How to Hedge the AI Boom and the Unrest in France | Robert Armstrong

In Episode 506 https://hiddenforces.io/podcasts/how-to-hedge-the-ai-boom-and-the-unrest-in-france-robert-armstrong of Hidden Forces, Demetri Kofinas speaks with Robert Armstrong, US financial commentator at the Financial Times and author of the Unhedged newsletter, about the scale and structure of the AI investment boom, the growing political and social backlash against the technology, the fiscal reckoning in France as a preview for other developed economies, and how investors should protect themselves in a world where bonds no longer reliably offset equity risk. The first hour examines the scale and structure of the AI investment boom, why today's hyperscalers start from a stronger position than their Internet-era counterparts, and why GPUs and electricity have become the industry's defining bottlenecks. They also discuss the backlash building around AI, from the local politics that make it harder to build data centers to the anxiety spreading through the white-collar workforce, and why Armstrong believes that industry leaders who refuse to accept accountability for the technology's misuse could see it come back to bite them. The second hour turns to France, where Robert argues that the unrest in the streets and in the market for French government bonds is a preview of fiscal reckonings awaiting other developed economies, including the United States. They discuss whether inflation is likely to stay structurally higher as governments choose the path of least resistance over genuine austerity, why Europe's chronic valuation discount to US equities may be more structural than cyclical, and how investors should think about protecting themselves when bonds can no longer be counted on as a counterweight to a stock market portfolio. 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 10/26/2026

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Demetri Kofinas?

  What's up everybody? My name is Demetrius Grafinas 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 Robert Armstrong, the US Financial Commentator at the Financial Times, where he writes the Unhedged newsletter and co-hosts the Unhedged podcast alongside Katie Martin. Robert and I spend the first hour of our conversation today examining the scale and structure of the AI investment boom, why Robert sees today's hyperscalers as operating from a stronger starting point than their internet era counterparts, and

• 0:43Demetri Kofinas?

  why GPUs and electricity have become the industry's defining bottlenecks. From there, we discuss the political and social backlash building around AI, from the local politics that make it harder to build data centers, to the anxiety spreading through the white collar workforce, and why Robert believes the accountability industry leaders refuse to claim around the misuse of this technology could come back to bite them. The second hour turns to France, where Robert argues that the unrest we are seeing in the streets and in the market for French government bonds is a preview of fiscal reckonings awaiting other developed economies, including the United States. We discuss whether inflation is likely to stay structurally higher as governments choose the path of least resistance

• 1:24Demetri Kofinas?

  over genuine austerity, why Europe's chronic valuation discount to US equities may be more structural than cyclical, and how investors should think about protecting themselves in a world where bonds can no longer be relied upon as a counterweight to one's stock portfolio. 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 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,

• 2:05Demetri Kofinas?

  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 be relied upon as the basis for financial decisions. And with that, please enjoy this wide-ranging, informative, and enjoyable

• 2:44Demetri Kofinas?

  conversation with my guest, Robert Armstrong. Robert Armstrong, welcome to Hidden Forces.

• 2:54Speaker 01

  It's great to be here.

• 2:55Demetri Kofinas?

  It's great having you on, Robert. This is actually your first time on the podcast, but we've met before. You were at our recent New York City Dinner.

• 3:04Speaker 01

  Excellent dinner, excellent conversation, excellent company.

• 3:07Demetri Kofinas?

  Yeah, you were a great addition to the group, and I've been a longtime listener to the Unhedged podcast that you co-host with Katie. You guys have a fantastic rapport and a great banter. And you also write the Unhedged newsletter, and you are the US Financial Commentator at the Financial Times. What exactly does that mean, by the way?

• 3:27Speaker 01

  Well, the joke at the FT is that the longer your title is, the less important your job is. And so it's unfortunate that I still have three words in my, I still have three words in my title, but it just means I'm the guy who writes opinion about finance from America. Of course, I do write global commentary sometimes, but because, you know, it's three titles, you know, the ultimate title at the FT is just editor, and that's one. And so I still have three.

• 3:58Demetri Kofinas?

  So the FT is, obviously, it's a British newspaper, but you guys do global coverage and you also cover the US. What does the readership look like for the newspaper?

• 4:07Speaker 01

  The readership is about a third, a third, a third. Last time I checked in, so a third UK, a third US, a third rest of the world. And rest, you know, those shift around a little bit at different times, but that's the way I think of it. You know, as a finance writer, I feel like I have the closest connections to readers who are in the UK, like people in the city. Those are my most active correspondents. But I do talk to, you know, hear from a lot of people on Wall Street and so forth. So we're wired into both worlds. And, you know, one of the great things about the FT is it's a truly global audience. So, you know, I write stuff and I hear stuff from

• 4:48Speaker 01

  New Zealand and Asia and India and China, all over the world, Latin America. So this is our strength as a, our competitive strength, I should say, as a news organization, is that we're really global and have a global reputation and a global readership.

• 5:03Demetri Kofinas?

  What do you feel like is the kind of content or the types of subject matter that resonate most strongly with everyone at the center of the Venn diagram? And then are there certain subjects that resonate more with the international and UK audiences that are US topically focused?

• 5:21Speaker 01

  Well, I'd kind of highlight two areas. The first kind of serious, grown-up area that people love is just, we have a pretty nerdy finance audience, and I am a journalist who, you know, hits at the center of that audience. So I think of my work as being a financial generalist who serves financial specialists. So one of the things that's been surprising to me, reporting on finance and writing commentary about finance, is most people who work in the industry are incredibly focused on their

• 6:02Speaker 01

  tiny square of the great spreadsheet of finance. And they actually find a lot of value in someone who's financially literate being able to widen their view a little bit. You know, so the guy who's trading swaps, you know, doesn't even know what the guy who's trading FX at the next desk is doing, right? Because he's just wired in, or she's just wired in on her thing. So I help people take a step back on serious financial stuff. The other thing that works really well for the FT audience, and to an extent for my newsletter and my podcast, is like any industry, the finance industry loves a little gossip

• 6:43Speaker 01

  and tittle-tattle. So, you know, no matter the topic, people love to hear about personalities, who's rising, who's falling, where the power is, who are the players, who's made mistakes, who's been brilliant. And so, you know, the response to those stories that kind of humanize things is always the strongest of any response we get. And so I have a friend, my friend Chris, who's a money manager, likes to joke that the FT is the hometown newspaper of the rootless global elite. So there's all these like global people who are like flying business class all over the world, and they either work in finance

• 7:24Speaker 01

  or consulting, or they're lawyers. And for them, we're their hometown newspaper, where they read the police blotter and the marriages and all that stuff. So that's an important role for us.

• 7:37Demetri Kofinas?

  Yeah, that makes sense. That actually kind of, I feel like that resonates also. I find that relatable. Maybe just one more question about media, since we both work in the media space. What do you think are most glaring differences between a podcast audience like yours and those who either watch CNBC or Bloomberg on television or video on YouTube or their equivalents, essentially like folks that are watching clips versus people that are listening to podcasts in finance?

• 8:08Speaker 01

  I've been very pleasantly surprised by the mix of listeners we get. So we get the professional listener who writes in and they say, look, oh, you were talking about how to hedge currency, and actually you got the details wrong and you can do better, you know? But we also get the random person who works in a totally different industry who stumbled across the podcast and knows that the stuff Katie and I are talking about is important, and they just enjoy listening to the show for 15 minutes. You know, one of the things that's really worked for our show is, you know, we're 15 to 20 minutes, we're twice a week. Katie and I do the work for our writing, and then

• 8:52Speaker 01

  we rock into the studio and we just chat about the work that we do. And as you said, we have a pleasant rapport because we've been friends for 15 years or whatever it is. And so we get nice responses from like Jane in California, who works at the Garden Center, but, you know, knows that this stuff is important and wants to be in touch with it, and feels like we're an accessible way to hear those stories.

• 9:18Demetri Kofinas?

  Wonderful. All right. So let's put your financial generalist credentials to the test here. What are the questions that you feel like investors, especially those who are narrowly focused on their domain of expertise, should be asking themselves that maybe they aren't right now?

• 9:35Speaker 01

  Hmm. Right now, the way people think about markets is very dominated by the AI trade, and fair enough. So we have two huge blocks of companies in the United States. In the magnificent seven, you can call them, or the hyperscalers, you can call them. And then we have the semiconductor companies, which have just become enormous. And these two groups of companies kind of tower over the large-cap indices in the United States for stocks in the S and P 500. And because the hyperscalers are issuing corporate debt, too, this has become the biggest story in the corporate

• 10:18Speaker 01

  debt market. Nobody has ever had to raise so much money for such a big project in the history of the United States. As everyone is saying, this is bigger than the railroads, it's bigger than electrification, it's just massive, and it's all hands on decks for finance. I think it's easy to be hypnotized by that trade, not only in the sense that you feel like whatever the last piece of news is the final word on this topic, or whatever the story is this week, sometimes it's a negative story, sometimes it's a positive story. It's easy to forget that whatever we think about this stuff today, we're going to think something very different in six months. And it's easy to forget that

• 11:01Speaker 01

  the whole other world of finance is ticking along in the background and still requires thought and love and attention. Interestingly, we saw last week a kind of rotation trade that suggests people are starting to pay attention. So the biggest dogs in the market for a long time have been your boring consumer staple stocks, both in Europe and in the United States. So it's like Kimberly Clark, even Walmart's been having a hard time Nestle, you know, the people who make our food and our deodorant and, you know, our paper towels, right?

• 11:39Speaker 01

  And last week, when we had that kind of moment of fear in the markets, those stocks really leapt and they'd been creeping up for a while before then. So there is this some sense that people are like, oh, I have to be interested outside of this huge AI euphoria that we're all living in every day, that I have to look around and be ready for the time when everything is not the AI trade.

• 12:09Demetri Kofinas?

  So you said this is the biggest capex cycle in history. How do we know that? What is the data that we're relying on to determine the effect that this trade is having on the broader economy?

• 12:22Speaker 01

  So there's been a couple of papers, attempts by economists to write about this. The one that is the standard, and I forget the guy's name, but we can look it up, is one that was written by an NYU business school professor, and it's on the Brookings website. And he's the guy who has come up with this number, 3.6% of GDP over an eight-year period. And, you know, I've looked over his methodology, you know, I've read the paper, I've spoken to him. It seems like a pretty solid piece of work. Basically, what he's done is gotten

• 13:01Speaker 01

  a solid estimate of the cost to do a megawatt of AI computing capacity, estimated the total number of megawatts that are going to have to be built, do the mathematics, and then compare it to the size of the US economy and the likely size of the US economy over the, you know, years to come. And so that's the standard estimate that people are using. And that makes it bigger than previous capex cycles by like a percentage point. So it's big. And, you know, of course, we have to reckon with the possibility that at some point, people change their minds. This is one of the most actually interesting and

• 13:46Speaker 01

  compelling questions is, one of the things that makes this capex cycle so exciting for investors is that a huge amount of capital flow has been, as it were, wired in, meaning there's contracts between people building the data centers and the people with the AI models like Anthropic and OpenAI and the hyperscalers. And so it looks like the trade is all locked in for years to come, not to mention the semiconductor makers. They have order books going out for years or whatever. And so it looks like nothing can stop this roaring train, right? But of course, contracts get broken. Like, if this

• 14:31Speaker 01

  thing really does go sideways, and I don't think I'm a person who has very interesting opinions about whether it will go sideways or not, but things sometimes do. And it's not like all those contracts are going to save you if everybody realizes, my God, we don't need this much computer capacity after all. This isn't as interesting and productive of use of resources that we thought. In that case, the fact that Nvidia has a contract with a huge data center in Louisiana to provide chips for four years isn't because that contract, there's going to be bankruptcies, there's going to be broken contracts, and it's all going to change. So, you know, the future isn't written. And I think that is a point that, you know, you asked earlier, what is something people need to keep in

• 15:15Speaker 01

  mind? And that's it, right, is the future is not chiselled in stone.

• 15:20Demetri Kofinas?

  So haven't CDS spreads for data center firms recently widened?

• 15:25Speaker 01

  Yeah, they certainly have.

• 15:26Demetri Kofinas?

  So what does that tell us? Is that a meaningful indicator?

• 15:29Speaker 01

  Okay. Well, one thing is that, as we learned in technicolor during the great financial crisis, CDS spreads are both a kind of insurance, although CDS people will remind you they're not properly

• 15:46Demetri Kofinas?

  This is when you're going to get some of those emails where you get yelled at by listeners, which is you got the details wrong.

• 15:50Speaker 01

  But think of a credit default swap as a financial instrument that pays you if a certain piece of debt, a company or whatever, goes badly wrong. So it functions in a way like insurance. What we learned in technicolor in the great financial crisis is that people also speculate in these instruments so that they go up and down in value as the probability of default, however small that probability is, might go up and down. So people will jump in there to ride the roller coaster.

• 16:23Demetri Kofinas?

  Which is one reason why it's not insurance, because you don't have to own the underlying.

• 16:27Speaker 01

  Yeah, exactly. You know, it's fire insurance for someone else's house, right? So those have spiked, and I think what that's showing you is that the marginal chance that not everything is going to go as expected has gone up. So I think, you know, there was a fair amount of puffing and puffing last week, you know, this implies a such-and-such probability of default. I don't think you can read probabilities of default off of these things, but you can sort of see the volatility of opinion change, you know, and there is like, oh, we thought there was a 1% chance this whole situation goes sideways.

• 17:10Speaker 01

  Now it's a 2.5% chance or something, right? And that's enough in a highly complex and a highly opaque industry, moving from 1% to 2.5% is a meaningful event that has to be reflected in prices and in kind of animal spirits broadly.

• 17:26Demetri Kofinas?

  What are the important differences between this boom, this investment boom, and the last time we saw anything like this, which was either, a more direct comparison would be the 1990s, but we could, let's also throw into that the credit boom that led to the 2008 financial crisis. What are some of the important differences or similarities, especially between the 90s bubble and today?

• 17:49Speaker 01

  The most important one is that standing behind this great adventure in how much money you can spend is the four to six most profitable businesses in the history of the world. So you have Microsoft, Apple, Alphabet, Amazon, Meta. These are truly, depending on how you measure it, the most successful businesses the world has ever seen because they have highly scalable businesses with very low incremental costs to grow and extremely

• 18:28Speaker 01

  high barriers to entry. These are money printing machines, right? And all of these companies, collectively known as the hyperscalers, plus some other companies, have gone all in with their cash flow financing this. So let's say we're talking about a homeowner, right? Levering up to buy a house, to use the 2008. We're starting with an extremely rich homeowner. And that is different from, you know, previous kind of euphoric moments, new technology or new idea in finance everyone is excited about. That's extremely important.

• 19:03Demetri Kofinas?

  In order to make the analogy work, in other words, the homeowner who was taking out a mortgage in 2006 or 2005 would also have to be very wealthy and have an independently large capital base.

• 19:13Speaker 01

  Exactly. It's an investment banker who's buying the house. It's a rich plastic surgeon in Beverly Hills. So you're starting out with a good income flow and a lot of equity in the house. Now, on top of that, we are piling a lot of debt. And we have less strong companies that are piling in around the edges, right? So we've started from financially a much better place than perhaps we started other bubbles or purported bubbles or euphorias. So that is good. I think it's unique in this case that the bottleneck is at GPUs. That makes this case different. So like, such a large percentage of everyone's spending

• 19:57Speaker 01

  in this area is landing on Nvidia's balance sheet because they're the bottleneck. The thing that everybody needs, that there's not enough of, is Nvidia chips. So there's like this one passageway, 80% of the money that's being spent, or I don't know what it is, could be 50%, is just passing through Nvidia. That's very important. So they are collecting a lot of money, and they're not investing all of it, but they are investing some of it back in the industry. They're either providing guarantees to data center leases or investing directly in companies like OpenAI and Anthropic and et cetera. So

• 20:39Speaker 01

  this is kind of interesting. You know, I used the gold rush metaphor for this phenomenon where Nvidia is the gold rush company that is selling the picks and shovels and pans to the miners, right? They're selling the the physical infrastructure that people need to do to do AI. And, you know, famously in the gold rush, the company that makes all the money is the one selling the picks and shovels, not the one doing the mining. Well, in this case, the picks and shovels company Nvidia is actually buying mines, too. They're taking their profits from the picks and shovels game, and they're investing some of them in mines. So this is what people call the circular finance aspect of this.

• 21:21Speaker 01

  And I'm not sure this is terribly dangerous, but it's worth noting that the people who are making profits at this stage in the game are recycling the money and making bets on the later stages of the game. I think that's important.

• 21:34Demetri Kofinas?

  So I'd like to dig into your observations about whether the bottleneck is GPUs or whether it's actually electrification, the production and distribution of electricity to meet the projected demand from these data centers. But before we do that, does the recycling of profits imply that the cycle could go on for longer than many of the more bearish analysts expect? And that therefore, early declarations about a bubble popping may be premature?

• 21:59Speaker 01

  You know, this stuff, as you know, is wickedly hard to predict, because there is the fact of cash flows, and then there is the fact of human emotion, right? And so you can draw all the diagrams you want. And this is a point that I was making earlier, just made in a different way. You can make all the diagrams you want of how the cash flows are set up and where they're coming from and where they're committed to and what the contracts are, et cetera, et cetera. But you're always counting on a project that is based on future profits. You're always counting on people's emotional belief in

• 22:40Speaker 01

  their commitment to the future. So this is all just a long introduction to say, your question is hard to answer, whether this can keep going. But my hesitant answer is yes. And my tendency to think is that this euphoria period has legs. That is my sense, because there are committed cash flows, there are profitable companies involved, et cetera, et cetera. So I don't, I'm not one of these imminent collapse people. That's the short answer to your question. But again, mood is everything, right? So we have to speculate about mood, even as we diagram cash flows.

• 23:19Demetri Kofinas?

  Okay, so let's go back to my question about GPUs versus electrification, because the debate seems to have started to shift in the last couple of years from worrying about chip production as the primary bottleneck to the AI build out, to increasingly worrying about energy. China, for example, has made the broad electrification of its economy and the production, storage and transmission of cheap electricity, a national objective. Aspects of this policy were already in place before the US began enforcing export controls on leading edge semiconductors, but certainly chip restrictions have only further made the case for relying on cheap and abundant electricity as a competitive advantage. What is your view on this?

• 24:04Speaker 01

  The first thing I think about that argument is you probably know more about it than I do. You know, you've touched on an area I don't know loads about. They are building these data centers in the United States, the big ones, in places where they think they have access to energy. Is that going to become, when all this stuff is up, is it going to be an energy problem? I certainly read a lot of stuff that says so, but I hesitate because I haven't done the work. So in an extended way, I've taken a pass, but you're right, this is a theme, and it's another area of speculation. And I probably misspoke when I said that the GPUs were the only bottleneck. They're the bottleneck now. The next bottleneck might be energy.

• 24:44Demetri Kofinas?

  Yeah. In that case, I'll direct listeners to something I read a while back. I'm not an expert on this topic either. Paddy McCormack wrote a piece called The Electric Slide. I think that was what it was called, if I remember correctly.

• 24:57Speaker 01

  Good title.

• 24:57Demetri Kofinas?

  A while back, yeah. And he's not the only one that's commented on this, but I think it's a, look, I mean, we have a very old grid, and we have a very old electricity distribution, energy distribution infrastructure. And in some sense, China isn't saddled by that legacy. And also, we have a democracy and local municipalities and constituents who've become

• 25:17Speaker 01

  This is the next important point.

• 25:18Demetri Kofinas?

  animated and can create points of friction between hyperscalers and data centers and their ability to actually fulfill the demand that their customers require, because it causes higher electricity prices for consumers.

• 25:35Speaker 01

  I was listening at the FT Weekend Festival to Francis Fukuyama, who is around all the time now because he's doing his book tour or whatever, and a much maligned, misunderstood, but also, I think, brilliant guy. And he was saying, you know, one of the major political problems our country has is that we are what he calls a vetoocracy, meaning because of the structure of our democracy, when it comes to building things, so many people have a veto over these processes. And his point was, in the world we live in now, being able to build things is an important part of the social contract. And for America, because

• 26:20Speaker 01

  local, state, national interests all have veto power over building infrastructure, this is part where our social contract is kind of being broken. He thinks this is actually very dangerous to the stability of our society. It's a very deep issue. And, you know, I think I have written a little bit, and my team has written a little bit about the political risk around data centers, that it becomes harder and harder to build these things. And part of this comes down to the astonishingly bad PR job the whole industry has done since the beginning. You know, the fact that the big AI labs decided

• 27:03Speaker 01

  it would be cool to talk a lot about how their product might destroy the world at the beginning. And, you know, they, they thought, you know, they're appealing to the kind of young men who tend to work in the industry. And they're like, you are going to be working on the Manhattan Project, something so powerful and cool that, you know, we're going to have intelligences that, you know, are greater than all human, you know, and it's like, shut up, guys. Like, perhaps this is true. But if you want to be in industry, what you need to talk about, we have an incredible technology, it can be harnessed for good, and we're doing everything to make sure that it's safe, and we're going to

• 27:47Speaker 01

  make it safe. And what we should have heard from Sam Altman and Dario Amadei, from the word go, is you have my commitment that if these technologies do harm, the buck stops with me. And to this day, they can't say that sentence. And to me, if you can't say that sentence, and you're trying to start and lead a new industry, you're doing it wrong.

• 28:14Demetri Kofinas?

  They don't want to say that sentence also because it means that they're liable. And if they're liable, it means that their equity evaluation takes a hit.

• 28:21Speaker 01

  Yeah, but they are liable. You know what I mean? They're on the hook. And if they're living their life, thinking, oh, you know, the accidents that we've had before, they've kind of said the response from the companies has been, boys, society really has to do something about this. They may think they can get away with that. I don't think they can. If there's a real accident, they're done, right? There are going to be new CEOs of those companies. There will be liability. Nobody's going to treat this as a social problem, when the rubber really hits the road, which it has not done yet. So I think they'd be better off saying, we're going to keep you safe, and staking their

• 29:04Speaker 01

  reputations and their wealth on that, because their wealth and their reputation already is at stake, in my view.

• 29:10Demetri Kofinas?

  Yeah, no, I mean, it does feel like they're caught between a rock and a hard place, because part of the way in which they are justifying their evaluations is by leaning on this idea that they're going to create massive amounts of efficiency, in part by displacing workers or reducing new hirings.

• 29:27Speaker 01

  Yes.

• 29:28Demetri Kofinas?

  And that's not obviously a popular message. What was the, I don't remember what the growth message was in the 1990s with the internet.

• 29:35Speaker 01

  Yeah. I mean,

• 29:36Demetri Kofinas?

  Do you remember what it was?

• 29:38Speaker 01

  As I remember it, and I wasn't in finance in, you know, 99 through 01, but I think the message was, everything is going to be so easy. It was much more of a consumer message. It was much less of a business technology. So it was like, you're going to get, everything is going to be delivered to your house, your newspapers, you're going to read it on the computer, you know, everything. And so it was like, this convenience technology on the model of a dishwasher or washing machine, whereas this is a, was pitched as a business technology. And I don't think, you know, the AI got thought through the fact that when they were saying, look, you're going to be able to run your business much more

• 30:20Speaker 01

  efficiently. That also means, you know, a lot of people are going to get fired. By the way, we should emphasize while we're talking about this, nobody's been fired yet, if you believe the headline statistics. There's anecdotal stories, but if you look at employment for computer programmers, hang it in just fine. Thank you very much. And the history of economic change does tell us that new jobs appear, and the transitions, you know, sometimes they're harder, sometimes they're easier. But we've had technological revolutions before, and those did not lead to higher unemployment, you know, even in the medium term. Now, we can have a debate about whether AI being the ultimate general

• 31:05Speaker 01

  purpose technology may have a different relationship to employment than all the technologies went before. That may be the case, right? That because it can do everything in a certain way, it's not like electrification, or railroads, or the highway system, or the internet. Maybe it will permanently damage the level of employment in a way those technologies different, didn't. But the history of these kind of transitions is actually reassuring in the medium to long terms. You know, even though, you know, a lot of people who used to drive buggies, maybe they had a hard time when there were no more buggies to drive.

• 31:44Speaker 01

  But you know, the economies, you know, prove very elastic and resilient over the medium term. Is this time different? That is a question for a very different guest than the one that you have in front of you. I'm afraid I'm not sophisticated enough on that topic.

• 31:59Demetri Kofinas?

  Are you familiar with Carlos Perez's technological revolutions and financial capital?

• 32:03Speaker 01

  I am.

• 32:04Demetri Kofinas?

  Okay, so putting aside for a moment, whether or not we're in a late stage of a techno economic cycle that started 50 years ago. Could this framework help explain or or give some weight to the argument that the speed with which jobs will be displaced this time could be greater than what we saw during the years of personal computing or the internet? Because so many jobs have been created as a result of those technologies than previously existed, and those jobs appear to be the ones most vulnerable to AI. So software engineering is a great example. So are call centers. I mean, yes, we had call centers before the internet, but the internet helped scale them into offshore, high volume operations that are extremely vulnerable to automation.

• 32:49Demetri Kofinas?

  Also, aren't we seeing some early indications that this could be the case with postgraduate hirings? Like, is there any data early?

• 32:56Speaker 01

  Early indications. But we're at a very early stage in the game. So, you know, we can look up that data. I don't think it's. There has been a little stress on the hiring of young people. If you dig down into the employment numbers, how long people are unemployed, young people are having a harder time, relatively speaking, relative to the larger workforce. But I do not think it is clear that that is an AI effect, and it's not a massive effect. So that's a kind of wait and see. To pick up on the earlier part of your question, the job I think about is commercial drivers. I should have this number in front of me. And again, we can look it up.

• 33:41Speaker 01

  But the number of people whose job is basically driving, they drive a truck, they drive a van, this is a huge source of employment in America. And it is very clear that there's already 18 wheelers on the road that have no driver in them, and they're doing, as far as I can tell, a great job. They're safer, they can drive 24 hours, they never speed, they never cut anyone off. It's better. And, you know, while local routes are still too hard for the technology to do for the long haul, they already do a great job and they'll come for the local routes eventually.

• 34:21Speaker 01

  So that is a massive source of employment that, you know, is reasonably paid as a medium skilled job. And I just think it's all going away. Right, all of it. You know, there might be someone in the van who's like taking the packages out and carrying them to your doorstop or whatever. But all the commercial driving jobs sooner or later should be taken by machines because the machines will do them better and more safely. Where are those people going to go? I don't know. Some kind of service job. So in my dark moods, that's the one I think about.

• 34:56Demetri Kofinas?

  So I have a couple of questions there, but it's okay if you don't have the answers to them.

• 34:59Speaker 01

  Yeah.

• 35:00Demetri Kofinas?

  First of all, one of them is an observation, just that

• 35:02Speaker 01

  Yeah.

• 35:02Demetri Kofinas?

  a lot of those folks, anecdotally at least, are actually driving either as a supplementary form of income to their primary job, or because they got laid off and they're driving for Uber.

• 35:13Speaker 01

  Yeah, that's true. That is true.

• 35:15Demetri Kofinas?

  So I don't know what that means. I don't know if that means if that means there's more room to cut there because a big chunk of those people are already underemployed or unemployed or lost their job. So they were in a transition phase already.

• 35:28Speaker 01

  Yeah, that could be.

• 35:30Demetri Kofinas?

  I also wonder how those numbers. So do you know what? How many million people drive for a living?

• 35:35Speaker 01

  Yeah, I don't know. You're gonna have to ask AI.

• 35:37Demetri Kofinas?

  Okay.

• 35:38Speaker 01

  You can ask the AI, right? Sitting right in front of you.

• 35:40Demetri Kofinas?

  You know, I need a

• 35:41Speaker 01

  I should have that number.

• 35:42Demetri Kofinas?

  I'd love to have a co-pilot AI on this. I think that would be, that would actually be a value add. I'm sure that's going to show up at some point. I mean, they already exist, but

• 35:50Speaker 01

  Yeah.

• 35:50Demetri Kofinas?

  in a way that's really easy for someone like me to use. But like essentially, I wonder, because the useful analogy for a lot of these concerns is globalization and the offshoring of entire manufacturing industries to Mexico or China and other countries where everything could be done more cheaply and eventually better than here. And so I wonder like, to what degree the job displacement that we're going to see in the white collar workforce will be comparable or even greater and happen faster. And that causes me to wonder, you know, what will the political fallout be? And which party will be in a position to channel the anxieties and the rage of the newly displaced knowledge sector workers?

• 36:31Demetri Kofinas?

  And how does that show up in terms of policies like higher taxes for certain companies or industries, new regulations that may be attempt to curb the speed and scale with which the disaffected sectors are being impacted? Like, how much? Is this something that you've given any thought to?

• 36:48Speaker 01

  Yeah, so I'm looking at the all employees manufacturing series on Fred. And between 2000 and 2010 ish, that went from 16 million ish or 17 million to kind of 11 and a half million. So 5 million jobs went away. As a corollary to that, manufacturing output did not go down in America. Always important to keep in mind, right? So that tells you what's China, what's technology, whatever.

• 37:31Speaker 01

  Maybe manufacturing could have grown more by output in the United States. But first of all, so just to scale it.

• 37:39Speaker 01

  Say we lost 4 million jobs and total employment is well 140 million jobs, 150 million jobs, something like that. So I say that to say

• 37:51Speaker 01

  the China shock thought of as a manufacturing shock was significant, but not catastrophic. But we do have this big narrative about the left behind Rust Belt and what America used to be and let's build things again. And so I think we have to be very cautious, and I'm not a politics guy. I'm a finance guy and a little bit of economics, right? We have to be very cautious about how powerful this narrative is and separate that from the economic reality.

• 38:32Speaker 01

  You know, you got to acknowledge that the narrative is very important, but the economic reality. So the economic reality, it doesn't look like the China shock was a catastrophic event for the manufacturing base in the United States. A lot of jobs disappeared. Most of it was probably technology. Most of it was going to happen anyway. Okay, moving to this one, a lot of jobs are going to disappear. We can talk about driving jobs. We can talk about factory jobs. Driving jobs are probably more important. Service jobs are probably more important. You mentioned data centers. Even if those people find jobs pretty quickly, and by pretty quickly, let's call it, it takes them six months, which is very optimistic. Changing jobs is hard.

• 39:15Speaker 01

  I should say, and this is a tangent, I should say that I was speaking once to the guy who ran one of the biggest consultancies in the world. And I kind of asked him like, what is the hardest thing, you know, in the business world? And he was like, retraining people. You have no idea how to do it. It's really hard. Anyway, so let's say people are to leave the tangent, people are displaced, you know, in a period of transition for six months.

• 39:39Speaker 01

  I've been through those periods of transition in my life.

• 39:43Speaker 01

  They're extremely uncomfortable. You're very uncertain about the future. You're wondering about your self-worth. Can you support the people you love? Can you support yourself? Do you have to move back into your parents' house? So, you know, even in the economically benign scenario, there could be a shorter or longer period where a lot of people in the electorate are upset. And that could really take over the narrative, it seems to me, even if things play out the way the technological and economic optimists hope that they will. Right? You know, there's two things that are really, really upsetting in economics.

• 40:28Speaker 01

  First one is inflation. It makes you feel like the world is crazy. And the one that's even worse than that is getting fired. So I'm not a politics guy. Is this a politically live situation? You bet it is.

• 40:45Demetri Kofinas?

  Well, I mean, aren't we already seeing evidence of this playing out in young people who are mobilized around their distrust of big tech and their fears and anxieties about AI making them unemployable?

• 40:55Speaker 01

  Okay, Dimitri, let me just say plainly, I'm worried about this with my job. I'm a journalist, right? I collect a bunch of financial and economic information, and then I try to think of something interesting to say about it. Then I write it down and send it to people. That's my job, or I talk about them on a podcast. Can a computer do better than me now? Maybe. Will it be able to do it as well as me later? Sure. Do I want to work another 10 years? You bet your ass I do. Might I have a forced job change in my life? I absolutely think that might happen to me. And yes, I worry about it.

• 41:32Demetri Kofinas?

  Did we talk about this at our dinner?

• 41:33Speaker 01

  I think we did.

• 41:35Demetri Kofinas?

  Yeah, that make, I mean, I've been talking to everybody about this. I've talked about it on the podcast. I think about this every day.

• 41:39Speaker 01

  Yeah.

• 41:40Demetri Kofinas?

  I think every single day, and I think you need to be thinking this way. You need to be thinking very, very, very clearly about what is the value that you provide?

• 41:50Speaker 01

  Oh, yeah. And you may be clear about what that value is, and the machine might take it away from you anyway.

• 41:57Demetri Kofinas?

  And more to the point, what is the monetizable value?

• 42:00Speaker 01

  Yeah.

• 42:01Demetri Kofinas?

  That we provide?

• 42:02Speaker 01

  Look, I'm lucky. I'm 55 years old. My career has gone well. I've made enough money. I own my house or some portion of my house that the bank doesn't own. I have some pension savings, right? So like, it can't go that bad for me. It can go bad, but like, I've made it this far and that's good. Right? But if I was 20 years younger, different story. Now, I should say that.

• 42:31Speaker 01

  Reading directly from the economic situation to the emotional situation of the country is a very dangerous business. I agree with you that there is no question that there is anxiety afoot in this country and that young people in particular seem more anxious than older people. Maybe they always are. But it is going to take decades for us to figure out how much of that anxiety has to do with things like employment and wages and how much has to do with other stuff. The unemployment rate is low, right?

• 43:13Speaker 01

  Real earnings are not falling, at least, they're not falling fast. And they had a period recently where they were rising. You know, I'm reading this book Citizens by Simon Shama, who I'm proud to say is a colleague at the FT, a sometime colleague. He writes stuff for us for the weekend section. And this is about the French Revolution. And the French Revolution was a similar period in the sense where you had a big change in a society and you had a very simple narrative about it, which was you had the old regime dominated by the nobility. They had everything that was a stale, impervious, rich class.

• 43:54Speaker 01

  They lorded it over everyone. And there was this bloodbath getting to the new regime on the other side. A lot of what I'm, you know, in the first third of Shama's book, but a lot of what the first third of his book is about is actually this picture of an economically sclerotic and class-riven France is actually false. The class barriers were very fluid. A lot of people were moving up and down the French class system. There was industrialization. There was economic dynamism, especially along the coasts and in Paris. And the real story might have been that dynamism, that change and growth

• 44:33Speaker 01

  was actually part of what fomented the revolution, right? That it wasn't about poverty, being stuck at the bottom. It was about a change that was coming and was hard for everyone to understand and it made them all upset, right? The simple narrative turned out not to be true. And I'm telling you right now, Dimitri, I don't know what the reasonable, careful analysis of why we live in such an angry country is going to be, but it ain't going to be simple. And it's not going to be economically deterministic. It's not going to be man in the Midwest, used to have good job in factory, lost it, got addicted to

• 45:18Speaker 01

  oxycodone and was angry, right? It's not going to be that simple. That's a story. There are people like that. It is true. Employment is part of it. But it always turns out to be a much trickier picture than that. So we've got to be alert to those other narratives.

• 45:35Demetri Kofinas?

  Totally. I couldn't agree more. I'm sure we've talked about this on the podcast in the past, that it's not just economic. There's a darkness in the country and in the discourse, and there's a roving anxiety and fear, and you can feel it.

• 45:48Speaker 01

  Yes.

• 45:49Demetri Kofinas?

  And to what degree that is a response to a clear understanding of the risks posed, for example, by AI to one's job versus us attaching our fears to these things.

• 46:02Speaker 01

  Yeah.

• 46:03Demetri Kofinas?

  Because there's something else deeper going on.

• 46:05Speaker 01

  And of course, there's the matter of how we communicate our fears. So there's the social media aspect. There's the social atomization story in America, the bowling alone story, which, separate from the economic story, is probably really important.

• 46:21Demetri Kofinas?

  I think that's a bigger driver. You know, when you're more isolated, you're more vulnerable. And when you're more vulnerable, you're afraid. And when you're afraid, you can often become angry as a defensive response.

• 46:33Speaker 01

  Of course. Yeah, no. And we all know this from the experience of our own lives. Everybody works. Everybody has things they got to do. And if you forget to hang out with your friends and your family, things can start to spiral down. And there is no, I mean, I think it's been demonstrated amply by, you know, tons of historians and sociologists that we are a less sociable, community-oriented country now, whether that's church or work or the sports league or whatever it is that's, or the social media, that's part of it.

• 47:11Speaker 01

  You know, we know in journalism, unfortunately, that the negative story sells. I always joke that the story that says like, thing goes as planned, doesn't get many clicks. Economy continues to expand at around 2% most years or whatever. And I feel like we have politics now, and in particular, a president who has grasped more completely than any president before, the political analog of that, which is that negativity really sells, especially to an atomized country. And so, you know, I don't know why it is, probably nobody knows

• 47:53Speaker 01

  why it is, but we are in an angry and anxious country right now. And economics is only part of that, but it is part of it.

• 48:01Demetri Kofinas?

  Well, you know, you mentioned social media, and that's a really big one. You know, the economics of these platforms, the incentives that drive the type of content that does well, which of course informs what editors and hosts and producers and everyone decide they're going to focus on in terms of the narrative, the structure of a program, the title, you know, the clickbait on the internet, everything is driven towards extremes. And that's the environment that we live in. And I don't really see how, I don't see that changing unless, when we're speaking specifically about the incentives of the platforms, without some kind of government regulation. They're not going to change if that's what works best for, for driving clicks and engagement. And we live in an engagement economy. I said

• 48:42Demetri Kofinas?

  other things, you know, it's not about like, let me be as well-informed as possible. It is, or rather, let me inform my audience as best as I can. Or let's say in the past, let me also gatekeep this information in accordance with what the government deems to be appropriate information for the public to have. Now, a big driver, a bigger than ever, is engagement.

• 49:04Speaker 01

  Hmm. It's tough. And, you know, I always sort of shudder. I'm on the business regulation side. I'm a pretty, pretty much of a libertarian nut job. I'm like a let markets get on with it guy. But I hear you. This is a hard problem to solve. And it's a hard problem to solve for my industry and your industry in particular. And maybe there's a regulatory solution. I, you know, I kind of hate to think about regulation, but we may get to that point.

• 49:31Demetri Kofinas?

  So, since you brought up the French Revolution, I think France is where I'd like to pick up in the second hour, as well as the French bond market, where we've seen oat yields rise sharply in the last few months. And this will also afford us a good opportunity to discuss the treasury market and whether owning bonds is starting to make sense again, especially if AI turns out to play a deflationary role in the economy over the long term. And I also want to revisit our discussion about where the financing is coming from for the AI build out and how it compares to the build out of the internet. Because we're beginning to see a move toward more credit financing as well as new stock issuance. Meta, for example, recently announced that it plans to raise close to $100 billion

• 50:15Demetri Kofinas?

  in new stock offering. And both of these things, more reliance on credit financing and equity dilution, may suggest that we are closer to the end than we are to the beginning of the cycle. But we're going to address all of those questions in the second hour, Robert. For anyone new to the program, Hidden Forces is listener-supported. If you want access to the second hour of today's conversation with Robert, head over to hiddenforces.io/subscribe and sign up to one of our three content tiers. All subscribers get access to our premium feed, so you can 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. Robert, stick around. We're going to move the second hour of our conversation onto the premium

• 51:00Demetri Kofinas?

  feed. 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.