$1T Moved on Iran “Talks” — Did They Even Happen?

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1:00Support for the show comes from sci let's face it college is expensive and how you pay for it really matters That's where sci comes in sci helps you refinance at rates as low as 4.24% APR Potentially saving big by lowering your monthly payment you can even customize variable rates to meet your financial goals All with no penalties or fees required Check your rate in two minutes with no impact to your credit score over 580,000 members have already refinanced more than 50 billion dollars with so-fi Visit so-fi dot com slash box pod to see how much you could save that so-fi dot com slash box pod So-fi student loans are originated by so-fi bank and a member FDIC additional terms and conditions apply and I'm a less six nine six eight nine one Today's number 49 billion that's how many dollars VC firms invested in defense tech companies last year the largest number ever New products include subscription-based missiles and nuclear solutions that scale

2:09If money is evil then that building is hell 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

3:10However, 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

4:14About 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

5:16So 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

6:19Then 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

7:25then 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

8:27And 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

9:31Until 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

10:32I 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

11:35The 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

12:38And 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

13:45I 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 At simply put dot prof g media dot com Support for the show comes from ship station When your company is growing nothing stops that growth quite like a bad customer experience because they couldn't get your product Luckily ship stations intelligence driven platform brings auto management rate shopping inventory and returns Warehouse systems and comprehensive analytics all in one place They say they can even save you up to 15 hours of time per week on order fulfillment

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16:58Visit stonyfield.com to find stonyfield organic yogurt near you Support for the show comes from SoFi. Let's face it. College is expensive and how you pay for it really matters That's where SoFi comes in. SoFi helps you refinance at rates as low as 4.24% APR Potentially saving big by lowering your monthly payment You can even customize variable rates to meet your financial goals all with no penalties or fees required Check your rate in two minutes with no impact to your credit score Over 580,000 members have already refinanced more than 50 billion dollars with SoFi Visit SoFi.com slash box pod to see how much you could save that SoFi.com slash box pod SoFi student loans are originated by SoFi bank and a member FDIC additional terms and conditions apply and I'm a less 696 8991

18:04We'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?

19:08Yeah, 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

20:13Building 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

21:14And 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

22:15That'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

23:17Exact 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

24:20So 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

25:21I 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

26:22And 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

27:23Someone 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

28:24This 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

29:28Talking 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

30:29He 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

31:31What 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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