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Speaker 1: Pushkin. I'm Lidia Dean caught, I'm Michael Lewis.

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Speaker 2: And surprise, we're here for an extra episode of The

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Speaker 2: Big Short companion series one.

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Speaker 1: We weren't expecting that's.

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Speaker 2: Right, Yeah, because we got the hedge fund manager Michael

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Speaker 2: Berry to be on the podcast.

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Speaker 1: We didn't really get him to be on the podcast.

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Speaker 1: It's funny. What happened.

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Speaker 2: Well, first we should say how Michael Berry is.

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Speaker 3: Michael Berry is one of the three main characters in

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Speaker 3: both the book and the movie of The Big Short,

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Speaker 3: and he was a really important character to me.

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Speaker 2: And in the movie he's played by Christian.

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Speaker 1: Bale and in the movie he's played by Christian Bale.

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Speaker 2: He doesn't do interviews, and we've asked him to be

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Speaker 2: on the podcast earlier and he said no. So yeah,

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Speaker 2: So what happened.

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Speaker 3: First he said, you know, I'd like to help, and

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Speaker 3: then he said I don't, I wouldn't like to help.

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Speaker 3: And then what happened was his trading activity got released

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Speaker 3: to the public, which it does. He has to file

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Speaker 3: a thirteen F four with the SEC saying what his

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Speaker 3: positions are. And as though it's not a perfect picture

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Speaker 3: of what he's doing, it did say that he had

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Speaker 3: put on big short positions against U Palanteer and Nvidia,

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Speaker 3: so he was betting against the AI bubble.

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Speaker 1: All he did was file what his positions were.

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Speaker 3: He didn't go on he doesn't do media, he doesn't

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Speaker 3: do interviews, and it exploded like it was on Twitter

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Speaker 3: on CNBC, people were both attacking him and praising him,

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Speaker 3: and his reasoning for not coming on the podcast was

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Speaker 3: he wanted to lay low and he was trending on

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Speaker 3: Twitter for forty eight hours, so it was like, what's the point? Yeah,

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Speaker 3: he can't lay low. Yeah, And as he tells us,

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Speaker 3: he says like this only happens to me. But I

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Speaker 3: was really glad to have him on because I felt

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Speaker 3: like we were missing somebody.

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Speaker 2: Yeah, no, same, and also because people were asking. I

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Speaker 2: was getting messages and being like, are you guys gonna

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Speaker 2: have Michael Berry?

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Speaker 3: There's something also nice about subjects who does just who

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Speaker 3: aren't promiscuous, who don't just talk to.

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Speaker 2: Everybody, because that makes you feel special, or it makes you.

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Speaker 3: Feel special, makes it makes your audience feel special, and

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Speaker 3: the reader feels special like nobody else has this story.

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Speaker 2: And one thing I wanted you to explain it is

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Speaker 2: he was one of the first people, one of the

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Speaker 2: early people right to bet on the subprime mortgage crisis.

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Speaker 2: And when he was trying to do it, there weren't

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Speaker 2: any financial instruments to do that right.

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Speaker 3: You had to It was how to do it in

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Speaker 3: a way where if the madness just kept going and going,

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Speaker 3: you weren't going to be bankrupt quickly. So you could

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Speaker 3: have done things like bet against mortgage companies in the

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Speaker 3: stock market. You could have shortened their stock, but you

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Speaker 3: know that's a it's a beth. It's hard to hold for.

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Speaker 1: A long time, and so you have to your timing

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Speaker 1: has to be exquisite.

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Speaker 3: What he did was basically invent, or have Wall Street

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Speaker 3: firms invent for him, the credit default swap on subprime

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Speaker 3: mortgage bonds, which is essentially an insurance policy on bonds

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Speaker 3: backed by some prime loans. So if the loans go

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Speaker 3: bad and the bonds go bad, you get paid off

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Speaker 3: on this insurance policy. Think of it like I get

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Speaker 3: to buy insurance on your house and fire insurance and

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Speaker 3: if it burns down, I get paid. So there's something

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Speaker 3: a little goofy about it. I mean, it used to

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Speaker 3: be very oddly. It used to be that I could

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Speaker 3: go buy life insurance on you, and if you died,

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Speaker 3: I got paid a bunch of money.

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Speaker 1: This obviously creates a very bad incentive murder. Yes, yes, exactly.

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Speaker 3: But you can do this in the financial markets. You

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Speaker 3: can buy insurance policies on other people's bonds and if

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Speaker 3: they the bonds go bad, you get paid. You couldn't

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Speaker 3: when Michael Barry started to think about this situation, you

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Speaker 3: couldn't buy an insurance policy on a subprime mortgage bond.

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Speaker 3: So he had to go help Wall Street create it

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Speaker 3: for him, and then all the other characters in the

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Speaker 3: story are then using that thing he creates to make

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Speaker 3: the same bed.

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Speaker 2: Is there anything else you wanted to say related to

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Speaker 2: Michael Berry?

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Speaker 3: I would say that the one other thing that's interesting

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Speaker 3: about him is that he so let me into his life.

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Speaker 1: He just doesn't really do that usually.

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Speaker 3: It created an intimacy, Like I just really got to

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Speaker 3: know him and really enjoyed like just hearing what he

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Speaker 3: had to say, Like I just learned stuff from him.

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Speaker 3: Even when he doesn't make money on what everybody he's making,

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Speaker 3: it's really interesting to hear what he's thinking and just

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Speaker 3: like have that as part of the furniture.

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Speaker 1: In your mind.

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Speaker 2: Michael Lewis's conversation with Michael Berry is coming up. It

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Speaker 2: really is a very fun listen.

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Speaker 1: I remember you handing me your emails, and like.

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Speaker 3: You had, like thousands of you had communicated with the world,

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Speaker 3: your whole trading life for years through email, and so

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Speaker 3: it was a real time account of your thoughts of

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Speaker 3: Wall Street's response to your thoughts of how the market moved.

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Speaker 3: It was unbelievably valuable. It was so different from like

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Speaker 3: everybody reminiscing. Do you remember that?

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Speaker 4: I remember that, and those emails I think were the

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Speaker 4: main reason I didn't get sued by my investors, Because

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Speaker 4: if I had been a skilled orator or somebody who

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Speaker 4: loved giving conference calls, I would have done conference calls

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Speaker 4: with my investors and then maybe they wouldn't have been recorded.

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Speaker 4: And but here I had emails with everybody on everything,

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Speaker 4: and so it was very clear where we stood with everybody.

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Speaker 3: You were like for me, you know, people came to

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Speaker 3: the right answer in different ways, and you came to

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Speaker 3: the right answer in such a satisfying way, because not

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Speaker 3: only did you see that the irresponsibilities in the subprime

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Speaker 3: mortgage market, but you actually had a theory about the

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Speaker 3: timing of it when it was all going to come unraveled.

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Speaker 3: And the problem with these positions like with oh, there's

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Speaker 3: a lot of insanity and X or Y is that, yeah,

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Speaker 3: you can be right, but you can be wrong for long.

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Speaker 1: Enough that the market just takes you out of your positions.

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Speaker 4: I think that's right. This is why this is the

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Speaker 4: Big Short. It's the once in the century opportunity to

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Speaker 4: actually say, I know when this is going to happen, right,

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Speaker 4: you know, I've compared this to the nineteen nineties bubble,

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Speaker 4: and the reality is there was no telling.

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Speaker 1: When that would end.

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Speaker 2: Right.

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Speaker 4: In most situations like this, there's no good way to

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Speaker 4: time it, and shorting it is just a high risk endeavor.

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Speaker 3: Well, we're going to get to today, but I wanted

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Speaker 3: to just revisit the Big Short just a little bit.

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Speaker 3: And I'm curious what effect it had on your life.

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Speaker 3: I mean, there was the trade, there was the book,

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Speaker 3: and then there was the movie. You did let Christian

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Speaker 3: Bale come and hang with you for a day, but

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Speaker 3: you were remarkably chill about the whole thing. And I

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Speaker 3: don't think I've ever felt like I've really recapped with you, like,

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Speaker 3: what effect this thing had on you?

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Speaker 1: If any I think I didn't know? I you're right.

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Speaker 4: I mean, I'm on the autism spectrum. So I'm pretty

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Speaker 4: good in my own head and I'm pretty good at

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Speaker 4: blocking out stuff. And so even this movie, I saw

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Speaker 4: it at the premiere. I haven't watched it since the book.

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Speaker 4: I read it when it came out, and I haven't

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Speaker 4: read it since. That's how I felt about it. We

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Speaker 4: just I just move on and so kind of took

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Speaker 4: it as it came. I went to the premiere because

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Speaker 4: my whole my family wanted to go to the premiere.

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Speaker 4: And I, you know, as you know, I don't do

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Speaker 4: interviews because I don't feel I'm good at this, and

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Speaker 4: so I you know, I haven't done one, I think

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Speaker 4: since like, I haven't talked to anybody since I think

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Speaker 4: the sixty minutes interview about the Big Short about this

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Speaker 4: in an interview format. And now it's the tenth anniversary

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Speaker 4: of the film, fifteenth anniversary of the book, and yeah,

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Speaker 4: I can't believe it's been that long. But you know,

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Speaker 4: I just kind of go on and do my thing

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Speaker 4: and it doesn't really affect me too much.

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Speaker 3: You didn't feel it puts you in the position of

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Speaker 3: oracle that all of a sudden, people are expecting you

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Speaker 3: to predict the next thing.

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Speaker 4: It was, as we mentioned, it is a very unique circumstance.

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Speaker 4: It was a once in a century type trade. People

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Speaker 4: say one, you know, once in a century, flood, once

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Speaker 4: in a century, this one, and it's not really true,

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Speaker 4: it happens every ten years. But this was that opportunity

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Speaker 4: was very unique. And I've basically told everybody I can

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Speaker 4: it ever since that that that's not going to happen

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Speaker 4: again anytime soon. What made it unique, Well, I was

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Speaker 4: basically permitted to buy insurance on these bonds that were

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Speaker 4: incredibly I liquid, and I was permitted to basically buy

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Speaker 4: insurance and then trade and profit off them without actually

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Speaker 4: having the insured item. And it this was not expensive.

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Speaker 4: Nobody thought this could happen. I'd put on a lot

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Speaker 4: of my position by late two thousand and five, and

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Speaker 4: I got a call from Go and Sack saying, what

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Speaker 4: are you doing. You're the only person who noticed. You're

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Speaker 4: not a mortgage fund, you're not hedging, You're doing something different.

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Speaker 4: It's not something that people were generally aware of. And

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Speaker 4: I was and so I could kind of walk in

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Speaker 4: and basically.

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Speaker 1: Pull the caper off.

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Speaker 3: There are three things I want to talk about at

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Speaker 3: the back end of the big of your story in

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Speaker 3: the big short, and then I want to move on

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Speaker 3: to the present. But the first is, you have this

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Speaker 3: terrific win, your investors make a lot of money, and

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Speaker 3: you end up closing your fund.

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Speaker 1: You remind me why you closed your fund.

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Speaker 4: My investors were generally mad at me, and they were

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Speaker 4: generally mad at me even when things went well, and

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Speaker 4: I didn't feel at the time I had goodwill with anybody.

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Speaker 1: I didn't.

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Speaker 4: There was only one investor I shouldn't say his name,

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Speaker 4: but love him. He is the only guy that invested

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Speaker 4: with me that last year and a half or so.

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Speaker 4: Nobody came to me, nobody, nobody wanted to invest with huh.

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Speaker 4: And even when we made the money, it was who

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Speaker 4: We don't want to go through that again.

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Speaker 3: Did anybody ever call after the book, after the movie,

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Speaker 3: after they got their money back and a lot more?

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Speaker 1: Did anybody ever call you to apologize? No? No, no, no, Kit.

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Speaker 1: It's kind of an amazing I did. I didn't expect it.

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Speaker 3: I know you didn't expect it, But this sort of

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Speaker 3: like at some point when there was cooling off and

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Speaker 3: they looked at they looked at their winnings. I would

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Speaker 3: have thought someone would have called and said, you know, sorry,

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Speaker 3: I got so angry at you for doing this trade.

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Speaker 4: No nobody did, okay, and I didn't expect it. It's

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Speaker 4: Wall Street. When did you reopen twenty thirteen? And since then?

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Speaker 1: How have you done?

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Speaker 2: Done? All?

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Speaker 1: Right?

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Speaker 4: I think it's all been the same since. So I

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Speaker 4: remember when I opened again. I didn't want investors I

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Speaker 4: didn't know. I didn't want to be above the SEC

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Speaker 4: threshold for registering as an investment advisor. I wanted to

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Speaker 4: keep it small. So I just went to people I

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Speaker 4: knew and some of my own money, and we created

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Speaker 4: a fund. It was probably a situation where if I

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Speaker 4: wanted to, I could have raised billions, but that wasn't

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Speaker 4: my intention.

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Speaker 1: You didn't want to relive the experience you'd already had.

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Speaker 4: I didn't want to deal with Wall Street. I didn't

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Speaker 4: want to deal with those kinds of investors. I knew

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Speaker 4: who my good investors were from the prior time, and

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Speaker 4: those were the only people I wanted to deal right,

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Speaker 4: And so it just was a small operation. And I

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Speaker 4: kept trying to keep it small, and I didn't really

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Speaker 4: market it. I didn't market it at all other than

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Speaker 4: just that first group. And what happens with that is

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Speaker 4: that some of those people that were with me in

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Speaker 4: two thousand, individual doctors or whatever, they get old, they

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Speaker 4: actually pass away. Ultimately, it just became a something. There

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Speaker 4: was a natural attrition in the pool, and so it

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Speaker 4: kept us small.

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Speaker 3: I have not paid that close attention. All I see

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Speaker 3: is every now and then there's some explosion on Twitter

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Speaker 3: about you.

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Speaker 1: And it's wrong.

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Speaker 4: They're all wrong.

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Speaker 3: We're going to take a quick break, and when we return,

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Speaker 3: I asked Michael Burry about why he placed bets recently

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Speaker 3: against two large tech stocks, Talenteer and Nvidia. So let's

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Speaker 3: talk about this. Explain to me you have this very

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Speaker 3: small operation with just a handful of investors. What are

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Speaker 3: the filing requirements? What do you have to hand in

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Speaker 3: so that people can see what you're doing.

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Speaker 4: They get to see US securities traded in the US

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Speaker 4: that are stocks. They get to see stocks, and they

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Speaker 4: get an incredibly bastardized version of options.

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Speaker 1: Okay, how is it bastardized?

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Speaker 4: Because say I buy fifty thousand put options on Pallenteer,

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Speaker 4: and that's fifty thousand times one hundred, and so I'm

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Speaker 4: short strike fifty way out of the money. It's like

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Speaker 4: a it's two hundred dollar stock. Now I struck, but

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Speaker 4: I think it's worth thirty or less, so I buy

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Speaker 4: them way out of the money. Two years out, you're

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Speaker 4: betting the pontaive is going to drop by a lot

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Speaker 4: a lot in two years, but over a long period

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Speaker 4: of time.

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Speaker 1: Right and the press.

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Speaker 4: I'm working out and I see on CNBC I have

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Speaker 4: a billion dollars short position against Palenteer.

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Speaker 1: It's ten million dollars. I saw this too. I couldn't

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Speaker 1: believe it.

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Speaker 4: So what they do is they take the underlying shares

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Speaker 4: under those options contracts and they they multiply it out

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Speaker 4: by the current stock price. We're so I have a

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Speaker 4: actually it was less than two dollars option, and it

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Speaker 4: was being prices if I owned the two hundreds, so

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Speaker 4: it was two orders of magnitude off. And that happens

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Speaker 4: also with index So so I would take hedges on

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Speaker 4: my portfolio and people would say, oh my gosh, he's

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Speaker 4: shorting a billion and a half of the s and

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Speaker 4: P five hundred or he's shorting, and there'd be these

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Speaker 4: explosions and it's just wrong. It's notional. But's interesting is

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Speaker 4: that they don't do this for anybody else.

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Speaker 3: So maybe you should give more interviews. I asked you,

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Speaker 3: what effect the big short hat on your life? This

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Speaker 3: is an effect the big short hat on your life.

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Speaker 4: And compliance and my compliance. Since the financial crisis, everything

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Speaker 4: changed and compliance. We have a compliance officer inside the firm,

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Speaker 4: and he just keeps saying, don't talk to anybody, don't

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Speaker 4: talk to anybody, don't respond to him, don't respond to anybody.

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Speaker 4: And so I think since the movie came out and

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Speaker 4: this really started happening, there was a frustration building in

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Speaker 4: me to want to say something yeah, and I couldn't.

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Speaker 4: And so when COVID came about, I had some strong

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Speaker 4: feelings on that.

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Speaker 1: So I went on Twitter.

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Speaker 4: But I was only allowed to talk about the that

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Speaker 4: weren't stocks, and so that's fine, I mean, but I

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Speaker 4: had to talk about social things and I got in

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Speaker 4: trouble with that, because everybody gets in trouble with that.

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Speaker 4: So I got off Twitter, but you got back on.

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Speaker 4: I got back on recently because we deregistered. I don't

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Speaker 4: run that pool of money anymore, I'm just going to

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Speaker 4: run my own.

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Speaker 3: Money in so it's you're just your money now. So mostly, yeah,

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Speaker 3: why did you decide to do that? I think that

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Speaker 3: we're in a bad situation in the stock market. I

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Speaker 3: think the stock market could be in for a number

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Speaker 3: of bad years, and I think it could be a

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Speaker 3: longer bear market, more akin to two thousand. But the

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Speaker 3: structure of industry, the industry has changed. Back then, it

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Speaker 3: was hedge funds, mutual funds, separate accounts, businesses. But there

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Speaker 3: were people running pools of money and thinking about stocks

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Speaker 3: and investing in stocks, and so I felt I didn't

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Speaker 3: know I was on the autom the spectrum. I felt

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Speaker 3: though I had an edge there I could. I'm kind

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Speaker 3: of sit outside of all these human psyches and like

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Speaker 3: and figure things out, and it worked well. Today it's

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Speaker 3: all passive money, and.

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Speaker 1: It's a lot.

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Speaker 4: It's over fifty percent passive money.

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Speaker 1: There's index funds, less.

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Speaker 4: Than ten percent of money some say is actively managed

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Speaker 4: by managers who actually thinking about the stocks and in

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Speaker 4: any kind of way that's long term. And so the

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Speaker 4: problem is in the United States. I think when the

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Speaker 4: market goes down, it's not like in two thousand where

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Speaker 4: there was this other bunch of stocks that were being

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Speaker 4: ignored and they'll come up even if the Nasdaq crashes.

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Speaker 4: Now I think the whole thing's just going to come down,

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Speaker 4: and it would be very hard to be in a

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Speaker 4: long stocks in the United States and protect yourself. And

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Speaker 4: so that's why I decided to get out of it.

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Speaker 1: Because the fund had to be long in some way.

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Speaker 4: Well, I didn't want to go through that with investors again,

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Speaker 4: I see, and that makes sense. Of course, I closed

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Speaker 4: the fund and I got I put on all the

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Speaker 4: positions for myself right away the same.

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Speaker 3: So you're still in the position. So I want to

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Speaker 3: talk about this position. I found it again. I was

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Speaker 3: watching it from a distance. But tell me what I missed.

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Speaker 3: Someone c NBC, whoever gets a hold of your thirteen

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Speaker 3: F on this thirteen F it says Palatiner positions.

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Speaker 1: Is especially big.

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Speaker 3: It looks big because it looks big because they're the

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Speaker 3: put ups. Just they're way way out of the money.

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Speaker 3: They were struck at fifty. So, okay, you had to

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Speaker 3: release this information about your fund.

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Speaker 1: You weren't advertising it to the world in any unusual way.

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Speaker 3: You weren't going out and talking trash about Palenteer. You

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Speaker 3: just this position gets released, right, and then the next

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Speaker 3: thing I do, I see Alex Karp, who runs Palenteer,

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Speaker 3: like going after you for owning puts on his stock.

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Speaker 1: And I don't think. I mean during the.

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Speaker 3: Financial crisis, you will remember that the head of Morgan

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Speaker 3: Stanley at the time, John Max, he blamed short sellars

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Speaker 3: for what was happening to him and they banned short

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Speaker 3: selling of the stocks very I think, briefly.

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Speaker 1: Right, but it's always a really.

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Speaker 3: Bad sign when people start going after the short sellers.

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Speaker 1: It's in the United States, in the United States, and.

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Speaker 3: I was thinking, oh my god, I guess wouldn't want

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Speaker 3: to be in your shoes like you didn't you just

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Speaker 3: made a trade.

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Speaker 1: But he's provoked me.

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Speaker 3: I want to understand your trade. It's about that pollunteer

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Speaker 3: goes way way.

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Speaker 4: Down, way way down in two years.

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Speaker 3: What do you understand about their business as the market

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Speaker 3: doesn't huh.

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Speaker 4: So my belief is that this is a company that

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00:18:44,716 --> 00:18:49,036
Speaker 4: had a set of applications that were very expensive to

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Speaker 4: install because you had to hire their consultants, like after

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00:18:52,916 --> 00:18:55,236
Speaker 4: you bought the software just to install it, and learning

368
00:18:55,716 --> 00:19:01,036
Speaker 4: right and Pounteer had this reputation in government government contracts

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00:19:01,076 --> 00:19:03,436
Speaker 4: is a nasty business, and I think they figured out

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Speaker 4: how to do it and get some contracts.

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Speaker 1: How much of their revenues government contracts.

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Speaker 4: It's fallen off a lot. It was it was almost

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Speaker 4: it was a majority, and now it's like more even

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Speaker 4: because it during this the AI build out, they've basically

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Speaker 4: marketed themselves to corporations. Well, corporations have come to them.

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Speaker 4: C suites of every public corporation have board members CEOs

377
00:19:29,596 --> 00:19:34,036
Speaker 4: who feel under the gun to AI something. And so

378
00:19:34,876 --> 00:19:37,916
Speaker 4: there's this scramble and now they're not the only one.

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00:19:37,916 --> 00:19:40,796
Speaker 4: They keep saying they're the only ones. But IBM has

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Speaker 4: does basically the same thing. Their business is actually bigger

381
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Speaker 4: than Pallenteers, and they are not really All government government

382
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Speaker 4: contracts are not generally that profitable, and so you know,

383
00:19:54,076 --> 00:19:57,036
Speaker 4: IBM's got a really good business inside it, but it

384
00:19:57,036 --> 00:20:00,916
Speaker 4: doesn't get the credit for a Pallenteer valuation on that business,

385
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Speaker 4: even though it is growing fast too. It's growing bout

386
00:20:04,116 --> 00:20:08,836
Speaker 4: as fast as Pollenteer or was. And so let me

387
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Speaker 4: put it this way, there are I think five billionaires

388
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Speaker 4: that came out to Pollunteer because they own volunteer stock

389
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Speaker 4: and the revenue was four billion or let basically four billion,

390
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Speaker 4: so the billionaires to revenue ratio is greater than one.

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Speaker 1: And I've never seen that book. Is that what attracted

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Speaker 1: your attention in the first place?

393
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Speaker 4: Well, it that was a that's a cute little thing.

394
00:20:35,276 --> 00:20:38,916
Speaker 4: Was Wow, there's how do they get five billionaires out

395
00:20:38,916 --> 00:20:41,996
Speaker 4: of that group? And so out of a company that

396
00:20:42,036 --> 00:20:45,796
Speaker 4: has four billion of revenue and actually, uh stock based

397
00:20:45,836 --> 00:20:48,996
Speaker 4: compensation basically to weighs almost all their income. They have

398
00:20:49,076 --> 00:20:51,396
Speaker 4: to pay their people who are doing all this consulting

399
00:20:51,556 --> 00:20:55,476
Speaker 4: so much in stock that they just use stock based compensation.

400
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Speaker 4: And then what they do is they buy that back.

401
00:20:58,436 --> 00:21:01,116
Speaker 4: And the company would like you to just give them

402
00:21:01,116 --> 00:21:05,076
Speaker 4: credit for what Wall Street generally does is they take

403
00:21:05,116 --> 00:21:07,116
Speaker 4: the earnings per share and then they add back to

404
00:21:07,156 --> 00:21:10,476
Speaker 4: stock based compensation because it's non cash, and they add

405
00:21:10,516 --> 00:21:14,196
Speaker 4: it back to the earnings. And I think actually the

406
00:21:14,196 --> 00:21:18,236
Speaker 4: way Gap accounts for stock based compensation is skews low

407
00:21:18,676 --> 00:21:21,516
Speaker 4: versus what it actually costs the real cost. You can

408
00:21:21,556 --> 00:21:24,356
Speaker 4: look at the how much are companies buying back to

409
00:21:24,516 --> 00:21:27,556
Speaker 4: offset that dilution, and you can just take that amount

410
00:21:27,556 --> 00:21:30,476
Speaker 4: and deduct it from cash flow. And so if you

411
00:21:30,516 --> 00:21:34,076
Speaker 4: do that with Palenteer, historically they don't make anything. So

412
00:21:34,956 --> 00:21:37,756
Speaker 4: I basically looked at the company and said, you're worth

413
00:21:37,796 --> 00:21:40,116
Speaker 4: this much and you really don't make anything of its

414
00:21:40,156 --> 00:21:42,916
Speaker 4: tiny a little bit of revenue, and you have all

415
00:21:42,956 --> 00:21:44,116
Speaker 4: these billionaires.

416
00:21:44,676 --> 00:21:46,676
Speaker 3: You had an argument back in two thousand and eight

417
00:21:46,716 --> 00:21:50,436
Speaker 3: for when the subprime mortgage bond market was going to

418
00:21:50,436 --> 00:21:52,876
Speaker 3: start to unravel, when people are going to start a default.

419
00:21:53,556 --> 00:21:56,076
Speaker 3: Do you have a timing argument for now with Palenteer?

420
00:21:56,836 --> 00:22:01,596
Speaker 4: Well, I think this is the AI, the AI consulting thing.

421
00:22:01,756 --> 00:22:05,196
Speaker 4: So Pallenteer and Nvidia are the two luckiest companies on

422
00:22:05,236 --> 00:22:09,876
Speaker 4: the planet. Neither produced a product for AI. No I know,

423
00:22:09,996 --> 00:22:12,116
Speaker 4: but they're the two poster children for AI.

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Speaker 3: Yes, in Video was a good computer graphics chip company.

425
00:22:15,476 --> 00:22:17,996
Speaker 4: In Video was a computer graphics chip. I actually knew

426
00:22:17,996 --> 00:22:22,076
Speaker 4: the CFO. We talked in twenty fifteen or sixteen. I

427
00:22:22,116 --> 00:22:24,836
Speaker 4: went long the stock and I and I said, hey,

428
00:22:24,836 --> 00:22:26,476
Speaker 4: you're doing a great job. I love how you're buying

429
00:22:26,476 --> 00:22:30,356
Speaker 4: back stock. Her kids was on my kids basketball team.

430
00:22:30,836 --> 00:22:32,956
Speaker 4: I think I bought the stock like a year or

431
00:22:32,956 --> 00:22:34,876
Speaker 4: two later. The stock was up to like it went

432
00:22:34,956 --> 00:22:36,636
Speaker 4: from twenty to ninety at the time, which is like

433
00:22:36,676 --> 00:22:40,556
Speaker 4: forty cents now after the splits in video was lucky.

434
00:22:40,756 --> 00:22:46,236
Speaker 4: They got lucky once with the crypto mining because crypto

435
00:22:46,276 --> 00:22:50,636
Speaker 4: mining needed GPUs were the They weren't customed for cryptal mind.

436
00:22:50,636 --> 00:22:52,236
Speaker 4: They were just the thing that was there that could

437
00:22:52,236 --> 00:22:55,276
Speaker 4: be used. And then AI came along, and it's the

438
00:22:55,316 --> 00:22:59,356
Speaker 4: same deal about a year and a half ago. A

439
00:22:59,436 --> 00:23:00,996
Speaker 4: year and a half to two years ago, Pound Chair

440
00:23:01,116 --> 00:23:04,076
Speaker 4: was not an AI company. Basically, when chat GPD came out,

441
00:23:04,116 --> 00:23:07,396
Speaker 4: they basically put an AI cover on their applications that

442
00:23:07,396 --> 00:23:10,356
Speaker 4: were they were selling and then all the consulting.

443
00:23:09,956 --> 00:23:12,156
Speaker 1: On and they call it AI.

444
00:23:13,196 --> 00:23:16,116
Speaker 4: But that's what every company is doing now.

445
00:23:16,756 --> 00:23:18,756
Speaker 1: But is there a timing argument for AI? Then?

446
00:23:18,956 --> 00:23:23,396
Speaker 4: Yeah, So this gets to what does this bubble look like?

447
00:23:24,036 --> 00:23:27,236
Speaker 4: This bubble looks an awful lot like the dot com bubble,

448
00:23:27,676 --> 00:23:29,476
Speaker 4: which is not really a dot com bubble. It was

449
00:23:29,516 --> 00:23:32,476
Speaker 4: a data transmission bubble. It was a huge build out

450
00:23:32,516 --> 00:23:37,156
Speaker 4: of fiber, and a huge fiber needed routers, and routers

451
00:23:37,196 --> 00:23:41,956
Speaker 4: needed fiber and it just blew up. So the market

452
00:23:42,436 --> 00:23:46,796
Speaker 4: peak was in March tenth of two thousand. Cisco grew

453
00:23:46,876 --> 00:23:50,956
Speaker 4: fifty five percent that year revenues in two thousand and

454
00:23:51,036 --> 00:23:54,276
Speaker 4: it grew seventeen percent in two thousand and one because

455
00:23:54,316 --> 00:24:00,436
Speaker 4: the investment continued. It actually peaked for about a year

456
00:24:00,476 --> 00:24:05,156
Speaker 4: after the top in the market. And so what you

457
00:24:05,196 --> 00:24:08,036
Speaker 4: can do is you can look at net investment, which

458
00:24:08,076 --> 00:24:12,436
Speaker 4: is capital expenditures less appreciation over time, and you can

459
00:24:12,476 --> 00:24:16,036
Speaker 4: put it against GDP to kind of a nominal GDP

460
00:24:16,196 --> 00:24:22,756
Speaker 4: to compare it across eras, and you get these nice

461
00:24:23,116 --> 00:24:28,596
Speaker 4: mounds of investment manias. And what you see in every

462
00:24:28,636 --> 00:24:34,596
Speaker 4: prior one was the relevant stock market peak was before

463
00:24:34,636 --> 00:24:38,916
Speaker 4: you were even halfway done with the capital expenditure. In

464
00:24:38,996 --> 00:24:42,636
Speaker 4: the majority cases, the capital expenditure hadn't even peaked yet.

465
00:24:43,156 --> 00:24:47,156
Speaker 4: And so right now we're ramping up for capital expenditure.

466
00:24:47,156 --> 00:24:51,236
Speaker 4: And what's happened is we've gotten into this part of

467
00:24:51,276 --> 00:24:54,316
Speaker 4: the phase where if you announce a dollar of cap

468
00:24:54,556 --> 00:24:58,156
Speaker 4: X on AI, your market capital go up three dollars

469
00:24:58,156 --> 00:25:01,196
Speaker 4: for every dollar you have. Oracle we saw that with Oracle.

470
00:25:01,756 --> 00:25:06,476
Speaker 4: Giant Company was up forty like incredible. Larry Olson was

471
00:25:06,476 --> 00:25:10,436
Speaker 4: briefly the richest man because they announced it's massive multi

472
00:25:10,556 --> 00:25:14,556
Speaker 4: hundred billions of dollars of basically spending that they would

473
00:25:14,556 --> 00:25:17,876
Speaker 4: have to well, they announced bookings, but they would have

474
00:25:17,956 --> 00:25:21,596
Speaker 4: to spend. They're still building it out. Where are we then,

475
00:25:22,636 --> 00:25:25,916
Speaker 4: I can't say, because it hasn't happened fully yet. We

476
00:25:26,076 --> 00:25:29,756
Speaker 4: are at levels of prior peaks. We're at the level

477
00:25:29,796 --> 00:25:32,396
Speaker 4: the shale revolution relative to GP. We're at the level

478
00:25:32,556 --> 00:25:34,676
Speaker 4: near the level the dot com where when the dot

479
00:25:34,716 --> 00:25:36,516
Speaker 4: com stock the NASDAC peaked.

480
00:25:37,036 --> 00:25:39,476
Speaker 1: So you felt two year puts were enough.

481
00:25:40,116 --> 00:25:43,116
Speaker 4: I thought two years would be enough. Yes, I think

482
00:25:43,156 --> 00:25:45,236
Speaker 4: two years would be enough. I think you know, if

483
00:25:45,236 --> 00:25:48,036
Speaker 4: you're going to buy something now by healthcare stocks, they're

484
00:25:48,076 --> 00:25:52,636
Speaker 4: really out of favor. If your own something that has

485
00:25:52,676 --> 00:25:54,756
Speaker 4: been gone up a lot, you've done really really well

486
00:25:54,796 --> 00:25:59,556
Speaker 4: in it, it's shooting straight up, and you know it's

487
00:25:59,996 --> 00:26:02,956
Speaker 4: I think it's kind of overvalued, you should I think

488
00:26:02,996 --> 00:26:04,636
Speaker 4: that's a something you should sell.

489
00:26:05,076 --> 00:26:07,596
Speaker 3: I want to ask you one weird question more question

490
00:26:07,636 --> 00:26:10,036
Speaker 3: about the stock market, and that is you own Berkshire

491
00:26:10,036 --> 00:26:12,036
Speaker 3: Hathaway and berksh Hathaway just.

492
00:26:12,036 --> 00:26:14,076
Speaker 1: Announced that we just was revealed that it bought a

493
00:26:14,116 --> 00:26:15,356
Speaker 1: big chunk of Google stock.

494
00:26:15,876 --> 00:26:18,196
Speaker 3: Did that disappoint you or do you see how they're thinking,

495
00:26:18,276 --> 00:26:20,436
Speaker 3: we don't know that that is buffet that bought it

496
00:26:21,676 --> 00:26:26,676
Speaker 3: one two. Google is the value investor's favorite in that group.

497
00:26:27,636 --> 00:26:30,956
Speaker 3: It's the one that everybody said, well, it's cheaper than

498
00:26:30,996 --> 00:26:33,476
Speaker 3: all the others, it's got its relative value, and it

499
00:26:33,516 --> 00:26:38,596
Speaker 3: is Google. But I know that since I got Chat

500
00:26:38,636 --> 00:26:42,756
Speaker 3: GPT in claude, I don't use Google right, and Google Search.

501
00:26:43,436 --> 00:26:45,716
Speaker 3: The magic thing about Google Search was how little it

502
00:26:45,916 --> 00:26:51,516
Speaker 3: cost because most requests were not monetizable. So for the

503
00:26:51,596 --> 00:26:55,076
Speaker 3: eighty five percent of searches they get that are not,

504
00:26:55,356 --> 00:26:57,956
Speaker 3: nobody's gonna buy it even looking to buy anything, or

505
00:26:58,036 --> 00:26:59,876
Speaker 3: think it's not product related.

506
00:26:59,916 --> 00:27:01,396
Speaker 1: It's it's history.

507
00:27:01,516 --> 00:27:04,196
Speaker 4: You know what did Columbus really do?

508
00:27:04,556 --> 00:27:04,876
Speaker 1: You know?

509
00:27:05,476 --> 00:27:08,676
Speaker 4: It's not monetizable, and so they better not lose a

510
00:27:08,716 --> 00:27:11,716
Speaker 4: lot of money on that AI changes.

511
00:27:11,756 --> 00:27:14,396
Speaker 1: That AI is expensive.

512
00:27:15,316 --> 00:27:18,116
Speaker 4: I run queries regularly that I know costs tens of

513
00:27:18,156 --> 00:27:22,396
Speaker 4: dollars just for my inquiry one inquiry. Google had had

514
00:27:22,436 --> 00:27:26,356
Speaker 4: those searches down to infinitismal fractions of a cent. So

515
00:27:26,596 --> 00:27:31,316
Speaker 4: that business is the golden goose and it's really basically

516
00:27:31,396 --> 00:27:35,876
Speaker 4: all their cash flow. So the other thing about llms

517
00:27:36,356 --> 00:27:38,796
Speaker 4: is that look back to the dot com boom. That

518
00:27:38,876 --> 00:27:41,916
Speaker 4: was an amazing telecommunication revolution. If you were alive in

519
00:27:41,956 --> 00:27:43,916
Speaker 4: the eighties and then you're alive in the two thousand,

520
00:27:43,956 --> 00:27:48,396
Speaker 4: it's nothing the same. It changed everybody's life in a

521
00:27:48,476 --> 00:27:55,596
Speaker 4: dramatic way. And still AOL Justice connected its last dial

522
00:27:55,716 --> 00:27:58,396
Speaker 4: up just like a year ago of this earlier this year.

523
00:27:58,636 --> 00:28:02,756
Speaker 4: I mean, the penetration was very slow in the United States.

524
00:28:02,756 --> 00:28:05,676
Speaker 4: It was pretty lightning fast in places like in Singapore,

525
00:28:05,756 --> 00:28:09,916
Speaker 4: sold these one city countries type thing or urban areas.

526
00:28:09,916 --> 00:28:11,356
Speaker 1: But it was it was.

527
00:28:11,476 --> 00:28:14,356
Speaker 4: A long time by the financial crisis. But even after

528
00:28:14,356 --> 00:28:16,556
Speaker 4: the financial custis there was a lot of people in

529
00:28:16,596 --> 00:28:19,596
Speaker 4: the United States who were not online or were on

530
00:28:20,076 --> 00:28:23,836
Speaker 4: you know, we're in not really doing it. So back then,

531
00:28:24,476 --> 00:28:27,196
Speaker 4: as that connectivity came up, there was a lot of

532
00:28:27,196 --> 00:28:29,636
Speaker 4: things people want to sell. People wanted to sell goods online,

533
00:28:29,676 --> 00:28:33,596
Speaker 4: they wanted Amazon grew on that. They wanted to socialize online.

534
00:28:33,596 --> 00:28:37,556
Speaker 4: They want to do these things with lms. Most people

535
00:28:37,556 --> 00:28:39,716
Speaker 4: are getting what they want out of them right now

536
00:28:39,796 --> 00:28:44,316
Speaker 4: on the free level, and they're massively penetrating. What more

537
00:28:45,156 --> 00:28:48,396
Speaker 4: are they going to do for the average person? Not

538
00:28:48,516 --> 00:28:50,396
Speaker 4: that much. The money is going to be in the

539
00:28:50,556 --> 00:28:52,796
Speaker 4: in the developer space, and there's a lot of money

540
00:28:52,836 --> 00:28:57,196
Speaker 4: in that space. But this idea that I mean, a

541
00:28:57,476 --> 00:29:00,636
Speaker 4: very small percentage of people want to pay for their

542
00:29:00,756 --> 00:29:02,556
Speaker 4: LM and they won't ever have to because they're going

543
00:29:02,596 --> 00:29:04,876
Speaker 4: to be so that this is going to be commoditized.

544
00:29:06,036 --> 00:29:08,556
Speaker 4: So I think you're getting a sense of how Michael

545
00:29:08,556 --> 00:29:11,196
Speaker 4: Berry's when we come back.

546
00:29:10,996 --> 00:29:13,956
Speaker 3: From the break, I finally find out why he decided

547
00:29:13,956 --> 00:29:14,476
Speaker 3: to talk to.

548
00:29:14,436 --> 00:29:15,276
Speaker 1: Me for the big short.

549
00:29:18,436 --> 00:29:21,556
Speaker 5: How did the Volkswagen Beatle go from being Hitler's dream

550
00:29:21,636 --> 00:29:24,996
Speaker 5: car to a hippie icon. How did a disgruntled center

551
00:29:25,036 --> 00:29:28,756
Speaker 5: fielder change the business of sports. I'm Jacob Goldstein and

552
00:29:28,836 --> 00:29:31,636
Speaker 5: on Business History, my co host Robert Smith, and I

553
00:29:31,676 --> 00:29:34,716
Speaker 5: dig into the people and companies who created the modern world.

554
00:29:35,116 --> 00:29:38,676
Speaker 5: Business History is full of innovations and failures and insights

555
00:29:38,716 --> 00:29:41,956
Speaker 5: into how business works today. At the end of today's

556
00:29:41,956 --> 00:29:43,956
Speaker 5: episode of Against the Rules, we're going to play a

557
00:29:43,956 --> 00:29:48,276
Speaker 5: clip from our episode about Jim Simon's decades ago. Simon's

558
00:29:48,396 --> 00:29:52,916
Speaker 5: basically invented modern algorithmic trading, and after a few early hiccups,

559
00:29:53,156 --> 00:29:56,796
Speaker 5: including buying up all the potatoes in Maine, Simon's built

560
00:29:56,796 --> 00:30:01,396
Speaker 5: a machine that generated incredible returns for decades. The show

561
00:30:01,476 --> 00:30:04,276
Speaker 5: is called Business History and the previous coming up at

562
00:30:04,276 --> 00:30:06,756
Speaker 5: the end of today's episode of Against the Rules.

563
00:30:09,196 --> 00:30:10,436
Speaker 1: So I'm going to let you go in a minute.

564
00:30:10,476 --> 00:30:11,596
Speaker 3: But there are a couple of other things I want

565
00:30:11,636 --> 00:30:12,836
Speaker 3: to ask you about because I just want to pick

566
00:30:12,836 --> 00:30:13,516
Speaker 3: your brain on them.

567
00:30:14,156 --> 00:30:16,196
Speaker 1: What trigger is a debt crisis in this country?

568
00:30:16,556 --> 00:30:19,436
Speaker 3: Like you, are you paying much attention to our government's

569
00:30:19,516 --> 00:30:21,716
Speaker 3: finances and how do you feel about them?

570
00:30:21,756 --> 00:30:22,916
Speaker 1: And where do you think it's headed.

571
00:30:24,076 --> 00:30:28,796
Speaker 4: So predicting this stuff is the problem. I always kind

572
00:30:28,796 --> 00:30:32,116
Speaker 4: of put it in terms of, you know, waiting for

573
00:30:32,196 --> 00:30:36,316
Speaker 4: Castro to die. It's not a strategy. The people live

574
00:30:36,356 --> 00:30:38,716
Speaker 4: a long time. Countries are very powerful and they can

575
00:30:39,076 --> 00:30:41,676
Speaker 4: do a lot. The United States is the reserve has

576
00:30:41,716 --> 00:30:46,516
Speaker 4: the reserve currency. Obviously, Trump is bullying around the world

577
00:30:46,636 --> 00:30:48,796
Speaker 4: right now, so there United States is still a very

578
00:30:48,796 --> 00:30:56,556
Speaker 4: primary country, and betting that they can't find a way

579
00:30:56,756 --> 00:31:01,516
Speaker 4: is not something I'd want to do anytime soon. I

580
00:31:01,596 --> 00:31:05,356
Speaker 4: do think it's ridiculous. I mean, we have what four

581
00:31:05,356 --> 00:31:07,996
Speaker 4: and a half trillion in taxes from individuals. We have

582
00:31:08,116 --> 00:31:11,636
Speaker 4: about four hundred billion in from corporations. I mean, you

583
00:31:11,676 --> 00:31:14,396
Speaker 4: could double the taxes on corporations. That's four hundred billion.

584
00:31:14,396 --> 00:31:16,476
Speaker 4: What does that do for you. We have a trillion

585
00:31:16,476 --> 00:31:19,036
Speaker 4: dollars in interest payments on our debt every year, so

586
00:31:20,436 --> 00:31:24,076
Speaker 4: you know when you get that trillion, that interest expense

587
00:31:24,196 --> 00:31:27,356
Speaker 4: is getting up there, and then you have all the entitlements.

588
00:31:28,836 --> 00:31:33,476
Speaker 4: We do not have the social cushion that a lot

589
00:31:33,516 --> 00:31:37,836
Speaker 4: of other developed countries have, but we can't really afford

590
00:31:37,916 --> 00:31:39,836
Speaker 4: him doing much more than we're doing.

591
00:31:40,356 --> 00:31:42,156
Speaker 3: So you think the death's just going to keep growing

592
00:31:42,196 --> 00:31:43,916
Speaker 3: and growing and growing. But you wouldn't want to bet

593
00:31:43,916 --> 00:31:44,596
Speaker 3: when it breaks.

594
00:31:45,676 --> 00:31:48,076
Speaker 4: No, you can't because it's the United States.

595
00:31:48,356 --> 00:31:50,356
Speaker 1: How do you feel about FED independence? Do you care?

596
00:31:52,556 --> 00:31:55,356
Speaker 4: I think I have a different I have a kind

597
00:31:55,356 --> 00:31:58,916
Speaker 4: of a sick view on this. I think that Trump,

598
00:31:59,036 --> 00:32:01,356
Speaker 4: when Trump starts running the FED, it might become the

599
00:32:01,476 --> 00:32:03,876
Speaker 4: end of the FED, because if he's running the FED,

600
00:32:03,916 --> 00:32:09,276
Speaker 4: then everybody's gonna hate it, not just me, so we'll see.

601
00:32:09,356 --> 00:32:12,396
Speaker 4: I think the FED is has done a lot of

602
00:32:12,476 --> 00:32:14,916
Speaker 4: damage over the last one hundred years, or since it's

603
00:32:14,956 --> 00:32:19,396
Speaker 4: inception in nineteen fourteen, and I feel we don't need

604
00:32:19,436 --> 00:32:22,796
Speaker 4: the FED. We don't need it unless the FED is

605
00:32:22,876 --> 00:32:25,116
Speaker 4: going to say, look like, why are they going to

606
00:32:25,156 --> 00:32:27,876
Speaker 4: drop rates? There's no reason to drop rates now, inflation

607
00:32:27,956 --> 00:32:30,556
Speaker 4: is starting to come up a little bit. The economy

608
00:32:30,636 --> 00:32:35,396
Speaker 4: is muddling along. But our neutral rate is not one

609
00:32:35,436 --> 00:32:38,476
Speaker 4: percent or zero percent or where Trump wants it. Our

610
00:32:38,516 --> 00:32:41,636
Speaker 4: neutral rate is probably around four percent. There's probably around

611
00:32:41,636 --> 00:32:46,076
Speaker 4: where we are now. And think about when you drop rates,

612
00:32:46,716 --> 00:32:49,156
Speaker 4: you kill all the savers, all the fixed dunks on

613
00:32:49,396 --> 00:32:52,356
Speaker 4: income people. They suffered for so long, they're actually finally

614
00:32:52,396 --> 00:32:54,156
Speaker 4: getting a rhythm to their lives. Again.

615
00:32:54,836 --> 00:32:56,076
Speaker 1: None of this is costless.

616
00:32:56,076 --> 00:32:58,276
Speaker 4: And you think you're going to just drop rates, be

617
00:32:58,276 --> 00:33:00,196
Speaker 4: careful what you wish for, you might drop rates. And

618
00:33:00,276 --> 00:33:03,636
Speaker 4: because of the debt situation that the curve can steepen.

619
00:33:03,916 --> 00:33:05,596
Speaker 1: Did you just say you want to get rid of

620
00:33:05,636 --> 00:33:07,276
Speaker 1: the FED? Yeah?

621
00:33:07,316 --> 00:33:11,356
Speaker 4: I think the FED doesn't do anything very helpful. I

622
00:33:11,396 --> 00:33:13,556
Speaker 4: think it's the easiest job in the world.

623
00:33:13,876 --> 00:33:14,996
Speaker 1: What do you replace it with?

624
00:33:16,036 --> 00:33:18,636
Speaker 4: I think the US Treasury could have a department that

625
00:33:18,716 --> 00:33:22,436
Speaker 4: just makes these decisions. I mean, the FED already's monetizing

626
00:33:22,436 --> 00:33:26,436
Speaker 4: treasury debt whatever. I mean, they're almost the same department already.

627
00:33:26,756 --> 00:33:30,476
Speaker 3: Your institutional pessimism, does it lead you to, like, I

628
00:33:30,476 --> 00:33:35,396
Speaker 3: don't know, bitcoin or gold or one of these refuges that.

629
00:33:35,596 --> 00:33:38,636
Speaker 4: I think that bitcoin at one hundred thousand is the

630
00:33:38,636 --> 00:33:42,716
Speaker 4: most ridiculous thing that sane people are sitting on TV

631
00:33:42,876 --> 00:33:47,596
Speaker 4: talking about bitcoin. They' just casually it's one hundred thousand

632
00:33:47,756 --> 00:33:51,636
Speaker 4: down now it's ninety eight thousand. It's not worth anything.

633
00:33:55,956 --> 00:33:59,356
Speaker 4: Everybody's accepted it. It's the tulip bulb of our time.

634
00:33:59,516 --> 00:34:02,876
Speaker 4: It's worse than a tulip bulb because this has enabled

635
00:34:02,916 --> 00:34:06,596
Speaker 4: so much criminal activity to go deep under under.

636
00:34:07,276 --> 00:34:09,716
Speaker 1: So where do you hide with your I have gold.

637
00:34:10,196 --> 00:34:12,396
Speaker 4: I've had gold since two thousand and five days.

638
00:34:13,276 --> 00:34:14,996
Speaker 3: I'm gonna let you go back the last question I have.

639
00:34:15,036 --> 00:34:18,156
Speaker 3: Did you I never asked you this question. You let

640
00:34:18,196 --> 00:34:22,636
Speaker 3: me into your kitchen in a really you made yourself

641
00:34:22,716 --> 00:34:26,556
Speaker 3: very vulnerable, and you let me tell your story. Do

642
00:34:26,636 --> 00:34:27,316
Speaker 3: you regret it?

643
00:34:27,836 --> 00:34:31,316
Speaker 4: When you showed up, I knew you from Liar's Poker,

644
00:34:32,316 --> 00:34:34,796
Speaker 4: and I didn't know what you were going to write

645
00:34:34,796 --> 00:34:38,916
Speaker 4: about me, because you're you're a great author. I knew

646
00:34:39,196 --> 00:34:42,756
Speaker 4: I knew you from Moneyball and Blindside. But when you

647
00:34:42,996 --> 00:34:46,356
Speaker 4: deal with Wall Street you tend to be very fairly critical.

648
00:34:46,996 --> 00:34:50,356
Speaker 4: And so I'm a big hedgshod manager just shorted your house.

649
00:34:53,596 --> 00:34:56,276
Speaker 4: You approached me. Actually, I got a call from a friend.

650
00:34:56,276 --> 00:34:58,076
Speaker 4: You talked to think one of my friends in New

651
00:34:58,156 --> 00:35:00,396
Speaker 4: York and he called me and he said, I just

652
00:35:00,516 --> 00:35:02,916
Speaker 4: talked with Michael Lewis. Congratulations, You're gonna be one of

653
00:35:02,956 --> 00:35:04,956
Speaker 4: the heroes in his new book. And that was when

654
00:35:04,956 --> 00:35:07,276
Speaker 4: I really realized, oh, this is going to go okay.

655
00:35:08,076 --> 00:35:09,916
Speaker 4: So in a way, I was giving you all that

656
00:35:09,956 --> 00:35:14,836
Speaker 4: stuff defensively. I didn't want you having a I wanted

657
00:35:14,836 --> 00:35:18,396
Speaker 4: to make sure you had everything full disclosure, because I

658
00:35:18,756 --> 00:35:21,636
Speaker 4: thought I was I didn't do anything wrong, and I

659
00:35:21,636 --> 00:35:22,516
Speaker 4: wanted you to know that.

660
00:35:22,596 --> 00:35:23,236
Speaker 1: Yeah, you know.

661
00:35:23,396 --> 00:35:26,756
Speaker 3: And your appeal to me was you were and are

662
00:35:27,436 --> 00:35:31,476
Speaker 3: a fantastic teacher, like a really good explainer of your

663
00:35:31,556 --> 00:35:34,476
Speaker 3: own thoughts, and your own thoughts can sometimes be peculiar,

664
00:35:34,596 --> 00:35:36,556
Speaker 3: like just different than what other people are thinking, and

665
00:35:36,636 --> 00:35:39,276
Speaker 3: you don't mind holding them, you know, you don't mind

666
00:35:39,316 --> 00:35:42,716
Speaker 3: having views that just would embarrass people who were less

667
00:35:42,716 --> 00:35:45,116
Speaker 3: sure of themselves to articulate.

668
00:35:45,116 --> 00:35:47,756
Speaker 4: Well being on the spectrum. I just moved back into

669
00:35:47,796 --> 00:35:49,996
Speaker 4: my own head and along.

670
00:35:50,196 --> 00:35:53,716
Speaker 3: So it was great seeing you. I'm sorry you're not

671
00:35:53,836 --> 00:35:55,956
Speaker 3: out here more. And if you were out here, I

672
00:35:55,956 --> 00:35:57,996
Speaker 3: wish you just let me know because I am down

673
00:35:58,116 --> 00:36:00,556
Speaker 3: in your old neck of the woods, sum and it'd

674
00:36:00,556 --> 00:36:01,556
Speaker 3: be fun to go grab dinner.

675
00:36:01,556 --> 00:36:04,636
Speaker 4: We're still out there a lot, so I'll look forward

676
00:36:04,636 --> 00:36:07,076
Speaker 4: to seeing you all right, Miss you, yeah, miss you too.

677
00:36:07,276 --> 00:36:07,916
Speaker 1: Thank you, Michael.

678
00:36:16,716 --> 00:36:19,556
Speaker 2: Against the Rules The Big Short Companion is hosted by

679
00:36:19,556 --> 00:36:23,196
Speaker 2: Michael Lewis. It's produced by Me, Ludy jan Kott and

680
00:36:23,316 --> 00:36:28,236
Speaker 2: Catherine Girardeau. Our editor is Julia Barton. Our theme was

681
00:36:28,276 --> 00:36:32,036
Speaker 2: composed by Nick Burtel, and our engineer is Hans Dale.

682
00:36:32,076 --> 00:36:38,156
Speaker 2: She special thanks to Nicole opten Bosch, Jasmine Faustino, Pamela

683
00:36:38,236 --> 00:36:42,436
Speaker 2: Lawrence and the rest of the Pushkin Audiobooks team. Against

684
00:36:42,436 --> 00:36:46,036
Speaker 2: the Rules is the production of Pushkin Industries. To find

685
00:36:46,036 --> 00:36:50,556
Speaker 2: more Pushkin podcasts, listen on the iHeartRadio app, Apple Podcasts

686
00:36:50,876 --> 00:36:53,676
Speaker 2: or wherever you listen to podcasts, And if you'd like

687
00:36:53,716 --> 00:36:57,196
Speaker 2: to listen ad free and learn about other exclusive offerings,

688
00:36:57,476 --> 00:36:59,916
Speaker 2: don't forget to sign up for a Pushkin Plus subscription

689
00:37:00,436 --> 00:37:04,756
Speaker 2: at Pushkin dot FM, Slash Plus or honor Apple show page.

690
00:37:05,596 --> 00:37:08,436
Speaker 2: And you can get The Big Short now at Pushkin

691
00:37:08,596 --> 00:37:13,556
Speaker 2: dot f, Slash Audiobooks or wherever audiobooks are sold.

692
00:37:16,836 --> 00:37:18,956
Speaker 5: It's Jacob Goldstein. I'm the co host of a new

693
00:37:18,956 --> 00:37:21,876
Speaker 5: show called Business History. And we're bringing you a clip

694
00:37:21,956 --> 00:37:24,836
Speaker 5: right now from an episode we did about a mathematician

695
00:37:24,956 --> 00:37:28,996
Speaker 5: named Jim Simon's. Simons wanted to take human emotions out

696
00:37:29,036 --> 00:37:32,996
Speaker 5: of investing, and after a few early hiccups, including buying

697
00:37:33,076 --> 00:37:35,916
Speaker 5: up all the potatoes in Maine, he created one of

698
00:37:35,916 --> 00:37:39,156
Speaker 5: the greatest money machines in history. I really hope you

699
00:37:39,236 --> 00:37:41,076
Speaker 5: like the clip, and if you want to hear more,

700
00:37:41,196 --> 00:37:44,316
Speaker 5: please check out the show. It's called Business History and

701
00:37:44,396 --> 00:37:47,276
Speaker 5: it's available wherever you're listening right now.

702
00:37:48,196 --> 00:37:51,436
Speaker 6: They were doing what we would call today machine learning.

703
00:37:51,516 --> 00:37:55,836
Speaker 7: A machine learning is like, essentially, you build a system

704
00:37:55,836 --> 00:37:57,756
Speaker 7: in a computer, you feeded a bunch of data and

705
00:37:57,796 --> 00:38:00,796
Speaker 7: the system sort of builds a map of the relationships

706
00:38:00,796 --> 00:38:02,996
Speaker 7: in that data, and then with new data it can

707
00:38:03,076 --> 00:38:06,596
Speaker 7: kind of interpolate or extrapolate and make guesses about.

708
00:38:06,436 --> 00:38:07,356
Speaker 1: What should come next.

709
00:38:07,676 --> 00:38:11,116
Speaker 7: And of course today we have a exciting, maybe misleading,

710
00:38:11,236 --> 00:38:13,276
Speaker 7: confounding term for machine learning.

711
00:38:13,796 --> 00:38:14,636
Speaker 5: We call it AI.

712
00:38:14,916 --> 00:38:18,276
Speaker 6: Exactly right, right, this is still very basic machine learning,

713
00:38:18,476 --> 00:38:22,276
Speaker 6: and the computer at the time keeps making mistakes that

714
00:38:22,276 --> 00:38:26,396
Speaker 6: they didn't really understand. So, for instance, once the computer

715
00:38:27,076 --> 00:38:33,356
Speaker 6: developed a taste for potatoes main potatoes, the system kept

716
00:38:33,396 --> 00:38:37,836
Speaker 6: buying main potato futures in the state of Maine.

717
00:38:38,316 --> 00:38:41,476
Speaker 1: Potato potatoes, big harvest next year or whatever.

718
00:38:41,716 --> 00:38:45,796
Speaker 6: Yes, okay, until two thirds of the company's money was

719
00:38:45,836 --> 00:38:48,676
Speaker 6: in potatoes. They were all in potatoes. And they got

720
00:38:48,676 --> 00:38:50,276
Speaker 6: a call from the regulators.

721
00:38:49,796 --> 00:38:54,396
Speaker 7: The CFT CFPP Commodi Futures Trading Commission.

722
00:38:54,036 --> 00:38:57,756
Speaker 6: Right yeah, saying whoa who are you guys, Like, what

723
00:38:57,796 --> 00:39:00,156
Speaker 6: are you doing over there? You have almost cornered the

724
00:39:00,196 --> 00:39:04,116
Speaker 6: market on potatoes. You have to sell. And they ended

725
00:39:04,196 --> 00:39:09,036
Speaker 6: up losing money on the trade because blown out on potatoes,

726
00:39:09,316 --> 00:39:12,996
Speaker 6: they had stopped the computer or whatever the computer's plan was.

727
00:39:13,596 --> 00:39:16,396
Speaker 6: But you know, this was just one small weird thing.

728
00:39:16,796 --> 00:39:20,556
Speaker 6: Simon and Baum were really kind of nervous about this

729
00:39:20,596 --> 00:39:23,476
Speaker 6: whole thing. They had taken investors' money, they didn't really

730
00:39:23,476 --> 00:39:27,676
Speaker 6: know if their system worked. And as the story gets told,

731
00:39:27,756 --> 00:39:30,916
Speaker 6: they start to like second guess the computer and themselves,

732
00:39:30,956 --> 00:39:33,236
Speaker 6: and they start to think, well, I have this intuition

733
00:39:33,356 --> 00:39:37,036
Speaker 6: that gold's gonna go up because of the geopolitical situation,

734
00:39:37,276 --> 00:39:39,036
Speaker 6: and they'd make some money on that, and then they'd

735
00:39:39,036 --> 00:39:42,276
Speaker 6: lose some money on that, and so by doubting their

736
00:39:42,316 --> 00:39:46,076
Speaker 6: own system, it just wasn't really working and At that point,

737
00:39:46,076 --> 00:39:48,596
Speaker 6: they're just Wall Street investors. Right when the big computer

738
00:39:48,836 --> 00:39:51,796
Speaker 6: trying to buy more potatoes and the man won't let

739
00:39:51,836 --> 00:39:52,716
Speaker 6: them buy potatoes