Yet Another Value Podcast - March 2025 Fintwit Book Club: Diary of a Very Bad Year with Byne Hobart from The Diff

Episode Date: April 1, 2025

In this episode of the Yet Another Value Podcast Monthly Book Club, host Andrew Walker is joined by Byrne Hobart, author of The Diff newsletter, to discuss Diary of a Very Bad Year: Confessions of an Anonymous Hedge Fund Manager. The conversation explores the book’s candid insights from a hedge fund manager navigating the 2008 financial crisis. Andrew and Byrne dig into the accuracy of predictions made in real time, the psychology of uncertainty, and the relevance of past financial mistakes to today’s AI boom and private credit landscape. This is a thoughtful discussion on expertise, misallocation, and financial memory—both personal and systemic.This month's book on amazon: https://amzn.to/4hUNk8sChapters:[0:00] Introduction + Episode sponsor: AlphaSense[2:00] Overview of Diary of a Very Bad Year: Confessions of an Anonymous Hedge Fund Manager[12:00] Bubbles through a misallocation of resources lens[22:35] History rhymes / Predictions in the book[35:45] Tariffs today versus housing in 2005[45:00] Misallocation of resources if AI is a bubble[56:00] Druckenmiller's Argentinean betToday's sponsor: AlphaSense; Try it free today at alpha-sense.com/YAVPThis episode is brought to you by AlphaSense—the market intelligence platform I rely on for faster, deeper insight.If you’ve used platforms like Tegus, you’ll feel right at home—but AlphaSense takes it further. With over 150,000 expert call transcripts and 450 million+ premium documents, it’s become my go-to resource for both qualitative and competitive research.And now, with Generative AI tools like Gen Search and Gen Grid, AlphaSense makes it easier than ever to accelerate your workflow. Gen Search lets you ask natural-language questions—like “What’s driving margin pressure in semis?”—and instantly surfaces answers pulled from expert calls, earnings transcripts, filings, and more.Gen Grid takes it a step further—automating repeatable workflows by applying multiple prompts across dozens of documents at once. It delivers clean, table-format answers like sales trends, macro commentary, or pricing signals—all with clickable citations so you can trace insights directly to the source.Whether you’re digging into a company, comparing peers, or parsing 10-Ks at scale, AlphaSense gives you a speed and depth advantage. Try it free today at alpha-sense.com/YAVP and experience the future of research.See our legal disclaimer here: https://www.yetanothervalueblog.com/p/legal-and-disclaimer

Today's episode is brought to you by AlphaSense, the market intelligence platform I rely on for faster, deeper insight. If you've used platforms like Teas, you'll feel right at home, but AlphaSense takes it further. With over 150,000 expert call transcripts and 450 million plus premium documents, it's become my go-to resource for qualitative and competitive research. And now, with generative AI tools like GenSearch and GenGrid, AlphaSense makes it easier than ever to accelerate your workflow. GenSearch lets you ask natural language questions, like what's driving margin pressure in semis, and instantly surfaces answers pulled from expert calls, earnings transcripts, filings, and more. GenGrid takes it a step further, automating repeatable workflows by applying multiple prompts across dozens of documents at once. It delivers clean, table format at answers like sales trends, macrocommodary, or pricing signals, all with click

allocable citations so you can trace insights directly to the source. Whether you're digging into a company, comparing peers, or parsing 10Ks at scale, AlphaSense gives you a speed and depth advantage. Try it for free today at AlphaSense.com slash YAVP and experience the future of research. That's AlphaSense.com slash YAVP. All right, hello and welcome to the yet another value podcast monthly book club. I'm your host, Andrew Walker, with me today with my co-hosts from the Diff, one of my favorite newsletters, Byrne Hobart, Byrne, how's it going? Hey, it's going great.

Cool. Look, I'm really excited to talk to you about the book we did today. Before we get there, I'll just remind everyone, nothing on this podcast is investing in advice. You know, we're talking about a book. We might talk about things that are having in real life. I think everybody can understand it's a book discussion, but, you know, consult a financial advisor.

Do you do all that jazz? It's a book club. It's not a talking our book club. I like that. That's a really good lie. Burton, the book we're talking about on your recommendation, as so many of these are, and I don't mean that in a bad way. You've made some great, Rex, is Diary of a Bad Year, Confessions of an Anonymous Hedge Fund Manager.

This is a book. It's really interesting. It's kind of written over the course of two years. Interviews from an N plus one, a magazine goes in interviews, a hedge fund manager leading into and coming out of the crisis. I'd encourage anyone to read it. I had a really interesting time, but a pause there. Overall thoughts on the books.

I've got lots of thoughts and questions, but I'll turn it over to you to start. Yeah, so I think the book is, I read it as this really interesting meditation on expertise and the limits of expertise and operating under uncertainty. Because you can read it and see that this anonymous hedge fund manager is clearly very smart, very thoughtful and not just in his domain, but he's willing to range over a pretty wide variety of topics. He's very much a systems thinker who's always asking, what is the underlying reality here? And then he gets, so he gets a lot of stuff right about the crisis. And then he gets a lot of stuff wrong, too. And so I think it's just a good reminder that the people who really, there are a lot of people who are really, really well-informed, they do know what's going on, they do actually make a bunch

of accurate predictions. And even then, they are going to have egg on their faces over just a lot of different details. You hit on the exact same thing that was like my first takeaway from the book. You read it, and this guy is smart. There's no doubt about it when you're reading. He's pulling from all different sources. He says during the book, I think he says he had a humanities history, and it's no surprise because he kind of pulls from himself.

But you can't help but read it and notice. And it was actually my first question to you. He's got egg all over his face from a lot of productions, you know, especially he's getting interviewed in March 2008, and I just pulled some quotes, if I can find them really quick. He says, look, I think the worst is past. I think things will be frying. subprime looks contained, Bear doesn't have a solvency issue. You know, so you used to have this really smart guy in the moment.

And I guess my first thought to you, when you read this, and this is one of the fun things about reading like kind of in the moment diaries, especially if they're kind of wide-ranging. Do you think, you know, do you think when we read this, do you think we're reading this and saying, oh, like, Bear Stearns clearly was insolvent? Is that all of us having hindsight bias, or do you think this is, you know, I knew people, I didn't know people, but there were plenty of people March 2008 who were saying not just Bear Stearns, who were saying Lehman, not just Lehman, Bank of America, like go up and down the list. Like, they were saying everything was in Sulf Amendment. So I just wanted to ask how much when you read this, do you think, oh, we know the answers. So we judge this person versus this is a really smart guy doing great work and he just made one wrong call.

Yeah, like I think one of the tests of that is just that. Bear, like all of the other big investment banks, they had lots of very short-term capital, they had lots of counterparty relationships, they were a prime broker. And so basically a lot of very sophisticated financial market participants, including people would have some kind of counterparty risk policy where they are not just looking at the credit rating, but actually asking themselves, how did these guys perform in a crisis? Like a lot of those people were still very willing to put their money where their mouth was and say that Bear is trustworthy.

So, yeah, I think, you know, in some ways, financial, like, it doesn't make that much sense to say that the financial crisis was obvious and everyone should have seen it coming because on a dollar-weighted basis, almost nobody saw any financial crisis coming. Like, that is, that is what makes it a crisis. It's not a crisis if we have this gradual understanding that residential real estate is getting a little bit overextended, credit is kind of weakening, and therefore we're all going to take some risk off the books. Like that, that kind of thing happens all the time, but doesn't show up as a crisis. because what happens is this industry is growing for a while, a lot of money's flowing in, and then the flow of money slows down because people decide that it's no longer worth the risk. So that's like, that is the modal outcome for any scenario with this kind of setup. And then occasionally you get a case where there's some kind of feedback loop that keeps money

flowing in for longer than it should. And in that case, we often don't really understand it until the very end. In fact, I think, and if you go back and do some kind of crisis revisionism looking at some of the books that people love to cite, you know, The Big Short or something, a lot of the people in that book, they got some things right, and then they weren't talking very much about what actually led to a real financial crisis versus banks taking one of their periodic write-downs on some category of lining that got out of hand. And the actual crisis was that the financial plumbing seized up, and there was this liquidity crunch,

and it was just very hard to source very short-term dollars. That was like a second-order effect of we don't know what's in all of these complicated securities. And he does actually talk about that in the book. So he does talk about how it becomes this information problem of you have a bunch of AAA rated paper, but now you're not sure if AAA means money good or means it's probably going to be 95 cents, probably worth 95 cents on the dollar. And if you're financing that and you're only putting up three cents of collateral per dollar, then suddenly you can't do that for anything. You have to put up much more collateral. So that, That dynamic, I'm not sure if any of the people who called the subprime part of it well, if they figured out that entire implication. I'm sure there was somebody out there who connected all those dots. But that was part of just what made it such an extreme event and not just, here's another case where the credit market overheated for a while and then it kind of fixed itself. Because the interviewer, maybe he's dumbing himself down, but in my mind, he's not that

financially sophisticated. You know, he asked things like, hey, could you explain the hedge fund manager at one point says they got carried out? And he's like carried out. What is that? And I was kind of like, I feel like you would know that even if you were in finance. But it was interesting because sometimes you back up and have them. And what you're saying, one of the things that really stuck with me was the hedge fund manager says, hey, one of the ways big blowups happen is when there's an assumption and that assumption gets proven incorrect. And in this case, it was the assumption Moody's rate something AAA. You are getting your money back. And that turned out to be incorrect. and everything implodes around that.

And the interviewer says, oh, yeah, kind of like we assume that the water will run when it comes on. And when you turn the tap and the water's not there, like all of a sudden your entire world is out of you. You know, one thing that was interesting, and I guess on that assumption point, one thing that was interesting to me is when I read this, there's so many of his worries and so many of his concerns. Now, maybe you could just see everything goes in cycles, but they play so hard into what we've seen or what we might be seen over the past two to three years. You know, we can start with an easy one. The assumption that AAA rated paper is good. You start thinking about SIVB First Republic, the Flagstar slash NYCB disaster.

There was the assumption that AAA rated paper was money good and we can just hold it in our books until it matures. And it turns out, no, if you hold enough of it and it goes down enough or for NYCB, you know, if you have these loans and OPEC keeps going up while your rent regulations or your rent is getting limited, you could have a lot of issues there. So I'll pause there, and there's a lot of other ones I want to discuss. Yeah, like I think a lot of credit cycles, you know, you never run through exactly the same credit cycle twice, but then in retrospect, you do find a lot of commonalities between different credit cycles.

And it is often, often what's going on is people are slightly mispricing risk. I think that's one of the interesting things about credit versus equity market extremes, is that with equity, when equities get mispriced, it's really, really wild mispricings. Like, you look at a bunch of companies at their peak 20, 2021 valuations and you say either this company was trading at literally 10 times what it should have been trading at, or you say this company was worth billions of dollars. I got a zero to what?

I got a zero to that 10 X there, Byrne. Right. No, but I mean, even for some of the companies where they're growing really fast, but there is a point where if you're paying 30 times, you know, 30 times revenue two years out or something, you just need a lot of things to go very, very right for that to be even remotely possible. And then with credit, it's often that people make fairly marginal mistakes. You know, they should have, they should have lent at seven, they did it at six and a half. And what happens with those is they just compound really fast because when you're in a credit

market, you're often in a market where it really, really scales once there is access to capital. So if there's some category of borrower who, through some indirect means, is able to borrow at a little bit less than they should, and they're able to put that into some asset that they think has some return that is suddenly at the acceptability threshold because of this cheap credit, then they do a lot of it. And then your credit book is always going to be skewing towards, like, yeah, if you're running a credit book, it always, the natural skew is always towards the people you should not be lending to. And that's going to be the case in, if you're running a large bond fund, that the people who most want to issue bonds are the ones who can't believe that they're able to borrow money at such a low rate. And then, like, in consumer, you know, consumer facing financing, it's always like people who realize, people who get their first credit card or BNPL.

And they're like, wow, this is free money. Like, this is a cash windfall credit limits 5K, so I'm going to spend another 5K. So you always have that automatic selection for that. And then the whole business is trying to mitigate that kind of selection effect, trying to find what are the signs that this borrower is just not suitable, even though they seem to be in some statistical sense. What you said is exactly the reason why the scariest thing in finance is a fast-scoring financial, right? Because you start lending to people at six and they should be at seven. you're going to have literally unlimited demand for that. And the real issues with that isn't going to show up till, you know,

three years later when you start seeing the defaults or more likely when kind of you have a downturn and then all of a sudden, oh, that's why we should have been charging them probably nine instead of six and everything's just imploding all around you. You know, one really interesting thing, I was not shocked, but a through theme of the book is the HFM, the hedge fund manager, talking about how the financial crisis is a misallocation of resources and talking about how the bubble is a misallocation of resources. And all of us know, I mean, you've written a book on booms and bust and what they can do. But all of us know that a financial crisis is a misallocation of resources. But I was just surprised that someone

who's like in the moment trading, you know, he says most of my trades are done on a six to 12-month time horizon. I was surprised by how much he focused on the consequences of the misallocation of resources, a house that shouldn't have been built, getting built here, a metal that shouldn't have been mine getting mined here. I was just a little surprised by that. I don't disagree with it. I think that's a pretty common worldview of booms and bust and euphoria's, but I was surprised that he was so focused on that.

So I just wanted to get your thoughts on that. Yeah, I mean, sometimes just asking yourself, what is actually the underlying economic activity that's being funded here? It's just, it's a really clarifying question. So back in 2021, in a different corner of financial markets, I had some friends who got really into yield farming in Defi, and I kept asking them, who, like, what economic activity is being funded by the 20% yield that you're earning on something that is a dollar pegged asset? Like, what is actually going on such that the person who borrows $1,000 from you has $1,200 in a year? And it turned out the answer was that this is like the highest risk slice of some giant stack of leverage that is all being used for margin lending, decentralized margin lending. And once you see that that's what's actually going on, you just know that this can't actually go on forever.

But if you do find that where all the money is going is towards some kind of productive thing, then feel a little bit more comfort. Or at least you have some kind of underlying economics that you can start trying to underwrite. I think part of, there's also this thing where sometimes it is just interesting question to ask just where did the money go. But if you ask that about equities where the equity market was worth this many tens of billions and now it's worth some smaller number of tens of billions or trillions, sorry, tens of trillions. Like where did the money go is kind of the wrong question because it's not like people actually had that cash on hand. It's just that is, that's the number you get when you multiply last trading price by shares outstanding. And particularly in a case like the dot-com era, a lot of these companies had pretty high insider ownership. They were fairly, fairly new companies, and so they'd sold a big chunk to VCs, and then founders

and employees had a bunch of money. So a lot of that money disappeared, but it was paper wealth. It wasn't money that was being spent. But then in credit, you can't actually say that. Like, in credit, if someone, if there is a subprime-backed CDO and it raises however many hundreds of millions of dollars, It was like, that money did actually flow into some kind of real-world activity. Like, it bought actual specific assets or it led to those assets being constructed in the first place. So the money did have to go somewhere.

And you still have the paper wealth dynamic where the question of where did the money go is partly this house used to, it used to be that it was funded with 10% equity, but now the house is worth 30% less. So that's where the money went. Like, that's why the bond is not actually able to pay off at the. at the price, or at the principal value that you expected it to. So, like, but then you do still want to ask, like, someone had money, that money got to someone else. It went to somewhere else and somewhere else and so on, and now it's gone.

And I thought some of his answers to that were actually pretty good of like this, if, like, some of the money turned into what would have been productive activity if there'd been more real underlying demand for it, whether it's cutting down the trees or building the house or whatever. And then where did that money go? Well, if the marginal worker was a recent immigrant who's sending a lot of money back home, then that spending got like the credit availability, got recycled into investment in housing, and some of that got recycled into remittances and then into consumer spending in poorer countries in the world. And then you start to realize, okay, that's why we're not getting the money back. It's like we'd have to go to, you know,

go to somewhere in rural Mexico and seize the used car that someone's mom and dad were finally able to buy because their son worked really, really hard building houses in Suburban Phoenix for a while and was able to send a bunch of money home. Like, we're not doing that. I don't think there's actually a very good moral case for doing that, even though you can be annoyed that the bonds, that there were defaults and things. But I think that's part of what he's going for. And I think because he, this was actually one of the interesting things that I wondered about this. when I wrote in the newsletter a couple weeks back that I had re-read the book ahead of this call. And one of my readers asked me if I could figure out who this guy was,

because there has to be a pretty short list of people. But then, because he does a bunch of different things, and he talks about a bunch of different things his fund does. And to some extent, you just have the vibe of this is one of those funds that probably started in the 80s or 90s doing some, like one strategy, probably convertible arbitrage. That's what a lot of them started doing. And then by 2007, it's a huge sprawling fund with lots and lots of different strategies.

So he seems like the kind of person who'd be getting just lots of questions from lots of different people about just what's going on. And being able to go back to what is the underlying economics. Like that is, it's just a really good use case. I think especially for it, he talked about doing emerging market stuff, including emerging market sovereign credit and just asking yourself, yeah, like what, you know, if you buy a Brazilian bond, what is the Brazilian government doing with this money? is it a useful thing to do?

Like, is it going to make their GDP grow so that they have a larger tax base so they can actually pay the interest from this bond or is something else going to happen? No, you hit one of the questions. I was wondering as I was reading, like, who is the Sedge from Manager? Because, A, he talks about so many different things. And, you know, I initially thought this guy, for sure, is a macro trader, right? And I think by the end of the book, when you read and he talks about his different strategies,

he even says it seems like he's a rel valve. So, you know, probably the early days of the prop trade, the prop trades or something. He's a RELVal emerging market player is what it really seems like, which does make some sense, right? Like he's very broadly right. He understands how financial crises go through. But I was surprised, it's just a really curious question. You're like, hey, like what firm was he at where he talks at one point about, hey, we have to shut down our black box trade. And he seems to have his pulse in a lot of different, his fingers and a lot of different pies in the pulse of a lot of different markets.

So it was really curious. Did you have any guesses? I certainly do not to give you my idea. Yeah, like if I had really good guesses, I probably wouldn't want to show it. I would probably try to email this person and say, hey, is that you? I loved your book, you know?

Did you feel very seen? Because, A, I think you could eliminate it down if you like, if you're like my life's work is to figure out who HFM is. I think you could eliminate it down based on he does give in a lot of descriptions. And he moves to Austin at the end. But my question to you was, did you feel seen where he's like, hey, I'm burnt out. I'm going to Austin.

He's an early comer, but did you feel seen by it? Yeah, it was something I thought about a little bit. I think it just, it has a different connotation pre and post pandemic. And these things always shift a little bit. But yeah, it's, I think certainly if you're in an environment where the way your life has changed over the last 10 years is that you're trading different asset classes and you might be at a different, slightly different part of Midtown while you're doing it. And then you do move to Austin.

Like, that is a huge shift. But for me, the Austin shift was I've spent several months mostly inside what is increasingly feeling like a very, very small apartment, and I could go somewhere with the backyard. And so that's what I ended up doing. So, yeah, different set of tradeoffs did feel seen. Yeah. We chose this book because especially at the beginning of March, I think, but we're recording this, what's the exact date?

We're recording this March 26th. At the beginning of March, things were feeling like really dire. You know, you had the most, the Russell was down. like 12 weeks in a row when I was starting to get the, I feel like I need to create a timer based on when I'm starting to get like what I call my therapy session emails from some of my friends versus like, hey, man, are you seeing any opportunities just my therapy sessions? But I was feeling very seen because I'm like, man, this is really stressful. Markets keep going down.

And then I've got a kid. And I was like, hey, Alicia, like taxes are high. I did a podcast where I was like, I'm thinking about moving. We're thinking about moving. And then I read this book and the guy's like, it was stressful running through the GFC, which today is not the GFC, but it was stressful. New York City taxes are high, and he's getting married versus I have a kid. So he's moved to Austin.

I was like, burned it. I'm thinking about doing it. I was just feeling very seen by it. And at the beginning, they mentioned he talks very fast and very passionately. He's hard to keep up with, which I think we know two people who do the same there as well. Yeah, like it did, one of the things that makes it hard to track this person down is that there is this archetype of just someone who is in, in the market, they have their specialty, but they're just generally interested in the ways that people make money.

And some of that is just this practical thing of, okay, if all of my income stems from whether, basically from are emerging markets doing well relative to the U.S. or not, which is in a lot of cases, like, yeah, you can hedge, but often the expectation is if emerging markets are really hot, you're probably getting a good bonus that year, if that's the main thing you trade. And so, you know, he's like, there could be this practical argument of, okay, all of my income is based on this very, this thing that I'm probably not going to hedge. So I should at least understand how other things work. Maybe I should invest in a fund my friend is raising or something and I

want to know how they make money and so on. But it's also just, it pays off to be generally curious about things that are not directly related to the way you make money because they often end up being the bottlenecks or the exogenous risks to the things that actually do make money for you. And in fact, part of the financial crisis, like part of what kicked it off was that it turned out a lot of strategies were more correlated than people thought because you had the same diversified fund that is running all these different strategies and because they're uncorrelated, the fund can lever up.

And then suddenly you find out that when mortgage-backed security start to weaken, suddenly Stadarb goes through this like nightmarish couple weeks in August of 2007. And as far as I know, no one's been able to trace that to anything other than there were funds that were doing a lot of Stadarb and that we're also doing a lot of mortgage-back security stuff, and that when one started going badly, they had to de-gross, and that forced everyone to de-gross,

and since it was August and a bunch of people were on vacation, that degrossing was a little choppier than it had to be. There were a lot of things, I think I mentioned this earlier, but there were a lot of things in the book that I read and I was like, damn, this is really striking me as a parallel to something that we've seen over the past few years or a parallel to some of the worries that people are having in the market right now.

I'm happy to lob a few your way, but I was wondering if any one or two jumped out particularly to you. I should look at my, because I had a bunch of highlights in the book, and I had not realized when I read it. So when I originally read it, I was one of the people experiencing the very slow recovery in employment and wages after the financial crisis. But I happened to be working at a company that for non-economic reasons had decided to get in an office right on Union Square. So every day at lunch, I would just go downstairs, eat a really quick lunch, and then go to the Barnes & Noble two doors down and just read for half an hour. And this was one of the books that I read in a series of Barnes & Noble lunch hooky playing escapades. But then when I was reading it on Kindle, I realized, wait, I have highlights it here. I at some point had downloaded it on Kindle and reread it years ago.

And yeah, the highlights were often things where I was like, hey, that sounds really, really familiar. So one of the things that actually stood up to me, which is kind of adjacent to this, is sometimes he would talk about things where it feels like he's really, really forward-looking. Like he at one point name checks Huawei as one of China's higher value-added export businesses. And, you know, it was a big company back then, certainly. But it was not a company that I think everyone had heard of to nearly the same extent that they have now. So that was one. Let's see. Oh, the AAA, the U.S. credit rating, he did actually call that one.

Yeah, yeah, where he's saying, you know, just the downgrade, yeah, yeah, yeah. Yeah, that he was right that the U.S. could get a downgrade. He thought this would be a really huge deal. It turned out not to be, but I think that was just a sequencing thing where if the U.S. had gotten, if U.S. credit rating had gotten downgraded in June of 2008, if Moody's had said, look, you have this huge economy, it's an oil importer, clearly demand is not responsive to higher prices, therefore the U.S. has just this gaping oil liability, and we don't think it'll be credit-worthy long-term, et cetera. Maybe that would have actually been what sparked the financial

crisis. But since it happened afterwards, where everything had already been recapitalized and Europe had become more of the problem areas, the U.S. was still a safe haven. You know, the U.S. credit downgrade was certainly really embarrassing, but it was one of those things where at that point, it is probably at least bullish U.S.D. in the sense of everyone decides, hey, the world is even more chaotic than I thought, I'd better make sure I have dollars so that I can deal with my dollar denominated liabilities in the future or just because dollars are safe in the case like that. I think another interesting thing just to play off what you said there is because it was post

2008, the banks and regulators were probably a little bit easier to work with each other on risk capital and how to account for things, whereas if it happened before 2008, I could imagine a world where bank regulators are really slow to respond and you get a U.S. that you get a downgrade there, and banks say, oh, crap, like, you know, we had zero risk waiting on our U.S. Treasury holdings. Now we have to go raise capital to cover the U.S. treasuries and regularly say, our hands are tied. It's not AAA anymore. And then you have, as you said, the financial crisis spires even more out of control because you have to raise capital, cover your subprime losses, and you have to raise capital to cover your, to cover your

treasuries. Like, I could imagine that world. So in some ways, maybe it happening after the GFC actually helps with it a little bit? I don't know. Yeah. So another one, as I skimmed through my notes on this, was direct lending and private credit, where he talks about being more in that space. And I do get the impression that maybe that was just the spreads in the tradable stuff had gotten so narrow that he realized this is just not a good way to make money. It is, you know, you switch from picking up nickels in front of a steamroller to picking up pennies in front of a steam roller. And at some point, it's not worth it. So he's switches to private credit and then seems to be a very early adopter of really sharp elbow

tactics in private credit. So he has this whole extended riff about how he lent to some company, they're not paying him back, he knows they could. And so he starts calling up their customers and their suppliers and saying, did you know that this company doesn't pay its bills and uses that to force them to actually give him his money back. So that felt a little bit forward-looking. It seems like more, I don't know if more of that happens now, but it's at least better known that the private credit people do not mess around. No, I thought that's exactly it. And you could tell the, again, the interviewer is probably a little less financially sophisticated, but they're surprised by this. They're like, what do you mean if you have a lender who, if somebody borrows from you and they won't pay you back?

What do you mean you can do things outside of the courts? And I think they're a little taken aback where they say, yeah, well, we'll lead to the press. hey, those guys aren't paying their bonuses, and like the pressure on them from a bunch of different forms starts getting higher and higher. I thought that was very interesting. And, you know, the more things change, the more they stay the same. Yeah. One other one is some stuff that I wasn't sure if it was forward looking or if it was, as I just

said, the more things change, the more they stay the same. The first one was he mentions, oh, you know, again, he's very focused on misallocation of resources. And he mentions, isn't it a shame that all of these PhDs, all of these doctors, all of these people are coming into finance for the huge funds, you know, pre-GFC versus doing, if you're a trained PhD, it probably makes more sense for you to be doing math work. If you're a doctor retreat. And I was really interested in that. I mean, you've written about this before. And look, it turns out that a lot of finance is if you're the best quantum modeler, it turns out that going and working for a finance. fund is where a lot of the money can be made. If you can decrease the latency or whatever, like, it's just interesting how finance is where a lot of these skills can be applied the best. Doctors, it turns out, hey, are you really good at researching drugs? You can make a lot of money and change the world at Pfizer, but you could make 100 X more going and investing at a hedge fund and saying, I'm going to read the biology and invest in the best companies that have these drugs.

So I just thought, I don't know if he was early to that or if that's always been a concern. I'm sure it's probably a combination of the two, but I'll toss it over to you. Yeah, it is something that I just, I go back and forth on a lot because I think you have this, this very obvious sense in which someone who gets PhD in particle physics or something, like they, they probably have a lot of contributions to just our understanding of reality. And maybe, maybe those contributions are actually only comprehensible to 20 other people who share exactly their niche specialization. But still, you know, advancing those frontiers is important. And then I sort of go in the, I also try to hold in my head the sort of Cato Institute, like very standard libertarian counter argument to that, which would be something to the effect of we produce a whole lot of stuff and there's just a lot of information that needs to be allocated in the economy. And as the economy gets more complicated, more of what has to be done is getting the right information to the right people and that financial markets are just a tool for doing that. and they essentially pay you for making sure everyone's informed about where capital should be directed.

And, you know, you can definitely push back on that and point out things like large-cap U.S. companies are net returning capital, so it's not like the market gives them a lot of signals on capital allocation. You know, maybe it is a capital allocation signal if the market takes a company that was trading at 20 times earnings and pushes that multiple up to 50 times earnings. Maybe the company's CFO says, okay, the market is really telling you. telling us, we should not be buying back stock. We should actually be reinvesting in our business. So maybe it does perform this indirect capital allocation rule that way. But, and, you know, that problem does reach this just a pretty large scope when you have a complex economy with lots of different moving parts. And I think you can use exactly that

to rationalize why people work on ads. That it's, if they're not, if they're not allocating stuff to the right person, then they're basically in the business of producing more stuff. But if we have so much stuff that the ad business is a really lucrative business, then maybe we actually have a surplus of stuff and a shortage of ability to match that stuff to the people who really want it. So I kind of, yeah, I kind of go back and forth than that. But then one of the ways that you can sort of escape this dilemma is to point out that even within the more real economy areas, the better you are at a given job function, the more likely it is over time that you could get promoted to the point where you're not actually doing that function. you're supervising a bunch of people who do that function. So Mark Zuckerberg doesn't write a lot of code anymore.

From his online writing, it sounds like he still does write some, tries to stay a little bit sharp on that. But he's mostly telling people to tell people to tell people to tell people and so on what code to write. And that is actually a higher value use of his skills, including the coding skills, than actually writing the code himself. So sometimes you do have people, and you can think of that internally as a capital, allocation job. And exactly the same thing exists in, even in the government, where if you are a, you know, if you are, say, someone who is at the FDA and your job is review the data, decide whether

or not this drug is viable and so on, at some point, if you're really, really good at that, you're to stand up performer there, maybe your job becomes supervise a group of people who do the thing that you used to do as your day job. And you still have to be good at it to understand what they're doing and how to prioritize and judge their work. But you're not actually directly doing that, you are, once again, capital allocators, just a less visible form of capital. So maybe it is just, it's everyone's fate to feel kind of disconcerted by the fact that we invest a lot of resources as a society in capital allocation, very broadly defined, and that the better you are at the real stuff, the more likely it is that your job will

become the allocation stuff instead. You know, so when I was at McKinsey, there was a joke among all the analysts, like, McKinsey is the only job, and this would be just like high-level management consulting, but it's the only job where, you know, in the low levels, all you're doing is quantitative analysis and strategic analysis. And then as you get higher and higher up, you know, a McKinsey partner or principal, they're not spending any time on the deck. Maybe they'll do a review right before it. But they're spending all their time basically meeting with clients and selling. And in between, they're kind of managing a team of people who are doing the analyst. And that used to be the jury. You go from, it's the only place where you go from like underlying,

you're doing quant, high level you're doing sales. And then now that I'm out of McKinsey and a little bit older and a few more grades in my beard. I'm like, that's the dumbest thing I've ever heard. Like almost every job, the entry level is going to be something more quantitative. And then as you get higher, as you're saying, you're managing a team or you're managing capital allocation and you're kind of spreading the knowledge that you hopefully gained or have as the quantity of like input, you're spreading across. And I think the difference with finance and all these is, hey, if you're a doctor, you know, you can treat eight patients a day, right? An hour per patient, eight patients a day. If you're doing it in a capital allocation

finance model, you're financing drugs that could treat 800,000 patients a day or something. So the returns to scale there are really interesting. And I hear you, it's kind of a shame that the best doctor is not out here telling Andrew how to fix his sprained ankle or something, but it's probably better in the long run if they're allocating to the best drugs that are going to save thousands and thousands of years of people. You want to say anything there or there was a few other interesting place, but one other other thing I want to teach you with.

yeah i mean i think like i think that that framing is probably true but i always feel like it's really really good to be cautious about any time that you can rationalize the most lucrative thing you can do as also the thing that happens to be best for the world like that will actually be in some sense true on average unless the economy is completely broken like the you know the economy is this system of bidding for people's talents and the way that you get the highest bid is put those talents to the best use. And, you know, the price that you can get for the outputs of that is some measure of how much society values it. But yeah, on another level, like, I do always try to be really, really cautious about any time that the maximally wealth maximizing

thing for me turns out, once I've given it really careful thought, also be the most moral thing I could do. It's just always really good because the temptation to stop thinking right at that moment is so, so strong. So I always try to just press up, press back on. that if I can. I don't think you're a basketball fan, but it reminds me basketball. You see ex-MBA players like, oh, the game back in our day was so much harder. It was so much better. It was so much a pure game.

It's like, hey, every player, you know, if they played in the 90s, they think the game was perfect in the 90s. They played in the 70s. They played in the 70s. It's like, yeah, everybody thinks their ideal version. Everybody thinks, hey, the best government is the one that happens to align with my views. Like, yeah, it all makes sense. What you're doing, you get paid the most, and you think it's the best for the world.

You know, one interesting thing, just when I was reading it, there are some cultural milestones that we, if we have time at the end, I thought we're funny, but one interesting thing is I had forgotten this. Home prices kind of stall out in 2005, and you don't really start to feel the effects of this on the market until that first bearer hedge phone collapses in 2007, and then 18 months later, I mean, things are, you know, October 2008, things are starting to go really wild and it gets pretty crazy for this. I guess the reason I say that is we are talking again, end of March 2006, tear us on, tariffs off, lots of uncertainty. And the thing that comes through this book is uncertainty is a killer, right? And you see, nobody can invest because there's a really interesting

story in there about how the auto dealer, the car manufacturers go to Congress and say, you can't let us go bankrupt. People would be crazy to buy a car from someone in bankruptcy. And he's just hitting them over the head. Like that, that's crazy. You killed yourself by saying that because nobody thought that before, but now that you've said it, like, people buy airline tickets he uses from companies in bankruptcy all the time. I bought a Spirit ticket recently, and Spirit went through a bankruptcy. I guess where I'm driving at is this. The past couple months have been filled with uncertainty, tear us on, tear us off, all this type of stuff. Who's our friend, who's our enemy? Marcus Avar has obviously been a little volatile, but I do wonder if like the unintended consequences of some of this volatility and some of this tariffs and some of this uncertainty, if it's not getting felt today and, you know, I guess everyone says this, but if in 15 months we look back and say like, oh, we should have known like things were starting to freeze up and we were underestimating the unintended consequences of just like kind of casually changing around the entire global trading infrastructure. So to read this into a more modern day view for a second.

I just want to ask your thoughts on that. Yeah, it's just, it's such a tough call to make because you can, you can always look back at some previous pseudo-crisis and say, you know, what if you went completely into cash in Q4 of 2018, you said, this is it, you know, this 20% or whatever drop in the NASDAQ is just the first leg down, and this is the end of the post-crisis growth cycle. It would have been very embarrassed, and it would have been just a catastrophically bad call to make, but people were pretty nervous at that time. And it did feel like everyday sentiment is a little bit worse, and you could start to ask yourself, even if economic fundamentals are fine for now,

how is corporate sentiment going to hold up, how willing our company is going to be to spend in the next year, given that everything is slowing down, given that their demand picture is more uncertain. And then we did manage to just power through it, which was great. But yeah, you, you know, you're always, always going to look back and say, either you underreacted or you overreacted, or you overreacted, and nobody really calls the top or bottom perfectly. But yeah, that uncertainty factor did seem like a big theme in the book. And I guess it comes back to when he talks about these models of what are the underlying economics here, some of that is just trying to mitigate the uncertainty.

Because if you know that in the end, the money, the marginal dollar that you lend is actually going to something that you think is worth more than that dollar and produces a income to service that debt, you can feel a lot more comfortable. But if you start to tell your, you start to think about it and you realize, hey, the marginal dollar that I lend is actually pumping up the value of the collateral of the previous dollar somebody else lent. And neither of us actually had enough, for neither of us was there enough underlying income to service this? There was income plus expected price appreciation. And between those two, we felt pretty secure. but then if the price appreciation is actually from the inflow of liquidity,

then as soon as that stops happening, everything just starts to collapse. So, yeah, that kind of uncertainty, you can underwrite some of that uncertainty by just asking, do a lot of the underlying behaviors that derive from this investment make sense, or do they not? But you still have limits, and that was another theme of the crisis, was we have all these little interconnections and you just have no idea which link in the chain is the week one, and you have to bet on the whole chain or not at all. It's really interesting because, again, we're taping this on Wednesday, March 26th. Allegedly, the Corrieve IPO is going to price tomorrow March 27th.

And, you know, it is interesting to think about, if I had told you 20 years ago, so this would have been 2005, hey, like, people are raising mortgages to build houses, like nobody would, I don't think anybody would have thought this is a massive, massive misallocation of resources, right? Like, these are willing borrowers who are getting loans, underwritten, buying houses, building houses. Like, everybody probably would have been quite for that. It's getting jobs. You're like, and, you know, three years later, it's like, hey, these borrowers were borrowing

too much, all this sort of stuff. I see the Corrieve IPO because this is nothing new to anyone who listens, but you can see a lot of the similarities in all of the AI build out, right? Like, there's this huge boom. AI is taking every dollar in every, the market. are signaling, like the AI stocks are racist, the markets are signaling, invest, invest, invest, invest. You hear Facebook saying, we will invest in, we are going to overinvest. Like, we can't lose this race. And then you have this core weave coming up, which I don't think there's something

akin to the financial crisis, but it reminds me in many ways of we work when they were trying to do the IPO where it was going to come at, I think a similar number is what Corey is trying to come at. And people would say, hey, this is the future. It's real estate. It's tech. It's growthy, or other people say these are corely constructed short-term leases in its house of cars. Correwe, you can see a lot of the same things. I don't know where I'm coming at from the book, but I can see the connections between the AI bubble and the growth drivers.

I'd love to get your thoughts on that. So a huge difference is just duration. So I'm literally in a we work right now, and I kind of doubt that it's profitable. Maybe it's unit profitable, but probably doesn't cover the corporate overhead. I did. It was, it turned out not to be a great business. There were some cool things about it. And I think there, there was a case to be made that there was actually a potentially viable business hiding in there. But one of the problems was just they had, they had this natural crazy duration mismatch where they are buying into very long term leases and then selling them on the spot market. And if, if spot prices, you know, the price for an office over the next month are pretty, persistently higher than lease prices, then you can do really well with that. But then you're the first one who's exposed to any collapse in demand. And I think WeWork had some kind of narrative, because they were started, they were a post-crisis company. And they were started. Part of why they could do well was that

sometimes companies would downsize. You have a 20-person company. They lay off most of the staff. Now they have five people. They don't want to lock themselves into a lease. They also don't even have the liquidity to do that. But they do have enough cash flow to keep those five people employed. And, oh, we work as just a natural place to sort of stash your remaining human capital and wait to grow out of it again. So, yeah, you have you have a lot of different forces pushing in a lot of different directions. But like one thing that can give, that gives me a little bit of comfort around the AI boom, AI bubble, whatever you want to call it, is the spending that's happening right now, even at peak CAPEX, it's all going to be fully depreciated, almost all of it's going to be

fully depreciated by the end of this decade. So, you know, 2030, 2031, we, the capital, the capital that was misallocated, whether it was allocated well or misallocated, that capital already doesn't really matter. So you do have just shorter duration, which can cover a lot more mistakes. It's kind of like the B&PL, like by now, pay later stuff, where your traditional consumer lending, one of the ways it blows up, is that you have this fairly long-term relationship with someone and you have to figure out not just, are they credit worthy when unemployment is incredibly low and everyone wants to buy a used car because they can finally get a job or, you know, the driving for DoorDash pays them well enough that they can make the payment on that car,

etc. You have to think about what will this borrower look like if unemployment hits 7% and the economy is not growing. And then you just have a, and then with buy now, pay later, it's like your economic outlook has to be, you know, six weeks into the future. And as long as things don't blow up, that pay in four is going to get paid. I do hear you on the quick depreciation, right? You buy a GPU and it's depreciating, you know, in Corrie, it used to be depreciating over three years. Now, I think in their IPO, the depreciation over five years, but it's pretty quick. You know, I think where I might push back, if you were really worried about the AI boom, and I don't think the AI boom, because people aren't levering it, to my knowledge, they aren't

levering it's the same way. Like, the thing with housing is you got 80% leverage. It was a mainstay of banks, balance sheets, all this sort of stuff. But if I was going to push back and say, hey, the AI boom, especially in Q4 and January of this year, it was so hot and that prices were getting pushed so high, and particularly the power prices. So yes, the GPUs are getting depreciated quickly, but you were having Microsoft and Constellation

entering a deal to restart three-mile island, right? Like, there was such a pull for demand, you're having people change around the power grid for this. And if the bubble burst tomorrow, if CoreWeekan IPO and Nvidia goes down 50%, I think it would be no harm, no foul. But if the bubble ran, and I'm using bubbling quotes here, I'm not saying it as a bubble or isn't.

If the bubble ran for another two years, you could imagine a world where four years from now, we say, wow, we really got crazy. And the only use cases for AI was Byrne, really made some really cool Japanese magnus style images he shared on Twitter or something. And oh my God, like we've built seven nukes. We restarted Three Mile Island. And, you know, we were basing it on power demand

is going to go from 0% over the past 20 years in the U.S. to 5% per year. and power demands going back to zero percent, and now we're oversupply. Now, the nice thing there would be there'd be probably consumer benefits, but I could imagine, like, it's one of the ways where a bubble has economic distortions. I believe the HFM in the book says bubbles breed other bubbles. I could imagine a lot of follow-on issues there. One of the counterpoints there is just, I think for electricity in particular,

more generation capacity and cheaper power is just generally good. And, you know, it would actually be nice if we had done more of that. And especially if you think about if the U.S. is going to import fewer goods from other countries, and we're going to bring back some manufacturing, we do have really expensive labor. We have to be realistic about that. And that means we need some way to compete, some costs to compete on. And maybe there are cases, like maybe it's more straightforward to say, like, we should, we should alter policy.

So it is a lot easier to rapidly build a factory in the, U.S. once you decided to do that. If you're taking a long and variable period to get everything approved, then it is just harder for the U.S. to step up local manufacturing capacity. And then competing on electricity prices is something that I think plausibly the U.S. can do. We do have some cheap sources of energy. We are actually a really good place. We have a lot of really good places to put solar, a lot of really good places to put wind. We do have a lot of issues with the grid being because we did this build out before a lot of other places. We have a grid that was designed for very different use cases or a set of grids that were designed for a different balance of power sources and different kinds of use cases than we have today.

But it's kind of like if you look at why, if you look at the IT bubble, late 90s IT bubble, there was a lot of malinvestment. But I'm just, I'm personally really, really glad that there was a budget at every financial institution in the world to go through source code that was written in the 19th. 1960s and make sure that we were saving dates as a four-digit rather than two-digit integer. I think Greenspan talked about how he used to feel really proud of himself when he would save a little, you know, save two bites of memory by putting in the year as 65 instead of 1965. This is one of his clever performance hacks. But we had to undo all of that stuff. And there was never going to be a time when it was the really cool, trending thing to do

until suddenly there is this time where there is a general IT boom. And the Fed is kind of worried that we need this just burst of expenditure to get everything ready for Y2K. We have no idea how big the problem is. And there turned out not to be a problem. But there was also such a huge investment in mitigating that specific problem and in building new systems that just weren't going to have that specific issue. That I think it is plausible that in the end that the counterfactual benefit of the dot-com bubble was the light stayed on after the ball dropped on January 1, 2000. Yeah, that's an interesting way to put the counterfactuals. Yeah, and look, if the worst that AI boom, as you said, if the worst that AI boom does is if it busts, and we have a bunch of extra electricity generation, so consumers benefit from surplus and, you know, our electricity prices going down, and then all of us can, I mean, it's really hard at this point to see how AI doesn't have some use cases. Like, I mean, I'm sure you do more than me, but the chat GPT,

deep research tool, it's like, it is mind-blowing to me sometimes when I put in in some of the stuff that finds and stuff. And, you know, it's hard for me to believe that AI is not going to have a lot deeper use cases than that. But even if it's just that, I think we'll come out pretty well. Yeah, like I've tested deep research with a couple things. And what's been interesting is I've tested it on things where I've actually done the research before and I want to see what it comes up with.

And it often comes up with basically the same sources I end up finding. It summarizes them. but it took 10 minutes and I took many hours. Yes. But what that means is that you can do that first couple hours where you figure out if something is worth researching or not, you just outsource that to chat GPT and you go do something else. And I think it increases the breadth of things

that you can actually apply human intelligence to. So, yeah, I think there are a lot of good use cases right now. It's also very clear that current economics do not support current CAPEX, but that's also true for pretty much any boom, especially a boom where you have a lot of these cross-complementary things, because we don't, there haven't been very many companies at all that were founded in this post-AI period where they're not calling themselves an AI company, but they are saying just, we're going to design our org chart and our processes and everything we do around the assumption that LLMs exist

and can do human-level work in a set of tasks today and a growing set of tasks in the future. There are companies that implicitly do that because the founders are 19 years old, so they've been using this for a large proportion of their economically valuable lives. And they are just very used to the idea that you code mostly in natural language and, you know, that you, if you need to send a thousand customized emails, that is a job for LLMs and not for you and so on. It's one thing. So the podcast is obviously sponsored by a lot of companies that in some way, shape, or form are touching finance AI. And it's one thing I ask them. And to date, it might be a little too early, but I always ask them, hey, can you tell me the difference between a 45-year-old

portfolio manager who's using AI and a 25-year-old analyst who's using AI? And obviously, they have different jobs and everything. But what are the differences in how they're incorporating AI into their process, how they're using it? What are the difference between the best 25-year-olds who are using AI versus the worst? And so far, maybe I haven't pushed them hard enough, or maybe it's too early. They haven't been able to give me great answers or uses. But in three years, I mean, when the current breed of college seniors kind of have their, you know, second year on the desk or their first year at the P-Firm, I think the answers are going to be absolutely fascinating when someone who's grown up and, you know, this is Google for them. I think it's going to be really, really interesting. Well, there is a weird thing.

And I think this kind of touches on HFM, too, that in the financial industry, there is this weird relationship between age, and mental flexibility, where I've just noticed people who are really new to the industry often get very, very set in their ways almost instantly. And there's a specific right way to do things. And if you work with interns, you have to kind of re-educate them. You have to tell them this is not the right thing to do. I worry about it all the time. If you grew up reading Warren Buffett and if you grew up with the intelligent investor,

it is very hard to break the cycle of value is when I find something trading for six times price to earnings. And it's very hard to break that by saying, no, a computer can do that. I have to have a deeper insight than that, but it very hard to break that. And I try to break it in myself all the time. I'm sure there's going to be some interns who grow up and say, hey, explosive growth crypto, and that works in this market, but it might not work in the next market. So, yes, it completely.

And then, but the other side of that is that the people who've been around for a while and have been through multiple cycles and multiple regime shifts, and especially the kind of shift where there's an industry where it's multiple used to be X and now the multiple is why, whether that is, you know, you're an industrials guy, and when you started on the desk, railroads were a declining business by default, and the interesting question is always, who goes bankrupt, when, et cetera. And then they change into this business that actually does have really, really good margins and is incredibly hard to compete with, that got really consolidated, et cetera. So, like, the more that they've had to actually make those big adjustments

and make adjustments on the business model, how they charge for things, stuff like that, It ends up whether it is that people cultivate the ability to just change their framework or whether it is that people who can't change the way they think about things just get carried out. Either way, the people I've talked to who've been in the industry for multiple decades tend to just be pretty early adopters of a lot of things where you'd expect it to be more of a younger demographic. So I would not be surprised if there were cases where the 23-year-old analyst doesn't want to use LLMs to summarize a transcript because he learned to read transcripts a year ago and learned to read them very carefully and highlight everything and so on. And then you have the 52-year-old portfolio

manager who as soon, partly because he's already used to outsourcing this. He's already used to saying, I don't have time for this one, you take it. So just saying that to, you know, putting that in a different chat box that goes to a computer rather than a person is an incredibly natural thing to do. So sometimes they do just end up, like when Drug Miller had that interview, where he was talking about Argentina and he said he just asked Chat TPT for it was like five largest market cap ADRs of Argentinian companies

traded in the US and he just bought them all without doing any subsequent research. I'm not sure how true that is, but I feel like I would not have been brave enough to do that at 25 or certainly would not have been brave enough to tell my portfolio manager that that was my entire research process and that's why I got him the right

ideas to bet on this theme so quickly. But if you've been doing this kind of thing for a long time, maybe you do just have the confidence to say sometimes you know a good shortcut when you see it. And so you're going to take it. Two comments there. First, your LLM, plug the transcript to LM, you have encouraged me. I am always so hesitant because I'm like, no, I have to read it. I have to listen to it. There might be that one, like, word that switches. And you've inspired me, you know what? Just toss it into the name LLM. And if it's a big position or if you're really interested, you go back and read it. So I'm going to try that. But no, your drug and Miller's thing, like,

increasingly, I try to ingrain this in my friends, but there are certain moments where your gut is just screaming to you, hey, something has switched. This is the moment to go for the jugular or, hey, something is wrong. We need to get out of this. And sometimes it's not a quantitative thing. You know, the stock doesn't go from 10 times price of earnings to 12 times price to earnings. You say, okay, I need to get out of it. Sometimes it's, you hear something. And at Drucken Miller, I think what's so good about him is he's straight. he heard he saw the argentine he's like animal spirits are coming let's get let's get into this thing and you know for me i would have been like all right i got i got to spend three months researching the

history of argentinian bond swaps and and i need to deeply research and i would have come to a no because i've been like they're just going to nationalize everything again but he saw the ball really clearly uh i i actually did just buy an argentian etf and my thesis was even lamer and i did not make very much money because i didn't hold it for very long my entire thesis was Libertarians love Malay. Libertarians also love expressing political views by making financial bets. We see this in prediction markets all the time, that libertarian, the odds of the most libertarian candidate tend to be higher,

like Ron Paul's odds of winning the Republican nomination in 2008 on trade sports were always like 8 to 10%, even though the actual odds were like, if every other leading candidate has a heart attack and dies, then maybe Ron Paul somehow squeezes in there. But yeah, so that was my thesis. And it was quick, it was lazy. And I had no conviction because I had not actually done all of that in-depth research on figuring out all the structural problems with Argentina

and trying to figure out, does the tantric sex guru and libertarian, you know, anarcho-capitalist who's also running a country, can he actually fix all of these in time to get GDP up? So, yeah, I just flipped it. It was fun. You say that on Libertarian, and I believe that, right? Like libertarians and online deregulated maybe like kind of gray market betting sites, the overlap of users there has to be extremely, extremely high. But I'm laughing at the Ron Pulting because I remember in 2012, remember somebody wrote, hey, Donald Trump has a 5% chance to win the election on a predictive market.

This is 2012. And he hadn't announced he was running or anything. I think he was teasing with it like he always did. But people were like, this is free money. There's no chance Donald Trump is going to win the presidential election. And in 2012, that works out well. But in 2016, you know, if you bet 5% against it, 2020, you would have had your head ripped off that, you know, that now I don't, maybe Donald Trump was libertarian's dream candidate. Maybe not, I don't know. But, you know, it's just funny. Like these long gods things, sometimes the world's crazy. Maybe the brand recognition. There's it. One last thing I want to mention. One really interesting I noted. The N-plus one, the intro to everything starts with a little bit of like, hey, here's what's happening in the world. And I thought it was really interesting. he marked one of the big downturns.

The way he marked it was with talking about newspapers shutting down or firing people and everything, right? And I thought it was really interesting because we sit here today and outside of maybe the New York Times, like newspapers just don't matter, right? But it was also interesting because, again, I think even in 2009, people, 2008, 2009, people had realized, hey, newspapers are in for a really tough time in the online world. I just thought it was interesting that he used that. And then the other one that I thought was interesting was in two of the openings where he says what's going on in the world, he talks about Michael Jackson's death.

And I just thought it was interesting. Like the only celebrity he mentions is Michael Jackson. I have no real thoughts here. If you want to talk about the newspapers a little bit, I just thought those were the two interesting. It's interesting just to go back in time 20 years and think about what's big and what doesn't matter. Yeah, yeah. I think if you were doing something like that about the COVID crisis or, yeah, COVID, pretty much every chapter, it would just open with a tweet. And, you know, your tweet for January of 2020 would be someone, you know, tweeting about how this is a ridiculous conspiracy, and I can't believe that you're telling every guest at your office to use hand sanitizer or whatever.

And, you know, you'd go through all of the most and least alarmist tweets in each time slice that you're talking about. And yeah, the newspaper thing. I think of some crazy things that I said and maybe even believed in January and February of 2020. Yeah, yeah. there was a it was a wild time and yeah so the the newspaper thing was interesting is that they'd had structural challenges and if you go back it's it's one of those things where a lot of economic phenomena are either way newer than you thought and just the first time you heard about this was after it had gelled as just an economic fact or they're way way older than you thought and it's

actually a cyclical thing and you you saw one slice of the cycle so you either saw a permanent decline or permanent acceleration um and With newspapers, apparently their economics were kind of, they were okay for a long time and then started getting really good from the 50s through 80s because a lot of the two paper towns consolidated in one paper towns. And so suddenly you have a monopoly in classified ads. And then their economics already were starting to get chipped away. I think Buffett writes about this in the late 80s, early 90s for Hathaway Letters

because of cable TV and AM talk radio. and just there were there are more more channels and so that monopoly status so it's still mattered for classifieds but then what it ended up happening was they they really had to bet their business on classifieds because the local car dealership furniture store etc has a lot of different places to advertise and then if you're all in on classifieds and then Craigslist comes out and then yeah you have every and then yeah every section on Craigslist i forget which VC had this slide where he he has a screenshot of the Craigslist interface um from the well, I guess it's still the current Craigslist Interface.

And he's just circling, you know, this turned into Zillow and this turned into eBay, and, you know, this turned into Backpage or whatever. And so, yeah, you had that business already getting picked apart, but it was, there was a lag. There were still advertisers who just weren't completely aware of that and had been advertising for a long time. And the people who were still reading the newspapers were an older, higher spending demographic. And that could be a really dangerous trap for a media business in particular is anytime you have a set of choices

where you can either go for a younger demographic and they don't generate much revenue right now but you will get them and they will potentially be loyal over time or you cater more to your older readers I think for the newspapers they went for the older readers it was better for cash flow but it did mean

that their people, their audience is literally dying and just the more the more important the obituary section becomes to your media outlets economics the more you have to be thinking like everyone who shows up in this is someone who was a subscriber, and this is how they churn out. And then, yeah, once there's an economic shock

and the kind of durable goods that often get advertised in local media, those are exactly the ones where purchasing just craters, it is enough to kill a lot of those businesses. So, yeah, it was an interesting landmark. And I think, you know, there's going to be a time, you know, maybe one of my kids will read that book at some point, and they'll have to ask me, why was this a big deal? and I'll try to explain what the media environment was like,

that following the news, when I was growing up, following the news meant reading the newspaper, and that was just how you knew what was going on in the world. And now following the news probably means just obsessively checking Twitter and having one or more newspaper, one or more apps that is named after a newspaper, but you don't know if any place where you could actually physically buy a copy at that newspaper, you're still checking that.

I think all the time about my kid, like, when and if they go to college, you know, just when we used to go out, it was like, hey, how are we going to get back? Like, there were no taxis in the town we had. There was no Uber. Like, they're not going to understand the desperation of, like, needing a designated driver or desperately calling someone up and be like, come pick us up. They're not going to understand, hey, when I was in sixth grade, you know, I went to the mall and then I couldn't find my mom. And we didn't have cell phone. I didn't have a cell phone yet. So I was just like running around the ball looking for my mom.

Like, they're not going to understand any of those. So it's just funny. The newspaper, it was just, again, this was only 17 years ago, you know, to not run. All of these newspapers that they were marking as, what a milestone, 500 people laid off. They're threatening to shut. They're all gone. They're just all gone.

And you can imagine plenty of things like that. Anyway, burn, this was awesome. I think we ran through a lot of things. I enjoyed this book. In some ways, I enjoyed it. In some ways, I was Monday morning quarterback, be like, you already in Paris about to go down, but this was a lot of fun. Burr Hobart from the Diff, one of my favorite things to read pretty much every morning.

Some mornings we don't get them. But looking forward to, we'll have to coordinating a book, but looking forward to next months. Yes, indeed. Likewise. Today's episode is brought to you by AlphaSense, the market intelligence platform I rely on for faster, deeper insight. If you've used platforms like Tius, you'll feel right at home. but AlphaSense takes it further.

With over 150,000 expert call transcripts and 450 million plus premium documents, it's become my go-to resource for qualitative and competitive research. And now, with generative AI tools like GenSearch and GenGrid, AlphaCense makes it easier than ever to accelerate your workflow. GenSearch lets you ask natural language questions, like what's driving margin pressure in semis, and instantly surfaces answers pulled from expert calls,

earnings, transcripts, filings, and more. GenGrid takes it a step further. automating repeatable workflows by applying multiple prompts across dozens of documents at once. It delivers clean, table format at answers like sales trends, macrocommodary, or pricing signals, all with clickable citations so you can trace insights directly to the source. Whether you're digging into a company, comparing peers, or parsing 10Ks at scale, AlphaSense gives you a speed and depth advantage. Try it for free today at AlphaSense.com slash YABP and experience the future of research.

That's AlphaSense.com slash YAVP. A quick disclaimer. Nothing on this podcast should be considered investment advice. Guests or the hosts may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial advisor. Thanks.