Oracle Stock Roars 36%, Apple’s New Product Flop & Judge Blocks Lisa Cook Firing

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0:01:49 Money market’s mad.
0:01:52 If money is evil, then that building is hell.
0:01:53 The show goes on!
0:01:59 Welcome to Prof G Markets.
0:02:00 I’m Ed Elson.
0:02:01 It is September 11th.
0:02:04 Let’s check in on yesterday’s market vitals.
0:02:10 The S&P 500 and Nasdaq closed at record highs for the second day in a row.
0:02:16 Following a tame reading from the producer price index, the Dow declined as falling Apple shares
0:02:17 weighed down the index.
0:02:18 More on that later.
0:02:21 Meanwhile, treasury yields dropped on that PPI reading.
0:02:25 And finally, it was a massive day for AI companies.
0:02:33 Oracle’s spectacular rally drove up stocks like CoreWeave, TSMC, Broadcom, AMD, and of course,
0:02:34 NVIDIA.
0:02:37 Okay, what’s happening?
0:02:45 Oracle posted its best one-day gain since 1992, driven by robust earnings and upbeat revenue
0:02:46 guidance for the current quarter.
0:02:53 The cloud company revealed it will collect over $455 billion in future contract revenue from
0:02:54 the latest quarter.
0:03:00 Part of that revenue comes from a massive deal with OpenAI, which will purchase $300 billion
0:03:03 in computing power over five years.
0:03:08 And in this fiscal year, cloud revenue is projected to increase 77% to $18 billion.
0:03:12 Shares surged 36% on this news.
0:03:19 It also made Larry Ellison, the world’s richest person, worth nearly $400 billion.
0:03:19 Okay.
0:03:25 If you’ve been listening to the show for a while, you know we have been bullish on Oracle for
0:03:27 a long time now.
0:03:32 I first laid out our bull argument for Oracle back in March of 2024.
0:03:39 Well, one thing that makes me actually pretty bullish on Oracle here is, you know, if you
0:03:43 look at the cloud infrastructure market, there are four players, basically.
0:03:47 It’s AWS, it’s Microsoft Azure, it’s Google Cloud, and then there’s Oracle.
0:03:54 And Oracle is the only one out of those four that isn’t developing its own LLMs and therefore
0:03:58 that isn’t competing with other AI companies.
0:04:04 So supposedly within the AI startup community, which is obviously growing, there’s actually
0:04:08 some real incentive to partner with Oracle.
0:04:11 Because you want to partner with the guy who’s not going to compete with you.
0:04:14 They’re all trying to eat Amazon, Microsoft, and Google’s lunch.
0:04:16 They don’t have to worry about that with Oracle.
0:04:22 And so I think that’s sort of the thesis, and it’s beginning to be reflected in the numbers.
0:04:24 That was March 2024.
0:04:27 Six months later, we said it again in September.
0:04:33 Oracle is kind of the fourth musketeer when it comes to cloud computing.
0:04:36 The options are basically Amazon, Google, Microsoft, or Oracle.
0:04:42 We discussed it again during the summer of this year, and now here we are.
0:04:48 And indeed, we have an AI company that is paying hundreds of billions of dollars to Oracle to
0:04:50 be the compute provider.
0:04:57 Since that first podcast we put out in March of 2024, Oracle has tripled in price.
0:05:03 And now, as of today, Oracle is up 98% year-to-date.
0:05:06 So very exciting day to be an Oracle investor.
0:05:12 Also a huge day, as I mentioned, for Larry Ellison, whose net worth increased more than $100 billion
0:05:16 within 40 minutes after the markets opened yesterday.
0:05:16 Okay.
0:05:24 For more on Oracle’s earnings, let’s bring in Gil Luria, head of technology research at DA Davidson.
0:05:30 Gil, good to have you on the program.
0:05:31 Thanks for having me.
0:05:34 So, Monster Quarter for Oracle.
0:05:37 Let’s just start with your headline reactions.
0:05:38 What stood out to you?
0:05:46 They added more than $300 billion to their backlog, which is something I don’t know I’ve ever seen.
0:05:48 I don’t know that that’s ever happened.
0:06:01 So that’s the very, very positive reaction we see today has to do with that, with the fact that they said that by 2030, they’re going to get $144 billion of revenue.
0:06:05 That’s 10 times what they’re doing in that cloud business right now.
0:06:11 So that was the great news, completely unprecedented, and what got everybody excited today.
0:06:14 So that was what got me excited, too.
0:06:18 I’ve been bullish on Oracle for a while.
0:06:24 The way I’ve sort of we’ve been describing it and discussing on the program is it’s kind of like the fourth horseman in AI.
0:06:30 You’ve got Microsoft and Amazon and Google and Oracle basically nipping their heels.
0:06:37 And then, yeah, we see this $455 billion in remaining performance obligations, that booked revenue.
0:06:43 But then we also get this report from the Wall Street Journal, which I’d like to get your reaction to,
0:06:51 which is reported that Oracle and OpenAI have signed this compute purchasing agreement, and it’s worth $300 billion.
0:06:58 In other words, it sounds like all of that new revenue coming in from the cloud business, it sounds like it’s all OpenAI.
0:06:59 Is that right?
0:07:00 Uh-huh.
0:07:07 So, yeah, sometimes when you see something for the first time and it looks fantastical, it’s because it is fantastical.
0:07:09 You know, I live in the Pacific Northwest.
0:07:15 If I walked into the forest and thought I saw Sasquatch, my initial reaction would be to get super excited.
0:07:20 But then my next reaction would be, wait a second, is that just a mangy bear?
0:07:27 And I would say that what we found out from the Wall Street Journal today means that maybe this is a little bit of just a mangy bear.
0:07:36 OpenAI is a not-for-profit that hasn’t raised enough capital yet to write this big of a check.
0:07:42 It’s a not-for-profit that’s in the process of fundraising and has negative gross margins.
0:07:53 We’re all very excited about their product, but that’s a very far reach from them being able to commit to $300 billion through 2030,
0:08:04 in addition to their commitments to Microsoft, to CoreWeave, to Stargate, to SoftBank, to Crusoe, to Lambda, to Google.
0:08:16 So that may be a little bit of a reality check on what the Oracle announcement from last night actually happens to be.
0:08:17 Yeah, it’s really interesting.
0:08:27 It sounds like you don’t believe that that $300 billion is realistic in terms of converting that from these remaining performance obligations into real revenue.
0:08:34 But I guess what might be helpful is some color on what is a remaining performance obligation.
0:08:42 I mean, if they’re coming out and saying in their earnings, yes, we have $455 billion in revenue in the pipeline.
0:08:44 It’s up 359%.
0:08:45 It’s ready.
0:08:46 It’s there.
0:08:52 Does that not mean that it’s signed and sealed, that OpenAI, whether or not they can afford it,
0:08:56 they’re going to have to figure out some way to show up with the money and pay it to Oracle?
0:08:59 It means that there’s a contract.
0:09:02 In this case, a contract between Oracle and OpenAI.
0:09:07 No purchase orders, no revenue, no delivery of services.
0:09:09 None of that’s happened, but there’s a contract.
0:09:16 And the contract could be very good, but it’s one thing to have a contract with Microsoft or Google or Amazon,
0:09:23 which is what we thought we heard last night, to having who are the most credit-worthy companies in the world
0:09:28 versus having a contract with a company that, again, is negative gross margin,
0:09:31 is going to lose a lot more than it’s going to have in revenue this year,
0:09:39 and is still organized as a not-for-profit, is still renegotiating terms with its key investor, Microsoft,
0:09:41 which has been dragging out for months.
0:09:44 Until they’re done renegotiating those terms with Microsoft,
0:09:48 they are limited in their ability to raise capital,
0:09:53 which they’re going to, again, need hundreds of billions of dollars of capital
0:09:56 to pay all the obligations that they’ve made.
0:10:02 So, it’s not quite the same as saying that you have a contract with Microsoft
0:10:04 when you’re saying you have a contract with OpenAI.
0:10:09 So, just looking at the stock’s reaction, because this was what jumped out to me too,
0:10:12 and I’ve been trying to think, okay, how are they going to pay them the money?
0:10:15 Maybe they’ll just take on a load of debt to do it.
0:10:18 Perhaps they’ll just borrow, and then they give the money over to Oracle.
0:10:25 But looking at the market’s reaction, we saw a tiny bit of a pullback, but not really.
0:10:29 I mean, Oracle’s still up 36% on the day.
0:10:33 It was up 40% and then pulled back a little bit.
0:10:39 It sounds like the market believes maybe this isn’t as incredible and fantastical
0:10:42 as they originally thought, but it’s still pretty great.
0:10:45 Any thoughts on the market’s reaction?
0:10:53 The market reacted very strongly to believing in the AI trade more than ever.
0:10:54 That’s what you saw today.
0:10:56 That’s why NVIDIA was up a lot.
0:11:00 Even companies like CoreWeave, which is a direct competitor to Oracle,
0:11:04 and didn’t win the business, they were up 20% today.
0:11:08 So, it was absolute euphoria around AI.
0:11:11 So, I think by the time the journal article came out,
0:11:13 I don’t think there was a lot of critical thinking.
0:11:20 As folks and investors start to digest the news and realize what’s real and what’s not real,
0:11:23 I imagine the reaction will be a little more subdued.
0:11:29 Having said that, we’re not saying open AI can’t live up to those obligations.
0:11:33 The success of Chad TPT is also unprecedented, right?
0:11:42 700 million weekly active users two years after it was zero is quite impressive.
0:11:47 And they’re very likely to continue because, as we know, we’re now Chad GPT-ing things.
0:11:48 We’re now Googling things.
0:11:54 So, it’s very possible that OpenAI will be able to restructure, raise capital,
0:11:57 grow the business, live up to these obligations.
0:12:05 It’s just not a foregone conclusion, which also means that the capital is not going to be as easy to get.
0:12:11 To fund all this build-out, we’re mostly going to be relying on debt capital,
0:12:17 on lenders being willing to lend to OpenAI and many others now.
0:12:21 And the competition for those loans is going to get a lot more serious.
0:12:26 If the market for borrowing to build data centers was mostly CoreWeave.
0:12:30 In the last year, CoreWeave’s raised $10 billion of debt to build data centers.
0:12:33 That was most of that lending market.
0:12:38 In order to satisfy OpenAI’s need and Crusoe’s need and Stargate’s needs.
0:12:41 And by the way, Meta wants to borrow to build data centers.
0:12:46 And XAI, Elon’s company, wants to borrow to satisfy all of that capital.
0:12:52 We’re going to need a lot more debt issued into this market, which, again, is not a foregone conclusion.
0:12:55 It’s possible it’s not a foregone conclusion.
0:12:57 Yeah, this is so interesting.
0:13:02 It all kind of, I’m so glad you brought up the creditworthiness of OpenAI.
0:13:08 The idea that this gigantic, the fact that we now have the richest man in the world who is Larry Ellison,
0:13:14 and when you really think about it, it all kind of hinges on the creditworthiness of OpenAI.
0:13:17 Can they raise enough money in debt?
0:13:19 Because that’s the only way that they’re going to be able to fund this thing.
0:13:26 Having said that, Oracle is expecting cloud revenue to hit $144 billion in 2030, as you said.
0:13:30 Do you think that’s realistic?
0:13:33 Do you think that that is something we can really expect?
0:13:35 Do you believe that number?
0:13:36 What do you think?
0:13:38 No, I don’t think it’s realistic.
0:13:44 Which doesn’t mean they can’t grow the cloud business in a very significant way, especially this year, next year.
0:13:50 It’s one of those, you know, if you shoot for the stars, sometimes you land on the moon type of situations.
0:14:03 But for Oracle to have a business go 10 times bigger, while Microsoft is growing its Azure business 39%, and Google Cloud 28%, and AWS growing a much bigger business 17%,
0:14:16 and all these other upstart NeoClouds like CoreWeb, AdNavis, to believe that all those data centers are going to get built over the next five years to generate all that revenue is very far-fetched.
0:14:21 Which isn’t to say we’re not going to grow AI, we’re not going to grow compute, we’re not going to grow data centers.
0:14:23 All those things are happening, will happen.
0:14:28 The tools that AI is providing, those models are getting so powerful, so useful.
0:14:31 We’re bringing them into the workplace, right?
0:14:33 It’s not even IT departments that are giving us these tools.
0:14:42 That’s all going to happen, but to get from here 10 times as much revenue and have that happen across the whole industry,
0:14:48 there aren’t enough chips, there isn’t enough energy, there isn’t enough capital to get to those types of numbers.
0:14:50 But again, maybe they shoot for the stars and land on the moon.
0:14:54 All right. Thank you very much. We appreciate your time.
0:14:57 Gil Luria, Head of Technology Research at DA Davidson.
0:14:58 Thank you, Ed.
0:15:05 So let’s review $7 billion in cloud revenue last quarter.
0:15:12 A big number, but still behind Google, which did $14 billion, still behind AWS, which did $31 billion.
0:15:18 The big three in cloud infrastructure are still Google, Microsoft, and Amazon.
0:15:21 Amazon is the number one with around 30% market share.
0:15:29 However, we are now looking at nearly 80% cloud growth for Oracle in fiscal 2026.
0:15:30 That is a big deal.
0:15:36 We are also looking at a projected average growth rate of 70% over the next five years,
0:15:41 which would mean that by the year 2030, according to those projections,
0:15:46 Oracle’s cloud business will be as big as Google’s cloud business.
0:15:48 Now, do we know that that will happen?
0:15:52 Can we really believe in that 100%?
0:15:53 No.
0:15:56 As Gil said, this is a prediction.
0:15:57 This is a projection.
0:16:01 And so much of it hinges on that $300 billion contract with OpenAI.
0:16:05 And we don’t know for sure that OpenAI is going to make good on that contract.
0:16:07 So we will see.
0:16:12 But the net net of these earnings, the reason we are seeing this huge run up is the following.
0:16:15 The fourth horseman of AI has arrived.
0:16:18 And it is Oracle.
0:16:22 Hot on the tail of the three largest cloud providers in the world.
0:16:26 And in the year of AI, that is all that really matters.
0:16:31 After the break, a look at the latest products from Apple.
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0:19:18 We’re back with Prof G Markets.
0:19:22 Apple unveiled its new product lineup on Tuesday.
0:19:24 We got a very thin iPhone Air.
0:19:30 We got the iPhone 17 and the iPhone 17 Pro, a new Apple Watch, and AirPods Pro 3.
0:19:31 Apple called the event,
0:19:32 More dropping.
0:19:34 Interesting new phrase.
0:19:37 However, Wall Street did not agree.
0:19:43 Shares of Apple closed down 1.5% following the event, and the next day, they slid another 3%.
0:19:49 Here to break down this product launch, we have Apple’s most loyal customer ever.
0:19:53 This individual has purchased more AirPods than the rest of America put together.
0:19:57 He also says that if you don’t own an iPhone, you can’t get laid.
0:19:59 And that actually is not a joke.
0:20:00 That is actually what he believes.
0:20:03 Here he is, the one and only Scott Galloway.
0:20:05 Scott, how are you doing?
0:20:05 I’m good.
0:20:07 I didn’t say can’t.
0:20:08 I just said less likely.
0:20:11 I mean, but…
0:20:14 So, yeah, let’s talk about the product launch.
0:20:15 Okay.
0:20:18 We’ve got the iPhone 17, the iPhone 17 Pro.
0:20:22 We’ve got the thin iPhone Air.
0:20:23 Were you excited by any of it?
0:20:26 What did you think of all of these new products from Apple?
0:20:27 I thought it was a hand job and an Advil.
0:20:30 I think it was kind of fine, but it just wasn’t what we were hoping for.
0:20:37 You know, it’s just sort of, like, okay, a super thin iPhone.
0:20:39 Was anyone saying my iPhone is too thick?
0:20:43 The iPhone, I think, it seems very incremental.
0:20:44 It seems very boring.
0:20:59 I believe that the only thing that seemed kind of interesting was this multi-linked automatic or AI-driven, Siri-driven, AI and Siri are becoming oxymorons, but essentially real-time language translation.
0:21:10 Now, there’s equivalent products already out there, you’ll see on the execution, but what I have said about AirPods is that it’s the most underrated tech product of the last 10 years.
0:21:16 And that is what, essentially what AirPods are, which I’m wearing right now, is they’re not a tech product.
0:21:20 They’re the most ubiquitous, profitable piece of jewelry ever sold.
0:21:28 These are $300 earrings that 75% of America has purchased at whatever it is, 50 or 70 points of gross margin.
0:21:31 So this is, AirPods are the most successful piece of jewelry in history.
0:21:42 Their ability to transfer health information to your phone and Apple Health is basically saying, kind of just borrowing utility from the Apple Watch.
0:21:46 I think it makes the Apple Watch less, less utile.
0:21:51 Now, the upgrades and improvements to the Apple Watch seemed just incredibly mediocre.
0:21:56 I thought the, I would describe this entire product release as meh.
0:21:57 Yeah.
0:21:58 What are your thoughts?
0:22:01 I’m in complete agreement with you, meh on everything.
0:22:08 We’ve seen basically the same device for, I would say, almost 10 years now.
0:22:11 I mean, the iPhone really hasn’t changed.
0:22:15 If you look at all of the new specs on the new iPhone, they’re basically like, this one is better.
0:22:18 And it’s newer, and it’s better, and it’s better.
0:22:19 That’s all they’re really saying.
0:22:25 I mean, you can zoom in further on the camera than you could on the previous iPhones.
0:22:26 Also, it comes in orange.
0:22:30 So on those points, that is where I stand.
0:22:37 And, by the way, we’ve been saying that on the product launches for the past, I don’t know, one or two years.
0:22:42 This is part of my confusion as to why this company is still valued as a growth company.
0:22:48 They haven’t been doing anything that has actually really been growing their product lines.
0:22:52 They haven’t come out with any devices that are really any good.
0:22:55 The only new thing they’ve come out with is the Vision Pro.
0:23:00 And as far as we can tell, the Vision Pro has been dead on arrival.
0:23:04 And we’re still waiting for them to actually report the numbers on that device.
0:23:10 But anecdotally, from what we have heard from external reporting, it’s not doing very well.
0:23:19 Now, the one thing that they did do that I think was interesting and new in this product launch, as you say, is that AI translation on the AirPods.
0:23:29 The fact that you can have your AirPods in, walk over to someone who’s speaking another language, and it will translate in your ears in real time.
0:23:39 And then you can actually respond to them, say what you want to say, and then hold your iPhone out in front of the person, and it sort of translates it for them in real time.
0:23:43 That, to me, is kind of a game-changer.
0:23:45 That’s pretty legitimate.
0:23:48 I’m wondering if you feel the same way.
0:23:55 Yeah, but, Ed, when Daddy is rolling up to the bar after a couple of tecopa and cokes, his shoulders are multilingual communication vehicles.
0:23:58 I get the same thing accomplished with this rhythm.
0:24:00 Look, you know what I’m saying here, ladies.
0:24:01 You know what I’m saying.
0:24:01 Anyway.
0:24:05 Look, these—
0:24:08 How do we recover from that?
0:24:11 Let’s go mad at it.
0:24:15 World-renowned professor of marketing, Scott Gallo.
0:24:15 There you go.
0:24:18 Everyone understands that lingua franca, my brother.
0:24:23 Look, what’s the larger point here?
0:24:35 You know, AirPods that give you real-time language, that’s just not what the most valuable and arguably innovative company in the world, or if it’s number two right now behind NVIDIA, should be doing.
0:24:41 And this represents, and there’ll be some heckling from the chief seats, a transition that’s taken place since Jobs left the company.
0:24:43 And that was Jobs was considered a builder.
0:24:46 He refused to do stock buybacks.
0:24:48 He called them financial engineering.
0:24:55 He wanted to amass an enormous cash hoard, which gave him the flexibility to take big swings and make big bets on really interesting products.
0:24:56 He was a builder.
0:25:03 Cook came in, and about the same time, there was pressure from activist hedge funds who wanted share buybacks.
0:25:08 Initially, Carl Icahn, Cook, probably to his credit, said it’s not worth fighting.
0:25:14 And he initiated a series of share buybacks that have amounted to, I think, $700 or $800 billion in some.
0:25:19 Apple could have purchased Eli Lilly or Nova Nordisk with the money they have spent buying back shares.
0:25:22 So you’ve gone from builder to operator.
0:25:26 He will get a lot of second guessing that this is a mature company trading at a growth multiple.
0:25:38 And in order to maintain that growth multiple, which is about $33 or $34, he should be not doing financial engineering and buying back shares, which admittedly for a mature company are a good way to return money to shareholders.
0:25:47 But taking some of that money and, quite frankly, maybe having an AI strategy or trying to come up with a new vehicle for distribution.
0:26:02 But what this full 72 hours post this kind of product thud will be a lot of second guessing around, all right, has this company become mature before it needed to?
0:26:04 And should be they taking some of that cash?
0:26:14 They’ve purchased 40% of their outstanding shares back in the last 10 years, which means in 25 years, which isn’t, you know, as long but not long, they would effectively be taking themselves private.
0:26:18 So this is a thud.
0:26:19 The market doesn’t like it.
0:26:30 And it’ll bring up a bigger question around the balance between financial engineering, returning capital to shareholders, and taking bigger swings when your company is valued as a growth company.
0:26:30 Yeah, exactly.
0:26:32 Product innovation.
0:26:38 And to your point on AI, what is so interesting is we heard almost nothing about AI in this product launch.
0:26:47 I mean, you’d expect that the world’s most innovative company would be innovating in the most ascending technology in the world right now, which is AI.
0:26:48 We basically heard nothing.
0:26:55 And what we heard was we have this real-time translation, and that’s kind of part of the AI story.
0:26:58 But other than that, not really anything on Apple intelligence.
0:27:04 And so it appears that the company is still behind the ball when it comes to AI.
0:27:07 But, Scott, we won’t take any more of your time.
0:27:08 Just one more point, Ed.
0:27:09 Yep.
0:27:11 That if you think about…
0:27:16 I just totally lost my train of thought.
0:27:19 I went, where am I?
0:27:19 Mom?
0:27:22 Read my suit, Manny.
0:27:23 Where am I?
0:27:25 Oh, God.
0:27:26 Too many beers.
0:27:28 Oh, AI.
0:27:30 There we go.
0:27:31 Look.
0:27:33 So this is what I think happened.
0:27:36 Tim Cook knows he needed to talk about AI.
0:27:38 Apple has to have an AI strategy.
0:27:40 And this is their strategy and why they didn’t bring it up.
0:27:44 Their strategy is the same as their search strategy.
0:27:53 And that is they want to focus on their hardware products and then lend out their interface in custody of the billion-most aspirational consumers in the world and license it and make the…
0:28:09 Just as they made Apple, iOS, or Chrome the preferred browser of Apple phones, and they took a $25 billion royalty payment from Alphabet, of which $24.9 billion drops to the bottom line.
0:28:14 I believe Tim Cook’s strategy around AI was, we don’t want to get into this capital arms race.
0:28:17 We’re just going to let everyone else raise a shit ton of money, and then we’re going to go to Anthropics.
0:28:19 Pay for access.
0:28:29 And we’re going to go to OpenAI and say, highest bidder gets to be the default AI amongst the billion-wealthiest consumers in the world, or basically anyone that matters.
0:28:46 And my guess is he cannot bring that up in the middle of a DOJ, in the midst of an environment where Google was just found guilty of monopoly power, and the remedy was they can’t do direct dealings around a royalty payment for exclusive access to Chrome.
0:29:01 This would just raise so many legal antennae if he said, no, we’re announcing a deal with Anthropic, and they’re giving us $10 billion to be the exclusive AI LLM for iOS.
0:29:14 So my guess is this case that came down against Google, kind of, if you will, cleared the announcement a little bit around AI.
0:29:17 Interesting. Alright. We appreciate your time, Scott.
0:29:18 Where am I?
0:29:25 That’s what happens when you get to my age, Ed. You literally don’t know. I don’t even buy green bananas anymore, Ed.
0:29:27 Alright.
0:29:28 You’re working too hard.
0:29:30 Yeah, I am working too hard.
0:29:32 Okay. Appreciate your time, Scott. Good night.
0:29:33 Thanks, Ed.
0:29:42 Trump just hit a roadblock in his attempt to fire the Fed governor, Lisa Cook.
0:29:46 A federal judge in D.C. ruled he cannot remove her from the Federal Reserve Board.
0:29:49 This decision comes just weeks after Trump said he fired Lisa Cook.
0:29:52 The first time in U.S. history a president has tried to remove a Fed governor.
0:29:55 Judge Cobb wrote that Trump showed, quote,
0:30:00 Nothing related to Cook’s conduct or job performance that would justify firing her.
0:30:03 Translation, Cook stays for the time being.
0:30:07 And yes, she will be voting at the Fed meeting next week,
0:30:11 where Wall Street expects that the first rate cut will come since December.
0:30:14 Again, we did predict this a couple of weeks ago.
0:30:17 We discussed how the president can fire a governor of the Federal Reserve,
0:30:19 but only if it is for cause.
0:30:24 Our view is that the judge would determine that this does not qualify as for cause.
0:30:25 Here’s what we said.
0:30:31 This dismissal, this firing is far from over.
0:30:33 I mean, it’s going to go to the courts now.
0:30:35 It might even go to the Supreme Court.
0:30:36 It’s a very big deal.
0:30:38 And it will be up to the courts.
0:30:43 It will be up to the justice system to decide whether an allegation of fraud
0:30:46 meets the definition of cause.
0:30:48 That’s where we are in terms of the legal proceedings.
0:30:52 My prediction, no, no court’s going to say that just a claim
0:30:55 meets the definition of firing for cause.
0:30:58 Indeed, the judge has said no.
0:31:00 But let’s get some more analysis on this ruling.
0:31:03 Our producer, Claire Miller, spoke with Sarah Binder,
0:31:06 Senior Fellow in Governance Studies at Brookings
0:31:08 and also Professor of Political Science.
0:31:10 at George Washington University.
0:31:14 The key question here in this ruling that comes from the judge is,
0:31:18 what does for cause mean in this context?
0:31:22 And how was it determined?
0:31:27 And what rights does Lisa Cook, as the governor accused of malfeasance,
0:31:32 what rights does she have essentially in face of these charges,
0:31:36 which have not been, obviously, not been convicted or indicted?
0:31:39 So what does this mean?
0:31:45 Well, the judge sort of parsed through the history of both the Federal Reserve Act
0:31:51 and both other cases around the time when that provision was put into law in the 1930s.
0:31:56 And she probed the government, the DOJ lawyers, when they were in court in a hearing.
0:31:58 What do they mean?
0:32:01 What does Cook’s lawyer think it means?
0:32:06 And she comes down and essentially says really two things.
0:32:11 That for cause can’t be whatever the president says it is.
0:32:17 It can’t just be, you know, something – it has to be something more than policy differences,
0:32:22 but it can’t be as low as what the government has basically hinted at.
0:32:26 And she says her reading of the statute and the history,
0:32:30 it can’t be for behavior before you were confirmed to office.
0:32:38 So she argues really first, government hasn’t met the threshold here of what counts as cause.
0:32:40 And she said there’s a procedural part too,
0:32:46 which is Cook is asking for basically notice of the charges in detail
0:32:48 and also a hearing to defend herself.
0:32:54 And so the judge says Fifth Amendment, due process, clause of protection.
0:32:56 She hasn’t – that hasn’t been established here.
0:33:01 And for those reasons, she comes down to say there is for cause protection
0:33:04 and it’s not demonstrated that there is cause yet.
0:33:06 And just for context for the listeners,
0:33:12 the allegation that Trump is levying at her is that she committed the fraud in 2021,
0:33:17 but she didn’t assume her role at the Fed until 2022, correct?
0:33:21 So in other words, she didn’t do this while she was in office.
0:33:24 So it doesn’t fall under for cause.
0:33:27 That is the judge’s interpretation here.
0:33:27 Okay.
0:33:34 So all of the reporting on this decision describes it as a roadblock for Trump,
0:33:36 but not the end of the discussion.
0:33:40 So my question is, what more is there to talk about?
0:33:44 Did the judge not just decide that this firing was illegal?
0:33:48 Our court system at the federal level, it’s a hierarchy.
0:33:54 So it gives the losers here, the defendant, the government here, the opportunity to appeal.
0:33:59 And in this case, it goes to the D.C., the appellate court that sits above the D.C. circuit.
0:34:04 And then, of course, were the president and the government to lose again,
0:34:06 there could be a second appellate review.
0:34:12 But ultimately, the Trump, were he to lose to the appellate court again, would appeal to the Supreme Court.
0:34:18 And at the end of the day, what the Supreme Court says is going to be the final say here.
0:34:21 So this, I would think of this as a road bump.
0:34:27 I don’t know, really, is it a blockade here for the administration?
0:34:30 Is your prediction that this makes it to the Supreme Court?
0:34:40 This will undoubtedly make its way there, assuming that the administration loses again at the appellate court.
0:34:45 But even my guess is Cook would eventually appeal to the Supreme Court to get a final say.
0:34:50 I want to get your take on this line from the decision from Judge Cobb.
0:34:51 She wrote, quote,
0:34:58 The public interest in Federal Reserve independence weighs in favor of Cook’s reinstatement.
0:35:06 So really, this decision is not just as simple as this firing wasn’t for cause, case closed.
0:35:12 Actually, Judge Cobb is kind of weighing in on this larger issue of Fed independence.
0:35:14 So I’d like to get your take on that line.
0:35:19 So she’s doing that for a reason, which is, think of it this way.
0:35:28 We’ve had many other cases during 2025 where Trump has summarily dismissed agency members and commissioners,
0:35:32 even though their statute also said you have for cause protection.
0:35:40 But the Supreme Court has let those firings go ahead while the courts, these cases play out in the lower courts.
0:35:53 But the Supreme Court did say in one roughly similar case, they said, don’t think this applies to the Federal Reserve because the Federal Reserve is this unique institutional body.
0:36:04 So what the judge is doing here is using that she quotes directly from the Supreme Court what some people call a bespoke arrangement to protect the Fed.
0:36:07 And she’s saying, look, the Fed is special.
0:36:16 We do expect it to be insulated from political pressures and insulated from just summarily dismissing a governor because you don’t like their votes on monetary policy.
0:36:19 And so that’s what she’s doing here.
0:36:22 She’s not making a rule for all independent agencies.
0:36:35 She’s making one specific and saying, regardless of what happens to other agency positions, for sure, this is one where the statute envisioned protection.
0:36:35 Right.
0:36:44 Congress wanted to protect these governors from the president just picking them off because he didn’t like them raising rates, for instance.
0:36:47 That was Professor Sarah Binder from George Washington University.
0:36:51 As you just heard, this will now likely go to the Supreme Court.
0:36:55 The next question is, of course, how will the Supreme Court respond?
0:36:58 They do often rule in line with this administration.
0:37:03 However, the case here, it simply looks too weak.
0:37:19 I mean, until Lisa Cook is proven to have engaged in fraud, until a court rules, yes, she did commit a crime, she was unable to serve properly as governor, until all of that happens, you don’t have much of a case here.
0:37:24 And so our prediction, unless a criminal offense is proven, Lisa Cook stays.
0:37:28 Okay, that’s it for today.
0:37:32 This episode was produced by Claire Miller, edited by Joel Paston, and engineered by Benjamin Spencer.
0:37:34 Our associate producer is Alison Weiss.
0:37:39 Our research team is Dan Shallan, Isabella Kinsel, Kristen O’Donoghue, and Mia Silverio.
0:37:41 And our technical director is Drew Burrows.
0:37:44 Thank you for listening to Prof G Markets from Prof G Media.
0:37:45 I’m Ed Elson.
0:37:51 If you liked what you heard, give us a follow and join us tomorrow for our conversation with Justin Wolfers.