76 – Will The AI Bubble Tank The US Economy

Marcus: [00:00:00] If you enjoy this content, please take a moment to rate and review it. Your feedback will greatly impact our ability to reach more people. Thank you. All right. Uh, I got, I got invited to speak at, um, Nashville Healthcare Sessions.

Vic: Oh, nice. Nice. Maybe I’ll buy a ticket now. I’ve been meaning to buy a ticket, and I just haven’t got around to it yet.

Vic: Yeah, you

Marcus: better follow that one up. Yeah. Uh, yeah, I’m gonna be on a panel with, um, Anna Higoui and, um, Adam Bowler. Oh, nice. So, investors who write really, really big checks, and then me. No,

Vic: no, no,

Marcus: no. With my little, my little, uh, two million dollar. It’s like the smartest three investors in healthcare. I don’t know about that.

Marcus: I don’t know about that. But I was, I did, it was, it was nice to get the ask. Yeah. You know, it was nice to get the ask. It’ll be a good,

Vic: it’ll be a good audience. They do a good job. I’m just picking on them. But, uh, I had not bought a ticket until, until today.

Marcus: Yeah, it’s pushed out till October. Um, but, uh, yeah, I’m glad we had that event.

Marcus: It’s, it’s good to have sort of a regular, um, healthcare gathering that is [00:01:00] like thrown by. Our health care council here and it’s focused on innovation, but also brings in all the big players. It’s yeah, it’s a good look Yeah, it’s a good look. Um anything else going on?

Vic: No, I mean i’m still sort of uh digging out from being gone, but i’ve just now head above water feeling good i’m trying to Get two deals done before september.

Vic: We’ll see it’s a lot to get done. But yeah, it’s good.

Marcus: Good. All right, man Let’s uh, not wasting time. Let’s dig in

Marcus: so Big Fed week. Um, this was, uh, this was the week to make an announcement on whether or not there was going to be a cut as was widely expected. There was no cut, but, uh, the path has been paved for a potential cut and potential is an important word here because we’re still not sure we’re going to get the cut in September, but, uh, Powell is switching his language to [00:02:00] start to not only talk about inflation, but also talk about employment, um, which is important.

Marcus: So, uh, recognizing as, uh, unemployment sort of has crested above 4%, that’s a clear sign that all of their tactics have been working, um, inflation is cooling, and we now, you know, may be at risk for, uh, some other problems in the market that we need to address through rate cuts.

Vic: Yeah, that’s right. That was the big change is he went to a, there’s an equal balance of risk on both sides.

Vic: Where previously to. Yesterday, he had not done that, right? Um, I think as we, you and I have been talking about for a while I think the we’re not going to get down to two percent And he, he didn’t say those words, but effectively, that’s what he’s saying, I think, is that we are at a place, roughly 3 percent inflation, that is probably, it’s definitely much better than we were [00:03:00] previously, and now he’s looking at a more balanced, where, where does he need to make slight course corrections to make sure that we get to this, um, soft landing and we’re healthy.

Vic: I, I think the balance is a little weighted to where we need a cut. People think it’s over a half percent chance that he’ll cut in September. So hopefully he will.

Marcus: I was talking to Emily, I think on Tuesday, and she made, of course, the obvious point, but one we have not really talked about, which is that, you know, you kind of, should be thinking about the Fed funds rate as being inflation plus x.

Marcus: And then it’s really a debate about what x should be, right? Um, you know, it needs to be above inflation because you need to get a return on your capital above inflation. Right. Yeah. Um, but, but how many points should it be? Right. I mean, it doesn’t need to be skyrocketing. Um, and so if we’re at [00:04:00] three, we’re not going back to zero.

Marcus: We know we’re not going there. We’re at five and a half. Now, how much over three? Or 2. 75, right? If that’s where inflation kind of hovers for the foreseeable future, how much over that should it be? And then that kind of gives us a sense of where the cuts should get us to. Right. Um, and, and also like where they might.

Marcus: kind of try to keep that, that band between where inflation is and where the fed funds rate is, you know, based on how employment and a bunch of other data factors are. So I thought that was like a, just a helpful rubric to kind of think about it. I don’t know what X is, maybe it’s 2 percent or something like that, but I just think that is a, it’s an interesting way, but you know, those two things have been so divorced for so long, right?

Marcus: Right. You know, we’ve been at 0%, uh, you know, fed funds rate for a decade. And then, you know, we went to 5. 5 and the inflation was above the fed funds rate for a very long time, but now we’re kind of in this range where, okay, can you manage it to where it’s consistently a point and a half, two points above inflation regularly?

Marcus: And that, that kind of makes [00:05:00] good financial sense, I think.

Vic: Yeah, I think that’s the math. The other side of the math is something called r square, r star, which is, uh, I think it’s r star, which is the Fed’s view of what the, the steady state economy can grow at. And there’s a lot of debate about what that is, but maybe it’s 3 percent a year, 4 percent a year, 2 percent a year, 5 percent a year.

Vic: People debate different things, but if you grow faster than that, then there’s gonna be inflation. If you grow less than that, then you start having difficulties. Um, I think all of that math makes sense in the long run, but the markets, including bond markets and equity markets are very emotional. And so I think I liked that, uh, Chairman Powell was telegraphing pretty clearly his change in posture and giving the markets time to think about it.

Vic: Then hopefully he’ll do a couple meetings of [00:06:00] slight rate cuts and see how it evolves. Cause The math is one thing, but the, the animal spirits in the markets go all over the place, and then that affects everything. The other piece is, you know, he’s looking at U. S. data, but the world’s very integrated. And, uh, The interest rates here affect things all over the place and the global markets affect us.

Vic: So it’s all intertwined, I think.

Marcus: Yeah, but I think he really has to act on behalf of us first and foremost, right? I mean, just per, like, statute.

Vic: Oh, yeah, that’s, yeah, that’s his, his job. Yeah. But I think the, um, the inflation, especially the inflation side, is pretty impacted by other, you know, how is, how many goods is China producing, and all those, how was the transportation costs, all that stuff.

Marcus: Yep. So, how did, uh, how did Powell’s

Vic: News, uh, land with the markets? It was good yesterday. Everyone celebrated it. Stocks were up. And then, today’s a [00:07:00] new day, and it’s not so good today. Yeah, you’re right. That’s right. That’s right. So, I don’t know. I guess markets liked it. But it didn’t last very long. Yeah.

Marcus: All right. Uh, and let’s talk a little bit about commercial property. Wall Street Journal has a report here suggesting that the bottom is near. On foreclosures, is that?

Vic: Well, yeah, go down to the graph. So the headline is that foreclosures are increasing. Keep going, next one. Because of that, foreclosures are about to be finished.

Vic: Okay. That’s what the headline says. Yeah. And when I look at this graph, which is the link for people that are listening, it doesn’t seem like it is slowing down, and so it’s like straight up. In delinquency rates. Yep. Now foreclosures are the next step after delinquency. I’m hopeful that we’re at the peak and it’s just about to turn over.

Vic: But I don’t see a lot of indication that it actually is slowing down. So it would be great if it, if we’re at the bottom. I don’t know that I, [00:08:00]

Marcus: Well, what was the point of the article in terms of like saying that foreclosures were indicating that the bottom is near?

Vic: The basic point is that, uh, banks do not want to foreclose.

Vic: They don’t want the Of course not. They don’t want to do it. They try to delay. Yeah. And so the fact that foreclosures are ticking up is indicative that banks are taking their medicine and therefore we are, you know, Beginning to have the end of this process. Okay,

Marcus: so near is a relative That’s what

Vic: that’s why I jumped in.

Vic: I don’t like the title. It’s kind of a yeah, it’s a relative term Yeah

Marcus: near is relative near could mean in the overall cycle we’re near the bottom because We’re in the phase of the cycle where the banks start to take their medicine We have no idea how deep that medicine cabinet goes, right? I mean, yes, that that could that could be a while Yeah, I mean depending on how many bad loans are on the books

Vic: Well, there’s a lot of bad loans in the books.

Vic: I think I think [00:09:00] we know there’s a lot of bad loans on the books The question is I mean bad loans that get to foreclosure. Yes, that’s what

Marcus: that’s what I

Vic: mean. Well, they have foreclosed on 13 which is You know more than more than a long time since like 2015. That’s a lot. Um, there’s a lot more that are um in Default and haven’t been foreclosed on yet.

Vic: They’re in technical default um The hope is that the Fed cuts their rates and people move back into offices and everything is happy again. It’s certainly true that it’s a sign that the market is starting to take its medicine and heal. I’m not sure I agree with the conclusion that we’re near the bottom.

Marcus: There’s a graph here of foreclosures on the rise, and it shows that tick up that you were talking about. Um, it measures here in billions across the years. Um, coming out of the, the great financial crisis, you know, there were [00:10:00] five years of, I mean, 35, 40, 45 billion dollars worth of foreclosures kind of year over year.

Marcus: Um, so, so we’re, you know, we, we just crested above 20 in the last quarter, but we got a ways to go to get to that amount, but we are heading in that direction. So, um, I, I think basically what they’re trying to frame up is we certainly, a, we don’t think the problem has the depth of the great financial crisis and B, we don’t think lenders want to do anything to return to that.

Marcus: Um, what, what, what, what would the impact on the general economy be? Uh, if, if we get. You know, up in the, in the 30 billions on foreclosures. What’s, what’s the, what’s the downstream ramifications of that, uh, in terms of the banking industry falling, blowing back into the rest of the financial segment sector.

Vic: It’s a very negative headwind on the economy. The reason we had zero interest rates from the fed for. I don’t know, a decade or 12 [00:11:00] years is we were working through this, all of this backlog of residential real estate problems. It might be other reasons too, but I think that was the main reason. I hope, I mean, the Wall Street Journal has smart, Writers, so I’m hopeful that they’re right, but in my mind the change in how we work as a society is pretty significant It’s very significant and the change in interest rates was very significant.

Vic: It’s durable and it yeah, it’s durable So I am not comfortable with their assumption that this will be the end and we’re not going to return to those very large Numbers in a similar way now, it’s a different market. It’s commercial buildings I, I guess, I guess, I guess that’s what I’m trying to,

Marcus: trying to understand, right, is um, because it is a different segment of real estate, it’s still a, it’s still bank balance sheets, right?

Marcus: So, I mean, it, it still [00:12:00] impacts the banking sector and, and then what does that do to the overall greater financial sector, right? I mean, you said it’s, it’s, it’s serious, significant headwinds, and I’m not sure that residential versus commercial makes that much of a difference. I don’t think it does. I don’t think it does.

Marcus: I don’t think

Vic: it does. It is, um, It’s different, but the same impact, the same, the same like transmission mechanism from bank balance sheets to we can’t lend anymore to there’s no availability for credit to the economy can’t grow. I can’t buy a new machine. I need that transmission mechanism is the same.

Vic: So,

Marcus: and the feds answer back then was we go to zero percent and TARP and TARP. Yep. Which,

Vic: which I mean, hopefully it won’t need, but, but they could do that. That would be the answers again, I think. Right.

Marcus: Wow.

Vic: Bailouts. Okay. I mean, you probably remember all the private equity guys started [00:13:00] using TARP and low interest rates to buy up thousands of residential homes.

Vic: Well,

Marcus: I mean, I think the reason why we’re covering it is because, um, we like to understand what’s going on in the broader economy, but also, like, in the context of what we do, it’s still, generally speaking, winter in the private markets, right? And as much as we like to, um, You know, cheer for the overall economy to be healthy.

Marcus: The reality is, um, 2010 to 2020 was a boom time for the private Yes, market industries, venture capital, you know, and yeah, for private equity. And, um, this, this real estate thing kind of hovering in the background while our private markets remain in winter, you know, maybe it’s getting into spring, you know, but it’s still winter for the most part.

Marcus: Um, it’s an interesting dynamic, right? You

Vic: know? Yeah. And that’s part of the reason we cover it. The other [00:14:00] reason is that a lot of the tools the Fed would use for instance, a tarp like bailout or zero interest rates or a quantitative easing. I mean, there’s a, there’s a set of tools, but it’s not infinite.

Vic: We can guess what they would use. Those have also a transmission mechanism that goes through financial assets and it props them up dramatically, which is good for our portfolio. And then it eventually flows through into the overall economy. And so the, They’ll this either will resolve itself without support.

Vic: Which would be good for the over economy or the Fed will have to step in and then there’ll be a lot of money printing, a lot of inflation, but also financial assets like venture capital assets will, you know, be very high and that’d, that’d be good for us. But we want to know so we can be ready to sell and [00:15:00] our listeners should be aware that, you know, that the Fed has tools to bring to bear, but they cause inflation.

Vic: And they benefit people with stock market portfolios, which is not all of America. And then that causes, uh, challenges in our society around like culture classes and haves and have nots and all those issues. Right.

Marcus: Okay. And then the, the final point being, uh, while we can’t be certain about what one administration might do versus another administration, we do know during, um, the GFC, um, Democrats were.

Marcus: We’re in, in the White House and we’re about to have a big, a big situation here, uh, in, in our, in November. And it’s, it’s, it’s still kind of a toss up. I mean, any given week, we, we, we’ve got sort of different set of polls, um, laying out what will happen. And so, um, whoever that next administration is, it’s, it’s unlikely this actually hits its, its, uh, conclusion where there might need to be some serious action [00:16:00] coming in between now and November.

Marcus: It just doesn’t seem like it’s that, uh, much on the bubble. Um, And this is probably a problem that the incoming administration will have to address in some way, shape, or form.

Vic: Yes, and it doesn’t matter if you’re right or left. If you have significant real estate problems, financial crisis, financial crisis, you gotta, you have to deal with it.

Vic: And the Fed only has certain number of tools. That’s right.

Marcus: Okay. Uh, this is a story that you didn’t love that much, but you just wanted to introduce it. I think because, because of the last story. Yeah. Right. Right. Yeah. So the wall street journal headline is the haves and have nots at the center of America’s inflation fight.

Marcus: So effectively talking about, you know, Why inflation is so problematic. Um, I have to admit personally, like inflation is starting to kind of kick my ass personally. I’m just getting tired of like every day. I’m just looking at what I’m spending and I’m like, man, I’m spending a lot of money every single day just to live on

Vic: little things.

Vic: But I just, I used to [00:17:00] go to a, there’s a grocery store here in town that I like their deli area. And I went there a couple of times a week to, to, to, you know, I can’t go there anymore. I spent 22 on lunch, and I just got a salad I made myself. And that’s the kind of stuff that I notice now. Can I afford 2020 something dollars for lunch?

Vic: I guess so. But not comfortable. I don’t want to write.

Marcus: Yeah, don’t want to. Yeah. So, I mean, I think we we’ve we talked before the show. We’re committing to try to find some more sources that I think could do a better job than maybe the journal on on a story like this. Um, substack and trying to find maybe some more citizen journalism that can better represent.

Marcus: Uh, what? What the average American is experiencing because because the average American is about to have a huge say in November and inflation is really going to be the top issue. I think, I think at the end of the day.

Vic: Yeah, I think that’s right. And there’s a couple ways. I mean, there’s two different views of how to change it broadly, and [00:18:00] we don’t need to get into the details of it, but I think that the Democrats will try to do things like the Inflation Reduction Act to to use the power of government to help people.

Vic: Stimulus. With yeah, I mean, yeah, that’s what it is. Well, they’re negotiating pharmaceutical prices, which is not stimulus Well

Marcus: that hasn’t well a that hasn’t come to fruition yet. Yeah be the Average american has not felt those savings In in their drug spending yet. So I mean you could talk about the work, but you actually have to bring receipts Yeah, when it comes election time

Vic: and then the republicans will attack inflation Differently trying to reduce regulation or things but neither side has a really good recipe.

Vic: Inflation is very difficult to stop Yeah, it’s

Marcus: sticky. It’s difficult the the um, the challenger brand the republicans in the in this case They have the benefit of not being the incumbent, right? So to me to me, it doesn’t matter what the policy is It just matters who’s the incumbent versus who’s not the incumbent the challenger

Vic: always will have an

Marcus: advantage [00:19:00] challenger has an advantage And so how does the incumbent?

Marcus: um Convince people that they, that they can manage the problem and they’ve got it under control, right? Um,

Vic: and, And it’s gonna, unless something changes radically, and the Fed cutting rates is not likely to make it change radically, The incumbent, the Democrats have had a lot of inflation. Yeah. Now there’s the pandemic, there’s all kinds of stuff.

Vic: I mean, but who, who caused it is not necessarily going to matter when people are thinking about like, what did lunch cost today? It never,

Marcus: it never does. It never does. I mean, you know, we’re, we’re just talking objectively about the way that elections work and it’s not about who caused what. I mean, obviously there’s, always spill over from previous administrations into the next one.

Marcus: You know, they’re always inheriting the, you know, yes, the last administration’s bag. Um, okay. Going into our VC deal review, uh, mental health benefits company, spring health has 3. 3 billion valuation boosted by a hundred million dollar series E round. Big rounds are back, man. Big rounds and big valuations are back.

Marcus: And, uh, this is second week. We’re talking about a really big mental [00:20:00] health company here. Um, so mental health is, is hot and scaling.

Vic: That’s right, and I think and it should we need a lot of services and all of these big, um, private companies are using a combination of, um, digital services, sort of. in conjunction with in person services, which I think makes a lot of sense.

Vic: The thing that I’m noticing that I want to get your thoughts on is, it’s kind of like a, a barbell sort of private market. There are very big deals that are happening and then really little seed deals. It’s not a lot of those like, no graduation series. Yeah, there’s no graduation. So that means like going from C to A or A to B those middle phase ones where you.

Vic: You need to you’ve hit everything you wanted to hit that you told your board and your investors you would hit And it’s time to raise the next 10 million dollars. Those rounds are really hard to come by right? Yeah.

Marcus: Yeah, I mean [00:21:00] We we’ve we’ve talked on the show about how seed is kind of like the new a and and seed companies have to become Economically productive.

Marcus: Yeah, meaning so i’m not speaking in code meaning you got to be able to show that you can generate a Really, really good revenues with good margins and at least get to cash flow positive if you want to, you know, like you gotta be able to do that at seed. I mean, it’s it’s the bar is now so high to graduate to to an a, um, you know, it’s just, it’s hard.

Vic: Yeah, I’m, I’m definitely moved into like a preaching category that my, my manager teams are tired of me preaching about, but you got to be, be resilient. Like it’s anything could happen, right? We could have a cyber attack. We could have the, the election’s going to freeze a bunch of stuff. And even if it’s not that you have a lot of trouble.

Vic: So getting to the ability to be casual positive, pay your own way while you’re waiting. If you can do it, it makes a big difference. Yep.

Marcus: Yep, [00:22:00] absolutely. All right. We’ve got a couple of more pretty big rounds here. Fertility and period tracking app flow health banks, 200 million to reach unicorn status.

Marcus: Another story in fierce healthcare.

Vic: Yeah. Yeah. So women’s health, uh, really is having a moment, a lot of attention on women’s health broadly. Um, we have a portfolio company that’s doing well in women’s health as well. Certainly not a unicorn, but, but gaining a lot of traction. Um, And so I think it’s great to see it’s been an area that wasn’t invested in for decades and and flow does a great job.

Marcus: I think of note flow is based in London and raised their series C from General Atlantic. So, you know, this is, uh, we don’t see this every day. Um, a big health tech company from, uh, from across the pond getting, you know, hundreds of millions of dollars from a U. S. backed base VC. Um, so that’s, that’s really impressive.

Marcus: Yeah, yeah, that’s right. So congratulations to the flow team. Uh, and then final story here in the wrap up, uh, Kestra medical technologies lands [00:23:00] 196 million to boost commercialization of a wearable defibrillator. So that’s really cool. Uh, it, it basically, they’ve got a picture here and it’s like a vest, uh, that you, you just strap on underneath your, your clothes and you’ve got a defibrillator.

Marcus: Now, what is the disease situation that would require you to be? Constantly wearing, um, a defibrillator,

Vic: I assume it’s that you have, um, some kind of heart failure, maybe really bad a fib or some, some problem that you have to wear it. Um, they have. They say in the article that it’s, it’s much more common that women have this, this situation where they need the wearable defibrillator.

Vic: Um, but I don’t know the, the details enough. We need to ask, uh, Dr. Riddick or Dr. Reddy, or healthcare, or cardiac experts in it, but, um, 196 million is a lot of money.

Marcus: And [00:24:00] this device has been used by 10, 000 patients. And it’s also, uh, I didn’t point this out, but it is specifically designed for female cardiac patients.

Marcus: So in that way, even though it is a, it’s a cardio, you know, deal, uh, it is, it’s a woman’s health again.

Vic: Yeah. Yeah. Yeah. I didn’t actually, I didn’t put it together like that, but yes, it’s another woman’s health.

Marcus: Yeah. So, uh, so good news to see these, you know, nine figure deals, uh, happening. Yeah. You know, we would love to see more.

Marcus: Large eight figure deals happening. You know, let’s get, let’s get some 30 and 40 a million dollar deals happening. Cause it’s kind of like you said, the barbell, a lot of fours and fives, and then, you know, 200 and not a lot in the middle, uh, all right, moving on to policy land, uh, FDA has issued an alert to, uh, Everybody about compounders who are making glp 1 and selling them and basically saying we’re seeing Lots of overdoses due to the inability to accurately measure the dosing [00:25:00] Um, and it’s sending people to the er they’re having, you know, nausea vomiting dehydration Lots of you know, pretty bad and unpleasant.

Marcus: Um side effects coming with the, with the overdosing. Nausea is kind of, I think, a pretty typical side effect that comes with the GLP 1s. But when you overdose, obviously, you know, it can send you into a binge. So, uh, this is, this is noteworthy because we’ve been talking about how there’s a shortage of GLP 1, uh, drugs from the major pharma companies, uh, Novo Nordisk and Lilly probably being the two biggest brands out there.

Marcus: Um, and so companies like Rowe, who have become very popular for selling, uh, Um, ED drugs, hair replacement, um, uh, treatments and things like that started, got, got approval sort of in like an emergency approval, uh, to compound these, these drugs. And now the FDA is issue issuing an alert, uh, talking about the dangers that are coming with these compounds.

Vic: Yeah, [00:26:00] that, that’s right. And I think that, I mean, listen, the DLP one medication, if it is dosed properly. It’s difficult to titrate and get correct, and so even working with closely with your doctor and using one of the, you know, FDA approved and produced by Lilly or Novodortis, it is difficult in that setting to get the dosage right.

Vic: Compounding is I think it’s allowed in any situation where there’s a shortage of the drug and you don’t cross State lines. I think that’s the federal rule And so the FDA can’t really stop it from occurring because it’s part of the regulatory landscape I’ve seen probably hundreds of startups That are trying to fill this space.

Vic: You mentioned some of the large, better known brands that are doing it. Um, I mean, there there’s [00:27:00] like pieces of paper posted on telephone poles saying, call this number. If you can, you can get your GLP one for 200 a month. Of course, it is more risky to go with a compounding source that you don’t really know exactly what’s in it’s made.

Vic: Everyone is made one at a time. But the entire market, I think, is a challenge. So from a dosing point of view.

Marcus: Yeah, well, I mean, I think I think you’re right. There’s there’s not anything that can immediately be done. However, because of the popularity of these drugs, I think. You could get into a situation very quickly where there is a substantial, or at least statistically relevant, number of overdoses that start to, you know, be registered in the healthcare system, and it forces some form of enforcement action, and that enforcement action may or may not be, uh, That easy to enforce, but it could create [00:28:00] additional expense for the companies that are doing the compounding, which then changes the calculus of whether or not you want to actually be in that business.

Marcus: Right? So there are things that the FDA can do if, um, if the compounders are not able to get this problem sort of solved. In hand, and I think you just made a really good point, which is it’s probably not, you know, the rows of the world that are very, very well capitalized. I think Rosa publicly traded company, you know, that’s not really who we’re worried about.

Marcus: It’s many of the smaller players who are out here who are, you know, Mixing this stuff up.

Vic: Yeah, and honestly, that’s the reason that’s the primary reason that I at least in my fund We haven’t invested in it. Not that it’s it can’t work and it’s not profitable It can work and it is profitable, but I was concerned.

Vic: I am concerned that there’s gonna be Lots of negative press and bad actors that aren’t anything to do with the company that I was involved in that would pull the whole thing down and make it challenging. So,

Marcus: uh, and then [00:29:00] wrapping up policy for this week, Utah has created a new AI office and they are focusing on gen AI and mental health care.

Marcus: Um, this is sort of. Part of the course with Utah, um, kind of going above and beyond when it comes to putting regulatory protections in place as it pertains to technology, especially internet based technology for their citizens. Um, listeners may know that, uh, the state of Utah was one of the few states to put, um, age gating, um, and age verification in place for pornography online.

Marcus: And that. Sort of was a big deal for a little while. I mean, it’s, it’s still, it’s still in place though. So this got a bunch

Vic: of alcohol laws that are just, yeah,

Marcus: exactly. So, you know, you taught that this, this is, this is kind of the thing that they do. Um, and, uh, now they’re focused in on AI and, and gen AI in particular in health, in mental health care.

Vic: That’s right. And, and I feel like a broken record. I appreciate the sentiment like trying to protect their [00:30:00] citizens and I agree they have a track record. If you live in Utah you know that the state is more active in trying to protect you from what the state perceives as things that are bad for your health and you probably appreciate that or you wouldn’t live there or at least it’s as a trade off.

Vic: Their ability to actually take a BYU You know, math professor and have him pull a team together to actually regulate behavioral health. A. I, I question, but it is it’s on brand for Utah.

Marcus: I mean, I guess the only thing I would just say there is you and I have experience with Utah, right? We, we, uh, um, oh, yeah, there’s great people.

Marcus: And, uh, yeah, and

Vic: Utah University is incredibly innovative.

Marcus: Yeah. I mean, I guess, I guess, um, What I would just say is that what I have experienced in Utah is that they [00:31:00] have my experience is limited to Salt Lake City. I’ll preface that, but they really have integrated their business community with their higher education.

Marcus: Institutions with their state government and in a pretty tightly knit way where I think they’re able to pull this stuff off in a way that other states, I think, would not necessarily be able to pull that off. So that’s, I mean, I just, I just think they are, they’re well organized and integrated, um, in a way that a lot of other states are not.

Marcus: Yeah, and I’m not trying

Vic: to pick on the particular person who got tasked with leading this. I think it’d be very difficult for any person coming out of a university who isn’t very, very deep in Gen AI to be able to keep up. It’s just, it’s moving very quickly.

Marcus: All right. Our, uh, our payer rundown, uh, Cigna’s EverNorth Health Services drives revenue growth.

Marcus: Let’s see here. Adjusted income from operations was [00:32:00] 6. 72 a share. Uh, Cigna has exceeded analysts expectations and it’s driven by their health services division. For those who’ve been tracking, EverNorth is effectively Cigna’s version of Optum, um, and they have been building it out, uh, pretty aggressively over the last two, three years, uh, as they’ve focused in on the consumer market, uh, sold off their, their, uh, uh, health spring business.

Marcus: And, uh, now they’re starting to reap some benefits from it.

Vic: Yeah. Seeing as a well run payer, I think we’re, we talked about this maybe last week or the next week before the trend is now health systems and payers are both beating earnings numbers, beating revenue, uh, seated and raised guidance, but several are raising guidance for the year.

Vic: It seems like everyone is doing really well in health care, which is, which is great to say.

Marcus: Great. Awesome. And Centene, uh, I think we, we had predicted this, um, but they are posting, uh, 1. [00:33:00] 1 billion in Q2 profits, uh, as they’re facing down Medicaid headwinds.

Vic: Yeah. I, I don’t know what people mean with, uh, Medicaid headwinds.

Vic: Yes. Yes. The redeterminations is moving some people off the rules, but I think that’s what the pricing is up dramatically. Yeah. And so yes, Centene is doing very well, uh, over a billion dollars in profit. And I, They’ll continue to do well. Yeah.

Marcus: Med Medicaid all of a sudden has become very, very attractive.

Marcus: That’s right. Uh, alignment healthcare raising their full year guidance after a favorable star rating recalculation.

Vic: Yeah. So this is one of those that, that was, uh, really bent it from the, from the recalculation and the reversal of basically the star rating, uh, challenges. And, uh, how big is this plan? It’s not that big.

Vic: It’s, uh, 200, 000, 100, 000, 175, 000 members. Okay. So it’s small. This is one of those, uh, tech [00:34:00] forward payers. Ah, this is for tech. Yeah, yeah, yeah. Okay.

Marcus: And, and they, and they are now, uh, beating their expected earnings because of the reformulation of the VARs. That’s right. After the, the loss in the court case for CMS.

Marcus: Yes. Wow. That’s right. Talk about a court case deciding a quarter. Yeah, this is another very, very small pair of folks in L. A. L. A. Care tasks social workers to serve the unhoused population.

Vic: I’m interested in this because we have a lot of homeless folks in the country. L. A. has 20 percent of them. In this story, it says that, which was shocking to me.

Vic: And I think it’s great that the payer in L. A. is now trying to address that. Um, by bringing social workers in and and sort of meeting them where they are in in the street as opposed to waiting till they get to the emergency room.

Marcus: I mean, when you’ve got one in five homeless people living in your county, [00:35:00] there’s a real economic impact to doing this kind of work.

Yeah,

Vic: I mean, it’s yes, it’s it’s important to do and it is. Terrible that there’s that many homeless people in L. A. County, but apparently there are

Marcus: all right, uh, Teladoc posted an eight hundred and thirty eight million dollar loss in q2. Um, Teladoc has just really Not been able to get their act together.

Marcus: I actually didn’t know that they had acquired better help. Um, but they apparently have laid out better help, uh, in, in a strategic pivot that they’re making. Um, but man, a loss of almost a billion dollars in Q2 alone. Um, and failing expectations specifically for better health. That’s, that’s rough. I mean, you know, what do you think about that?

Marcus: I mean, Better Health is kind of like probably the number one brand out there in telebehavioral health. You [00:36:00] know, you see their ads all over social, on television. So, you know, you know the brand for sure. We’re seeing these multi hundred million dollar Uh, rounds in V. C. Series C. Series D. Um, expanding and it seems like, you know, successfully expanding mental health services.

Marcus: What is it about the Teladoc model that is so beleaguered? Um, where, you know, payers are doing well right now. Providers are doing well right now. Uh, you know, these, these matching platforms are doing really well, but, but something about the Teladoc model is just fundamentally flawed and today, at least in today’s environment,

Vic: I mean, their, their core model is providing telehealth services to at first payers and then payers and providers that didn’t want to deal with setting up themselves.

Vic: That, that’s overly simplistic, of course, [00:37:00] because they’re 15 years old and have done a lot of good in the world. But telehealth is very common now. Every, every health system has their own flavor. Many of them used Teladoc for a little while and then decided we, we can do this with a different provider.

Vic: And, and so I think they’re, they’re like the, the Cadillac premium BetterHelp is kind of that too. But there’s, there’s a lot of competitive. So all of these rounds that are doing behavioral health

are spending money

Vic: on ad spend and the cost to acquire. I mean, they say in here they were, they’re moving away from, they’re not providing guidance on better help at all anymore because the customers are taking costs are unpredictable.

Vic: I think that means really high, um, and, you know, when it is super confusing and hard to know how to engage in this [00:38:00] TELA thing, Teladoc was the leader and the, the place that taught us all how to do it. And really they got reimbursement first through the payers and that advantage ran out a long time ago.

Vic: And so now they’re, they don’t have a new strategy as far as I can tell.

Marcus: Yeah. I mean, the better it says here in the article, the better health, uh, revenue is, you know, just over a billion, 1. 13 billion, uh, in, in 2023. Um, they actually had a decrease, uh, in, in, in revenue in Q2, 9 percent decrease. So they were down to 265 million in that quarter.

Marcus: Um, the whole business is, you know, a little over a billion dollars, and they’re almost losing that much as a total enterprise in the quarter.

Vic: And I don’t think the Teladoc platform is all that profitable itself. So, the whole thing is, I think, a wonderful story in 2010. And [00:39:00] not necessarily that exciting of a story in 2024.

Vic: Yeah. And then, yeah, so this is their stock price. Yeah. Over the course

Marcus: of the year, it’s gone from somewhere around 28, uh, down to 8. 59.

Vic: Yeah, so they’ve lost 69 percent in the last 12 months, and it doesn’t seem like it’s stopping there. That’s rough.

Marcus: Uh, okay. Jefferson and Lehigh Valley Health Network complete merger.

Marcus: We talked about this right as they were starting their discussions around this, and they’ve been able to successfully complete their merger. That’s a pretty big deal.

Vic: Yeah, which is great. And, um, I’m excited to see things get through that whole process and close. And I think they have a lot of synergies together.

Vic: I mean, they’re, they are near each other, but they’re not, I don’t think they overlap much if at all. And so it’s a, it’s a pretty good, pretty good merger. We’ll give more scale to both. Yeah, 32 hospital

Marcus: system. [00:40:00] Uh, they’re now one of the, uh, 15 largest nonprofit health systems in the United States. So that’s, that’s pretty significant.

Marcus: Um, they’re going to be able to create more educational opportunities. Uh, look, I mean, nonprofits, need to merge.

Vic: They

Marcus: need scale. Yes, you

Vic: and Emily taught me when I was, uh, floating on the Pacific, that nonprofits need to get scale. They need to get more, um, more professionalized. They need to really start thinking about their Afro networks and how do they get their catchment area aligned with diagnostics.

Vic: And, and so this is a step in that direction.

Marcus: Alright, our pharma stories. GSK lifts guidance after their HIV and cancer treatments boost sales. They said that they expect their 2024 revenue to grow between 7 and 9%. So that’s a good result.

Vic: Yeah. So again, on the theme that everyone in health care is doing well.

Vic: GSK is doing well

Marcus: and on a not so great note, [00:41:00] we’ve talked in the past about how the business model for antibiotics as a they are getting more resistant. Um, or I should say the diseases are resisting antibiotics, um, as well as the payment models are, are really sort of pushing down the margins is making it much, much harder for you to operate this kind of businesses.

Marcus: And, uh, the Wall Street Journal is here covering right here in Tennessee, in Bristol, Tennessee, uh, U. S. antibiotics is, uh, potentially going to go out of business. And they

Vic: make

Marcus: boxes,

Vic: Helen. That’s a big one. We’ve all, everyone knows amoxicillin. Everyone has had amoxicillin. And There is no way that our country can survive without generic amoxicillin.

Vic: Period. I think that’s the end of the discussion. We need to figure out a way [00:42:00] to design the market so that we can continue. This is a significant operation and they’re on their third owner. Every owner so far has lost money and lost money and lost money and it’s not going to work. They’re not going to be able to continue.

Marcus: Yeah, and and just for for anyone who wants to know the scale of this every day they produce 1 million doses of amoxicillin.

Vic: Yeah

Marcus: for America

Vic: and our the sources are from India and China Nothing wrong with those sources, but they’re a long way away other side of the world and Especially on the China side, we have geopolitical risks where they could decide to not send them at some point.

Marcus: I mean, this is exactly the kind of situation where you have to sort of look at the potential risk here and say, The government has to step in and do something, right? We cannot fully outsource our generic antibiotics to other [00:43:00] countries. Yeah, it doesn’t make sense. No, that’s crazy. You can’t let them win on price.

Marcus: You know what I mean? And, and not acknowledge how that creates a serious vulnerability, um, in, in our own sort of resilience as a nation.

Vic: Yeah, I think it’s crazy. It’s very Straightforward. And yet neither side is even

Marcus: talking about it. Yeah. Yeah. I mean, it seems like a pretty easy win actually. Like, I mean, this, it’s a pretty scary story.

Marcus: Yeah. If you could manage to get some airtime and like float this out there, it’s pretty scary story. You know, yeah. Um, so, so it seems like a pretty easy opportunity for, for somebody to, to, you know, make a policy promise and, uh, you know, get a lot of support around it. Uh, and then I love this story. So Wall Street Journal covering the companies that, you know, I feel like Theranos is now far enough in the past that we can wrap our heads around the idea that maybe the science has advanced enough that a new company might actually be able to do what they’re doing and okay, not [00:44:00] everybody is going to be Elizabeth Holmes in this kind of like, you know, Sociopath or whatever, right?

Marcus: Uh, so it’s great because the reason why Theranos was so hot is because it was an amazing promise, right? It was an amazing, amazing promise.

Vic: No one likes to give a lot of blood to have a diagnostic test done. I mean, I don’t mind it, but no one likes it. That’s right. And if you could do the same analysis with a drop of blood, what would you do?

Vic: Be amazing. It’s amazing. And, and really, and Theranos taught us that that would be great. That’s right.

Marcus: Yeah.

Vic: We

Marcus: know there’s market appetite for that.

Vic: And I, but it also sort of exemplifies. Um, I think why we here in Nashville continue to have success investing in venture, um, Elizabeth Holmes did the Silicon Valley kind of process of move fast, break things.

Vic: Yeah, there’s going to be rules that you bend or even break along [00:45:00] the way, but we’ll figure that out after the fact. And Uber, Airbnb, lots of people have challenged regulators and kind of won, meaning they have a huge net worth. That is very difficult in healthcare. I’d say it’s impossible. Certainly, Elizabeth Holmes didn’t succeed.

Vic: Right. You have to follow the rules. Um, and she wasn’t. But now, the um, Truvian, I think you said that, Truvian Health, um, and there’s a couple others later in the story. Yeah. Yeah. Um, are taking this technology and improving it and doing it in open, doing it with the regulators. Yeah. And they’re making a lot of progress.

Vic: I mean, these

Marcus: are real companies. Yeah, that’s right. You know, Becton Dickinson is a real company. Yes, yes. So, um, you know, it’s, immediately, they’re not going to be, you know, pulling the switcheroo on you, right? Right. I mean, they’re going to, they’re going to walk the path. They have patient capital. They have a broad enterprise.

Marcus: They have lots of resources. And [00:46:00] great, great relationships, great relationships with the FDA. Yes. So, you know. They’ll, they’ll, they’ll navigate this, this process.

Vic: And it’ll be great for patients and great for whether it’s the government or employers or, or whoever’s paying for it will be, it’s better to get more diagnostic early.

Marcus: Yep. And then, uh, sort of your special interest story here, uh, about health and us forget cutting sugar. New tech makes it healthier instead. So, uh, you know, just look, it’s just par for the course, GLP ones. Let’s just turn sugar into fiber in the gut with, with, uh, with. You know, with science.

Vic: That’s right. So this company is adding their special enzyme to sugar so that when you digest it, it, it converts it to fiber and it ends up being moderately healthy as opposed to not healthy or quasi toxic.

Vic: Uh, it’s too expensive today, but they’re working to make [00:47:00] it less expensive and I’m all in favor of it. I, uh, I have a sugar. interest, but I can’t eat very much of it because it’s not very good for you.

Marcus: Um, so I, I, I mean, I need to be watching my sugar because, uh, diabetes is just something that, you know, I have a genetic predisposition for, um, that’s a maybe fancy way of saying it runs in my family.

Marcus: Uh, but, um, in terms of fiber. So recently, uh, I did some blood work and my doc Basically was like, okay, uh, I, I think I tell you about my LDL and APOB going kind of going in opposite directions, um, which, yes, we talked

Vic: about that. I don’t think it was live. We talked about it, uh, when it happened. Yeah.

Marcus: Yeah.

Marcus: So my LDL like dropped by 20 points, my APOB like went up by 20 like kind of like insane. Um, and so that, that brought a focus on, uh, size of my LDL particles and, and talking about fiber. And so, uh, What I’ve [00:48:00] been doing every day is making a smoothie in the morning, and it’s a, it’s a berry smoothie, and, uh, it’s, it’s pretty crazy, dude, but I put a half a cup of ground flaxseed in this smoothie.

Marcus: In the smoothie. Yeah. It’s pretty thick. I mean, I put water in there like just like half of half a cup of ground flaxseed is like half of the fiber you need for the whole day for the whole day. So it’s like in this one smoothie that I drank in the in the morning. Um, and. It’s been pretty powerful, man.

Marcus: It’s been pretty powerful to, like, just inject half of my daily fiber, you know, in the first couple of hours of the day. I mean, it’s, and it just kind of shows me, wow, I was not getting adequate fiber before. Like, it’s like, it’s pretty transformative. Um, and I think most people. Have no idea how low their their fiber intake actually is right?

Marcus: Yeah, I think [00:49:00] it’s I think most of us are not even coming close to the recommended daily Intake of fiber and so this is to me I thought this was really really interesting because it does have a lot to do with a lot of different things cholesterol being sort of a big one and And, uh, you know, one other thing I was talking about also

Vic: kind of slows the processes.

Vic: You don’t get that sugar spike. Yeah. Yeah.

Marcus: Yeah. Well, one other just thing on this, on this front, I was talking to my, my trainer, um, and he is really into sort of, Where everything is going from a physiology perspective and the bleeding edge, you know, of like, you know, exosomes and peptides and all that kind of stuff, you know.

Marcus: None of that stuff is FDA approved today, right? You know what I mean? Like, you gotta like go to Tijuana or something like get it, you know. But he tracks all that stuff and, and he thinks, and you know, this is a guy who, you know, he, trains every day, trains people, you know, um, he thinks we are heading for, um, [00:50:00] a world maybe 2025 years from now where literally it’s just like a shot and everything you get in a workout, you just get a shot for, you know, so like what, what we have today with GLP ones.

Marcus: In terms of like it driving your weight loss. He’s like, I think in, I think in 20 years they’re just gonna give you a shot and like you’re gonna get mu muscle density. Like all the contractions, all the things that we’re doing in this workout are gonna be delivered via, via science, which I’d like, I don’t know If

Vic: I buy, that would be great.

Vic: I didn’t

Marcus: love at all. Okay. Well, would you have bought GLP ones 20 years ago?

Vic: No, yeah, okay. I’m not I don’t I don’t buy them now. Well, I wouldn’t use them. They wouldn’t use them now I guess yeah. Yes. Yes. America’s america’s buying it. Oh, yeah, if there’s a shot america will take it. America’s gonna take it Yeah,

Marcus: america’s gonna take it.

Marcus: Look i’m not taking it either right, you know, but I just think this, this trend is inevitable. Clearly Americans have said, um, [00:51:00] and look, I think it’s fair when you, when you think about, uh, you know, the economic pressure, inflation, you know, job market, all these other kinds of things, you know, people don’t have money and time to maybe do all the things that, that one should do to be healthy and, you know, maybe they’ve tried and they just don’t have the right environment or they haven’t found the right.

Marcus: Thing for their body type or whatever, and it’s like, okay, gimme this shot man. I wanna be healthy. Yeah. You know, I’ve tried other things, you know, it’s not that I haven’t tried these other things I’ve tried. It’s just not working for me. Gimme the shot. You know? And I think more things are gonna be figured out.

Marcus: I mean, the idea, there’s no question about that. The idea of an enzyme that turns sugar into fiber.

Vic: Yeah, it’s brilliant. I mean, if it were, if they can get it at the right cost point, it’s probably brilliant. Um, and that’s a good lead. And my guest, so I have a guest episode. You weren’t able to make it, but I had a great conversation with Dr.

Vic: Eric Oberg. And we talked about all of these. It’s a longevity discussion, but she talks about the exosomes and, um, How you would engage with that [00:52:00] sort of longevity space. Um, so it’ll fit well with this. I did it last week. It probably, I think we’re going to push it out next, uh, coming up. So next week, next week,

Marcus: I can’t wait to listen to it.

Marcus: Um, so anyway, I just thought this was. A really interesting story given like what I’m doing for fiber right now. Yeah, which is chugging a half a cup of ground flaxseed Uh, yeah, I think a lot of people would prefer to just turn their sugar into fiber than do what I’m doing Uh, all right now finally running through all things ai Cleveland clinic names their first chief ai officer and guess what he does not come from the healthcare industry.

Vic: Yeah, I Caught this because I was really um interested to see You You know, a very leading health system named their first AI officer. Um, and then as I looked into it, it’s pretty surprising that he doesn’t have experience in health. Um, I don’t know if that’s good or bad, [00:53:00] but, but that was interesting.

Marcus: Hey, he comes from a Sirius XM Pandora.

Marcus: Right. Right. Um, the music. The music world. Yeah. Um, and you know, certainly there’s a lot of great data science happening in the music world. No question about that. Um, I, I, I think the technology, uh, and the data science, you know, uh, insights can certainly Be ported over. I think understanding all the regulatory challenges and understanding the cultural challenges of the healthcare industry is an entirely different matter He is a PhD and so he at least understands academia very well And there’s certainly a lot of bureaucracy in academia.

Marcus: So I think that will give him some level of You know, familiarity with everything that’s going on there. But yeah, his background was, was, uh, Sirius XM. And then before that Verizon Media Yahoo. So he was an ad science guy. Um, you know, he’s basically been in, you know, marketing and consumer and music.

Vic: It’s going to be a, I mean, the clinic, [00:54:00] it’s what they call it up there.

Vic: It’s, uh, I mean, they invented this sort of doc specialty, uh, focus thing. It’s going to be interesting to see how. Their AI officer cuts across that. I don’t I don’t know, but it’s gonna be interesting to watch.

Marcus: Uh, so this officer is gonna report into their chief digital Officer. Mm-Hmm. . So that we know that that’s kind of the org structure aspect of it.

Marcus: And I think it just begs a, a, a question, which is, um, you know, look, uh, HCA, uh, had a Chief Data Science officer, they didn’t call it a Chief AI officer. Right? ’cause we weren’t talking about ai, but this is what, you know, Edmund Jackson did at HCA for a number of years. Um, and he didn’t come from inside of healthcare.

Marcus: Mm-Hmm. , I mean, is this. You know, and they say it was ahead of the curve on this because they had the data and they recognized it needed to do something with it. But is this the beginning of us recognizing that, uh, in order to bring. The talent that is needed into these health care organizations, that talent is not from within [00:55:00] healthcare and we’re going to be bringing in people from other industries and having to, you know, educate them and get them cultured in.

Marcus: I mean, with, with all fairness, I mean, Edmund did become quite the healthcare expert in his time at HCA and now he’s launching Unity AI, which is a, you know, a healthcare focused AI company. He could have left HCA and done any kind of AI company and he decided to do a healthcare focused one.

Vic: Yeah. I mean, my entire career in health care.

Vic: I think there’s a lot of reasons we can recruit experts from other fields to bring their, their strengths to health care and sort of harkening back to the Theranos story. You need to be a little more careful in health care than at Sirius XM. It’s not the same. So I have not. I haven’t talked to this. His name’s Ben.

Vic: I’m not sure how to say his last name. Yeah, we’re not even going to try.

Marcus: We’ll put the link in the notes.

Vic: I’m hopeful that he has an open mind and [00:56:00] he can bring his expertise and the clinic can certainly teach him about healthcare. We’ll see.

Marcus: Okay. I’m actually going to try. I think it’s Shoshani. I think that’s it.

Marcus: Yeah, Ben Shoshani PhD. All right, moving on. Okay. We have some some sub stack stories here. So Silicon Sands news. This is follow on from last week. We talked about Llama’s big release going open source sort of the meaningfulness of this and of course, you know, When you go open source, there are people who know open source and will read the license and will, you know, kind of pick it up.

Marcus: Get down and dirty with whether or not it is actually open source, and of course it is open source to a degree But there is a spectrum right is it is it spectrum is it you know is it BSD license is a canoe license Is it like true traditional open source, or is it kind of corporate open source? I think we found out that this is in fact Corporate open source.

Marcus: So the headline of this, uh, of this post from Dr. Seth [00:57:00] Gobrin of Silicon Sands News is Fopen Source Metaslama Models. And it basically shows some of the restrictions and the limitations where basically once you get to a certain level of success or, or, um, you know, uh, popularity in terms of the use of the model, some, some, some, uh, some corporate, uh, things start to kick in.

Vic: Yeah. And so. The way I understand it, you’re much more technical, so you may have a different view. But once you get to 700 million users, you need to go back to Meta and figure out some other license. The license terminates, or you cannot use it for more than 700 million users. Um, I Read that as them wanting to prevent really their direct competitors, the, the, the hyperscaler competitors from, from using this, uh, their own tool against them.[00:58:00]

Vic: But certainly if you’re trying to build a direct consumer. Model that is going to be a unicorn and and try to really go public. You may not want to use llama For for most startups that seems like a long way away for sure. But yes that that’s the that’s the significant Change from most open source things compared to minstrel, I think it’s much better.

Vic: Yeah.

Marcus: Yeah.

Vic: That, that’s, that’s

Marcus: right. I mean, I, I think, I think anyone with, with just sort of a modicum of, of a understanding of how a publicly traded company is going to act over something as serious as AI and LLMs, um, is gonna know there’s gonna be some. Some hooks in the license, right? Um, it, it, it certainly does.

Marcus: Uh, actually we were, we were talking to, I was talking to Aaron, our producer for the, for the podcast, [00:59:00] uh, before the show today. And he was talking about how chat GPT went down, you know, cause Azure had a massive, um, outage. Okay. So chat GPT went down and he was like, I can’t do work. I can’t do my job for my clients because I’m dependent.

Marcus: And I said to him, I said, you know, that’s, that’s That’s probably a good use case for, you know, downloading LLAMA to your laptop, right? And starting to train it so you’re not subject to Azure or AWS or something like that going down, right? And he was like, yeah, I totally agree. Like having everything local kind of really makes sense.

Marcus: And so in that case, that’s a really powerful use case where, um, the more people that actually say, Hey, let me just go download LLAMA, put it on my laptop and start training it and getting it to really work in the way that I want it to work. And then saying, okay, I’m going to cancel my. Open AI subscription, right?

Marcus: Because I got this thing. It’s local. I don’t pay any money for it, and it does what I need it to do. I’m never going to run into a big license issue here. And that is not going to care at all about me. [01:00:00] And I think in that context, it is still massively disruptive, but it is important to understand what the limitations of these licenses are.

Vic: That’s right. I, I think 700 million monthly active users seems like a reasonable threshold and a lot can be done below that. Yep. Um, I have tried to download it to my laptop. It’s not that easy to use. It’s not buttoned up. Yeah.

Marcus: Yeah. Um, okay. Moving on. OpenAI is launching a search engine and taking direct aim at Google.

Vic: Of course, we knew they were going to, uh, but they have not. Done it now and probably good for consumers.

Marcus: You know, I think it’s interesting. Like, what does it say that open AI is launching a search engine? Is it that they are taking direct aim at Google or is it that the search engine interface is still the [01:01:00] preferred.

Marcus: Human interface for queries, as opposed to a chat interface, right? Regardless of, regardless of the feedback or what comes out of the other end or any of that kind of stuff. I, I have, I have long question just because of my own comfort level. Like I I’m just noticing, where do I default go to get answers?

Marcus: I am still going to search engine interfaces. Um, I kind of like perplexity better than, you know, chat GPT because it’s a search engine interface, you know, more so than a chat interface. Yeah. Um, and, um, I think, I think that’s as much at the heart of what’s going on here as them taking direct aim at Google.

Marcus: I mean, you know, the fun media story is they’re taking direct aim at Google, but I think they probably are realizing there are some limitations to the stickiness of the chat interface versus, you know, the search engine interface is clearly [01:02:00] a winner. Clearly a winner.

Vic: Yeah, I mean, I view it differently. I think that the search interface.

Vic: It was the winner, is the winner for the first iteration of the web. Um, I don’t know that, we know what the interface is for the, for the AI use case. I’m on Android, and so I have a different life experience than most Apple users. And so I love the voice interface. I’ve used both, uh, open AI’s voice interface and Gemini’s voice interface.

Vic: I like them both where I can pick up my phone like you would like an Apple person with Siri, and I ask, I ask the tool in just my normal voice and it spits out the answer. It’s great. like Siri if Siri worked. And you know, Apple will get their act together eventually, and then we’ll have [01:03:00] probably 15 other ways to interact with AI.

Vic: I don’t, I’m not sure that going back to the Google kind of search interface is the end state, but, but I agree that they’re, they’re playing with lots of different ways to take their intellectual property and use it in ways that can bring value to customers.

Marcus: Yeah. And

Vic: that’s more what they’re doing.

Vic: They’re trying to kill Google. But it’s going to end up in the same place. Google and open AI are on a collision course.

Marcus: That’s right. And, and, and I mean, you know, Google created Gemini and Gemini is basically a chat GPT clone. So yeah,

Vic: there’s no like love for Google as a protected

Marcus: entity. That’s right.

Marcus: Yeah. I very much agree with you that we don’t know what the end state is. I guess. I just don’t think we have graduated from the search engine interface. I think that that’s probably more what I’m trying to say. The thing that is

Vic: great about search is it’s easier to monetize. I mean, if you ask something in a [01:04:00] search query, you’re, you have an intent to take an action that is reasonably easy to think about, like, what could we put around this that could be monetizable, whereas the chat interface is more nuanced, more complex.

Vic: It’s, it’s, you could use it for lots of different things. It’s different.

Marcus: I think that’s certainly the business case. Um, one of the things I like about the search. Uh, interface is that it is, does not give me a single result. I, the single result to me feels deterministic and it does not give me, uh, much agency.

Marcus: Um, and that could be a trick, right? But I, I certainly like the idea of searching and getting. A page of results and then thumbing through and kind of seeing what I might want there. And, and, you know, Google has already integrated Gen AI results, you know, results at the top into their search, into the search.

Marcus: So I’m like, yeah, that’s fine. You can give me that. And then maybe I kick off from there [01:05:00] into a chat about that. But also give me everything else the web has to give me. You know, I like that. I think there’s a lot of value to that. So, um, Yeah, and I’m, I’m really, lots of sides discussion. I’m optimizing for the

Vic: hands free voice thing more than the, which is legitimate, chat interface thing.

Vic: Yeah,

Marcus: yeah, that’s legitimate. Uh, all right, two more stories. Um, we had the story from, uh, Gary Marcus, who is, we should, We should just preface Gary Marcus is a big critic of Gen ai. Um, that’s his whole thing. He is a critic of, of gen ai. Um, he’s got a substack, if you read 10 articles, uh, of, of Marcus on ai, uh, 10 of ’em are going to be pretty cynical.

Marcus: Right, right. Um, but one thing I have noticed is he has moved from opinion and commentary to starting to aggregate, um, different anecdotes about. Areas where Gen AI seems to be falling short, and I think it’s helpful because we’ve had enough [01:06:00] time now to play with Gen AI, and we talked about it last week as we’re trying to figure out, is all of this investment worth it?

Marcus: I think the Wall Street is starting to ask, is all this investment worth it, right? And he is now starting to aggregate different anecdotes to show people are not actually, um, changing their productivity levels. Now, I just talked about how Aaron is leveraging chat GPT to, to build a business. Yeah, and I think when you’re talking about DeNovo businesses that start with AI in mind and really sort of optimize for it, yes, but bringing an old world or pre AI world business into the AI world, that transition in.

Marcus: It’s just not that easy.

Vic: Yeah, there’s no question. We, we had a, um, an insight, Kristen, who works with us, uh, we had a call with a bunch of our founders of what are they doing with AI? Where could we help? What can we learn from each other? And the biggest challenge is integrating the results into the workflow where I could actually do [01:07:00] something with it.

Vic: And no one has really figured out how to do that. So Aaron has his, you know. Basically him and he’s got a bunch of people that helping him do work. Um, he probably has designed a workflow around it. Maybe it’s very difficult to get the chat interface plugged into email or plugged into slack or teams in a way that really, um, scales.

Vic: We haven’t been able to do it internally. It’s hard to do it. Um, and then. The other thing, the second story on here is interesting too, like, you know, Meta came out with their celebrity AIs where you could, you could, you could chat with a famous celebrity. They paid a bunch of people a bunch of money to leverage like Mr.

Vic: Beast or whatever, um, and then they just shut it down. Because it, no one cared. No one cared. Like, the part of, like, interfacing with a celebrity is, like, the real person. Yeah. Like, the excitement is with the real person. If it’s a fake person, it’s not that you [01:08:00] need to know what Mr. Beast likes for lunch.

Vic: You want to, like, actually hear what he’s having for lunch. And if you say it’s a fake AI, you lose a lot of the value of it, I think.

Marcus: Yeah, so, I mean, there’s a series of stories here, one is about, um, a CIO that cancelled a Microsoft AI deal, and it was a pharma company, so, you know, pharma company A’s, that ain’t no small deal, um, there’s just a variety of different anecdotes in here that, that, uh, that Gary Marcus has, uh, collected, and I think it’s just, it’s timely to start really Evaluating the investment that was made.

Marcus: Um, you know, uh, Mark Zuckerberg took a ton of heat for the Horizon Labs investments that he was doing, you know, billions of dollars to build out the metaverse. He ended up having to walk that back. Um, you know, it’s not that he’s, you know, Quest is still a thing, but he’s, you know, you don’t hear him not constantly talking about the metaverse anymore.

Marcus: Um, and look. All [01:09:00] of the magnificent seven made all these AI investments. That was the, clearly that was the, the, the hype cycle story that rose, uh, all of those boats over the course of the first two quarters of this year. Um, and we know that because NVIDIA. did the best, and their whole story right now is AI.

Marcus: Uh, and right now we’re having a big, Huh, what’s going on here? Why do we spend this much money? Is this really worth what we say it’s worth? So, that’s, I think the scary thing about this is not just Gen AI. The scary thing about this is that

Marcus: these seven companies, because of AI, have propped up the S& P 500. That’s right. And if you, if you take away the AI story and you take away those gains, you got a whole different question about how our economy is actually doing.

Vic: And so back to the beginning of this conversation, this is just [01:10:00] beginning.

Vic: This was the first quarter. The last story is about Microsoft with the same issue. So click on that. Uh, we can talk through that, but they have the exact same issue. They’ve spent, you know, a ton of money. And they haven’t yet really seen the benefit, which is what we talked about with Google last week.

Vic: It’s, it’s, everyone is, we’re starting to see this percolate out. Um, and I think in another two quarters, it’s, it’s my belief that you’re not going to see that the, uh, workflows get all cleaned up and huge productivity gains. And so the, the bloom is going to be off the roost. The election will be over.

Vic: We’ll have had two or three fed rate cuts, and it’s not clear what is going to help the economy keep growing now. Maybe we’ll get something else, which would be great. But that’s what makes me nervous about the. Not even long term, but the [01:11:00] six month view of where things are going to go. Hold

Marcus: on, and then, and then let’s, let’s just bring it back to us, because why are we doing this?

Marcus: Yeah, right. I mean, we’ve talked for weeks about, I’ve enjoyed seeing these mental health companies getting these really big rounds, because that feels a lot more real. Yeah. But we’ve talked for months now about how the majority of big VC rounds have been going to AI companies.

Yeah.

Marcus: Right? And I don’t think either one of us, I mean, from the very beginning, felt comfortable with that.

Marcus: Yeah, we weren’t comfortable with investing in any A. I. Deals right? Right. Um, you know, I don’t think I’ve ever even had a hard conversation with my portfolio. Like, what are you doing in a I like I might be curious about it, but I’m more like who you’re selling real value to, you know? Um, and look, I don’t know what’s going to happen to the To the GPLP community, if we take another big hit in mass because there’s a bunch of bad paper out there because [01:12:00] you inflated the value of these companies and threw hundreds of millions of dollars at it, and the AI thing is really a bubble, there’s no question

Vic: that’s going to happen.

Vic: The valuations cannot be supported in the number of companies that have raised money. Just, it’s not gonna, it’s impossible to see it happening. Now, will there be successes? Yeah, yes. I think there’ll be. really big successes, probably, um, in small teams that are using AI to deliver some value much more effectively than their old competitors that are using some other tool.

Vic: But the number of companies, especially in the, in the actual models, let’s just talk about the models themselves. That’s the most clear to me. There’s, there’s billions, hundreds of billions in those models. And And it’s not clear how they’re gonna make any money, like make [01:13:00] any revenue. Yeah, yeah, like

Marcus: where is the monetization for licensing a model, right?

Marcus: Yes,

Vic: yes. Full stop. Yes. Um. NVIDIA is pre selling their capacity. So they have sales out into the future. Um, and they have the marquee chipset. If they stop really having the pull through, it’s not clear that there’ll be that much use for all of these NVIDIA chips out there. And you have a secondary market.

Vic: It could be. Really challenging. So I think part of, part of what I want to keep doing on this show is talking about the capabilities and following it, but also being honest with each other and with our audience about where there’s challenges and right now the business model has not been created. It’s very, I mean, we’ve talked about this before.

Vic: It’s very similar to the internet in 1997. Like the [01:14:00] only difference is that our communication, our financial markets are so much better now. Because of the internet and social media that capital flows so much faster that it’s I think the problem is maybe slightly bigger Than it was in the internet.

Marcus: I think it’s more important to cover it once the hype cycle hits this phase Yeah, then it is on the way up.

Marcus: Yeah because once once the disillusionment starts to set in and it hits that trough and everyone’s just like pissed off and you know slashing Valuations and stuff like that. Yeah That’s when the real builders get to work and real stuff starts to get, starts to get figured out. Um, and that’s exactly when you don’t want to turn away.

Marcus: You want to double down then. Uh, and so we’re not going to stop covering it just because we’re hitting the trough of disillusionment. In fact, quite the opposite. I think we’re going to get more focused and, and, and try to pull more of the nuance out of what’s out there. Actually happening here and where are the wins?

Marcus: I mean to me that story that I think was it last week we talked about augmetics and come here that that that [01:15:00] merger Yeah, I think that was last week. Okay.

Vic: Yeah,

Marcus: I Still have not wrapped my head around how augmetics which is the scribe the ambient scribe company that was racking up all those wins Was a publicly traded penny stock effectively.

Marcus: Yeah, it’s worth 150 million dollars

Vic: Yeah, all the oxygen is pulled by the top seven stocks. Yeah. And, and I agree. We need to lean in more and cover it and follow it because the, the time to invest is going to be in a year and a half. Yeah. Soon. Yeah. It’s coming. So I graduated, I graduated from business school in May of 2020, 2002.

Vic: Sorry. So long time ago. Um, and you know, the crash, the internet crash had happened. And I got a job, and so I had been in, in business school, right, so following all this stuff just because I was interested in it. Um, and I was able to, I bought Amazon stock for [01:16:00] 23. 17 a share, and it’s the best trade of my life.

Vic: Yeah. And I should have bought a lot more, obviously. Um, but there’s gonna be opportunities like that again, where like, it’s just such a overhype. Which we are in right now, but maybe beginning to see that the end of and then there’s a correction over to the downside, but the winners will be clear and there’ll be the ones that are actually having customers that are still paying and they’re delivering value, even though the.

Vic: The valuations are really low. Yeah, yeah.

Marcus: Alright, man. Another great show. Yeah. Uh, you are out next week, right? I’m out next week. Yes. Alright, I gotta find a guest host. Yes. I’ll figure something out. Yeah. If not, I’ll just do it by myself. I mean Is it the DNC? Might be the DNC. Is it DNC? We got to look at it.

Vic: Aren’t they early August?

Marcus: Yeah. Maybe you can have

Vic: Emily. I don’t know if Emily will be ready. I don’t think she’s going to be ready. And, and I can’t. Has like tons of information. [01:17:00] Kamala didn’t have as much. So she, it’d be harder to put together. Yeah. But,

Marcus: but she’s, Emily’s been working on it. We’ve, we’ve, we’ve talked about it.

Marcus: She’s starting to kind of piece things together. So, um, yeah, it’ll, it’ll be interesting. It’ll be interesting. I’m, I’m, I’m looking forward to it. All right, man. Look, thanks for, uh, thanks for the show this week. And, uh, we’ll be back with you in two weeks. Yeah. Okay.