Prof G Markets - Red Flags at OpenAI — How One Company Could Burst the AI Bubble

Episode Date: November 10, 2025

Scott Galloway and Ed Elson dissect red flags at OpenAI and debate whether problems at the company could burst the AI bubble. Then, they turn to the Supreme Court’s high-stakes tariff case and discuss an arbitrage opportunity in the middle of it. Finally, they dig into the surge in prediction markets and why the Trump administration has steered clear of cracking down. Subscribe to the Prof G Markets newsletter  Order "Notes on Being a Man," out now Note: We may earn revenue from some of the links we provide. Subscribe to No Mercy / No Malice Follow the podcast across socials @profgmarkets Follow Scott on Instagram Follow Ed on Instagram and X Learn more about your ad choices. Visit podcastchoices.com/adchoices

Support for this show comes from the Audible original, The Downloaded 2, Ghosts in the Machine. Quantum computers, the next great frontier of technology, offering endless possibilities that stretch the human mind. But for Roscoe Cudullian and the Phoenix Colony, quantum computing uploads the human mind with life-altering consequences. Audibles hit sci-fi thriller The Downloaded returns with Oscar winner Brendan Fraser, reprising his role as Rosco Cudulian in The Downloaded 2, Ghosts in the Machine. This thought-provoking sequel from Robert J. Sawyer takes listeners on a captivating sci-fi journey, a mind-bending must-listen that asks, what are you willing to lose to save the ones you love?

The Downloaded 2, Ghosts in the Machine. Available now, only from Audible. Support for this show comes from the Audible Original, The Downloaded 2, Ghosts in the Machine. The Earth only has a few days left. Rosco Cudulian and the rest of the Phoenix Colony have to re-upload their minds into the quantum computer, but a new threat has arisen that could destroy their stored consciousness forever. Listen to Oscar winner Brendan Fraser reprised his role as Rosco Cudulian in this follow-up to the Audible original Blockbuster, the Downloaded, it's a thought-provoking sci-fi journey where identity, memory, and morality collide.

Robert J. Sawyer does it again with this much-anticipated sequel that leaves you asking, What are you willing to lose to save the ones you love? The Downloaded 2, Ghosts in the Machine. Available now, only from Audible. Support for this show comes from the Audible Original, The Downloaded 2, Ghosts in the Machine. The Earth only has a few days left. Rosco Cudulian and the rest of the Phoenix colony have to re-upload their minds into the quantum computer, but a new threat has arisen that could destroy their stored consciousness forever.

Listen to Oscar winner Brendan Fraser reprised his role as Rosco Cudulian in this follow-up to the Audible original blockbuster, The Downloaded. It's a thought-provoking sci-fi journey where identity, memory, and morality collide. Robert J. Sawyer does it again with this much-anticipated sequel that leaves you asking, What are you willing to lose to save the ones you love? The downloaded two, Ghosts in the Machine. Available now, only from Audible. Today is number 63. That's how many hours of America.

and spend in traffic each year. Ed Schuster, I was driving down in Florida with my 13-year-old son. And of all things, a dildo hit the windshield. And trying to protect his innocence, I said, oh my God, did you see that bug? And he said, yeah, I can't believe bugs have dicks that big. What'd you do last night, Ed? What'd you do? I went to your book launch, Scott. Same more. You're not getting up that easy.

I had an incredible time. I met many of your friends who are wonderful people. You had your 92nd Street Y performance with Ben Stiller. I don't know what you'd call it, but I do know that it was the fastest sellout in the history of the 90 Second Street Y. I don't like these commercial metrics, Ed. That was so nice. Nice, wasn't it? I was really happy with that.

I had a great time. It was great to see you. You forgot that I was on the Daily Show right before that. I forgot, yes. That's a very good point. You were on the Daily Show. Second time I started crying this week. Jordan Klepper actually had to reach across and grab my hands. That's a good luck. I'm a little annoyed that they're not putting you on with John Stewart, though. They're giving you sort of like the John Stewart's Ed Ellsons to interview you. What's going on with that? John Stewart intimidates me. I think I'd be too nervous. But yeah, I love, I love Jordan.

He just, his type of humor really, and I get the sense. I kind of relate to him that maybe he was tall and didn't have a lot of social capital in high school, so I sort of relate to him, like, a little too tall. And he's got a five-year-old kid. Yeah, I like, God, I love, I think they've done such an amazing job with their backup cast. God, how do I find better people, memo to self? How do I get better people? Yeah.

I'm about to, I'm about to head on the Pivot Live Tour, seven cities and seven days. When is the market's live tour happening? We'll do one next year. I think I think we'll do one in Q1 of next year. So if you're watching this YouTube, tell us which cities we should go to. I just thought it was so funny. We're doing Toronto, D.C., New York, Boston, Chicago, L.A., and I thought the funniest comment was, why do you hate Arizona? I thought that was so funny. We'll do it. Phoenix, 26. Yeah. So, If, for those of you watching this, probably we're going to be doing a Prof.G Markets live tour and whoever has the most comments from any city, we don't care if it's Madison or, I don't know, whatever, Little Rock will come to that city if we get a lot of comments. Who are going to be the groupies?

Well, this is the problem. This is what I'm scared of. Don't tell her I said this. But whenever we do a live tour, more people come up to see me than Kara. And it really pisses her off. It really pisses her off. And I have this really awful dread that the same thing is going to happen to me with you. That if a line is at any point longer to get a selfie with you, I'm going to freak the fuck out. There was a very interesting moment for me when we had the South by Southwest event where someone had your book and they brought it over and they asked me if they could get, they could get my signature. I was like, what am I supposed to do with this? Because it was your algebra of wealth.

I was like, no, I can't do this. You got to give this to Scott. I can just sense it. People are constantly coming out to me. And like, on the street, they're like, Prof. Gee, where's Ed? Where's Ed? And all these women and gay men are like,

so is that single? Is Ed? Is that single? Because, you know, I don't, just a crazy idea. Do you want to set up a total stranger who just accosts you on the street with your podcast co-host. That's a great idea.

Well, look, I'm very excited for that. I think I'll need a few more years before I'm at that level, Scott. I'll be honest with you. I don't think I'm anywhere close. Brother, I hate to say anything nice about you, but you are literally like Muhammad Ali meets, I don't know, LeBron meets Messi at your age. compared to where I was. When I was 26, I was just out of grad school. I had started a market research firm. I pivoting to a strategy firm. I was working out of my apartment. I had no idea what I was going to do. And I was my highlight was I used to take my dog for long walks. And my girlfriend at the time was supporting us. And she wasn't that happy about that. She was pretty cool about it, but I don't think she was really happy about it.

you know, when she came home, she wouldn't be like, do me, you indigent loser. That wasn't an enormous turn on for her. I'm starting a market research. I mean, a strategy. I mean, an e-commerce company, the Internet, the Internet, the Internet. I was, I don't want to say I was flailing, but I was definitely doing what you're supposed to be doing in your 20s. I was workshopping my career trying to figure out what to do. So you're...

I was thinking, though, 26 is the 8. that you started, it was profit, right? Profit, yeah, yeah. Yeah, which turned out to be a massive success. I feel like 26 was kind of a big, that was a big year for you, no? I haven't started a company. I mean, I've sort of semi-started a podcast, but...

Well, I don't know. You kind of own this little business, and you're extracting the majority of the margin by telling me you're having coffees with Andrew Ross Sorkin, but don't be threatened. As we're going into bonuses, and I love how you drop that little gem. Boom.

But yeah, 26 was a huge year for me on a lot of levels because I moved in with my girlfriend. I got a dog, which is the first time anything was dependent upon me for like, I remember thinking at one point, you know, my friends were like, I got one out and we got ridiculous fucking truck. We're like, let's go to Vegas.

And I'm like, yeah. And then I'm like, oh, wait, if I do this, my dog will die. If I head to Vegas right now for two days, there is a living being at home that is dependent upon me. And also my mom, that was the year my mom got very sick. That kind of changed my life. Yeah, that was a big. Wow, yeah, that was a lot of big things. Yeah, it was the early 90s. We were coming out of recession. Get this, when I graduated from business school and the house school of business, 40% of the graduates had a job on graduation day. And now when the kids graduate from Stern, it's whether they have three offers or five offers. I wonder if that's

going to change because all the things we've been talking about in AI. Yeah, exactly. I think that's just about just beginning to change now in the last year or so, I would say. Maybe that's a good segue into why people actually listen to this podcast. Should we get this? That's a good idea. Yeah. Let's let's talk about what we're supposed to talk about. Now there's the time to fly. I hope you have plenty of the where we're all. It was a week of red flag. It was a week of red flag. for Open AI. First off, the deposition of Open AI's co-founder Ilya Sitskiva was released, which shed new light on his time at the company and the drama around Sam Altman's firing in the deposition. Ilya referenced a memo stating that Altman was fired due to a,

quote, loss of confidence and also alleging a, quote, consistent pattern of lying. So that was not good for Open AI. Meanwhile, Sam Altman appeared on Brad Gerson's podcast. We've of course had Brad on our podcast too. And Brad Gersner pressed him about Open AI's financial commitments, their spending plans. And he was quite visibly frustrated. Let's look at the clip. You know, how can the company with 13 billion in revenues make $1.4 trillion of spend commitments? And you've heard the criticism, Sam. We're doing well more revenue than that. Second of all, Brad, if you want to sell your shares, I'll find you a buyer. I just enough. Like,

you know, people are, I think there's a lot of people who would love to buy Open AI shares. I don't think you want to sell. Including myself. Including myself. Who talk with a lot of like breathless concern about our compute stuff or whatever that would be thrilled to buy shares. So I think we could sell, you know, your shares or anybody else's to some of the people who are making the most noise on Twitter, whatever, about this very quickly. So that wasn't great. And then after that, the company's CFO, Sarah Fryer, she went viral after she told the Wall Street Journal that Open AI is.

seeking support from the federal government to help finance future data centers. She later kind of walked those comments back, but that is what she said in this interview. So, Scott, we've discussed Open AI's precarious financial situation, and we've discussed that at length, the fact that they're generating, as Brad said, around $13 billion in ARR. According to the most recent reports, Sam Uttman says it's more than that, but they're also spending more than double of that currently, and the plan is to spend more than a trillion dollars over the next several years. So the question we've been asking repeatedly on this podcast, how on earth are they going to pay for all of this?

Well, Brad Gersner asked that question directly to Sam Artman. You would think that he would have at least a canned or rehearsed answer. His answer was, I think, horrendous. I mean, I couldn't think of a more defensive, frantic, kind of sociopathic response is what I would say. If you're trying to shake investors' confidence in open air, I would say this is how you do it, flustered, concerned, very triggered, etc. First, let's just start with your reactions to those three things, the deposition, what we learned about the firing, the appearance on Brad Gerson's podcast, and then, of course, the CFO saying that

they are going to need a federal backstop. All of this is a signal headed to towards an IPO. The company is definitely going to file, in my opinion, sometime in 26, because the valuation, based on the revenue multiple, is getting to the point where no institutional investor is probably going to want to buy more. So they stop at the last stop of where it could potentially become a meme stock, and that is disconnect from any underlying valuation metrics, and that is the retail market. So I do think they're going to go public. When you are on an earnings call and someone asks you a fair question, no CEO that I've heard who holds onto his job turns around and says, well, if you don't like it, you can sell your shares. That could not be,

that's a rare misstep for Sam. And I think it probably reflects some of the stress he's under right now, probably having to get subpoenas and depositions where his co-founder is saying that he can't be trusted, that he lies and created a chaotic environment. That can't be fun for the guy when he's trying to, you know, justify a half a trillion dollar valuation, getting incoming from the press, is somehow trying to wallpaper over the fact they said they weren't going to do porn, but wait, someone told me I can increase usage by 20% if I offer porn. I mean, the guy has got to be under a lot of pressure right now. And this was a moment where he lost his shit from an investor's standpoint. You don't tell investors will sell your shares, because guess what? They will. If you can't

answer, that is a fair question. And it should have been something along the lines of, well, actually, if you look at other companies that have become trillion-dollar companies, we're further ahead in terms of zero to a million users. We're faster zero to 10 billion than any company in history. Our ability to raise capital. He could have come up with a bunch of responses that said, actually, we are trading in a multiple of revenue. news that is extraordinary, I want to acknowledge that, but it's not unprecedented. What is unprecedented is some of the metrics we're delivering against. He had a chance to respond in a thoughtful metric-driven way. Even if it was hard to justify the valuation, he could

have said, no, this is a self-fulfilling prophecy. We're the fastest zero to $10 billion company in history. This technology is going to make everything else look like small ball. And some evidence that we can in fact justify this valuation is X, Y, and Z. And this is, this has happened before. And even at these valuations, other investors who have invested in these type of valuation at similar companies at similar points in a life cycle have made money. He could have, he could have and should have had that teed up. This is not, this isn't like an unexpected question that your valuation and multiple on revenues is really rich. That question, not only is it a fair question, but it is the most important question in the markets right now

because the answer to that question, how are you going to pay for it, is the question that determines the entire stock market right now. The fact that the stock market has returned, that AI has been responsible for 80% of the stock market returns since ChatGPT was launched, the fact that the valuations of Envidia and Oracle

and AMD and Microsoft, all of the best performing companies right now, the fact that those valuations are determined by these contracts that have been not signed but handshake agreed upon with OpenAI, the $300 billion that they say that they're going to pay to Oracle. I mean, this question, not only is it like fair and an obvious question,

that's going to come up. But you have to have an answer to that question. Sam Altman is the high priest of AI right now. And AI is essentially, as we've discussed many times on the podcast, AI is what is holding the stock market together and also holding the economy together. And we've discussed the stats about how if you didn't have AI, GDP would be flat this year. He was asked the question. He completely fumbled the answer. and you say, well, it's a tell that he's under a lot of stress, agreed, but also maybe it's a tell that he doesn't have an answer. Maybe it's a tell that when he got that question,

how are you going to pay for it? The answer is he doesn't fucking know how he's going to pay for it, and he doesn't even believe that he's going to be able to pay for it. And that is the question that we have been proposing on this podcast constantly. I mean, we added up all of the investments that they have in the pipeline, the cash that they have on the balance sheet, it's about $150 billion. So they're short $1.2 trillion. And yes, they're going to go IPO and they're going to raise money in the public markets.

You can't raise a trillion dollars in an IPO. It's not going to happen. So what they have to do at this point is they have to go out and they have to find different forms of financing. We had another tell where the CFO says, oh, maybe we'll get a backstop. Maybe the government will bail us out. Maybe the taxpayers will be the ones who pay for this gigantic AI build-out that is holding the entire stock market together. Or, and this is my belief, they're going to have to go for some debt and not just some debt, but a fuck ton of debt.

And that could be the beginning of the end for the AI bubble. That could be how the whole thing unravels. And when we look throughout history, that is generally how it goes. and we've discussed that as well. We talked about it with the railroads and the electric grid, and we talked about it with the internet. But I think that this was a big moment in the AI story where he had his chance.

And maybe he wasn't that well prepared because, you know, it was just a podcast with his buddy. But he had his chance to assuage investors and be like, no, no, don't worry. I know what I'm doing here. I know what this looks like. I know everything that you guys are talking about, but just trust me, everything's under control.

He did the total opposite. He had a meltdown, and what wasn't included in that recording is the fact that a few minutes after that, he randomly bailed on the podcast and left the Zoom. Poor little Sam. Sam's like, I'm out of here. You're not being nice to me. It's like when Trump left poor Leslie Stahl.

He couldn't handle the hard-hitting questions from an 83-year-old journalist. I mean, a couple things here. This is super interesting. So Sarah Fryer, the CFO, she has some spraining to do. She's had a bad day because she clearly communicated

that Open AI is seeking federal support to backstop. She said that the depreciation rates of AI chips remain uncertain, raising debt to purchase them as costly, government or private sector guarantees can really drop

the cost of the financing. They might be able to secure government backing. Trump loves this shit. He loves thinking he's innovative and using your credit card to sustain or to juice these companies that right now are driving the S&P. America's a giant bet on these 10 companies. So

Trump has a vested interest in keeping the music spinning. And also, to be fair, if you look at Apple, if you look at Google, if you look at Amazon, they're built on the backs of taxpayer subsidies. Apple is built on a technology that costs tens of billions of dollars that taxpayers paid for such that we could deliver an ICBM missile into the Kremlin. GPS was initially conceived to give missiles the ability to go, like to hit its target within four feet. And then they said, oh, wait, maybe we could use this technology to triangulate off the satellites and do things like help cars get where they need to.

to be and help people get cell coverage everywhere in the world. Apple's been massively subsidized by public taxpayers. Well, I think, I mean, if we're making a comparison, what you're describing there is government money that was used to create technologies, which were then used to build the products that we're describing. But it wasn't a bailout. It wasn't just, here's hundreds of billions of dollars for you to do the thing that you're going to do. It was like, here's technology that we've built as the government and you can now use it in your products, right? Ed, I just want you to know it's going to impact your future earnings if you thoughtfully contradict my logic. Okay, fair point. Fair point. Let me skip to what I'm doing. I'm not giving investment advice

what I'm doing. I have been for a long time thinking about, do you know, I think it's called Direxion. They do all these kind of innovative ETFs where they feel. figure out a way to short things or have triple the exposure, and their fees are higher, which I don't like to pay, but they're very innovative. So the ETF XMAG by defiance ETFs is not as short of the Magnificent 7, but a large-cap X Magnificent 7. So it basically holds large-cap stocks, including the 40% of the mega-caps, because at some point the S&P 490 will have their day. So the QQQD by Direxion is a bare 1XETF targeting the inverse, so it's minus 100% of the return of the Magnumazin 7 index. I am trying to figure out a way to go short the Magnificent 10.

Why? For some of the reasons you're talking about, they've just gotten out way over their skis, and these circular deals feel like late stage. I don't know if it's 98 or 99, but I feel like if I can hold on to these things, these short vehicles long enough. I want to hedge my exposure right now because if these things come down there's going to be nowhere to hide everything is going to come down when 40% of the S&P is writing on 10 companies

if they get cut in half nobody gets out alive the strafe and shrapnel here is going to be extraordinary the moment there's any sort of checkback or slowdown or the consumer base enterprises who are all signing up

for these expensive site licenses from OpenAI or Anthropic the moment PepsiCo CEO says we've made these huge 10, 20, 50, $100 million investments in AI and in the LLM, site licenses, chips, whatever,

and we're scaling it back dramatically because it hasn't offered the RI we expected. If a bunch of other companies jump in and say, yeah, actually, it seems true here, these companies, I mean, if the music stops, there's not only not any chairs,

there's like hot coals they're all going to sit on. It's going to be ugly. It is a house of cards which is built on AI, which is built on Open AI, which is built on Sam Altman and his response to that question, which again is why that question is so important. It's just so phenomenal how bad the answer was when it's not just AI resting on this,

but America, it's actually the presidency. I mean, so much is riding on this. But just go into like how the bubble would pop. You're saying that you think the bubble would pop, And so you're saying, you're thinking about shorting, some of the big tech stocks, I mean, my view, markets can stay irrational longer than you can stay solvent. And as we've discussed, I just don't think there's actually that much alpha and going short. I just think my recommendation is to stay away from that stuff. But, you know, have out of it. And there are people who've made a lot of money. I want to be clear, though. I'm not Jim Chano, so I'm not trying to find Alpha here. I'm not that guy Michael Burry or the big short guy, who by the way just took a huge position shorting Palantir. What I'm considering doing is quite frankly, just as a hedge. I don't like to short either. The natural trajectory of the market over the medium long term is up. And you constantly have to ask yourself, what could go right, as our friend Josh says. But I do think I feel like no matter what we do right now, if you're invested in the market's almost anywhere, you're you're uncomfortably levered to the magnificent 10. That's right.

And so I like the idea of putting 1% of my net worth in a short basket. And that way, if shit really gets real and my whole thing goes down 40%, I'll get 10 or 15% of it back. I like that. I think that's a good idea. And you're uncomfortably leveraged to Open AI as well. But just going to like how the bubble could pop, how the whole thing could cut. crashing down. I think one thing that is important to recognize is the way that these things

happen, it's not like you see a sequence of bad earnings calls and earnings reports and then suddenly everyone realizes, oh, it wasn't what we thought it was. What has to happen, and Josh Brown has talked about this with us before, there needs to be some narrative shock to the system. You need to have some spectacular story, some spectacular event, which he has, he people all at once, causes this massive shock to sentiment, and then suddenly everyone starts pulling their money out, and it starts this chain reaction. That's how this always goes down. Like, just the most recent example would be FDX. You know, Sam Bagman-Fried, who was the high priest of crypto at the time, he has this big blow-up, everyone says he's fraudulent, he goes to jail,

this unbelievable story that captures the imagination of millions, and that's what brings the crypto markets down. Another good example would be Evergrand in China, another recent example, where they had this massive blow-up, they went insolvent, they had $300 billion in liabilities, and then that was sort of the moment where suddenly all the investors in China freak out, and then you see this big, big correction in the Chinese stock market. So for the bubble to pop in AI, you're going to need a story. You're going to need something that is spectacular, that captures the imaginations of the investment community. If you had to bet on a story happening, it is the implosion of Open AI. I just, there is nothing else. Well, Invidia, if a chip,

if they announced the purchases of chips, if somebody, again, a Chinese manufacturer or someone else or a Northern European or a U.S. manufacturer or even Amazon, which is now producing AI chip, says, we've come up with a comparable chip at 60% of the price, and Jensen for the first time has to announce that sales seem to be slowing. There's points, the attack surface here of vulnerability is pretty broad, because when the bubble gets this inflated, it doesn't take a lot to pop it, right? Right. And what we forget is, that's not to say this isn't an amazing company. That's right. And leaders in a technology that will change the world. A standard, unavoidable part of the cycle is the following, a major 12-month destruction and value.

And that's why it's dangerous to lever up and buy these things on margin. Because as long as you can wait out these things, and in fact, it's a great company that in the technology that ends up being a similar technology, you can hold on, you know, hold on for dear a life, right? So, for example, Amazon and Cisco from 99 to 2001 lost 90% of their value. Amazon, if you held on your Amazon shares, you recovered, and then some. It's a whatever, 100x and send. But let me just go through some. These are one-year declines of these companies.

In 2022, Meta lost two-thirds of its value. That was crazy. Right? In that one year, real recently. Why? Post-Apple iOS privacy changes that crush their ad targeting. Remember that? They turned off whatever was opt-in or opt-off.

And also, the Reality Labs Metaverse loss is ballooned in a investor confidence credit. It lost two-thirds of their value. By the way, since then, up three or five-fold. Invidia, in 2022, lost 58% of its value. It was a chip cycle downturn, crypto-mining bust, export controls to China. It rebounded massively the following year as the AI boom took off. Netflix, just three years ago, just three years ago, Netflix saw a drawdown, a destruction in the value of its shares of 70% in the 12-month period.

subscriber loss for the first time at a decade, growth to value rating, growth to value re-rating and rate hikes. What is every amazing company in the midst of a technology boom that has done incredibly well, the best performing long-term holds, what do they all have in common? In a 12-month period, they were down at some point between 50 and 70%. But the problem is, if these guys go down 50 to 70%, if they follow the cycle of every other tech company in history, that has reached these types of valuations, and they come down 50 to 70% in a 12-month period.

Hold on tight, says the global economy. Because it's no longer a company worth, you know, Netflix at the time was worth probably $100 billion going to, or $150 billion going to $50 billion. It's a company worth $5 trillion going to $2 trillion. It's a $3 trillion dollar destruction and value. They're going to lose the GDP of Germany.

Germany, one company. That will send a chill across another dangerous concentration in our economy, and that is the consumer confidence of the top 10 percent who are now responsible for 50 percent of consumer spending. And I go, I don't feel as rich as I used to. I can take my spending down, my discretionary spending down, 50 or 80 percent. You can't, Ed. You're spending the majority of your income on rent and trying to do a little investing and living in the cost of living, in Manhattan. You could take it down 10 or 20%. You can't take it down 70 or 80s. So what do we have? At some point, these companies are going to experience this type of drawdown, except it is now so much more. This isn't the ripple effect of a stone. This is the ripple effect of the millennium

falcum or a starship cruiser crashing into a lake. Starship, that's a, I think that's a Star Wars Reference. Are they called Starship Cruiser's at? I think that's right. My ability or my desire to short some, even if it's a little amount, I just want mental health insurance because what I see here, and by the way, these companies can double in the next 12 months. I don't know. But if these companies get whacked and go through the same cycle as every other great technology company, the impact it's going to have on everything is going to be much more dramatic. There's going to be no, P&G is going to be off 20%. I mean, everybody, there's going to be nowhere to hide. I would also add, though, that the difference between a company seeing like a 50 to

60 percent drawdown versus a 99 percent drawdown and going out of business, the difference between those two companies is always leverage. It's which company was financially managed such that they were able to withstand a downturn. And this is exactly what Andrew Ross-Salkin talks about when we had him on and he talked about what went wrong in 1929. The companies that go bankrupt, that just get completely wiped out, it's always leverage. I mean, Evergrand, which I just used as an example, great example of that, the most indebted company in the world, $300 billion in liabilities, lost 99% of its market value. Lehman Brothers is another good example.

I mean, some banks made it out alive, but Lehman Brothers was so overly leveraged, 30 to 1 at some points. And so when they started to see the defaults on the CDOs and all the mortgage-backed securities, they were insolvent. They couldn't pay back their creditors. And then it started the chain reaction. And again, this was too much debt, too much leverage, and long-term financial mismanagement. So I think for sure every company is going to be susceptible to a downturn. But I think the question when that happens is which of these companies are being responsible about the amount of debt that they're taking on, which of them are making accurate and responsible projections about how they can cover their losses in the future if there is a downturn, if there is

a drop-off in demand. I think you look at many of the big tech companies. I think you look at NVIDIA and META and Microsoft and Google and Amazon. These companies are expertly managed from a balance sheet perspective. So yes, they might see some drawdowns, but they're not going to get wiped out. I mean, these companies, they have incredible technology teams, but also incredible financial teams. Open AI is a fucking train wreck from a financial management perspective. Whoa. It is. Ed's gone gangster. Why would you say it's a train wreck? Look at the numbers. They want to spend $1.4 trillion. They've got $13 billion in revenue. How much of that, though, do you think it's just marketing? It probably is, but the market is

pricing off of it. The market is pricing in a $300 billion contract to Oracle. So even if it's just marketing, the market believes it isn't. The market believes it's real. And Sam Altman is going around and saying it's real. I don't know if you saw the Financial Times report, but the Financial Times learned that they're not even seeking legal counsel on these deals. They're having their head of product lead these deals with AMD and NVIDIA. They're having Greg Brockman figure out the paperwork. They don't have a financial team. And then, of course, they brought in Sarah Friar, the CFO. She said, in order for this to work, we're going to need a backstop from the government. That is like all of the red flags of a company that is not figuring out how to manage their

balance sheet in a responsible and reasonable manner. I mean, this is the biggest red flag in AI by far. And that says nothing about the technology, says nothing about the product, which is amazing and which I use and everyone uses. But the question being like, who gets wiped out in a downturn is the companies that are over leveraged. And Open AI is that company. I wonder how much of it, quite frankly, is trying to, this fake signal and manifest success that the market will believe that if this guy is willing to sign a contract for 300 billion, I'd love to see the terms and conditions of this contract. Please. Well, exactly. You got to think. I wouldn't be surprised if Oracle and Open AI said this is more like Trump's favorite word, a framework. It's a framework. And that if, if quote unquote, they don't need it, they have a little bit opt out, they got to give them notice. I think that agreement is basically, they said, I know. Let's announce that you're buying $300 billion with an Oracle compute. It'll send my stock up. It'll increase my net worth by $93 billion.

it'll signal to the market that you as someone who has insight into your revenue growth and the subsequent demand it inspires. The more I listen to you, Ed, quite frankly, I think you're right. I think this is the mother of all fucking jazz hands, these agreements. And this week was our proof. I mean, he was offered the opportunity to correct that, and he bailed. He freaked out. He said, sell our stock then, and then he left the room.

When Trump comes back from a meeting with she and says, okay, they've agreed to continue to ship rare earth materials or delay the suspension of rare earth mineral exports by a year. And he comes back, which means it's still, they're still like pointing at us with a gun cocked. Basically, he comes back and he says, oh, it's him and dissent going on all this shows, an amazing agreement, historic leadership. And the reality is he didn't get dick. Basically, she knows he's, she's like, look, this is, this is, is bad for us, but what we have that you don't have is I can starve tens of millions of people and I'm still going to be in power. If fucking invidia gets cut in half, you're going to have

real trouble. You're going to lose Congress, right? And probably your, you know, Vance or Ruby or whoever you anoint is going to lose. So he, again, his big error was she, I'm getting off script here, was not understanding their willingness to sacrifice. But I'm kind of with you as we kind of un, I don't know, unfold all of this stuff. It does appear like there's a lot, a lot of jazz hands going on. But what's funny is what happened with Trump is that the markets originally priced everything in and then the taco, the tachofication came in and then they said, screw it. We're not going to price this anymore because we don't believe it. The question is, when does that happen with AI? When does the tachification of AI happen where you start

seeing these press releases and these handshake deals, we're going to spend $100 billion on AI. At what point does the market just go, you know what, do we don't really, we don't really buy it. So far, not happening at all. You could announce a multi-billion dollar contract with a hyperscaler tomorrow,

and the stock will go up invariably at least 5%. That's just how it works right now. But the question is, when does that run out? What is going to be the moment? I'll tell you my prediction, then let's move on because we've got more to get into, but if the bubble pops, my prediction is the reason it will pop is because of an implosion at OpenAI. It was because they said they were going to spend one and a half trillion.

They made all these commitments. They borrowed money. They haven't borrowed that much yet, but they will. And that will be their downfall, as it has been for many companies throughout history. We'll be right back after the break. And if you're enjoying the show so far, send it to a friend. And please give us a follow if you haven't already. support for profity markets comes from found does it ever feel like keeping up with your

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Here's just some of what they said. It's a congressional power, not a presidential power, to tax. And you want to say tariffs are not taxes, but that's exactly what they are. Degenerating money from American citizens' revenue. Aipa is a sanction statute. It's not a tax statute where Congress gave away the store. Congress knows exactly how to delegate its tariff powers every time for 238 years. It's done so explicitly, always with real limits.

AIPA looks nothing like those laws. It uses regulate, which Congress has used hundreds of times, never wants to include tariffs, and it lacks the limits of every other tariff statute. You're admitting that there is some non-delegation principle at play here, and therefore major questions as well. Is that right? Very, very deferential.

And again, the phrase that Justice Jackson uses, it just does not apply. I know, but that's where you started off. You've retreated from that, as I understand it. Well, I think we would have, as our front-line position, a certain stronger position, but if the court doesn't accept it, then if there is a highly-degradable person to do. Can you give you a reason to accept it, though?

That's what I'm struggling and waiting for. What's the reason to accept the notion that Congress can hand off the power to declare war to the president? Well, we don't content that. Again, that would be- Well, you do. You say it's unreviewable. There's no manageable standard, nothing to be done. And now you're, I think you, tell me if I'm wrong.

You backed off that position. Maybe that's fair to say. So it wasn't a great showing for Trump's legal team, and we know that because by the end of the week, markets were pricing just a 23% chance of the court ruling in his favor. Before the hearing, it was closer to 45%. This is per prediction markets. So just to kind of like go over the arguments that are being made here, basically generally it's agreed that you need Congress to approve major policy, economic policy decisions. But the government is saying that doesn't apply to foreign affairs. It's a foreign issue. The plaintiffs are saying, no, it is a domestic issue because, as so do I always saying,

tariffs are attacks on U.S. citizens. There are some other arguments to play here. But the summary here, the TLDR, is, didn't go great for Trump and for Trump's legal team. And then if you just look at the prediction markets on Kalshi, the chances that SCOTES will rule in favor of Trump. they have gone from 45% to now 23%. In a weird way, we talked about on this pivot, and Kare's view was this actually would be good for Trump. It would give him an elegant way out of this mess.

That it would basically do, well, the Supreme Court, I don't agree with them, but basically unwind what is probably the worst economic decision in a long, long time. Well, let me just say what I'm doing. You're not buying the refund claims, are you? I feel shamed. No, no, no, because that's an amazing investment trade.

I was going to bring that up. Is that what you're doing? That's what I'm trying to do. A market is developing in the private markets to purchase claims. So if you're Mercedes of Wisconsin and you're importing or made Mercedes USA, say they do a $2.5 billion business in Mercedes. I don't know what it is in the U.S. So they're importing in. And some of them are domestically made. So maybe that's maybe that's not the right analogy, but you get the point. If it's 15 percent and they're bringing in 200 million of Mercedes a month from Germany, they're paying a $30 million. million dollar tariff. If this court case ends up going against Trump, then essentially the Trump administration is going to owe Mercedes of USA $30 million a month or say the tariffs have been when did Liberation Day happen? I forget. April 2nd. Okay, so they call it six months of tariffs, then the government owes Mercedes USA $120 million. That's the important thing here. If Trump loses, not only does he have to revoke the tariffs, he actually has to return the tariff revenue that he brought in.

He's going to have to issue refunds to all the people who paid the tariffs. Well, there's some question here, and that is it's not immediately A equals B, even if they rule against them, that there could be nuance where maybe the government doesn't have to pay it back. Maybe the government, and we've seen Trump do this, refuses to pay it back. So even if the case is ruled against them, we don't know the nuance or the remedy. It might be you can't continue to do this, right? Or they might say, all right, they have a legal claim, and then the individual companies have to sue the government, which, I mean, I'll – anyways, it's not immediately a Fed accompli, I think, if, in fact, I've been thinking a lot about this, trying to game theory it out. But there's a private market developing, but unfortunately, you have to – right now, it looks at least the stuff I've seen that I've been shown.

You have to invest at least $10 million, so you have to put together. or an SPV if you don't have the $10 million yourself, and these claims are trading in the private market for anywhere from 5 to 30%. And I think the greater likelihood is somehow these people don't get their money back, but I think there's a greater than one in 10 chance they get their money back. So if I can pick these things up, these claims against the Trump administration for tariffs that were charged illegally based on the Supreme Court decision, if that, in fact, if they deemed them as illegal, that I think there's a greater, at this point, one in ten chance that this claim will be refunded. It might take a couple years. It might take two or three years

in court, but I like the asymmetric upside here. Very similar to the FDX claims that you made a killing on back in the day. But just to sort of explain how this is working here. So if you're a company and let's say you owe a dollar in, or you pay it a dollar in tariff revenue, now there's a question of do you have a claim now to receive a dollar back? And what Scott is going and doing is he's buying that claim from you for five cents, or that's the plan. There is a market right now where people say, I don't think I'm going to get my money back. I want a little bit of money right now. So I'll sell you the claim for five cents. And so I think it's an incredible arbitrage opportunity, but I was going to bring

this up to you. I was going to say, maybe you should look at this. You took the words out of my mouth. You already are looking at it. And I like these deals because they're hard. And that is, so it's unlikely would be a claim. It's unlikely Mercedes USA would sell the claim. What's a more likely seller is a chain of 14 hardware stores in the Southeast has been paying, you know, over the last six months, paid $7 million in tariffs. And if you show up and say, I'll give you a million dollars for these claims, they're like, fuck it. I don't, yeah, fine, give me the million bucks. I need to operate my business. And I've already paid the money. And I've already sort of incorporated into my cost of my business. This guy's going to give us a million bucks. And yeah, good luck to you trying

to get that money back. So my guess is, though, since this goes ruling, and quite frankly, after this podcast, you're going to see, you're going to see, this is the kind of thing that a a diameter capital or an Apollo come in with a team of 12 analysts and MBA interns, and they just crawl all over the U.S. trying to find these claims and make really big bets. So I'm wondering, I'm trying to figure out if I can connect with a fund that's already doing this and call them and say, hey, remember me? You know, I advised you on the Yahoo deal. I was your keynote speaker in 2014.

Remember when I was talking about happiness and how relationships are everything back in 2019? Remember me at your conference you held in August in Tucson? Wow, that was great. No, I think it's an amazing trade. As Scott Goodwin, diameter guy said on the podcast, the whole game is finding forced sellers. And to your point, there are a lot of small companies, small to medium-sized companies, that have been put under so much pressure because of the tariffs. I mean, you look at the difference in the way that the small caps are returning right now

versus the large and mega caps in the stock market. Tariffs have fucked one group in particular, and it's small and medium-sized businesses who are going to need some liquidity soon. So the idea that they were, I mean, I'm sure there is a market where these smaller companies are down to sell these claims for cents on the dollar. So I think it's a great trade. We'll be right back. And for even more markets content, sign up for our newsletter at profgmarkets.com slash subscribe.

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because I think I'm more associated with like dungarees and smock tops and a slightly more sexless tomboyish vibe. Find fashion neurosis on YouTube or wherever you get your podcasts. We're back with Profi Markets. Robin Hood posted earnings that topped expectations after doubling revenue year over year. The stock is one of the best performers in the S&P this year. It has soared 450% since Trump's election. A key driver of that momentum is prediction markets. Events contracts traded on Robin Hood, more than doubled quarter of a quarter to 2.3 billion as election

speculation pushed volumes to all-time highs. Calci and Polly Market also saw record volumes in the past month surpassing the presidential election of last year and now true social, Trump's social media company is rolling out its own crypto-based predictions platform. So, Scott, we've been talking about the gambling economy. You talked about it with Kyla Scanlon, all of these trading apps, these platforms which facilitate gambling, betting. You've got Robin Hood, and yes, people are investing properly on Robin Hood, but also there's a ton of options trading, a ton of crypto trading. As we discussed, events contracts trading, people betting on prediction markets. That stock is up 230% this year. Coinbase stock is up 50% in the past six months. Kalshi's trading volumes are up

150x since last year. There has been an explosion in what we would call the casino economy over the past few months, and much of it is certainly to do with Trump and his sort of pro-casino economy policies. I just want to get your reactions here. What do you make of the proliferation of this market? crypto plus prediction markets, sports betting, options trading, all of this stuff that is exploding right now. I just think it's out of control. And now the problem is, I don't think you're going to vantilize a 22-year-old. I think they get to make decisions, including stupid decisions.

But I think they need to be educated about the risks they're taking. So gambling has the highest suicide rate of all addictions because most people, Ed, if you developed meth addiction, we'd figure it out and we would try and move in. You could get on your phone and get addicted to gambling. lose everything. You know, a guy spends his kids, college fund, mortgages his house. Nobody has any idea, and he decides, okay, I'm in too deep. Highest addiction rate. Yet there's no dedicated federal budget for gambling addiction treatment or research. By comparison, the National Institute for Drug Abuse allocated $1.6 billion for drug addiction research, and the CDC allocates

about $310 million to tobacco control. And because there's so much money in this, it runs unregulated. Personal bankruptcy filings increase by 28% in states where sports betting gets legalized. So basically, bankruptcy surged by almost a third the moment you legalize gambling. It also disproportionately affects young men and low-income people. Approximately 15% of U.S. adults, age 18 to 34, have problematic gambling behaviors compared to only 2% of people age 55 plus. 20% of male gamblers have a gambling problem compared to just 8% of the female gambling. gamblers, against the above immature prefrontal cortex. Households with lower savings balance have spent 32% more in gambling as a share of their income than high savings households looking

for a way out. But it's increasingly difficult to regulate this because we no longer call a gambling. It's been rebranded as a prediction market. And these are casinos. They're more interesting. They might feel more substantive to bet on the outcome of the mayoral race. But be clear, folks, this is gambling. According to Cal Street, prediction markets are not gambling, but a form of financial market exchange. Yeah, fuck you. We're not that stupid. This is gambling. Whether gambling on the Jets or Mamdani, it's gambling. So the most profitable companies in the world all do the same thing. They tap into an instinctual flaw, and they start monetizing this flaw, despite the impact it has on consumers, whether it's tobacco companies, getting people

addicted to tobacco, and then spending a ton of money to try and argue that nicotine wasn't addictive, and then when our mothers and our sisters continued to die, we finally figured this shit out. The same thing is happening here, and the thing that got me initially kind of inspired is the wrong word, but very interested in this, is Alex Kerns, and that is this young man, a 19-year-old, I think it was a sophomore at Oklahoma State. Nice kid, no history of mental illness, good family. You know, you see this kid and you just see your son. I don't care who you are. You see your kid and you see like, okay, they're by the grace of God, go my kids, bought options on Robin Hood, got messages saying he was down $60,000. He wasn't. They were errant messages spent all night

sleepless, emailing Robin Hood to try and get some sort of response from customer service because, you know, they're in the business of hyper-scaling. And because they didn't place any sort of regulation or any sort of safeguards, they didn't get back to the kid. And the kid, the kid leaves a note for his parents saying, I don't want to leave this death for you and throws himself in front of a train. These are the people we want to trust with an addiction. These are the people, so we have Trump, the crime family Trump, and we have the mendacious Fox at Robin Hood deploying at scale, using technology, a drug that is highly addictive. So I'm horrified by this shit. And I I think if Congress had any stones or anyone under the age of 90 fucking five years old

that actually understood what is going on with young people, and especially young men here, they would do their goddamn jobs and prevent a tragedy of the commons and weigh in with legislation or at least age gate the shit. So this is, I think this is hugely distressing. I think this is the next major opioid scandal. I mean, gambling is pretty bad for society. I mean, like, it's pretty indisputed. I mean, consistently leads to financial ruin, as you've said, one of the most common causes of bankruptcy.

As you said, in states where sports betting is legalized, bankruptcy filings have risen 28%. Disproportionately affects poor people, disproportionately affects young men, one of the most predictive causes of domestic violence, also one of the most common causes of suicide. But we kind of like it because it's... fun. Now, I think one of the big questions is, like, what counts as gambling? Clearly, we agree mostly that there should be some form of regulation, or at the very least, we should draw some line in the sand as to what is gambling and what isn't. I had the founder and CEO of Kalshi on first-time founders, and we talked about this for a long time, and he has a very

interesting perspective. Of course, he's biased because he runs Kalshi. His view is, it's gambling when the house is involved. And Kalshi isn't really gambling because you're not betting against the house. You're betting against other people in the system. You're matching traders up with other traders similar to the way the stock market works. But my view on gambling is

you know it's gambling when you see it. I mean, day trading, options trading, especially very short-term like zero-day options trading, sports betting, crypto trading, meme stocks, meme coins, prediction markets, all of this stuff is gambling. It's gambling in one sense or another. And we can talk about the very specifics of how actually the transaction works. But when you're just kind of

betting on something happening or something going one way or the other versus investing over the long term, putting your money and letting it sit there and building an asset base, those are just by nature very, very different things. And I think it is clear that people are interested and very excited by the gambling stuff right now. Many reasons why that could be. I'm sure the fact that young people just don't have the economic prospects that their parents and grandparents did, that certainly plays into it in large part. That sort of explains the crypto obsession and the meme stock obsession. But I think the thing that is so interesting and what has changed this year is now the government is behind it. There is a very obvious

support system for all of these types of gambling platforms and gambling mechanisms. I mean, Don Jr. is an advisor to Kalshi and to Polly Market. Trump media is launching their own prediction market. Trump is getting into crypto. He's pardoning Chang Peng Zhao, who pled guilty or Binance, his company, pled guilty to money laundering. He's pardoning Justin's son. He's launching his meme coins. So the government and the administration is deciding, for one reason or another, that we like this stuff and we should have more of it.

We should deregulate and defund the CFTC. We should deregulate and defund the SEC. We should invest in prediction markets. We should create our own prediction markets. We should have society gamble more. And I think the big question for us citizens is, why do they want that? I mean, most people are in agreement that this stuff is dangerous and many Americans say it's flat out a problem.

Actually, 43% of Americans say that sports betting should not, or they say that the fact that sports betting is legal. They say that it's bad for society and it's gone up and up and up in recent years. So we're all kind of in agreement, like this is at the very least kind of dangerous and yet the administration is pushing it. I guess my question to you, Why do you think that Trump and the administration has decided pro gambling, pro casino economy, pro prediction markets, pro crypto, pro meme coins, all of these things that while, yes, they can be kind of fun every now and then, in a lot of cases, they lead to the financial ruin of thousands, in some cases, millions?

Well, I'm going to go out on a limb here and say that perhaps his own economic enrichment supersedes his concern for the public. I know that's a, that's a stretch, but look, we know why he's doing it. He's doing it, he's doing it for money. And what I would say to young men is that sacrificing and investing is a means of having less anxiety and more relationships in your life, more healthy relationships. gambling is going to reduce your mental well-being, it's going to make you be seen as undependable by friends and potential mates, and it's going to result in a level of self-loathing if you're not careful that oftentimes leads to extreme depression and even self-harm.

In some, if you're listening to Andrew Huberman and Peter Atia and taking the right supplements, to creatine and getting the right sleep, it's all for fucking not. If you wake up one day and you're broke because of really stupid decisions you made in search of dopa and have convinced yourself that you're investing, not gambling. No, you're gambling.

And I'm not gonna infantilize you. If you wanna gamble, gamble, but call it what it is, and assume you're gonna lose it all. You wanna do these things, you need to assume you're gonna lose it all. The danger is when you think this is investing and you're gonna make money. You're not.

these companies aren't building anything. The reason there were so much money is that over time, everybody loses, everybody. No one beats this market, these markets over the long term. Unless you're on the platform. There you go. Those are the winners. So if you're going to gamble by Kalshi or probably market stock, you could argue that's investing even. But these companies are praying on young people.

and instinct that hasn't caught up to industrial production. So anyways, just be honest with yourself. Are you gambling or are you investing? There's this quote from Alexander Hamilton, 1792, which I love, he said, quote, there should be a line of separation between respectable stockholders and mere unprincipled gamblers. I just find it hilarious that this has been around for hundreds of years, and we know where Alexander Hamilton stands on it. Let's take a look at the week ahead, Scott.

We'll see earnings from Rocket Lab, AST, SpaceMobil. So these are these space companies that we've discussed in the past. Also, Paramount Skydance and Disney. Any predictions? Well, I already said it. I think the market for claims against tariffs paid is going to become an active investment market, and I think it's going to do well for those.

The price may already, I mean, I get the sense. I've been working on this for a few weeks. I get the sense my guys are going to call me back and say, oh, prices have doubled. Like, sellers have caught onto this and I've jacked up their prices. But I think this is going to become a really interesting market that we're going to hear about that's going to be actively traded. And I actually think that even if before the decision, I think there's going to be a lot of people who trade, who I think these things are going to go up even before the decision or the collection of revenues.

I think they're going to start to trade up. So I think the best stock right now or the best. investment. And granted, most people don't have access to it because there's certain minimums and it takes time. Ten million minimum. Put me in the SBV. Yeah, but this is what will happen. A bunch of people will create SBVs and charge fees and give access to retail investors. You're about to see claims against tariffs become an active private asset class. This episode was produced by Claire Miller and Geneva Benjamin Spencer, our associate producer is Alison Weiss. Mia Silverio is our research lead our research associates are Isabella Kinsel, Dan Shalonan and Chris Nodonoghue. Drew Burroughs is our

technical director and Catherine Dillon is our executive producer. Thank you for listening to ProfG Markets from Profugee Media. Tune in tomorrow for a fresh take on markets. Reunion As the waters And the dark flies And the dark flies In love, love, love.