Transcription
The question here is like, what should at different levels, so like the the average Joe on the street up to entrepreneurs that are running companies, how does how do they all prepare for an economic bubble that might burst?
It's such a good example, and what that does in just following it through on what we said a minute ago, is that increases the supply of AI stock.
Okay, yeah, cuz he sold stock in his corporation.
Yeah.
Right? And so, as he and others do that more, this greater supply of stock comes in, and and so he wants to get ahead of it in that dynamic, and then, you know, that contributes to the bubble. But, how do they prepare?
How do they prepare? That's a good question.
I would also say something. The future is very unknown. And people should not be timing. Sophisticated investors have a real challenge even in timing a bubble. So, the important thing always is to diversify.
Now, we're going to go back to money, the basics of money management. And I by the way, I personally have gone through the cycle cuz I didn't have any money, and then I did then I had a lot of money, and I remember the cycle very well. What happens is as you start off, I used to count how many months I would be okay with a certain amount of money, how much I would be okay if no more money came in. If I lost my job or whatever I did, I mostly never I worked 2 years for somebody, but in other words, if money didn't come in, and it would be months and then years and so on to build that security cuz I'd take care of my family and so on. And so, what as we're looking at these things, these are the choices that you have in order to be able to say, do I buy my house or apartment? Do I put my money into cash? And what happens to money is you have to put it into something because um they'll pay you interest on it, okay? So, that's your cash deposit and so on and people think that that's the safest. It's not it's the worst investment over a long period of time because inflation will eat it away.
You mean putting it in a bank, just leaving it in a bank?
In whatever form, a money market fund, a whatever it is that is that short-term um deposited and it'll give me an interest rate.
Okay.
Okay? And that's what they think about as cash. You don't nobody leaves it literally in cash because if it's literally in cash, it doesn't earn interest. So, why that shouldn't I put it there and get some interest on it? And so, that's cash and people think that that's the safest and has the lowest return guaranteed almost to have the worst return over the longer period of time.
People keep cash because it feels safer.
That's right. And I'm saying it's not safer because of inflation.
Explain that to me in simple terms.
Okay. Well, if I got no interest rate, um then what I would do is I'd lose the to the inflation rate.
And what's the inflation rate?
And well, 3 and 1/2 or 4% happens to be about where it is now.
A year?
Yeah, a year.
So, that at least $3.5 a year.
That's right.
If I just leave it in cash.
That's right.
Okay.
Okay? Now, I'll get an interest rate on it if I put it someplace and it'll give me maybe uh an interest rate that's somewhere in that vicinity, similar to that.
3.54%
And then I have to pay taxes on it.
Oh, you have to pay taxes on the gain?
You're Yeah.
Okay, fine.
Right? Even though you really didn't gain relative to inflation, you still have to pay the taxes on whatever you've earned or something. Anyway, over the long term, it's a lousy return. Because also think about returns also come from productivity. And over a period of time, people learn how to do things better and so on. So, then you can invest in, let's call this, stocks, okay? That we'll call that the stock market. This is cash, and then you think on the stocks. And then the stocks can go up or down, um and then they have this dynamic that we're talking about that creates these big cycles and the busts. And those cycles, when they go down, um go down um 60, 70 percent. Okay, that's that's what a bear market looks like. Woo, what a what a dive. Okay, this is gold that's gold. Um these are bonds, and this is your house, and that's uh Bitcoin. Okay, so these are the choices. They each um change for certain reasons. I'll digress into that in a minute. But what happens is they go like this. When gold goes up, tends to be that the bonds will go down uh in value, or your house. And these change in a certain way. And so the best thing to do is to have a diversified portfolio of that. When you have that rather than any one, you um won't reduce your return, but you will reduce your risk.
And diversified means having a little bit of each.
Right, a certain amount. And you have to know how to balance them because of their volatility. This one, stocks, is more uh volatile than this one. And my own recommendations are you start first of all with what you need. Should I uh buy a place, or should I use that money, and I could travel more, and so on. One of the advantages of the house, the apartment, and whatever, is it's your environment. Your environment is important. It produces forced savings. Sometimes that forced savings is good. It is it typically is taxed better. It's a It's a better vehicle for tax over a period of time. But, I'm not arguing for this alone, but I'm saying when I'm looking at this, then I think this one, gold, is very interesting because when all of these tend to do badly, this tends to do well. Okay, so it's a very effective diversifying because this was money not until 1970 one. And it's still the second largest reserve currency. Central banks hold reserve currencies. So, it has qualities that are different from this. And this has qualities like when the value of money goes down because of inflation, this
bonds
Okay. And bonds are basically lending the government money.
That That's right. If you lend the money at a certain interest rate, and then inflation and interest rates rise, you're kind of locked into that interest rate. And so, it has its own problems. The more important thing I would say is, you know, you save up and you say, "How many years can I live if money doesn't come in?" Okay. And then you take that and you say, "How could I be secure? So, I don't want to put it into one thing that can go down 70%. So, how do I diversify that? That's my main headline.
A lot of people in the comments of our last episode, um they were asking this like, "How does this apply for someone who doesn't have much money, maybe doesn't have any assets, say they're 30 years old, they um have I don't know, $100 disposable income, and they're thinking about how to sort of secure their future. What is the advice for someone in that situation?"
Your only asset is yourself. And I guess what you're going to get from the government. How do you sell yourself at at getting a better income? Or how much how are you getting money from the government?
Mhm.
You selling yourself is the main thing. This is one of the big problems now with artificial intelligence and other machines replacing people and and different types of jobs, it becomes more difficult. It produces that big wealth gap while you're having more productivity. Everybody wants more productivity because it means how do you produce things more efficiently? But that's contributes to the income gap because your productivity equals your income for a large extent. And then you have the and you know, the political dynamic. It's tough to get yourself out of this position that you mentioned. You know, I'm imagining that person. Okay? It's not easy. There is this giant polarity. If you're in the top 10% of talent, let's say, the world's your oyster. But nowadays, in order to be there, okay, that's that's difficult. Find something that gives you the ability to sell your time for good money. Is that going to be that you're driving an Uber? Is that going to be that you have the talent and you're going to be able to understand AI and contribute that understanding to a company that values that? Or what is your skill? You found this. Okay? And and you found the way. Okay? But you need money. Okay. And the the thing that you want to do, what you're doing, and I'm lucky enough to do, is to make your work and your passion the same thing. And don't forget about the money part.
Mhm. Yeah. I am I one of the things that I I think I didn't realize earlier in my career is that whatever skills you have will be valued differently in different contexts or industries, should I say? So, for example, say that my skill here, and I'm not trying to flatter myself, but say my skill here is having conversations, right? Let's say that's what it is. There's lots of places I could have conversations. And those places would value my ability to have conversations wildly differently per hour.
Right.
So, I will often think this and speak to my friends about this when they they tell me their skills, I say, "Let's look at the different industries and how they would value the skills you currently have differently." A good example, again, you know, you could be an Uber driver or you could chauffeur Ray Dalio. Now, I imagine those two things pay wildly differently, but the same skill of driving a car, broadly speaking.
I agree with all that.
And so, I think that's one way to just you know, you The other way is you go ask your current boss for a promotion. But again, they're going to value you in the context of their other employees, the market in that industry, etc. So, it's you might get 10%, but you're not going to see a step change necessarily. So, that's something that I always say to people.
Absolutely right. And another um law of something, I think it's almost a law of everything, it's a law of you um buy almost anything, is those at the top, whatever that thing you're buying, if you're buying a painting, a piece of furniture, a piece of clothing, a a person's time, or whatever, command premiums that are many multiples of the average. It's almost like if you can invest 10% more of your time, your effort, your skill to go up,
Mhm.
okay? You will get twice as much
Mhm.
for 10% better, something like that, okay? So, that's part of the formula of life and the formula of employment. And it's so, if I think if you keep what you brought up and what I'm bringing up in mind, that helps you position yourself and know what to do.
Mhm.
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Bitcoin.
Or Bitcoin.
What's your perspective on Bitcoin? And I know the market in Bitcoin is down at the moment.
I have about 1% of my portfolio in Bitcoin because there's different kinds of money. And the money that you can't print, that's one kind. This is the other kind of money that you can't print.
Gold.
Yeah. You cannot crack it with technology. You can hold it, you own it. It's There's a saying that it's the only financial asset that is not somebody else's liability. Somebody has to give you something for it. It has that. So, in my category of wanting, let's say, make sure that I have some hard money, which for most people should be between 5 and 15% of their portfolio. I prefer that. I'm pointing to the gold bars here rather than the Bitcoin.
Is it still, in your view, a gold-like asset?
Yes, it's it's a type of money that can't be printed. But there are technologies that can um hurt it. In other words, if there's quantum computing, and it can be monitored by uh governments and so on, it could be taxed. And digital currencies are somewhat similar.
But you don't like Bitcoin as much as gold because of privacy reasons as well.
And when the government say, "I don't want it," they have the power therefore to do whatever they want with it. And central banks will not own any significant amount of that because of the reason I said, they they want their transactions to be private and in their control. Think about how different it would be for Russia. Okay, they confiscated these kind of other assets. Um they didn't get these.
Gold.
Okay, gold. And so, um what you're seeing even particularly in this time of conflict is um that there's a sense that if I'm holding this, others won't get it.
You mentioned a second ago the impact you think AI is going to have on the economy broadly, but also again to real people's lives. There's lots of debate. I mean, there's been a debate over the last 10 10 10 years or so within the world of AI. You had the big AI CEOs originally saying that AI would cause job disruption. And that, you know, you've even had some of the CEOs more recently saying work will become optional in a world of super intelligence. At the same time, we have robotics coming over the horizon. So, you've got this sort of convergence of intelligence and then I don't know, you could think of it like muscles, like physical muscles or ability. At the same time, um we're seeing AI accelerate in its capabilities. What does this mean for the average person and their job? And who's going to benefit from this AI revolution in your point of view?
It means that you will either be cutting edge and capable and among that top fraction of a percent down to 10% of the population who is um cutting edge and using it and accelerating, or uh you will, if you're in a thinking job, um be at risk of being um replaced. We're coming into a world where we can automate everything. The evolution of man was we had the agricultural era. And there was no real inventiveness. And then man invented the machine. And what the machine did is it replaced man's physical necessity. So, men used to be like oxen in the agricultural field and so on. And they were replaced by tractors. And then there was we entered the industrial age. First you had the printing press that allowed people to learn. And then you had these inventions, the industrial revolution, the first industrial revolution. And what you had is the replacing the physical that that man would do in factories then and so on. And so the way I look at it is I look at the human body. And I see like it's replacing the body and so on. And it's coming up a higher and higher and then it replaces some aspects of the mind that you can computerize. And it's coming up and up and it's replacing higher and higher levels of thinking and reasoning. Okay. So, that path is part of the evolutionary path that is happening. Okay. So, then you start to say, "What do I have to offer?" And so, in answer to who benefits from it, those who benefit from it are those who are um the capitalists with the ideas that replace uh the workers. And so, if you look at there's revenue for businesses when you buy something in a store, there's revenue. Okay. And if you look at the share that is going to workers, you see that share going down. And if you look at the share that's going to those who own that business, that share is going up. That's You know, how do they share that revenue in terms of the cost? And you see that that's rising. And so, um this is an evolutionary process, and it's true that what happens is you get more uh free time, okay? So, now the so- society has to think, how do I deal with this? So, for example, the work week, which used to be, you know, a 60- or 70-hour work week, goes down to less than a 40-hour work week, and there's more time. But there needs to be uh you know, how do you create a bottom? And so, we're going through this phase in which there is this upper end that is making incredible amounts of wealth as we described, and then this lower end that is um then having these challenges. We've have a relatively good economy, and the um difficulty of college graduates to uh get employment has increased significantly. And I can tell you that in in many businesses, it becomes more of a pain in the neck to have a college graduate, uh let's say, do it. They have to train them, you have to And many of those tasks, many of that thing could be done uh very quickly with the AI and with computerization. And as you get into robotics, you're going to have that hap- happen, right?
The speed of the disruption that we're seeing because of the amount of capital that's flowing into these AI frontier models like the Anthropic's and Open AI, etc., etc. is is quite different from anything else. It's sort of the historical precedents as we've seen through the Industrial Revolution where it took time to build the tractors.
There's an element of speed. What happens usually is the bubble bursts.
Mhm.
And now you have the cyclical dynamic of that while the technology, you know, evolves, but the the supply demand and the debt problem that we just talked about then come in. And so, unemployment is due to you typically some sort of a combination of a financial crisis that like we talked about the debt and stocks going down and people not having collateral and then therefore not buying assets and that dynamic. That causes the unemployment rate, that factor.
That's the sort of economic reasons, but in terms of the AI agent robotics being able to replace you. I've sat with Dara from Uber and Dara said that he imagines in the future the 9 million riders that they have around the world doing deliveries will be replaced by autonomous vehicles, autonomous robots. Those 9 million drivers careers that you have will be out of work conceivably in the you know, talking about being honest about the situation.
Yeah, I think it again it goes to physical AI as well, right? So, I think 20 years from now you can imagine that those 9 million will be 20 million AVs maybe, but we have time between now and then partially because we don't operate in the virtual world, right? We operate in the physical world. You have to get the regulations up, you have to build the cars, you have to build the sensor stacks, the the models have to get there. So, there is time between now and then, but you can imagine the majority of our trips being fulfilled by robots of some kind.
The unemployment rate gets very influenced by the bubble bursting and the economy going down. You see that spike.
Mhm.
You certainly have the evolutionary change that you're referring to.
Okay, so it's both
Okay, in other words, there's this evolutionary thing in which they like he says, Um, you know, the tractor replaces the the labor or the assembly line worker as technology is replaced. And that is an evolutionary thing that goes continuously for, you know, many years and in the way that you're describing. Because you asked about the unemployment rate, I just wanted to emphasize that the unemployment rate is very heavily affected by that bubble bursting.
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