AI transcript
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0:02:18 Today’s number, a hundred and forty five million dollars. The co-founder of Fintech startup Aspiration was arrested last week for allegedly conspiring to defraud its investors of a hundred and forty five million by the way we call bullshit on this company four years ago. Speaking of climate change, Ed, what do climate change deniers and pedophiles have in common? They’re both fucking the next generation.
0:02:38 Ah, that’s good. Yeah, the pedophile stuff never gets old. What’s going on with you? What are you what are you up to? [SPEAKER_TURN]
0:03:04 doing very well. I’m in New York. I’m excited for South by Southwest. We’re gonna be heading over this weekend. Of course this episode will be out by the time we’re there. But I think it’s gonna be great. You know what I’m really excited for though, is the flight back flying with you. Not enough seeds. There’s only seven seeds on the plane. How many seeds are on the plane? [SPEAKER_TURN]
0:03:13 I haven’t counted. Um I can’t go here. There’s no way I don’t come across as the world’s biggest douchebag talking about the number of seeds. [SPEAKER_TURN]
0:03:43 You’re right. I’m I’m setting you up for failure. How about let’s set you up for success here and just talk about this aspiration situation, because you wrote about this four years ago. This is by the way one of my first jobs at Prof G_ Media was you were talking about this company aspiration and it was my job to go in and do the research because you had this feeling that this company which was selling credit cards but also positioned itself as helping with climate change, you said this is definitely a bullshit company,
0:03:52 you had the team look into it, I looked into it and we determined, yes, this company is fake. We have a clip from what you said about this company on the Prof G_ POD.
0:04:21 One example one example of reaching too far into the barrel aspiration, a finance firm that claims its products can open quote change, climate change, end quote. In August the company announced it was going public, via spec, at a two point three billion dollar valuation. Change, climate change. Mm that would be awesome. Except there’s a catch. This is a fucking debit card. He’s so good. [SPEAKER_TURN]
0:04:30 Banger. And now the guy’s uh been arrested for fraud. By the way, it never went public because I think investors eventually caught on to this. But he’s now been arrested. You called it. [SPEAKER_TURN]
0:05:00 it was such an attempt to drape yourself in social justice while offering something uh f m pretty borderline fraudulent. They were they were saying that we take a portion of your credit card feeds and invest in uh sustainable companies. And if you read their, you know, their website and I got s we got some financial information we, dug in, this was a shitty little credit card company charging onerous fees claiming to do something they weren’t doing and saying oh, but
0:05:29 were a new economy company and they had famous investors, they had actors. A friend of mine that ends up was an investor and called me and sort of I don’t wanna say put pressure on me but said do you wanna speak to management there that’s I think you got this wrong. I’m like I said to him I said we’ll just call him Bob. I’m like Bob this is a fucking fraud, this is we work with a climate change veneer smeared over it. I thought that was gonna get more attention than the we work post because I thought it was even more obvious of fraud. [SPEAKER_TURN]
0:05:59 few people actually knew what aspiration was, which I think is why it was so prescient of you to to point it out. I just wanna point out what some of the red flags we found with this company were. So the first the first red flag was that they were trying to SPAC. And there were just a bunch of kind of bullshit companies that were SPACing. They did have a giant celebrity investor list. One of those investors was Leo DiCaprio. That was kind of a red flag. And then as we looked into it, w it s started to get worse and worse. So they had this E_S_G_ fund that they
0:06:20 the Redwood fund, and they charged these exorbitant fees on it. But when we looked at the actual portfolio, what we found is that it was just a regular portfolio, and they even had positions in Southwest Airlines, which of course b burns through fuel, and also a fracking company, which was hilarious. Their worst crime though, was this thing called EBITDAM. [SPEAKER_TURN]
0:06:23 God. Like community-based EBITDA, we work. [SPEAKER_TURN]
0:06:53 Exactly. This was earnings before interest taxes depreciation, amortization and marketing. And according to this company they were EBIT damn profitable. But then you look at the fine print and you realise they were spending a hundred and fifty percent of their revenue on marketing. So they’re trying to position themselves as a profitable company, but they’re saying oh this marketing thing we’re spending basically all of our money on marketing but don’t worry about that we’re profitable. And that was sort of our that was I would say our biggest red flag. This company uh is
0:06:57 their their investors. And so it never stopped and now the guy’s going to jail. [SPEAKER_TURN]
0:07:23 I loved Adam Newman’s initial redefinition of EBITDA and it was like earnings before everything else, earnings before Dolly Parton, earnings before March Madness. It was just it was like let’s pretend that profits are top-line revenues before expenses. Let’s just get rid of this pesky thing called expenses so we can say pretend that we’re profitable. But yeah, uh I’m I’m I appreciate the recognition. [SPEAKER_TURN]
0:07:27 And uh uh drinks on me this week in Austin. [SPEAKER_TURN]
0:07:31 I can’t wait. Let’s get into our weekly review of Market Visals.
0:08:08 The S_ and P_ five hundred declined, the dollar slid, Bitcoin was volatile and the yield on ten year treasuries climbed. Shifting to the headlines. Disney is laying off nearly two hundred employees or six percent of its workforce in its A_B_C_ news group and Disney entertainment networks divisions. As part of the cuts the company is also shutting down political and data journalism site five thirty eight, which it acquired in twenty thirteen. Walgreens is officially going private after closing a ten billion dollar deal with Sycamore Partners, the private equity
0:08:34 firm is expected to keep Walgreens core U_S_ retail business, while potentially selling off or spinning out other parts of the company And. finally, Ontario cancelled a Starlink contract worth one hundred million Canadian dollars after U_S_ tariffs on Canadian imports took effect. Scott, uh let’s get your thoughts starting with Disney deciding to lay off two hundred employees, nearly six percent of the workforce at A_B_C_ and their entertainment networks. [SPEAKER_TURN]
0:09:04 Uh it just makes sense. This is part of capitalism, and that is um they need they need to consolidate, bulk up, uh and then cut costs. These companies should have one back-end as far as news, and if they have different front-facing uh brands that appeal to different audiences, that’s fine, but last year Disney’s linear networks’ revenue declined nine percent and operating income was down sixteen percent. They’re not alone here. U_S_ linear T_V_ advertising uh will decrease an estimated four percent annually,
0:09:34 twenty thirty, which doesn’t seem like a lot, but when it’s going for another five years, four per cent, it means it’s gonna be it’s gonna lose a quarter of its revenue uh or a fifth, and that means you know, that’s just real pain ’cause some of those costs are fixed, so you’re talking probably they’re probably gonna shed another twenty or thirty per cent of the workforce over the next five years. I just had lunch with a fairly famous uh news anchor who is fantastic at what she does and uh ju she’s one of the lucky ones, she’s still making a
0:10:04 a lot of money, but I think she her salary got cut by thirty percent and you’re seeing you’re seeing cuts across the most famous anchors of like twenty to eighty percent, Joy Reed, Chuck Todd, Jim Acosta, and Lester Holt. All fantastic what they’d do or did, all too expensive. And George Stephanopoulos uh his contract’s been renewed, though he had to take a pay cut from his previous twenty million dollar deal. He’s lucky he got his deal a few months ago. I think it’d even be less now.
0:10:34 Rachel Maddow renegotiated. She is the friends or the the anchor of M_S_M_B_C_ She. had to reduce her pay from thirty to twenty five million yeah, crimey or whatever that’s, not too much Anyway. so I it it look the market is knowing what it’s supposed to do. It’s reshaping the winners and the losers. Uh you’re gonna see I think private equity come in here. You’re gonna see a lot of consolidation. I think Disney is a survivor ’cause of this unique singular positioning around family and just the incredible I_P_ they have. I w also wonder if this is an interesting
0:10:36 private opportunity. But anyways, what are your thoughts? [SPEAKER_TURN]
0:11:07 Yeah, I find this interesting ’cause I I visited a the A_B_C_ studio last week, one of the producers on on A_B_C_ news took me around, and it was really cool and I was just kind of struck by how impressive this operation was. Like the office looks like a cross between like NASA airspace control and also like the trading floor of Goldman Sachs and it’s filled with people like gaffers and technicians and co-ordinati I was asking him like what do all of these people do We? think oh this guy’s on this team, this guy’s on
0:11:37 this team. I mean it’s l it’s thousands of people literally, it’s actually thirty three hundred people. But in the back of my mind the whole time as I’m walking around I’m like this is amazing, but there is no way this makes any sense economically. The fact that you have, as you said, revenues down nine percent, operating income down sixteen percent, six million people cancelling their cable subscriptions in twenty twenty four, and yet the operation looks like it’s the headquarters of the C_I_A_ So. I was sort of walking around I’m like okay, something has to
0:11:52 give here. And that’s what we’re seeing. In this case the thing that’s given is the workforce. And as you say, this isn’t the first time we’ve seen this headline and, yeah, I don’t think it’s the last time we’ll see this headline. I think we’re gonna see many many more headlines like this. [SPEAKER_TURN]
0:12:22 Well if you look at uh means of production, um and I did some analysis here, we’re making three to four times the revenue per employee and granted we’re small, but the means of production are so much less expensive uh in podcasting now granted there’s very you know there aren’t that many winners, but if you can figure out uh kind of a new media platform and keep it kinda lean and mean, you can just see what’s what’s happening here. It’s just incredibly uh challenging for
0:12:52 folks I, describe I was jokingly described in The Anchors as uh pilots for Pan Am in the seventies, in that it’s high prestige, they’re begging stewardesses, everyone’s impressed by ’em, but I’m like your days are numbered pretty soon you’re gonna be, you know, on an ember from Lubbock, Texas to Amarillo making thirty eight thousand bucks a year. I personally the way I register it is ten years ago when I was asked to come on CNN I, just was so excited I, remember the first time Anderson had me on his show and I was so I thought wow, I’ve made it.
0:13:05 And now, unless it’s a someone I’d l I’d I’m personal friends with or I I don’t go on because it’s like the juice isn’t worth the squeeze to come across as intelligent and the work and the prep you need to do, not that many people are watching it. [SPEAKER_TURN]
0:13:20 By the way I, just got asked for the first time to go on CNN and then they cancelled on me in the last minute. Most hilarious part is that I was I was uh in for the five A_M_ slot. They’ve they pushed me to next week, so I’ll do it again, but I think the juice is worth the squeeze for me, I’ll say that. [SPEAKER_TURN]
0:13:34 A hundred percent, and plus you you I mean you’re literally you’re gonna be exposed to dozens and dozens of new fans um, five A_M_ on CNN, that is literally like a ninety year old that can’t sleep. I think that’s great, congratulations, I didn’t know about that. [SPEAKER_TURN]
0:14:10 You’ll see this, there’s still a prestige value and that is when people see you on I used to go on Fox every week uh and when people see you on T_V_ for some reason there’s just this veneer of prestige, romanticism or credibility that you don’t get anywhere unless of course you have a guest role on The White Lotus but uh let’s bring this back to me let’s bring this back to me. Anyways, li linear T_V_ it’s not doing well. [SPEAKER_TURN]
0:14:38 It’s not doing very well. Agree. Let’s talk about Walgreens uh which is going private, being bought out by this private equity firm, Second World Partners. This is kind of a big moment for this very iconic American company. This company’s been around for a hundred twenty years. It’s been a public stock for almost a hundred years. It’s been public since nineteen twenty seven. And now you have this icon of [SPEAKER_TURN]
0:14:55 American consumerism. And it’s being bought out by a P_E_ firm for a tenth of what it used to be. Ten years ago this company was worth a hundred billion dollars. The price tag today is ten billion dollars. Your reactions to this news, Scott? [SPEAKER_TURN]
0:15:14 I I think they’re just overstored. I think it’s they’re doing the right thing. Again, capitalism in the market’s a word. I can’t believe this thing was ever worth a hundred million dollars. What I’d be curious and I don’t know if you have any information on this is that my go-to as well, this is Amazon, uh another victim of Amazon. But I don’t really know. Did you uh do you have any thoughts on what’s actually going on here? [SPEAKER_TURN]
0:15:44 I think it’s a whole confluence of things, and the way I would summarise it is just bad management. I think th probably their one of their worst mistakes is just their inability to modernise their pharmacy business, which they really depend on. I mean the those Walgreens pharmacies were incredibly traditional when you compare it to the pharmacies at somewhere like C_V_S_, and I think they woke up one day and telehealth had taken off, and reimbursement rates had come way down, and they just got crushed, especially against C_V_S_, which was a
0:16:14 establishing itself in in the pharmacy benefit manager business too. They also bought Village M_D_ which was a disaster. They were just too late to the party. They they bought that company after COVID. It didn’t work. They ended up taking a six billion dollar impairment charge. And then I think the final thing were these lawsuits. They just got a ton of lawsuits and most of them they settled on and just this year, couple months ago, they got sued by the D_O_J_ for essentially selling
0:16:44 So I think just it’s kinda simple, from a management perspective, it’s been a disaster. I think the question is what does Sycamore do with this company? Where do they go from here? It’s expected they’re gonna split it up into three units where, you have Walgreens pharmacy, they also own Boots in the U_K_ which, I’m sure you’re very familiar with now, which is their U_K_ pharmacy, and their healthcare unit which, is called Shields Health. And Sycamore did a s a similar thing to Staples, which
0:17:10 bought back in twenty seventeen. One interesting stat from the team that I’d like to get your reaction to. One in five private equity owned companies go bankrupt within ten years of acquisition and that is ten times higher than the rate of publicly owned companies. So I I guess the question I would pose to you is w what does Sycamore do with this company and could they just bankrupt the company possibly based on that stat? [SPEAKER_TURN]
0:17:40 I mean clearly they’re gonna cut costs. They’re probably gonna change management and severely reduce costs. And the issue the hard part about retail is that you have to enter into these very risky uh business contracts called a lease. And everybody wants the same real estate. And the owners of this real estate are smart at maximising their revenue by by uh signing up for a ten year lease. So when you pick I mean you have to be very thoughtful. So in in the kinda the history of retail is
0:18:10 registration hardware goes public and they think we gotta grow, so they sign a bunch of bad leases, they’re really promiscuous, and then similar to Walgreens, three and four Walgreens are not profitable and it’s a ten year weeping sore. Unless you declare bankruptcy, you can’t get out of that lease, so you’re just losing money. Uh so real estate uh ends uh what are they gonna do? They’re gonna let a ton of these leases expire and hopefully shore it up. As it relates to private equity and bankruptcy, that’s not surprising ’cause private equity is usually
0:18:40 let’s take all of its cash flows and use it to lever up such that we can have more upside and finance the acquisition with cheap debt. And when it doesn’t work, they declare bankruptcy. Now having said that, the the debtors of the bond holders charge a certain interest rate that calculate it in the risk of default. And when the bond holders when it defaults, the bond holders get to seize the assets. And when a private equity company or a private equity backed company has t you know, when it goes bankrupt, generally speaking the private equity all the equity capital they
0:19:10 put in they also get wiped out. So it does lever up and w you know go risk on on a company, but it also creates a certain sense of urgency. I think private equity has been good and not good for society. I’m not one of these people that says oh they’re ruining everything I. don’t think that’s true. There’s a lot of entrepreneurs who’ve made a lot of money selling a private equity and the thing I like about private equity is they’re usually very good at getting management vested in terms of the upside of success. They’re actually quite generous whereas venture capitalists I find are
0:19:40 primarily just, with rare exception, just mendacious fuck douchebags who pretend to give a shit about anybody and then wash the founders out. Speaking for a friend, um but so I like I enjoy working with private equity. I think debt tightens the focus, if you will, and most of the time these things, you know, it does make sense. And also there’s there’s two parties to the trade. The company doesn’t have to sell the private equity. They don’t they’ve it they’ve entered into this agreement knowingly. The people who are financing this
0:20:10 enter into this trade knowingly and are getting a good hopefully a good interest rate to reflect the risk. But this is a company that’s a shadow of itself. It sounds to me what I would wanna know is what percentage of their leases are coming up for renewal that we can get out of. Because that’s the obligation here that is most scary and that’s why a lot of retailers good retailers declare bankruptcy because then they can go and cherry pick and hold on to the leases they want and get out of the contractual agreements with the the leases that are
0:20:39 hurting them. So I p I wouldn’t be surprised I. bet this I p I wouldn’t be surprised if Sycamore actually does pretty well here. Do you wanna hear my C_V_S_ and opiate story Ed? My C_F_O_ came in at L_ two came into me and said I I need to speak to him. So I’m just like uh there’s some really crazy charges at drug stores all over Manhattan and and I looked at him I’m yeah this is not me this doesn’t make any sense I’m. like it must be fraud and she’s like no it’s not fraud, it’s your assistant. [SPEAKER_TURN]
0:21:05 And it ends up that my assistant was addicted to opiates and was going to every doctor in Manhattan getting a a script for opiates and then going into a C_V_S_ or a Walgreens and not only getting her opiates, but buying a thousand or two thousand dollars in cosmetics or gifts. And she was not only a criminal, she was a stupid criminal and she would sign for everything and have it delivered to her house where like [SPEAKER_TURN]
0:21:08 Yeah, uh we think it’s you. [SPEAKER_TURN]
0:21:19 think over five months or seven months a, hundred and twenty thousand dollars on my corporate card had various C_V_S_ and Walgreens all over Manhattan. And I remember calling her. [SPEAKER_TURN]
0:22:01 And not like that. I’m like she’s like, oh, I don’t know what you’re talking about. I’m like they you’ve signed for this shit at your address. Y y your signature’s on this stuff. You you decided to have someone drop it off at your apartment when she wasn’t like, you know, you’re not exactly a what I’d call a very, you know, this is this is disorganised crime. And she immediately went into rehab, claimed disability and tried to sue us for the options that we owed her. Um she dropped the case when I t said I was gonna turn it over to the Manhattan D_A_ if she didn’t drop the case. But anyways, that
0:22:05 That was my last assistant, uh. That was that was the that was my last assistant. [SPEAKER_TURN]
0:22:37 I’m glad we learned that. Yeah, it’s uh we learned a lot about hiring decisions on this show. Let’s talk about um Ontario and their decision to cancel uh the contract with Starlink. I think you predicted something like this would happen you, at least kind of warned about it that Starlink you, know, one big problem for Elon Musk would be if people start cancelling Starlink contracts. Kind of i in an incredible move. The premier of Ontario, Doug Ford, had some
0:22:39 interesting things to say about this and we’ve got a clip, so let’s take a listen.
0:23:26 one step further. We’re ri ripping up Ontario’s contract with Starlink. It’s done, it’s gone. We won’t award contracts to people who enable and encourage economic attacks on our provis province and our country. Kind of Bola uh your reaction Scott? [SPEAKER_TURN]
0:23:56 I think Musk, when he saw this, I think this probably sent a chill down his spine. If people start cancelling Starling contracts, I mean they’re already throwing shit at Tesla’s on the road. I just cancelled a Tesla last night on Uber. I’m starting to cancel if it if it’s a Tesla when it comes up. I think that the Canada I think this guy’s making the right move and I think you’re only gonna see more of it. I think people have just had it. What’s a shame is that we don’t have the same type of leadership here in the United States. There hasn’t
0:24:26 a single CEO has stood up and said, I am not going to participate in this pay for play kleptocracy. I’m not giving to the campaign. I am not going to be be paraded around. You either have laws that affect all of us or none of this, but I have had it. And we haven’t had anyone that shows the balls of this leader up in Ontario. And it is so disappointing the domino theory of cowardice that has infected the rich and fortune
0:24:41 I can’t think of one who has spoken out all under the auspices of quote unquote shareholder value Well. folks, your stakeholders include Americans. Uh it is incredibly disappointing that we aren’t showing a fractional leadership that this guy is showing. [SPEAKER_TURN]
0:25:11 I think you say I mean the domino theory of cowardice, I think this is basically showing that we’re about to see the domino theory of revolt. I mean this guy’s the first one to do it, and it’s only a hundred million dollars, which is not a big deal for Starlink, which did eight billion dollars in revenue last year. But Canada overall is Starlink’s second largest market behind the U_S_. They’ve got half a million Starlink subscribers in Canada. And I think what this shows is you know this guy’s the first to do it, but we’re gonna see a domino
0:25:41 and I think all of these other provinces follow suit I. don’t think you wanna be a leader in Canada who looks weak up against Donald Trump, and what we’re seeing is that the entire nation is sort of coming together and rallying against a common enemy, and there’s just this one stat I found fascinating from YouGov. Eighty two percent of Americans say they consider Canada to be an ally. In Canada, that number is now thirty three
0:26:07 I think this is what is gonna probably push Musk out of government or he he’s gonna decide he’s gonna try and declare victory and leave because if you look at Starlink customer base, I mean Tesla is already crashing. It’s it’s it’s literally imploding. Uh I don’t know if you saw there’s a video of uh Mardi Gras and someone uh t uh a Tesla truck or whatever you call it was rolling down and everyone started throwing shit at it.
0:26:40 Starlink was his growth vehicle, and there’s one and a half million customers of Starlink in the U_S_. You reference that there’s five hundred and thirty thousand in Canada, second largest market. That’s real. And then the number three market Mexico, at four hundred and thirty five thousand. And then the number four is Brazil, who probably doesn’t feel that great about Musk, who was who was threatening, you know, was fucking with their internal politics. So you know Starlink’s value in the private markets, it’s the most valuable company one of the most valuable
0:27:10 private companies and the most traded in the secondary market, and I think it’s a third of a trillion dollars, I think it’s trading at three or three hundred fifty billion, that number’s gonna come way down, because if they can’t show the kind of growth that they’ve been showing, also you are you are seeing a lot of you wanna talk about greed lands going, if I’m Telus if I’m Telesat or Explore the competitors, they have no trouble raising a shit ton of money right now.
0:27:16 And because there is about to be a big gap in the market place for this type of uh broadband provider. [SPEAKER_TURN]
0:27:20 So what happened with Twitter and then you saw all those Twitter competitors rise up and now threads is [SPEAKER_TURN]
0:27:24 Threads, blue sky, post, yeah, that’s right. [SPEAKER_TURN]
0:27:26 I mean some of them kind of failed. [SPEAKER_TURN]
0:27:35 You’re the one I invested in, but is that what you’re saying Ed? Is that what you’re saying the one I invested in? I I the one I managed to pick? Okay. Okay. Okay. [SPEAKER_TURN]
0:27:47 We’ll be right back after the break and a look at Blackrock’s investment in the Panama Canal. If you’re enjoying the show so far, be sure to give Prof G Markets a follow wherever you get your podcasts.
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0:31:28 Mm. Mm. Mm. Mm. Mm. Mm. Mm. [SPEAKER_TURN]
0:31:58 We’re back with Prof G_ Markets. A BlackRock-led consortium has acquired two major ports on both sides of the Panama canal for nearly twenty three billion dollars. The ports were previously owned by a Hong Kong-based conglomerate, but the deal still requires approval from Panama, which retains control of the canal. BlackRock CEO Larry Fink personally pitched the deal to Trump after the president expressed interest in having the ports and the canal controlled by the U_S_. Uh Scott, you’re
0:32:05 initial reactions to BlackRock buying those ports from this company C_K_ Hutchison. [SPEAKER_TURN]
0:32:35 on the face of it, it sounds like a great idea. I mean if you think about the most valuable companies in the world are essentially toll booths, right. Amazon makes a ton of their money sort of saying, alright, rent our cloud services, but the real toll is that if you wanna have access to half of the U_S_E_ commerce market, you gotta be on our platform. And then we just collect a toll. It used to be twenty four percent of third party revenues when you, you know, put your shoe company on their platform, now it’s about they get forty five percent ’cause you have
0:33:05 one toll road, they’re the toll booth. If you wanna reach uh online consumers, there’s two big toll booths. There’s uh Meta and there’s Google. They collect a toll to reach every consumer that’s increasingly spending their day online. So I love this idea of an analog toll that says okay, we get you coming and going across this incredible feed of engineering and leadership, the Panama Canal. But you gotta think to get to propel through the water a several thousand metric
0:33:24 vessel and have it go another whatever it is, six thousand miles or eight thousand miles around this thing versus just slip through the little that little ditch we dug through Panama. If they can figure out a way to collect money on the in and the out I’ve, never heard a transportation company say the Panama Canal’s gotten too expensive, so we’re just gonna take the long way. [SPEAKER_TURN]
0:33:54 Yeah. I think we should just like remind ourselves of the context here. I mean I think everyone probably knows a couple months ago Trump said he wanted to reclaim the Panama Canal. He said the Panama Canal had been taken by China and that America needed to take it back and then there was that notorious moment where he was asked if he would use military force to take it over and he didn’t rule it out. Now of course it’s not true that China owns the Panama Canal, but it is true that there are companies
0:34:24 with ties to China, which own and control many of the ports that are in the Panama Canal. And one of those companies is this company we’re talking about, C_K_ Hutchison, which is this company based in Hong Kong, it’s owned by this billionaire Li Ka-Xing, and now they are selling those ports that are on either side of the canal to Blackrock. Now there’s been some questions around how much does this have to do with Trump, how much does this have to do with geopolitics, and one of the heads of C_K_ Hutchison
0:34:54 which owns the ports. Uh he said it has nothing to do with Trump. He said, quote, I would like to stress that the transaction is purely commercial in nature and wholly unrelated to recent political news concerning the Panama ports. I just wanna get this out of the way. That’s of totally a lie. No question about it. This had everything to do with politics. It’s been extensively reported that this company only started looking to sell right after Trump made those comments about Panama
0:35:24 about China. So let’s just be clear from the get-go, this is one hundred percent a geopolitical response. There’s no there’s no doubt about it. Having said that, I think what the guy at C_K_ Hutchison is trying to get at is that from a commercial perspective, this was an amazing deal for them. The origins of the deal were political, but the result was a success, because the value of those ports that they sold as determined by analysts was thirteen billion dollars. They
0:35:54 it for twenty three billion. So they got a nearly eighty percent premium on those assets. That is huge. And by the way, twenty three billion is more than the entire market cap of the company before the deal. And as a result, shares in the company skyrocketed. They were up twenty percent. So it’s a huge success for this company, C_K_ Hutchison And. and I think that begs the question, okay, they sold it for eighty percent above market value. Why was Black
0:36:14 down to pay? Why were they down to splurge that much in what is now the largest infrastructure deal in the company’s history? How did that make sense to them? And I have some initial thoughts, but I’ll I’ll f I’ll throw it back to you. What do you think was the draw for Blackrock here? [SPEAKER_TURN]
0:36:27 I would have just thought that they believe that their average price per vessel of three hundred and forty one thousand that’s charged to get through the Panama canal, that they believe they can take that three fort forty one number much higher. [SPEAKER_TURN]
0:36:44 No, I think what’s in it for Blackrock and what made this worth it is what it does to their relationship with the president, because he looks excellent now. You know, he was talking about how he wants the U_S_ to control the Panama canal and people were ragging on him saying this guy doesn’t know what he’s doing, and
0:37:14 pulled it off and at no cost to the government. The whole thing was paid for by Blackrock. And you there is no denying this only happened because of him. So he looks like a genius now. He gets to brag about it in his speeches. In fact, that’s exactly what he did in his address to Congress. And most importantly, I think he is now grateful to Larry Fink and to Blackrock, who are officially in his good books now. And that’s r so
0:37:44 because for a long time they weren’t. This is the company that spearheaded the E_S_G_ movement, that told investors that’s D_E_I_ is central to everything they do. This is the company that just generally speaking the Republicans hated. And so I think Larry Fink saw this opportunity, there was a chance to get on Trump’s good side uh to make him look like the hero, and it only cost him, you know, a few billion dollars. So in my view
0:38:05 was probably worth it. I didn’t immediately connect that this gets them in Trump’s good graces, but I can see the argument, if so, I can’t imagine they would make this sort of capital outlay. I think that would be being a bad fiduciary just to cozy up to a guy who’s gonna be in office another three years or nine months and quite frankly in about two years. [SPEAKER_TURN]
0:38:14 Don’t you think that is an economic d decision at this point? I feel like what we’re seeing with these companies is actually it is your fiduciary obligation to suck up to the president. [SPEAKER_TURN]
0:38:37 I think your analysis is more thoughtful than mine. I just assumed that if they could put a toll booth on both sides of the Panama Canal that if you do the math, I would bet it costs a lot more than a an incremental three hundred forty thousand dollars to take that ship around, take it to go the long way. And they sense that and say alright, we’re capturing ten percent of the savings here, we should be capturing thirty or forty percent. [SPEAKER_TURN]
0:39:07 Fair enough. I ju I I think in the context of what they’ve been doing recently, I mean just a couple months ago we didn’t discuss this on the podcast, but they withdrew from this climate initiative with the United Nations. They also they just released their annual report. They cut all references of D_E_I_ in their report. They backpedalled from E_S_G_ a ton. And this is just a t huge turnaround from twenty twenty one when they were kind of leading this charge. Like they were at the
0:39:29 forefront of D_E_I_ and E_S_G_. I’ll quote Larry Fink in their twenty twenty one annual report. He said quote, we must embed D_E_I_ into everything we do. And then poof, suddenly the D_E_I_ is gone, suddenly the E_S_G_ is gone, and he’s making phone calls to the Trump saying hey, that thing you’re talking about, this Panama thing, we’re really interested and we think we can represent the U_S_. [SPEAKER_TURN]
0:39:58 I’ve switched. I’m now, when I’m interviewing people, I’m saying oh, he’s a D_U_I_ hire. Um yeah, I’ve never had a D_U_I_ I’m. thanks for that. Now back in the eighties and nineties we always get fucked up and take to Sunset Boulevard and basically death traps. But anyways, ha, good times, youth, youth. We’ll be right back with a look at Apple. And if you’re enjoying the show so far, hit follow and leave us a review on property markets. [SPEAKER_TURN]
0:39:59 Mm-hmm.
0:40:06 Mm-hmm. [SPEAKER_TURN]
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0:41:14 I’ve been asking some very smart people a question that’s been on a lot of our minds. Should we be worried about artificial intelligence? But the answers I got from the greatest minds in A_I_ surprised me. One guy told a parable of an A_I_ that could cause an apocalypse. [SPEAKER_TURN]
0:41:19 Let’s give this super-intelligent A_I_ a simple goal. Produce paper clips. [SPEAKER_TURN]
0:41:48 Be a paper clip. Another woman cast A_I_ as an octopus. We posit this octopus to be mischievous as well. And yet another story sounded like it was out of the Bible. She seems likely to drown What. should you do? Imagining A_I_ as a saviour. And all of these fantastical tales from the greatest minds in A_I_ made me wonder maybe even these people don’t know what to think.
0:41:58 I’m Julia Longoria, Good Robot. A series about A_I_ coming March twelfth on Unexplainable, wherever you get podcasts. [SPEAKER_TURN]
0:42:33 We’re back with Prof
0:43:06 And this news in and of itself is not very interesting or important. There’s a new MacBook Air out who, cares. But I think the reason it’s worth covering is because to me it’s indicative of just how far Apple has fallen from a product perspective. I just wanna go through the new features in this computer, this grand MacBook Air release. So the new features include a new and improved M_ four chip, okay, a new and improved video
0:43:30 camera, it can connect to three external monitors, it comes in a new colour, sky blue, and that’s it. Those are the impressive new features of the new MacBook Air. And by the way, the iPad Air which came out in the same weekend, also very underwhelming, their big new update is an A_I_ e-mail summarisation feature for quote more stable typing experience.
0:43:37 This is the company that invented the iPhone Wh. what happened Scott? [SPEAKER_TURN]
0:44:07 Yeah, this is a giant s snooze. And just in terms of what uh I’m doing, I’m actually selling starting to sell my Apple stock. Apple and Amazon have been my biggest holdings for the last fifteen years. I bought Apple when it was trading at a P_E_ of nine, and now it’s trading at a P_E_ of thirty seven. Yeah, I think it historically has traded an average around eighteen. And trailing twelve months, it’s thirty seven or thirty eight. Forward earnings, it’s thirty one thirty two. And it’s growing two
0:44:37 And quite frankly its product line-up is just anemic. And in addition the overlay there is I do believe that we’re gonna see the rivers uh the flow of the river of capital into the U_S_. I think those rivers are about to reverse. We’ve talked about it uh ad nauseam on the show. So I um I’m gonna take the the capital gains hit and I am selling down my Apple and my Amazon which are trading at extraordinary multiples. And I don’t with Amazon you could sorta justify it I think ’cause of their cloud business. Apple’s
0:45:07 arguably the best brand in the world, but company’s no longer growing. I think the the mixed reality headset was just just uh c uh comical. And so in this notion of spatial computing, it’s gonna be the next thing. I mean they’re they’re well set up for A_R_ They’re. they’re gonna be a relevant company for a long long time. Let me go this way. I don’t see how they can justify a P_E_ of thirty seven or thirty eight on on a company that’s not growing, it’s top line revenue.
0:45:15 So is it a great company? Is it gonna continue to be really relevant? Yeah, it just I just don’t I just think it’s overvalued right now. [SPEAKER_TURN]
0:45:45 Yeah, my perspective is pretty much identical to you. I think this is kind of the final straw for me. I’ve been waiting for Apple to get their mojo back. But every single announcement is just such a snooze. And yeah, this is the final straw. I think I’m I’m I’m officially bearish on Apple. I think that’s the right move to sell or at least trim your holdings. By the way, that’s what Booch Hathway did last year. I think it was probably the right move. I think the stock will fall below two hundred dollars in the next six months. Maybe the
0:46:15 next twelve. I think there are just two major problems with Apple. The first is the products, and the second is, as you say, the valuation. And let’s just go over the products here. Every iPhone today looks the same as it did ten years ago, and the same can be said of the iPad, and the same can be said of the MacBook. The only innovation we’ve seen from a hardware perspective with Apple is this headset, which so far has been a disaster based on all the data that we know about. The
0:46:45 other exciting product was the Apple Car, which they cancelled last year. So they’re not growing from a hardware perspective. And by the way, I I think this is why we’re seeing all these ridiculous ads from Apple. I don’t know if you saw their Super Bowl ad, but it was this this this video talking about their gen-moji feature, which is basically they’re using A_I_ to allow users to create new emojis, and they also have these billboards plastered all over New York. You’ve probably seen
0:47:15 And it’s kind of embarrassing, I think, from the company. I think the reason they’re doing it is ’cause they have nothing else to advertise. We could talk about their software as well, which has been underwhelming. They just did this new I_O_S_ update. People don’t like it. I also don’t like it. I think one of the worst changes they did was to the photos app, which I don’t know if you’ve used it recently. It’s just it’s extremely unintuitive. Siri is terrible. It was supposed to compete with charge E_P_T_. It it it won’t. Apple music is failing compared to Spotify. Apple podcast is
0:47:45 doing, compared to Spotify and compared to YouTube. In some, the products aren’t exciting anymore. And then there’s this added layer of the valuation, which we can talk about it. Trading at thirty eight times earnings. The company is still valued as a growth company, and I just wanna put it in perspective with other companies. Thirty eight times earnings, that is higher than Microsoft, whose revenue is growing at sixteen percent. It’s also higher than Meta, whose revenue is growing at twenty two percent. It is very close to
0:48:15 valuation of Nvidia, which trades at forty times earnings, and they’re growing at a hundred and fourteen percent. Apple’s revenue last year grew two percent. It’s flatlining So. uh this is a long way of saying I I’m I’m very aggressively with you on this. I don’t think the valuation makes sense. I think the only way you can justify that multiple for Apple is if you really believe in Apple intelligence and the A_I_ play. If you believe that A_I_ is just
0:48:45 to absolutely turbo-charge all of their products and make them exciting again. But I would just burst that bubble once again and say they just released Apple Intelligence, forty one percent of iPhone users didn’t bother to try it, and of those that did, seventy percent said they don’t like it. So th I don’t see how we can we can justify this as a growth company anymore. I think this is officially a mature company, which means that it should be valued as a mature company. I don’t think this can continue. [SPEAKER_TURN]
0:49:01 Yeah, it’s interesting, and it’s easy for me to say because it’s these are b it’s a very difficult business, but if Apple were coming out with its Project Titan, if Apple were just about now and it w if it is not cancelled Titan, it would have been coming out with a card just about now, can you imagine how well positioned they would have been against Tesla? [SPEAKER_TURN]
0:49:02 Yeah, exactly. [SPEAKER_TURN]
0:49:33 I think they would have found the justification for that P_E_ just in the the customer list. I think they would have built the most valuable customer list or waiting list in history. And that is I think several million people would have come up with five or ten grand just to be on that waiting list and they could have said uh I think that would have justified when everyone was trying to justify the thirty eight P_E_ which they’re gonna run out of reasons to justify, I think they could have pointed to that list. And the self expressive benefit brand of Apple which, immediately identifies you as one of the wealthiest, most creative
0:49:56 fourteen percent of the globe because a billion people have I_O_S_ The. other real self expressive benefit item in people’s lives that they’re willing to spend a lot of money on is their car. So I just think the Apple car would have been the most elegant way to say I’m creative and wealthy and I think they they would have done a good job, they could have outsourced the manufacturing. Anyways, I think they are kicking themselves that they didn’t go the distance around Titan. [SPEAKER_TURN]
0:50:04 Just in terms of your decision to sell, when did you officially make that decision and also just on a slightly separate point, what are the tax implications there? [SPEAKER_TURN]
0:50:34 The tax implications are ugly because I bought Apple at about eight bucks a share or twelve bucks a share. So I’ve recognised a huge gain. I’ve sold some along the way, but there’s just not getting around it. I’m gonna have to pay twenty two or twenty three point eight percent taxes, which isn’t enormous, but I think it’s worth it. Um and my decision was uh I have a friend of mine who runs a hedge fund that I actually has my biggest allocation called Elena Partners, a guy named Orlando Marchant who was a tiger cub and now manages money for
0:51:04 on my offices. And he’s just been sending me all these graphs about just how incredibly expensive U_S_ growth is and how inexpensive the rest of the world is. And the stat that has just blown my fucking mind is that if you were to price all U_S_ assets, they would be seventy dollars, including their equity value and their debt. And if you were to price the rest of the world, sans the U_S_, it’d be thirty dollars. So would you rather own the U_S_ at seventy bucks or the rest of the world for thirty? And that I am acting on that. I am selling down my U_S_ growth portfolio and I’m investing in Europe. The
0:51:30 is I’m already a little bit late. Europe is up I think eleven or twelve percent. The EU, you know, the EU markets are up um substantially and the U_S_ is flat. But I’m rotating out of the U_S_ and my kind of growth plays. I have I’m overexposed in growth ’cause I invest in a lot of private companies in the U_S_ but I’m gonna d I’m gonna get out of Amazon and Apple and reallocate that capital into Brazilian and European stocks. [SPEAKER_TURN]
0:51:34 What percentage of your Apple holdings will you sell? [SPEAKER_TURN]
0:51:57 I’ll probably sell all of it. Yeah, I think I’m probably gonna sell all of it. [SPEAKER_TURN]
0:52:04 Ten bucks an
0:52:34 The the reality is tech. You’re an investor in tech. You’re an investor in U_S_ tech. People who are tracking South African value stocks aren’t listening to this podcast. People who track American markets which are dominated by tech are listening to this podcast. Meaning that you at ELSEN, if you were really really smart about diversification, you would not be investing in U_S_ tech. Because you are very tit this is what I didn’t understand when I was your age. I was so over-invested in U_S_ I I running a brand strategy firm in
0:53:04 in Northern California, my entire livelihood was tied to the fortunes of tech. All my clients were either Kleiner Perkins portfolio companies or H_P_ or Apple or, you know, I had these big kind of U_S_ tech companies and then because that’s what I knew and I thought oh, this is this is where the future is, I’d take all my access cash flow and I’d buy tech stocks. So when two thousand came, uh I w ended up going from being worth a lot of money for a thirty a thirty year old thirty six to
0:53:21 uh being worth negative two or three million dollars in the space of about three months. So we are over-invested uh in U_S_ tech by virtue of the fact of what we do for a living. So I’m going to take uh many of my li and basically everything that’s not nailed to the ground right now and get out of U_S_ growth in tech. [SPEAKER_TURN]
0:53:26 Well next time I’m gonna need to hear what those actual European companies are because I look at the European [SPEAKER_TURN]
0:53:34 I’m gonna go into an index. I might go into a levered index from Drexel, but I’m gonna go into a diversified mixed E_T_F_ or index around E_U_ value stocks. [SPEAKER_TURN]
0:53:42 And are there any companies in the in the index or any any companies that you’re seeing in Europe that you think oh yeah they’re g they’re doing well. [SPEAKER_TURN]
0:54:12 Well, I mean I just like a lot. I think, you know, Mercedes is a great company, trading at a fairly low multiple. Porsche is on sale relative to where it was. Uh L’Oreal is an amazing company. Shell, B_P_ you know, there’s just there’s a lot of um you know, L_V_M_H_ has come off a lot. That’s not value, but it’s come off a lot. Uh it there are a lot of great uh European companies. I’m very excited about Europe. A lot of this is confirmation bias. But I think Europe has been you know, we hav we’ve had this conversation. Europe has been left for dead. It’s not. Yeah, I
0:54:35 a lot of time in Europe, incredible universities, a lot of very hardworking people. It doesn’t have the risk capital, it should, but I think that’s gonna change. I think P_E_’s getting their green glands going. And I think they’re finally gonna start acting like a union and take advantage of their size. So I’m very excited about Europe and I’m very uh you know, the bottom line is Europe American, tech is still gonna do really well. It’s just too fucking expensive.
0:54:48 Let’s take a look at the week ahead. We’ll see the consumer and producer price indices for February, and we’ll also see earnings from Oracle, Adobe, and Williams-Sonoma. Scott, do you have any predictions?
0:54:50 I want you to make a prediction out of it, and I think you just made one.
0:55:21 my prediction would be that Apple is sub two hundred dollars in the next six months. I think that their numbers are flatlining their, hardware revenue is down and they’ve been leaning on a narrative and I think that narrative is fizzling out because you could just look at their products and you can look at their ads. It’s becoming very clear this is a very mature and increasingly uninteresting company. I’m not sure how I feel about you selling all of to Apple. I’m also not sure how I feel about you going totally
0:55:33 out of U_S_ growth entirely, I think there are still there’s still a lot of value in U_S_ tech in companies like, you know, Nvidia and Google for, example I’m, pretty bullish on. But Apple, I think that’s probably a good idea to trim. [SPEAKER_TURN]
0:55:49 So I’m excited to see you in Texas. The last time I was in Texas I was in Lubbock and I came across a sheep farm and there was a farmer fucking a sheep on the side of the road and I said in New York we we uh we shear sheep and he said I’m not sharing her with anyone. [SPEAKER_TURN]
0:55:53 I’ll see you in Austin. I’ll see you in a great state of Texas. [SPEAKER_TURN]
0:55:56 This episode was produced by Claire Miller and engineered by Benjamin Spencer. Our associate producer is Alison Weiss. Mia Silverio is our research lead Isabella Kinsell is our research associate, Drew Burrows is our technical director and Catherine Dillon is our executive producer. Thank you for listening to Prof
0:56:26 you.
0:00:42 and bonds in a self-directed account are offered by Public Investing Inc., member FINRA, and S_I_P_C_ complete disclosures available at public.com/disclosures. I should also disclose I am an investor in public.
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0:02:18 Today’s number, a hundred and forty five million dollars. The co-founder of Fintech startup Aspiration was arrested last week for allegedly conspiring to defraud its investors of a hundred and forty five million by the way we call bullshit on this company four years ago. Speaking of climate change, Ed, what do climate change deniers and pedophiles have in common? They’re both fucking the next generation.
0:02:38 Ah, that’s good. Yeah, the pedophile stuff never gets old. What’s going on with you? What are you what are you up to? [SPEAKER_TURN]
0:03:04 doing very well. I’m in New York. I’m excited for South by Southwest. We’re gonna be heading over this weekend. Of course this episode will be out by the time we’re there. But I think it’s gonna be great. You know what I’m really excited for though, is the flight back flying with you. Not enough seeds. There’s only seven seeds on the plane. How many seeds are on the plane? [SPEAKER_TURN]
0:03:13 I haven’t counted. Um I can’t go here. There’s no way I don’t come across as the world’s biggest douchebag talking about the number of seeds. [SPEAKER_TURN]
0:03:43 You’re right. I’m I’m setting you up for failure. How about let’s set you up for success here and just talk about this aspiration situation, because you wrote about this four years ago. This is by the way one of my first jobs at Prof G_ Media was you were talking about this company aspiration and it was my job to go in and do the research because you had this feeling that this company which was selling credit cards but also positioned itself as helping with climate change, you said this is definitely a bullshit company,
0:03:52 you had the team look into it, I looked into it and we determined, yes, this company is fake. We have a clip from what you said about this company on the Prof G_ POD.
0:04:21 One example one example of reaching too far into the barrel aspiration, a finance firm that claims its products can open quote change, climate change, end quote. In August the company announced it was going public, via spec, at a two point three billion dollar valuation. Change, climate change. Mm that would be awesome. Except there’s a catch. This is a fucking debit card. He’s so good. [SPEAKER_TURN]
0:04:30 Banger. And now the guy’s uh been arrested for fraud. By the way, it never went public because I think investors eventually caught on to this. But he’s now been arrested. You called it. [SPEAKER_TURN]
0:05:00 it was such an attempt to drape yourself in social justice while offering something uh f m pretty borderline fraudulent. They were they were saying that we take a portion of your credit card feeds and invest in uh sustainable companies. And if you read their, you know, their website and I got s we got some financial information we, dug in, this was a shitty little credit card company charging onerous fees claiming to do something they weren’t doing and saying oh, but
0:05:29 were a new economy company and they had famous investors, they had actors. A friend of mine that ends up was an investor and called me and sort of I don’t wanna say put pressure on me but said do you wanna speak to management there that’s I think you got this wrong. I’m like I said to him I said we’ll just call him Bob. I’m like Bob this is a fucking fraud, this is we work with a climate change veneer smeared over it. I thought that was gonna get more attention than the we work post because I thought it was even more obvious of fraud. [SPEAKER_TURN]
0:05:59 few people actually knew what aspiration was, which I think is why it was so prescient of you to to point it out. I just wanna point out what some of the red flags we found with this company were. So the first the first red flag was that they were trying to SPAC. And there were just a bunch of kind of bullshit companies that were SPACing. They did have a giant celebrity investor list. One of those investors was Leo DiCaprio. That was kind of a red flag. And then as we looked into it, w it s started to get worse and worse. So they had this E_S_G_ fund that they
0:06:20 the Redwood fund, and they charged these exorbitant fees on it. But when we looked at the actual portfolio, what we found is that it was just a regular portfolio, and they even had positions in Southwest Airlines, which of course b burns through fuel, and also a fracking company, which was hilarious. Their worst crime though, was this thing called EBITDAM. [SPEAKER_TURN]
0:06:23 God. Like community-based EBITDA, we work. [SPEAKER_TURN]
0:06:53 Exactly. This was earnings before interest taxes depreciation, amortization and marketing. And according to this company they were EBIT damn profitable. But then you look at the fine print and you realise they were spending a hundred and fifty percent of their revenue on marketing. So they’re trying to position themselves as a profitable company, but they’re saying oh this marketing thing we’re spending basically all of our money on marketing but don’t worry about that we’re profitable. And that was sort of our that was I would say our biggest red flag. This company uh is
0:06:57 their their investors. And so it never stopped and now the guy’s going to jail. [SPEAKER_TURN]
0:07:23 I loved Adam Newman’s initial redefinition of EBITDA and it was like earnings before everything else, earnings before Dolly Parton, earnings before March Madness. It was just it was like let’s pretend that profits are top-line revenues before expenses. Let’s just get rid of this pesky thing called expenses so we can say pretend that we’re profitable. But yeah, uh I’m I’m I appreciate the recognition. [SPEAKER_TURN]
0:07:27 And uh uh drinks on me this week in Austin. [SPEAKER_TURN]
0:07:31 I can’t wait. Let’s get into our weekly review of Market Visals.
0:08:08 The S_ and P_ five hundred declined, the dollar slid, Bitcoin was volatile and the yield on ten year treasuries climbed. Shifting to the headlines. Disney is laying off nearly two hundred employees or six percent of its workforce in its A_B_C_ news group and Disney entertainment networks divisions. As part of the cuts the company is also shutting down political and data journalism site five thirty eight, which it acquired in twenty thirteen. Walgreens is officially going private after closing a ten billion dollar deal with Sycamore Partners, the private equity
0:08:34 firm is expected to keep Walgreens core U_S_ retail business, while potentially selling off or spinning out other parts of the company And. finally, Ontario cancelled a Starlink contract worth one hundred million Canadian dollars after U_S_ tariffs on Canadian imports took effect. Scott, uh let’s get your thoughts starting with Disney deciding to lay off two hundred employees, nearly six percent of the workforce at A_B_C_ and their entertainment networks. [SPEAKER_TURN]
0:09:04 Uh it just makes sense. This is part of capitalism, and that is um they need they need to consolidate, bulk up, uh and then cut costs. These companies should have one back-end as far as news, and if they have different front-facing uh brands that appeal to different audiences, that’s fine, but last year Disney’s linear networks’ revenue declined nine percent and operating income was down sixteen percent. They’re not alone here. U_S_ linear T_V_ advertising uh will decrease an estimated four percent annually,
0:09:34 twenty thirty, which doesn’t seem like a lot, but when it’s going for another five years, four per cent, it means it’s gonna be it’s gonna lose a quarter of its revenue uh or a fifth, and that means you know, that’s just real pain ’cause some of those costs are fixed, so you’re talking probably they’re probably gonna shed another twenty or thirty per cent of the workforce over the next five years. I just had lunch with a fairly famous uh news anchor who is fantastic at what she does and uh ju she’s one of the lucky ones, she’s still making a
0:10:04 a lot of money, but I think she her salary got cut by thirty percent and you’re seeing you’re seeing cuts across the most famous anchors of like twenty to eighty percent, Joy Reed, Chuck Todd, Jim Acosta, and Lester Holt. All fantastic what they’d do or did, all too expensive. And George Stephanopoulos uh his contract’s been renewed, though he had to take a pay cut from his previous twenty million dollar deal. He’s lucky he got his deal a few months ago. I think it’d even be less now.
0:10:34 Rachel Maddow renegotiated. She is the friends or the the anchor of M_S_M_B_C_ She. had to reduce her pay from thirty to twenty five million yeah, crimey or whatever that’s, not too much Anyway. so I it it look the market is knowing what it’s supposed to do. It’s reshaping the winners and the losers. Uh you’re gonna see I think private equity come in here. You’re gonna see a lot of consolidation. I think Disney is a survivor ’cause of this unique singular positioning around family and just the incredible I_P_ they have. I w also wonder if this is an interesting
0:10:36 private opportunity. But anyways, what are your thoughts? [SPEAKER_TURN]
0:11:07 Yeah, I find this interesting ’cause I I visited a the A_B_C_ studio last week, one of the producers on on A_B_C_ news took me around, and it was really cool and I was just kind of struck by how impressive this operation was. Like the office looks like a cross between like NASA airspace control and also like the trading floor of Goldman Sachs and it’s filled with people like gaffers and technicians and co-ordinati I was asking him like what do all of these people do We? think oh this guy’s on this team, this guy’s on
0:11:37 this team. I mean it’s l it’s thousands of people literally, it’s actually thirty three hundred people. But in the back of my mind the whole time as I’m walking around I’m like this is amazing, but there is no way this makes any sense economically. The fact that you have, as you said, revenues down nine percent, operating income down sixteen percent, six million people cancelling their cable subscriptions in twenty twenty four, and yet the operation looks like it’s the headquarters of the C_I_A_ So. I was sort of walking around I’m like okay, something has to
0:11:52 give here. And that’s what we’re seeing. In this case the thing that’s given is the workforce. And as you say, this isn’t the first time we’ve seen this headline and, yeah, I don’t think it’s the last time we’ll see this headline. I think we’re gonna see many many more headlines like this. [SPEAKER_TURN]
0:12:22 Well if you look at uh means of production, um and I did some analysis here, we’re making three to four times the revenue per employee and granted we’re small, but the means of production are so much less expensive uh in podcasting now granted there’s very you know there aren’t that many winners, but if you can figure out uh kind of a new media platform and keep it kinda lean and mean, you can just see what’s what’s happening here. It’s just incredibly uh challenging for
0:12:52 folks I, describe I was jokingly described in The Anchors as uh pilots for Pan Am in the seventies, in that it’s high prestige, they’re begging stewardesses, everyone’s impressed by ’em, but I’m like your days are numbered pretty soon you’re gonna be, you know, on an ember from Lubbock, Texas to Amarillo making thirty eight thousand bucks a year. I personally the way I register it is ten years ago when I was asked to come on CNN I, just was so excited I, remember the first time Anderson had me on his show and I was so I thought wow, I’ve made it.
0:13:05 And now, unless it’s a someone I’d l I’d I’m personal friends with or I I don’t go on because it’s like the juice isn’t worth the squeeze to come across as intelligent and the work and the prep you need to do, not that many people are watching it. [SPEAKER_TURN]
0:13:20 By the way I, just got asked for the first time to go on CNN and then they cancelled on me in the last minute. Most hilarious part is that I was I was uh in for the five A_M_ slot. They’ve they pushed me to next week, so I’ll do it again, but I think the juice is worth the squeeze for me, I’ll say that. [SPEAKER_TURN]
0:13:34 A hundred percent, and plus you you I mean you’re literally you’re gonna be exposed to dozens and dozens of new fans um, five A_M_ on CNN, that is literally like a ninety year old that can’t sleep. I think that’s great, congratulations, I didn’t know about that. [SPEAKER_TURN]
0:14:10 You’ll see this, there’s still a prestige value and that is when people see you on I used to go on Fox every week uh and when people see you on T_V_ for some reason there’s just this veneer of prestige, romanticism or credibility that you don’t get anywhere unless of course you have a guest role on The White Lotus but uh let’s bring this back to me let’s bring this back to me. Anyways, li linear T_V_ it’s not doing well. [SPEAKER_TURN]
0:14:38 It’s not doing very well. Agree. Let’s talk about Walgreens uh which is going private, being bought out by this private equity firm, Second World Partners. This is kind of a big moment for this very iconic American company. This company’s been around for a hundred twenty years. It’s been a public stock for almost a hundred years. It’s been public since nineteen twenty seven. And now you have this icon of [SPEAKER_TURN]
0:14:55 American consumerism. And it’s being bought out by a P_E_ firm for a tenth of what it used to be. Ten years ago this company was worth a hundred billion dollars. The price tag today is ten billion dollars. Your reactions to this news, Scott? [SPEAKER_TURN]
0:15:14 I I think they’re just overstored. I think it’s they’re doing the right thing. Again, capitalism in the market’s a word. I can’t believe this thing was ever worth a hundred million dollars. What I’d be curious and I don’t know if you have any information on this is that my go-to as well, this is Amazon, uh another victim of Amazon. But I don’t really know. Did you uh do you have any thoughts on what’s actually going on here? [SPEAKER_TURN]
0:15:44 I think it’s a whole confluence of things, and the way I would summarise it is just bad management. I think th probably their one of their worst mistakes is just their inability to modernise their pharmacy business, which they really depend on. I mean the those Walgreens pharmacies were incredibly traditional when you compare it to the pharmacies at somewhere like C_V_S_, and I think they woke up one day and telehealth had taken off, and reimbursement rates had come way down, and they just got crushed, especially against C_V_S_, which was a
0:16:14 establishing itself in in the pharmacy benefit manager business too. They also bought Village M_D_ which was a disaster. They were just too late to the party. They they bought that company after COVID. It didn’t work. They ended up taking a six billion dollar impairment charge. And then I think the final thing were these lawsuits. They just got a ton of lawsuits and most of them they settled on and just this year, couple months ago, they got sued by the D_O_J_ for essentially selling
0:16:44 So I think just it’s kinda simple, from a management perspective, it’s been a disaster. I think the question is what does Sycamore do with this company? Where do they go from here? It’s expected they’re gonna split it up into three units where, you have Walgreens pharmacy, they also own Boots in the U_K_ which, I’m sure you’re very familiar with now, which is their U_K_ pharmacy, and their healthcare unit which, is called Shields Health. And Sycamore did a s a similar thing to Staples, which
0:17:10 bought back in twenty seventeen. One interesting stat from the team that I’d like to get your reaction to. One in five private equity owned companies go bankrupt within ten years of acquisition and that is ten times higher than the rate of publicly owned companies. So I I guess the question I would pose to you is w what does Sycamore do with this company and could they just bankrupt the company possibly based on that stat? [SPEAKER_TURN]
0:17:40 I mean clearly they’re gonna cut costs. They’re probably gonna change management and severely reduce costs. And the issue the hard part about retail is that you have to enter into these very risky uh business contracts called a lease. And everybody wants the same real estate. And the owners of this real estate are smart at maximising their revenue by by uh signing up for a ten year lease. So when you pick I mean you have to be very thoughtful. So in in the kinda the history of retail is
0:18:10 registration hardware goes public and they think we gotta grow, so they sign a bunch of bad leases, they’re really promiscuous, and then similar to Walgreens, three and four Walgreens are not profitable and it’s a ten year weeping sore. Unless you declare bankruptcy, you can’t get out of that lease, so you’re just losing money. Uh so real estate uh ends uh what are they gonna do? They’re gonna let a ton of these leases expire and hopefully shore it up. As it relates to private equity and bankruptcy, that’s not surprising ’cause private equity is usually
0:18:40 let’s take all of its cash flows and use it to lever up such that we can have more upside and finance the acquisition with cheap debt. And when it doesn’t work, they declare bankruptcy. Now having said that, the the debtors of the bond holders charge a certain interest rate that calculate it in the risk of default. And when the bond holders when it defaults, the bond holders get to seize the assets. And when a private equity company or a private equity backed company has t you know, when it goes bankrupt, generally speaking the private equity all the equity capital they
0:19:10 put in they also get wiped out. So it does lever up and w you know go risk on on a company, but it also creates a certain sense of urgency. I think private equity has been good and not good for society. I’m not one of these people that says oh they’re ruining everything I. don’t think that’s true. There’s a lot of entrepreneurs who’ve made a lot of money selling a private equity and the thing I like about private equity is they’re usually very good at getting management vested in terms of the upside of success. They’re actually quite generous whereas venture capitalists I find are
0:19:40 primarily just, with rare exception, just mendacious fuck douchebags who pretend to give a shit about anybody and then wash the founders out. Speaking for a friend, um but so I like I enjoy working with private equity. I think debt tightens the focus, if you will, and most of the time these things, you know, it does make sense. And also there’s there’s two parties to the trade. The company doesn’t have to sell the private equity. They don’t they’ve it they’ve entered into this agreement knowingly. The people who are financing this
0:20:10 enter into this trade knowingly and are getting a good hopefully a good interest rate to reflect the risk. But this is a company that’s a shadow of itself. It sounds to me what I would wanna know is what percentage of their leases are coming up for renewal that we can get out of. Because that’s the obligation here that is most scary and that’s why a lot of retailers good retailers declare bankruptcy because then they can go and cherry pick and hold on to the leases they want and get out of the contractual agreements with the the leases that are
0:20:39 hurting them. So I p I wouldn’t be surprised I. bet this I p I wouldn’t be surprised if Sycamore actually does pretty well here. Do you wanna hear my C_V_S_ and opiate story Ed? My C_F_O_ came in at L_ two came into me and said I I need to speak to him. So I’m just like uh there’s some really crazy charges at drug stores all over Manhattan and and I looked at him I’m yeah this is not me this doesn’t make any sense I’m. like it must be fraud and she’s like no it’s not fraud, it’s your assistant. [SPEAKER_TURN]
0:21:05 And it ends up that my assistant was addicted to opiates and was going to every doctor in Manhattan getting a a script for opiates and then going into a C_V_S_ or a Walgreens and not only getting her opiates, but buying a thousand or two thousand dollars in cosmetics or gifts. And she was not only a criminal, she was a stupid criminal and she would sign for everything and have it delivered to her house where like [SPEAKER_TURN]
0:21:08 Yeah, uh we think it’s you. [SPEAKER_TURN]
0:21:19 think over five months or seven months a, hundred and twenty thousand dollars on my corporate card had various C_V_S_ and Walgreens all over Manhattan. And I remember calling her. [SPEAKER_TURN]
0:22:01 And not like that. I’m like she’s like, oh, I don’t know what you’re talking about. I’m like they you’ve signed for this shit at your address. Y y your signature’s on this stuff. You you decided to have someone drop it off at your apartment when she wasn’t like, you know, you’re not exactly a what I’d call a very, you know, this is this is disorganised crime. And she immediately went into rehab, claimed disability and tried to sue us for the options that we owed her. Um she dropped the case when I t said I was gonna turn it over to the Manhattan D_A_ if she didn’t drop the case. But anyways, that
0:22:05 That was my last assistant, uh. That was that was the that was my last assistant. [SPEAKER_TURN]
0:22:37 I’m glad we learned that. Yeah, it’s uh we learned a lot about hiring decisions on this show. Let’s talk about um Ontario and their decision to cancel uh the contract with Starlink. I think you predicted something like this would happen you, at least kind of warned about it that Starlink you, know, one big problem for Elon Musk would be if people start cancelling Starlink contracts. Kind of i in an incredible move. The premier of Ontario, Doug Ford, had some
0:22:39 interesting things to say about this and we’ve got a clip, so let’s take a listen.
0:23:26 one step further. We’re ri ripping up Ontario’s contract with Starlink. It’s done, it’s gone. We won’t award contracts to people who enable and encourage economic attacks on our provis province and our country. Kind of Bola uh your reaction Scott? [SPEAKER_TURN]
0:23:56 I think Musk, when he saw this, I think this probably sent a chill down his spine. If people start cancelling Starling contracts, I mean they’re already throwing shit at Tesla’s on the road. I just cancelled a Tesla last night on Uber. I’m starting to cancel if it if it’s a Tesla when it comes up. I think that the Canada I think this guy’s making the right move and I think you’re only gonna see more of it. I think people have just had it. What’s a shame is that we don’t have the same type of leadership here in the United States. There hasn’t
0:24:26 a single CEO has stood up and said, I am not going to participate in this pay for play kleptocracy. I’m not giving to the campaign. I am not going to be be paraded around. You either have laws that affect all of us or none of this, but I have had it. And we haven’t had anyone that shows the balls of this leader up in Ontario. And it is so disappointing the domino theory of cowardice that has infected the rich and fortune
0:24:41 I can’t think of one who has spoken out all under the auspices of quote unquote shareholder value Well. folks, your stakeholders include Americans. Uh it is incredibly disappointing that we aren’t showing a fractional leadership that this guy is showing. [SPEAKER_TURN]
0:25:11 I think you say I mean the domino theory of cowardice, I think this is basically showing that we’re about to see the domino theory of revolt. I mean this guy’s the first one to do it, and it’s only a hundred million dollars, which is not a big deal for Starlink, which did eight billion dollars in revenue last year. But Canada overall is Starlink’s second largest market behind the U_S_. They’ve got half a million Starlink subscribers in Canada. And I think what this shows is you know this guy’s the first to do it, but we’re gonna see a domino
0:25:41 and I think all of these other provinces follow suit I. don’t think you wanna be a leader in Canada who looks weak up against Donald Trump, and what we’re seeing is that the entire nation is sort of coming together and rallying against a common enemy, and there’s just this one stat I found fascinating from YouGov. Eighty two percent of Americans say they consider Canada to be an ally. In Canada, that number is now thirty three
0:26:07 I think this is what is gonna probably push Musk out of government or he he’s gonna decide he’s gonna try and declare victory and leave because if you look at Starlink customer base, I mean Tesla is already crashing. It’s it’s it’s literally imploding. Uh I don’t know if you saw there’s a video of uh Mardi Gras and someone uh t uh a Tesla truck or whatever you call it was rolling down and everyone started throwing shit at it.
0:26:40 Starlink was his growth vehicle, and there’s one and a half million customers of Starlink in the U_S_. You reference that there’s five hundred and thirty thousand in Canada, second largest market. That’s real. And then the number three market Mexico, at four hundred and thirty five thousand. And then the number four is Brazil, who probably doesn’t feel that great about Musk, who was who was threatening, you know, was fucking with their internal politics. So you know Starlink’s value in the private markets, it’s the most valuable company one of the most valuable
0:27:10 private companies and the most traded in the secondary market, and I think it’s a third of a trillion dollars, I think it’s trading at three or three hundred fifty billion, that number’s gonna come way down, because if they can’t show the kind of growth that they’ve been showing, also you are you are seeing a lot of you wanna talk about greed lands going, if I’m Telus if I’m Telesat or Explore the competitors, they have no trouble raising a shit ton of money right now.
0:27:16 And because there is about to be a big gap in the market place for this type of uh broadband provider. [SPEAKER_TURN]
0:27:20 So what happened with Twitter and then you saw all those Twitter competitors rise up and now threads is [SPEAKER_TURN]
0:27:24 Threads, blue sky, post, yeah, that’s right. [SPEAKER_TURN]
0:27:26 I mean some of them kind of failed. [SPEAKER_TURN]
0:27:35 You’re the one I invested in, but is that what you’re saying Ed? Is that what you’re saying the one I invested in? I I the one I managed to pick? Okay. Okay. Okay. [SPEAKER_TURN]
0:27:47 We’ll be right back after the break and a look at Blackrock’s investment in the Panama Canal. If you’re enjoying the show so far, be sure to give Prof G Markets a follow wherever you get your podcasts.
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0:31:28 Mm. Mm. Mm. Mm. Mm. Mm. Mm. [SPEAKER_TURN]
0:31:58 We’re back with Prof G_ Markets. A BlackRock-led consortium has acquired two major ports on both sides of the Panama canal for nearly twenty three billion dollars. The ports were previously owned by a Hong Kong-based conglomerate, but the deal still requires approval from Panama, which retains control of the canal. BlackRock CEO Larry Fink personally pitched the deal to Trump after the president expressed interest in having the ports and the canal controlled by the U_S_. Uh Scott, you’re
0:32:05 initial reactions to BlackRock buying those ports from this company C_K_ Hutchison. [SPEAKER_TURN]
0:32:35 on the face of it, it sounds like a great idea. I mean if you think about the most valuable companies in the world are essentially toll booths, right. Amazon makes a ton of their money sort of saying, alright, rent our cloud services, but the real toll is that if you wanna have access to half of the U_S_E_ commerce market, you gotta be on our platform. And then we just collect a toll. It used to be twenty four percent of third party revenues when you, you know, put your shoe company on their platform, now it’s about they get forty five percent ’cause you have
0:33:05 one toll road, they’re the toll booth. If you wanna reach uh online consumers, there’s two big toll booths. There’s uh Meta and there’s Google. They collect a toll to reach every consumer that’s increasingly spending their day online. So I love this idea of an analog toll that says okay, we get you coming and going across this incredible feed of engineering and leadership, the Panama Canal. But you gotta think to get to propel through the water a several thousand metric
0:33:24 vessel and have it go another whatever it is, six thousand miles or eight thousand miles around this thing versus just slip through the little that little ditch we dug through Panama. If they can figure out a way to collect money on the in and the out I’ve, never heard a transportation company say the Panama Canal’s gotten too expensive, so we’re just gonna take the long way. [SPEAKER_TURN]
0:33:54 Yeah. I think we should just like remind ourselves of the context here. I mean I think everyone probably knows a couple months ago Trump said he wanted to reclaim the Panama Canal. He said the Panama Canal had been taken by China and that America needed to take it back and then there was that notorious moment where he was asked if he would use military force to take it over and he didn’t rule it out. Now of course it’s not true that China owns the Panama Canal, but it is true that there are companies
0:34:24 with ties to China, which own and control many of the ports that are in the Panama Canal. And one of those companies is this company we’re talking about, C_K_ Hutchison, which is this company based in Hong Kong, it’s owned by this billionaire Li Ka-Xing, and now they are selling those ports that are on either side of the canal to Blackrock. Now there’s been some questions around how much does this have to do with Trump, how much does this have to do with geopolitics, and one of the heads of C_K_ Hutchison
0:34:54 which owns the ports. Uh he said it has nothing to do with Trump. He said, quote, I would like to stress that the transaction is purely commercial in nature and wholly unrelated to recent political news concerning the Panama ports. I just wanna get this out of the way. That’s of totally a lie. No question about it. This had everything to do with politics. It’s been extensively reported that this company only started looking to sell right after Trump made those comments about Panama
0:35:24 about China. So let’s just be clear from the get-go, this is one hundred percent a geopolitical response. There’s no there’s no doubt about it. Having said that, I think what the guy at C_K_ Hutchison is trying to get at is that from a commercial perspective, this was an amazing deal for them. The origins of the deal were political, but the result was a success, because the value of those ports that they sold as determined by analysts was thirteen billion dollars. They
0:35:54 it for twenty three billion. So they got a nearly eighty percent premium on those assets. That is huge. And by the way, twenty three billion is more than the entire market cap of the company before the deal. And as a result, shares in the company skyrocketed. They were up twenty percent. So it’s a huge success for this company, C_K_ Hutchison And. and I think that begs the question, okay, they sold it for eighty percent above market value. Why was Black
0:36:14 down to pay? Why were they down to splurge that much in what is now the largest infrastructure deal in the company’s history? How did that make sense to them? And I have some initial thoughts, but I’ll I’ll f I’ll throw it back to you. What do you think was the draw for Blackrock here? [SPEAKER_TURN]
0:36:27 I would have just thought that they believe that their average price per vessel of three hundred and forty one thousand that’s charged to get through the Panama canal, that they believe they can take that three fort forty one number much higher. [SPEAKER_TURN]
0:36:44 No, I think what’s in it for Blackrock and what made this worth it is what it does to their relationship with the president, because he looks excellent now. You know, he was talking about how he wants the U_S_ to control the Panama canal and people were ragging on him saying this guy doesn’t know what he’s doing, and
0:37:14 pulled it off and at no cost to the government. The whole thing was paid for by Blackrock. And you there is no denying this only happened because of him. So he looks like a genius now. He gets to brag about it in his speeches. In fact, that’s exactly what he did in his address to Congress. And most importantly, I think he is now grateful to Larry Fink and to Blackrock, who are officially in his good books now. And that’s r so
0:37:44 because for a long time they weren’t. This is the company that spearheaded the E_S_G_ movement, that told investors that’s D_E_I_ is central to everything they do. This is the company that just generally speaking the Republicans hated. And so I think Larry Fink saw this opportunity, there was a chance to get on Trump’s good side uh to make him look like the hero, and it only cost him, you know, a few billion dollars. So in my view
0:38:05 was probably worth it. I didn’t immediately connect that this gets them in Trump’s good graces, but I can see the argument, if so, I can’t imagine they would make this sort of capital outlay. I think that would be being a bad fiduciary just to cozy up to a guy who’s gonna be in office another three years or nine months and quite frankly in about two years. [SPEAKER_TURN]
0:38:14 Don’t you think that is an economic d decision at this point? I feel like what we’re seeing with these companies is actually it is your fiduciary obligation to suck up to the president. [SPEAKER_TURN]
0:38:37 I think your analysis is more thoughtful than mine. I just assumed that if they could put a toll booth on both sides of the Panama Canal that if you do the math, I would bet it costs a lot more than a an incremental three hundred forty thousand dollars to take that ship around, take it to go the long way. And they sense that and say alright, we’re capturing ten percent of the savings here, we should be capturing thirty or forty percent. [SPEAKER_TURN]
0:39:07 Fair enough. I ju I I think in the context of what they’ve been doing recently, I mean just a couple months ago we didn’t discuss this on the podcast, but they withdrew from this climate initiative with the United Nations. They also they just released their annual report. They cut all references of D_E_I_ in their report. They backpedalled from E_S_G_ a ton. And this is just a t huge turnaround from twenty twenty one when they were kind of leading this charge. Like they were at the
0:39:29 forefront of D_E_I_ and E_S_G_. I’ll quote Larry Fink in their twenty twenty one annual report. He said quote, we must embed D_E_I_ into everything we do. And then poof, suddenly the D_E_I_ is gone, suddenly the E_S_G_ is gone, and he’s making phone calls to the Trump saying hey, that thing you’re talking about, this Panama thing, we’re really interested and we think we can represent the U_S_. [SPEAKER_TURN]
0:39:58 I’ve switched. I’m now, when I’m interviewing people, I’m saying oh, he’s a D_U_I_ hire. Um yeah, I’ve never had a D_U_I_ I’m. thanks for that. Now back in the eighties and nineties we always get fucked up and take to Sunset Boulevard and basically death traps. But anyways, ha, good times, youth, youth. We’ll be right back with a look at Apple. And if you’re enjoying the show so far, hit follow and leave us a review on property markets. [SPEAKER_TURN]
0:39:59 Mm-hmm.
0:40:06 Mm-hmm. [SPEAKER_TURN]
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0:40:25 There’s over five hundred thousand small businesses in B_C_ and no two are alike. [SPEAKER_TURN]
0:40:26 I’m a carpenter. [SPEAKER_TURN]
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0:40:29 I sell dog socks online. [SPEAKER_TURN]
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0:41:14 I’ve been asking some very smart people a question that’s been on a lot of our minds. Should we be worried about artificial intelligence? But the answers I got from the greatest minds in A_I_ surprised me. One guy told a parable of an A_I_ that could cause an apocalypse. [SPEAKER_TURN]
0:41:19 Let’s give this super-intelligent A_I_ a simple goal. Produce paper clips. [SPEAKER_TURN]
0:41:48 Be a paper clip. Another woman cast A_I_ as an octopus. We posit this octopus to be mischievous as well. And yet another story sounded like it was out of the Bible. She seems likely to drown What. should you do? Imagining A_I_ as a saviour. And all of these fantastical tales from the greatest minds in A_I_ made me wonder maybe even these people don’t know what to think.
0:41:58 I’m Julia Longoria, Good Robot. A series about A_I_ coming March twelfth on Unexplainable, wherever you get podcasts. [SPEAKER_TURN]
0:42:33 We’re back with Prof
0:43:06 And this news in and of itself is not very interesting or important. There’s a new MacBook Air out who, cares. But I think the reason it’s worth covering is because to me it’s indicative of just how far Apple has fallen from a product perspective. I just wanna go through the new features in this computer, this grand MacBook Air release. So the new features include a new and improved M_ four chip, okay, a new and improved video
0:43:30 camera, it can connect to three external monitors, it comes in a new colour, sky blue, and that’s it. Those are the impressive new features of the new MacBook Air. And by the way, the iPad Air which came out in the same weekend, also very underwhelming, their big new update is an A_I_ e-mail summarisation feature for quote more stable typing experience.
0:43:37 This is the company that invented the iPhone Wh. what happened Scott? [SPEAKER_TURN]
0:44:07 Yeah, this is a giant s snooze. And just in terms of what uh I’m doing, I’m actually selling starting to sell my Apple stock. Apple and Amazon have been my biggest holdings for the last fifteen years. I bought Apple when it was trading at a P_E_ of nine, and now it’s trading at a P_E_ of thirty seven. Yeah, I think it historically has traded an average around eighteen. And trailing twelve months, it’s thirty seven or thirty eight. Forward earnings, it’s thirty one thirty two. And it’s growing two
0:44:37 And quite frankly its product line-up is just anemic. And in addition the overlay there is I do believe that we’re gonna see the rivers uh the flow of the river of capital into the U_S_. I think those rivers are about to reverse. We’ve talked about it uh ad nauseam on the show. So I um I’m gonna take the the capital gains hit and I am selling down my Apple and my Amazon which are trading at extraordinary multiples. And I don’t with Amazon you could sorta justify it I think ’cause of their cloud business. Apple’s
0:45:07 arguably the best brand in the world, but company’s no longer growing. I think the the mixed reality headset was just just uh c uh comical. And so in this notion of spatial computing, it’s gonna be the next thing. I mean they’re they’re well set up for A_R_ They’re. they’re gonna be a relevant company for a long long time. Let me go this way. I don’t see how they can justify a P_E_ of thirty seven or thirty eight on on a company that’s not growing, it’s top line revenue.
0:45:15 So is it a great company? Is it gonna continue to be really relevant? Yeah, it just I just don’t I just think it’s overvalued right now. [SPEAKER_TURN]
0:45:45 Yeah, my perspective is pretty much identical to you. I think this is kind of the final straw for me. I’ve been waiting for Apple to get their mojo back. But every single announcement is just such a snooze. And yeah, this is the final straw. I think I’m I’m I’m officially bearish on Apple. I think that’s the right move to sell or at least trim your holdings. By the way, that’s what Booch Hathway did last year. I think it was probably the right move. I think the stock will fall below two hundred dollars in the next six months. Maybe the
0:46:15 next twelve. I think there are just two major problems with Apple. The first is the products, and the second is, as you say, the valuation. And let’s just go over the products here. Every iPhone today looks the same as it did ten years ago, and the same can be said of the iPad, and the same can be said of the MacBook. The only innovation we’ve seen from a hardware perspective with Apple is this headset, which so far has been a disaster based on all the data that we know about. The
0:46:45 other exciting product was the Apple Car, which they cancelled last year. So they’re not growing from a hardware perspective. And by the way, I I think this is why we’re seeing all these ridiculous ads from Apple. I don’t know if you saw their Super Bowl ad, but it was this this this video talking about their gen-moji feature, which is basically they’re using A_I_ to allow users to create new emojis, and they also have these billboards plastered all over New York. You’ve probably seen
0:47:15 And it’s kind of embarrassing, I think, from the company. I think the reason they’re doing it is ’cause they have nothing else to advertise. We could talk about their software as well, which has been underwhelming. They just did this new I_O_S_ update. People don’t like it. I also don’t like it. I think one of the worst changes they did was to the photos app, which I don’t know if you’ve used it recently. It’s just it’s extremely unintuitive. Siri is terrible. It was supposed to compete with charge E_P_T_. It it it won’t. Apple music is failing compared to Spotify. Apple podcast is
0:47:45 doing, compared to Spotify and compared to YouTube. In some, the products aren’t exciting anymore. And then there’s this added layer of the valuation, which we can talk about it. Trading at thirty eight times earnings. The company is still valued as a growth company, and I just wanna put it in perspective with other companies. Thirty eight times earnings, that is higher than Microsoft, whose revenue is growing at sixteen percent. It’s also higher than Meta, whose revenue is growing at twenty two percent. It is very close to
0:48:15 valuation of Nvidia, which trades at forty times earnings, and they’re growing at a hundred and fourteen percent. Apple’s revenue last year grew two percent. It’s flatlining So. uh this is a long way of saying I I’m I’m very aggressively with you on this. I don’t think the valuation makes sense. I think the only way you can justify that multiple for Apple is if you really believe in Apple intelligence and the A_I_ play. If you believe that A_I_ is just
0:48:45 to absolutely turbo-charge all of their products and make them exciting again. But I would just burst that bubble once again and say they just released Apple Intelligence, forty one percent of iPhone users didn’t bother to try it, and of those that did, seventy percent said they don’t like it. So th I don’t see how we can we can justify this as a growth company anymore. I think this is officially a mature company, which means that it should be valued as a mature company. I don’t think this can continue. [SPEAKER_TURN]
0:49:01 Yeah, it’s interesting, and it’s easy for me to say because it’s these are b it’s a very difficult business, but if Apple were coming out with its Project Titan, if Apple were just about now and it w if it is not cancelled Titan, it would have been coming out with a card just about now, can you imagine how well positioned they would have been against Tesla? [SPEAKER_TURN]
0:49:02 Yeah, exactly. [SPEAKER_TURN]
0:49:33 I think they would have found the justification for that P_E_ just in the the customer list. I think they would have built the most valuable customer list or waiting list in history. And that is I think several million people would have come up with five or ten grand just to be on that waiting list and they could have said uh I think that would have justified when everyone was trying to justify the thirty eight P_E_ which they’re gonna run out of reasons to justify, I think they could have pointed to that list. And the self expressive benefit brand of Apple which, immediately identifies you as one of the wealthiest, most creative
0:49:56 fourteen percent of the globe because a billion people have I_O_S_ The. other real self expressive benefit item in people’s lives that they’re willing to spend a lot of money on is their car. So I just think the Apple car would have been the most elegant way to say I’m creative and wealthy and I think they they would have done a good job, they could have outsourced the manufacturing. Anyways, I think they are kicking themselves that they didn’t go the distance around Titan. [SPEAKER_TURN]
0:50:04 Just in terms of your decision to sell, when did you officially make that decision and also just on a slightly separate point, what are the tax implications there? [SPEAKER_TURN]
0:50:34 The tax implications are ugly because I bought Apple at about eight bucks a share or twelve bucks a share. So I’ve recognised a huge gain. I’ve sold some along the way, but there’s just not getting around it. I’m gonna have to pay twenty two or twenty three point eight percent taxes, which isn’t enormous, but I think it’s worth it. Um and my decision was uh I have a friend of mine who runs a hedge fund that I actually has my biggest allocation called Elena Partners, a guy named Orlando Marchant who was a tiger cub and now manages money for
0:51:04 on my offices. And he’s just been sending me all these graphs about just how incredibly expensive U_S_ growth is and how inexpensive the rest of the world is. And the stat that has just blown my fucking mind is that if you were to price all U_S_ assets, they would be seventy dollars, including their equity value and their debt. And if you were to price the rest of the world, sans the U_S_, it’d be thirty dollars. So would you rather own the U_S_ at seventy bucks or the rest of the world for thirty? And that I am acting on that. I am selling down my U_S_ growth portfolio and I’m investing in Europe. The
0:51:30 is I’m already a little bit late. Europe is up I think eleven or twelve percent. The EU, you know, the EU markets are up um substantially and the U_S_ is flat. But I’m rotating out of the U_S_ and my kind of growth plays. I have I’m overexposed in growth ’cause I invest in a lot of private companies in the U_S_ but I’m gonna d I’m gonna get out of Amazon and Apple and reallocate that capital into Brazilian and European stocks. [SPEAKER_TURN]
0:51:34 What percentage of your Apple holdings will you sell? [SPEAKER_TURN]
0:51:57 I’ll probably sell all of it. Yeah, I think I’m probably gonna sell all of it. [SPEAKER_TURN]
0:52:04 Ten bucks an
0:52:34 The the reality is tech. You’re an investor in tech. You’re an investor in U_S_ tech. People who are tracking South African value stocks aren’t listening to this podcast. People who track American markets which are dominated by tech are listening to this podcast. Meaning that you at ELSEN, if you were really really smart about diversification, you would not be investing in U_S_ tech. Because you are very tit this is what I didn’t understand when I was your age. I was so over-invested in U_S_ I I running a brand strategy firm in
0:53:04 in Northern California, my entire livelihood was tied to the fortunes of tech. All my clients were either Kleiner Perkins portfolio companies or H_P_ or Apple or, you know, I had these big kind of U_S_ tech companies and then because that’s what I knew and I thought oh, this is this is where the future is, I’d take all my access cash flow and I’d buy tech stocks. So when two thousand came, uh I w ended up going from being worth a lot of money for a thirty a thirty year old thirty six to
0:53:21 uh being worth negative two or three million dollars in the space of about three months. So we are over-invested uh in U_S_ tech by virtue of the fact of what we do for a living. So I’m going to take uh many of my li and basically everything that’s not nailed to the ground right now and get out of U_S_ growth in tech. [SPEAKER_TURN]
0:53:26 Well next time I’m gonna need to hear what those actual European companies are because I look at the European [SPEAKER_TURN]
0:53:34 I’m gonna go into an index. I might go into a levered index from Drexel, but I’m gonna go into a diversified mixed E_T_F_ or index around E_U_ value stocks. [SPEAKER_TURN]
0:53:42 And are there any companies in the in the index or any any companies that you’re seeing in Europe that you think oh yeah they’re g they’re doing well. [SPEAKER_TURN]
0:54:12 Well, I mean I just like a lot. I think, you know, Mercedes is a great company, trading at a fairly low multiple. Porsche is on sale relative to where it was. Uh L’Oreal is an amazing company. Shell, B_P_ you know, there’s just there’s a lot of um you know, L_V_M_H_ has come off a lot. That’s not value, but it’s come off a lot. Uh it there are a lot of great uh European companies. I’m very excited about Europe. A lot of this is confirmation bias. But I think Europe has been you know, we hav we’ve had this conversation. Europe has been left for dead. It’s not. Yeah, I
0:54:35 a lot of time in Europe, incredible universities, a lot of very hardworking people. It doesn’t have the risk capital, it should, but I think that’s gonna change. I think P_E_’s getting their green glands going. And I think they’re finally gonna start acting like a union and take advantage of their size. So I’m very excited about Europe and I’m very uh you know, the bottom line is Europe American, tech is still gonna do really well. It’s just too fucking expensive.
0:54:48 Let’s take a look at the week ahead. We’ll see the consumer and producer price indices for February, and we’ll also see earnings from Oracle, Adobe, and Williams-Sonoma. Scott, do you have any predictions?
0:54:50 I want you to make a prediction out of it, and I think you just made one.
0:55:21 my prediction would be that Apple is sub two hundred dollars in the next six months. I think that their numbers are flatlining their, hardware revenue is down and they’ve been leaning on a narrative and I think that narrative is fizzling out because you could just look at their products and you can look at their ads. It’s becoming very clear this is a very mature and increasingly uninteresting company. I’m not sure how I feel about you selling all of to Apple. I’m also not sure how I feel about you going totally
0:55:33 out of U_S_ growth entirely, I think there are still there’s still a lot of value in U_S_ tech in companies like, you know, Nvidia and Google for, example I’m, pretty bullish on. But Apple, I think that’s probably a good idea to trim. [SPEAKER_TURN]
0:55:49 So I’m excited to see you in Texas. The last time I was in Texas I was in Lubbock and I came across a sheep farm and there was a farmer fucking a sheep on the side of the road and I said in New York we we uh we shear sheep and he said I’m not sharing her with anyone. [SPEAKER_TURN]
0:55:53 I’ll see you in Austin. I’ll see you in a great state of Texas. [SPEAKER_TURN]
0:55:56 This episode was produced by Claire Miller and engineered by Benjamin Spencer. Our associate producer is Alison Weiss. Mia Silverio is our research lead Isabella Kinsell is our research associate, Drew Burrows is our technical director and Catherine Dillon is our executive producer. Thank you for listening to Prof
0:56:26 you.
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Scott and Ed open the show by discussing Disney’s latest round of layoffs, why a private equity firm is taking Walgreens private, and Ontario’s decision to cancel its Starlink contract. They then analyze BlackRock’s decision to buy the ports on either side of the Panama Canal, breaking down why it could be a highly profitable move. They also discuss what Apple’s newest product launches reveal about the state of the company. Scott explains why he’s begun offloading his Apple stock, while Ed makes a prediction about where shares are headed in the next six months.
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