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Today's number
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Yeah
Welcome to property markets. I'm Ed Elson. It is March 24th. Let's check in on yesterday's market vitals
The major indices rallied as President Trump signaled a move to deescalate in Iran
More on that in a moment oil fell on that news meanwhile a yield on 10 year treasuries dropped and the dollar declined
Okay, what's happening?
The war in Iran may be entering a turning point on Saturday Trump gave Iran a 48 hour
Ultimatum re-open the Strait of Hormuz or the US would destroy Iranian power plants
Iran responded by threatening to take out US energy and desalination infrastructure across the Gulf just two days later
Trump said the two countries were engaging in quote very strong talks and that he would pause all strikes for five days
However, Iran's parliament speaker quickly dismissed the news saying the talks never happened nonetheless
The S&P rose more than 1% and Brent crude oil fell more than 10% on the news
So here to help us make sense of what is actually happening here
We're joined by Justin Wolffers professor of economics and public policy at the University of Michigan
So Justin first Trump tells us that we're having these constructive talks with Iran
It starts to look like maybe the war is coming to an end
Then Iran tells us no that didn't happen
Markets kind of digested that they sort of fell down a little bit, but ultimately they're still up
What do you make of what we've learned here in the past 24 hours?
It's um the most extraordinary thing that
The most critical issue facing
American financial markets
Is whether to believe the American president or the Iranian leaders
About what the Americans are doing
Should we believe the American president talking to the American people about the actions of America um
And I think it reminds very much up in the air and just to be really clear on the stakes here and
As you said markets rose very strongly on
News that these talks were going ahead
Probably about a third of it unwound as it
appeared that the Iranians were not so confident that anyone had ever called them so that right there tells you that markets
Believed that our president is slightly more credible than the Iranian leadership but not substantially so
Look one percent on the S&P 500 is
600 billion dollars
Maybe it was right raised bad one of the hop percent actually far remember um, so that's about a trillion dollars
There's about a hundred million American households
So that says
Whether the president was telling the truth or not
Makes a difference in the wealth of the average American household of plus or minus $10,000
Um
It's just a way of saying the stakes here are incredibly high and we are
sailing through fog
At midnight
With a plant blindfold on while listening to the sweet sweet tunes of our president telling us what may or may not be happening
what do you think about
How investors are going to
Make decisions based on what they believe or don't believe going forward because
I mean
It's clear that literally the entire world the entire economy the all of global markets
Depend on these questions here and what happens in Iran
What happens in the straightforward moves and as we're learning more and more it's also
going to i mean our entire economy is going to depend on this question if this
If this area remains closed
Then we will see
Unbelievable amounts of inflation
I mean if we see oil consistently remaining at i mean, let's call out 150 maybe $200 a barrel
Um, I mean the implications are tremendous here and it all comes back to literally like what is this guy going to do
Yeah, and do we believe him and it reminds me of greenland it reminds me of the tariffs
And then it just brings up this question like
Are we in the same position again
Well, we're basically just hanging on to his every word making decisions about his every word which often just don't pan out to be even true
Yeah, so
For sure over the next few weeks lots of people are going to say financial markets are crazy
They're hormonal why are they moving up or down like crazy right
But if you're actually in a situation where there's two choices we could make aggression
nonaggression
And they have huge effects on the economy
and
We don't know the probability and we really really don't know the probability of we end up here or here
then small
statements
rationally
lead to large reevaluations of the value of
stocks of your future forecast for the economy of bond rates the whole
nine yards so things are going to look crazy it will
But I think here this is not a statement about
Financial markets necessarily being temperamental. It's more a statement about the president's inability to convince
Anyone that what he's saying he means
And this is actually I think there's one profound sense there's many senses in which these are uncharted waters
But one very profound sense is I don't think we've ever been in a situation like this where
The word of the president about what his intentions are
Is so uninformative about the future
George W. Bush when he said let's go ahead. Yeah kind of knew that's what he meant when he said let's pull back
kind of knew what he meant
And here I think we're all just guessing
Do you think this this kind of goes back to taco where
I mean the whole premise of taco was Trump threatened something crazy
And then the markets throw up and then he gets worried because he values the opinion of the markets
Or he values the dollars that are related to those investment decisions and then he
Tacos he check ins out and then it became a question of
Maybe he's immune to taco at this point or maybe the markets aren't reacting anymore to sort of front run the taco
Which means that we no longer have this regular
Regulating effect where the markets basically slap them on the wrist and tell them do the right thing like
What do you think the the relationship between the markets and Trump's decision-making
Actually is at this point and is that relationship still strong as it seems to be back during the tariffs have lost
Yeah, so I think that's a it's been a question very much on a lot of people's mind
So if your simple model was the president will do what he wants
Until he hears markets don't like it when he hears markets don't like it then he'll undo it
And if markets can think one step further then they'll see the president does what he wants. It's not very good
They think he'll undo it given that they think he'll undo it. They don't need to move
Right. What's the equilibrium of this game?
It could be that
Markets don't move very much and the president becomes hyper sensitive to markets
Who knows this feedback loop is profoundly broken and it would be a lot easier if it was genuinely
Mechanistic, but it's not
Maybe you know all of this comes back to what
How do you rewrite the rules of the game when you have an unpredictable president?
So the idea of taco that people found very reassuring is in fact the president's very predictable right
I don't know that's true actually
Um, so yes, he tacos sometimes except when he doesn't
Yeah
And so you could think about you know, and I do think you're right to bring up all the past analogies
I think most clearly through the trade war
Um, but if you remember Canada went from our number one enemy to our number one friend and it did like three or four round trips on that journey
Actually right now the rhetoric is profoundly anti-Canadian and the reality is not very anti-Canadian
But it's very hard to keep track of and it's not even clear that the president has so
Um
Mate if I look a little bit lost it's because this is very confusing
So I you'll look here's the here's the safest thing to say
Markets are reacting as if developments in a run are tremendously important for the development of the global economy
Yes, when you see them move one and a half percentage points based on a truth social post
um, and that
Takes into account that he might taco
That one and a half percent is a profound underestimate
of
The true effect of going to war because they don't think that he pulled back from war
They think there's some possibility he did and some that he didn't in some sense what's already priced in
The economic implications here are
Numerous and it's kind of hard to put any numbers on it. I'm just wondering
When you teach your claw your students um over at you miss you again
I assume that what's happening in the news is
making its way into your classes and into your lectures
um
What kinds of takeaways
Are you trying to convey to your students right now in the middle of this moment? Yeah
And I'm not teaching this semester. Sorry about that. Okay. Fair enough
I'm talking to a lot of people um, so let me give you a couple of very quick answers
um
The first is the orders of magnitude involved with war are very very large
um
Second is what I think I was being the most important macroeconomic skill
Which is being able to keep track of all the orders of magnitude um to give an example
I was interviewed a bunch of times a week ago just after it came out that the Pentagon had said that the first week of the war cost 11 billion dollars
And commentators like oh my god 11 billion dollars. This is outrageous. It's terrible. It's too much. It's it's and I'm like
You know, actually 11 billion's not that much
um 11 billion is well if there's a hundred thousand how hundred million households
Uh, you can do this for me. It'd come on
What do you think like uh don't bug me in this position? So it's a hundred bucks household. It's a hundred bucks per household um
Not much, but then you see
Markets today rise one and a half percentage points and as we talked about that's a trillion that's you know a trillion dollars
Right, and so the stakes aren't tens of billions the stakes are hundreds of billions
And plausibly trillions and so therefore the stakes for the average and no one is average
The average American household are thousands and plausibly tens of thousands of dollars. So two things that you learn out of that one
Uh big deal
Two keeping track of orders of magnitude is actually the most important skill here. I can probably guess how many zeroes are involved
I can't anyone who thinks they know what number is in front of the zeroes is is
Kidding themselves about how precise they can be all right
Justin Wolff was a professor of economics and public policy at the University of Michigan
Justin always appreciated. Thank you so much great pleasure. Right
After the break
Open AI locks in and for even more markets insights you can subscribe to my weekly newsletter simply put
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We're back with profty markets
Open AI is changing course as the AI race intensifies in an internal memo the company's chief of applications said that open AI
Needs to ditch its side quests in order to quote nail productivity on the business front
That new strategy includes building a super app that combines chat GPT
Codex and the atlas browser the company is also planning to double its head count by the end of the year
As it works to keep up with anthropic here to discuss
Open AI's new strategy was speaking with Alex Heath
author of the sources newsletter and co-host of the access podcast so Alex
This new news from open AI they are trying to ditch the side quests
This is sort of the initiative that's being spearheaded by Fiji Simo who I know you have interviewed and who you've been talking with
Tell us a little bit about what you know about what they're trying to do at this point
How has the open AI business strategy actually changed here?
Yeah, I mean, I've been seeing people calling this a pivot and I guess you could say it is
But if you look at what's really happened at over the last couple years in AI
Open AI went square for a consumer being the biggest consumer AI platform and they did that right
They have 900 million users and they're growing there still
Meanwhile what anthropic did is during that same period it focused almost entirely on enterprise
And now Claude has you know some traction especially off of you know people wanting to support the company due to what happened with the Pentagon
But anthropic was b2b open AI was was consumer now that open AI has one consumer
Guess what the vast majority of its users actually cost it money to serve
This is something I was talking about with Fiji when she was on access a couple months ago
And that's a problem if you were a venture backed unprofitable
AI lab who needs to IPO right and where is the money in AI it's in enterprise applications
It's in putting agents in large companies doing forward deployed engineering
Building all these kind of bespoke products for enterprise usage. That's where I mean in Silicon Valley people are talking about token maxing right companies literally incentivizing
Their employees to
Burn as many tokens, you know, which are just the atomic units of AI as possible
And there's literal leaderboards of you know who is doing this and spending the most money inside the company
that doesn't exist in consumer land. So
Open AI, you know needs to make money. It needs to become profitable and
Short of the ads thing that they're doing which we've talked about a lot
This is the way to do it. It's to go after enterprise and they finally have a model and a product in codex
That is growing on that front on the coding front
And finally can challenge what Claude has been able to do specifically on coding
definitely doesn't have the mind share
But has
Exploding usage and so yeah the super app idea makes a ton of sense and as does you know growing the enterprise
push if you look at it that way
And I think I think this is just the beginning. I mean, I think I think the super app ideas like this is the future of all of these assistance
I think Claude code is going to be
The interface to access what we think of as Claude the chatbot
And I think the same will happen for for chat GPT codex will eat it
Do you think that they see their
Push for consumer versus enterprise as a mistake at this point? I mean, that's really how it seems on my end
I look at how
Anthropic how Claude is taking over the enterprise market
But I I always thought that this would happen and one of the predictions that I
Made a while ago about two years ago
I thought that chat GPT as a consumer product was going to kind of fall by the wayside
And my prediction was opening. I was going to sort of shift their focus
They had this awesome hit product
But they're going to go after the real big fish that everyone wants which is enterprise customers
So chat GPT will kind of fade out of view and we'll see more emphasis on on enterprise
That's not what happened at all
But if they had gone with what I thought they were going to do then maybe
Things would look better for them
But do you think that they view that as a mistake that they went off to the consumer and they realized
This actually isn't that great of a business compared to enterprise and now they're switching over
I think they view not focusing on coding and coding model progress
uh
Earlier as a mistake as a huge strategic mistake that they're now
Catching up on and they gave Anthropic the opening with Claude code that it has
I'm not so sure about the consumer versus enterprise thing
I mean look when you get to a billionish users
You can kind of just figure it out. That's like the hardest thing to do right and
You know what is harder you know anthropics enterprise deployments or
Getting hundreds of millions of free users to be very attentive in your product. It's hard to say
I mean, I think you know, it's incredible long-term optionality
If they can figure out the ads piece which they they will they just hired a senior meta ad
Exact this week
Fiji ran you know monetization at Facebook. They'll figure that piece out
That's the thing Anthropic doesn't have and that's probably where all the
All the margin is really if you start doing really good ads on a surface that high intents that data rich
For hundreds of millions of people you've got the next massive scaled consumer internet business
Which Anthropic just doesn't have by the function of Claude not being huge as a consumer product
Yeah, so I'm not sure I don't I don't know if they really feel like oh my gosh we forfeited
You know enterprise and now we got a scramble or I do think though the coding piece
I think these companies judge themselves based on the model progress
And I think open AI got distracted with I mean Fiji said it all the side quests
But with you know being a massive consumer company and hiring all of these
consumer, you know previous era tech employees to come in and do all these different things and Sora and all this stuff and meanwhile
Anthropic was
Singularly focused on coding and the enterprise market and now that's paying off
So they're playing catch up there for sure
It does seem like focus would also just mean building out this ad business if they if they want to win in the consumer world
Which they have done and they want to figure out how to monetize it now it's time to get into ads
And as you just said they just hired one of the top advertising executives from mezzo who's now going to lead their ad sales
Would you say that
Advertising is still
Top of mind for open AI in spite of being made fun of
For it after the Super Bowl with those anthropic Super Bowl ads people saying we don't want ads in our you know
AI apps do you think they're still going for the ads? Yes, they are
I mean they're testing it and the early reporting on the tester that they've been super
low tech
Surprisingly very
bespoke and white glove and I think they're just trying to feel it out and feel out the limits of
Advertising on a surface like this and now they're
Productizing it and they're building the system to kind of deploy it at scale
They have to do it for the reasons we talked about yeah
I think if you bought the theory from Sam Alman that super intelligence or some version of it is just around the corner
And this technology is really going to automate all labor and replace
You know scientific drug discovery and all the things that they talk about would you be doing a concerted ads push?
Maybe not right like if you've got like AI God right around the corner
So I think it also suggests that this model progress think it's hyped a lot in the industry is maybe not as dramatic as as
As it said
But there's no I I think chat you he's going to be around for a long time. I think it's going to be big
It's just ingrained, you know
It's like the Kleenex of AI for a lot of people about takes a long time to unseat. That's what Google managed to accomplish
Yeah
And sure like there will be nipping at the heels and at the edges of it
Like what clause doing with a lot of like tech early adopters right now who just anecdotally I
I'm also part of this but here just like switching from chat to to cloud
But in terms of your mass average consumer chat is still the only AI experience that they have and that they know
And that's just going to be very hard to unseat
Yeah, the other final news. I would just want to get your reaction to
Um that I saw it all today
This is exclusive from Reuters apparently open AI is offering private equity firms
Investments deals with a guaranteed minimum return of 17 and a half percent
So basically saying if you invest in us
We guarantee you we will return 17 and a half percent of your none of your money
Which for those who don't know that's like a ridiculous return
That's that's significantly higher than the S&P average
This just seems ridiculous to me. How can you guarantee 17 and a half percent
It makes me think maybe they're just gonna lose money on this thing
Or maybe some sort of foul play. I don't I don't really know
I just wanted to know if you know anything about this and if that sounds right to you
Um, I don't have reporting to share on it. I do agree with you that it's uh
Unusual and maybe a red flag
Someone has been picking up the bill
Constantly yeah, and who is like going to keep picking up the bill
That it comes back to why they need to do enterprise why they need to do ads like at the end of the day
You need to eventually control your own destiny, which as a company is producing free cash flow, right
Which is what the meta and google and apples of the world have as they have control of their destiny because they have massive money canons
And open AI right now is contingent on sam's ability to convince
Another large pool of capital that he has somehow not already tapped to invest more money
Until they become profitable right and like maybe the IPO is the next phase of like someone paying the bill
Then it's dumped on retail
And maybe that's you know if you're gonna IPO it by q4
Maybe you feel confident giving a 17 whatever percent uh, you know guarantee
But certainly strange, you know um, I'm old enough to remember when open AI uh was a nonprofit and all investments
Up until like a year ago were labeled with like disclaimer
This can go to zero and you should treat this as a donation. So definitely a new territory. We're in
It was the capped profit company now. It's
There's a floor 17.5 percent. It's really really incredible. Okay, Alex heath author of the sources news letter and co-host of the access
podcast Alex, appreciate your time. Thanks, Ed
Well, we started the week on the right foot
Trump said he had quote very good and productive conversations with Iran
And that is what created two trillion dollars in market value in a matter of hours the implication
Was that the war with Iran might be coming to an end or at least that is what investors thought
But then as usual we got some clarifications that complicated things
Iran denied having any direct talks to end the war
And the nation's foreign ministry said they'd had no negotiations with the US
That was when stocks started to fall back down again
As investors recommend the possibility that the president might be once again
Talking out of his ass. Is that really what was happening here? Was he lying? I guess we don't know
But I guess that is also kind of the point
And this was yet another reminder that anything that comes out of the president's mouth cannot really be taken
Seriously, especially if you are an investor and we know this because we've seen it over and over again
Two weeks ago for example
Trump told us that the war with Iran was quote very complete
Investors bought that news and then here we are two weeks laser and the war continues to rage on before that
We had the debacle with Greenland where Trump suggested America would simply take Greenland
And he refused to rule out the use of military force investors sold on that news
1.2 trillion dollars in market value was erased
But then he got bored of that idea and then he decided to move on to the next thing
Last year he suggested firing Jerome Powell
He said his termination quote cannot come fast enough
Everyone sold and then he turned around and he said he had quote no intention of firing him
He did the same thing with of course the tariffs the tariffs were on and then they were off and then they were on again and off again
And with each announcement trillions of dollars worth of stocks and bonds were traded each time it happened
And so here we are again
This time betting not on trade policy
But on all-out war
But if there's anything we've learned at this point
Is that if you want to actually understand things if you want to understand the global situation
If you want to get closer to the truth
Well then there is one thing that you should not be doing
And that is you should not be listening to the president
Because what we know now is that despite the power he has his words genuinely mean nothing
That doesn't mean he's necessarily lying right now
And it also doesn't mean he's telling the truth
What it means is it means nothing
There are no conclusions you can draw
There are no predictions that you can make based on what he says and if you try
Well, then you will fail
Just as millions of traders have failed before you
So we'll end here with a message to Wall Street
If you want to stop losing money
It's quite simple
Stop listening to the president and for one simple reason
Meaning cannot be made out of that which has no meaning at all
Okay, that's it for today. This episode is produced by Claire Miller and Alison Weiss edited by Joel Pasin
And engineered by Benjamin Spencer
Our video editor is Brad Williams
Our research team is Dan Shlann
It's about a cancel Kristen O'Donohue and Measel Vario
Our social producer is Jake McPherson
Thanks for listening to Profty Markets from Profty Media
If you liked what you heard
Give us a follow. I'm Ed Elson. I will see you tomorrow
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