Tracy Alloway: Hello and welcome to another episode of the OddLots podcast. I'm Tracy Aloway.

Joe Weisenthal: and I'm Joe Weisenthal.

Tracy Alloway: Joe, it is the holiday season. I am very much looking forward to it. One reason I'm looking forward to it is because we always do an annual Ask Us Anything show.

Joe Weisenthal: Yeah. You know, I think uh I like that in the podcast, you know, it's really not about us. I mean, the show is about what we're interested in, but it really is about the uh the perfect guests, but every once in a while, I suppose it's nice to sort of have the microphone turned in the other direction, so to speak.

Tracy Alloway: Yeah. The other thing I would say is we're already pretty accessible. Um like there's a whole thoughts discord that that we're on. Um there's Twitter obviously, there's instant messages on IB and mostly we respond depending on how busy we are. So um feel free to contact us there too. But we did get some pretty interesting questions from a bunch of listeners.

Joe Weisenthal: Yeah. And I like the fact that we can put in many cases listeners voices on the air. bring back some of the oldtime radio call-in shows, the likes of which uh I used to listen to when I was a young kid riding in the car with my dad.

Tracy Alloway: Call-in shows are Lindy.

Joe Weisenthal: The call-in shows are definitely Lindy. All right, shall we start?

Tracy Alloway: Yeah, let's take a listen to some.

John Lazaro: John Lazaro, age 63, Berkeley, California. Sometimes when you finish recording an episode, do you look at each other and say, "This doesn't meet our standards." and kill the episode. or is it more like skiing? Once you commit to riding the chairlift, you commit to skiing down the mountain. [laughter]

Tracy Alloway: Um, well, I I can't ski. I'm the only Austrian in the world possibly who cannot ski. Um, so I'm we have killed episodes in the past. Um, in fact, there there's kind of a funny story where we did an episode, it really wasn't going very well. Um, the guests seemed very nervous and just sort of like not at his top performance. And in the end after we recorded, we told him, you know, we're just going to kill this episode.

Joe Weisenthal: And he was actually really happy about that cuz he felt he hadn't done his best work either. And then the other thing I would say is I actually think journalists should kill a lot more stories. We should be more selective. And if you think about the German word for reductor, reductor, it sounds a lot like redact, right? which gives you, you know, some sense of what editors are supposed to be doing, which is taking away as opposed to adding.

Tracy Alloway: Yeah, it is very rare. Um, we have, I mean, the number of episodes that we've fully recorded that we uh actually did not release. I think it's less than you could count on one hand, right? It's not that many, but there have been a few just for whatever reason, the guest was not on their game or whatever, it didn't work. And uh I agree. I agree with Tracy. I think we should do more in general. I mean, I think journalists as a whole should do more. It's like just release the good stuff, you know? Just release ones you're you're genuinely proud of. I don't want to release anything anywhere when I can't say I'm really proud of this work. And normally we are proud, but occasionally it's like, you know what, this is uh this is not awesome. All right, let's go on to the next one.

Listener: Thanks, Joe. Thanks, Tracy. I was really inspired by Joe's tweets on Moby Dick. So, this question is for him. What did you read after Moby Dick? Thanks, guys.

Joe Weisenthal: Thanks for listening. Um, that's a very easy one because I was such in such a mood to keep uh after reading Moby Dick, I didn't want to read anything besides Moby Dick. I sort of just thought about rereading it uh again, and I probably will sometime the next year or two. But because I was in uh that mood, I read um a book by the historian writer CLR James, who wrote a book about Moby Dick. is a book called Miriners, Renegades, and Castaways by CLR James. And it basically made the argument that Herman Melville with the Ahab character specifically anticipated many of the pathologies of the 20th century, the rise of fascism, dictators, and so forth. All of the crises of sort of Western civilization that we experienced in the 20th century. Fantastic book, almost as good as Moby Dick itself.

Tracy Alloway: Also, I've been recommending two books to you. One of them is the heart of the sea, which is about the um whale ship Essex, which is the the ship that Moby that actually inspired Moby Dick. And then there's another one I'm reading just now called A Marriage at Sea and it's about uh a couple who are out, you know, sailing around the world and their ship gets destroyed by a whale and they have to survive on like a little raft. I actually don't know if they survive yet, so I guess we'll find out. I I I promise I will read both of those.

Joe Weisenthal: Both of them are excellent. I promise I'll read both. Let's hear the next question.

Sturm: Hi gang, longtime listener here. My name is Sturm. I'm 32 and I live in Puerto Rico and I have a question for Joe. I know you're an efficient markets guy, but if EMH is true, how have portfolio managers accumulated such vast wealth?

Joe Weisenthal: Uh, that's a really good question. I wonder about why the financial system overall exists. Why are people putting targets on prices and why are there pundits on TV and why is there financial TV and why is there trading and so forth? I still don't really know why the answer of why anyone has made any money. But my guess is that there are other services that people in finance provide other than highquality security selection that whether it's like okay I don't really like know how to manage risk or whatever it is or I'm anxious about the thought of investing all kinds of things I guess you know there probably are people who are able to obtain information that maybe counts as alpha it probably exists I don't know I remain unsatisfied I've asked this question myself I don't fully know the answer but my guess my best guess intuitively is that within this world that we call finance there are things that produce value other than sort of you know making good trades and so forth that maybe are harder to articulate and so forth and thus they are providing a valuable service on that front but I I

Tracy Alloway: counseling your customers

Joe Weisenthal: you're counseling something I don't know um but I mean I would think Tracy I would just add on to that like it it seems just on the EMH stuff. Um, it seems on a simplistic level, if EMH was real, you would never get a bubble, right?

Tracy Alloway: This is what Yeah.

Joe Weisenthal: And in fact, one of uh my favorite moments on the podcast was when we interviewed Eugene Fama, the the father of the EMH um idea. And I think I got him to say that like bubbles exist, right? Which I was surprised.

Tracy Alloway: Yeah, I know. They really they hate like they really wrestle with like this is their one thing they hate this phenomenon. So they come up with all this stuff. But um yeah um we will continue asking the question of why why do we exist? Why does financial media and coverage and pundits and all this stuff exist? We'll continue answering this question in 2026. Maybe we'll have an answer.

Max Netherman: Hi, I'm Max Netherman. I'm 19 and I live in San Francisco. Supposing that AI does end up being as transformative as people claim, where do you think the value that that creates will acrue from their valuations and how people talk about it, at least in SF, it seems people expect the labs to capture a massive chunk of that value. On the other hand, the labs have never been profitable. And even then, hardware companies like Nvidia and TSMC seem to trade at lower multiples despite being near monopolies with very good margins. So my question is this. When all things are said and done, which parts of the supply chain will be commoditized and which will capture all the value?

Tracy Alloway: Yeah, I think that's a very fair question. Um, and I think, you know, it's difficult to predict if tech at some point is going to produce the or invent the proverbial AI god, like this thing that solves all of our problems. I I would be a little bit skeptical of that. It seems to me like it's going to be a productivity improvement kind of at the margin for now. So maybe you use it instead of Google search. You can use it to explain certain terms much more quickly. Some industries are probably going to use it to design new products. I know there's a lot of excitement around medicine. But where the value will acrue, I mean some of the big tech companies are so expensive right now in the US. I keep describing this as the coffee pod theory of AI, which is some tech companies are choosing to basically produce the world's most expensive sophisticated cappuccino machine and they're saying that, you know, it produces the best coffee that you've ever had. And crucially, what they're doing is targeting a market for this machine. Let's say it costs like $2,000. that's basically the entire world and I'm I'm not sure that approach works. And then you know some other companies are taking a very different strategy and they're producing something that's relatively cheap and standardized sort of like a coffee pod coffee maker uh and it's much cheaper and again targeting the total market of the world and you know if you think about it that way I kind of have a sense of of where it's going.

Joe Weisenthal: I really have no idea. You know, the one thing I'll say is I think there is this view that okay, AI can replace human labor and therefore lots of workers are very vulnerable and therefore there is going to be this tremendous like it will be this very um uh a force of inequality so to speak, right? So, it's going to be there's going to be the model makers and I think in this vision that the uh you're asking about these model makers and they're going to make a fortune and the rest of us are going to have to like get by on UBI or whatever because they've put us all the models have put us all out of work. And look, I think that's possible. The one thing I'll say though is that like the tech as a force for like financial inequality, that's already been the story. We don't even need to talk about AI. With the existing tech giants that we've seen that have built over the last 15, 20 years out of San Francisco, we've already seen this incredible rush of sort of wealth and income etc. to this fairly like small you know this one industry this very like um you know very small fairly small concentration of software engineers and executives and VCs and so forth. And as such, I do wonder like could it be that somehow it's like totally the opposite that it goes in the other trajectory and that really it's sort of like a force for equality or something and that it ends up being a situation in which people where like capital itself is not as valuable as it used to be. I don't know. I just think we should possibly consider the uh the idea that what people are predicting that will happen with AI is that what we is literally just an extension of what we've already seen and that to the extent that AI is something new maybe that'll put us on a new trajectory.

Jennifer: Hi Tracy and Joe. This is Jennifer 30 calling from Seattle. Long time first time. This question is for Joe. Joe, what drew you to your interest in Chinese history, particularly its modern era? Have you ever considered going more back in time? I asked because I'm Chinese American with parents who said very little about their lives during the Cultural Revolution and the8s when the country started opening up. So, I often learned through Joe's tweets and book recommendations. But I had also noticed in my last trip to China that the one historical figure cities pay the most homage to is not Mao or Den Xiaoping but actually Sunyat Sun who is the precursor to these leaders. Thanks. Love the show as always.

Joe Weisenthal: So obviously we do a lot of contemporary China episodes and it sort of seemed like you know I should probably understand a little bit more about um the history. I started with the ancient stuff. I was like oh I'm just going to I'm just going to go back and I'm going to read about the old dynasties and then I'll get to the present. And I sort of like I found it a little bit hard. It wasn't grabbing my attention to ancient stuff. But then I remembered a couple years ago we did an episode with Adam Posen at the Peterson Institute a couple years ago at Jackson Hall and he had just sort of mentioned offhand that he had read Ezra Vogel's biography of Dong Shopang and I was like, "Oh, maybe I'll just start there. That seems like more recent and tractable and I could sort of slot that into my head into something." Um, and I read that and I found it very uh very compelling as uh Adam suggested and I think that sort of set off like it I think reading 20th century Chinese history helps me to some extent understand the present day. I've never read a um Sununyatsen biography, but I'm very interested in him. one of the rare figures who is sort of revered in both Taiwan and mainland and so therefore someone who is an inspiration to both the nationalists and the communists which is kind of weird and he was like sort of a for you know a an early pioneer of land reform and so forth so it I think maybe that'll be another thing I aim to read in 2026 a good uh sunet biography

Tracy Alloway: I really like the older Chinese history I read a really good book I can't remember the title now but it was all about uh the Chinese bureaucracy and government system how it used to be and you know one of one of the most rigorous systems in the world arguably you had to take this insane test to get the position and I remember I also did a bunch of research uh around the sort of late 1800s early 1900s the fall of the imperial family and what it means for debt markets that was a really fun story

Daniel Best: Hi Joe and Tracy, my name is Daniel Best. I'm 26 years old and currently based in New York where I'm doing my masters at Colombian Financial Economics. I'm a huge fan of the pod and Spotify told me in the last year I was in the top half% of listeners and maybe now a first- time caller as well. My question is this. You have such a wide range of guests with very different backgrounds and you cover an enormous amount of information. How much of that are you able to retain and naturally call back in everyday conversations or when you do follow-up episodes? And how much do you rely on note-taking or revisiting past episodes to connect your ideas over time?

Tracy Alloway: This is a really good question. This is a sort of journalistic process question. By the way, thank you for being in the top top percentage of OddLots listeners. We appreciate that. Um, but going back to the question, you know, it kind this is obvious, but it kind of depends on the guest. And if the guest says something memorable or something that you really think is insightful, I think we do retain some of that information. I used to retain a lot more when we were editing our own transcripts and publishing them. Um, I really value transcripts, but it was just so much work and took forever, so we stopped doing it. We're hoping to come up with some sort of solution soon. And the biggest compliment I can pay a guest is saying that like I'm going to go back and read the transcript because there's so much knowledge there, so much information. Um, I just have to absorb all of it.

Joe Weisenthal: It was funny. Hey, I was at dinner the other night with someone and I said to them, "Have you ever actually learned anything from listening to a podcast?" Because I do sometimes wonder if I ever remember anything. No, that's not totally true. I do, but I also sometimes wonder setting aside podcasts and uh recall specific facts. I also have the same thing with books. You know, we were just talking about that uh Deng Shopang biography. And if someone's like, "Oh, Joe, you just spent three weeks of your life reading a biography of Dung Shop. What did you learn?" And I'd be like, uh, he sort of opened up and for a while he was sent down, um, to work on a tractor factory and then he opened up and I would be like, you know, there's like I was like, oh, did I really need to spend three weeks of your life to be able to recall three or four basic facts? I suppose that there are things that I don't know that I remember in like my deep storage part of my memory that would be, you know, that would come out in a uh, conversation. But I do going back to questions of like why are we all here and so forth. I do sometimes have these thoughts of like do you know how much how much do we really learn and internalize and how much is it just fun to have these conversations?

Tracy Alloway: Sometimes we surprise ourselves though right like sometimes we come up with some random fact that's kind of interesting that we learned from somewhere. Uh just on the note takingaking part of the question we generally don't take notes um in the interview. We might jot down like a word or two just to remember to come back and ask a follow-up question, but um yeah, mostly it's it's a genuine conversation between three people and we try to keep it as natural as possible.

AJ Toss: Hey Joe and Tracy, AJ Toss here. I'm 37 years old and I'm from Lafayette, Louisiana. Go Cinjun. I have a question for you about Bitcoin. You guys have spoken about how the narrative around Bitcoin changes every cycle. And so I'd actually like to ask you to make a prediction whether you think there will be another cycle for Bitcoin where it way outperforms everything else. And assuming that it does, uh what would the narrative be this time? Thanks guys.

Tracy Alloway: That is a really good question. So um the narrative theory of Bitcoin is this idea that because Bitcoin is essentially nothing, it is able to transform itself into anything. So we've seen it go through these various cycles of transformation, reinventing itself. You know, in the beginning it was supposed to be just a digital payment system and there's the famous incident of the guy that bought a pizza and [clears throat] lost a lot of money that he otherwise would have gained. And then it kind of, you know, it turned into an inflation hedge. More recently, it's turned into um a Trump vehicle. I actually had it I had an idea for a narrative that comes next, but I'm blanking out on it totally. I feel really bad.

Joe Weisenthal: It'll come back to you. It's the end of a busy season. Look, I have no, you know, I was like, "Oh, now I'm going to give the official odd lots for Bitcoin price target for 2026." No, I really have no idea. I don't have any idea if it'll outperform again. Um, you know, of course, it has been pronounced dead several times, many times over the years. So, perhaps that's always a reason to discount the idea of okay, this time it's dead. That being said, you know, look, like the I thought one of the most compelling arguments that had of the various narratives over time, I thought one of the most said compelling ones had been that it would be sort of this, you know, post sovereign money and therefore kind of like a digital gold safe haven. It has not been behaving like one in 2025. I mean, this is one of the most volatile years on memory from like a del globalization, a geopolitical standpoint. If you think there'd be one year where it's like, okay, people want some sort of money that is uh disconnected from governments, maybe this would be the year. Maybe they do, but they're choosing for gold. They're choosing the actual safe haven. Bitcoin, meanwhile, has underperformed US treasuries. So, the US treasuries, yet another safe haven that is outperforming Bitcoin in 2025. So, I really don't know. But I do think that the poor performance in in 2025 should be something of a concern. Again, people have always said, "Oh, it's a it's a tech stock hedge." Well, tech stocks have had or a tech stock proxy. Tech stocks have done great this year. So, it hasn't even um it hasn't even satisfied that requirement. And then the last thing I'll say is that there is a lot of I think legitimate enthusiasm about crypto, particularly in the realm of stable coins. getting back to maybe the original ideas Tracy mentioned of a payments platform, but all that is happening on other chains besides Bitcoin. And so even if crypto becomes more of a thing in the financial system, it's not obvious, but it's possible, but it's certainly not obvious that Bitcoin would see uh any benefit from it.

Cynthia: Hello, Joe and Tracy. This is Cynthia from Vancouver, Canada. What is something the market seems really confident about that you think deserves more questioning or more nuanced discussion?

Joe Weisenthal: You know, uh first of all, thanks Cynthia for uh calling in. The first thing that comes to my mind is I have been I wrote about this recently in the OddLots newsletter. I am kind of surprised about how well anchored market-based expectations for inflation have been because there is I think pretty legitimate there's two things going on. One is, you know, the Fed hasn't missed its inflation target for years and so there's perhaps reasons to think that just already that the Fed hasn't been as serious about 2% as it had been before. But then also I do think there are good reasons to think that in the future the Fed will not have the same capacity to target stable prices the way it used to due to politization due to the general um sort of like populist trend in politics which is not something distinct to the Trump administration though certainly I think the Trump administration has accelerated that process with a lot of the criticism of the uh the chairman and so forth and so like I am a bit surprised urprised that if you look at various market-based measures of future inflation, 5year, 5year break evens and so forth that it has been pretty stable because that feels disconnected from the way that we basically talk about this topic.

Tracy Alloway: Mine is also related to inflation. I think far more people need to figure out how the CPI official numbers for inflation are actually calculated and produced. And you know ultimately a lot of it is um a series of numbers that are estimated. Those are called imputed numbers. And a lot of them are actual observations of prices which Bureau of Labor Services people go out and collect. It's actually a really laborintensive um thing to do and most people you know they treat them like as a simplistic number and I think it's much more important to look at the different components and actually we're we're recording this on December 18th and we're seeing a really good example of why it's important to know how CPI is actually calculated because you know the number just came out much lower than expected And it's interesting if you start to break it down to see what assumptions were made and what's actually moving.

Joe Weisenthal: All right, for our next question, this one was just written uh as opposed to an audio note, but it's a really fun one where Tracy and I kind of see the world a little bit differently. So, we have a chance to get into that. This question comes from Diego Aguilar Connibel. He asks, "Where did my intellectual beef with the idea of the term premium start?" And look, so this is something that's come up. People talk about the term premium in the uh in the yield curve and I'm always like what exactly does that mean? So you know the way like I guess Tracy let's start with you. What is the term premium? Like don't ask me. I'm not going to define it. How do you what is the term premium?

Tracy Alloway: Uh it is basically the extra compensation or premium that investors demand to hold debt you know out longer term.

Joe Weisenthal: Okay. So here's what I don't get. Why do they deserve extra compensation? Why don't they just deserve the appropriate compensation? Like I buy stocks. Do I Oh, I I deserve extra compensation because they're risky. No, I I deserve appropriate compensation. I deserve to be compensated, I suppose. But I hate this idea of like extra compensation. We always want extra compensation. But then also I guess my other issue is that like I think if you knew if you if you had a crystal ball and you knew for sure what the Fed was going to do in every policy meeting it would make for the next uh 10 years. You know there's 80 years of the next 80 meetings if you knew what that was going to be. I think you would know the exact price that 10year yield should trade at. And so I don't really understand why we can't just say that the yield curve is the market's expectation of overnight rates for the next 10 years.

Tracy Alloway: Well, it's it's in comparison. So the extra premium is in comparison to shorter term bonds and there are some calculations that go into that. I think it's it's you know not the be all and end all of the market but it's certainly an interesting thing to look at and when we get big moments in the term premiums movement you know if it flips from positive to negative um it it kind of tells you a lot about where the market's going.

Joe Weisenthal: Okay, on this point though just to press further there I think this is really key which is so there right they all everyone admits these are unobservable right these are models these are models that indicate what this notional term premium is the fact that it could flip to negative and it was negative for much of the 2010s suggests to me like that's another reason like I don't understand how this idea that there is um holders of long-term debt per se need extra because extra protection or whatever because apparently they were actually getting a discount on it if we go by uh the model what the model said in the 2010s. So I just find the whole thing I just find it all very unsatisfying.

Tracy Alloway: I would also say the term premium beef uh we play it up a little bit for the show. So for the show we hope you enjoy. All right, this is going to be our final question. Again, this one was written in uh rather than a voice note. So here we go. It is from Michael Khan. He asks a non-markets question, more specifically for for me, Tracy. What was your favorite Magic the Gathering card and what critical function did it serve in your deck? Bonus question. If you and Joe were a magic card, which ones ones would you be? Um, that's a very fun question. Okay, so my favorite was probably um my Siobhan dragon. I like the idea of dragons and it had really nice art and at the time it was a really valuable and powerful card.

Joe Weisenthal: I know nothing at all about magic. I've never played it. I really I just I don't know how the game works, etc. All I only remember one fact which is that one of my good friends brother younger brother in high school had a call called wall of brimles. Actually this gets to like the question about memorization. Who the heck knows how that random fact got stuck in my head or what's but this is I hear magic. I just remember this card. I just looked it up. It looks like this card would cost somewhere between 25 and 30 cents. So I'm certainly not memorizing it because it is a particularly valuable or important card.

Tracy Alloway: What would we be if we were a card? Tracy, you got to you got to answer this one. If Odds or if us It says if you and Joe were a magic card. Um, so give me a second. Um, okay. Uh, full disclosure, I just asked chat GPT because this seems like a kind of fun question. Um, and the AI generated answer is we would be a blue red legendary creature that rewards drawing cards, talking about weird market mechanics, and turning every small data point into a big compounding advantage. Um, I'm not sure how you would incorporate discussions about markets into a Magic the Gathering game, but you know, it's nice to hear we could be a dragon. I would say like maybe we would be a Visuven Doppelganger. And I say that partly because I'm I'm sort of biased to the the older cards, the Ice Age cards that came out in the the mid '9s um for obvious reasons. And I think the doppelganger, you know, they obviously complement each other and their actual power in the game from what I remember is they can take on the characteristics of any creature that's actually in play or most of the characteristics. And I think that's, you know, that's kind of what we do. We try to adapt right to every conversation to get the best result.

Joe Weisenthal: That's right. I I also asked Chad GPT. I don't really understand. I don't I don't even understand its result. But then it said why this works said Joe generates flow motion liquidity and Tracy imposes structure friction and narrative discipline [laughter] which I think many listeners would actually sort of agree with. It's sort of it doesn't sound totally off. So that's not bad, but it's not a Magic the Gathering. No, no, no. I I don't even understand like all this. I can't even I don't who you are legend. I don't know what any of this stuff is. Oh, I do have some good news, which is uh remember I said that I had lost all my Magic the Gathering cards and I didn't know where they were. Uh my mom actually found them in um her basement. Uh they were sort of hidden away. The bad news is I really don't have any valuable ones. I still have the Siobhan Dragon and I have one that was signed by the artist, but that's about it.

Tracy Alloway: I'm surpris There's not one in there. Like is there like an antiques road show style show for Magic the Gathering cards? Like maybe we could do an episode like at some some guy in here some dealer and like talk through the cards or something like that. I would do that. Yeah, that would be really fun. Let's do that episode. So this is the end of the AMA. Thank you everyone for sending in all these great questions. We had a lot of fun answering them. Yeah. And thank you everyone just for I mean end of the year crazy year, great year. So really thank you to everyone who uh everyone who's listened and yeah, we definitely hope you listen in 2026 because we have some excellent episodes coming up. So shall we leave it there? Let's leave it there.