SpaceX, Europe's China Problem, and the Populist Backlash | Patrick Boyle

In Episode 490 https://hiddenforces.io/podcasts/spacex-europes-china-problem-and-the-populist-backlash-patrick-boyle of Hidden Forces, Demetri Kofinas speaks with Patrick Boyle—founder of the quantitative hedge fund Palomar Capital Management, professor of finance at King's College London and Queen Mary University of London, and host of Patrick Boyle on Finance—about the SpaceX IPO and what it reveals about the integrity of America's financial markets, the cult of personality filling the vacuum left by the nation's collapsing institutions, the commercial and fiscal challenges facing Europe's largest economies, and the housing crisis and generational wealth divide driving the appeal of left-wing populism across the developed world. The first hour opens with the recent SpaceX IPO—how the deal was priced and marketed, the mechanics and share-price consequences of its unusually rapid index inclusion, the small number of shares made available for trading, and the wave of bullish sell-side coverage that accompanied it—before broadening into a discussion of the integrity of America's financial markets and what happens to investor behavior and to the country's cost-of-capital advantage when the institutions tasked with regulating those markets can no longer be trusted to do so. From there the conversation turns to the cult of personality and the rise of powerful figures in industry and politics filling the vacuum left by collapsing institutions, and to the growing appeal of left-wing populists whose policies increasingly resonate with younger voters who feel priced out of the American dream. The second hour examines the commercial and fiscal challenges facing Europe's largest economies: why the continent has produced no answer to America's large technology platforms, how regulation, energy costs, demographics, and labor rigidity weigh on its growth prospects, and what the flood of cheap Chinese goods, high-end machine tools, and electric vehicles means for European industry and for a Germany that cannot afford to miss yet another technological revolution. They discuss the European security picture, the war in Ukraine, and whether Russia is in any meaningful sense winning it given the human, economic, and demographic toll and its deepening dependence on China. The episode closes with a discussion of the housing crisis, the generational wealth divide, and the political incentives that keep home prices high across the United States, the United Kingdom, and beyond—returning at the end to the appeal of left-wing populism and the prospect of redistributive policies as an inevitable response by fiscally overburdened governments looking for someone to blame. Subscribe to our premium content—including our premium feed, episode transcripts, and Intelligence Reports—by visiting HiddenForces.io/subscribe https://hiddenforces.io/subscribe. If you'd like to join the conversation and become a member of the Hidden Forces Genius community—with benefits like Q&A calls with guests, exclusive research and analysis, in-person events, and dinners—you can also sign up on our subscriber page at HiddenForces.io/subscribe https://hiddenforces.io/subscribe. If you enjoyed today's episode of Hidden Forces, please support the show by: Subscribing on Apple Podcasts https://podcasts.apple.com/us/podcast/hidden-forces/id1205359334, YouTube https://www.youtube.com/channel/UC8URhgYos5fjHqFSO4RSIEg, Spotify https://open.spotify.com/show/0TK6u251zGSlMgJKH6cOaP, Stitcher https://www.stitcher.com/podcast/demetri-kofinas/hidden-forces, SoundCloud https://soundcloud.com/hiddenforces, CastBox https://castbox.fm/channel/2629539, or via our RSS Feed http://hiddenforces.libsyn.com/rss Writing us a review on Apple Podcasts https://podcasts.apple.com/us/podcast/hidden-forces/id1205359334 & Spotify https://open.spotify.com/show/0TK6u251zGSlMgJKH6cOaP Join our mailing list at https://hiddenforces.io/newsletter/ Producer & Host: Demetri Kofinas Editor & Engineer: Stylianos Nicolaou Subscribe and support the podcast at https://hiddenforces.io https://hiddenforces.io/. Join the conversation on Facebook https://www.facebook.com/hiddenforcespod/, Instagram https://www.instagram.com/hiddenforcespod/, and Twitter https://twitter.com/hiddenforcespod at @hiddenforcespod Follow Demetri on Twitter at @Kofinas https://twitter.com/kofinas Episode Recorded on 07/16/2026

• 0:00Speaker 00

  What's up everybody? My name is Demetri Kofinas and you're listening to Hidden Forces, a podcast that inspires investors, entrepreneurs, and everyday citizens to challenge consensus narratives and learn how to think critically about the systems of power shaping our world. My guest in this episode of Hidden Forces is Patrick Boyle, the founder of quantitative hedge fund Palomar Capital Management, a professor of finance at King's College London and Queen Mary University of London, and the host of the highly acclaimed and watched Patrick Boyle on Finance. Patrick and I kick off the first hour of this episode with a discussion about the recent SpaceX offering, how the deal was priced and marketed, the mechanics and

• 0:43Speaker 00

  share price consequences of its unusually rapid index inclusion, the small number of shares made available for trading, and the wave of bullish sell-side coverage that accompanied it. This opened the door to a much broader discussion about the integrity of America's financial markets and what happens to investor behavior to the country's cost of capital advantage when the varying institutions tasked with regulating these markets can no longer be trusted to do so. From there, we move to a discussion about the cult of personality and the rise of powerful figures in both industry and politics who are filling the vacuum left by the nation's collapsing institutions, and about the growing appeal of left-wing populists espousing policies that increasingly resonate with younger voters who feel priced out of

• 1:27Speaker 00

  the American dream. In the second hour, we turn our attention to the alarming commercial and fiscal challenges facing Europe's largest economies. While the continent has produced no answer to America's large technology platforms, how regulation, energy costs, demographics, and labor rigidity weigh on the continent's growth prospects, and what the flood of cheap Chinese goods, high-end machine tools, and electric vehicles means for European industry and for a Germany that cannot afford to miss out on yet another technological revolution. We discuss the European security picture, the war in Ukraine, and whether Russia, in any meaningful sense, is winning it, given its human, economic, and demographic toll,

• 2:10Speaker 00

  and the country's deepening dependence on China. We end the episode with a discussion about the housing crisis, the generational wealth divide, and the political incentives that keep home prices high across the United States, the United Kingdom, and beyond, eventually closing it out by revisiting our discussion about the appeal of left-wing populism and the prospect for redistributive policies as an inevitable response by fiscally overburdened governments looking for someone to blame. If you want access to all of this conversation, go to hiddenforces.io/subscribe and join our premium feed, which you can listen to on your mobile device using your favorite podcast app, just like you're listening to

• 2:52Speaker 00

  this episode right now. If you want to join in on the conversation and become a member of the Hidden Forces Genius Community, which includes Q&A calls with guests, discounted access to third-party research and analysis, and in-person events like our intimate dinners and weekend retreats, you can also do that on our subscriber page. And if you still have questions, feel free to send an email to [email protected] and I or someone from our team will get right back to you. Lastly, because this conversation deals with investing, nothing we say on this podcast can or should be viewed as financial advice. All opinions expressed by me and my guests are solely our own opinions and should not

• 3:36Speaker 00

  be relied upon as the basis for financial decisions. And with that, please enjoy this wide-ranging and in-depth conversation with my guest, Patrick Boyle. Patrick Boyle, welcome back to Hidden Forces.

• 3:53Speaker 01

  Thank you for having me back. It's so much fun coming on.

• 3:57Speaker 00

  Yeah, it's great to have you back on, my friend. It's been not that long. Well, I guess it's been a bit. You were, the last time I saw you would have been in December, I think.

• 4:05Speaker 01

  Yeah, yeah, that sounds right. And then probably a year or two before that. So, yeah.

• 4:09Speaker 00

  Right. And you were last on the podcast, I think, actually in January of this year. So, not that long ago, but a lot has happened since then. We have a lot to talk about today. For those who don't know who you are, you're the founding partner at Palomar Capital Management, a quantitative hedge fund which you sold in 2018 and remained on the board until 2020. You're also a professor at King's College London and Queen Mary University London, where you teach financial derivatives, portfolio management, and classes on financial history to master's students. You've been on the podcast twice before, and you are most famous as the host of Patrick Boyle on Finance, which has an audience in the millions and

• 4:51Speaker 00

  is the most successful educational podcast on finance, and increasingly, a variety of other topics in the English-speaking world. So, you are the GOAT in the world of smart person podcasting. And I mean, you just keep crushing it.

• 5:05Speaker 01

  Yeah, it's a ton of fun. It's weird to me because I, you know, obviously, you start these things out and you have like five viewers and they're your students from the university. And then it sort of gradually grows and you, you know, one day, you're kind of like, wow, that's kind of a big group of people.

• 5:22Speaker 00

  Yeah, it's amazing. So, one process question, Patrick, and then we're going to dive into a bunch of topics that I want to talk about today. So, in terms of process, like you put out a lot of videos, and these are monologues. Some of them go 40 minutes, I mean, or more, but most of them are around half an hour. And they're disparate topics, but you dive deep into them. So, I'm just curious, like, how do you manage your days so that you're exposed to so many different themes and narratives and conversations, but at the same time, find time to dive deep into subject matter?

• 5:57Speaker 01

  You know, I guess I just consume a lot of media. I'm a big listener to your podcast. I listen to probably about three or four good podcasts. I read an awful lot of news. And then I guess I also just the friends I talk to and whatever, people bring up topics that interest me. But it's always a bit of a funny thing because, you know, I kind of work all week. I make a video. I release it. You feel great for a day or two, and then you're like, oh, I need another idea now. You know, there's some of them and the week is moving on and you're like, I've really got nothing. And then, you know, you kind of grip on something. And I don't know, even recently, it's funny because I get, I've

• 6:39Speaker 01

  recently gotten so many views on the videos that I'm sort of preparing myself for the slowdown, you know, because I think that always comes. And you kind of think like, it's been good, but it's now time to normalize a bit. But yeah, it's just, I'll tell you, a big part of it is I just, early on, I used to think about what the audience would find interesting. But the problem with that is I don't even really know who my audience are. And then I just moved to, well, I figure if I find something interesting, people like me will find it interesting. And that's sort of what I go on. And it also makes it easier to research because I sort of start out the week digging into a topic that I've been wondering about, you know. And then I kind of find all of the good research and I, you

• 7:22Speaker 01

  know, pull it together. And yeah, I mean, it takes quite a bit of time, like a lot of work goes into researching the videos. But yeah, it's also fun because I'm learning stuff that I want to learn. So.

• 7:33Speaker 00

  Exactly, exactly. And that's always the best way to do it, you know, to focus on what you you find interesting and just have faith that that's going to be something that's going to interest enough people to make it viable. In your case, that's obviously not a problem. One of the stories we're going to talk about today is actually a story I told you, I was, when I was thinking about it, I was like, this is not a subject that you've covered in the last six months, but I was like, this is a Patrick Boyle video, which is the populist data center revolt. And this comes on the heels of the governor of New York's moratorium on hyperscalers. So, we're going to talk about that today as well. But one of the topics that you've been, you've produced at least three videos on, I think, in the last six months has been SpaceX. And we're recording this now on Thursday,

• 8:15Speaker 00

  July 16. And yesterday, SpaceX's stock dropped below its listing price of $135 a share. This is the first time this happens since the IPO. And the stock is down from its peak. The market cap is roughly down about $1 trillion. Of course, more than 20 Wall Street banks that generated something like $500 billion of fees off of this IPO have done well. Who's holding the bag here? Or is it too early to make that assessment?

• 8:43Speaker 01

  I think it's a bit too early. Like, I mean, for many investors, they put, you know, a lot of people will have put their money in at 135 and it's at 135 now. It's also, this is kind of how IPOs work. Like, there's a lot of research on this. And on average, you know, if you get an IPO allocation, it pops around 18% on the day. That's sort of the average. And then they often underperform for a while and they sort of find their price. And usually, it's interesting talking about this because usually with IPOs, we're talking about new companies, right? Like, it's a company that's two, three years old. It's a little bit profitable. They need money to really grow. So, they issue stock, that

• 9:26Speaker 01

  money comes in, and then they build out. And so, that lag makes a lot of sense, you know, like the money comes in and the stock kind of underperforms for a bit, and then they spend it and they reap what they've sown. SpaceX is very different in that it's something like a 23-year-old company. And it was well-funded to start with. So, I guess this is sort of broadly an interesting topic because, you know, historically, IPOs were about bringing in growth capital. And then we've moved to this world of private markets being kind of as big as, if not bigger than, public markets. And it's meant that a lot of these companies, like not just SpaceX, but all of, you know, what we started calling unicorns

• 10:10Speaker 01

  about 10 or 15 years ago, they grow really large while privately owned. And then they kind of issue stock, not because they need the capital, but basically because the early investors want to take some of their gain. And that SpaceX slightly fits that mold, but actually SpaceX also hugely needs capital because SpaceX is, you know, losing a ton of money. I think they burn about $5 billion a quarter at the moment. And they're talking about that growing, like about losses being greater. And so actually SpaceX did need the money.

• 10:50Speaker 01

  And yeah, you know, and in terms of who are bag holders, I mean, today we don't know because, you know, there's a world in which, you know, this whole thing actually does grow a lot. It's not something I would bet on, like it just sort of seems like the price is so high that to even, to justify the current price would involve such massive growth that it just, I just can't see how that happens. But, you know.

• 11:19Speaker 00

  So how are these, like, let's take SpaceX, for example. How is this being priced? How was it priced at IPO? And what are the core aspects of its business? And what's being used to justify that price?

• 11:29Speaker 01

  Well, this was a very different pricing once again, because normally what happens is, you know, the business goes to the investment bankers and the investment bankers sort of, you know, come up with a prospectus that basically says what you'll get if you invest, like what your voting rights are, all of the rights, all of the, what you get if you put your money into the business and how the money is used by the business. With this one, you got no rights, you know, there's no voting, nothing. And how the banks price this is they come up with that prospectus and then they shop it around the big investors out there, like all of the big mutual funds, hedge funds, whatever.

• 12:10Speaker 01

  And they say, you know, there's a price range, where would you be comfortable buying? And they sort of work out where they can issue all of the stock and that's the price. And then, like I said, it often pops about, you know, 18% from that and then drifts down. With SpaceX, Elon Musk just gave them the price. He said, it's $135 a share. That makes me the world's first trillionaire. Take it to market, you know? And they did. And the price is, to be clear, it's a shockingly high price for this stock because firstly, it's, as we've said, an unprofitable business that's losing a lot of money. That's not awful in that, let's say if there was huge growth and there was like a really

• 12:51Speaker 01

  profitable, you know, business on the horizon, you could understand that. But it was issued at 100x sales, right? Now, when Google went public, I think they went public at eightx sales. They were growing more than 200% a year at the time. Facebook was almost a scandal because it went public at 10x sales, right? So to go public at 100x sales is insane. And to make it more insane, SpaceX is a very different business than Google and Facebook were at the time, because Google and Facebook were basically, you know, they were software type businesses where, you know, they've built Google and Facebook, people can sign

• 13:34Speaker 01

  up and use them and then money comes in and you don't have to hire a huge staff. There's no capex really needed, either buying more server spaces, more customers or more users come on. With SpaceX, there's huge capex as a, you know, they're claiming it's now an enterprise AI company. And so they have to build all these really expensive data centers, buy all these Nvidia chips, you know, a lot has to happen, a lot of coding. There's also the rocket business. So there's an old story, I think it was Scott McNeely, the CEO of Sun Microsystems back in, I think it was in around 2002, 2003, after, you know, the whole dot com bubble had burst. And in an interview, he said to someone, you know, you were paying, you know, investors

• 14:19Speaker 01

  were paying 10x sales for my company. And he said, that means that if I was able to get rid of all of my staff, get rid of all capex and everything, it would still take 10 years of selling products for enough money to come in to give you back your initial investment, 10 years. With SpaceX, firstly, the capex is massive, massive, massive, and it would take 100 years, right? And as I said earlier, you know, Google, when they went public, it's something like eightx sales, they were growing at 200% a year. SpaceX seems to be growing at about 15% a year, which is, I don't know, it's unimpressive growth. You know, like if you're paying a multiple for growth, where's the growth?

• 15:03Speaker 00

  It's amazing. So the other thing about SpaceX that's fascinating, and this is not unique to SpaceX, we saw the same thing with Tesla in the case of SolarCity and probably some other companies that I'm not even aware of, where you had basically Musk rolling these companies up into Tesla. The same thing has happened with SpaceX. SpaceX bought XAI, XAI bought Twitter. The government forced Musk to buy Twitter, which was at a loss essentially. So how much of SpaceX's business is actually about space? And where is all this money going that it's making?

• 15:35Speaker 01

  Oh, so it's a tiny amount. They released, one of the slides in their prospectus showed, you know, their total addressable market and they put down the largest total addressable market like that any business ever has in that, you know, even advertising.

• 15:51Speaker 00

  Can you tell people what a TAM is, just so they know?

• 15:53Speaker 01

  And what TAM is, total addressable market. Now, this doesn't mean it's what you'll get. It means like, you know, we'll say, for example, if you entered, Uber was a good example, like Uber, when they went public, they claimed their TAM was all transportation, like anyone who drives commutes anywhere, that that could be replaced by Uber. Now, obviously, the real TAM was probably the taxi business. And in truth, they're only ever going to get a certain amount of the taxi business. You're not going to own it all. But there's sort of a long history of businesses in Silicon Valley in particular of, you know, Uber is a great example of claiming a massive TAM. But then Elon Musk, you know, like 100x that, you know, in that it basically, like the

• 16:37Speaker 01

  total addressable market is just the entire global economy, you know, essentially. And he's got in there, like even for advertising on Twitter, the total, it's something like six times what Google earns. And it's like, well, no one advertises on Twitter, right? And, you know, there's all this stuff in there, there's stuff like, do you remember he was saying a few years ago that there were going to be point to point rocket transportation that would replace airplanes?

• 17:04Speaker 00

  Yeah, yeah. You could literally get to Sydney from New York in like an hour or less.

• 17:08Speaker 01

  Yeah. I mean, firstly, like, can you imagine the G-Force is involved in that?

• 17:12Speaker 00

  It's essentially a ballistic, what he describing was a ballistic missile.

• 17:16Speaker 01

  Yeah, yeah. And I mean, you know, and once again, like the number of rockets that blow up on the launch pad, like you'd have to really improve the safety of a rocket to make it anything like the safety of an airplane, but you know.

• 17:28Speaker 00

  And considering the fact that they got rid of the Concorde because it wasn't safe enough.

• 17:32Speaker 01

  Yeah, or economical, right? Like the price you could charge, which was massive, still wasn't good enough. There's also, what else is in there? Like, you remember when he said that Twitter would become like a payment service and it would replace, you know, all of the banks? Like a few years ago, I think he said he could take 60% of the business that banks now do as Twitter, you know, where people would, I don't know, kind of like the way in China, people tap to pay with AliExpress or whatever. Like he claimed Twitter would become that, which once again seems unlikely to me. But there's such a grab bag of unlikely businesses in there that will be hugely profitable and whatever else. And, you know, there's the Musk faithful out there and they believe that.

• 18:17Speaker 01

  And, you know, whenever I sort of bring this up, like I guarantee you, your comments will be filled with people saying, never underestimate Elon Musk, you know? They point at the return that people got on Tesla. But you have to remember Tesla wasn't sold at 100x sales, right? Like Tesla was sold at probably a fair price for a startup electric vehicle company. And then it grew to, you know, essentially be a meme stock, you know, where it's priced, like you can't price it as an auto company. Its growth has been negative over the last few years. Like it's a post-growth auto company with, you know, really two models of cars for sale that they're now claiming is an AI robotics company despite that not existing, you know? So.

• 19:01Speaker 00

  I mean, Elon is exceptional. He's the best when it comes to consumer product and selling and telling stories in a way that excites the consumer and retail audiences. And he's, he's also created a lot of value, but the question is, you know, for an investor who's buying into this stock, there are real material consequences to the price that you're paying, irrespective of whether the story is sexy or exciting, or Musk has actually delivered on a series of, you know, exciting innovations in consumer technology.

• 19:31Speaker 01

  Yeah, this is the thing, like when people get upset at me and they say, well, you know, you're not talking about the business or whatever. It's like, well, I am talking about the business, but the price you pay matters, right? Like, for example, if you bought the best apartment in New York City, and if everyone looked at it and said that is without a doubt the best apartment in New York City, but you paid 100 times its fair value for it, you know, forever, you could say, I own the best apartment in New York City. It's a great apartment. It's worth a lot. But the problem is if you overpaid on day one, you can't win, like you cannot win, because no matter how much New York apartments go up in value, your one can't keep up with the price you initially paid.

• 20:14Speaker 00

  Yeah, I had this interview with Howard Marks years ago where he said something, we were talking about the nifty 50, and he was talking about how people used to say, you know, you can't go broke, you can't lose money buying great companies. He goes, well, you know, what's, at what price do you buy them? And of course, it depends. Even Cisco, which was at the forefront of the internet boom in the 90s, it took like 25 years or something to get your money back if you bought at the peak in 2000.

• 20:37Speaker 01

  Yeah, and Cisco, that's a great example, because Cisco did everything they were supposed to. They built the infrastructure that is the internet. But the problem was that you paid too much for it. You know, they never went bust. You know, you don't have to claim that these businesses will go bust, or that anything will go disastrously wrong. But it's not even that they're priced for perfection. Like, priced for perfection is, you know, an expensive stock, but these are priced for science fiction, you know, like they are priced for, I mean, you know, there's some people out there. It's interesting, because even justifying, it's sort of ridiculous to justify the value of SpaceX on enterprise AI, because they're a tiny AI

• 21:19Speaker 01

  company, you know, XAI, I think, is three and a half percent market share. Most of that is people just fact checking stuff on Twitter. Like, I, it's very rare to run any, into anyone who uses Grok for non Twitter purposes, even though it's probably a, you know, a somewhat reasonable AI. But it is not reasonable to think that it's going to own the enterprise AI market, considering, I don't know, anyone you speak to who uses AI within a business is talking about Anthropic, right? Like, that's what people seem to use. It doesn't even seem it's going to win the consumer AI business. But the problem is, their main business is the rocket business and the satellite business. And the problem is that even if you want the

• 22:03Speaker 01

  entire global telecom system, which of course you couldn't because of antitrust issues and whatever, but even if you did, that's not a big enough business to justify paying 100 times sales. So you have to just take a massive thing and say, I'm going to own that. And then you can try to justify the price.

• 22:23Speaker 00

  Maybe I'm using Grok incorrectly, but I've tried to use it a number of times, and I found it to be totally useless. So I'm guessing there's got to be an issue with how I'm using it. But I, when it comes to Twitter, I can't even easily find stuff that I tweeted.

• 22:36Speaker 01

  Well, I think Grok is mostly used for generating CSOM, you know, like, that's where you're going wrong, is you're using it for the purposes of other AI.

• 22:46Speaker 00

  Yeah, that's right, I guess. I'm comparing it also to the others. So NASDAQ listed SpaceX on the NASDAQ 100 within 15 days of its listing. And the FTSE Russell did the same thing for the Russell 1000. It actually did it in five days. How unusual is that? Because of course, the implication here is that it then gets included in the ETFs that track these indices, like the QQQ or Russell.

• 23:12Speaker 01

  Yeah, there's a whole bunch of them, yeah. So that's extremely unusual, obviously. They had to change the rules for it, right? Because all of these indexes, they have rules of inclusion. It's sort of a funny thing. I know a bit about this, because I used to trade index ads and deletes, like, that's one of the early trades I did. And with some of the ads, you know what's going to be added. With others like S and P, you can kind of, you look through the inclusion criteria, and you can sort of look at the stocks that are not in the S and P and say, these are really likely to be added at the next date. But, you know, the thing about this is that there's all this money tracking indexes. And yeah, the whole purpose was to get it in. There's a story, I think Reuters published it, that

• 23:56Speaker 01

  said that Elon Musk made listing on NASDAQ conditional on this early inclusion. So the old idea was, different indexes have different criteria, like for S and P, they require, I think, is it, I forget what it's, two years or two quarters, they require the business to be sort of steadily profitable for a while. For NASDAQ, they don't, but they did require a one-year seasoning period. And the reason for that is just that, well, we just discussed it, that when a company goes public, the truth is, the investment bankers and those early buyers, they're kind of guessing at like what they think is an okay price for this stock. That's the price they'll take it at. And then, you know, it tops 18%, it

• 24:41Speaker 01

  fall, it generally underperforms for a while, as it sort of finds its level, and it moves from the kind of people who just wanted it to get that IPO pop into the sort of steady hands that might hold it for a few years. And that is what they call seasoning, where it sort of sits out there for a while, and it gets bought and sold, and it finds a reasonable price. To do it 15 days after IPO, you've got to understand that everyone who took that IPO, like, it's how you get that high IPO price, because basically, if you took it at 135, you knew you had three weeks to hold on to it. And everyone knew there was this huge forced buyer out there, the indexes that were going to take it off of your hands.

• 25:24Speaker 01

  And like I said, it's a whole trade on Wall Street, you know, where basically trading, in fact, I forget, like Millennium, it was in the news recently, how much money, like Millennium made billions of dollars just off of this index inclusion. But yeah, it's a big trade, but it essentially, by fast forwarding it, the kind of investor who said, well, I'm not going to pay 135 a share, that's too high. Well, if you said to them, but it'll be banged into the NASDAQ in, you know, three weeks, and you can offload it. And also, they changed the weighting rules as well. So normally, stocks that had very low floats, that would be recognized, and so they'd have very little representation in the index. With

• 26:07Speaker 01

  this, they changed it. So it was basically set up that there was this huge buyer out there. And so then, even if you looked at it, and you said, well, I'm not paying 135 for that, it's like, yeah, but you're out of it in 15 days. It's into an index. And then after that, who cares, you know? You know, the owners then have to deal with it.

• 26:25Speaker 00

  So the float refers to the percentage of outstanding shares available for trading. Floats have also gotten smaller for these large companies.

• 26:33Speaker 01

  Yes, that's another thing. And there's a fellow, I think his name's Craig Cobham, who's written a couple of pieces in the FT over the years about this. But basically, usually when companies went public, they issued about 20% of the shares to the public, and it's just gotten smaller and smaller. And there's a bit of an interesting thing, because you also have key investors, right? So even when you say if SpaceX issued 5%, you know, a bunch of those shares will have gone to people who have sort of agreed to hold on to their shares, right? So straight away, you know, that a bunch of them will never sell that, right? And that is how they're placed. Like, if you say to the brokers, if

• 27:14Speaker 01

  you say, look, if you give me an IPO allocation, I'll promise to hold on for a year, you're more likely to get it than if you say, I'm going to flip it on the first day and make my 20% return. And so there's a bunch of sort of keyholder investors who are locked in to hold it. And so then, even when 5% goes out, like, what percentage of this trillion dollar company is trading? It's like, you know, maybe less than 1%. And one of the comments in one of my videos said, you know, was from a guy, and he said, well, you know, I've been trading crypto for years, you know, this is a crypto game, you know, where you you issue a tiny amount.

• 27:49Speaker 00

  You took the words out of my mouth.

• 27:50Speaker 01

  Yeah.

• 27:51Speaker 00

  Yeah, well, you took the words out of my mouth. I mean, this is something that we saw in crypto. This is a common practice of putting out a very small percentage of shares or tokens, letting the price rise or pump significantly, getting liquidity into the market, and then selling into it. And it feels like a lot of those practices have just now gone mainstream. That crypto was in some sense like a, a training ground, or a place to experiment, kind of like the Ukraine war, for, you know, innovative warfare. But in this case, it's in finance, and it's in investing. And we're seeing it now in the broader equity markets. So we're also seeing it in prediction markets.

• 28:28Speaker 01

  Well, in particular, it was also a way of doing stuff where there's no rules, right? And of course, you know, stuff could happen in crypto that could never happen in, you know, American stock markets. But we've in recently, actually, I thought it was wild. I don't know if you've seen the news about the analyst coverage, you know, all of the banks came out with coverage on SpaceX, which was possibly timed to match the index inclusion date, you know, because they had 25 days while the index inclusion was 15 business days. And so, you know, they roughly lined up with each other. And all of them came out with massive, massive, massive price targets, like, you know, $300 a share up

• 29:12Speaker 01

  to like $1,000 a share for, you know, a money burning business with a few rockets, a bit of satellite internet and Grok, right? Like, and let's be serious here, Elon Musk bought Twitter plus Grok from those investors for, I think, 250 billion, and then pinned the entire valuation of SpaceX essentially on this, you know, which is kind of wild. So

• 29:35Speaker 00

  That's alchemy.

• 29:36Speaker 01

  Yeah, either those investors were ripped off, or the new ones are being lied to. It's one of the two. But Wall Street fully agrees that this thing is worth an absolute fortune. And I was kind of shocked by this, because it reminded me of the dot com bubble, like, you know, the scandal around Henry Bludgeon and all those analysts. But I thought, like, gosh, it's kind of wild that this is happening again. Because in 2002, under Sarbanes-Oxley, you know, there was sort of a, I forget what the rule exactly was called, like the truth in analysis rule, or something like that, where analysts couldn't essentially say they think something is a great stock when they don't. Interestingly, I learned that that rule was repealed about six months ago. And also, the SEC has largely been defunded by,

• 30:21Speaker 01

  what were those guys called? Doge? Do you remember Doge? Doge gutted the SEC. So all of the, you know, people who are sort of searching for frauds in markets are gone. And also, a lot of the rules have been rolled back. And it's frankly, it's a very ugly thing, I think. Because I think, you know, what happened in the dot com bubble, and you know what happened with things like Enron and WorldCom and whatever, these were huge disgraces. And

• 30:47Speaker 01

  I would make an argument that the reason that people pay up for American stocks is for rule of law, for good rules, good institutions. And you know, when you put your money into an American stock that you'll be, you know, if something goes wrong, you've got the American court system to fall back. You've got like regulators who do not mess around. But you know, it's questionable that you have that anymore. Like, you know, the whole reason, like, you know, people said to me, like, oh, would you invest in Chinese stocks? And it's like, not really, like, because I just don't feel, you know, that the laws are on, you know, a foreign investor's side if this all goes wrong. While, you know, the whole argument for US stocks. And to be clear, what this does, like, this is good for business

• 31:32Speaker 01

  in America, because if people trust the US stock market, they'll invest demanding less of a return, you know. So it sort of means that the cost of capital is lower for American businesses. And if American businesses can raise capital cheaper than global businesses can, they then have such an advantage in growing and so on. And it's very worrying to think that this stuff is being rolled back.

• 31:58Speaker 00

  Absolutely. I mean, trust in American laws and property rights and rules is a big part of what underpins the American financial system and even the value of the dollar. Also, it feels like we're in an era where individuals have become increasingly powerful, you know, like the ability for Musk, for example, to strong arm the NASDAQ, or Trump to do what he's able to do as President of the United States, speaks to a new kind of populism that I think it's not just something that we see in politics, we see it across the board. What do you think contributes to that degradation in the power of institutions?

• 32:30Speaker 01

  You know, firstly, I have to tell you, the way you said to me is almost like has a terrifying echo, because my friend Manoj Pradhan, who was on Hidden Forces a little while ago, you know, he started out as an emerging markets analyst. And he has constantly said to me, you know, when you kind of go, well, what exactly is an emerging market? How do you classify it? And he says, well, in emerging markets, institutions are weak and individuals are strong. You know, you look at India, you know, Modi is strong, like, he gets to say what happens, the institutions are weak. And so it's a very worrying idea when you sort of say like, that in America, institutions are getting weak and individuals are getting strong, because that, you know, possibly it turns it into a submerging market,

• 33:14Speaker 01

  you know, which is not what you want as an investor.

• 33:18Speaker 00

  Yeah, Manoj is great. Both he and Charles Goodhart separately have been on the podcast. They, they wrote a book together, then Manoj wrote a second one. Actually, they co-authored the second one, but as I understand it, Manoj is the lead author. He was also at our recent London dinner, and you, of course, have been to many of those dinners. I think that if I were to pin it on anything, it would be an erosion of trust. The loss of trust, generally speaking, by the public, it has been the primary driver of the eroding power of institutions. And what fills that gap, somewhere, somebody has to fill that gap, you know, power fills gaps. And the powerful that are filling these gaps are individuals. Individuals with great oratory and who can compel audiences.

• 33:59Speaker 01

  Yeah, I think this is true. And I would argue that a lot of this, because also it's a global thing, like, it's, we talk a lot about America, because that's probably, you know, you and I live a lot in America, and, you know, a lot, the audience are American, I would imagine. But around the world, we've seen this exact same thing happening. And I would, I feel there's a good argument that a lot of this occurred in the global financial crisis in 2007, 2008, when there were bailouts that just distinctly didn't feel fair, you know. And that's even when we saw the birth of things like crypto, you know, it was all the Occupy Wall Street movement. I guess there were two things. There was Occupy, and

• 34:41Speaker 01

  the other one was the Tea Party, you know. And it was two versions of just really not trusting that the people in positions of power were exercising their power in a fair manner. And, and I do think that that's also very true. Like, I mean, you know, a lot of the way the bailouts worked, they were deeply unfair to individuals, you know, people were losing their homes and the banks were being bailed out. It, it wasn't right.

• 35:06Speaker 00

  You know, it's so interesting, looking back at that time, another thing that happened concurrently was a rise in the self-awareness of the crowd. Maybe there were a lot of books that were being written at the time about the power of crowds, crowdsourcing was a thing, Bitcoin was supposed to be a decentralized currency. And so I feel like part of what's happened here is that the crowd became more powerful, but at the end of the day, someone had to lead it. And in the social media era, and in this era of decentralized media, people like Musk and Trump, who are very good at commanding that medium, have been able to use it to exercise power. And by the way, it's not just those folks. I mean, I use those because they come easily top of mind. But actually, you see this across the board.

• 35:50Speaker 00

  The people that are most successful in politics today are primarily influencers. And in some sense, too, you wonder really, and Trump is another great example of this, so is Ocasio-Cortez, like, are they primarily politicians? Or are they primarily social media mavens who are using political office to build the value of their brand, which they subsequently monetize? And in Trump's case, he's monetizing right in front of our face. I think I was reading something recently about some allocation that was made on the part of the UAE, and that recently, the UAE got access to some high-level semiconductors.

• 36:25Speaker 01

  Yes, yes. So the UAE, I think they put a load of money into one of Trump's stable coins, right? And at first, you would say, oh, well, that's just my, I think they had to, they were agreed to invest in the United States, but instead of putting it in in dollars or whatever, they put it in as Trump coin, or, you know, the stable coin that's tried to, what's his business called? Liberty, World Liberty Financial or whatever. Now, at the time, that stable coin was tiny, like, nonexistent. And they put a big chunk of money into it. But the thing is, that is that valuable? It's hugely valuable, because if you put it in and you leave it there, you know, Liberty Financial get to put that money in treasury bonds and earn, you know, four and a half percent a year, every year on billions of

• 37:09Speaker 01

  dollars. Like, it's a massive, you could pretend that no transfer of value occurred. It's like, oh, it's a stable coin. It's like a bank deposit or whatever. And it's like, no, they get no interest. And the people running that stable coin bang it into treasury bonds or whatever they want to, and get to earn a, you know, a solid, steady return year after year on it. So, and then suddenly, various approvals occur and so on. Yeah.

• 37:39Speaker 00

  Yeah. So, one of the things that I wanted to ask you about before we get off the conversation about the IPOs, is really how much money there is to fund all this stuff. So I think SpaceX is the largest IPO this year, or ever, maybe. Google also raised an additional $85 billion in a new equity offering a few weeks earlier, before the SpaceX IPO. How much money do you think there is actually out there to fund this stuff? Because of course, OpenAI and Anthropic eventually want to go public. There's a huge capex boom. You've highlighted the fact that, I think you've actually, your terminology is the stock market is no longer shrinking, you know, we were going, we lived in this era of a shrinking stock market for a variety of reasons, fewer IPOs, private equity taking public companies

• 38:24Speaker 00

  private, we also had share buybacks, and so taking stock off the market. But is there a limit to how much we can fund here? And is there a way to estimate when kind of the money's going to run out? Or if it could run out?

• 38:37Speaker 01

  I think that there's probably plenty of capital, especially because even, you know, with SpaceX, like, you know, yeah, it's got this massive valuation, but they've lifted 5% of the stock, right? So not too much money actually had to go into it. And I would imagine that OpenAI and Anthropic will probably do a similar thing, for no reason other than that's been the Silicon Valley game over the years. The only thing is that these businesses are very different to the typical Silicon Valley businesses. Because if you look at Facebook, Mark Zuckerberg actually didn't need to float Facebook, right? Like, I think it might have been burning a bit of money at the time, I forget the detail.

• 39:18Speaker 01

  But in truth, with Facebook, like, the reason to list, it was just to have a public price on the stock that insiders could sell, right? Because if you've worked for years at Facebook, you've been paid in all of this stock, and eventually, you want a liquidity event. And if you look at it, Facebook, or Meta, as they're now called, have bought back more stock in dollar terms than they issued, right? So I forget what they issued, but they bought back, you know, maybe 10 times as much stock. This is because the stock price went up. But basically, you know, they can pay people in stock, the people sell that stock, they do equity buybacks to sort of, you know, reduce the dilution. But Meta was basically

• 40:00Speaker 01

  a hugely, hugely profitable business. It didn't require a huge amount of staff, you know, you're not building factories or anything like that. It's a few people who write code that's really valuable. The same thing goes for Google and a lot of, you know, what we call big tech today. But AI is very different. They actually need the money, right? Like, they, they're not issuing it just to put a price out there. They need the money to build massive, really expensive data centers. They possibly need to build power stations, because there's not enough electricity to run these data centers, right? And so if they are to achieve even a percentage of the goals they've set in terms of building data centers and

• 40:42Speaker 01

  so on, they will be spending an absolute fortune. And that's actually another twist in markets, is that Forever, people have looked at the stock market and said, well, all these big companies out there, they're just buying back stock. You know, they don't reinvest in the business anymore. They just buy back stock. They're not building new things. Well, now they're really building new things. You know, like, we're seeing more spending from American businesses than, I don't know, than we've seen in my career anyhow. You know, like, it's massive, you know, the planned spending goals.

• 41:15Speaker 00

  Well, so you mentioned Meta. Whatever happened to their metaverse?

• 41:19Speaker 01

  Oh, so that, I think they actually might have wrapped it up entirely recently. They burned $88 billion on that.

• 41:28Speaker 00

  Doing what? Where was the money spent?

• 41:29Speaker 01

  Like, I think it was all just spent on, you know, coding up all of the nonsense stuff. Like, you know, it's kind of wild to think through, you know, how you spend $88 billion.

• 41:40Speaker 00

  I feel like this is like one of those projects where, like, Mark came up with it. He was like, super passionate about it, and no one told him no, or no one felt comfortable telling him no, and he had to burn a certain amount before he figured out that he couldn't keep doing it?

• 41:51Speaker 01

  Yeah, I think there just is a point at which no one turns up to, you know, play your game, and you have to, you know, wrap it up. But the funny thing about that is that it's, once again, like, Facebook was a bit of a scandal at the time they went public, because they didn't give votes, you know, they gave Zuckerberg the super voting shares, they didn't give votes to regular investors, and it made Zuckerberg unfireable. And, you know, then we saw, like, with a normal CEO, the shareholders might have stepped in and said, look, we've got to stop this. You're overspending. No one's interested in this. It's not working. No one wants to wear VR headsets. Like, this is madness, you know. But, you know, Zuckerberg got to build his Cybertruck, so.

• 42:35Speaker 00

  Well, goes back to what we're talking about, with the empowerment of individuals. You know, some of this is warranted. I mean, I had Sebastian Maldini on the show, I think, three times now. The first time to talk about his biography of Alan Greenspan, the second time to talk about his history of the venture capital industry, and the most recent time for his biography of Demis Hassabis, the founder of DeepMind. But in his history of Silicon Valley and the venture industry, he talks about this turn that happened with Founders Fund, and guys like Peter Thiel recognizing that there's an opportunity here to better empower founders. And so, like, I think to some degree, this was warranted, but it feels like, again, there's another example where it's gone, you know, off the reservation. And now you have these situations with, like, Musk, where he has, like, what does he have,

• 43:18Speaker 00

  like, 85% of the voting rights associated with SpaceX's stock?

• 43:22Speaker 01

  Yeah, and as he sells that stock, it loses its voting rights. So he'll always have full control of the business, pretty much. Yeah, it's an interesting thing, because, you know, for years, there's been this sort of corporate governance argument, that if you, sure, you can take rights or, you know, benefits away from shareholders, but now you have to issue the stock cheaper. And that was kind of the big question when Facebook went public with Zuckerberg's super voting shares, because there'd just been this general move towards better and better corporate governance, where shareholders were treated really well. And Zuckerberg sort of turned the corner with that. And now we're seeing

• 44:03Speaker 01

  it, you know, taken to, and I don't think even, SpaceX isn't even the worst example. Like, I think there's companies out there where, as the CEO sells his shares, or as the founder sells their shares, their other shares gain in voting rights. Like, you know, you can set this up however you want, but historically, investors would have just said no to this, that, just say, I'm not getting involved in this business, because it's not being run in a fair manner. But the thing is, Facebook was just an IPO that people really wanted to buy. They wanted involvement in it, and so they would choke it down. And once again, you know, with SpaceX, it was hot enough that people would just say, yeah,

• 44:45Speaker 01

  whatever Elon says, take it. Like, just take it. I need to be involved, so.

• 44:49Speaker 00

  So one more topic I want to cover here in this first hour before we move into the premium feed, and that has to do with prediction markets. How closely have you been tracking this stuff? Because it feels like we've seen an explosion in interest and participation in prediction markets since, since COVID, really. And COVID really was a demarcation line for a lot of this stuff.

• 45:08Speaker 01

  Yeah, well, it is something that I've paid attention to it for years. Like, I kind of often talk to my students about it and whatever, but it was always a tiny, tiny, little thing. It was kind of a quirky experiment. I forget the initial rules. There were prediction markets around for ages, but they weren't allowed to get too big and whatever. I think they were often even tied in with universities or whatever, and it was sort of a market experiment. And then a few years ago, I guess, one was the sort of crypto explosion, and I think Polymarket is, you know, kind of a, you know, a decentralized, like, it's outside the rule of law in the way that crypto is. And then you saw Calci just sort of push it to the limits and see if anyone would come back against them.

• 45:53Speaker 00

  Calci is another one of these companies.

• 45:55Speaker 01

  Yeah, but Calci is US-regulated, and bizarrely enough, regulated by the CFTC, because suddenly, you know, betting on a sports game is a commodity now. And wildly, the CFTC, because there are states in which gambling is illegal, and this is, of course, sports betting, right, it's gambling, and the CFTC has sued states, saying, no, we get to control this, you don't. Largely, I just think it's because, you know, the guy running the CFTC is very much aligned with certain directors of both of those firms and so on.

• 46:30Speaker 00

  What do you think has been the primary driver of investor interest in these markets?

• 46:34Speaker 01

  Oh, I mean, it's just gambling, right? Like, you know, because you've got to remember, like, when these guys talk about it, like, Calci and Polymarket, they sort of talk about a prediction markets betting on, on events, and it sort of allows, we'll say, even better polls on elections or whatever. But something like 90% of it is just sports betting, right? But they sort of have to talk this game, because they have to pretend that there's a social value in there. You know, I kind of tied it back to your idea, the financial nihilism idea. Like, I think that we've moved into a world, you know, well, it's your whole argument, that there's a lot of young people who feel priced out of the economy in general,

• 47:17Speaker 01

  and they equally are sort of flooded with social media, showing them Andrew Tate with his collection of Lamborghinis and so on. And they just say, you know, I need to reach escape velocity. Like, I can't be an incel in my mom's basement. I need to, you know, earning a normal living isn't good enough. And so then you turn to making the wildest bets. And we saw that with the meme stock Wall Street Bets thing, and we saw it with crypto. And I think now, now we're seeing it with prediction markets, and it's just sort of levering into a crazy, you know, I 10x my wealth, or I zero myself out. Because I don't have much, I don't care if I zero myself out, so.

• 47:59Speaker 00

  Yeah, and a lot of that energy that was in crypto got sucked out into AI, and similarly has gotten sucked out into prediction markets, which shows you that it wasn't, or for much of it, most of it, I would argue, it really had nothing to do with the underlying technology or any specific conviction about, quote, decentralization, but something else that was getting channeled through.

• 48:21Speaker 01

  Yeah, it's the volatile thing to bet. I also even think it's sort of slightly, you know, seems exciting, you know. Like, five, 10 years ago, if you told people you were a crypto investor, you sounded like kind of an exciting badass outsider, you know, it's slightly illegal, or we don't know. And that, that was cool. While today, you know, if you look at Bitcoin, it's basically, over the last five years, it's underperformed the S and P, right? So your grandfather's more of a badass than you in terms of returns. And then it's also no longer an outsider product, right? Like, you've got the government.

• 48:56Speaker 00

  Your leaders are guys like Michael Saylor.

• 48:58Speaker 01

  Yeah, like, it's just like, it is, it's even funny. Like, I think there's a bunch of things, like, that over, in prior years, there's a bunch of people and ideas that sort of pitched themselves as anti-establishment. An example that amuses me is Joe Rogan, right? Like, Joe Rogan was the outsider, anti-establishment guy. And now you turn on the Joe Rogan podcast, and he's got sort of Marc Andreessen, Elon Musk, you know, a bunch of Silicon Valley guys.

• 49:25Speaker 00

  JD Vance, just yesterday.

• 49:26Speaker 01

  JD Vance, a bunch of politicians, you know, Nigel Farage or whatever. And it's like, I think he's kind of wondering, like, why are people no longer excited by my podcast? And it's like, well, because you're, you're no longer an outsider, like, you're an insider. This is the establishment. Like, and he's pitching himself as anti-establishment, but how could you be more establishment than to be friends with, like, the biggest business leaders in the world, and interviewing the biggest politicians in the world?

• 49:55Speaker 00

  Yeah, he's even, he's become even more obsequious than, you know, Meet the Press or any of these, you know, Sunday talk show programs have been traditionally to mainstream politicians, they would go on the program. And the, and the quality of the politicians today is significantly worse, and then more corrupt. This isn't your grandfather's corruption of Joe Biden putting his kid on the board of Ukrainian oil and gas company. This is, you know, Don Jr. and Eric and their whole frickin' family making billions of dollars spinning up crypto tokens and slush funds.

• 50:28Speaker 01

  Well, and not even hiding it. Like, the thing was, that a few years ago, this would have to be hidden. Like, it would be a great shame. Like, I grew up in Ireland. There was loads of corruption in Ireland in the 80s, but they kind of hid it a bit, you know. They didn't rub your face in it. Well, now they're just like...

• 50:45Speaker 00

  Yeah, this is really bad, Patrick. This is really bad, because the backlash is going to be really bad, and it's going to come in a political form, and it's most likely going to come from the American left in the US. And I don't know to what degree this is, you know, going to be an issue in, in Europe. Europe hasn't experienced anything like this. Europe has a whole bunch of other problems that we're going to talk about in the second hour, which is this long, slow-motion economic car wreck. And it's happening not just in EVs, but other places as well. So, in fact, I think this is a good opportunity to move us there. I want to talk about, as I said, Europe, Europe's economy, it's slow-motion economic train wreck. I want to talk about the Russia-Ukraine war, and really, what is going on there? Because you've talked about this in your videos. And it's really

• 51:25Speaker 00

  interesting to me to juxtapose Putin's decision to invade Ukraine in 2022 with Trump's decision to begin bombing Iran with seemingly no plan in 2026, although some argue he has a plan, we can talk about that. I also want to talk about home prices and the generational wealth gap, which is something that you've written about, and we've talked about on this podcast, as well as fiscal dominance and the end of the disinflationary tailwind. Manoj Pradhan, of course, and Charles Gard have written about that. And also this data center revolt, and the larger populist revolt against large corporations and big tech, which I think is here, and it is a harbinger of things to come. For anyone who is new to the program,

• 52:06Speaker 00

  Hidden Forces is listener-supported. We don't accept advertisers or commercial sponsors. The entire show is funded, from top to bottom, by listeners like you. If you want access to the second hour of today's conversation with Patrick, head over to hiddenforces.io/subscribe and sign up to one of our three content tiers. All subscribers gain access to our premium feed, which you can use to listen to the rest of today's conversation on your mobile device, using your favorite podcast app, just like you're listening to this episode right now. Patrick, stick around. We're going to move the second hour of our conversation onto the premium feed.

• 52:41Speaker 00

  If you want to listen in on the rest of today's conversation, head over to hiddenforces.io/subscribe and join our premium feed. If you want to join in on the conversation and become a member of the Hidden Forces Genius Community, you can also do that through our subscriber page. Today's episode was produced by me and edited by Stylianos Nicolaou. For more episodes, you can check out our website at hiddenforces.io. You can follow me on Twitter at Kofinas, and you can email me at [email protected]. As always, thanks for listening. We'll see you next time.