Anthropic's Q3 Results Are In — The Costs Are Exploding

Ed Elson is joined by John Foley to break down Anthropic’s amended S-1 and whether investors should be paying attention to the company’s potential credit rating. Then Deirdre Bosa returns to explain why the Nasdaq just entered correction territory and what the sentiment is like in San Francisco. Finally, Mark Zandi joins to assess the state of the economy ahead of the midterms. John Foley is the Head of the Lex column at the Financial Times. Deirdre Bosa is the Founder & Host of Deirdre Bosa Live. Mark Zandi is the Chief Economist at Moody's Analytics. Subscribe to the Prof G Markets Youtube Channel Follow Prof G Markets here: Instagram: instagram.com/profgmarkets X: x.com/ProfGMarkets TikTok: tiktok.com/@profgmarkets Threads: threads.com/@profgmarkets Follow Ed on Instagram, X and Substack Follow Scott on Instagram Send us your questions or comments by emailing [email protected] Learn more about your ad choices. Visit podcastchoices.com/adchoices

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• 1:53Ed Elson?

  Welcome to Prof G Markets. I'm Ed Elson. It is November 3rd. Let's check in on yesterday's market vitals. The Nasdaq declined as the tech sell-off deepened. More on that in a moment. Meanwhile, the S and P 500 was flat and the Dow rose on hopes for peace talks with Iran. Brent crude tumbled more than 7%. The yield on 10-year Treasuries declined. And finally, Apple shares climbed after posting earnings that beat revenue expectations in John Turner's first earnings call as CEO. Okay, what else is happening? Anthropic's third quarter numbers just came out and they have complicated the company's IPO story. Revenue was $17 billion, a 12-fold increase year over year, but quarter-over-quarter

• 2:38Ed Elson?

  growth slows to 47%, down from 144% in the second quarter. And for the first time, Anthropic put a total on its spending commitments, $895 billion for computing power and data centers, and nearly $70 billion is due in the next 12 months. That is more than Anthropic's current annualized revenue. This comes after Blackstone told investors that they expect Anthropic to receive a high junk rating after its IPO. Until recently, Blackstone had expected the company to receive an investment-grade rating, the tier that lenders consider safe. So, a lot to get into here. Here to discuss Anthropic and everything we've learned

• 3:20Ed Elson?

  in the past few days, we're speaking with John Foley, head of the Lex column at the Financial Times. John, good to see you. I'd like to start with the amendment to the S1, because that really seems like the big news. We had a revenue number which looks good year over year, but also we know that the growth slowed. We had kind of expected that. I think probably the bigger number that really warrants our attention is $895 billion over the next several years. That's the amount they're going to spend on compute. So we now know exactly what the bill is going to look like. What were some of your big takeaways from the new filing?

• 4:01Speaker 04

  We do know that the compute bill over the next few years is going to be very big. We already knew it was going to be quite big. And being able to put this new number at $900 billion, I mean, sounds enormous. That may also change as we go forward. It may get bigger. But the revenue is also growing really quickly. As you said, it slowed this quarter to about, you know, 1100% growth year-on-year, which slowed from like 1400%. I mean, these numbers are completely unhelpful, basically, because these growth rates are so high. And extrapolating how, exactly how much growth we're going to see next year is really, I mean, I think it's a fool's errand. What we're looking at, though, broadly, is that Anthropic has been guiding, we've heard, to revenue of about $200 billion in

• 4:43Speaker 04

  the year 2028. So even if it's spending, you know, like $100 billion a year on compute, the revenue still exceeds that. The question, of course, is whether you believe it can hit any of these numbers, or whether these numbers will start to look small the closer we get to those deadlines.

• 4:58Ed Elson?

  If it does hit $200 billion, it seems like this might be a business that is feasible. The trouble is, it seems like it seems like a seriously big if. I mean, we had revenue of $17 billion. We also know that, you know, growth is obviously slowing, but also that prices appear to be coming down. And they said this, they had these price reductions from Q2 to Q3. They're now coming out with these discounts, largely due to the open weight models that we've been seeing that have been kind of flooding the market, coming from China. I mean, is $200 billion, is that reasonable? Should we take that seriously? What do you think?

• 5:36Speaker 04

  I mean, as you say, there are plenty of risks weighing on this, and the price war is a big one. The discounts that they put on their products, it seems, were quite small. According to this new amendment, maybe like 3% of revenue in discounts. But really, and if they do make $200 billion, by the way, then a valuation of something like 1.4 trillion, which is kind of roughly in the ballpark of what we're talking about, wouldn't be ridiculous compared with companies like SpaceX. If you believe the SpaceX's valuation is sane too. But my issue with this IPO from the beginning has been that it is almost impossible to predict with any certainty where these revenue numbers are going to go. And we also have in this latest amendment, some new tweaks to the risk sector, the risk factor section of the prospectus. Not huge ones, but things that remind you that there are

• 6:19Speaker 04

  some sort of, you know, unpriceable factors that may weigh on this. The one that they've talked about in the latest edition is this idea that they may be getting very close to or have passed what they described as, at the moment, of dramatically accelerated progress attributable to AI, which is like when AI starts basically improving itself more broadly. And when that happens, then they are supposed to step on the brakes in certain ways to make sure that AI is being developed safely. What does that do to the revenue? It's like, it really is impossible to say at this point.

• 6:48Ed Elson?

  One of the more interesting developments in AI over the past week was something that came from Elon Musk. He tweeted, someone had pointed out how Grokbot, which is basically SpaceX's AI chatbot, their agent, that it wasn't working. And someone tweeted about this. And then Elon responded to that tweet, I'm just quoting Elon Musk here, quote, "The cost of serving Grokbot was unsustainably high relative to revenue," which basically encapsulates the entire concern about all of this. I mean, about OpenAI, about SpaceX, XAI, and also about Anthropic. I mean, if Elon Musk is telling us that that is what's

• 7:33Ed Elson?

  happening, that basically the cost of training these things and then running these things is larger than the revenue, and as a result, he's having to shut parts of it down or dramatically pull back, at least on spending, it seems. I mean, it makes me think that Anthropic's headed for the same scenario. And now that we've seen the $900 billion, and, you know, we don't have exact clarity on how that's going to play out, but we can assume, based on what we do know, that it's going to be something like $100 billion at least per year over the next several years. That's, by the way, very conservative, because we know that there is, you know, more than $400 billion in commitments that they're going

• 8:15Ed Elson?

  to need to pay over the next four years. So it just makes me think that's probably where things are headed, but maybe Anthropic can turn it around. I mean, what did you make of Elon's comments? And to what extent does it say something about Anthropic's future?

• 8:32Speaker 04

  Yeah, like money is finite, right? So we're focused a lot on the spending, but someone has to pay for all of this stuff in order for it to work out. Like Anthropic has, in its going in its favor, rapid growth in what it calls enterprise business, what everyone calls enterprise business. So selling services to companies who tend to be able to pay more than consumers, who tend to be stickier, to use the jargon, than consumers. Of course, that, the money there is limited too, but Anthropic does have a head start. Grok is very much at this point a consumer product. If you're trying to sell consumer products, how do you fund them? You can either charge a subscription a bit, or you start looking at things like advertising, which is of course how Google pays for search. But there again, like the money is finite. You know, even companies like Google and Meta

• 9:17Speaker 04

  are now starting to spend beyond their means to fund this AI. So if they can at least fall back on enormous advertising businesses, which Anthropic and OpenAI cannot. So at some point, yeah, like the question is, do you have to reduce the level of service? Because you just can't afford to pay for all those tokens. We'll have to wait and see. But Anthropic is leaning hard into the enterprise space, the idea that companies will pay for its products because they deliver some kind of measurable advantage that isn't otherwise available.

• 9:47Ed Elson?

  Just looking at their compute costs in the current quarter. So, you know, in the first quarter of 2026, it was 3.3 or almost $3.4 billion. The next quarter, it was $5.6 billion. This quarter, it was $9.9 billion. So it's getting progressively larger, but also the revenue is expanding dramatically as well, which makes you think, oh, it's okay. But, I mean, it seems as though these compute commitments that are coming down the line are going to absolutely balloon the compute costs.

• 10:18Speaker 04

  The quarter-on-quarter growth rate for revenue has fallen to something like 47%, 48% in these latest Q3 numbers, but the quarter-on-quarter growth in compute costs went up almost 80%. So at the moment, that's increasing more quickly than their revenue.

• 10:36Ed Elson?

  It seemed as though when the IPO came, when the original filing was, came out, you know, there was a lot of I would say size of relief at the fact that their operating losses had come down so dramatically from last year, you know, it came down to something like $700 million negative operating loss. And the previous year was more than $2 billion in that same period. It seems as though it's going to continue to go up. I guess the question becomes, do we actually think that this company is going to become profitable in the near future? Is it actually going to be profitable in 2027, which I think was something that a lot of people seemed to believe coming out of that first filing? I wasn't sure of it myself. But what do you think?

• 11:21Speaker 04

  In the second quarter, they, on an operating level, had achieved a positive profit, I think, and that's now swung back to a loss. So, and then on an accounting basis, their loss is obviously huge because they have this sort of bizarre non-cash paper loss based on the value of securities and derivatives that they've issued. So like predicting when it gets profit is also, again, really hard. Like, I sort of feel like I'm abdicating my responsibility as a financial journalist and someone who analyzes stocks by saying that you just, it's just who knows. But I really do feel with this company, it is, you are being asked to predict things that are impossible to predict. You could argue that this company doesn't really belong in the sort of sausage casing of a traditional

• 12:02Speaker 04

  public company because these things are so variable. But here we are. I think ultimately, Anthropic will tell us what it thinks it's worth and, and we will pay it, or we will not, depending on whether we think that Anthropic is going to be one of the winners. But like, but in terms of are they going to achieve an operating profit? Well, you'd hope so. If they're, if they're cash burning, then they have to find the cash somewhere else. They have to plug that gap elsewhere. One option is by doing it through debt, but as we've heard, they may not have an investment grade credit rating, which will make that more expensive and more difficult. The other is to just keep raising more equity, maybe a bit of both. So there, there is going to be a lot of pressure on them to show that they can be self-sustaining from a cash flow perspective. And at the moment, they are not.

• 12:43Ed Elson?

  Yeah, it seems as though, I mean, they're going to go out and raise close to $100 billion in this IPO. That's not going to cut it. I don't think. I don't, I think they're going to need to raise a lot more unless their, their revenue can just absolutely skyrocket over the next year and be so much larger than the amount that they're spending. I, I just, I, I don't see a way in which that's going to be enough to get them, to get them by over the next several years. So it seems as though they're going to have to raise more money, presumably debt. And as you point out here, we now know, according to the Financial Times, that Blackstone told investors that Anthropic is not going to get that investment grade rating that we all thought that they were going to get. It's going to be a high

• 13:25Ed Elson?

  junk rating. How much, in your view, does that matter? To what extent should investors really be paying attention to that?

• 13:32Speaker 04

  I mean, being able to raise funds cheaply and rapidly is really important. Everyone is doing it. Meta Platforms was one that we found out last week is doing a big equity raising, because this, this is a race. Everyone wants to, everyone wants to beat their rivals, and you do that by throwing money into the furnace at this point. So not having an investment grade credit rating just makes that process more expensive. This is all stuff that should be reflected. This is not to say that Anthropic will fail. It's not to say that it won't be a, you know, a, one of the winners in the ARAs. But it should all factor into the amount you're prepared to pay for the shares when it tells us what the price range is. And my fear is that people will just look past that and see this as a kind of scarcity

• 14:14Speaker 04

  play. There's only one Anthropic, I have to get in. And that would be potentially very risky for them.

• 14:19Ed Elson?

  John Foley is head of the Lex column at the Financial Times. John, always appreciate your time. Thank you.

• 14:25Speaker 04

  Thanks.

• 14:29Ed Elson?

  After the break, a brutal sell-off in tech. And for even more markets insights, you can subscribe to my weekly newsletter, simply put, at edwardelsen.substack.com.

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• 18:03Ed Elson?

  We're back with Prof G Markets. Earnings from Alphabet, Amazon, and Microsoft flooded in last week, and investors were not happy with the results. Despite a pop after reporting, Microsoft ended the week down 2%, and Amazon and Alphabet closed down 4% and 11%, respectively. The sell-off spread to the rest of tech as well. The Nasdaq 100 is now off more than 10% from its peak early last month, putting it in correction territory. All in all, the biggest AI and chip stocks have lost about $5 trillion in market value over the past month. So why are tech investors selling? Here to break it down, we're speaking with

• 18:42Ed Elson?

  Deirdre Bosa, founder and host of Deirdre Bosa Live. Deidra, good to see you. So AI and chip stocks have lost about $5 trillion in market value since the beginning of October. This has been a pretty dreadful month, and certainly week, for practically every name in tech right now, even the companies that seem to report decent-ish earnings. I guess let's just start with your overall reaction. What is going on right now?

• 19:16Speaker 06

  It isn't like we haven't been here before. Earlier on in the generative AI cycle, markets have become anxious. They've started to think, okay, we are spending all of this money, hundreds of billions of dollars, trillions even, on this AI build-out. But where is the return on investment, right? Like, when is this AI spending going to pay off? And I think we're in another one of these moments. But at the same time, what's different this time than maybe what we saw a year ago or in the past is that the balance sheets of some of the healthiest, safest companies in the world are changing. So something that, you know, I look at and pay really close attention to is how much debt is being issued now, right? And this was sort of a neo-cloud thing that's been happening over the last

• 20:01Speaker 06

  few years. Neo-clouds are, you know, the companies that are serving GPUs and AI infrastructure to other companies. But of course, you have the hyperscalers as well, right? Which is Amazon, Google, and Microsoft. They have typically had essentially fortresses as balance sheets, right? They have a huge amount of free cash flow, and they've been able to fund their build-out. But something has changed this year. They've actually been tapping debt markets more. So just to put this in perspective, this is total AI-linked debt issuance. The numbers come from Bank of America. In 2025, it was nearly $400 billion. This year, it's going to be about $655 billion. And next year's forecast is going to be

• 20:42Speaker 06

  $1 trillion. So this is just a huge change in how we're actually financing the build-out. It means that companies, not just the neo-clouds, but some of our healthiest, biggest, safest companies, are relying more on borrowing. So the timing matters more. This question of the payoff for all of the spending becomes all the more pressing, because those debt payments, they are due whether or not the AI investments are paying off. So it leaves less room for mistakes, Ed, and it makes any kind of slowdown more painful. And something that you hear a ton of people in the industry say is that demand is enormous. We can't even satisfy the amount of demand we have, and we're supply constrained. But I think what that misses is the whole timing of this. And when you involve borrowing and the debt

• 21:26Speaker 06

  markets, that becomes a lot trickier, riskier, and timing matters all the more.

• 21:31Ed Elson?

  And it seems as though, I mean, just looking at some of these names, and Google, negative free cash flow, Amazon, negative free cash flow, Meta, negative free cash flow. I mean, the only hyperscaler that, that isn't negative on, on a free cash flow basis right now is Microsoft. But even for Microsoft, the, the number is going down. I mean, who knows where we'll be next year. It seems as though the only way this works is if everyone goes out and raises a shit ton of money, essentially. That's the way it's going to work. And so if you have, you said a trillion dollars in debt issuance, you've already got rates rising, you've got yields rising seemingly across the board.

• 22:12Ed Elson?

  You've got the S and P lowering its credit rating outlook for Meta, which just happened this month. I mean, can they even raise that much? Is that becoming sort of the question at this point?

• 22:24Speaker 06

  I mean, that is, it's an interesting question, right? Because you look at the bottlenecks in AI and you think about power, right? That is a constraint, chips are a constraint, but capital is increasingly a constraint when you're trying to fund this enormous build out. And you're right, that only Microsoft has said that it can sell fund next year. At the same time, last week it priced in $25 billion of bonds. So even sort of the companies that have been holding out and saying that we're going to fund all of this ourselves are tapping debt markets. And you're right, when you bring in rising interest rates, this makes this all the more trickier. And I want to bring up something that people here talk about. It's this cone of uncertainty, right? It's very relevant when you think about the build out and when it's going to pay off.

• 23:07Speaker 06

  So you have to commit the money now, even though the further out you look, the less certain you are about demand, costs and those returns. Borrowing really adds fixed payments to that uncertain future. And at the same time, Ed, when you talk about the companies that reported last week, their core businesses are slowing. So I don't want to say that this is just a debt and borrowing story. That makes everything more urgent, but the core businesses, you saw from Alphabet, right? A few years ago, we were talking about Alphabet cannibalizing itself, but it had AI overviews. It was going to figure out this advertising piece. That actually hasn't happened yet. When you take a look at Amazon, it wants to be seen as sort of this AI company.

• 23:49Speaker 06

  But again, its core business isn't as healthy as investors would like it to look to say, okay, you can spend all of this money on the AI build out. So I think that that is also playing out and that's what the market is looking at. That's why you're seeing these huge declines because investors are focused on the core businesses. But I will also give you the counterpoint. Do you want me to do that now?

• 24:14Ed Elson?

  Please.

• 24:14Speaker 06

  The counterpoint is just as interesting. There's this chart that I posted from the Financial Times and it pulls on, you know, other data sources, but it shows that this free cash flow squeeze shows that it's actually supposed to be temporary. So you can see that the hyperscalers, we'll talk about them for a moment, Amazon, Microsoft and Google, the hyperscalers that are spending the most on this build out are eating into their free cash flow. As you mentioned, Ed, some of them is going to go negative, but by 2030, that is all supposed to come back. This is Wall Street consensus estimate. This is not my estimate. Wall Street actually expects that Google, Amazon, Meta and Microsoft are going to be

• 24:56Speaker 06

  generating more than $600 billion in combined free cash flow by 2030. So if you believe those numbers, this is like an insane buying opportunity.

• 25:05Ed Elson?

  Yeah, and this seems to be part of the crazy thing about this moment in time is that everything, the entire market is, and your expectations around this market are based on projections that are way out in the future that actually no one can say with any real certainty, which means massive upside risk and also massive downside risk. And the two are kind of pushing and pulling against each other. I guess, you know, the thing that's so interesting, usually I don't actually care that much about market sentiment, because usually the way we try to think about on this show is like, what are the fundamentals? How is the business actually looking? And then everything else is noise. But now that we're in this moment where in order to actually fund their own business

• 25:50Ed Elson?

  goals, they have to depend on the capital markets and they have to go out and raise, raise this money, which means that actually they're now dependent on sentiment in a lot of ways. They need investors to feel good about the AI story. Otherwise, they're not going to be able to go out and raise the amount of money that they actually need to raise over the next few years. So just as we start to wrap up here, you know, you cover a lot of this. You're actually in San Francisco, you're like interacting with a lot of these people. You just spoke with Jensen Huang the other week. What is the sentiment like right now? I mean, we've had the euphoria stage. I can't tell if we're in doomer stage or if people are still feeling optimistic. Like, what is the sentiment in your view?

• 26:35Speaker 06

  It is not doomer here in San Francisco. I mean, it remains sort of as bullish as ever. And what Jensen Huang focused on, what Gavin Baker focused on in that interview is demand. And that is undeniably still, you know, just at the earliest stages. What I would say though is, I mean, that is a very, that is a bit of a disconnect, right, from Wall Street? And I think that some will be able to withstand that better. Nvidia is going to be okay, right? They're at the center of the entire trade and you, we can talk about as well, you know, GPU futures, a way of insurance and the lifetime of these GPUs is lasting a long time. So there's a cohort of companies that are going to be okay. We talked about a lot of them, the Meg Seven, you know, SpaceX as well is able to tap markets and raise more money.

• 27:20Speaker 06

  Companies will be able to do that. I think the fear maybe are some of the Neo clouds, right? And is that the thing that sort of breaks the AI trade? So that may be something to look at a lot more closely because, Ed, I love that you look at the fundamentals, me too. When you look at the big tech fundamentals, which I think these are the numbers that people here in tech focus on, like these cloud numbers were insane. AWS up nearly 40%, Azure nearly 50%, Google Cloud over 100%. That is sort of indication that the demand is there and it's paying off. But Wall Street is really focused on some of those other core businesses that have paid for the build out.

• 27:55Ed Elson?

  Deirdre Bosa is founder and host of Deirdre Bosa Live, which I understand is officially launching next week. Could you tell us a little bit about it, Deirdre? What's the launch going to look like? What's the timing?

• 28:08Speaker 06

  Yeah, so we actually launch our daily show on Monday, November 9th. We're going to be live at 1:00 PM Pacific, 4:00 PM Eastern, right after the markets close. Every day I'm sitting actually in the office space, not the studio. It's still under construction, final touches are putting, are being put on just across from me. So really excited and Ed, hope to have you on to chat with me there as well.

• 28:30Ed Elson?

  I would love to and I'll be tuning in. Thank you so much, Deirdre.

• 28:32Speaker 06

  Thanks, Adam.

• 28:41Ed Elson?

  It is election day in America and voters are casting their votes in what could be a blockbuster election for the Democrats. But before we are able to break down the results of the midterms, let's take a moment to check in on what will probably be the most important topic on many voters' minds. And that topic is the economy. How is it doing? Joining us to discuss this, where the American economy stands ahead of the midterms, we're speaking with Mark Zandi, chief economist at Moody's Analytics. Mark, thanks for joining us on Prof G Markets. So half of registered voters tell Gallup, they did a poll, that the economy is extremely important to their vote. I'm not surprised by this.

• 29:23Ed Elson?

  This seems to me to be the most important thing heading into these midterms. So I just wanted to get your update. How is the economy doing halfway through Trump 2.0?

• 29:36Mark Zandi?

  Well, Ed, I'll tell you, I'm surprised only half. I would have thought it must be much more than that.

• 29:41Ed Elson?

  Me too.

• 29:41Mark Zandi?

  Because I think that's top of mind for sure for many people when they go, going to the polls. Well, the economy is, it depends on which economy you're talking about. I mean, if you're talking about the AI economy and you're in that ecosystem, benefiting from all the investment that's going on, or more likely, if you own stocks and AI companies, you know, the economy feels pretty good. You're a lot wealthier than you were not too long ago. In fact, the total value of publicly traded stocks in the US has doubled in just the past four years since ChatGPT was put on the planet. So the wealthy, the folks that own the stocks, they, they're doing fine, no problem. Life is good and they're out spending.

• 30:26Mark Zandi?

  For the rest of Americans, not so much. You know, many Americans don't own stock. Most Americans don't own any stock of any consequence. And of course, many Americans, about a third, don't even own their own home. They're struggling. Their after inflation income is at best holding its own, maybe even declining. And their purchasing power is evaporating. And this goes to the higher inflation. This goes to higher interest rates as a result of things like the Iran war. So their economy is not so good. When you add it all up, you know, it looks okay. The economy is growing, but you know, it's a very fragile growth. And again, it depends on whose economy you're talking about.

• 31:04Ed Elson?

  Yeah, I mean, we've seen income inflation adjusted falling over the past six months. Prices obviously continuing to rise. You said in May, you said, quote, "In my 36 years as a professional economist, the stock market has never been more disjointed from the economy," which gets at what you've just explained there, this difference between the AI economy, the stock market economy, and I guess we could call it the real economy, the workers' economy. To what extent do you think that disconnect is going to play a role? Like, do you think that any Americans say, okay, well, my wages are down, my grocery prices are up, gas prices are up, but I have?

• 31:50Ed Elson?

  You know, a more valuable stock portfolio. And I'm happy about that. Is that something that you think that that voters are actually going to think heading into these elections?

• 32:00Mark Zandi?

  Well, I think, you know, three fourths of Americans don't own stocks of any consequence and many don't own their own homes. So what's going on with regard to AI stocks means nothing. So the stock market can go up, it can go down, it can go around. Doesn't matter. What matters for them is what they're feeling. And that is, are my wages, you know, what I'm getting paid, keeping pace with the higher prices for the things that I'm buying? And that's real income, real so-called real wages, after inflation wages. And there, you know, the picture is pretty bleak. I mean, real wages are going down. Inflation is faster than the rate of growth in wages.

• 32:42Mark Zandi?

  So people's purchasing power, their ability to buy things is declining. And they feel that, they know that, they sense it, they can, and that's what makes them upset. And that's why consumer sentiment surveys are as weak as they are. That's why, you know, the polling numbers are the way they are. That's why the Republicans are getting blamed for, you know, what's going on. For that, for that, three quarters of Americans, you know, the financial situation is pretty tenuous. And then you throw into the mix, more recently, the hot run up in interest rates. I mean, interest rates had been pretty low until the war. And now the fixed mortgage rate, which is kind of the benchmark rate that most people think about when they think about rates, the, you know, what they have to pay to get a mortgage. It was below 6% before the war started. It's now well above 7%.

• 33:26Mark Zandi?

  And of course, that's just makes housing, homeownership, you know, completely unaffordable. And that, that's just, you know, part of it. It's higher credit card interest rates, higher interest rates on home equity lines of credit, consumer finance loans. So for, again, for most Americans who don't own AI stocks, it's a pretty vexed time. They got a job, you know, okay. But, you know, their, their wages are just not keeping up with the pace of inflation. Their real standard of living is on the decline.

• 33:56Ed Elson?

  I'm just going to read you a few quotes by President Trump that CNN collected. So this was in 2024. Trump said, quote, "Energy is going to bring us back. That means we're going to get gasoline below $2 a gallon." Gas was $3.33 at the time. It's now $4.22 nationally. He also said that we will, quote, slash electricity prices by half within 12 months at a maximum 18 months. Electric prices have risen around 14% since he began in office. He said, as you point out, he said, "We're going to, quote, 'get mortgage rates back down to, we think, 3% maybe even lower than that.'" He said that in September 2024.

• 34:39Ed Elson?

  Mortgage rates have risen to more than 7.2%. I mean, there, I could go on. We could talk about manufacturing jobs. We could talk about balancing the budget and the deficit exploding. There are so many promises that were not kept. I guess that happens a lot in politics. But what seems striking to me is the extent to which all of these problems seem to be almost principally his fault. Like you look at gas prices, it's hard to say that that that is a result of anything other than his geopolitical decisions in launching a war on Iran. Same with, you know, consumer prices. I mean, that's largely due to the gas prices, but also because of the tariffs.

• 35:23Ed Elson?

  I mean, do you think that there is anything else out there on which we can place the blame when it comes to economic problems in America? Or is it, is it genuinely the president's fault this time?

• 35:37Mark Zandi?

  Well, it's policy writ large. I mean, the Iran war is the most obvious, most immediate. I mean, inflation and interest rates have risen pretty much since the day the war started back on February 28th. But there's other policies. I mean, there's the tariffs. We, we're not talking about the tariffs, but the tariffs, same kind of damage to the economy. It raises inflation, it's a tax on American consumers, raises inflation through higher prices, which weakens economic growth. So same, same kind of dynamic is playing as a result of that. And of course, the very heavy-handed immigration policy, same result, you know, weakens economic growth because many companies that rely on immigrant workers just can't get them, can't find those workers.

• 36:21Mark Zandi?

  And, you know, they raise their prices for the things that they produce because they need to bring demand back down consistent with the amount they can supply with reduced labor force. So again, you know, another policy that's causing the same kind of dynamic to play out, weaker economic growth in higher inflation. I mean, I think we, the whole narrative about the economy would be very different today if not for AI. I mean, if not for the boom in AI investment that we're observing, that's come on very quickly, and the boom surge in AI stock prices, the narrative around the economy would be really pretty bleak, it'd be pretty dark. We'd be talking about recession. So, and it does go back largely to economic policy.

• 37:04Mark Zandi?

  Now, there's all kinds of other things going on, you know, other dynamics, but at the end of the day, I totally sympathize with what you're saying. It's, it's policy that's at the root of what's going on.

• 37:15Ed Elson?

  Before we end, your economic scorecard, or if you had to give a grade to this economy heading into the midterms, what would it be? And then to close out, I'd love to hear if you have any predictions for the, for this election.

• 37:35Mark Zandi?

  You know, that's my, that's my profession is predictions. And I do sympathize with the president. He's, he got his forecast wrong, but, you know, forecasting is a pretty intrepid affair. You know, I give, I give the economy a B because, you know, it's A++ when it comes to the AI economy. For the non-AI economy, it's probably a D. So you take the average of the two, B-, let's say, somewhere in there. But that doesn't do justice to the reality of what people are feeling. They're either in the A++ world or they're in the D world. And there's many more Americans in the D world than the A++ world, if that makes any sense at all. You know, I am an economist and I, you know, look at the things like election results

• 38:19Mark Zandi?

  through the prism of the economy. And, you know, it's the economy's stupid, going all the way back to James Carville and the Clinton election. And I think that still holds. And the economy for most Americans, not for all, but for most, a majority of Americans, it's pretty tough. And it hasn't gotten any better, it's getting worse. And people are connecting the dots back to things like the Iran war and the tariffs. They know that that's behind a lot of what we're observing. So that would strongly argue that, you know, we'll see a change in government here on the other side of the election. Certainly the House and very possibly the Senate.

• 38:56Ed Elson?

  Mark Zandi is chief economist at Moody's Analytics. Mark, we will see and we will check back in. Appreciate your time.

• 39:03Mark Zandi?

  Stay tuned.

• 39:08Ed Elson?

  Okay, that's it for today. Tune in tomorrow to hear our coverage of Apple's earnings with Patrick McGee. Later on this week, we will also be unpacking the midterm results with Catherine Rampell and also Matt Iglesias. So don't miss it.

• 39:24Ed Elson?

  This episode was produced by Claire Miller and Alison Weiss and engineered by Benjamin Spencer. Our video editor is Brad Williams. Our research team is Dan Shilon, Kristin O'Donoghue and Mia Silverio. And our social producer is Jake McPherson. Thank you for listening to Prof G Markets from Prof G Media. If you liked what you heard, give us a follow. I'm Ed Elson. I will see you tomorrow.