its 50 day 100 day and 200 day moving average this is a rare exclamation point to our the stories down is cheap AI a black swan event.
00:34:20
So you know the media obviously is is breathing pretty hard right now about the potential that you know this new deep seek release could have in terms of its threat on the market value of these mag seven companies that are keeping up the entire global equity market.
00:34:40
So I guess where I'm going with you on this Charles is let's assume that deep seek you know it's assumed for a moment it is as disruptive as we think it's going to be here how big do you think the impact is going to be on the financial markets.
00:35:00
Well I think you've outlined the core issue here Adam which is the incredible and historic extremes of concentration in in these seven stocks and and not just in the US markets but globally.
00:35:18
And so that that leverage or concentration is of course makes it makes these issues extremely vulnerable and the whole market a vulnerable because of course as you've posted before Adam the number of global stock market concentration in the US is something like 65% of all global equity wealth is in the US markets.
00:35:47
Despite the US having 4% of the world's population and maybe 18% of the GDP so this kind of these kinds of extremes are just sort of begging for some sort of disruption and and return to some sort of baseline.
00:36:03
So I think that is a great potential risk and I don't really see it as as a as a possibility I think it's more like an inevitability and this is what a lot of technical analysts have pointed out and and historical references right to every bubble pops for some reason and so we can go back after it's popped and and argue about what the what the pins were but the bottom line is.
00:36:32
These dynamics occur on their on their own so I also want to emphasize that we're not really talking about one company or one tool you know in other words whether deep seek vanishes tomorrow or not.
00:36:48
It doesn't matter what matters is the approach of using software that's not going to go away right if I can interrupt you for one second because I like it we've been to your answer i'm kind of like iting it to Roger banister breaking the four minute mile right it was something that people just thought was humanly impossible right for centuries millennia and then he broke it and then I think in the year after he broke it it was broken like another.
00:37:17
12 times or something like that because people now knew it was possible and so to your point China basically showed the word this there's other ways to do this and now that people realize there is a ton of innovation can bloom as a result that wouldn't have happened before because people just didn't know it was possible.
00:37:37
That's that's a great analogy and and again the point here is global capital poured into the mag seven and the AI space for what reason well it was considered a slam dunk it was a guaranteed growth story right with no end in sight so why not put your money where it's going to be safe and and and expanding growing generating profits and so.
00:38:06
That if that if that magnet idea has been mooted has been basically evaporated then.
00:38:16
And then it clinging on to these that idea is going to be disastrous because it's just no longer the case so when when we saw the last of kind of tech bubble 25 years ago then the NASDAQ fell about 80% over the next two and a half years and i've often posted a chart of bubble symmetry which is you know bubbles that that have a sharp.
00:38:44
Decline at basically over the same time frame and scale so the NASDAQ went up for two and a half years like in a you know parabolic rise from a thousand to five thousand and then it fell.
00:38:57
In the about two and a half years back to a thousand and it took 13 years to recover and if you adjust for inflation it took 16 years so it's hard not to look at history and go well who benefited.
00:39:12
You know who adjusted more wisely the people who sold at the beginning when they realized that the story had changed or the people who hung on and believed that you know this was a minor problem and that you know they have a lot of reasons to think it's going to come back well obviously the people who just realized the story had changed fundamentally and got out.
00:39:37
And sought some other place to put their capital benefited far more than people that kind of clung on to the story seeking some reason to believe that it was still true and so I think we're at that that kind of moment where denial is extremely appealing you know because it's sort of like wait a minute it can't be this it can't have changed you know there's the fundamental stories still got to be there.
00:40:05
If you look at the dot com area it's instructive because of course the internet did grow but it was no longer profitable at the rate and in the places that it then it had been previously growing rapidly and and expanding margins and so we're not saying that the AI space is dying it's simply that it's going to be expanding in ways that are not that are not generating gigantic margins.
00:40:30
Yeah and you've you've talked about that in years past where even before AI came along.
00:40:39
You know there was the argument that technology is you know going to continue to sort of this place human labor but don't worry because we'll be able to tax these corporations and then give everybody you be I and it'll be great everybody will have lots of free time and whatever and you remember you're saying well look it's not how it works you know basically these profit margins get competed away over time.
00:41:07
So there's just not going to be the profits there to tax the way that people are sort of magically thinking and of course you and I I don't think that would be a good thing for society anyways if we just told people hey don't go to work and just you know collect your your Jack.
00:41:22
But you're sort of nodding as I'm saying this so there is no sort of perpetual free lunch here right.
00:41:30
Yeah and of course there's a lot of debates about where what's the government role you know and the general view is that government shouldn't pick the winners because that typically doesn't work out that well right and so the government's ideal role shall we say is to keep the playing field level.
00:41:49
And not let a monopoly take over the market and and stifle innovation so I think that there's some truth to that and we can look at that and say well you know if the current quasi monopolies blow up and are no longer that profitable.
00:42:08
Then that frees up frees up capital and talent to go elsewhere and and perhaps it's into a more decentralized use of of these tools as opposed to concentrating the power in a handful of giant corporations.
00:42:23
So let me let me take that to go into my next issue but real quick just to put a bow around this you know there's a lot of discussion even going on in the live chat here of some people saying hey this is a by the dip moment some people still saying hey look this is actually a great thing for the AI ecosystem even the big players.
00:42:43
You know when the dust settles this is going to be nothing but good news for everybody so again we don't know yet exactly how this is going to unfold but listening to you Charles it sounds like you're saying look one just given concerns about bubble valuations anyways but also given the the nature of the disruption of deep seek sounds like you're thinking this is a time to be more defensive when it comes to the financial markets and offensive is that accurate to say.
00:43:12
Yeah and again it's because I've lived through bubbles and so I and I felt the same emotions you know like we're we're still dealing with human.
00:43:22
Wetware 1.0 is what I call it which is you know when we are really committed to something and attaches something that we find reasons to support our attachment to it and it's very hard for us to let go of it and so.
00:43:37
That's that's this what Nick kind of um analogy here that if if the world has indeed changed essentially overnight then we're forced to adapt to it or we're going to suffer the consequences of of clinging on to something that's no longer valid right and so and technology does this all the time to us so it's it's not exactly new and and so.
00:44:06
I think the the challenge for individual investors is to struggle with our own emotions really and and and to try to be as objective as possible about the nature of this change right and so and and to your point you often counsel people to consider diversification so if somebody's account is is heavily.
00:44:34
It's concentrated in these mag seven stocks I mean it just kind of common sense suggests well maybe now's the moment to diversify you know and I think I think that I would kind of stress here that the same the spot Nick moment is.
00:44:49
You're writing the elevator up and you think it's just rock solid you know profits are going to be higher and the markets caps going to go higher and so on so forth and then suddenly the elevator.
00:45:00
The floor of the elevator just drops out and you're staring down a 90 story shaft and it's like wait a minute what happened and I think we're kind of at that moment and so it's going to take a while for us to reconcile our you know get our minds wrapped around that and so.
00:45:20
What's going to happen in those in that period where we're trying to grasp the scale of what's happened and what will happen then there's going to be a lot of uncertainty so you know we have to kind of accept or embrace that uncertainty as painful as or difficult as that is.
00:45:39
Very well said so Charles I'm seeing while I just pull it up here.
00:45:51
Mustaki says yes love Charles who Smith how would we not hit him on more here.
00:45:57
So thanks for putting that because I actually invite Charles on a lot he's just he's a very busy man and very much appreciate you coming on today on incredible short notice Charles and I know you have a.
00:46:07
A meeting that's coming up soon so we're all going to keep you for a couple more minutes.
00:46:13
Real quick folks if you've enjoyed you know if you enjoyed this format of bringing on a big thinker like Charles to react in real time to big world developments like you know this whole deep sea launch.
00:46:27
Let us know in the comment section X if you do obviously want to do more of this and specifically if you love having Charles on the show please let him know that in the live chat to and maybe they'll commit some to come back on a little bit more often in the future.
00:46:40
Alright so two last points and we'll wrap it up so we talked about the threat of AI as a job killer earlier you know you mentioned about you know people getting large amount of people getting displaced by AI and it's it's good if you can put them to.
00:46:55
Additional productive use but we were kind of.
00:46:59
Going back and forth on this yesterday I think one can make the argument that this technological transition is quite different than many other ones that we had in the past where you know if you're if you were in the horse and buggy whip industry and you lost your job well you could just go walk across the street and apply for a job at the forward automotive factory right.
00:47:19
The whole difference in this automation robotics AI world is to get rid of human labor so when the human job goes away there's not necessarily another human job that opens now it will create opportunity for aspiring entrepreneurs where.
00:47:35
One person now can do the job you know it can create a company that can do the work of a 5,000 person company without the real people right it can leverage technology to do that the question is is what happens to the 5,000 people that were displaced who in many cases might have.
00:47:53
A skill set that's low enough or easily repicable enough by AI or other types of automation or robotics that they there's just literally there's nothing need for them right and we end up having this massive unemployment crisis where we've just got a ton of people who just literally are unemployment.
00:48:15
So let's differentiate the economy from the society and and so the general sense over the last couple decades of neoliberal capitalism or the whatever you want to call it is the economy dominates everything and finance dominates the economy.
00:48:34
So we just let finance and technology run and then we sort of pick up the pieces of whatever's been creatively destroyed or disrupted and actually I think we've sort of lost sight of the fact that we also are a society and so there's a social system a social platform social set of values.
00:48:59
And we're going to have to make some social decisions here that will influence the economy in other words we you know you can't just let the economy become your society because things like unemployment destroy your economy by by first destroying your society you know your social order unravels the social contracts disrupted and so on so.
00:49:28
It's people look at this as sort of well what's the government going to do or shouldn't do or should do and the government is is in some ways an expression of our social awareness our social values social changes and so if we as a society decide that.
00:49:48
Having paid work is a priority one way or the other then we'll have to figure that out and it'll have economic impacts right like how are we going to pay people and what what do we consider useful work if if the private sector can't fulfill that that need to for employment.
00:50:09
Then should the state you know step in and provide some kind of platform for employment and of course we saw this integrate depression with the public works programs.
00:50:22
So those are questions that we're going to have to answer as a society and that's that's all I would say about that you know I guess my question to you is is is do you think the deep seek the deep seek development is accelerating pulling up the date by which we as society are going to have to begin to face those decisions.
00:50:45
It seems highly likely yeah yeah all right last question and then we'll close it up.
00:50:54
Does this potential introduction of cheap ubiquitous good AI accelerate us towards the day where sky net awakens and all the robots decide they don't need humans on earth anymore.
00:51:14
And and one of the reasons why I asked this is is you know really kind of up until about now you know AI was was sort of looked at as a as a sovereign pursuit right yeah in America or big big tech companies are pursuing it but there's a lot of government involvement and there's you know lots of people at these companies thinking about how do we you know prevent AI from eventually metastasizing into something that we don't want it.
00:51:43
To be and there've been worries that there would be other countries that maybe didn't have a strong ethics controls as we do which is true potentially but now that it's kind of given to the world.
00:51:56
You know are we increasing the risk that that somebody somewhere can create an AI that decides you know.
00:52:05
It doesn't need humans to want humans and and something you know bad happens is probably not going to happen tomorrow but could it happen in five 10 years I don't know.
00:52:15
Well that's a great topic Adam and clearly you could for just obvious example you could take a drone and you could load it with software that allowed it to autonomously kill some other humans.
00:52:32
Without without any human intervention for example that that would be very doable right it with today's technology and we don't there's no way to constrain that right from bad players pursuing that right for example.
00:52:49
I think your larger question is is a GI you know general intelligence within reach and of course this is like we can debate it.
00:53:00
But I think I think there's a lot of limits on on general intelligence that are poorly understood and I would recommend the book the myth of artificial intelligence.
00:53:12
If anybody's interested in exploring the conceptual limits on general intelligence and the kind of AI we have now.
00:53:21
So that's a separate question you know are we about to enter the dystopia of you know that robots take over.
00:53:28
That's one question the other question you answered you asked is is more relevant I think and more immediate which is can I be used to do things that are destructive to human life and human standard of living and then the answer is unfortunately yes.
00:53:47
All right and I'd like to continue pulling on that thread with you but it's too big a topic that we don't know what that time but I appreciate you giving the concise answer there.
00:53:56
All right well Charles look again thank you so much for joining us here very quickly I want to put up the link to your.
00:54:03
So if folks weren't familiar with you before this interview and they'd like to get familiar with your work then go to your sub stack anything you want to tell them about it in particular.
00:54:14
No go ahead subscribe for free and if I don't annoy you too much.
00:54:20
Keep going yeah not not at all I don't I don't even need to really tell folks here you know how much I value your thinking and they've just seen it for themselves here but yeah folks if you.
00:54:32
You know like what you've heard from Charles today you're going to love what you see on the sub stack there.
00:54:38
Now folks for those of you that are you know saying hey look Adam and a lot of his guests that have been on the program have been warning about the market's vulnerability to some exogenous shock.
00:54:49
And now maybe you know deep deep seek could potentially be one of those shocks what does that mean for my portfolio what steps should I consider taking especially if I'm regretting maybe not having been a little more diversified before this weekend.
00:55:01
I highly recommend that you sit down with a good financial advisor who understands all the macro issues that we talk here on this channel.
00:55:08
If you don't have one or like a second opinion from one who does obviously you can just go to thoughtful money dot com fell at the short form there and have a free consultation with one of the financial advisory firms that.
00:55:20
Money endorses and you know these are the firms you see with me on this channel weekend and week out I also just want to remind folks who you can bet your bottom dollar we will be talking about the implications of this at thoughtful money's fall conference which again is coming up on Saturday March 15th.
00:55:36
And if you want to get your ticket for that at the lowest early bird price which we're still offering it at right now go to thoughtful money dot com slash conference.
00:55:45
All right folks please let Charles know how much you appreciate it and we're both in the comments but also by hitting the like button and then clicking the subscribe button below as well as that little bell icon right next to it Charles my friend again I really appreciate you hopping on it with zero notice to do this today it's been a great discussion.
00:56:01
Yeah it's been my pleasure Adam thank you very much for the invitation.
00:56:05
All right everybody else thanks so much for watching.
00:56:17
