The Week: A Market With Mixed Signals, the Price of Surveillance, and a Collective Feeling of Abandonment

George Hahn connects the dots across the week's biggest stories: why the S&P, oil, and treasury yields are all hitting record highs, the tradeoffs of giving up privacy for safety, and what happens when Americans stop believing anyone is coming to help. We’d love your feedback as we build this show! Let us know what you think: [email protected]. Learn more about your ad choices. Visit podcastchoices.com/adchoices

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  Welcome to the week from Prop G Media, where we break down what mattered and what it all means. I'm George Hahn, and it's Friday, October 9th. Today, why the stock market and the bond market are telling opposite stories? Then, who gets to decide how much privacy we trade for safety? And finally, what happens when Americans stop believing anyone is coming to help? Let's get into it. The S&P 500 closed at a record on Tuesday, its first since August. It got there with the 10-year Treasury yield above 5.3%, the highest since 2002.

• 2:27Speaker 03

  And oil back over $100 a barrel. On Wednesday's Prop G Markets, John Maori, Chief Investment Officer at NFJ Investment Group, told Ed Elson he wouldn't have predicted it.

• 2:39Speaker 04

  It really is remarkable. If you had told me at the start of the year that the 5-year, or excuse me, the 10-year bond yield was going to go to 5.25% or 3%, oil would be at 100 or higher for multiple consecutive days. I think that's kind of textbook you'd have expected the market to be lower. I think the reason that we have seen such resiliency is that we've got forward earnings at nearly 38% for the S&P. And to contextualize that, the only time you've seen earnings growth at 30% or higher is coming out of recessions. So coming out of COVID, coming out of the 2009, the GFC in 2008, that was the only other times you saw that.

• 3:24Speaker 04

  So the earnings have been incredibly resilient. And what's fascinating, Ed, is actually the market has gotten cheaper, even though it's hitting all-time highs as we sit here today.

• 3:36Speaker 03

  Much of that earnings growth traces back to AI spending. Ed asked whether it will last.

• 3:42Speaker 04

  So if we think about, are those earnings durable? You know, there's a lot of people that look at the AI trade and they think, hey, is this a bubble? And I might take the other side of the equation. I might take the side that maybe we're mistaking a bubble for a boom. Because when I look at the durability of earnings, it's a cross-sector. This is not one group. I think there's a misconception in the market that this is a narrow trade, and I keep hearing people say that only a handful of stocks are holding the market up. I would take the opposite side of that. You know, small caps are doing well this year. They're up double digits. Midcaps are up double digits. And you've seen tremendous performance out of refiners, industrial machinery, material stocks. There's a whole cohort.

• 4:26Speaker 04

  I think that the counter to that is, well, is that being driven by kind of the capex cycle, which is roughly 900 billion coming from the hyperscalers. And my answer is largely yes, you're seeing a lot of that come from that. But the counter is, would you rather there not be strong earnings coming out of kind of an investment capital cycle? I would rather have the setup we're in, which is where we have low valuations, strong earnings growth, and actually a backdrop that might get a lot more favorable should we see some alleviation in oil prices or bond yields as we look into the next six to 12 months.

• 5:04Speaker 03

  Ed pushed back. Since August, most stocks in the index are down, and tech has carried the gains. He also raised circular financing. The largest AI companies are each other's investors and customers. Maori agreed that that needs watching.

• 5:22Speaker 04

  We have to remember, these companies are like their own countries. So I mean, these are massive enterprises. I mean, Nvidia now hitting $6 trillion. So I think that the circular financing is to some degree expected, but it is a concern. We do need to see independent demand, Ed. So I completely agree, it's something to watch closely. Something that I am watching closely is how some of these operations, particularly with these investments, are being financed. To the extent that they're being financed from debt and not from cash flow from operations, that is a concern. And we need to see demand materialize to justify the amount of spend that's coming. And I think the return on the AI trade, that's the real question. You know, everyone's spending, what's the return going to be?

• 6:05Speaker 04

  The flip side is, you have to invest to stay competitive. So it's why markets do create bubbles, because it's not that people are stupid, it's not that people don't understand that you can spend too much and overbuild data centers. Of course, they get that. But the risk of not doing it is that you fall behind in a very competitive space that is moving at the speed of light across the globe.

• 6:26Speaker 03

  The spending is already happening. The question is whether demand and eventually profits will catch up. We'll be right back.

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  Welcome back. On our new weekly show with writer and investor Jack Rains, the question was, who gets to decide what happens to your data? You can choose to share it with a company, but what happens when someone else makes that choice for you? We are quickly entering a world where, thanks to everything from voice recorders to smartphones to AI wearables, the likelihood of you being in the background of somebody's video that becomes training data for AI or content that ends up online is quickly approaching 100% at some point in your life, if it's not already there. And I don't necessarily think that's a good thing. Like, it's never been easier to turn the world and the people around you into data for big tech. And that's pretty weird, because I've opted into sharing my own data.

• 9:31Speaker 03

  That's a me problem, if you disagree with that. But I didn't opt into being in the background of a video on TikTok that says, what are the guys wearing in Montauk this summer? And video blows up, and there I am, like, walking across the street. I was wearing a white t-shirt and jeans, pretty normal white dude fit for the summer. And that feels a little bit odd, because I had no say in that. But that's the world we live in today. We have these always-on voice recorders, we have AI glasses, we have smartphones, and there's just very little friction preventing somebody from capturing audio, video, and image data of their surroundings, which includes a lot of people that don't realize they're in that, and that data gets uploaded somewhere. Jack also asked about Flock Safety, whose license plate cameras are used by police

• 10:14Speaker 03

  departments around the country. If the technology helps solve crimes, but also enables officers to stalk people, how should we weigh that trade-off?

• 10:25Speaker 05

  I mean, I think it's creating some reactivity. Like, I've heard of stories where people will monitor the Flock cameras, and then they'll see like a little thing happen, and they think it's a crime, and they'll go react, and it wasn't a crime, it was just a person doing something. So I think it's creating a lot of situations that didn't have to exist in the first place. I think there's always been some elements of security cameras. A lot of stores have them, a lot of streets have them. But I think with Flock, again, it's not totally clear where the data is going, it's not totally clear why a private company would be doing this. So I don't like that for it. Again, I think, like, you know, if anything, if we should have any...

• 11:06Speaker 05

  Element of surveillance that shouldn't be done by a by a private company.

• 11:11Speaker 03

  Flock came up on raging moderates, too. Last Friday, Bernie Sanders, AOC, and Jeff Merkley introduced a bill that would bar federal agencies from using the cameras. Scott told Jessica Tarlov he'd keep them, but with strict limits on how they're used.

• 11:29Speaker 00

  People notice an increase in crime 10 times more than they notice a decrease in crime. And to not credit these technologies with a massive decrease in crime is just not to be honest about what's going on here. So the question again, there is a sweet spot. Let's use these technologies. If someone kidnaps a kid, if it's clear these eight people are going to places where they look like they're maybe, you know, making a bioweapon and then getting in vans and going to flight training school. Okay, let's use Flock like crazy. There's a murder, we're going to use Flock like crazy. But smaller crimes, misdemeanors, you know, whatever it might be, a really high bar

• 12:11Speaker 00

  that frustrates the shit out of prosecutors that they can't use this data for this type of crime. And anything that results in the tracking of private citizens, like this guy was doing tracking his girlfriend, is a crime in itself, and you might end up in jail. But I'm, I think to keep to keep technology in a bottle is is just, okay. When a modern society, you're supposed to leverage technology with thoughtful laws, thoughtful protections of people's rights, and we can, I think we can have our cake and eat it too here. And I think as usual, when the far left and the far right agree on anything, whether it's isolationism, anti-vaccination, you know, I think the far left and the far right are both racist, it's a really bad idea, just as these, I think, using a blunt instrument

• 12:56Speaker 00

  and the ban Flock is populist bullshit that will again result in an increase in crime rates, which will start blaming politicians or Democratic or Republican policies.

• 13:07Speaker 03

  Those arguments turn on a question. Do we trust people and institutions responsible for keeping us safe?

• 13:16Speaker 03

  On this week's Prop G Conversations, Scott spoke with author and journalist Anand Girdardas about what happens when Americans feel those institutions have failed them. His new book, Man in the Mirror, examines the death of Jordan Neely, who died after Daniel Penny put him in a chokehold on a New York subway in May 2023. A jury later acquitted Penny. For Anand, the case became a window into a much larger American story. And from the moment news kind of wafted up from that Broadway Lafayette subway station, it became instantly an American Rorschach test, right?

• 13:59Speaker 03

  People were certain they knew what they were seeing before much information was available. Daniel Penny was either a white supremacist vigilante Batman, or he was an American hero standing up to entropy and decay and anarchy in the cities. Jordan Neely was either a menace to society who someone finally had the courage to snuff out, or he was a victim of systemic racism and the failure to care for the least among us. And I became interested in what was erased by that hasty metabolizing and spitting out that we do with so many of these stories. It's one of these stories where everybody knew it for five seconds, and then nobody

• 14:44Speaker 03

  was invested in it five minutes later. And I decided to spend three years digging in, not just because it was an interesting or complicated that moment itself, but because I think America itself was contained in that subway car, so many of our failing systems, so many of the political emotions of this authoritarian age, the sense of abandonment, a lot of the things you talk about, the sense of people don't feel held, the sense that people feel abandoned, the sense that people feel that systems don't see them and are condescending towards them, don't hear them, not coming for them. And so I was convinced that what happened in that subway car was a was a kind of distillation

• 15:28Speaker 03

  of what was happening all across this country. Anand says he likes to listen for rhymes, the same feeling turning up among people who agree on nothing else. He found one when covering Daniel Penny's trial. When this case, the Penny Neely case was going on, and I was following it for these three years, I kept hearing this kind of narrative, and mostly from the right and from Daniel Penny's defenders, that he was filling the void, that the left left a void of order. It's bail reform, it's the emasculation of the police, it's it's men not being able to be men anymore and provide strength and care in public space.

• 16:06Speaker 03

  And into that void, both kind of unwell Jordan Neely stepped, and then into that void of order, Daniel Penny stepped in and protected people. That was the right wing story. And then during the jury deliberations for the Penny case, Brian Thompson, United Healthcare CEO, was killed in Midtown Manhattan. And I was struck because I was sitting in court, a lot of the reporters I was sitting with, the literal same reporters who I'd covered the Penny trial with for weeks now and gotten to know, the New York Post and the TV channels and all the local New York press, a lot of them realized immediately that that was their next case, right?

• 16:51Speaker 03

  That they were going to go from finishing this one to that was the next case in the same building, by the way. Same, I saw some of the same security guards, court guards in that second case.

• 17:03Speaker 03

  So they were connected in that way. And as I started to listen to when Luigi was arrested, Luigi Mangione was arrested, and this kind of fandom started to develop around him on the left, parts of the left,

• 17:18Speaker 03

  it struck me that I was hearing one of those rhymes that I listened for. It was not the same people, it was not the same arguments, their understanding of what's going wrong in America, it's all different, but they, as you said, were framing Luigi as someone who filled a void of order left by the other side, and making a case that if you don't hold people, you leave people unheld, enough people unheld enough of the time, sometimes someone will decide, I'm going to fill the void. And you may not like how they do it. Now, before people start adding me, I'm not saying Luigi and Daniel Penny are the same. I'm not saying the cases are the same.

• 18:02Speaker 03

  We need to actually be able to make connections without getting into the facile thing of you're comparing, you're saying it's the same. The reason they are connected is they together reflect what I think has become a very widespread feeling in this country of we are abandoned, the cavalry isn't coming, the system isn't coming to save us, no one hears us. And sometimes people have to step up and do whatever they got to do. That feeling then fractures into a left version, a right version, or this version or that version, and we kind of lose the thread. But it's interesting information that actually so many Americans feel that feeling.

• 18:46Speaker 03

  And it is a, one of the tragedies of this time we've lived in, that that common feeling keeps getting broken into pieces and failing to produce a common politics. What happens to a country when its people stop believing anyone is coming to help? That's the week. I'm George Hahn. We'll see you next Friday.

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