I think like it's tempting to say like AI is going to automate everything.
I think you really have to still have a view and have a driving bisis
and then understand basically how that AI is going to hold your hand through those
ups and downs and wherever it's going, so you know first first kind of
concept I would say is like for markets, the biggest risk I find is
when all markets are being driven by a single factor. You are listening to
Carrie Letz's Financial Survival Network, where you get valuable information you just can't find
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are listening to and watching the Financial Survival Network. I'm your host, and
right now we've got Max Osmond with us. And Max you are a eventure
capitalist, fintech guy, crypto guy, and big tech trend follower. We
love tech on this show. I couldn't be doing this show without tech.
That right now, we just take it for granted, Max, But you
know, ten years ago Zoom was a real pain to use. Oh yeah,
you know ten years ago to do a podcast, really you had to
really jump through hoops. Now it's all commonplace and we just take it for
granted. But one day, at one time, this was somebody's vision.
So you specialize in working with people who have vision, right, a vision
of creating a product or service based on tech that's going to have an effect
in the future once their vision is realized. How how do you separate people's
visions from pie in the sky to hey, this guy really is onto something.
Well, so my primary framework on anything is that there are no companies
or tradings to strategies or anything that are run autonomously. It's all run by
people. So at the end of the day, the companies any company,
but it's Apple, Google, Amazon, It's run by people. So the
primary filter, beginning, middle, and end of a zero to one kind
of decision making process, it comes back to the person. So do you
believe in this person, their vision, their capability, and really, more
importantly than that, the context. So how do they arrive at this?
Why? Now did they fail at a whole bunch of other stuff? And
this is what they're like kind of last shot is it desperation or is it
something that lined up perfectly for them because of their career history, their opportunity.
You can look at public markets, you can look at private markets.
I think all in the same way. Why is this person doing what they're
doing? Is this something that I'm willing to get on board with right now?
I think it's a great framework for evaluating public stocks too, and that's
why people like founder led companies in public markets. Okay, so as far
as when you you know, because mostly these people are considered somewhat eccentric,
They certainly don't fit the moldy because they wouldn't be doing what they're doing.
If they did right, they'd be working, you know, coding and makeing
nice living. But that's not enough. So what is it about a particular
founder where you will look at him and say, Wow, this guy is
really onto something. It's who they're connected to and what they'd done previously.
So you know, we do we do some direct investing at an early stage,
and you know, I won't go in like to too many specifics because
they're not like publicly trade not available wouldn't be helpful in this case. But
you know, in the last investment we made was a guy who'd been in
the hedge fund industry for twenty years in the utilities sector and retired and put
you know, a bunch of money into utility startup that decentralizes ammonia and and
then started the company and has all the connections and is a unique CEO,
founder and h and it's the kind of person that you'd want to follow into
battle, right this is this is a is a good fight, and these
are talented people. As a talented person, so the previous company before that,
you know, it's like in the regulation fintech regulation space, same same
story. Someone who worked at levels of government, connected affected well within government
and has a technology background. And then the problem with starting companies that have
to interact with the government is that so many people come in too hot with
the government. You know, they'll be kind of insulting, and you got
to realize there are people on the other side too. They don't like to
be insulted, even though they know that their regulations are frustrating. And so
if you come in from both angles. I think the reason why they've been
successful is because too many people came in and insulted the government and they work
collaboratively. You know. This is when they started. It was around the
time when Uber was still getting and kind of shut down, you know,
locally because in favor of the taxi drivers because they're being too aggressive. Same
with airbnbing. Yeah, like that was a fascinating story, and they came
to the conclusion it's better to ask forgiveness, better to seek fitness that it
is ask permission. Uh, you know, and that works in some cases,
maybe not. This one that really annoyed me about that was the scooter
companies that just dumped their scooters and like the Middle Texas, right, Yeah,
not a good model in my opinion. No, that was an interesting,
like terrible, terrible execution. Maybe would never have worked, but like
the financial model was always interesting online scooters because you know, you're basically buying
them cheap and then you're trying to rent them out for like a dollar a
day or a dollar an hour or whatever it is, and so the financial
model may be made sense, but ultimately, yeah, you'd ended up just
creating a ton of trash. I don't I don't focus a ton on the
on the line story or that, but but I am I am focused you
know, a lot right now on like you know AI, AI's impact,
whether it's as impact on a portfolio or AI is impact on how you spend
your time efficiently to be productive. So let's talk about that. So AI,
you know, I don't know certainly it can identify trends. It kind
of is a a progression from neural networks and quantum computing right well, the
way I look at it is like zeros and ones for classical computering. That's
just like it's binary, it's if then statements. It's like if I go
over here, if it's Tuesday, or if it's raining outside, if it's
raining outside, bringing umbrella. If it's not, you don't need it,
And it's just statements. What a AI has done in machine learning is has
just made it probabilistic. So if you add up enough of the zero ones,
you can do an insane amount of probability calculations and instead of getting you
know, should I bring the umbrella or not if it's raining, it's like,
well maybe sixty percent chance you should bring it, you know, And
then you add those things up enough, and then you end up replicating language.
You end up bropricating analysis where it becomes really interesting for financial markets is
I would say I now basically have a team of about twelve different analysts AI
analysts who are helping me, you know, kind of continuously evaluate markets.
Markets are probabilistic, which you know fits really well with the AI theme.
You know, so there are really no binary I mean, there are binary
outcomes in markets. You know you're either successful or not, but the analysis
is super probabilistic. Okay, So so where do you think AI fits in
to finance and all that. I mean, hey, yeah, thinks me
like fraud detection, money laundering, and maybe not so much as predicting the
future, but it's saving you from things that you might otherwise be better off
without. Yeah, well, well, I think like it's tempting to say
like AI is going to automate everything. I think you really have to still
have a view and have a driving thesis and then understand basically how that AI
is going to hold your hand through those ups and downs and wherever it's going.
So you know, first first kind of concept I would say is like
for markets, the biggest risk I find is when all markets are being driven
by a single factor. In twenty twenty two, all markets were being driven
by rate hikes. Is like did not matter what else was going on,
every company is falling be through the rate hikes and the fear around that,
and of course COVID crash, all markets being being driven by onset of COVID.
So right now, I would say like the most useful kind of AI
tool is sort of like analyze are being markets by a variety of factors or
by a single factor, And I think what explains market's doing well right now
is markets being driven by a variety of factors. It's maybe rate cuts,
maybe increases and decreases in labor availability, increases or decreases in inflation. You
know, it's like I could list off ten or fifteen different factors that are
influencing each sector, and to me, that's a healthy market. That's a
healthy market that can continue. Okay, So yeah, so kind of talking
about markets that are just being dominated by emotions rather than fact But you know,
some would argue there's only two emotions, fear and greed, and then
you have fear and greed's fomo and kind of a combination of the two.
But it's a little more complicated than that, isn't it. Yeah, it
definitely is. I mean, we're definitely in a fomo stage right now.
I'm getting more calls of like, why do we hold any cash at all?
You know, we should, you know, And that's just like rearview
mirror, and you have to make decisions based in the future and not the
past, and buying the S and P now or whatever, it doesn't give
you the eighteen or twenty percent that you missed out on in the last year
or so. And of course that breeds risk right like call markets make make
for risky your markets. Some of the things I'm concerned about right now.
One is just like massive institutionalization of call selling. You know, there's been
a long, long time, a long project by JP Morgan other banks to
sell products that just have automated call selling behind them. And anytime you make
a one sided market where they're just like, oh, we're just going to
harvest yield on call selling carves siealed, it's eventually going to crack, right.
It's it's too much imbalance on one side of an options market. And
so like I wouldn't touch any of those products that are that are that are
call selling. I also don't love the concept. You know, if I
own equity, I want. I want unlimited upside. I don't want to
my upside by selling a call trying to eke out one or two percent on
a position. I know people do it opportunistically, but what I've seen,
you know you don't want to sell calls on your apples so I can get
a called away missed? You know whatever next generation of you know you think
tech can't jump twenty percent, and then you see you do it in a
day and then kick yourself about why you sold calls on it. Kicking yourself.
Yeah, well, you know, I understand a covered call strategy.
I think it can be effective. But the problem is, like who thought
the market was taken off in April? Everybody was predicting the recession, you
know, the old saying economists has successfully called five out of the last two
recessions. Yeah, they're never right. And anytime you see experts any headlight
of any article or it says experts say you can just put in parentheses.
People who never get it right. Yeah, well the experts are get it
right. The problem with calling him an experts is like you're giving them a
veil of an anonymity. Like I want to hear which expert like is it
Paul Krugman, because like I don't want to hear what he has to say
about where tech is going or stand Drucklin Mall or some of that. Who
is like incredibly influential for financial markets? Yeah yeah, yeah, Like okay,
one man's expert is another man's uber driver. You know, yeah,
yeah, exactly, your drivers are experts and getting it from point A to
point bat watching the map on the screen, you know, But does that
mean they're an expert? And who determines boom is an expert? Right right?
Well? Definitely a personal decision, or at least it's it's been a
super personal decision for me, and I like, I like being aggressive in
my own mind of like I will absolutely never listen to a thing this person
says. I mean, maybe they'll be right on some topics for me.
I don't know. Maybe we'll we'll we'll have some fun to take some shots
of people. But like Fessor Galloway has been like a perennial like issue for
me, Like I don't want to I don't want to follow his ideas or
his trends, even though he's got a lot of press. I just think
I just don't like his uh, his framing and his angle. You know,
ultimately you're framing is a culmination of your experience, and whatever experience he
has has brought him to this level. But meanwhile, I love listening to
Dan Dan Miller. Yeah, you know, kind of jury's out when it
comes to who's the bond? Who's the bond? Guy Double Linear, Jeff
Gunlot. I'm kind of like Jurry's you have to you're on expert? Yeah,
no, I got you, And you know, it's kind of you
got to choose your expert. But eventually experts are like employees. Eventually they
all disappoint you. Yeah, it's like I never meet your hero, right,
and you held them in higher status in your mind than they could ever
drew up to. You know, I'm going to remember that one because I
think it's totally true. And yet you can't know everything. You got to
trust somebody in this world, and you know, with you, trust is
a big issue because you're putting in, you know, millions of dollars into
a startup and you got to know and you know, Leeyakoka once said there's
two things you could never know about a person. Number one is if he
or she is honest, and number two is if they're hard working. Now,
I think number two you can figure that out based on prior accomplishments.
You can get some idea, but the honesty test is really difficult. You
could give them a battery of of psychological profiles. I would say what he
was really saying there. You can never tell if somebody is a sociopath until
you see them in action, you know. Yeah, with one of the
some of the really seasoned veteran venture capitalists that they've factored in that like ten
percent of their you know, founders or some number that will be like flat
out lying to him, not out to them, right, and they just
have to model. Hey, and you know, like nobody wants to be
the bearer of bad tidings. Easier to be a yes man than it is
to be a no man, right right, Yeah, yeah, I mean
I I I tend to think optimism is the is the better strategy, especially
being a young person. It's like lots of time to let things not go
well and then and then get kittyer wins. You know. The best thing
is I think all about asymmetric upside. So you have to take a risk,
you have to let some things fail I think even Ken Ken Griffin.
You know, if Citadel says like we've lost more money than any other edge
fund, he's also made more money than any other edge fund. I think
it just goes hand in hand. You have to have you have to be
willing to take losses. Yeah. Yeah, yeah, there's a lot of
wisdom out there, but it's choosing between it. Now, with the Internet
and all that, you have unlimited access to it, all the good,
the bad, and the ugly, and most of it is ugly. Hey,
So trends looking ahead? Fin tech is your your baireiwick there? What
what can we look forward to here? You know? Well, I would
say, you know, within within fintech. Just one of the frustrations with
the field is if you watch the Apple Development conference from this week and you
see the things that they're able to do with the devices, right, They're
they're leveraging machine learning there, you know, optical character recognition, you know,
an enormous number of automations to roll them out to Apple products, and
it's like pushing the technology to the absolute limit of what it can do.
And then you get back to fintech and you get like we struggle with like
basic math or ledgers or like you see all the different like failures of the
different kind of what was the most. I haven't been following it down to
the detail, but there was a couple. There was a regional bank that
failed that was maybe commingling accounts, and like it's such it's from a technology
perspective and from a math perspective because my background is in mathematics. It's just
like regular algebra, right, and it's so it's not hard from a math
perspective, it's not hard from a concept perspective. For some reason, it's
like the technology lags and fintech in that area by just I don't know,
decade two decades. Like if we take what Apple is doing, we would
dramatically improve, you know, what's going on in the fintech world. One
other trend, though, what the trend? The trend that I would say
is capturing my attention the most right now, I have a call later on
this today I'm trying to piece it together is quantum and it's not necessarily to
fintech, but it is a really important kind of emerging merging concept and if
I get a couple of minutes, I can frame it for you. Please,
I think is interesting. So we're hitting the physical limits of what you
know in video GPUs and computing can do. The physical limits are defined right
now by energy. So it's like, you can build a bunch of data
center. It's actually not hard. It's not as hard to build the data
center as it is to build more electricity. And how do you get the
electricity? Is it going to be sole It can't be solar because you need
it can't be renewables because you need consistency for the data centers. You can't
afford to go down. I mean, I guess you could put a battery,
a megapack battery or two or three or some of them are so big
you probably need twenty of them ton and then they consume just an unbelievable amount
of ER and then you have, you know, the five nines of reliability.
You can only have four minutes a year of downtime, not like anything
more than that. No one's going to use your data sare So it's like,
so do you do nuclear? Well, it's going to take I think
Bill Gates said today they're building a nuclear power planet. It'll be alive by
twenty thirty. So it's like, what are we going to do for the
next six years. You know, it's like you need you need things now.
So anyways, I think about quantum because if we're going to hit the
limits of what we can do with traditional computing, you know, quantum.
The word quantum is really into etymologies. It helps you, like understand the
framing. Quantum is a reference to the pieces that are inside the atoms.
And so when we build viewers now the smallest we can get the transistors to
sort of like twenty atoms wide. But now I know that's not a perfect
description for actually how it works, but that's kind of the that's the limit
we've had. So if we want to get even smaller, we have to
use pieces of atoms. Those are quantum, you know, quantum or quantum,
and then if you want to use the computer based on those, you
can basically dramatically scale up its processing power. I don't really understand completely how
it works on every level, and I don't think anyone really does. There
are some really weird things that happen in quantum computing, quantum mechanics. All
of it is experimental right now. So IBM has the most you know,
kind of advanced current quantum structure. But my understanding is again like they make
more money selling quantum preparedness software and stuff then they do actually selling quantum assets.
So what's going to happen? So my view is, if you could
if it takes six months to train a model an a model on Nvidia GPUs
and it costs three hundred million dollars, you know, you develop in machine
learning algorithm on quantum when it actually functions that would do the same amount of
work in like a minute, right, and that would be you know,
we talked about orders of magnitude of a lot and AI taking six months of
work and compressing town to a minute or something like that. That is like,
you know, it reminds me of what it used to be, like
a computer in an entire room. Now, you know, with the Apple
devices that we're probably talking on, like dramatically more efficient, more powerful,
and they fit you know, in tiny bags. So it's like, you
don't think these order of magnitudes improvements can happen, but they certainly can happen.
So so when is the why an't we going to get breakthroughs with quantum?
I don't know, like it's but to me, it's the only thing
that's going to answer the efficiency issue with with machine learning, Like, we
can't be spending hundreds of billions of dollars to create giant warehouses to train these
models when there is eventually going to be a breakthrough that simplifies that. It's
just that that is a breakthrough. So so where do we stand with it
now? I'm working on this now assuming that at some point over the next
five years there's going to be a really interesting quantum related investment. I don't
know what it's going to look like. I don't know where it's going to
be. If it's going to be IP related, I don't know if it's
going to be momentum because they solved it and they're going to be running away
with the technology into the future. But I think now is the time to
start thinking. Just like if you were thinking about AI ten years ago,
you eventually arrived on GPUs and Nvidia, I think you have to think about
quantum now to see what's going to happen. All right, So you know
during the gold Rush, you know, only a very few miners got wealthy,
but the companies that sold the pickaxes and the dynamite and the clothes the
Leli Strausser's of the world they cleaned up what So you outline the problem here
of the energy shortages electricity particular, because these still are highly regulated industries,
not like what they used to be because got pseudo competition and distribution. You
know, in the favorable economic climates and climates too where people are going to
want to build these multi billion dollar data centers. You know, these utilities
are going to kill it. And I would also say the utilities around the
nation's capital because I don't think they aren't the biggest investor in AI out there
in every aspect of what the government does. So you know, those utilities
are in a bind because, like you said, nukes take ten years with
licensing and everything else. And don't believe modularity because that really doesn't speed up
the process regulation, bog and everything else. So we're going to need more
energy. To think it's going to come from renewables is naive and so you're
you're you're walking into a really interesting topic that's that's fun to explore and not
not an area that I've done enough work on yet. But but you know,
natural gas is the is the sort of fossil fuel solution it's cleaner,
more efficient, you know it it is. It's funny because you know,
we have to have trade offs. We have to have cheap energy, so
we can't like throw out fossil fuel, but you can use natural gas and
get some really compelling results. And so that's still not popular at all among
you know, a Democrat and not the politics you know, conversation. But
it's just not the democratic kind of narrative. You know, it doesn't even
want to talk about natural gas. So there's a lot of energy assets that
I think are really compelling, probably compelling because of what you're talking about,
Like you need to have the energy of the electricity to support either this transformation
or just like power the world. Like I like these stresses, Like there's
no such thing as wealthy com economy without cheap energy. It's like there's not
a still developed economy that didn't have acces to cheap energy. It's like the
mental space. Yeah, so so yeah, I wonder because the last decade
prior to COVID, the last decade of energy Exxon or anything, there's been
like it was horrible, Like from a from an index perspective, if you
look at xl E, that's sort of the benchmark I'm referring to or exon
it was horrible and then all of a sudden, out of COVID. You
know, it's been an unbelievable asset class to own. It's been the only
other kind of forming asset class outside of tech. And so how do we
look at energy going forward? I think it's a really important question to answer
for investors. You know, do you get deep down in the weeds and
you pick you know stocks so you get you know, really well integrated into
the different assets out there, or do you do you benchmarket with an index?
I don't know. Well, you know the good thing if you're getting
into that gas, let's show you're speaking my language now, been a moon
and of it. It's been trading at a discount per BTU to oil for
decades now, and when I was a child growing up through two energy crises,
it traded pretty close to parody. And nice thing is you actually get
paid to weight because they pay out above average dividends almost the couple points behind
the actual inflation rate. But the technology to manage the grid all right,
because the problem with the grid is and most people don't even know it,
like the you have transmission loss fifteen twenty percent, and they kept saying,
well, we're going to come up with the superconductor power transmission lines and we'll
have one or two percent and they'll be nitrogen cooled. Well, evidently that
wasn't too practical, so grid management, and you know, for the rest
of US residential users and commercial users out there in these states where they start
building these data centers, it's going to be a fight for electricity. Now,
in theory, they could bring in their own generator and do it themselves,
and maybe if they own some that gas wells, they could just feed
that generator right off the wells. I mean, cryptomiding, it's like insane,
you know, it's basically the same thing as AI. So you know,
just interesting things. Well, I think you've like helped us look at
trends in a different way here, Max. If we want to connect with
you on the web and take a look at what you're doing, how do
we do that? Yep? So I write a pretty widely read article on
my website, osboncapital dot com. It comes out weekly, so I'll be
writing it today and it'll be out tomorrow morning, Thursday, Thursday morning.
To pay them in this area. It comes out every Thursday morning. That
that article is where I both write down my own thoughts for my own to
codify my own thinking, and to share it with other people, to put
it out publicly, either to you know, get people to throw throw stones
at it and tell me why I'm wrong, or to reansworth it to reamport
at it. Yes, so that's that's my primary things. I write that
article I've been doing every week for many, many, many years. It's
my commitment, all right. Hey, well, the link to your site
is in the show notes to this interview on Financial Survival Network dot com.
When you go there, please sign up for your free newsletter. I got
a question for Max or myself. We'd love to hear from you. Shoot
me an email to kl at Carrie LUTs dot com. Max. Been a
pleasure. We'll definitely talk to you again. And hey, we're gonna sign
up to your blog your newsletter there. Thank you, Gerry, thanks for
listening to carry lets this Financial Survival Network your solution to today's trying times.
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