00:00Well, I think so. You used the word signal. I used the word tell. Simon Johnson, who you mentioned earlier,
00:07he and I do this podcast, and we just put one out on the mega IPOs just this morning on
00:12power and consequences.
00:13And I think the overall equity markets, like Alan Greenspan's 1990s equity markets, is funding this big burst of infrastructure
00:24built in AI, $750 billion this year, up threefold in just two years.
00:31And to scale that, that's about 2.5% of our gross domestic product.
00:35And so then you have like Space Echo Public and maybe Anthropic and OpenAI. We'll see.
00:41I think that's somewhat of a tell. Google raising $85 billion. And the markets have to digest this.
00:49And then there's valuation questions, you know, at 100, 140 times revenues without earnings.
00:57So this will all sort out, but it also might be that six months from now we look back, it
01:04was fine.
01:05But there's an equal and better chance that six months from now we look back and we say, as all
01:11those venture capitalists and sovereign wealth funds start selling those shares, that you see a downward pressure on the, not
01:18just SpaceX, but the whole market.
01:20You're up there at MIT, Gary. And as I understand, there's some pretty good engineers and computer geeks up there
01:26as well.
01:27What is kind of your understanding? What's the understanding up there at MIT just about AI today?
01:32Because initially we in the marketplace, we just said, let's just buy the chips.
01:37But there's more to it than that. Market seems to be trying to discern some winners and losers.
01:42How do you guys think about that? Look, there's thousands of remarkable research scientists and faculty here.
01:49So I can speak for just maybe myself. And I think AI is the most transformative technology of our times.
01:59But we've had this before. If you go back over the last 200 years from canals to the Internet to
02:05this and what happens.
02:07And Ray Dalio talks about this, too. We get an overenthusiastic financial market support.
02:14And then at some point we build so much infrastructure, we have a reckoning.
02:19And I think that's what you learn from history is that we tend to have reckonings.
02:24Now, is it a calamitous reckoning like with railroads in the 1870s where we had disastrous recessions?
02:31Is it a reckoning like after the 1920s, we had a big boom on electrification mostly and utilities?
02:39Or is it like the Internet where you have a modest reckoning, still a recession?
02:43And that's so AI is transformative. One last thing, Paul, I think of it a little bit like a parlay
02:50bat.
02:50You know, there's the prediction markets. You have to have two things.
02:53You have to have AI, hyperscalers and open AI be able to build their revenues.
03:00Right now, they don't have the revenues.
03:01And two, you need to build productivity in the economy enough for the capital markets to overlook all the disruption,
03:10all the companies that are going to be disrupting value with a successful AI.
03:15We continue with Gary Gensler, the former chairman of the Securities Exchange Commission,
03:20his commitment to Sloan, where he's won a couple of like student trophies.
03:24Is that right?
03:24I didn't fall asleep in his class trophy.
03:27Does a wonderful podcast.
03:29Oh, God, Tom, you're too kind.
03:30He does a wonderful podcast with Simon Johnson.
03:33I want to go two questions here, Gary, quickly.
03:35A lot of people went retail on Bitcoin and they enjoyed buying it 100 or 110.
03:41What do you say to the retail crew that have losses in Bitcoin?
03:47Look, markets both trade on sentiment and fundamentals.
03:51And the challenge for those purchasers are is what are the fundamentals?
03:55We were just talking about that with SpaceX, but there's a real business there.
04:00I mean, Elon Musk has built a real business.
04:02It's just a question of where do you value it?
04:05Here, the ebb and flow of any purchaser of Bitcoin has to think, all right, what are the real use
04:13cases?
04:14And particularly to be even more careful with the rest of that asset class crypto.
04:21It's like meme stocks.
04:25You have to be very careful that you're not trading just on sentiment.
04:28Oh, I'll refrain from editorializing here for Tom Kean.
04:32I've got a chart from Jeff Jacobson.
04:34Thank you, Zero Hedge, for this.
04:36Gary Gensler, to me, it's manipulated.
04:38They do an IPO, which is 5% of the SpaceX float.
04:42They tranche it out August 11, 21, September 10, September 25.
04:48They get 50% of the stock out October 10.
04:51They finally get out to 60% of the stock out December 9th.
04:55Is it just a manipulation of folding the stock into the public in a way that keeps the fervor up?
05:05It doesn't seem like the old days where a company went public.
05:10Well, so here's the other thing.
05:13NASDAQ made an accommodation in how they do their index, the NASDAQ 100.
05:20And once there's 30% of that stock outstanding, which might happen as soon as mid-August after the earnings
05:27release,
05:28once that happens, the entire free float is counted into the indexes, which put out Elon's 42%.
05:3658% might fold into the indexes, and then there's a buy.
05:42But here's the other side.
05:44I call it the great rebalancing.
05:46All those venture capitalists and sovereign wealth funds, they're going to want to take risk off the page.
05:51I mean, Tom, they're not going to want to just leave their profits in and say, let's go for more.
05:58They've got to take, you know, a third, a half, maybe three quarters of the risk off the page.
06:04And so there's going to be a lot of selling pressure, too, as these lockups come off.
06:10Gary, as we think about the continued rollout of AI across the economy,
06:14what do you think the regulatory framework should be going forward?
06:20Look, I think with any great technology, a society adapts and says, listen, there's public goods and we have to
06:26promote them.
06:28We call it responsible AI.
06:30I started doing work on this seven years ago and tried to move the ball on that,
06:36even at the Securities and Exchange Commission.
06:37I think the most that's happening is at the states about protecting people against bias, protecting people's privacy, of course,
06:47the accuracy of it.
06:49But when the algorithms are making decisions on our behalf, who gets health care, who gets a job, who gets
06:55credit, it's important that they are accurate.
06:58And I think that right now this current president is more into let's just support a competition with China.
07:08Let's, you know, as they say, just take off the regulatory guardrails.
07:15And yet I think society is reacting and starting to say, what about my kids?
07:19What about addiction?
07:20What about the use of this?
07:22What about my lost job potential, maybe?
07:24And so it'll be a very interesting next several years in terms of the politics of all this.
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