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0:01:14 Welcome to the PropG pods office hours. This is the part of the show where we answer questions
0:01:17 about business big tech entrepreneurship and whatever else is on your mind.
0:01:18 Hey PropG.
0:01:19 Hey Scott and team.
0:01:20 Hey Scott.
0:01:21 Hi PropG.
0:01:22 Hey PropG.
0:01:27 And last week’s office hours we answered your questions about China’s EV market how we run
0:01:32 our PropG media business and how to rich.
0:01:36 No one does China like China. I wish I had figured out earlier that my core confidence
0:01:41 is storytelling so this all sort of bubbled up to media company but I didn’t want to take
0:01:45 outside capital because I didn’t want to have the pressure of trying to get a return
0:01:48 on other people’s capital so I started PropG media.
0:01:53 If you get real money I mean if you get really lucky and I got really lucky later in life
0:01:58 in my kind of late 40s I think you do two things. One I think you spend like a fucking
0:02:03 50s gangster that’s just been diagnosed with ass cancer you spend a shit ton of money and
0:02:06 then anything above that I think you just give it away.
0:02:10 Today we’ll answer your questions surrounding the future of Airbnb, microplastics and raising
0:02:13 American kids in the UK.
0:02:14 First question.
0:02:18 Hi Scott. I’m Luke from Manchester in the UK and I’d like to get your thoughts on the
0:02:24 recent surge in regulations targeting short term rentals like Airbnb in major cities worldwide.
0:02:29 We’ve seen New York implement restrictions and Barcelona plans to ban short term rentals
0:02:32 entirely by 2029.
0:02:37 With housing prices and red skyrocketing in recent years, short term rentals are often
0:02:40 blamed as a major contributing factor.
0:02:45 Platforms like Airbnb have become easy targets for politicians and residents despite data
0:02:47 suggesting their impact is minimal.
0:02:51 For instance in New York where laws have been passed to limit Airbnb listings we’ve seen
0:02:56 little effect on rent prices but a noticeable increase in hotel rates.
0:03:01 It seems politicians find it easier to scapegoat Airbnb rather than addressing their own policy
0:03:02 failings.
0:03:06 But looking ahead, what do you think the future holds for Airbnb?
0:03:11 Does this wave of regulation pose a significant risk to their business model and should investors
0:03:12 be concerned?
0:03:15 Thanks Scott for everything you do. Keep up the great work.
0:03:20 A thoughtful question. First up disclosure. I’m a shareholder in Airbnb. It’s been my
0:03:25 largest position for a long time. I’ve sold it down a bit but it’s still a big position
0:03:26 for me.
0:03:30 I think the world of Brian Chesky, I think the company is the strongest brand arguably
0:03:35 in the history of travel, has network effects, something like two thirds or 80% of their traffic
0:03:41 is direct to site which means they don’t have to pay these onerous margins to travel sites
0:03:46 or Google who then, if you’re the Four Seasons you get some traffic to your site but you
0:03:50 get booked a lot through third party providers whether it’s an Expedia which does a great
0:03:54 job but these companies command a lot of margin. They’ll take a lot of margin on the fact that
0:03:59 Airbnb gets a ton of direct consumer traffic means they have better margins, they have
0:04:05 more hotel rooms and I think the three biggest hotel companies combined and it’s just an
0:04:07 extraordinary company, et cetera, et cetera.
0:04:14 With respect to its impact on housing stock and what is a real crisis in terms of affordability,
0:04:18 I do think they’ve been scapegoated a bit and that is if you want to talk about the
0:04:23 crisis of affordability not only in rentals but in housing, it’s pretty simple. We need
0:04:28 some sort of federal legislation or funding that encourages just more housing permits
0:04:33 and more construction because it has become so difficult to build housing in the US that
0:04:37 there’s just a supply-demand imbalance. We need, I think, another million to a million
0:04:40 to have units constructed every year just to keep up with household formation and when
0:04:47 you don’t have the supply, demand and prices accelerate faster than inflation and I think
0:04:53 what you’ve seen with a combination of housing that’s gone from $290,000 to $410,000 since
0:04:58 the beginning of the pandemic from 2019 to 2023 and you’ve seen those rates go from 3%
0:05:03 to 7%, that takes the average mortgage rate from $1,100 to $2,300 meaning that it’s no
0:05:08 longer 2/3 of Americans that can afford a home but 1/3. What’s the result? A lot of
0:05:13 young people I think have just given up on buying a home and they’re spending more money.
0:05:17 They’re just saying fuck it. Let’s get an Airbnb in Bangkok or let’s go to London and
0:05:23 see Taylor Swift. I think that’s bad. One, the thing I love about housing on a risk-adjusted
0:05:26 basis, it’s not a much better investment than other asset classes but what people don’t
0:05:30 take into account is it’s forced savings because people have a tendency to make that mortgage
0:05:34 payment. There’s a lot of older Americans with a majority of their net worth and the
0:05:40 retirement is in their house. My mom moved to Westwood in 1972. When did we move there?
0:05:44 Bought a condo for $72,000. Actually, her boyfriend bought it for us. He had another
0:05:49 family. Life is complicated. Anyways, we bought our condo or Terry bought us our condo for
0:05:55 $72,000 and then when my mom got sick with cancer for the second time, I said you need
0:06:01 to move and retire and her ability to do that was once she had a son who was starting to
0:06:06 do okay economically and could help but also she had a home that had gone from $72,000
0:06:13 in value to $350,000 because it’s a forced savings plan over 25 or 30 years. Housing
0:06:20 stock is incredibly important in terms of affordability, not only economically but psychologically.
0:06:25 It’s yet another reason why young people aren’t mating. Why? Because practice mating
0:06:29 or commitment is not only having kids, it’s not only getting married but it’s deciding
0:06:34 to partner on real estate and play house together. The first thing I did, not the first thing,
0:06:38 I did a lot of things before that but one of the things I did in my kind of evolution
0:06:45 towards monogamy was buying a house with a partner and starting to build a house and
0:06:50 think about building a future together and having a second bedroom and know what’s going
0:06:55 to go in there, something that’s small and looks, smells and feels like. I think housing
0:06:59 is just such an important role economically and psychologically and emotionally in people’s
0:07:03 lives. What you’ve had is the acceleration has been a function, I think just of supply
0:07:08 and demand and this rejectionist, exclusionary, bullshit culture we have where once we have
0:07:12 a degree or a house, we want to make it more difficult for other people to get a house so
0:07:16 we show up at the local review board and make it much more difficult for housing permits
0:07:20 to be issued. That shit needs to stop. If it’s regulation or subsidies, we just need
0:07:25 more housing built. In terms of Airbnb specifically, there’s just no doubt about it. In certain
0:07:29 areas, some of the rental stock has taken out of the market. I knew a woman who had eight
0:07:33 Airbnb, she would rent apartments, she was very savvy, fix them up and then turn them
0:07:39 all into Airbnb. So to think that that loss and rental stock did not impact the markets
0:07:44 would be naive. Having said that, what we have is a transfer of economic opportunity
0:07:51 and that is there is price hikes among renters. There’s a loss of economic value there, their
0:07:58 prices go up, but the prices go down for travelers or for short-term renters. Why? Because instead
0:08:04 of having to check into a bad day’s end for $289 a night, they can get a cool little studio
0:08:11 for 120 bucks in SoHo or in the East Village. So it’s a transfer of wealth and opportunity
0:08:17 from renters to travelers and short-term renters. Now, how do you solve this externality? I
0:08:21 think it’s pretty simple and I think Airbnb has been pretty savvy here and that is hotels
0:08:26 pay taxes. They pay extraordinary actually. If you look at your hotel bill, unfortunately
0:08:32 it gets jacked up because there are typically city and residence or hotel taxes that are
0:08:37 pretty serious. Now, if you wanted to make a real dent and Airbnb now pays those taxes
0:08:42 is my understanding. And what would you do with that additional tax revenue? Boom, you
0:08:48 figure out regulation or just general subsidies to increase the housing stock. But to lay
0:08:52 the increase in rental prices at the feet of Airbnb, you’re right, is a little bit
0:08:58 of scapegoating. It’s an issue. It is dust has caused a transfer and prosperity and economics.
0:09:03 I do think we need something to address it, but this is just a symptom of a much larger
0:09:08 problem. And that is we need a drastic increase in incentives and regulation to ensure that
0:09:14 there’s more housing stock. We have seen the quality of life go down for young people relative
0:09:18 to their peers. And for the boomers out there saying, yeah, but they still live an extraordinary
0:09:21 life with their Netflix and their Nespresso and their Coachella. Yeah, but that’s not
0:09:26 the way life works. They look up and they see people doing better than them. And for the
0:09:30 first time in our nation’s history, a 30 year old is no longer doing as well economically
0:09:33 as his or her parents were at the age of 30. And that shit needs to stop. Thanks for the
0:09:34 question.
0:09:35 Question number two.
0:09:41 Hi, Professor Galloway. I’m an MBA from class of 19. We briefly met in 17 at one of your
0:09:47 books findings. I’ve been a follower ever since. I’m curious if you’ve read up on the recent
0:09:53 headlines around microplastics and phthalates. In May, the news seemed to hit a new degree
0:10:00 of virality when microplastics were discovered in testicles. I guess it took that to gain
0:10:06 more attention. But for many years now, studies have been coming out around the negative effects
0:10:14 of microplastics that manufacturers and companies knowingly are putting in the products from
0:10:20 baby bottles to what we consume as adults every day. It feels like companies have failed
0:10:27 us along with governing institutions. So I have a question for you. How do you think
0:10:32 as consumers we can ensure the safety of what we buy and consume in the wake of this government
0:10:35 and action and corporate complacency?
0:10:40 So let me get this. I’ve got plastic in my testicles. I mean, this question wins for
0:10:48 the question I know the least about. Look, one thing I’ve noticed about London is that
0:10:54 everything rots. You buy orange juice, you buy cheese, you buy salami. And three days
0:10:59 later, it goes bad. And at first that kind of bothered me. And I thought, wait, that’s
0:11:04 a good thing because there’s something like 110 or 1200 preservatives and chemicals and
0:11:08 pesticides that the government of the UK or whatever the health ministry is there, the
0:11:14 equivalent of the FDA said, no, not here, girlfriend, this shit’s bad for you. And I like that.
0:11:19 When granted, it probably adds expense. And it’s easy for me to say because I can afford
0:11:25 these foods. But I do think that probably the only way around this is if in fact you
0:11:30 can impose or show peer-reviewed research that having plastic in your testicles is bad
0:11:36 and we can solve this problem through regulation. I think recycling is nothing but a misdirect
0:11:40 to convince us that we have some power over something. I think it was like calling people
0:11:45 alcoholics. It’s a disease and those people have a problem. So go ahead and drink. Well,
0:11:50 actually, the majority of us are not alcoholics, but the majority of us would benefit from
0:11:56 drinking less alcohol. So it’s a misdirect to create a segment of people that we think
0:12:01 are the problem and are weak and you’re not them, just as recycling in my view as a misdirect.
0:12:06 The majority of the research shows it’s nothing but a chance to virtue signal and feel better
0:12:11 about ourselves. And if that sounds harsh, okay, I think we need loss. I don’t understand
0:12:17 why we wouldn’t have a fairly substantial tax on any plastic and then take that money
0:12:22 and invested it either in figuring what you do with these plastics and the honest answers
0:12:26 I don’t know. I keep seeing all these new technologies of ships trying to pull all the
0:12:30 plastic garbage out of the ocean. And I don’t, I think it’s a losing battle, but there’s
0:12:34 got to be more environmentally sustainable packaging. I can’t, it’s funny as you get
0:12:39 older, the things you notice, I got, I forget what I got. I got a gift from somebody and
0:12:45 I opened, and there was so much shit in packaging. And I thought, Jesus Christ, all this for
0:12:52 whatever it was, I think it was a small fragrance, you know, Ude Musk, Ude Dog. That’s right.
0:12:57 The new fragrance from hell not to propagate. Anyways, I think it’s just got to come from
0:13:01 regulation and peer reviewed research showing how harmful plastic is and the notion that’s
0:13:05 showing up everywhere. But this is, it has to be a law. I don’t think it’s a consumer
0:13:11 led revolution. I think these people are very savvy at creating Mr. XC above recycling
0:13:16 and alcoholics, so to speak. I think it has to come from laws. We have one quick break
0:13:21 before our final question. Stay with us.
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0:14:43 tutor, but that’s going to cost you several hundred bucks. Or you could try a language
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0:15:12 Caroline, tried Babble and she won’t stop speaking Italian. It’s really annoying. But
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0:16:27 time. Get $1,000 off Vanta when you go to Vanta.com/ProptG. That’s Vanta.com/ProptG
0:16:33 for $1,000 off. Welcome back, question number three.
0:16:39 Hey, PropG. This is Tom A.D. calling in from London. My wife and I are both American, but
0:16:42 I’m starting a business in the UK, so the plan is to be here for the foreseeable future
0:16:49 and raise kids. My question is, as a parent, what’s your advice on raising American kids
0:16:54 in the UK? Do you feel like they’re missing anything, not being in America or do you feel
0:17:00 like they’ll be culturally confused at all? I’m worried that my kids might have a weird
0:17:06 kind of identity crisis, if you will. Thanks for everything that you do.
0:17:11 First off, I think it’s great. And if you’re moving to the UK and starting a business in
0:17:17 the UK, that means, A, you’re already economically successful or you’re very confident and a
0:17:22 risk taker and economically viable. So, if you’re in a loving, supportive relationship
0:17:27 and have the confidence and the wherewithal to move to England with your kids, it means
0:17:33 you’re in a really good spot. And my thinking is in the rationalization for moving to the
0:17:39 UK was that what could we give our kids that would be amazing? And the idea of letting
0:17:44 them live in a foreign country for several years and experience a different culture,
0:17:48 I wish my parents could have done that for me. I think it’s just an extraordinary gift
0:17:52 what you’re doing for your children and they’re going to appreciate it the rest of their lives.
0:17:57 And you might decide, I couldn’t do better than my life in America. I didn’t want to
0:18:01 do better. We just wanted to do different and eventually we’ll move back. With respect
0:18:07 to kids, it’s been just a surprise to the upside. The schools, granted, I send my kids
0:18:10 to the American school in London and my oldest goes to boarding school at Wellington, his
0:18:14 home on the weekends, but he boards during the week, both outstanding schools. Also,
0:18:18 the public schools that my friends send their kids to are really happy. Granted, we live
0:18:23 in London where those schools are probably well funded, although I don’t know how finance
0:18:29 works in public schools. But my 13 year old takes the tube to and from school. We just
0:18:34 love that. Fairly independent here. I think there’s just no way to go around. In terms
0:18:37 of the identity stuff, I just wouldn’t worry about that. We’ve gotten really into Premier
0:18:44 League football. My kids still feel very strongly American. We spent a lot of time in America,
0:18:50 but like Britain is a wonderful democracy. We are allies. It’s probably our closest
0:18:56 ally, maybe Canada. I don’t know. I think that I think the bond between Britain and the
0:19:01 US is so strong that it won’t, it won’t in any way give them an identity crisis. It’ll
0:19:06 enhance their identity and make it a little bit more nuanced and a little bit more interesting.
0:19:11 I think you’re absolutely going to love it here. I think your kids are going to thrive.
0:19:18 We have loved moving to the UK. The weather not so much. The weather not so much. So their
0:19:23 father is constantly depressed and in a bitch of a mood from November to May where this
0:19:27 round thing goes behind the cloud, but Premier League football is awesome and the schools
0:19:33 are great. And what a wonderful place to be in that you and your wife have the opportunity
0:19:37 to bring your kids to a different culture, a wonderful culture for a few years. And some,
0:19:41 it’s just really good to be you, boss, and it’s good to be your children. This is a wonderful
0:19:45 gift for them. That’s all for this episode. If you’d like to submit a question, please
0:20:03 email a voice recording to officehours@prophgmedia.com. Again, that’s officehours@prophgmedia.com.
0:20:08 This episode was produced by Caroline Shagren, Jennifer Sanchez is our associate producer,
0:20:11 and Drew Burroughs is our technical director. Thank you for listening to the PropG pod from
0:20:16 the Vox Media Podcast Network. We will catch you on Saturday for No Mercy, No Malice as
0:20:21 read by George Hawn. And please follow our PropG Markets pod wherever you get your pods
0:20:26 for new episodes every Monday and Thursday. The PropG Markets pod was number one in business.
0:20:30 I think it’s one of the best or most successful new pods in a while. We’re really excited
0:20:37 about it with my co-host, Ed Elson, the 14-year-old Irish person. Not sure he’s 26 and he’s British.
0:20:43 But anyways, please tune in to PropG Markets wherever you get your pods every Monday and
0:20:52 Thursday. By the way, if I have plastic in my testicles, I’m pretty sure it’s one of
0:20:56 those Evian bottles that you carry around after you’ve actually, oh, there’s my family
0:21:01 speaking of plastic in my testicles. Come on in guys, just talking about waste and how
0:21:03 it’s impacting my twins.

0:00:03 Support for PropG comes from Slack.
0:00:04 When you’re growing a business,
0:00:05 you can’t afford to slow down.
0:00:07 If anything, you could probably use
0:00:09 a few more hours in the day.
0:00:11 Now, that’s why the most successful growing businesses
0:00:13 get work done in Slack.
0:00:15 Slack brings all your people, projects, apps,
0:00:17 and information together in one AI-powered platform
0:00:19 built for productivity.
0:00:21 Start a huddle to talk things out instantly
0:00:23 and ditch cumbersome calendar invites,
0:00:25 or use canvases to collect meeting notes,
0:00:27 goals, checklists, and more,
0:00:29 keeping everyone on the same page.
0:00:32 Literally, grow your business in Slack.
0:00:36 Visit slack.com/prof-g to get started.
0:00:40 – Hi, PropG listeners, Ed Elson here.
0:00:41 Apologies for the interruption,
0:00:43 but I have an important message.
0:00:45 If you’re hearing this, you are in the wrong place.
0:00:48 Go listen to this episode on PropG Markets.
0:00:50 It’s linked in the episode description,
0:00:52 or you can just type it in, PropG Markets.
0:00:53 That’s where you’ll find me and Scott
0:00:55 twice a week, every week.
0:00:56 Soon, you won’t find us here at all.
0:00:59 We’ll be leaving the PropG pod altogether,
0:01:00 so don’t miss out.
0:01:03 Go listen and follow us at PropG Markets,
0:01:04 wherever you get your podcasts.
0:01:08 – Today’s number 85.
0:01:09 That’s the percentage increase in sales
0:01:13 of adult fantasy novels in the first half of 2024.
0:01:16 Ed, I took my cousin to see a sci-fi fantasy movie
0:01:20 the other day, but the sex was way too graphic.
0:01:22 Everyone in the theater asked us to stop.
0:01:25 (upbeat music)
0:01:30 (singing in foreign language)
0:01:35 – You saw that coming, didn’t you?
0:01:37 – Yeah, I’m sort of used to it.
0:01:38 – Welcome to PropG Markets.
0:01:41 Today, we’re discussing the fall of Nike
0:01:45 and Britain’s economic future, but first, first,
0:01:47 by the way, we just did two jokes
0:01:52 and they were so profane and inappropriate and not funny.
0:01:53 The word is cringe.
0:01:55 – That’s the synergy right there.
0:01:56 – There we go.
0:02:01 But first, speaking of cringe, here with the news,
0:02:04 here with the news is PropG analyst Ed Elson.
0:02:06 Ed, what is the good word?
0:02:07 – I’ve got three words for you.
0:02:08 It’s coming home.
0:02:10 It’s all I have to say to start this episode.
0:02:12 – I’m literally beside myself.
0:02:15 Well, I was in a beer garden last night.
0:02:18 I was an American living in London in Munich,
0:02:21 watching Team England play the Netherlands
0:02:25 in a beer garden and I thought life is so rich.
0:02:26 – Epic.
0:02:26 Were you with your kid?
0:02:28 – Of course, yeah.
0:02:29 And we went and got a kid today.
0:02:33 And by the way, we went and bought him
0:02:36 these new Jude Bellingham cleats at the Adidas store,
0:02:38 the Adidas store or the Byron Munich store.
0:02:42 And yeah, so we’re just thrilled to be here.
0:02:43 What’s your prediction?
0:02:46 – This is gonna come out the day after the final,
0:02:49 so I’m gonna get proven wrong maybe,
0:02:52 but I don’t know, I’m gonna say a two nil to England,
0:02:53 my prediction.
0:02:54 – Spain look pretty damn good.
0:02:55 – They look good, they look good,
0:02:57 but I have to have the money on England.
0:02:59 I mean, what do you think?
0:03:01 – Oh, Gluck, I got a good, I mean,
0:03:03 you’re talking to someone who’s ordering,
0:03:05 paying ridiculous amount of money to, you know,
0:03:09 England kits shipped to me in Berlin about a Sunday.
0:03:14 So yeah, I’m even trying to find how I can find someone
0:03:16 to paint our faces, but–
0:03:19 – By the way, you mentioned the Munich store.
0:03:20 Do you still have the shirt that I bought you
0:03:22 from the Byron Munich store?
0:03:24 If you, I wanna say a year ago,
0:03:26 I got you a Byron Munich shirt with Prof G on the back,
0:03:27 you still have that?
0:03:28 (crickets chirping)
0:03:30 – Oh, of course, and I love it.
0:03:32 (laughing)
0:03:33 – What?
0:03:34 You bought me a shirt?
0:03:37 – No, no, yeah, oh yeah, we love it, we love it.
0:03:38 (laughing)
0:03:40 – When we were in Munich a year ago,
0:03:45 we got you a Byron Munich jersey with Prof G on the back,
0:03:48 presented it to you on your plane,
0:03:49 and of course, you don’t remember, but–
0:03:52 – That was the duchess sentence ever muttered on a podcast.
0:03:55 We bought you a Byron Munich shirt kit.
0:03:58 So I have a closet full of kits,
0:04:00 and it’s one of those things, you know,
0:04:02 those things are pretty perishable.
0:04:04 It’s not like I’m headed out for dinner one night
0:04:07 and I think, oh, I’m gonna wear my Byron Munich kit.
0:04:10 (laughing)
0:04:13 – You should have framed it and put it up on the wall.
0:04:15 This is the momentum of how much your employees love you.
0:04:19 – These things have a shelf life of like the game,
0:04:20 the shelf life of the game.
0:04:22 I always buy it and I take a bunch of pictures
0:04:23 of the game and the kit,
0:04:26 and then it doesn’t get a lot of use out of that.
0:04:28 – Throw it in the bin with your awesome jersey
0:04:31 and your Spurs jersey and your Chelsea jersey as well.
0:04:34 – Anyways, enough of this shit, get to the news.
0:04:35 – Just one note before we move on,
0:04:37 we’ll be recording an Ask Me Anything episode
0:04:38 in the coming weeks.
0:04:39 So if you have a question for me and Scott,
0:04:43 send us a message to officehours@profgmedia.com,
0:04:47 or you can tag us on xorthreads@profgpod,
0:04:48 or if you’re watching on YouTube,
0:04:50 just drop a comment below.
0:04:52 Let’s start with our weekly review of market vitals.
0:04:54 (upbeat music)
0:05:02 The S&P 500 closed above 5600 for the first time,
0:05:04 the dollar fell, Bitcoin climbed
0:05:06 and the yield on tenure treasuries dropped,
0:05:07 shifting to the headlines.
0:05:09 OpenAI will no longer have board observers
0:05:12 after Microsoft relinquished its existing observer role
0:05:15 and Apple scrapped its plan to take up a similar position.
0:05:17 Regulators have become increasingly concerned
0:05:19 about Microsoft’s relationship with OpenAI
0:05:21 and its dominance in the industry.
0:05:24 CNN announced it’s cutting 100 jobs
0:05:26 and launching a new digital subscription product.
0:05:28 CEO Mark Thompson said CNN is working
0:05:30 to create a billion dollar digital business
0:05:32 built mostly through CNN.com.
0:05:34 venture capital firm Andresan Horowitz
0:05:36 is collecting thousands of AI chips
0:05:38 to help secure deals with AI startups.
0:05:40 The firm has already started giving some startups
0:05:43 access to those chips in exchange for equity
0:05:47 and plans to build an arsenal of more than 20,000 GPUs.
0:05:49 And finally, talks for a server deal
0:05:52 between Oracle and Elon Musk’s AI startup XAI
0:05:54 have reportedly come to an end.
0:05:56 As we covered in a May episode,
0:05:58 XAI was prepared to pay $10 billion
0:06:00 to rent AI chips from Oracle,
0:06:04 but Musk now says XAI will build a system on its own.
0:06:05 Scott, thoughts?
0:06:08 – Well, I want you to take a little bit of a victory lap here
0:06:10 because you first highlighted to me
0:06:13 how just incestuous and concentrated
0:06:16 the kind of current incumbent players
0:06:18 were around dominance around AI.
0:06:20 So anyways, what are your thoughts
0:06:21 around the first story?
0:06:24 – Yeah, well, what I said was that the Microsoft board seat
0:06:27 on open AI was illegal
0:06:29 and that there was just no way that this could last.
0:06:30 And that’s what happened.
0:06:31 I think we have the clip.
0:06:33 I guess we might as well play it right now.
0:06:39 I can name you three illegal board positions in AI right now.
0:06:43 – Name them you high IQ bitch nominated for best co-host.
0:06:45 Name them, I’m calling your bluff, name them.
0:06:49 – Microsoft, Microsoft is on the board of open AI.
0:06:52 It’s, you know, they say it’s a non-voting board seat,
0:06:54 but that’s still a board seat.
0:06:57 And Microsoft is also an investor in Mistral and Inflection,
0:06:59 which are both AI companies
0:07:02 that directly compete with open AI.
0:07:04 All I can think is what’s gonna happen
0:07:08 when the DOJ launches a full fledged investigation
0:07:08 into this thing.
0:07:11 Because I would bet that no AI company is safe.
0:07:14 – I mean, this was bound to happen sooner or later.
0:07:16 And you know, if you have that level of influence
0:07:18 on three major AI startups,
0:07:21 it’s gonna allow you to manipulate and control
0:07:24 and tilt the marketplace in your favor.
0:07:27 So regulators are finally catching on to this
0:07:28 and Microsoft got scared.
0:07:31 It’s now sort of jumping ship before it gets punished.
0:07:33 Here’s the problem though.
0:07:37 – I would argue that the damage here has already been done.
0:07:42 And the example I would give is what happened with
0:07:46 that other up and coming startup, AI startup, Inflection.
0:07:47 You might remember within weeks
0:07:49 of when I first made those comments,
0:07:52 the CEO and founder of Inflection,
0:07:54 this guy Mustafa Suleyman,
0:07:57 we learned he was ditching the company.
0:07:58 And where was he gonna go?
0:07:59 Microsoft.
0:08:01 And who else left with him?
0:08:05 His co-founder, Karen Simone and most of the staff,
0:08:07 they all work for Microsoft now.
0:08:09 So think about what that means.
0:08:14 Open AI’s biggest competitor was somehow convinced
0:08:17 to just abandon ship and climb aboard
0:08:20 Open AI’s biggest backer, Microsoft,
0:08:23 which owns 49% of Open AI’s profits.
0:08:26 So yes, Microsoft is leaving the board,
0:08:28 but we should be very clear here.
0:08:31 Microsoft has already gotten what it wanted.
0:08:34 It embedded itself in the AI scene.
0:08:37 It quietly formed all of these strange alliances
0:08:38 between all these AI startups
0:08:40 that should have been competing,
0:08:42 but we didn’t really keep track of it.
0:08:43 And now the stage is set for Microsoft
0:08:45 to get exactly what it wanted,
0:08:48 which is for the golden child, Open AI,
0:08:50 which it more or less owns,
0:08:51 to go out and take over the industry.
0:08:54 And that’s exactly what’s happening.
0:08:58 So this may look like a win for competition.
0:08:59 It really isn’t.
0:09:02 – You were prescient in your comments around this.
0:09:05 And there’s a few things here.
0:09:10 One, it reminds me of what I had this fantastic lawyer
0:09:12 at Envelope, a guy named Josh.
0:09:14 Oh, I’m blanking on his name now.
0:09:16 But when there were so many conflicts,
0:09:18 like Sequoia was on our board
0:09:20 and they would have a failing portfolio company.
0:09:23 And then the Sequoia representative would show up
0:09:24 and say, “I have a great idea.
0:09:26 “Red Envelope should acquire this company.”
0:09:28 It’d be so obvious that they wanted us to acquire
0:09:32 the failed products of Sequoia portfolio companies.
0:09:34 And then this guy, I think his name was Josh Green,
0:09:36 he said to me, he said, “Scott, also keep in mind.”
0:09:38 He’s like, “You gotta be mindful of conflicts,
0:09:39 “but keep in mind conflict,
0:09:42 “where the valley is run on conflict.”
0:09:45 And that is having a board member who has
0:09:47 vested interest and influence over other companies
0:09:49 can be really helpful.
0:09:52 That you want connections, you want,
0:09:54 he says, “The valley runs on conflict.”
0:09:56 And the person at the center of what you were just talking
0:09:59 about, the founder of Inflection was Reid Hoffman,
0:10:03 or is Reid Hoffman, who is on the board of Microsoft
0:10:05 who owns and controls OpenAI.
0:10:10 So it is all sort of a Kentucky wedding, if you will.
0:10:15 And what’s quite interesting here is that they’ve both said,
0:10:17 “Oh, just kidding, we don’t wanna be on the board.
0:10:19 “We don’t need to be on the board.”
0:10:22 Clearly, either the lobbyists or somebody
0:10:25 from the FTC and the DOJ, all these guys,
0:10:29 and said, “Just to be clear, this is not kosher.”
0:10:31 It’s no accident that they both decided
0:10:33 they’re not gonna be, quote, unquote,
0:10:35 in their observer board status at the same time.
0:10:37 This is the most valuable and the second most valuable
0:10:40 company in the world sitting on the board.
0:10:44 This observer board status thing is just fucking ridiculous.
0:10:49 So just an example, my venture capitalists at L2,
0:10:50 two of them were on the board,
0:10:53 really super impressive guys.
0:10:55 And they kept showing up with their associate
0:10:58 who had done diligence on the deal for the board meetings.
0:10:59 And the first time they did not even say anything.
0:11:01 And the second, I’m like, “Why is he in these board meetings?”
0:11:03 And they said, “Well, he’s done a lot of the work
0:11:04 “and it’s really good learning for him.”
0:11:06 And I’m like, “Well, that’s all fine and good.
0:11:09 “But I didn’t give you guys three board seats.
0:11:11 “And what a shocker, every time the two of them
0:11:14 “said something, he would chime in and agree.”
0:11:16 And here’s the thing about boards.
0:11:17 They never come to a vote.
0:11:21 That scene in succession where they go and vote,
0:11:24 go board member by board member and vote on the acquisition
0:11:28 and it ends up being seven to six, that never happens.
0:11:30 I don’t think I’ve ever seen–
0:11:31 – What do you mean?
0:11:32 It’s sort of like everyone has a conversation.
0:11:35 You come to a decision and you kind of unanimously agree
0:11:36 on a path forward.
0:11:38 – You don’t take a vote until it’s unanimous.
0:11:40 And so you work it out.
0:11:42 The way you come to an agreement is one
0:11:43 who owns the most shares.
0:11:46 That person always has kind of the loudest voice
0:11:48 ’cause they’re the ones that have put the most money in
0:11:49 and quite frankly, they’re the ones you might need
0:11:52 to go back to and ask for more money.
0:11:54 But the number of voices in the room,
0:11:56 everyone has an equal voice.
0:11:58 Voting or non-voting, it doesn’t matter.
0:12:00 So the fact that they, and not only that,
0:12:04 if the guy from Apple and the guy from Microsoft both say,
0:12:07 “We’d rather you not do that.”
0:12:09 Do you think they’re gonna do it?
0:12:13 I mean, it’s like, okay, we control Android and iOS.
0:12:17 We control access to the entire of any company to anyone.
0:12:19 If they said, you know, and if OpenAI said,
0:12:22 “We think there’s an unbelievable opportunity
0:12:25 to do something with Spotify, you know,
0:12:26 Apple Music as a competitor of Spotify.
0:12:28 We’d really like to develop music
0:12:30 and we think the best partner for some sort of AI relationship
0:12:33 around generating music would be Spotify.
0:12:35 Do you think the guy from Apple’s gonna go,
0:12:37 “That’s a great idea.
0:12:40 You’re about to see an FTC and DOJ investigation
0:12:41 launched here.”
0:12:43 Because, and you pointed this out early,
0:12:46 I didn’t recognize, the most seminal technology
0:12:49 of the last 20 years, probably since handhelds,
0:12:53 is more concentrated than any new technology
0:12:57 in terms of concentration and benefits accruing
0:13:00 to the incumbents, specifically the most valuable company
0:13:03 in the world, I think today is at Microsoft,
0:13:05 and the second most valuable company in the world
0:13:10 have way too much influence across this emerging technology.
0:13:14 But the idea that the notion they both got out of dodge
0:13:16 on the same day means they both heard
0:13:18 from the same person or people and realized,
0:13:20 okay, shit’s getting real.
0:13:22 We need to try and create a misdirect
0:13:23 and try and take the temperature down.
0:13:25 It’s not gonna work.
0:13:28 You’re going to see an FTC or a DOJ investigation here.
0:13:31 – But also, if you think that by them leaving the board,
0:13:33 that’s somehow gonna relinquish their influence
0:13:38 over OpenAI, then you’re not grasping what humans are like.
0:13:42 I mean, they’re friends now.
0:13:46 They’re all friends now, and they have gutted all of the,
0:13:48 all of the companies that were supposed to be competing
0:13:50 that should have made this a competitive landscape.
0:13:53 It’s just, it’s one team now.
0:13:55 So it’s a huge concern.
0:13:57 We should move on to these other headlines.
0:14:02 Any thoughts on CNN and this CNN+ 2.0?
0:14:06 – Well, I think CNN+ I think an original scripted offering
0:14:09 from CNN is just an outstanding idea.
0:14:12 For the 1% of people who listen to this podcast
0:14:15 who don’t know, I had a show on CNN+
0:14:20 and on a Tuesday night, five or four or five episodes in
0:14:22 my producer, this guy named Scott.
0:14:23 – Scott Matthews, I wanna say.
0:14:24 – Oh, Scott, yeah.
0:14:28 And either Scott called me or the other producer called me
0:14:31 and said, “I’ve got great news, Mrs. Tuesday night.
0:14:33 “I’m in San Diego for a speaking gig.”
0:14:37 And they said, “We’re the number one most viewed weekly
0:14:38 “on CNN+.
0:14:40 “There were daily shows like CNN five things or whatever.
0:14:42 “And then there were weekly shows.
0:14:45 “Anderson Cooper on parenting, Jake Tapper’s book club.”
0:14:48 (laughs)
0:14:51 I mean, what is Jake Tapper reading this week?
0:14:53 Oh God, that’s page turn.
0:14:56 I went, “Game of Thrones, Bridgerton, Euphoria,
0:14:59 “or what is Jake Tapper reading this week?”
0:15:00 Let me think.
0:15:02 That’s a toss-up.
0:15:04 By the way, I love Jake Tapper.
0:15:06 I’m serious, I do love the man.
0:15:08 And so super excited, send out an email to everybody
0:15:10 where the number one show on CNN.
0:15:12 Now they didn’t tell us how many people were watching.
0:15:14 I don’t know if that meant like 85 people were watching.
0:15:17 – Exactly, that’s the key detail.
0:15:19 – That was the key question that no one would answer.
0:15:21 And then I wake up Wednesday morning
0:15:23 and I check my text messages
0:15:26 and obviously New York’s three hours ahead.
0:15:27 And I got a text message from Cara Swishers saying,
0:15:29 “Are you all right?”
0:15:32 And I got so panicked because Cara’s pretty measured.
0:15:33 And I’m like, “Am I all right?
0:15:34 “What, did something bad happen?”
0:15:37 And I text her back and I’m like, “Wow, what’s up?
0:15:38 “What’s wrong?”
0:15:39 And she sent me the article, “New York Times,
0:15:42 “CNN+ Being Unplugged.”
0:15:45 Anyways, it kind of died an unceremonious death.
0:15:46 My understanding here,
0:15:48 and I’m not sure how much research you’ve done,
0:15:51 is that they’re gonna put the wall, the paywall,
0:15:54 they’re gonna bring it increasingly forward every day.
0:15:56 And CNN needs to do something.
0:16:00 Its viewership has declined 15% with people age 25 to 54,
0:16:02 which is the only people advertisers care about,
0:16:04 ’cause once you hit my age, you start getting smart
0:16:06 and stop spending money on stupid shit,
0:16:09 like clothes and coffee and things like that.
0:16:10 Total prime time viewers in that demographic
0:16:12 for May for CNN were 96,000,
0:16:15 whereas Fox had 199,000.
0:16:16 So the thing about this,
0:16:19 Fox is doing double the viewership in that core demo.
0:16:23 And MSNBC had 110, so MSNBC is now beating CNN.
0:16:25 So it’s pretty ugly at CNN right now.
0:16:26 They’re gonna have to figure out something.
0:16:29 And by the way, no one’s called me Ed.
0:16:30 No one’s called me.
0:16:33 – That was gonna be my question.
0:16:33 Would you say yes?
0:16:35 I think you will say yes, yeah.
0:16:36 – A, I don’t think I’m gonna get that call.
0:16:39 And B, I have firmly decided,
0:16:42 figured out that I have a face for podcasting.
0:16:44 – Yeah, you say that, you say that a lot.
0:16:46 I don’t really believe you.
0:16:47 I think if Netflix called you up
0:16:51 and wanted to do some sort of Scott Galloway series
0:16:53 on the story of Scott Galloway’s life,
0:16:57 I think you’d probably say yes within three milliseconds.
0:16:59 – UCLA failed startups and erectile dysfunction.
0:17:00 There you go.
0:17:02 Let’s turn it into an original scripted series.
0:17:04 By the way, do you know there’s a term
0:17:08 for when you play a recording of yourself
0:17:11 on your own podcasts as you just did a few minutes ago?
0:17:12 You know the term for that.
0:17:14 It’s called megalomania.
0:17:17 (laughing)
0:17:19 – I’m learning from the best though.
0:17:21 – Oh my God, I’ve been infected with that virus for a while.
0:17:26 I will, when I’m speaking, show a video of me above me.
0:17:30 And I’m like, watching a video of me on top of me speaking
0:17:33 is like shavings of shit on a shit salad.
0:17:36 But anyways, you have gone full, full egomaniac.
0:17:38 – I love it, I’m loving every minute of it.
0:17:40 – Anyways, XAI and Oracle,
0:17:43 ending talks over its $10 billion server deal.
0:17:46 This is, you wanna talk about confirmation
0:17:48 that Elon Musk is unreasonable?
0:17:51 The person who runs Oracle is his mentor.
0:17:52 Larry Ellison.
0:17:53 – They are very close.
0:17:57 So for Larry Ellison to back away from this,
0:18:00 just says one thing that Musk’s demands,
0:18:01 he just must be so,
0:18:03 he must have been so difficult here.
0:18:04 Do you have any thoughts?
0:18:05 – Well, this is what he does.
0:18:08 I mean, if you read Walter Isaacson’s book,
0:18:09 that’s one of the main conclusions
0:18:12 is he’s obsessed with rushing these production schedules
0:18:14 and pushing up timelines.
0:18:16 And whenever someone says,
0:18:18 “Hey man, like, you know, we wanna do this too,
0:18:19 but we just don’t think it’s possible.”
0:18:22 He erupts, or he fires them,
0:18:24 or, and crucially, in some cases,
0:18:26 he says, “Figure it out.”
0:18:28 And they do, and it works.
0:18:30 So I’ve always been a little bit ambivalent
0:18:32 about this management style
0:18:34 and how unreasonable Elon is,
0:18:36 because it’s rude, it’s disrespectful,
0:18:37 and it’s kind of lazy to just say,
0:18:39 you know, without knowing any of the details
0:18:41 of the technical details of how to get it done,
0:18:43 you just say, “Oh, just do it faster.”
0:18:46 But at the same time, it’s also very effective.
0:18:49 It’s evident from what he’s done at Tesla and SpaceX.
0:18:51 So we’ll see if it’s true at XAI as well.
0:18:52 – We’ll see.
0:18:56 – Andres and Horowitz buying GPUs to get AI deals.
0:18:58 I feel like this is an incredibly smart move.
0:18:59 Your thoughts?
0:19:01 – So it used to be there were a small number
0:19:03 of venture capitalists, it was a small industry,
0:19:04 they made a shit ton of money,
0:19:06 and then everyone realized technology was the future,
0:19:08 and there was a lot of money to be made,
0:19:10 and the amount of capital these guys were able to raise
0:19:12 went up exponentially,
0:19:14 and then junior partners would split off
0:19:16 and start new companies, new venture capitalists,
0:19:18 and the entire venture capital community.
0:19:22 And as an asset class, it’s just absolutely exploded
0:19:24 over the last couple decades.
0:19:27 And the key now is how do you compete against each other?
0:19:29 And they compete on brand.
0:19:32 Andres and Horowitz, Sequoia, General Catalyst,
0:19:33 they just get more deal flow.
0:19:37 What they also do is they compete on downstream services
0:19:38 or what you would call verticalization.
0:19:43 And that is some of the deeper pocketed VCs now have value
0:19:46 added services for the portfolio companies.
0:19:50 So they’ll say we’ll share or rent you a CFO.
0:19:54 We have very strong contacts with venture debt firms.
0:19:56 We will help you recruit talent.
0:19:58 We have a full-time recruiter.
0:20:01 If you take our money, we have a full-time recruiter
0:20:03 that will help you build out your team.
0:20:05 And this is going even more vertical.
0:20:09 This is saying, hey, cool AI startup.
0:20:11 You have great IP, you have smart people,
0:20:14 maybe who knows, maybe you might even have
0:20:15 quote-unquote product market fit
0:20:18 with your limited beta testing or whatever.
0:20:21 But the gating factor here is compute.
0:20:23 And these tips are expensive and hard to find.
0:20:26 So we have bought a bunch and you can use our compute
0:20:29 until you get out of the nest.
0:20:30 So this is going very vertical.
0:20:31 I think it’s very smart.
0:20:34 And all of that, it separates them.
0:20:37 It basically creates pretty tangible differentiation
0:20:39 from the other venture capitalists
0:20:41 who don’t have the money or the vision
0:20:43 to go ahead and aggregate these GPUs.
0:20:44 So I think it’s super interesting.
0:20:47 I honestly think it’s super smart.
0:20:49 We’ll be right back with a look at Nike.
0:21:00 Support for PropG comes from Slack.
0:21:01 When you’re growing a business,
0:21:02 you can’t afford to slow down.
0:21:04 If anything, you could probably use
0:21:06 a few more hours in the day.
0:21:07 Now that’s why the most successful growing businesses
0:21:09 get work done in Slack.
0:21:11 Slack brings all your people, projects,
0:21:12 apps, and information together
0:21:16 in one AI-powered platform built for productivity.
0:21:18 Start a huddle to talk things out instantly
0:21:20 and ditch cumbersome calendar invites.
0:21:22 Or use canvases to collect meeting notes,
0:21:24 goals, checklists, and more,
0:21:26 keeping everyone on the same page.
0:21:29 Literally, grow your business in Slack.
0:21:33 Visit slack.com/prof-g to get started.
0:21:42 We’re back with PropG Markets.
0:21:44 In a terrible earnings report at the end of June,
0:21:45 Nike lowered its full-year guidance
0:21:47 and slashed its sales projections
0:21:49 for the current quarter by 10%.
0:21:51 That report sent the stock down 20%
0:21:55 in a single day, wiping out $28 billion in market value.
0:21:57 It was the company’s worst day on record,
0:21:59 but the pain has continued.
0:22:01 Nike was the biggest loser on the Dow last week
0:22:04 as it slumped to a new 52-week low.
0:22:07 And year-to-date, the stock is down more than 30%.
0:22:12 Scott, Nike’s downfall here has been slow
0:22:13 and then quite sudden.
0:22:17 In the past three years, the stock has been cut in half.
0:22:19 What do you think is happening here to Nike?
0:22:21 – I have some personal history with Nike
0:22:24 because Nike was one of our biggest clients at L2.
0:22:26 And it’s topped about them.
0:22:27 It’s an outstanding firm.
0:22:28 It’s got smart management.
0:22:30 It’s obviously got, arguably,
0:22:33 Nike is one of probably the 10 strongest brands,
0:22:35 not only now, but over the last 30 or 40 years.
0:22:40 They made a very strong transition into going vertical.
0:22:42 It just has a history of innovation
0:22:44 and they also got out of the kind of the brand era
0:22:47 and said, “All right, we need to be direct to consumer.”
0:22:48 And I have a bias towards them
0:22:52 because when after Gartner purchased L2,
0:22:54 and I gave the acquiring firm a list
0:22:56 of the most talented people in the company
0:22:57 and within about six months,
0:23:01 11 of those 12 people had left.
0:23:04 I mean, three of the most talented people at L2,
0:23:06 Daniel Bailey, who is probably one of my best students ever,
0:23:08 Ashley Tolbert, super talented young woman,
0:23:12 and Maureen Mullen, who in many ways kind of built L2.
0:23:13 All three of them went to Nike
0:23:16 and I think worked in the direct to consumer group.
0:23:20 And so I know that they have extraordinary talent there.
0:23:21 They have an unbelievable brand.
0:23:22 They’re saying that they overinvested
0:23:25 in direct to consumers such that when we came out of COVID,
0:23:27 they didn’t have the same amount of shelf space.
0:23:31 I think most of it is that they’re struggling
0:23:32 with the same headwinds in China
0:23:34 as like an estate lotter is.
0:23:36 And also they say that these,
0:23:40 it’s at the Hoka brand and on running have eaten share.
0:23:43 These two kind of cool upstarts have gotten huge traffic
0:23:46 and are now kind of billion dollar plus brands.
0:23:48 But at the end of the day,
0:23:52 to have this kind of erosion in market capitalization
0:23:55 and for the company to be trading what is,
0:23:58 I think a multiple of 17 versus an average of 28
0:24:01 over the last five years to have its stock cut in half
0:24:04 versus a doubling of the S&P of that time.
0:24:07 I think most likely the CEO’s days are numbered
0:24:10 because what this looks like is that
0:24:12 to have this kind of implosion,
0:24:13 I think their stocks off,
0:24:16 I forget what their stocks off substantially this year.
0:24:17 – 30% yesterday.
0:24:18 – Year-to-day it’s off 30%
0:24:20 but I think it Audidas is up 20%.
0:24:21 – That’s right.
0:24:22 – So it’s not the whole category, right?
0:24:24 This is specific to Nike.
0:24:29 So I would bet that, I think it’s John Dono is his name.
0:24:30 I think he’s on the green mile.
0:24:32 His background is very interesting.
0:24:34 He was the CEO of eBay
0:24:37 and then he was the CEO of Service Now.
0:24:38 He’s been the chairman of PayPal.
0:24:42 So he’s kind of this software tech guru.
0:24:45 And it was, I think people were excited
0:24:46 but also a little ambivalent
0:24:47 that Nike would bring him in.
0:24:48 But I think the thesis there was
0:24:51 that he would digitize the company.
0:24:54 He sort of fixed the supply chain.
0:24:55 You know, he’d do all these things
0:24:57 to bring the company into the future.
0:24:59 What looks like has happened is that
0:25:03 during that process, he has neglected the brand.
0:25:05 – I think bringing in a tech guy
0:25:07 to run what is the largest or most,
0:25:09 you know, arguably one of the most important
0:25:12 consumer brands ever is probably in this instance,
0:25:14 just not paying off.
0:25:15 He’s been there a while.
0:25:18 He owns this performance now.
0:25:22 And the performance has been such a disaster
0:25:24 from a shareholder standpoint.
0:25:27 You know, he’s gonna have to outline pretty serious,
0:25:30 a pretty serious change in direction here
0:25:32 and give investors confidence.
0:25:35 Or like I said, there’s gonna be a switch at the top.
0:25:37 This feels to me just like Taylor made
0:25:39 to make us to switch the CEO.
0:25:41 ‘Cause this just hasn’t worked.
0:25:43 With a brand like this, with the human capital,
0:25:45 I know they have, I remember,
0:25:48 I think I worked for a woman named Heidi Reusen.
0:25:49 And she was so talented.
0:25:52 And I remember when they brought in Donho,
0:25:55 I remember thinking, the hard thing about sexism
0:25:58 or anti-Semitism or anyism is it’s subtle.
0:25:59 No one’s gonna say, no one’s gonna say,
0:26:01 oh, you know, we’d rather just have
0:26:02 a white guy running the company.
0:26:05 But I remember, I met several executives in Nike
0:26:07 who were women in their fifties.
0:26:09 So I thought we’re just incredibly impressive.
0:26:10 So I thought we’re gonna be the next CEO.
0:26:13 And then boom pops up a white guy from Silicon Valley.
0:26:16 At the end of the day, the reason the CEO
0:26:20 can make so much fucking money is he or she,
0:26:22 the buck stops with them.
0:26:25 And so he’s, I think, got three months
0:26:26 to outline a vision.
0:26:29 And he’s got 12 months to show some traction
0:26:30 against that vision.
0:26:33 Otherwise, I think he’s out.
0:26:34 As a matter of fact, I’ve got the board
0:26:35 is having several, what I call,
0:26:37 parking lot conversations.
0:26:39 And that is, there’s two board meetings typically.
0:26:42 There’s one that happens during the board meeting.
0:26:43 And then there’s a second one.
0:26:46 And the two or three most important people on the board
0:26:48 kind of get together in the parking lot
0:26:52 or downstairs or they talk or whatever or they meet up.
0:26:54 And they’re like, hey, what do you think is going on here?
0:26:57 Like, do you think Bob is the right guy?
0:26:59 And then there’s a bunch of kind of one-off calls.
0:27:02 Once those two or three people come to a consensus decision,
0:27:04 there’s a few more calls.
0:27:07 And then in executive session at some point,
0:27:09 they’ll do a call where they think,
0:27:11 you know, we have some concerns, what do you think?
0:27:14 And then they’ll make a decision.
0:27:16 And then they’ll go about trying to affect the decision.
0:27:18 But right now, I can’t see any reason
0:27:22 for why all roads don’t lead to a leadership change.
0:27:24 ‘Cause it’s nothing obvious to me
0:27:26 that you could blame this on.
0:27:29 – Yeah, it’s interesting you say that.
0:27:30 I don’t think it’s obvious,
0:27:35 but just at a very simple level, sales growth is declining.
0:27:38 And they are giving up market share to other companies,
0:27:42 other brands that we’ve mentioned on Lululemon,
0:27:46 Aloe, Hoka, these are all great brands
0:27:48 and the stocks of a lot of these companies
0:27:49 are way up this year,
0:27:52 on running is up almost 40% this year.
0:27:57 I think very simply, it wouldn’t be unreasonable to say
0:28:00 the Nike brand is just falling out of favor.
0:28:02 And that’s what they have had to depend on.
0:28:04 And just as a consumer,
0:28:06 I don’t know if you’ve been to a Nike store recently,
0:28:08 it used to be like going to the Apple store
0:28:09 when I was a kid.
0:28:11 It was like the coolest experience,
0:28:13 going to Nike town in London.
0:28:17 Last time I went into a Nike store, it feels cheap.
0:28:19 It sort of feels like a,
0:28:21 English listeners will know this, a JD sports.
0:28:23 I don’t know what the equivalent would be.
0:28:25 Almost beginning to feel like a dick sporting goods.
0:28:26 – Or even worse, big five,
0:28:30 where I bought my first boogie board in Culver City.
0:28:32 – It’s becoming big five, sure.
0:28:36 To me, it feels like this is plain and simple,
0:28:37 a brand issue.
0:28:41 So I just want to return to brand again.
0:28:43 If you were advising Nike today,
0:28:47 what would you do to sort of revitalize this brand
0:28:49 that at one point seems to own
0:28:52 the premium luxury athletic wear market
0:28:55 and whose market share has just been diluted down
0:28:57 by these other companies like On Running,
0:28:59 who are now the sexy sports brands?
0:29:01 – I don’t think it’s a big bold strategic move here.
0:29:03 Again, you’re right.
0:29:04 It’s a brand thing.
0:29:06 And what you just said about the stores,
0:29:07 that bubbles up to the CEO.
0:29:12 This is the, that means the CEO has the wrong guy or gal
0:29:14 in charge of retail operations.
0:29:17 And I don’t think there’s what I call
0:29:19 like an obvious quick fix here.
0:29:22 I don’t think it’s, you know, fire the agency
0:29:23 and have a new ad agency.
0:29:25 I don’t think it’s buy On Running,
0:29:28 which is now probably too expensive to buy.
0:29:30 I think this is unfortunately very boring shit
0:29:31 around supply chain,
0:29:35 trying to increase the pace of innovation with new products
0:29:38 to get people excited about the brand again.
0:29:39 You know, this is just,
0:29:41 to me, this is just blocking and tackling
0:29:42 and bringing in a CEO
0:29:44 who’s gonna make a lot of hard decisions.
0:29:45 I’d be very interested to know
0:29:48 what is the employee to revenue headcount?
0:29:51 You know, is this in fact a company that’s sort of fat?
0:29:55 But this is the boring stuff of day-to-day operations.
0:29:59 And what it sounds like is that the CEO has the wrong people
0:30:02 making the wrong decisions across the strongest brand
0:30:05 or one of the strongest brands in consumer history.
0:30:07 But if I’m a shareholder here,
0:30:08 actually I am a shareholder.
0:30:11 My 401k, I have Nike and Oracle,
0:30:14 although it’s not a big position.
0:30:17 But I’d be pissed off that the three,
0:30:18 that I just mentioned,
0:30:22 my three colleagues that went to work for them five years ago,
0:30:25 I mean, ultimately we were purchased by Gardner
0:30:28 and it was not a cultural fit,
0:30:30 but you just have to give it to the management team there.
0:30:31 And a lot of people left
0:30:36 and some of our most talented employees went to Nike.
0:30:40 Gardner’s up 160% and Nike is down 20%.
0:30:43 So you gotta think there’s a lot of people internally
0:30:45 who are just saying, okay,
0:30:47 so my stock options are worthless.
0:30:50 Everybody, all of my buddies,
0:30:52 you know, I graduated from whatever,
0:30:54 University of Oregon and I took a job here
0:30:55 and I had an offer with Google.
0:30:57 I had, maybe I’m very talented.
0:30:58 I had an offer with Salesforce
0:31:02 or I had a chance to go to work for Adidas or,
0:31:04 I mean, name the company.
0:31:07 Those people have made a lot more money
0:31:10 than people at Nike at the stock is,
0:31:12 the stock has been cut in half.
0:31:14 I mean, that’s just,
0:31:15 that’s just crazy.
0:31:18 And at the end of the day that the only real litmus test
0:31:23 or metric that matters for the CEO is the stock price.
0:31:28 – 17 times EBITDA, EBITDA multiple of 17
0:31:30 for Adidas that number is 29 for on running it’s 48.
0:31:33 Nike is almost three times cheaper than on.
0:31:34 Is it a good time to buy?
0:31:35 – I think comparing it to on is unfair
0:31:38 ’cause on is a hot new growth brand.
0:31:41 And by the way, I’m wearing a pair of ons.
0:31:43 It’s literally how, you know,
0:31:44 tell me you’re a douchebag
0:31:45 without telling me you’re a douchebag.
0:31:48 Like every VC in the world is wearing on.
0:31:51 – I haven’t seen you not wear ons for the past two years.
0:31:52 – Yeah, it’s true.
0:31:53 I sleep in them.
0:31:54 I shower in them now.
0:31:55 I love this brand.
0:31:57 I absolutely love the brand.
0:31:59 Anyway, that’s not fair
0:32:01 ’cause it’s a hot upstart brand that’s growing fast.
0:32:06 The better comparison is Adidas, which is a 29 times
0:32:10 and the even better comparison is Nike’s average
0:32:14 over the last five years has been 27 and now it’s at 17.
0:32:16 But to your question,
0:32:18 I don’t like to make stock recommendations.
0:32:21 I think everyone should invest in ETF or index funds.
0:32:23 But I think, yeah, the answer is I think Nike is a buy
0:32:26 because this brand is so strong
0:32:29 and the depth of human capital there is so deep
0:32:33 that they can survive headwinds, some exogenous shocks
0:32:35 and even a bad CEO.
0:32:37 I think we might look back on this
0:32:38 and think it was a buying opportunity.
0:32:41 – Okay, well, Scott, I’m gonna give you your own
0:32:42 megalomaniac moment.
0:32:44 Two years ago in October of 2022,
0:32:47 when Adidas was dealing with this crisis management
0:32:52 with Kanye West, here’s what you said about Adidas stock.
0:32:56 – The stock actually even looks cheap.
0:32:59 And I think that’s kind of a learning here
0:33:02 is that when you have bad news and you have dislocation,
0:33:07 you have tumble, no obvious answers, a lot of unknowns.
0:33:11 That usually spells opportunity.
0:33:14 And that is, there’s just the perfect storm
0:33:15 of bad things right now at Adidas.
0:33:19 There’s loss of this hugely lucrative partnership.
0:33:20 Their core business is weak.
0:33:25 So as a result, Adidas market cap sits around 19 billion
0:33:27 for an iconic century old brand
0:33:29 that has real aspirational value.
0:33:32 And it’s probably, it’s maybe a distant number two,
0:33:35 but it’s a solid number two to Nike.
0:33:39 Nike on a relative basis is trading at about three X
0:33:41 the valuation of Adidas.
0:33:43 So I would argue that the opportunity here
0:33:47 from an investment standpoint is actually with Adidas.
0:33:50 – And by the way, the stock has doubled since then.
0:33:52 So Scott, your reactions to your own prediction.
0:33:54 – Oh, Ed, I hate it when you do this.
0:33:57 I just, you know, Ed, I don’t like to draw attention
0:34:01 to myself and I think it’s just inappropriate
0:34:03 to talk about your wins.
0:34:08 – Daddy, but the truth is my nipples are hard.
0:34:09 My nipples are hard.
0:34:10 Thank you, Ed.
0:34:11 Thank you.
0:34:15 – We’ll be back with a look at the road ahead for the UK.
0:34:18 (upbeat music)
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0:35:10 – We’re back with PropG Markets.
0:35:12 In her first speech as Britain’s new Chancellor
0:35:14 of the Exchequer, Rachel Reeves said
0:35:17 the country’s labor government has inherited quote,
0:35:20 the worst set of circumstances since the Second World War.
0:35:22 She cited new analysis from the Treasury,
0:35:24 which showed that if the UK economy had grown
0:35:27 at the average rate of other OECD nations
0:35:29 in the past 13 years, the economy
0:35:32 would be 140 billion pounds larger.
0:35:34 We went over why the UK is struggling
0:35:36 on our May 27th episode.
0:35:38 But now the Labour Party needs to get out of this mess
0:35:41 and Reeves laid out the government’s plan to do that.
0:35:44 It includes increasing public sector investment
0:35:45 by five billion pounds a year,
0:35:47 launching a national wealth fund
0:35:48 for green sector investment,
0:35:50 building one and a half million homes
0:35:52 over the next five years and letting the world know
0:35:55 that quote, Britain is a place to do business.
0:35:58 In short, Labour’s economic agenda today
0:36:00 is growth, growth, growth.
0:36:02 Scott, do you have any reactions
0:36:06 to Labour’s first week in charge in the UK
0:36:07 and the road ahead for the country?
0:36:09 – Everything here makes a lot of sense to me
0:36:10 and the thing I found really refreshing
0:36:12 around these elections was I feel like
0:36:14 they were trying to govern from the center
0:36:17 and that is they said no to the far right and the far left.
0:36:19 And I like this kind of leftward breeze
0:36:21 that’s coming back from continental Europe.
0:36:23 France figured out a way to bind together
0:36:28 to kind of body check or stiff arm, the far right,
0:36:30 which I thought was very encouraging.
0:36:33 Although the far left in France is not as crazy
0:36:34 but they’re still fucking crazy.
0:36:38 So I like this and I’m rooting for them.
0:36:39 And I think everything they’ve outlined here
0:36:42 makes a lot of sense for green sector investments.
0:36:43 Now people would say
0:36:46 the government shouldn’t be picking winners.
0:36:48 I think a better investment would be to come up
0:36:49 with some sort of tax scheme
0:36:51 or subsidization of venture capital.
0:36:55 There’s for every startup in Europe,
0:36:57 there’s 1 million in venture capital available
0:36:58 in the US, it’s 5 million.
0:37:00 So a lot of this is just,
0:37:02 they need to free up the purse strings
0:37:05 to encourage more investment in startups.
0:37:08 I think increased public sector investment makes sense.
0:37:12 More housing, I think that’s a fantastic idea.
0:37:14 We definitely need that in the United States
0:37:17 and the price of housing is outpaced inflation.
0:37:20 And also just being more kind of open for business
0:37:23 and trying to encourage foreign investment.
0:37:24 The only thing I would suggest,
0:37:26 and I don’t think if it’s possible,
0:37:29 is what I’m deeming or labeling back sit
0:37:31 and basically say,
0:37:34 Brexit was the stupidest fucking thing we’ve done
0:37:37 and let’s undo it to basically say
0:37:38 a lot of this stupid shit here
0:37:40 where we made things more expensive
0:37:43 that made our own products less appealing
0:37:45 and made our own economy less productive,
0:37:47 we’re gonna try and counteract these things.
0:37:49 But anyways, I’m hopeful, you’re the Brit.
0:37:50 Do you have any thoughts?
0:37:53 – Yeah, I think directly speaking,
0:37:56 the whole labor manifesto makes a lot of sense
0:37:58 for all of the reasons that you just described
0:38:00 and I agree with them.
0:38:04 My concern though is that I looked at the actual numbers
0:38:06 and the numbers that they are proposing
0:38:10 for this big national turnaround are shockingly small.
0:38:12 So I’m just gonna give some examples here.
0:38:14 They wanna boost public sector investment
0:38:17 by five billion pounds a year.
0:38:20 That’s not a lot of money.
0:38:22 That’s as much as Google spends on CapEx
0:38:24 in a single quarter.
0:38:27 And if you look at the Tories proposals,
0:38:30 what were the Tories proposals to cut spending
0:38:31 over the next several years,
0:38:35 this plan would only undo a fifth of those cuts.
0:38:39 So this is actually a very incremental change
0:38:41 in public sector investment.
0:38:43 The other issue that’s happening in the UK right now
0:38:47 is the NHS, the National Health Service, is in crisis.
0:38:49 There are 7.6 million people
0:38:52 on the waiting list right now to get treatment.
0:38:54 Now, labor has a whole plan.
0:38:57 They’ve promised two million hospital appointments per year,
0:38:59 an extra two million per year,
0:39:04 which again, that’s only a 2% increase from the year before.
0:39:07 And even if everything goes to plan,
0:39:10 it’s gonna take five years to clear that wait list.
0:39:12 You mentioned home building.
0:39:14 They wanna build one and a half million homes
0:39:15 over the next five years.
0:39:16 That’s 300,000 homes a year.
0:39:19 Back in the ’60s, England was building
0:39:21 600,000 homes a year.
0:39:24 Double what their plan is today.
0:39:27 So these are all directionally the right changes in my view,
0:39:30 but numerically, they’re so small.
0:39:33 And it does make me wonder
0:39:36 if the UK can even bounce back from this
0:39:40 because it just feels like they don’t have enough money.
0:39:42 There’s just not enough money in Britain.
0:39:44 They don’t have the capital or the credit.
0:39:47 They’re now at 100% debt to GDP
0:39:49 to dig themselves out of the hole.
0:39:50 And it does make you think,
0:39:56 if you’re American, you should feel lucky to be American
0:39:59 because, yes, America has its problems,
0:40:02 but at the very least, America has the option
0:40:05 to spend its way out of those problems.
0:40:07 And I’m looking at what’s happening in the UK right now
0:40:09 and these very small incremental changes.
0:40:12 And I’m wondering if the UK has the option
0:40:14 to spend its way out as well.
0:40:17 – You may be right, but it’s definitely classic half,
0:40:19 glass half empty British thinking.
0:40:21 – It’s the Southgate analysis.
0:40:24 – I don’t care when the finals, you suck.
0:40:29 – Look, the second grade of self-inflicted wound
0:40:32 in geopolitical history of the last 50 years
0:40:35 beyond the invasion of Iraq was Brexit.
0:40:38 And there’s something about the culture there
0:40:42 that does not inspire a lot of organic value creation.
0:40:46 Having said that, the quality of the educational institution
0:40:49 specifically the universities,
0:40:53 the fact that London is the new luxury item globally.
0:40:55 What do I mean by that?
0:40:58 I don’t wanna say I started a trend, I was part of a trend,
0:41:00 but some of the wealthiest Americans
0:41:02 with the most opportunity are moving to London.
0:41:04 – You started it, I’ll give you credit.
0:41:05 – Yeah, I started it.
0:41:10 But if you’re opening a business,
0:41:13 an American business or an Asian business in Europe,
0:41:15 I think you put your headquarters still in London.
0:41:18 There’s all this talk about, oh, we’re going to France.
0:41:21 I have a lot of friends in Britain who do very well
0:41:23 and all this bullshit of two months ago,
0:41:26 the non-dom thing, I’m moving back to Hong Kong.
0:41:27 No, you’re not.
0:41:30 – So people are saying that and give us a brief explanation
0:41:32 of what this non-dom thing is.
0:41:34 – Well, basically, my understanding is the UK
0:41:36 essentially had a tax status
0:41:41 where you could be a non-domiciled resident of UK
0:41:44 and pay taxes from your resident taxable place.
0:41:47 And now they’re basically saying, sorry,
0:41:49 if you’re not paying taxes here, you can’t stay here.
0:41:52 – And there’s this issue where you had all these rich people
0:41:54 who have houses in the Maldives or wherever
0:41:57 and they basically weren’t paying taxes in the UK.
0:41:59 And it was a big problem.
0:42:02 – I have several friends who do really well
0:42:04 and pay no tax, right?
0:42:06 So if you were a resident for whatever,
0:42:10 for tax purposes out of Hong Kong or Portugal
0:42:13 and you can live in London,
0:42:15 you can pay effectively no tax.
0:42:16 And so this thing came through
0:42:18 and I heard a lot of people bitching and moaning
0:42:19 that they were going to leave the UK
0:42:21 and was going to just ask for a UK.
0:42:22 But here’s the thing.
0:42:26 They want, the UK, especially London,
0:42:28 is one of the world’s great cities.
0:42:31 And when you get to a certain point of wealth,
0:42:32 I mean, if we wanted to avoid,
0:42:35 if you wanted to avoid taxes, if you’re wealthy,
0:42:37 I could move to Puerto Rico right now
0:42:39 and basically not pay taxes.
0:42:42 They have this deal, it’s totally legal, you can go
0:42:45 and you can pay, I think, two or 3% tax rate,
0:42:46 it’s two or three or some percent,
0:42:48 but dramatically decrease your taxes.
0:42:49 But here’s the thing,
0:42:51 you got to live in Puerto Rico.
0:42:54 And supposedly what’s different
0:42:56 about the Puerto Rican tax evasion
0:42:57 is that you actually have to live there
0:42:59 for 183 days a year.
0:43:00 You have to prove that you’re living there
0:43:02 for 183 days and supposedly, not supposedly,
0:43:04 it’s reported several billion
0:43:07 or hedge funders move there.
0:43:09 And supposedly almost all of them move back
0:43:11 and that’s the thing that London has.
0:43:13 It will always attract a disproportionate amount
0:43:18 of capital because it’s an outstanding city to live in.
0:43:20 And I still think it’s the capital of Europe.
0:43:22 Everyone says eventually, oh, it’s, no, it’s not.
0:43:25 It’s Berlin or it’s Frankfurt
0:43:28 or it’s startups are headed to, no, they’re not.
0:43:30 It’s still, I still think the center of Europe
0:43:33 is in fact London.
0:43:34 Your point is an interesting one
0:43:36 and that is you’re saying the tagline
0:43:38 for all these initiatives should be the following.
0:43:39 Think small.
0:43:41 What you’re saying is it’s just,
0:43:42 it’s just not that dramatic.
0:43:44 It’s not that interesting.
0:43:46 The other signs of life here are Raspberry Pi
0:43:48 going public there.
0:43:49 I think Sheehan going public there
0:43:52 on the LSU is going to be a big deal.
0:43:57 But the nation with the best players wins
0:44:01 and I do see a trend towards wealth and human capital
0:44:04 continuing to aggregate in London.
0:44:07 You’ve been predicting ever since Sheehan said
0:44:09 it was probably going to list in London
0:44:11 and then we had this development
0:44:13 where Raspberry Pi listed in London.
0:44:14 You’ve been predicting that we were going to see
0:44:17 a revival of the stock market in London.
0:44:20 I want to flag a new report from BlackRock.
0:44:21 The note said, quote,
0:44:23 “We are now overweight UK equity market.
0:44:24 Valuation is attractive.
0:44:26 It has been the case for a while,
0:44:28 but now we have a catalyst of potentially perceived
0:44:31 political stability that could act as a trigger
0:44:33 for international sentiment to warm up.”
0:44:35 Is it time to start reinvesting in the UK?
0:44:37 – So again, if you’re going to do this,
0:44:39 I would say put it in an index fund.
0:44:41 But if you look at the multiple on earnings
0:44:46 for stocks in the FTSE, it looks cheap.
0:44:48 And the markets are cyclical.
0:44:50 And just about the time everybody says
0:44:52 it’s all about America and it’s all about tech
0:44:53 and just throwing the towel,
0:44:57 you see other markets outperform.
0:44:59 And at some point, any market gets so cheap
0:45:01 that it’s irresistible.
0:45:04 To me, it looks like the UK has been beaten up
0:45:06 so badly for so long.
0:45:09 You’re right, it probably is a decent buying opportunity
0:45:10 right now.
0:45:13 – Let’s take a look at the weekend.
0:45:15 Second quarter earnings season continues with the banks,
0:45:17 Golden Sachs, Charles Schwab, Bank of America,
0:45:20 Morgan Stanley and US Bank are all reporting.
0:45:22 And we’ll also see earnings from Johnson & Johnson,
0:45:25 Netflix and American Express.
0:45:26 Do you have any predictions, Scott?
0:45:30 – I think you’re going to see an activist at Nike.
0:45:33 It’s just too juicy a target.
0:45:35 I don’t think, it’s hard to imagine,
0:45:37 and these are famous last words,
0:45:40 that this company is going to trade that much lower
0:45:42 than it’s already gone.
0:45:45 But the numbers here are just striking.
0:45:48 I got to think that some of the bigger players
0:45:50 who have a lot of capital to put to work,
0:45:52 I have their pencils out and are looking at this thing.
0:45:55 So my prediction is in the next 90 days,
0:45:58 you’re going to see an iconic activist firm pop up
0:46:00 and say, we’re here and we’re concerned.
0:46:03 We’re here and we’re here to help
0:46:04 is how they’ll position it.
0:46:07 – This episode was produced by Claire Miller
0:46:09 and engineered by Benjamin Spencer.
0:46:10 Our associate producer is Alison Weiss.
0:46:13 Our executive producer is Jason Stavins and Catherine Dillon.
0:46:14 Mia Silverio is our research lead
0:46:16 and Drew Burroughs is our technical director.
0:46:18 Thank you for listening to “ProfG Markets”
0:46:20 from the Vox Media Podcast Network.
0:46:22 Join us on Thursday for our conversation
0:46:25 with Kyla Scanlon, only on “ProfG Markets”.
0:46:31 ♪ Lifetimes ♪
0:46:38 ♪ To help me ♪
0:46:43 ♪ In kind reunion ♪
0:46:50 ♪ As the world turns ♪
0:46:55 ♪ And the dark flies ♪
0:46:58 ♪ In love ♪
0:47:05 – Support for “ProfG” comes from Slack.
0:47:06 When you’re growing a business,
0:47:08 you can’t afford to slow down.
0:47:09 If anything, you could probably use
0:47:11 a few more hours in the day.
0:47:13 Now that’s why the most successful growing businesses
0:47:15 get work done in Slack.
0:47:17 Slack brings all your people, projects, apps
0:47:20 and information together in one AI-powered platform
0:47:21 built for productivity.
0:47:24 Start a huddle to talk things out instantly
0:47:25 and ditch cumbersome calendar invites.
0:47:28 Or use canvases to collect meeting notes,
0:47:29 goals, checklists and more,
0:47:32 keeping everyone on the same page.
0:47:35 Literally, grow your business in Slack.
0:47:39 Visit slack.com/prof-g to get started.

0:00:03 Support for property comes from better help.
0:00:05 Social media has made it really easy to peer
0:00:06 into other people’s lives,
0:00:08 but when you start comparing yourself, that’s a trap.
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0:00:12 instead of what others have
0:00:14 so you can start living your best life.
0:00:16 Better Help Online Therapy offers a safe place
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0:00:21 It’s entirely online and flexible enough
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0:00:23 You can fill out a brief questionnaire
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0:00:29 Stop comparing and start focusing with better help
0:00:32 visit betterhelp.com/profg today
0:00:34 to get 10% off your first month.
0:00:38 That’s better help H-E-L-P.com/profg.
0:00:41 – Looking to buy or sell a used vehicle?
0:00:43 Forget the selection and protection
0:00:44 of BCAA Auto Marketplace.
0:00:46 Try some random guy off the internet.
0:00:49 – Some random guy!
0:00:52 – Yes, zero security, zero peace of mind.
0:00:57 – Some random guy, the risk is part of the ride.
0:01:01 BCAA Auto Marketplace helps you buy and sell vehicles
0:01:03 just like we help you every day.
0:01:06 Visit BCAA.com/marketplace and avoid.
0:01:09 – Some random guy!
0:01:15 – I’m Scott Galloway and this is No Mercy, No Malice.
0:01:17 The space race is over.
0:01:21 However, now we’re fighting over the spoils of space.
0:01:22 Instead of bragging rights,
0:01:26 the stakes now are profits and power.
0:01:29 The financial frontier, as read by George Hahn.
0:01:37 – When Dr. Doug Ross, George Clooney,
0:01:39 changes the direction of our world,
0:01:41 it’s a sign I should return to my knitting
0:01:42 and discuss business.
0:01:44 I don’t know if it’s age or common sense,
0:01:45 but it feels as if this world
0:01:48 is getting increasingly unstable.
0:01:51 So let’s take a break and venture to space.
0:01:55 We won the space race.
0:01:59 Our Nazi scientists were smarter than their Nazi scientists.
0:02:02 Getting to the moon first and planting our flag
0:02:07 was a cosmic branding event, literally and figuratively.
0:02:11 It wasn’t cheap, between 1960 and 1973,
0:02:14 NASA spent more than half of its budget,
0:02:19 about $28 billion, $280 billion adjusted for inflation
0:02:21 on the project.
0:02:24 Spending on NASA at the peak of the space race
0:02:28 accounted for more than 4% of the total US budget.
0:02:32 The worst branding events for space
0:02:34 were the Challenger disaster.
0:02:36 – You saw it just a few moments ago,
0:02:39 about 45 seconds after liftoff,
0:02:42 a huge fireball in the sky.
0:02:44 – We have a report from the flight dynamics officer
0:02:46 that the vehicle has exploded.
0:02:47 – And Virgin Galactic.
0:02:50 – Today, the project was dealt a serious setback.
0:02:54 When its spaceship too exploded during a test flight,
0:02:56 over California’s Mojave Desert.
0:03:00 – Space tourism hasn’t yet transported consumers to space,
0:03:02 but it did shuttle retail investors’ capital
0:03:05 to Richard Branson’s cruises and airline,
0:03:07 and Chamath Palahapitiya’s bank account.
0:03:11 Today, many believe there’s a space race
0:03:13 between the US and China.
0:03:16 While our return trip to the moon has been delayed,
0:03:21 China successfully retrieved soil from its far side.
0:03:23 And this new space race has given way
0:03:25 to space spoils.
0:03:27 Instead of bragging rights,
0:03:29 the stakes are profits and power
0:03:32 here on the moon’s billion year sibling, Earth.
0:03:36 Businesses are either supply constrained,
0:03:40 like rare Earth minerals or a 1945 Chateau Mutant,
0:03:44 or demand constrained, pretty much everything else.
0:03:50 Space tourism is both, which is why it isn’t a business.
0:03:52 Jeff Bezos is not my astronaut,
0:03:57 and Virgin Galactic is, see above, stupid.
0:03:59 As stupid as space tourism is,
0:04:02 the space business is rational.
0:04:07 Valued at $630 billion in 2023,
0:04:09 the space economy is projected
0:04:13 to reach $1.8 trillion by 2035.
0:04:17 But describing space as a business sector
0:04:20 is similar to using Europe as a descriptor.
0:04:23 There’s a big difference between Ireland and Greece.
0:04:26 Satellites are, at this point,
0:04:29 ground zero of the space economy.
0:04:31 Your television signal, nearly everything on your phone,
0:04:36 and anything that relies on GPS all depend on satellites.
0:04:39 Just as machinery and IP were the source materials
0:04:41 for the modern economy on Earth,
0:04:44 satellites will likely be the backbone
0:04:46 of the space economy.
0:04:50 What’s driving the growth in satellites?
0:04:52 One company, Starlink.
0:04:57 The number of active satellites increases weekly,
0:05:00 so it’s difficult to get up to the minute data.
0:05:02 At the end of 2022,
0:05:04 the Union of Concerned Scientists
0:05:09 was tracking 6,718 operational satellites.
0:05:14 Roughly half, 3,394 belonged to the SpaceX subsidiary.
0:05:19 And more are on the way.
0:05:22 The FCC approved SpaceX’s bid
0:05:27 to deploy up to 7,500 satellites for now.
0:05:31 Starlink has plans to launch 30,000 more.
0:05:34 The idea of one man controlling
0:05:38 the world’s high-speed internet access is unsettling.
0:05:40 Hawaiian Airlines and T-Mobile
0:05:42 have already partnered with Starlink.
0:05:44 The Texas firm is on the verge
0:05:48 of becoming this generation’s ultimate ingredient brand,
0:05:51 like Intel, Nutrisweet, or NVIDIA.
0:05:56 The addressable market is cosmic in size.
0:05:58 Currently, Starlink beans internet access
0:06:02 to 2.7 million subscribers in 75 countries.
0:06:06 It has kits for resonances, boats, and RVs.
0:06:11 Monthly plans range from $120 to $5,000.
0:06:16 The basic hardware costs between $499 and $2,500.
0:06:20 There are hundreds of millions of people on earth
0:06:22 who can afford Starlink,
0:06:24 and many are already paying for internet service
0:06:27 that’s tied to their home.
0:06:31 Starlink has a moat the width of Saturn’s rings,
0:06:35 see above 51% of satellites.
0:06:40 Its network already outperforms Huznet and Viasat.
0:06:43 The reviews are getting better as the network scales.
0:06:46 The 20th century saw the manufacturing age
0:06:50 seed ground to the brand and service era.
0:06:52 This millennium, thus far,
0:06:56 could best be described as the 10X era,
0:06:59 where products that leverage digital technologies
0:07:02 are rendering current offerings defunct.
0:07:06 Profits and their potential attract more competitors
0:07:10 to the water’s edge to try to cross the river.
0:07:14 The water level of Starlink’s moat, however, is rising,
0:07:17 and there appear to be crocodiles too,
0:07:18 evidenced by Amazon delaying the launch
0:07:20 of Kuiper to next year.
0:07:26 One pillar of the 10X economy is verticalization,
0:07:29 lowering costs, and SpaceX’s crane kick
0:07:32 is mundane yet dramatic.
0:07:36 In 2010, the company drove down launch costs
0:07:41 with its own Falcon 9 to $2,500 per kilogram,
0:07:46 and it went further still with the Falcon Heavy in 2018
0:07:49 to $1,500 per kilogram.
0:07:53 The requisite expenditure is 30 times lower,
0:07:58 adjusted for inflation, than NASA’s Space Shuttle in 1981,
0:08:02 and 11 times less than the average launch costs
0:08:04 from 1970 to 2010.
0:08:07 (gentle music)
0:08:11 In his 27-year career, Nolan Ryan
0:08:14 threw approximately 250,000 pitches
0:08:17 in exchange for $25 million,
0:08:21 costing his various team owners $100 a pitch.
0:08:26 If the Los Angeles Dodgers started Shohei Otani at Pitcher,
0:08:31 they’d pay him $23,000 per pitch.
0:08:35 The Ryan Express was the SpaceX of his era,
0:08:39 propelling things into the atmosphere for less.
0:08:43 Fun fact, I named my youngest son after the fastballer.
0:08:48 Last year, the world launched seven objects per day
0:08:53 into space, with SpaceX accounting for a staggering 73%
0:08:56 of the global total.
0:08:59 Note, the most valuable company in the world, NVIDIA,
0:09:03 has an 80% share of AI GPUs.
0:09:07 Does SpaceX have a 73% share of space?
0:09:10 The remaining 27% of launches are a mix
0:09:13 of non-SpaceX telecommunications satellites,
0:09:17 defense, navigation, and scientific research satellites,
0:09:20 as well as crafts that monitor the weather,
0:09:23 observe the oceans, and track wildfires.
0:09:26 Not everything in this miscellaneous category is a business,
0:09:31 but hauling stuff into space is.
0:09:35 There’s real competition for reusable rockets.
0:09:37 The European consortium Arianespace
0:09:40 is testing its Arian6 rocket
0:09:43 to reduce its reliance on SpaceX.
0:09:46 Blue Origin, SpaceX, and ULA,
0:09:49 a joint venture between Lockheed Martin and Boeing,
0:09:52 each garnered a piece of a Pentagon contract
0:09:55 worth $5.6 billion.
0:09:58 The startup Relativity is developing a way
0:10:02 to use 3D printing to speed manufacturing.
0:10:05 Stoke, another startup focused on building clean,
0:10:07 fueled, rapidly reusable rockets,
0:10:11 raised $100 million at the end of last year.
0:10:14 Then there’s Rocket Lab’s Electron Rocket,
0:10:17 which recently celebrated its 50th launch
0:10:20 after seven years and one month in service,
0:10:23 a record for a commercial launch vehicle.
0:10:26 There’s also a related business
0:10:30 in de-orbiting old satellites and space stations.
0:10:35 NASA just awarded SpaceX an $843 million contract
0:10:40 to safely de-orbit the International Space Station in 2030.
0:10:43 There may even be a business in removing
0:10:47 the 170 million pieces of space junk.
0:10:48 That number will only grow
0:10:51 as we continue to commercialize space.
0:10:55 The FTC has already issued its first fine for space junk.
0:11:00 By treaty, nobody owns space,
0:11:03 and the moon belongs to everyone.
0:11:04 That’s a problem.
0:11:09 Geopolitical competition, a growing private space economy,
0:11:11 and the relative absence of rules
0:11:16 make space the new Wild West, North, East, and South.
0:11:20 Low Earth orbit, where Starlink is scaling its network,
0:11:23 is congested and getting worse.
0:11:26 Even a small object can do a lot of damage
0:11:28 if it hits a satellite or space station.
0:11:31 We’ve already had some near misses.
0:11:35 A SpaceX satellite almost hit a manned Chinese space station.
0:11:39 A Russian anti-satellite test sent debris hurtling
0:11:41 toward the International Space Station,
0:11:43 forcing astronauts on board to take shelter.
0:11:47 This is the plot line of the movie Gravity,
0:11:48 which starred Sandra Bullock
0:11:50 and President Slayer George Clooney.
0:11:55 What happens when someone takes out a satellite on purpose
0:11:58 or an adversary puts nukes in orbit?
0:12:01 When I was a kid, this happened in the James Bond movie
0:12:03 You Only Live Twice.
0:12:05 The axiom of all sci-fi
0:12:08 eventually becoming reality holds.
0:12:10 We now have a space force,
0:12:11 though it’s not a budgetary priority
0:12:13 for the Defense Department.
0:12:19 The fight over space isn’t limited to geopolitics.
0:12:21 It’s also about commerce.
0:12:25 As business booms and resources are unlocked in new regions,
0:12:27 private companies will enter the fight.
0:12:28 It’s happened before.
0:12:31 We call it colonialism.
0:12:34 At its height, the British East India Company
0:12:39 had its own 250,000 man army and the right to wage war.
0:12:43 The corporation ruled India.
0:12:46 Its competitor, the Dutch East India Company,
0:12:49 had a charter that empowered it to raise armies,
0:12:51 build forts, and make treaties.
0:12:54 Question.
0:12:58 If someone threatens a Starlink satellite,
0:13:02 does Elon Musk call the US government to fight his battles?
0:13:04 Or does he arm his satellites with tiny projectiles
0:13:06 that can neutralize the threat?
0:13:09 Follow up.
0:13:12 If two companies claim the same spot on the moon,
0:13:14 do they call lawyers?
0:13:16 Or does someone go all Nolan Ryan
0:13:19 and throw a moon rocket at a fragile piece of equipment
0:13:22 and claim the resources for their shareholders?
0:13:24 My prediction?
0:13:26 The next battlefield for proxy wars
0:13:31 between the West and its adversaries will be in space.
0:13:32 The armies fighting this war
0:13:36 will be well-paid mercenaries disguised as corporations.
0:13:41 Two asteroids sped by Earth recently,
0:13:44 the smaller one passed between us and the moon
0:13:48 at a distance of about 180,200 miles.
0:13:51 The moon is 238,900 miles away.
0:13:56 Practically a near miss for space travel.
0:14:00 All we could do was watch the rocks zoom by,
0:14:03 but as the cost of space hauling decreases,
0:14:05 new business categories will emerge.
0:14:08 One possible commercial opportunity
0:14:12 is mining asteroids and the moon.
0:14:13 This is still a ways off,
0:14:16 but the spoils could be galactic.
0:14:20 The industry brings new meaning to the term wildcatting.
0:14:22 It would be highly speculative
0:14:25 and driven by the prospect of abundant booty.
0:14:29 If you can reach it, mine it and bring it back.
0:14:32 Last year, NASA launched a probe to an asteroid
0:14:37 that supposedly has a valuation of 10 quintillion dollars.
0:14:42 Note, that makes no sense
0:14:45 as any mineable material of that quantity or value
0:14:49 would result in a crash in value, but I digress.
0:14:54 If asteroid mining is possible, a big if.
0:14:58 It could leverage cheaper space hauling costs
0:15:01 to meet demand on Earth for the critical metals,
0:15:05 cobalt, iron, nickel, platinum and other goodies,
0:15:08 used in electronics, electric car batteries
0:15:10 and solar and wind power.
0:15:15 Creating energy off planet is another compelling idea.
0:15:19 Isaac Asimov first wrote about space solar
0:15:23 in his 1941 short story, Reason.
0:15:25 But a recent NASA study concluded
0:15:29 that it is feasible to generate solar energy in space
0:15:32 and transport it to Earth.
0:15:35 Last year, Caltech launched a prototype
0:15:37 that demonstrated the ability
0:15:40 to wirelessly transmit power in space,
0:15:43 beaming a tiny amount of detectable power to Earth.
0:15:48 This year, UK based startup Space Solar
0:15:52 tested a way to collect solar 24/7.
0:15:56 On Earth, solar collection is limited to daylight hours.
0:16:00 Finally, there’s the idea of relocating manufacturing
0:16:04 and the pollution that comes with it to space.
0:16:07 Jeff Bezos told CBS This Morning.
0:16:10 – This sounds fantastical, what I’m about to tell you,
0:16:11 but it will happen.
0:16:15 – He’s right, it sounds fantastical.
0:16:17 But if the choice is between shifting manufacturing
0:16:21 to space or colonizing Mars,
0:16:24 let’s hear the pitch for space factories.
0:16:27 At the height of the space race,
0:16:30 NASA scientists realized that pens couldn’t function
0:16:32 in space.
0:16:35 To boldly write where no man had written before,
0:16:37 they spent millions developing implements
0:16:39 that worked in zero gravity.
0:16:44 Soviet scientists had a simpler, cheaper solution.
0:16:45 Pencils.
0:16:48 Actually, the space pen story is a myth.
0:16:51 Pencils aren’t great in space, they’re flammable,
0:16:54 the tips break off and drift away in microgravity,
0:16:57 risking harm to the equipment and astronauts.
0:17:02 The real story, in 1965, the Fisher Space Pen Company
0:17:06 patented a pen that could write upside down
0:17:11 in extreme heat and cold and even underwater.
0:17:15 They sold pens to the US and Soviet space programs.
0:17:18 Fisher is still selling pens to this day,
0:17:19 about a million per year,
0:17:23 ranging from $5 to $150 a pen.
0:17:27 Fisher Space Pen found a business in the stars
0:17:29 by serving a market on Earth.
0:17:33 Anyone who wants to reap the spoils of space
0:17:35 will have to do the same thing.
0:17:38 Space is the collision of the business trends
0:17:40 that have defined the last century,
0:17:45 manufacturing, branding, 10X and unexpected externalities.
0:17:50 On a recent flight from Miami to New York,
0:17:52 I was able to try Starlink.
0:17:55 My phone rang was my son FaceTiming me.
0:18:00 The sound and resolution were flawless.
0:18:02 During the call, our pilot announced
0:18:04 that peering out of the left side of the plane,
0:18:07 you could see a SpaceX launch.
0:18:09 It was one of those tech aha moments,
0:18:12 like the first time you called someone from a car,
0:18:13 bought something from your phone,
0:18:16 took a picture of a check to deposit it.
0:18:19 It was also a moment to reflect on the teen depression,
0:18:24 propaganda from bad actors and coarsening of our discourse
0:18:27 that technology has washed up on our shores.
0:18:32 It feels less than bold to posit that
0:18:34 if we weren’t more thoughtful about the externalities
0:18:37 of the commercial development of space,
0:18:42 it won’t be the final frontier, but our last.
0:18:47 – Life is so rich.
0:18:50 (gentle music)
0:18:53 (gentle music)
0:18:56 (gentle music)
0:18:58 you

0:00:01 (upbeat music)
0:00:04 Support for this episode comes from The Current Report.
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0:00:24 Subscribe to The Current Report
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0:01:15 – Episode 307.
0:01:17 307 is the area code serving the state of Wyoming.
0:01:19 In 1907, the first traditional
0:01:21 metered gasoline-powered taxi cabs
0:01:23 were introduced in New York City.
0:01:24 True story.
0:01:25 When I rolling out of Lotus,
0:01:27 my favorite night spot in the early odds,
0:01:30 I was incredibly drunk.
0:01:31 My taxi cab driver said,
0:01:34 “You throw up on my seats, it’s a fine.”
0:01:37 So, I immediately threw up everywhere else.
0:01:41 What does that make me happy?
0:01:43 Go, go, go!
0:01:46 (upbeat music)
0:01:53 Welcome to the 307th episode of
0:01:55 the PropG pod in today’s episode.
0:01:57 We speak with Admiral James Stavridis,
0:01:59 a retired four-star U.S. naval officer
0:02:00 and currently partner and vice chairman
0:02:03 of Global Affairs for the Carlisle Group
0:02:04 of Global Investment Firm.
0:02:05 We discussed with the Admiral his thoughts
0:02:07 on the elections happening all over the world,
0:02:08 foreign affairs and national security.
0:02:10 We also get an update on the wars
0:02:11 in the Middle East and Ukraine.
0:02:14 I would love to have Admiral Stavridis on the ticket.
0:02:17 I find he’s just incredibly measured,
0:02:20 reasonable, thoughtful, relatable.
0:02:22 He joked to me I could never run for public office
0:02:25 because I’m five foot, and he said five foot seven.
0:02:27 I thought when you’re standing on the bridge
0:02:31 of an aircraft carrier, you’re seven feet tall.
0:02:33 This is someone who has made a huge difference
0:02:34 and obviously is able to command respect
0:02:35 of thousands of people.
0:02:37 Okay, what’s happening?
0:02:38 I am in Munich.
0:02:42 I’m in Munich where I’m taking my son
0:02:44 to see the semifinals of Spain versus France.
0:02:45 Gotta go with Spain.
0:02:47 Gotta go with the Spaniards.
0:02:49 Hola, Española.
0:02:53 France wins too much in football.
0:02:54 So I’m rooting for the Spanish,
0:02:58 but mostly I’m excited about tomorrow flying to Dortmund
0:03:00 and saying England beat the Netherlands.
0:03:02 Go team England.
0:03:04 And of course, of course I will be in Berlin
0:03:06 at my favorite Soho house.
0:03:08 Best gym in Europe in my view.
0:03:10 And gonna go see the final, which I’m super excited about
0:03:13 and I’m hoping that it’s team England versus,
0:03:14 I don’t know, versus someone.
0:03:17 Anyways, Germany and football.
0:03:18 What could be better than that?
0:03:19 Beer, beer.
0:03:20 They also have that here.
0:03:21 Yeah, I’m excited to be here.
0:03:23 Okay, what else is happening?
0:03:26 So the thing that is dominating the news cycle day after day
0:03:29 is whether Biden should drop out of the race or continue.
0:03:30 After July 4th weekend,
0:03:32 the president sent an open letter to Democrats
0:03:34 saying that despite all of the speculation
0:03:37 he is committed to staying in the race to the very end.
0:03:39 On MSNBC, the president said
0:03:42 he’s getting so frustrated by the elites.
0:03:44 What we’ve had here is that wealthy donors
0:03:46 are reportedly threatening to withhold donations
0:03:49 until Biden exits the race.
0:03:50 I think the way I would describe it
0:03:53 is if you bucket the donors into three buckets,
0:03:56 the whales, the dolphins and the minnows,
0:03:58 the small dollar donors.
0:04:00 I think the big donors,
0:04:02 although I just spoke with Reid Hoffman
0:04:04 and he says they’re concerned,
0:04:06 but I think they’re just sort of at a standstill.
0:04:08 Whereas the dolphins,
0:04:09 I would consider myself a dolphin.
0:04:11 Somebody gives thousands or tens of thousands,
0:04:13 but not hundreds of thousands or millions.
0:04:14 There were sort of an open revolt
0:04:17 that we’re calling very explicitly
0:04:19 for a change in the ticket.
0:04:21 And one of the things that frustrates me
0:04:24 is that the amount of incendiary pushback you get,
0:04:27 shut the hell up or just focus on Biden.
0:04:28 We need to unite.
0:04:29 It’s almost, it feels almost like a,
0:04:32 we accuse Republicans of being cultish
0:04:34 when they have this New Jerk reaction
0:04:36 of being devoted to Donald Trump,
0:04:38 regardless of the situation
0:04:40 or how insane his behavior is.
0:04:41 And I would argue there’s just,
0:04:44 the cult is just as strong on the far left.
0:04:46 Where you get this immediate pushback
0:04:48 of sign up or shut the hell up.
0:04:50 And the notion that there isn’t enough time,
0:04:52 which is sort of their go-to.
0:04:54 And also the only brand positioning right now
0:04:56 around a path to presidency is I’m not him,
0:04:59 specifically I, Joe Biden, I’m not him, Trump.
0:05:02 And I don’t think that’s a compelling value proposition.
0:05:04 And the notion that we don’t have enough time is just,
0:05:06 in my opinion, fucking ridiculous.
0:05:09 Britain had an election start to finish in six weeks.
0:05:13 France basically turned back the far right
0:05:16 and changed the entire complexion of the race
0:05:17 in about seven days.
0:05:18 By the way, I think that’s gonna be very interesting
0:05:20 to see what happens ’cause the far left,
0:05:22 in my opinion, can sometimes be almost as dangerous.
0:05:25 They’re well-meaning, but they can be bad,
0:05:27 maybe not as bad as the far right.
0:05:28 I’m gonna be very curious to see what happens in France
0:05:30 over the next couple of years.
0:05:32 Anyways, I think we could turn chicken shit
0:05:34 into chicken salad here.
0:05:35 What would you do?
0:05:39 You’d, the president obviously needs to step down.
0:05:39 It’s gotta be him.
0:05:42 There’s no kind of viable way to ask those delegates
0:05:43 to go somewhere else.
0:05:44 They’ve already committed to Biden,
0:05:47 but let’s assume that he decides to drop out of the race
0:05:49 with enough pressure, enough voices,
0:05:53 senators, congresspeople, donations come to a halt.
0:05:56 Finally, his wife says it would not be fair of me,
0:06:00 my dear Joe, to put you through this
0:06:02 or to have you go through this.
0:06:04 And I think a lot of this comes down to scenario planning.
0:06:05 So let’s talk through the scenarios.
0:06:08 By the way, scenario planning is not a means
0:06:09 of trying to predict the future,
0:06:11 but trying to imagine possible futures
0:06:14 and then run a strategy or a course of action
0:06:17 through all of those futures that has the best outcome.
0:06:21 And there’s some basics here, one, or basic scenarios.
0:06:24 One, he stays in the race and wins.
0:06:25 Good for him.
0:06:27 I think actually that’s the worst possible outcome
0:06:29 for Joseph Biden.
0:06:32 As someone who has been very involved in their parents’ life
0:06:35 as they have gone into their 70s and 80s,
0:06:38 I think President Biden, based on what I have seen
0:06:39 in terms of his cognitive decline,
0:06:41 is gonna have a very difficult four and a half years
0:06:45 ahead of him, much less trying to experience that decline
0:06:46 in what is the toughest job in the world.
0:06:49 I think this would just be a series of small private
0:06:53 and public humiliations with people hiding him.
0:06:55 Keep in mind the last three presidents to be reelected,
0:06:59 Clinton, Bush, and Obama were 52
0:07:03 when they were reelected on average versus 82.
0:07:05 The worst thing that could happen to his family
0:07:08 and reputation for Joe Biden is if he stays in the race
0:07:10 and he loses, he then becomes this pariah,
0:07:13 which is the ultimate historic example
0:07:16 of malignant narcissism that not only heard a woman’s right
0:07:19 to bodily autonomy, Ruth Bader Ginsburg,
0:07:21 delayed a lot of judges getting appointed,
0:07:25 Diane Feinstein, but Joseph Biden becomes
0:07:28 a malignant narcissist that let us slowly burn
0:07:31 to fascism when almost anyone else
0:07:34 probably would have staved off Donald Trump.
0:07:36 What we aren’t focused on is that Donald Trump
0:07:38 had an absolutely terrible debate
0:07:41 and that anybody else with a pulse in my view,
0:07:42 and I won’t even say with a pulse,
0:07:44 the Democratic bench is incredibly strong here.
0:07:46 How do we turn chicken shit into chicken salad?
0:07:49 You have a eight, six, and then four-member series
0:07:52 of debates all held the two weeks before the convention.
0:07:55 You have Julie Louie Dreyfus host the convention.
0:07:57 It’s a real convention where we nominate
0:07:59 and select somebody.
0:08:02 America gets to know just how incredibly strong
0:08:05 our ballot is and we mature a candidate
0:08:07 that not only scares the shit out of Biden
0:08:09 and tears him limb from limb in a debate,
0:08:11 which any of these would, Whitmer,
0:08:14 although publicly she said she’s out,
0:08:17 but can you imagine a nuisance on a debate stage
0:08:18 with the president?
0:08:23 Can you imagine the contrast in terms of height, youth, hair,
0:08:25 how articulate it is, how compassionate it is,
0:08:28 how many people and how many eye hops across the nation
0:08:32 when interviewed by Fox, CNN, the BBC, PBS would say,
0:08:36 “I’m gonna go with that young, good-looking guy, a lot, a lot.”
0:08:38 We would go from being six points down,
0:08:42 which by the way is the greatest margin to the upside
0:08:43 that Trump has ever enjoyed
0:08:45 since he started running for president in 2015
0:08:47 to being up probably five or six.
0:08:51 We would see the greatest swing in presidential politics
0:08:53 if we matured any one of these candidates
0:08:56 and even more powerfully, as we sometimes overestimate
0:08:59 the power of the president, would be the down ballot impact
0:09:01 because if the nation got a chance to see,
0:09:04 and they would, this would be the media spectacle
0:09:05 of the last decade.
0:09:09 If they got to see how powerful, smart, impressive
0:09:13 Josh Shapiro is, if they got to see Vice President Harris
0:09:15 on the debate stage where she shines
0:09:18 versus what has been a fairly mediocre tenure
0:09:21 as vice president, if they got to see Raphael Warnock,
0:09:23 if they got to see, there’s just so many governors,
0:09:25 there’s so many talented people.
0:09:29 Let Amy Klobuchar back on stage to talk about Annie Trust.
0:09:34 These are Pete Buttigieg, I mean, this is an impressive team
0:09:36 and the team of the best players wins
0:09:38 and Democrats would win up and down the ballot.
0:09:41 It would basically be a two week long commercial.
0:09:44 What do the voters who decide this election have in common?
0:09:46 They don’t give that much of a fuck about politics.
0:09:49 So like me in my 20s, oh, it’s the election this week.
0:09:50 Maybe I should vote.
0:09:51 And then they just start thinking
0:09:53 about general perception of these folks.
0:09:56 Let’s strengthen the perception of the Democratic Party
0:09:58 from the top of the ticket all the way down
0:10:01 and have a competition here, not a coronation.
0:10:04 But I believe if President Biden decides
0:10:06 to stay in the race, the strategy and the positioning
0:10:10 of I’m the other guy, which is his primary foot forward
0:10:12 is gonna not work as someone
0:10:15 has been branding his entire life.
0:10:17 I would love to be if I was a mendacious fuck
0:10:18 and didn’t care about our country
0:10:22 and had somehow decided to develop a fondness for fascism
0:10:23 and was advising the Trump administration
0:10:26 to be pretty easy, to be a three point communications plan.
0:10:30 One, run a video loop of the zombie apocalypse
0:10:31 of useful idiots that are elite colleges
0:10:33 and say, this is what happens when institutions
0:10:37 become 98% democratic as many of the faculties
0:10:39 are of these elite institutions.
0:10:42 Two, run another video loop of what’s happened
0:10:47 in the downtown metro areas of some of the biggest cities
0:10:49 on the West coast that are democratically controlled
0:10:51 and say, this is what happens when Democrats
0:10:52 get control of the city.
0:10:56 And finally three, run a series of edited videos
0:11:00 that basically portray the president as a vegetable.
0:11:04 And I just think, I think Biden is good a man
0:11:06 as he is as successful as the presidency
0:11:10 as he’s had as a better a president as he would be.
0:11:12 I think it’s gonna get slaughtered
0:11:14 against the media machine
0:11:17 and the perception of a more vigorous
0:11:18 former president Trump.
0:11:21 I really hope that people who have influence
0:11:23 over the president sit him down
0:11:26 and convince him that, look boss,
0:11:28 you drop out of this race and this is scenario three
0:11:32 and every room you walk into for the rest of your life,
0:11:35 you get a standing ovation and you are a top contender
0:11:38 to be chiseled into the side of Mount Rushmore.
0:11:42 This is the path to a better America, simply put.
0:11:45 And that is the president who has done an amazing job
0:11:48 needs to drop out and we need to mature, battle test
0:11:50 and rally behind another candidate
0:11:53 such that America continues to push back
0:11:54 on the greatest threat to democracy
0:11:56 and the greatest threat of the 20th century
0:11:58 and it’s emerging again and it’s a threat
0:12:01 we thought was going away, but similar to Jason
0:12:03 with just with a different hockey mask,
0:12:05 fascism is raring its ugly head
0:12:07 and we need to push back on it.
0:12:09 And this is not the guy to do it.
0:12:11 America has been the front line against fascism.
0:12:13 We will continue to need to be the front line
0:12:16 against the gender apartheid that’s taking place globally,
0:12:21 anti-Semitism, polarization, divisiveness, extremism,
0:12:24 climate change, an expansionary Russia,
0:12:28 a China that has its eyes on Taiwan, income inequality.
0:12:31 And let’s be honest, America is the most impressive country
0:12:32 in the world.
0:12:36 We need to mature the most impressive person in the party
0:12:39 to lead the Democratic party and be the front line.
0:12:41 And that is not the president.
0:12:42 That’s the bad news.
0:12:46 The good news is we have a ton of people
0:12:47 who could hold that line.
0:12:48 It is time.
0:12:50 We need someone else to enter the race.
0:12:52 President Biden needs to step down.
0:12:55 We’ll be right back for our conversation
0:12:57 with Admiral James DeVaritas.
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0:14:09 Okay, let’s get right to it.
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0:15:08 So you’ve arrived.
0:15:11 You head to the brasserie, then the terrace.
0:15:12 Cocktail?
0:15:15 Don’t mind if I do.
0:15:17 You raise your glass to another guest
0:15:21 because you both know the holidays just beginning.
0:15:25 And you’re only in terminal three.
0:15:27 Welcome to Virgin Atlantic’s unique
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0:15:31 where you’ll feel like you’ve arrived
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0:15:37 Virgin Atlantic, see the world differently.
0:15:44 (upbeat music)
0:15:50 – Welcome back.
0:15:52 Here’s our conversation with Admiral James DeVaritas,
0:15:55 a retired four-star US naval officer
0:15:56 and currently partner and vice chairman
0:15:58 of Global Affairs for the Carlisle Group,
0:16:00 a global investment firm.
0:16:02 Admiral DeVaritas, where does this podcast find you?
0:16:07 – I am in the northern part of Florida,
0:16:08 near Punavidra Beach.
0:16:11 It’s one of the beach towns for Jacksonville.
0:16:14 – So I would just love to get your thoughts.
0:16:16 As someone whose name was constantly floated
0:16:18 as a potential vice presidential candidate
0:16:23 for Secretary Clinton and other democratic hopefuls,
0:16:28 give us a sense for what you think is going on here.
0:16:31 And if you were to attempt to speculate
0:16:32 what might play out over the next week.
0:16:36 This is, I don’t know if it’s the strangest political moment
0:16:37 I’ve ever experienced.
0:16:40 Maybe I’m just, I’m much more attuned to it now,
0:16:42 but obviously a tremendous amount of doubt
0:16:44 around the Biden campaign,
0:16:47 but their camp says they’re steadfast
0:16:49 and their commitment to stay in the race,
0:16:53 but there’s sort of this drip, drip, drip of party elders
0:16:56 coming out and suggesting that he stepped down.
0:16:59 Give us a sense of someone who’s been pretty close to this
0:17:01 and somebody thinks a lot about strategy.
0:17:02 What do you think is going on here
0:17:04 that the public does or does not see
0:17:06 and what do you think plays out?
0:17:08 – I’ll give you the historical piece.
0:17:10 And I at least am old enough to remember
0:17:14 a similarly difficult moment to absorb.
0:17:16 And that was, of course, Watergate
0:17:18 and the resignation of a president
0:17:21 in advance of criminal proceedings
0:17:23 being brought against him, Richard Nixon.
0:17:25 That’s a long time ago.
0:17:30 So yeah, we’re in 50 years of kind of uncharted territory
0:17:35 by comparison, although we’ve seen now three impeachments,
0:17:39 one of Clinton and two of Trump.
0:17:41 So we’re not complete innocence
0:17:44 in this sort of strange season.
0:17:47 But here’s where I’m at on this one.
0:17:51 As I watched that debate, I felt sad for the country.
0:17:56 The choice we’re being presented is, at this moment,
0:18:01 a convicted felon with multiple, multiple character flaws
0:18:03 on full display.
0:18:05 And on the other side, an individual
0:18:09 for whom I have a lot of affection, a lot of respect.
0:18:14 But Father Time appears to me to have caught up with him
0:18:19 and he is not from all that I can see in a good place
0:18:23 to be prepared for four more years.
0:18:24 I think you could have a conversation
0:18:28 if we were looking at it for a year in advance,
0:18:31 but four more years when you look at the progression.
0:18:35 So a bad set of choices in terms of how it plays out,
0:18:38 I can answer that in three words, I don’t know,
0:18:41 and nobody does, literally nobody does.
0:18:44 Not even Joe Biden, in my view, knows
0:18:46 how this one’s gonna play out.
0:18:51 So what I think will happen over the next week to 10 days,
0:18:55 the Democratic Party is gonna have to make a choice
0:18:59 of either putting itself 100% behind a president
0:19:04 who seems physically frail and weak
0:19:06 and hope for the best in the fall,
0:19:10 or they’re going to have to find a new path.
0:19:12 And I’ll conclude with this, Professor.
0:19:15 There is nowhere in the Constitution
0:19:18 where it says Republican Party, Democratic Party,
0:19:20 someone said to me the other day,
0:19:21 oh, they have to go with Biden
0:19:24 because the Constitution demands,
0:19:28 neither Constitution nor law govern political parties.
0:19:32 We’ve had a plethora of political parties in this country
0:19:34 and they get to make up the rules.
0:19:38 And so they have every opportunity
0:19:40 to conduct a mini primary
0:19:43 or they could pass the baton to Kamala.
0:19:44 They’ve got a convention coming up.
0:19:48 I think we are in extremely unpredictable waters.
0:19:51 – Does the military or the arms, do they have a voice here?
0:19:55 – No, and you ought to be very glad that they do not.
0:20:00 Every military member at every grade raises his or her
0:20:03 right hand and swears an oath as follows.
0:20:07 I state your name to solemnly swear to support
0:20:10 and defend the Constitution of the United States
0:20:13 against all enemies, foreign and domestic.
0:20:16 That oath is sworn to the Constitution.
0:20:20 The military will resolutely avoid being embroiled in this
0:20:23 and that’s the kind of Republic we wanna be.
0:20:26 – That’s well said.
0:20:27 There’s a lot that’s uncomfortable about this
0:20:30 but one of those things is do you see
0:20:32 our adversaries being more emboldened
0:20:34 while we’re in a state of chaos?
0:20:37 Do you think they sense weakness and tumult
0:20:41 and are more inclined to be more offensive
0:20:43 or bold in their actions?
0:20:46 – I do and that is a significant risk
0:20:49 and you can break it down, frankly,
0:20:54 into two significant periods of high risk.
0:20:57 One is from now through the election.
0:21:02 I think there the risk is going to be a mal actor deciding
0:21:05 now would be a good time to launch a, for example,
0:21:08 massive cyber attack against the United States.
0:21:10 There’s distraction, there might not be
0:21:12 a resolute response to that.
0:21:14 It’s a little ambiguous.
0:21:17 That period between now and the election,
0:21:22 simply because mal actors, Russia, China, North Korea,
0:21:26 et cetera will have a tendency to believe
0:21:29 we’re too distracted to respond.
0:21:31 That’s one package of time.
0:21:34 After the elections got, unfortunately,
0:21:37 I think we’re gonna have this inner regnum
0:21:41 in which it would seem to me at least a better
0:21:44 than even chance of one side or the other
0:21:45 if it’s a close election,
0:21:48 which it appears it probably will be.
0:21:52 There’ll be a further series of legal challenges.
0:21:56 There could be untoward events like January 6th.
0:21:59 Who knows that second period of time
0:22:03 until the inauguration of the new president,
0:22:08 I think is a second and somewhat even more risky period.
0:22:10 So yes, we need to be leaning forward.
0:22:13 You asked about the military.
0:22:15 The military is not looking internally,
0:22:20 but I assure you the intelligence agencies,
0:22:23 the Joint Chiefs of Staff, the combatant commanders
0:22:26 in position in which I served for eight years,
0:22:27 two different combatant commands,
0:22:31 they are looking outward to try and see
0:22:34 any signs of risk directed against the country
0:22:38 during these very, I think, concerning periods
0:22:41 from now through the inauguration.
0:22:43 – Let’s talk about the Middle East.
0:22:45 On MSNBC, you said that you believe
0:22:48 there’s a one in three chance at best
0:22:50 for a ceasefire in Gaza.
0:22:52 Talk us through how you landed there.
0:22:56 – Number one, the Israelis feel
0:23:01 as though they have not yet completely dismantled
0:23:05 the military capability of Hamas, but they’re close.
0:23:09 And you hear that even from Prime Minister Netanyahu,
0:23:12 certainly from the Israeli general staff.
0:23:14 So I think temporarily speaking,
0:23:18 the Israelis are closing in on eliminating Hamas.
0:23:21 And I believe I’ve said this to you before, Scott,
0:23:26 but the military center of gravity is actually not Hamas.
0:23:31 The military center of gravity is that tunnel complex.
0:23:35 400 miles of tunnels, the Israelis are destroying those.
0:23:40 When those are done, Hamas loses its opportunity
0:23:43 to train, equip, organize, and launch attacks
0:23:46 as they did in October.
0:23:51 So that’s a military equation that is coming to fruition.
0:23:54 I think that’s pretty close.
0:23:58 So that gets me to still more combat opportunities
0:24:02 and actions, but probably the Israelis
0:24:05 are getting in a position to make an accommodation.
0:24:09 On the Hamas side, what I see is a lot of pressure.
0:24:11 It’s been insufficient so far,
0:24:16 but increasing pressure from both Qatar and from Egypt
0:24:21 to get to the point of pressuring Hamas to take a deal.
0:24:26 I feel both sides are kind of closing toward it.
0:24:29 If you’d asked me three months ago,
0:24:32 I think I was saying about a one in five chance.
0:24:35 Now I’m up to about a one in three chance.
0:24:40 The forces pulling against it are,
0:24:44 in addition to the two sides we just discussed, Iran.
0:24:49 Iran would like nothing better than to see Israel
0:24:52 continue to be targeted as resources drain,
0:24:54 see this fighting go on in Gaza.
0:24:57 So Iran is kind of pulling against it,
0:24:59 but I’ll conclude with this.
0:25:01 Now the Iranians have had an election,
0:25:05 elected somebody, I hate to use these two words
0:25:07 in the same sentence, Iranian moderate,
0:25:12 but by Iranian standards, a relatively moderate candidate,
0:25:16 there might be a little loosening of some of those activities.
0:25:20 So when you put all that together, it’s not a slam dunk,
0:25:24 but I think it’s getting close to one in three,
0:25:27 maybe even a little better than that right now.
0:25:29 – You referenced in one of the strengths of American,
0:25:33 I agree, is that our good men and women in uniform
0:25:36 basically say, all right, good or bad decisions,
0:25:39 it’s the Oval Office’s decision,
0:25:42 and we respect the command and control structure here.
0:25:44 I thought it was really unusual or extraordinary
0:25:47 that the IDF publicly came out and said,
0:25:50 we need to see an end of the war
0:25:52 or calling for an end of the war.
0:25:56 That struck me as if you at some point came out
0:26:01 and said to Trump or Obama in a conflict,
0:26:02 it’s time to end this.
0:26:05 I thought that was pretty bold, your thoughts?
0:26:10 – Beyond bold, and from a US norm perspective,
0:26:16 that officer, she or he would have been fired the next day.
0:26:21 We do not want our admirals and generals,
0:26:24 no matter how senior, opining publicly
0:26:28 about what is in essence a political decision.
0:26:30 Closest I can come to that, by the way,
0:26:33 would be Douglas MacArthur, five-star general,
0:26:37 a general of the armies, victor of World War II.
0:26:41 Now he goes through and is in charge of Japan,
0:26:44 all going well, he comes back in command
0:26:47 for the Korean War, and ultimately the president,
0:26:51 Kerry Truman, had to fire him for his insubordination
0:26:54 because he advocated ramping up the campaign,
0:26:58 possibly using nuclear weapons and attacking China.
0:27:02 We’re not paying the generals to opine about that in public.
0:27:06 So yes, I was quite surprised, verging on shock.
0:27:11 And finally, I know the IDF extremely well.
0:27:13 Spent four years when I was NATO commander,
0:27:16 my other side hustle was I was in charge
0:27:20 of US-Israeli military-to-military relations.
0:27:23 So I was in Israel quite a bit, became very good friends,
0:27:26 for example, with General Benny Gantz,
0:27:28 the former head of the IDF,
0:27:32 General Gabi Ashkenazi, former head of the IDF.
0:27:36 I can’t imagine either of them, while in uniform,
0:27:40 opining on that level of political controversy.
0:27:42 Really shocking.
0:27:46 Benchmark, the IDF’s capabilities and technology
0:27:50 and personnel relative to the other fighting forces
0:27:54 in the Middle East, or even say, for example, Russia.
0:27:58 – The IDF has advanced technology.
0:28:01 I’ll give you three very concrete examples.
0:28:05 One, they reportedly have nuclear weapons.
0:28:10 Two, the Israelis have among, I’d say, the top four,
0:28:14 certainly top five cyber capabilities,
0:28:16 offensive and defensive alike.
0:28:21 And they have a superb air force that has the ability
0:28:24 to conduct long range bombing attacks,
0:28:26 has fairly good refueling,
0:28:30 although they’re buying additional capability from the US.
0:28:32 Nobody else in the region remotely
0:28:34 is at that level with them.
0:28:38 What they don’t have is massive manpower.
0:28:43 They’re a nation of about 9 million, about 7 million Jews.
0:28:49 So it’s a limited manpower pool compared to Iran,
0:28:55 compared to any other potential opponent in the region.
0:28:58 They don’t have the big pool of manpower to draw on.
0:29:02 But if you ask me, which hand of cards would you wanna play?
0:29:04 You know, as a general or an admiral,
0:29:09 I’d grab the Israeli military, it’s a jewel.
0:29:10 – You mentioned the tunnels.
0:29:13 And it strikes me that every time there’s a major conflict,
0:29:15 out of it comes not a surprise,
0:29:18 but a piece of technology that played a bigger role.
0:29:21 Like we saw tanks in World War I, but my sense is,
0:29:25 they really had their day when Hitler rolled his tanks
0:29:29 into Poland and was met with the Polish cavalry.
0:29:32 And we saw, okay, tanks are better, right?
0:29:35 And then we saw aircraft and jet engine,
0:29:37 you know, all sorts of stuff, radar.
0:29:41 It’s, you said, or there’s two words,
0:29:42 and you said one of them that struck me
0:29:44 that we’re gonna hear a lot more about
0:29:47 in terms of military strategy and technology and machinery.
0:29:50 One is tunnels and the other is drones.
0:29:51 I’d love your thoughts on that.
0:29:55 And if there are others that are coming out of this conflict.
0:29:57 – Yeah, tunnels actually have been with us
0:30:00 in warfare for centuries.
0:30:04 But the degree to which Hamas was able
0:30:08 to build this underground complex,
0:30:12 pretty striking given the restrictions on Hamas,
0:30:16 comparably the North Koreans have a very sophisticated
0:30:19 underground tunnel connectivity system.
0:30:23 So yes, tunnels I think are something that is old,
0:30:25 but is new again.
0:30:27 Drones, let’s expand that idea.
0:30:29 Let’s say unmanned.
0:30:32 So that means everything from satellites in space.
0:30:33 A satellite is a drone, right?
0:30:38 It’s an unmanned vehicle, long dwells, surveillance drones,
0:30:40 command and control drones.
0:30:43 What you think of as reapers and predators,
0:30:47 attack drones, carrying missiles, surface drones.
0:30:52 The Ukrainian Navy is using surface boats,
0:30:55 drones to strike Russian warships
0:30:58 and drones go all the way to the bottom of the sea.
0:31:03 Here’s the third piece of the triad that I would mention.
0:31:05 It’s artificial intelligence.
0:31:09 And we’re seeing the edges of that emerging now in Ukraine,
0:31:14 where AI is being used to direct these drone swarms
0:31:18 on both sides of that firing line, still very nascent.
0:31:21 But as I look at the future of warfare,
0:31:24 it’s unmanned, cyber.
0:31:26 It is tunnel complexes.
0:31:30 I’m gonna throw in special forces into that mix.
0:31:32 And above all, it’s artificial intelligence
0:31:35 that will knit all of this together.
0:31:37 – The truce that Biden outlined,
0:31:40 kind of this five-step truce.
0:31:43 And it includes rebuilding of Gaza.
0:31:48 Like, realistically, and I don’t mean to sound like a nihilist
0:31:53 or a fatalist here, isn’t any truce given the history here
0:31:57 just kind of ready to be broken again?
0:32:02 I’m struggling, I recognize that you’re a military man,
0:32:04 but as someone who’s been considered
0:32:06 for these diplomatic posts,
0:32:10 what do you think, is there a sustainable state of being
0:32:12 there right now, or could there be?
0:32:17 – One phrase that has always stuck in my mind
0:32:20 from former chairman of the Joint Chiefs,
0:32:23 General Pete Pace, was asked a question roughly
0:32:25 along those lines, and he said,
0:32:29 “War will continue in the Middle East
0:32:31 until the people of the Middle East
0:32:35 learn to love their children more
0:32:37 than they hate their enemies.”
0:32:40 That’s a very profound line.
0:32:43 And it gets to your point that is it possible
0:32:48 to undo centuries, frankly, millennia of bitterness,
0:32:53 particularly between these three competing religious groups
0:32:54 in the Middle East.
0:32:56 There’s a fabulous book about this
0:32:59 written probably 20 years ago, it’s a great title,
0:33:03 The Battle for God, it’s by Karen Armstrong,
0:33:07 and it’s a book about Judaism, Christianity, and Islam,
0:33:11 and their seemingly endless ability to find their way
0:33:13 to war and bitterness and hatred.
0:33:17 So the short answer to the question is,
0:33:21 until the people of the Middle East, collectively,
0:33:26 decide they are going to reject that nihilistic aspects
0:33:29 of their religious bitterness and disagreements
0:33:32 and free themselves from the past
0:33:37 and the bitterness over previous jihads
0:33:42 and massacres in camps, and there are plenty on all sides.
0:33:45 Until that happens, I don’t think there’s a quick solution.
0:33:50 Now, on a more positive note, if there is a path forward,
0:33:56 I think the table stakes are a reconstruction of Gaza.
0:34:01 I think table stakes are a Arab security force,
0:34:05 not an Israeli security force, an Arab security force
0:34:08 that takes over security for Gaza.
0:34:12 And third and most difficult for the Israelis to accept
0:34:14 some kind of a path towards statehood.
0:34:17 I think if you could get in that zip code,
0:34:22 then you could build on the existing diplomatic relations
0:34:26 between Israel and some of its Arab neighbors.
0:34:29 That’s the point where the Kingdom of Saudi Arabia
0:34:30 could come in, Scott,
0:34:34 and bring a lot of resources to bear on this problem.
0:34:38 All those are possible, but we talked percentages before.
0:34:40 I think it’s a one in 10 chance
0:34:42 that we can really resolve this
0:34:45 with something as simple as a five-step plan.
0:34:47 (upbeat music)
0:34:49 We’ll be right back.
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0:38:02 – Since we last spoke a few months ago,
0:38:05 the state of play in Ukraine.
0:38:08 – Yeah, let’s catch up.
0:38:13 Since you and I spoke last, Russia has been on the front foot,
0:38:18 making some gains in the northeast of Ukraine,
0:38:23 putting some pressure on the second largest city, Kharkiv.
0:38:28 You could kinda see Putin with some air under his wings.
0:38:32 What has changed, and how often do you get to put these words
0:38:36 in one sentence, the U.S. Congress did a good job.
0:38:37 I’ll say him again.
0:38:39 U.S. Congress did a good job.
0:38:43 Finally, having exhausted all other possibilities,
0:38:47 they did a good job in that they provided $60 billion
0:38:52 in military aid, which matches the roughly $70 billion
0:38:55 the Europeans have put toward this project.
0:38:59 So now there’s real combat equipment flowing forward,
0:39:02 and I feel the momentum is shifting back.
0:39:05 Bottom line, however, is, as I think I told you,
0:39:07 probably six months ago.
0:39:10 Ultimately, I think this will end in a stalemate.
0:39:14 It’ll end probably roughly where the battle lines
0:39:19 are now drawn with Putin in control of about 15% of Ukraine.
0:39:24 Ukrainians will hate that, but the quid pro quo for them
0:39:27 would be security guarantees,
0:39:29 a path toward membership in NATO,
0:39:31 probably in the three year future,
0:39:34 and a membership in the European Union.
0:39:39 That’s a complicated problem boiled down to a few sentences,
0:39:41 but I think that’s how this one ends up,
0:39:45 and therefore I think we’ll probably see more stalemate,
0:39:48 a little bit back and forth on these firing lines
0:39:50 through the fall U.S. election.
0:39:53 That’ll be the moment for a negotiation.
0:39:56 – The elections are, there feels like there’s a leftward
0:40:01 breeze coming out of Europe, which is shocked people.
0:40:05 And I was reading about the elections in France,
0:40:08 and many of us were kind of celebrating the notion
0:40:11 that it was great that they kind of left,
0:40:13 center left and then the far left got together
0:40:16 and decided to coordinate to stave off the far right.
0:40:19 And I think initially there’s a feeling of celebration,
0:40:22 but when I look at some of the far left policies
0:40:25 that I think the center left will have to accommodate,
0:40:28 they’re fiercely anti-NATO is my impression.
0:40:33 – What do these recent events and elections, new parties,
0:40:36 what is the impact on NATO as an alliance moving forward?
0:40:40 – I will come to that essentially tactical question
0:40:41 in a moment.
0:40:46 Can we just step back for a moment and celebrate democracy?
0:40:51 In the last month, over 2 billion people voted in elections
0:40:56 that from what I can see were free and fair
0:40:59 and delivered some surprising results.
0:41:03 900 million people voted in the Indian election,
0:41:05 and the outcome was kind of a surprise,
0:41:08 a body check to Mr. Modi.
0:41:13 Mexico elects the first woman and the first Jew
0:41:16 in the most Catholic and patriarchal country,
0:41:18 arguably in the Americas.
0:41:22 In South Africa, the ruling party gets a very significant
0:41:23 body check.
0:41:28 In the European parliament, another 500 million people vote,
0:41:32 and it’s a, like you said, a little bit of a right wing,
0:41:36 left wing, kind of hard to read, depends on the country.
0:41:38 And then you live in London, Scott.
0:41:41 We see a complete shift in the government there,
0:41:43 coming from the left.
0:41:46 And of course, as you allude to the results in France.
0:41:49 Now you can like it or lump it on a variety
0:41:52 of those different candidates and outcomes,
0:41:55 but I say hail to democracy.
0:41:58 It’s delivering some surprising outcomes
0:42:02 in some what appear to me to be free and fair elections.
0:42:04 That’s a good thing in my view,
0:42:07 especially as we constantly, as we should,
0:42:10 wring our hands about the authoritarianism in the world.
0:42:13 Let’s keep democracy in perspective.
0:42:15 As Churchill said, the worst form of government,
0:42:17 except for all the others.
0:42:20 So that’s the strategic chapeau.
0:42:25 In terms of NATO, it’s a mixture of reactions that I have.
0:42:28 UK won’t make a bit of difference.
0:42:31 UK is going to continue to strongly support NATO,
0:42:34 particularly having walked away from the European Union.
0:42:37 In France, you’re right to worry
0:42:40 about the tenancies of the far left.
0:42:43 Macron, I think, has his strengths and weaknesses,
0:42:48 don’t we all, but he has come around on NATO.
0:42:51 And I think he will work with the left
0:42:56 to at least ensure that Ukraine continues to get support.
0:42:58 And that’s the main ball right now.
0:43:01 Germany, I think, is going to continue
0:43:03 to increase its defense budget.
0:43:06 Poland is now spending as much on defense
0:43:09 as the United States on a per capita basis.
0:43:12 Maybe a little more, believe it or not.
0:43:15 And there are other examples in the alliance.
0:43:19 So overall, the elections are gonna cause
0:43:24 that transatlantic bridge to creak just a little bit.
0:43:29 But I think as I look at the NATO situation going forward,
0:43:32 I think the alliance is going to continue
0:43:34 to be in a pretty strong position.
0:43:37 And by the way, I’ll ask the follow-on question.
0:43:38 Well, wait a minute, Admiral,
0:43:41 what if Donald Trump is elected president?
0:43:45 Someone who has talked publicly about pulling out a NATO.
0:43:46 I don’t see it.
0:43:50 I think Trump, like all of us, has strengths and weaknesses.
0:43:53 Ultimately, he’s pretty transactional.
0:43:55 I think if the Europeans continue
0:43:57 to increase their defense budget
0:43:59 and their spending goes up,
0:44:01 Trump would ultimately say,
0:44:03 “Yeah, that’s pretty good value for the dollar
0:44:05 for us to stay with NATO.”
0:44:09 So I think NATO comes out of all of this,
0:44:11 certainly not blaze of glory,
0:44:14 but as a pretty solid alliance.
0:44:19 – So it feels like we’re going back to Ukraine.
0:44:22 There’s some winners, right?
0:44:25 I would imagine the industrial military complex
0:44:28 or weapons producers in the US are winners.
0:44:31 I also imagine that China is a big winner.
0:44:32 They’re getting cheaper oil
0:44:37 and all of a sudden, they become an integral,
0:44:40 crucial partner for Russia.
0:44:42 Give us your read on China as it relates
0:44:45 to the war in Ukraine and what that means
0:44:49 in terms of everyone’s favorite, you know,
0:44:53 bogeyman, the possible invasion of Taiwan.
0:44:55 – Yeah, I’d love to.
0:44:59 Let me start with a bit of advice for Vladimir Putin.
0:45:02 And I despise Vladimir Putin.
0:45:04 You know, you may or may not know,
0:45:08 I have 50 medals from 29 different countries.
0:45:10 The foreign decoration I’m proudest of
0:45:13 is that I’m sanctioned by the Kremlin.
0:45:15 I’d put that at the top of my medal stack.
0:45:18 So I despise Vladimir Putin,
0:45:21 but if I were going to give him advice,
0:45:23 I would say President Putin,
0:45:26 be very careful of your relationship with China.
0:45:30 You are about to become an extremely junior partner
0:45:31 in that relationship.
0:45:33 And think of it this way, Scott,
0:45:36 you’re the economist, you sit in Beijing,
0:45:37 you look north, what do you see?
0:45:42 You see Siberia, this vast, empty land space.
0:45:45 It’s the size of the continental United States.
0:45:47 Maybe 25 million people live there.
0:45:48 That’s it.
0:45:51 That’s Russia to the east of the Euro mountains.
0:45:54 Here’s what is there.
0:45:58 Oil, gas, diamonds, rarers,
0:46:01 arable land, timber, fresh water.
0:46:02 You get the picture.
0:46:05 The Chinese look at that like my dog looks
0:46:06 at a ribeye steak.
0:46:08 It looks really good.
0:46:10 Putin is really taking Russia down
0:46:13 a strategic rabbit hole here.
0:46:18 In terms of how the war in Ukraine looks from Beijing,
0:46:20 you know, if I were President Xi,
0:46:22 I would be scratching my head.
0:46:26 Just over two years ago at the Olympics,
0:46:29 President Putin told his best friend forever,
0:46:33 President Xi, hey, don’t tell anybody,
0:46:35 but I’m going to invade Ukraine.
0:46:38 And in five days, I’m going to sweep that country.
0:46:41 I’m going to grab that little comedian,
0:46:43 Volodymyr Zelensky, I’m going to throw him
0:46:47 in a Florida prison, never to be heard from again.
0:46:50 And then I’m going to have control of Ukraine,
0:46:54 which is full of all kinds of wonderful natural resources,
0:46:58 oil and gas in the Black Sea, a huge agrarian factory.
0:46:59 It’s all going to be mine.
0:47:00 That’s what Xi heard.
0:47:02 Here’s what he’s seeing.
0:47:05 He’s seen two and a half years of the Russian military
0:47:10 stumbling around incapable of overrunning a nation
0:47:13 that it should have swept in the first week or two
0:47:16 before the Western aid got there.
0:47:19 Now Putin has missed the window to do that.
0:47:24 So Xi, his first question is, in terms of himself,
0:47:26 you know, those Russian generals are pretty bad.
0:47:30 I wonder what my Chinese generals are like.
0:47:31 He has no idea.
0:47:34 He hasn’t had a general hear a shot fired in anger,
0:47:37 not a single Chinese general.
0:47:40 They haven’t been in a war of any kind
0:47:43 since a dust up with Vietnam and not in a serious war
0:47:44 since the Korean War.
0:47:47 That’s 70 plus years ago.
0:47:51 So the point is she has a lot of doubt watching that.
0:47:55 He also has a lot of doubt about sanctions.
0:47:57 He knows there would be sanctions imposed
0:47:58 if he attacked Taiwan.
0:48:01 He’s looking at what’s happening to Russia.
0:48:04 So that’s, I think, a second warning shot for him.
0:48:06 And thirdly, if he’s smart,
0:48:11 he’s looking at how those Ukrainians are fighting like hell.
0:48:13 You know, I don’t know if the Taiwanese will fight,
0:48:15 but I’ve been to Taiwan.
0:48:18 I’ve met Madam Sai, the former president,
0:48:20 President Lai, the new president.
0:48:22 I’ve met their national security team.
0:48:26 I’ve seen their military in training exercises.
0:48:27 I think they’ll fight.
0:48:29 I think they’ll fight hard.
0:48:30 And by the way, that island
0:48:32 would be a resistance fighter’s dream.
0:48:36 It’s mountainous, wooded, surrounded by water.
0:48:38 That’s not an easy nut to crack
0:48:41 across a hundred miles of very difficult sea.
0:48:45 So bottom line, I think she is playing this one
0:48:47 very intelligently.
0:48:50 He’s getting tons of free oil and gas from Russia.
0:48:53 He’s insisting they hard pipe it to the east, to him,
0:48:55 so that can’t be undone.
0:48:58 He is doing everything possible
0:49:01 to create that sense of junior partnership
0:49:02 on the part of Putin.
0:49:04 I think he’s succeeding at doing that.
0:49:08 And I think he’s too smart to launch an invasion of Taiwan,
0:49:11 at least for the foreseeable future.
0:49:13 – Admiral James Stavridis is a retired four-star
0:49:15 US naval officer.
0:49:17 He is currently partner and vice chairman,
0:49:19 global affairs of the Carlisle Group,
0:49:21 a global investment firm and his chair
0:49:24 of the Board of Trustees of the Rockefeller Foundation.
0:49:27 Admiral Stavridis has published 13 books on leadership,
0:49:30 The Oceans, Maritime Affairs in Latin America,
0:49:32 as well as hundreds of articles and leading journals.
0:49:35 His forthcoming book, The Restless Wave,
0:49:37 a novel of the United States Navy
0:49:38 will be published on October 8th.
0:49:41 He joins us from his home in Florida.
0:49:43 In terms of economy of words, Admiral,
0:49:47 I feel as if our listeners get so much insight
0:49:48 in so little time.
0:49:52 So thanks for your, thanks for your crisp insights.
0:49:53 – Thank you, sir.
0:49:55 I’d love to come back and talk about World War II
0:49:57 with you when The Restless Wave comes out.
0:49:58 – I would love that.
0:49:59 I think I’ll subside a bit.
0:50:00 I would love that.
0:50:01 Thank you, Admiral.
0:50:03 (upbeat music)
0:50:08 (upbeat music)
0:50:14 – Audra of Happiness.
0:50:16 It’s difficult, but you need to train yourself
0:50:18 to try and see the best in people
0:50:20 when you don’t know what’s going on.
0:50:23 I’m getting, I don’t know if the term is paranoid,
0:50:25 but I’m here in Europe and something I’ve noticed,
0:50:27 I was in Turkey.
0:50:28 We were on a boat in Greece,
0:50:30 and then we disembarked in Bodrum,
0:50:32 which is a beautiful part of the world,
0:50:34 and we’d spent time there 10 years ago,
0:50:35 and we decided to go back.
0:50:38 Turkey has had, what’s the term?
0:50:40 I don’t like Turkey’s policies on Israel,
0:50:42 and I probably would have rethought the trip
0:50:45 had we had more notice and it didn’t involve
0:50:46 rearranging the travel plans for other people.
0:50:50 But the thing I noticed that really bummed me out
0:50:52 when I was in Bodrum is that it felt like
0:50:53 there were just no Americans
0:50:55 and no Western Europeans there.
0:50:56 And it bummed me out.
0:50:59 I thought we were just withdrawing from one another,
0:51:00 that we’re sequestering.
0:51:05 It seems like we’re turning into Western Europe and the US
0:51:07 versus everybody else, or is that true?
0:51:09 That’s probably not true,
0:51:11 but it does feel like we’re separating.
0:51:12 And it’s really disappointing.
0:51:16 And I was thinking about how wonderful my life has been
0:51:19 as an adult because of commercial jet transportation
0:51:23 and a fairly neoliberal viewpoint across all nations,
0:51:28 including Turkey and the Gulf and Asia
0:51:31 that really welcome people from different cultures
0:51:32 and appreciate them.
0:51:35 And we sort of lay down our differences
0:51:37 and enjoy each other’s food and company.
0:51:39 And one of the things I love about American universities
0:51:41 is it brings in people from all over the world.
0:51:43 I just think you’re less inclined to declare war on a nation
0:51:45 if a lot of people in that nation have spent a lot of time
0:51:47 with people from the other nation.
0:51:49 I think mingling, mixing,
0:51:51 interracial marriages are really important.
0:51:53 We are supposed to, we are supposed to mix.
0:51:54 We are supposed to,
0:51:57 there was a reason that mutts are healthier and happier.
0:52:00 We’re not supposed to sequester and fall in love
0:52:03 and be friends and have political alliances
0:52:04 only with people like us.
0:52:06 We benefit from this diversity.
0:52:09 And I worry that we’re in fact sequestering
0:52:11 and bifurcating, if you will.
0:52:13 Anyways, having said that,
0:52:18 I was at a table today and I’m staying here in Munich
0:52:22 and there was a table of four or five people next to me,
0:52:23 four guys.
0:52:26 And I don’t know if they were speaking Arabic.
0:52:27 I think they were.
0:52:29 And they started passing around a phone
0:52:31 and I didn’t know what was going on.
0:52:32 And it was clear, it became clear
0:52:33 they were showing videos of me
0:52:36 and then all turning around and staring at me.
0:52:39 And I found it sort of threatening and intimidating.
0:52:42 And I went to kind of a dark place
0:52:44 and then I thought about it and I thought,
0:52:47 they’re probably just a group of guys here like me
0:52:52 to see the semifinals of Spain and France
0:52:54 and recognize me from one of my videos
0:52:56 and we’re talking about it.
0:52:59 And so when they got up, I said, “Hey guys.”
0:53:01 And I just tried to be friendly and nice
0:53:03 and they were friendly and nice back.
0:53:05 And I use it as a cautionary tale
0:53:08 that it’s easy to digress as you get older
0:53:11 into this sort of the walls are closing in on you
0:53:15 and become less and less comfortable without situations.
0:53:17 And you have, especially if you struggle a little bit
0:53:20 with depression or anxiety or anger as I do,
0:53:23 you have a tendency to make snap judgments
0:53:24 and think the worst of people.
0:53:26 And the reality is the vast majority of people out there
0:53:28 are like you, they’re good people who love their families
0:53:32 looking for a nice time, good citizens.
0:53:33 But it was sort of a,
0:53:35 I don’t wanna call it a cautionary tale,
0:53:37 but it reminded me that if I wanna be happier
0:53:40 and I want a better world, I need to assume the best.
0:53:44 I need to see the world and see people as a glass half full.
0:53:46 (upbeat music)
0:53:48 This episode was produced by Caroline Shagren.
0:53:51 Jennifer Sanchez is our associate producer
0:53:53 and Jew Burroughs is our technical director.
0:53:54 Thank you for listening to the Prop G Pod
0:53:56 from the Vox Media Podcast Network.
0:53:59 We will catch you on Saturday for “No Mercy, No Malice”
0:54:00 as read by George Hahn.
0:54:03 And please follow our Prop G Markets Pod
0:54:05 wherever you get your pods for new episodes
0:54:06 every Monday and Thursday.
0:54:09 The Prop G Markets Pod was number one in business.
0:54:10 I think it’s one of the best
0:54:13 or most successful new pods in a while.
0:54:14 We’re really excited about it.
0:54:16 With my co-host, Ed Elson,
0:54:18 the 14 year old Irish person,
0:54:20 not sure he’s 26 and he’s British.
0:54:23 But anyways, please tune in to Prop G Markets
0:54:26 wherever you get your pods every Monday and Thursday.
0:54:31 Plain strains and automobiles, that’s how we get around.
0:54:32 But it hasn’t always been the case.
0:54:34 For agents, humans have been adapting
0:54:36 and revolutionizing how we travel.
0:54:38 So what does the future hold?
0:54:39 That’s what we’re gonna be exploring
0:54:43 in our new special series on pivot, the future of travel.
0:54:45 Whether it’s electric powered planes,
0:54:48 trains that go at hyper speeds or automobiles
0:54:51 that are full self-driving, someday they will be,
0:54:53 even though Elon promises them far too early.
0:54:55 In any case, it’s really important to talk
0:54:55 about where we’re going
0:54:57 and what we’re gonna do about climate change
0:54:58 and a range of things.
0:55:00 Tune in to the future of travel,
0:55:03 a pivot special series brought to you by Virgin Atlantic.
0:55:05 You can find it on the pivot feed
0:55:07 wherever you get your podcasts.
0:55:17 [BLANK_AUDIO]

0:00:06 Support for the show comes from Ferragamo. When a product is made in Italy, chances are
0:00:11 it’s well crafted and high quality and that’s especially true of Ferragamo footwear. For
0:00:16 almost a hundred years the name Ferragamo has been synonymous with luxury and all Ferragamo
0:00:20 products are made sustainably with ethically sourced materials. Ferragamo footwear is
0:00:25 designed to last so whether you’re hitting the city streets in a pair of classic loafers
0:00:31 or strolling the park and contemporary moccasins and sneakers, you can do so in chic comfort.
0:00:38 Discover Ferragamo’s timeless styles with a modern touch at ferragamo.com.
0:00:42 Plane strains and automobiles, that’s how we get around, but it hasn’t always been
0:00:46 the case. For agents, humans have been adapting and revolutionizing how we travel. So what
0:00:50 does the future hold? That’s what we’re going to be exploring in our new special series
0:00:56 on Pivot, the Future of Travel. Whether it’s electric powered planes, trains that go at
0:01:01 hyper speeds or automobiles that are full self-driving, someday they will be even though
0:01:05 Elon promises them far too early. In any case, it’s really important to talk about where
0:01:08 we’re going and what we’re going to do about climate change and a range of things. Tune
0:01:13 in to the Future of Travel, a Pivot special series brought to you by Virgin Atlantic.
0:01:19 You can find it on the Pivot feed wherever you get your podcasts.
0:01:22 Welcome to the PropG pods office hours. This is the part of the show where we answer your
0:01:26 questions about business, big tech entrepreneurship and whatever else is on your mind.
0:01:27 Hey PropG.
0:01:28 Hey Scott and team.
0:01:29 Hey Scott.
0:01:30 Hi PropG.
0:01:31 Hey PropG.
0:01:32 Hey PropG.
0:01:33 Hi Professor G.
0:01:36 And last week’s office hours, we answer your questions surrounding the defense industry,
0:01:40 why greatness is in the agency of others and how to act if your partner makes more money
0:01:41 than you.
0:01:48 The world is becoming, it feels like increasingly insecure and all of that leads to increased
0:01:51 military spending. I also think you’re going to see Japan and Germany dramatically increase
0:01:52 their military spending.
0:01:59 I’ve always thought my confidence is storytelling, but my superpower is the ability to attract
0:02:03 and retain talented people who bring scale to what we do here.
0:02:09 More women are attending college now than met and two-thirds of jobs now require a college
0:02:13 degree. The highest paying industry generally wants someone with a college degree and you
0:02:17 do acquire certain skills and contacts and college. So women quite frankly deserve to
0:02:20 be making more money than men.
0:02:26 Today we’ll speak about the Chinese EV market and how we run our PropG media business and
0:02:31 how to rich. So with that, first question.
0:02:32 Professor Galloway.
0:02:37 This is Jonathan from Philadelphia, a longtime listener and first-time caller. Thank you
0:02:41 for all your thoughtful and funny insights in the podcast.
0:02:45 I recently visited Shanghai, China for the first time in the last 10 years. One thing
0:02:50 that kind of shocked me is the number of EVs on the road. I see two or three times more
0:02:55 Tesla’s in Shanghai than in Philadelphia or New York City. Furthermore, there are many
0:03:00 domestic EV brands that I never heard of. I talk to the drivers and it seems like EVs
0:03:06 are just much cheaper there. Tesla Model 3 costs maybe $30k and the domestic ones cost
0:03:10 close to $20k. Combined with the high gas price there, it just makes more sense for
0:03:11 people to get EVs.
0:03:16 What are your thoughts on this? Do you think the US will be able to keep the lead in the
0:03:21 EV market without government help? I know we have tariffs against Chinese cars so we
0:03:27 probably will not see any of their cars here. But will that also make our market less competitive
0:03:29 and stagnant?
0:03:31 Looking forward to your answer. Thank you.
0:03:35 That’s a really thoughtful question, Jonathan, from Philadelphia. So first off, just some
0:03:44 data, IEA’s global EV Outlook 2024 report shows that China accounted for 60% of all
0:03:50 EV sales last year. So let’s be honest, China is dominating EV production. EV growth in
0:03:55 China is projected to continue with one in three cars on Chinese roads expected to be
0:04:00 electric by 2030. According to the Center for Strategic and International Studies, China
0:04:07 invested $231 billion in its EV industry from 2009 to 2023. Data from Counterpoint Research
0:04:12 reveals that in Q1 of this year, China continued to leak globally in EV sales growing sales
0:04:19 by 28% year on year, while US sales grew just 2% year on year. Think about that. Our economy
0:04:25 is growing faster than theirs. They’re supposedly in sort of a low growth part of their history
0:04:30 with huge unemployment and they’re growing that industry by 28% versus 2% in the US.
0:04:36 Now, if we branch out a bit, the EU plans to impose tariffs on Chinese EV imports due
0:04:42 to subsidies while Biden announced a 100% tariff on Chinese EV imports. What about the
0:04:47 US? Currently, the US is pumping up support for EVs through government regulations, including
0:04:53 the Inflation Reduction Act, which will offer certain EV car buyers $7,500 credit. For comparison,
0:05:00 China offered a $4,600 credit per EV purchase in 2023. Why does China have an advantage
0:05:04 in the EV race? Simply put, the same reason they have an advantage across anything else
0:05:11 caused the IEA report that we previously referenced estimates that more than 60% of electric cars
0:05:16 sold in 2023 were already cheaper than their average combustion engine equivalent when
0:05:20 compared to Europe and the US. As a consequence, Chinese consumers are largely inclined to
0:05:27 purchase a domestic model, as you mentioned. Where does this go? China, when you’re talking
0:05:33 about bringing together products and then assembling them and creating a complex supply
0:05:42 chain that sources materials, brings together competent labor at a reasonable price, no
0:05:48 one does China like China. I got to think that they’re going to dominate the low and
0:05:53 mid-range EV market globally unless we put up even more tariffs, which I just think is
0:05:57 a bad idea, which is nothing but a tax on consumers, especially EVs, young people I
0:06:02 think need EVs. And the BYD EV, that’s supposedly a pretty good car that could sell for $12,000
0:06:07 if it didn’t have tariffs on it. I say no tariffs. I say let the Chinese come in and
0:06:16 compete on EVs. Now, what will probably happen is that the American EV market, specifically
0:06:22 Tesla will continue to do well while I think its stock is vastly overvalued. I think that’s
0:06:29 an enduring company because of one thing, and that is America still has the best brands
0:06:38 in the world. Name a global brand, an aspirational global brand that’s come out of China. I’m
0:06:44 still waiting. For whatever reason, the American culture, European culture still produces
0:06:50 the best brands in the world. And when you start paying $40,000, $50,000 for a car, you’re
0:06:55 not buying steel wrapped around four tires with a battery. You’re buying something that
0:06:59 says something about you. You want people to know that you’re wealthy and care about
0:07:02 the environment, which means you should have sex with me. That’s effectively what you’re
0:07:06 saying when you buy a Tesla, and that’s why so many guys in midlife crises were sort of
0:07:10 the first owners of Tesla. When you buy the first electric Ferrari, you’re going to say,
0:07:15 “I have a very small penis and a lot of money.” Anyway, it’s just sort of kidding. But at
0:07:20 the high end, you have self-expressive benefit aspirational brands, and the reality is the
0:07:28 US and Europe pretty much have a monopoly on everything from Bottega Veneta to Nike.
0:07:33 We’re just better at it. But there’s no doubt about it. When it comes to really hardcore
0:07:38 deep manufacturing, supply chain driven manufacturing, it’s China under seven dwarfs, and that’s
0:07:42 including in the EV market. Thanks for the question. Question number two.
0:07:47 Hey, Scott. It’s Ed from Hampshire in the UK. I’ve been following your content since
0:07:52 the early days of YouTube back in 2017. At that stage, I was leaving the Army, and I
0:07:56 found the work that you were producing really helpful at educating me on the world of business
0:07:57 that I was moving into.
0:08:01 Definitely the question, which is about the prof g show as a business itself. I’d be
0:08:07 fascinated to understand a bit more about how you operate the business. How do you select
0:08:11 the content you’re going to be talking about? How do you pick the advertisers that you’re
0:08:15 going to work with? What role does Vox Media play in things? And why, for instance, have
0:08:21 you not moved to a freemium model or even a subscription based, given your well-known
0:08:26 views on the ad, the supported economy? Again, thank you for all of your work. I’m really
0:08:30 flattered as a Brit that you’ve been willing to endure the mediocre food and even more
0:08:35 mediocre weather that London has to offer. All the best to you and yours, Ed.
0:08:40 Thanks so much for the kind words. I disagree. I think actually London has finally world
0:08:43 class food. I think anytime you have this level or this concentration of wealth, you’re
0:08:47 going to attract good food. I do agree with you at wherever on the weather. Go team England.
0:08:50 Let’s start there. Go team England.
0:08:58 Okay. So, Prop G Media. I sold L2 to Gartner in 2017, and I kind of hit my number and I
0:09:04 sat down and I was planning to raise a private equity fund. And I thought I’d really like
0:09:10 to be wealthier, maybe even someday aspire to be a billionaire. And then I thought, why
0:09:15 the fuck do I want to be or aspire to be a billionaire? It involves another 20, 30 years
0:09:21 of really hard work putting at risk the capital I have because you have to take tremendous
0:09:27 risk to have to register that kind of wealth appreciation because I am far from being a
0:09:33 billionaire. But I was about to just ramp up and get off the hamster wheel long enough
0:09:37 to take some performing enhancing drugs and get back on the hamster wheel. And I made
0:09:40 a conscious decision that I was going to slow down. I still have a lot of tread left
0:09:46 on my tires, but I thought, I want to spend the rest of my life, at least professionally,
0:09:52 having more of a positive influence on issues I’m really passionate about, or that’s the
0:09:55 wrong word, that I think I bring some talent to and that I think are overlooked specifically
0:10:01 struggling young men, teen depression, some of the externalities around big tech. And
0:10:04 at the same time, I want to make good money. I want to work with a group of people that
0:10:09 I really enjoy. And I wish I had figured out earlier that my core competence is storytelling.
0:10:14 So this all sort of bubbled up to media company, but I didn’t want to take outside capital
0:10:18 because I didn’t want to have the pressure of trying to get a return on other people’s
0:10:24 capital. So I started PropG Media. PropG Media is a small niche media company. We have several
0:10:29 lines of business. For me, it begins with writing. That’s home base for me. I think writing
0:10:34 is really, really hard, but I think it creates a certain halo, a certain heft of intellectual
0:10:39 rigor and intellectual capital. So for me, it starts with the newsletter we put out every
0:10:42 Friday, No Mercy, No Mouse, which is free. It goes to half a million people. I think
0:10:48 of the Fortune 190 of the Fortune 100 have at least 100 subscribers. That is sort of
0:10:53 a Petri dish for chapters and themes and a narrative arc around the books. I try and
0:10:58 write a book every 18 months. I make money there. I average between one and a one and
0:11:02 a half million dollars per book. That is the hardest thing I do writing books. It’s also
0:11:07 probably the most rewarding. And then that feeds into some very profitable businesses,
0:11:14 specifically speaking. I do between two and a half and $5 million a year in speaking fees.
0:11:21 So that’s an incredibly lucrative business. I enjoy it. It is perfect example of greatness
0:11:24 is in the agency of others. And that is people think that I just get up there and talk for
0:11:29 an hour. I don’t have a great team of analysts that will assemble 100, 120, 140 slides. We
0:11:35 spent a ton of time thinking about narrative arc and humor and visuals and had the pace
0:11:41 and the flow. I see it as almost like a one man, 57 minute Broadway show. And I try to
0:11:45 bring the level of production value to it because no one’s going to pay that kind of
0:11:48 money just to show up and talk about how fucking awesome you are, which is what I see the majority
0:11:55 of speakers doing this day who just left an office or a job in Hollywood or in the corporate
0:11:58 world and think they can just get up there and tell war stories about how awesome they
0:12:04 are. And then the core business from a revenue standpoint is the podcast. And I kind of fell
0:12:08 into this. I have a face for podcasting. I had five TV shows that are all canceled.
0:12:15 The podcasting just took off. And been doing that about seven years. These podcasts combined
0:12:20 will produce somewhere between three and a half and five million a year. So call this
0:12:27 about a $10 million business, 12 or 11 or 12 full time people, three or four contractors.
0:12:32 That’s exceptionally high revenue per employee for a media company. I purposely want to keep
0:12:36 it small. I love the people that I work with. It’s a group of kind of island of misfit
0:12:41 toys of people I’ve worked with in the past. Kind of my rock or my anchor as a woman in
0:12:44 Katharine Dillon, who I’ve worked with for the better part of 15 years and brings real
0:12:49 creative depth and really great management skills. So I can just focus on what I’m okay
0:12:54 at, which is storytelling. And these things are all a flywheel, right? You sell more books.
0:12:59 You get more speaking gigs, more speaking gigs, more podcast revenue, more podcast revenue,
0:13:04 or more people listening to the podcast, more newsletter downloads. And so the wheel spins
0:13:10 if you will. Now Vox is essentially our content and distribution partner. They’re more a distribution
0:13:14 partner for me because we produce everything at ProfG. There are employees at Pivot that
0:13:20 produce it, but for the most part, it’s pretty much the ProfG show. We do all the production
0:13:27 and we throw the podcast over to Vox and then we pay them a fee to sell the ads and work
0:13:30 on audience development. Although I’ve never quite figured out exactly what that means
0:13:34 other than we’re supposed to be great at what we do and create word of mouth, but they’re
0:13:38 a good partner. They have a great ad sales team. The reason why we didn’t go behind a
0:13:43 wall, and this is a conversation we have seriously about every 24 months, is that money is meaningful
0:13:48 to me, but it’s not profound. What’s profound for me is I want to have reach and impact
0:13:54 specifically on young men. I want people to, especially men to feel more in touch with
0:14:01 their emotions. I want to educate people about business. And to go behind a wall, if you’re
0:14:08 really successful, you get four to 8% of your listener base to go subscription, meaning
0:14:14 that I would immediately lose a minimum of 90 to 95% of my reach. Also, I kind of like
0:14:18 the ads. I don’t mind the host readovers. I meet advertisers. I like them. It doesn’t
0:14:22 really bother me. And if you want to press skip, you can get through the ads, but this
0:14:28 is the most fun I have ever had professionally, but it’s a niche media company, the specific
0:14:32 crowds out the general, and finally figured out a flywheel, and I’m doing something I
0:14:37 absolutely love and making good money at it. So thanks for the opportunity and the excuse
0:14:43 to talk about my favorite subject, me. Thanks for the question. We have one quick break
0:14:49 before our final question. Stay with us.
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0:16:49 Support for this podcast comes from Grammarly. Your team spends half their time writing and
0:16:54 not productive writing, annoying writing, clarifying writing, just following up writing.
0:16:58 And we all know how that happens. One confusing email turns into 12 confused replies and a
0:17:03 meeting to get a line. That’s where Grammarly comes in. Grammarly is a trusted AI writing
0:17:07 partner that saves your company from miscommunication and all the wasted time and money that goes
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0:17:49 Welcome back. Question number three.
0:17:52 Hey, Scott. First of all, I love the pod, of course. But more importantly, I love how
0:17:57 transparent you are about your finances, both practically and let’s say psychologically.
0:18:04 So here’s the question. How do you rich? And what I mean by that is what would you do if
0:18:07 you had a sudden influx of wealth or what advice would you give to someone who has a
0:18:12 sudden influx of wealth? And I want you to break that down based on how old that person
0:18:17 might be and how much money they might have gotten in that sudden influx. So, you know,
0:18:22 between someone in their 20s to 30s, someone in their 30s to 40s, someone over 40 or something
0:18:26 with whether they got $5 million, $10 million, $50 million, $100 million, whatever numbers
0:18:29 you think are most interesting for how you would break that down with different advice
0:18:33 for different people, different age groups, different amounts of money. Thank you. Thank
0:18:35 you. Keep up the fun work.
0:18:38 It’s a really thoughtful question. I’m not sure I’m going to have time to go through
0:18:43 all those segments, but let’s assume you’re in your 20s, 30s, or even, so 20s or 30s and
0:18:48 you come across $5 or $10 million. So for example, one of 10,000 invidio employees that
0:18:53 have woken up in the last 12 months and realized that a 31-year-old product manager now has
0:18:58 $13 million in stock. This is an easy one. Maybe you buy a house, maybe you take a nice
0:19:04 vacation, but for the most part, you immediately take a lot, if not all of that off the table,
0:19:09 pay your taxes and invest in low-cost index funds such that when you’re my age, you’re
0:19:13 just done and you can always have that peace of mind.
0:19:16 Look at your debt. What debt do you have? And I’m not saying eliminate all debt. If you
0:19:20 have good debt, you have student loan debt at 3% or you were smart enough to get a mortgage
0:19:25 when rates were really low, so you don’t pay that off. But any debt that is, say, higher
0:19:30 than 6% or 8% or what you could get in the market, I want you to go and pay off that
0:19:36 debt. You just don’t want this haunting you and following you around. And then you are
0:19:39 not going to buy anything. I mean, maybe go out for a nice dinner, maybe take a vacation,
0:19:45 fine. If you’re going with striking distance of a home and you need that for a down payment,
0:19:49 okay, but be thoughtful about what is the monthly payment going to be. But what I really
0:19:54 want you to do with that is I want you to put it into a low-cost index fund because
0:19:59 even $150,000 to $200,000 if you’re in your 20s or 30s, that is literally, if you’re smart
0:20:05 enough and disciplined enough to put it away, diversify it in an index or an ETF and never
0:20:10 look at it again until you are my age, you’re going to be fine. You’re going to really be
0:20:13 happy that you demonstrated that kind of character and the kind of disciplined maturity
0:20:15 that I didn’t have.
0:20:19 If you get real money, I mean, if you get really lucky and I got really lucky later
0:20:26 in life in my kind of late 40s, say 50, 70, 100 million, I think you do two things. One,
0:20:30 I think you spend like a fucking 50s gangster that’s just been diagnosed with ASK cancer.
0:20:36 You spend a shit ton of money. Mostly, I think, and most of the research shows that the greatest
0:20:41 happiness of return you’re going to get is spending it on experiences. And then anything
0:20:45 above that, I think you just give it away. I think it’s really important that we maintain
0:20:52 this wonderful American brand of generosity. Money is a transfer of time and work and there’s
0:20:57 so many people that would just a little transfer of your time and work to them in the form
0:21:02 of money. Just make some so much happier. There’s so many wonderful causes that need,
0:21:07 that can do just incredible good with a little bit of resources. So this is what you call
0:21:13 a great problem. When you’re younger, put aside capital, stop. Don’t fall into the delusion
0:21:17 that you making that money meant you’re really talented. Yeah, maybe that means that, but
0:21:21 more than anything, you’re really talented and really lucky. Take some luck off the table,
0:21:26 concentrate, put it into low-cost index funds. And if you’re my age and you come with the
0:21:32 money and you have more money than you need, then brother, spend it all or give it away.
0:21:35 That’s all for this episode. If you’d like to submit a question, please email a voice
0:21:41 recording to officehours@propertymedia.com. Again, that’s officehours@propertymedia.com.
0:21:57 This episode was produced by Caroline Shagren. Jennifer Sanchez is our associate producer
0:22:01 and Drew Burroughs is our technical director. Thank you for listening to the PropG pod from
0:22:06 the Vox Media Podcast Network. We will catch you on Saturday for No Mercino Malice, as
0:22:11 was read by George Hawn. And please follow our PropG Markets pod wherever you get your
0:22:17 pods for new episodes every Monday and Thursday. The PropG Markets pod is literally number
0:22:21 one in business right now, so please subscribe. It comes out new episodes every Monday and

0:00:05 The DQ freezer, home to all the blizzard flavors of the past, is opening to bring back the salted
0:00:09 caramel truffle blizzard for a limited time. It’s too good to share. Everyone has to get one for
0:00:17 themselves. Hurry before it’s gone. DQ, happy taste good. Looking to buy or sell a used vehicle?
0:00:23 Forget the selection and protection of BCAA auto marketplace. Try some random guy off the internet.
0:00:34 Some random guy. Yes, zero security, zero peace of mind. Some random guy, the risk is part of the ride.
0:00:40 BCAA auto marketplace helps you buy and sell vehicles just like we help you every day. Visit
0:00:52 bcaa.com/marketplace and avoid some random guy. I’m Scott Galloway and this is No Mercy, No Malice.
0:00:54 As read by George Hahn.
0:01:07 I believe President Biden will announce he is withdrawing from the 2024 race imminently.
0:01:13 Just as anybody who’s seen a commercial or a logo believes they’re an expert in advertising and
0:01:20 design, I’ve convinced myself I have insights into the inner workings of the Beltway. I don’t,
0:01:28 however, I do understand the male ego, family dynamics, and scenario planning.
0:01:35 The story the Biden camp has been telling is things are better than they feel and Joe is the best
0:01:45 available option. It’s him or chaos. Any narrative has a life of its own. And last week, the narrative
0:01:52 rear ended reality so violently that after the airbags deflated, there was a stunned pause that
0:02:02 crisply turned to panic. And panic was the correct emotion. Laid bare in front of us were our worst
0:02:09 fears, plus a feeling of embarrassment, having let the media and handlers manipulate us.
0:02:15 But communication is with the listener. And despite evidence everywhere,
0:02:19 we Democrats had entered a self-imposed exile from the truth.
0:02:27 Biden has engaged in fewer media appearances and press conferences than any president
0:02:35 in recent history. The fewest since Reagan, who at 74, began to show signs of Alzheimer’s.
0:02:44 The last three presidents to win reelection, Clinton, Bush, Obama, were an average age of 52
0:02:49 at the beginning of their second terms. Three decades younger than Biden, should he return
0:02:56 to Pennsylvania Avenue. Democrats in the media wrote indignant open letters to biology regarding
0:03:03 ageism, biology’s response, “Hold my beer. How could we be this fucking stupid?”
0:03:11 The narrative now stands at, “I am an old man and worse another malignant narcissist who won’t get
0:03:17 out of the way.” It’s the political equivalent of turning on the radio and hearing John Legend’s
0:03:27 all of me again and again and again. The result? In the last week, Trump’s lead among likely voters
0:03:36 has increased from 3% to 6%. A substantial shift in a race where the majority have already made up
0:03:45 their minds. Democrats have been saying for years correctly that Trump is not fit to be president.
0:03:52 “Okay, now do Biden,” said the universe. “Yes, an impaired Biden would still make a better second
0:03:58 term president, but we’ll probably never know.” The polls say how moderates and young voters
0:04:07 will opt for criminality over senility. The real tell is how quiet Trump has been about Biden’s
0:04:15 debate performance. Trump desperately wants Biden to stay in the race. If or when Biden is
0:04:23 nominated and there is no turning back, the Trump media machine will turn him into a vegetable.
0:04:32 Ambition is not in itself a bad thing. It’s where innovation, wealth creation, and a lot
0:04:39 of other good things in life come from. It can turn pathological, though, when it overwhelms our
0:04:45 feeble ability to make decisions and act in accordance with facts and not emotion.
0:04:54 Estes Kefauver, a senator best remembered now for his mafia probes, famously quipped,
0:05:00 quote, “Presidential ambition is a disease which can only be cured by embalming fluid,”
0:05:06 unquote. Joe Biden has had a bad case for a long time.
0:05:14 In what it takes, his classic account of the 1988 presidential race, journalist Richard
0:05:22 Ben Kramer quoted an aide warning a 46-year-old Biden that running meant sacrificing friends,
0:05:28 family, his entire life, quote, “You’re going to want this worse than anything,
0:05:36 and it’s going to take over,” unquote. Biden’s answer essentially was, “I’m willing to take that
0:05:46 gamble.” At a campaign stop in 2020, Biden said, quote, “I view myself as a bridge, not as anything
0:05:54 else. There’s an entire generation of leaders you saw standing behind me. They are the future
0:06:03 of this country,” unquote. But since then, he’s convinced himself that he, at age 81,
0:06:10 is the future. The actuarial charts suggest he doesn’t have much of it, future, left.
0:06:18 Let’s ignore cognitive decline. Something else makes it even harder to govern. Death.
0:06:25 According to actuarial tables, there is a greater than one in three chance he’d die in office before
0:06:32 the end of his second term. Note, it’s not much better for Trump, but cue the indignant denial
0:06:42 machine. He appears much more robust. Having the grace to leave is a gift, and many otherwise superb
0:06:50 people don’t have it. Ruth Bader Ginsburg set back women’s rights by her refusal in the face of all
0:06:56 the medical and political evidence to retire from the Supreme Court when a Democrat could name her
0:07:04 successor. Despite all the good she did, her ultimate legacy is that she enabled the overturning
0:07:12 of Roe v. Wade. Likewise, if Biden loses to Trump this November, that is the only thing
0:07:20 anyone will remember about him. An underrated superpower socially and professionally, and
0:07:29 something great brands do, is creating a sense of scarcity. The easiest way to achieve this
0:07:36 is to leave too soon instead of too late. Why do smart people ignore such common-sense advice?
0:07:42 There is a great deal of research on humans’ capacity for self-deception.
0:07:51 William S. Burroughs, who divided humanity into hustlers and marks, put it bluntly, quote,
0:08:00 “Hustlers of the world, there is one mark you cannot beat, the mark inside,” unquote.
0:08:09 We can’t imagine our own end. Try to picture what it’s like to be dead. You can’t, not really.
0:08:15 You might think of darkness or sleep, things you’ve actually experienced in this life,
0:08:19 but your brain has no meaningful point of reference for the real thing.
0:08:27 As a result, we believe decline and death are things reserved for other people.
0:08:35 If we are badly designed for the task of conceiving of and accepting our cosmic sell-by dates,
0:08:41 we’re even less apt to recognize the smaller endings that come along the way.
0:08:46 Politicians and CEOs are particularly bad at this.
0:08:52 Washington is a large assisted living community full of rich people who believe the world can’t
0:08:58 get along without them and will never have to. The result has been a disastrous transfer of
0:09:03 prosperity from young to old, as old people keep voting themselves more money.
0:09:10 As I’ve written before, we need more ageism, specifically churn.
0:09:18 Ranjay Gulati, a professor at Harvard Business School, recently told The New York Times,
0:09:26 quote, “Most leaders left to their own devices will not recognize the right time to leave.
0:09:33 It’s really hard to stay grounded and humble when everyone is telling you you’re right.”
0:09:45 Which brings us back to the possibility that Trump, a genuinely bad person, may be re-elected.
0:09:52 Biden, a genuinely decent person, has let his ego wager all our futures.
0:10:00 His willingness to do so reflects a common human failing. That doesn’t make it any
0:10:06 less wrong or selfish. He and his family have put their own hopes and wishes ahead of the countries.
0:10:14 However, I believe his catastrophic performance in the debate has catalyzed a conversation
0:10:19 and a reckoning that will result in the Biden family deciding he should withdraw.
0:10:28 Why? The dam has broken. Post-debate, the most powerful voices in tech,
0:10:37 media, Congress, party, i.e. Reed Hoffman, The New York Times, South Carolina Representative James
0:10:45 Clyburn, Pelosi, Obama have all, as gently as possible, started suggesting he should withdraw.
0:10:51 Like a teen boy or girl who senses they’re about to be dumped and can’t stop sending text messages,
0:10:59 the Biden camp has sent me eight emails in the past 24 hours assuring me they’re in it to win it.
0:11:07 The most fucked up part is the lame attempt by loyalists to shame people online and to
0:11:14 sticking their heads back up their asses. Take a breath, sit down, 90 minutes shouldn’t define
0:11:26 a presidency, etc. Seriously. Wake the fuck up. The two most likely candidates to replace Biden
0:11:32 are Vice President Harris and California Governor Newsom. Nobody else has the name recognition.
0:11:40 Either would be up substantially in the polls within a week of the baton being passed. Branding
0:11:47 is about differentiation and the contrast with Trump would be stark. Neither has been
0:11:54 involved in an insurrection, then found liable for sexual abuse, nor forced one in five women who
0:12:01 needed to terminate a pregnancy to leave their state. And most distinctly, both were born when
0:12:08 Trump had already graduated from college and was working for his father. Harris would be the most
0:12:13 seamless as the quarter of a billion dollars Biden has raised is technically also hers.
0:12:19 In addition, the nation appears to be finally ready for a woman president and she seems to
0:12:25 have found her voice since the debate debacle. Finally, though she hasn’t distinguished herself
0:12:32 as VP, she was a strong AG and senator. This indicates she’s probably better in an executive
0:12:39 role. Newsom is straight out of central casting, built in a factory with parts from lesser candidates.
0:12:46 He’s already the president of a nation larger economically than India, France or the UK.
0:12:55 He’s a great debater. Lastly, he’s hot and people are more likely to vote and canvas
0:13:02 for a candidate they’d like to have sex with. Newsom is the candidate who scares Trump.
0:13:11 Scenario planning is not an attempt to predict the future, but to imagine several possible futures
0:13:17 and determine a course of action that has the best outcomes across several futures.
0:13:24 And in my view, most or all roads lead to President Biden stepping down.
0:13:29 The polls suggest that the status quo will lead to a Trump victory.
0:13:35 The following are three alternate scenarios and speculation on what each would mean for
0:13:44 the Biden family. One, Biden withdraws. Trump defeated. Biden cements his legacy as one of the
0:13:51 great presidents and receives a standing ovation upon entering any room. The remainder of his life
0:13:56 is the mother of all victory laps. He is on the short list when polls are taken about who should
0:14:04 be added to Mount Rushmore. Two, Biden withdraws. Trump wins. I don’t see this as a realistic
0:14:11 scenario or more specifically, I don’t want to think about it. These are my scenarios. Regardless,
0:14:16 if this came to pass, nobody would hold Biden responsible for trying to do the right thing.
0:14:25 Three, Biden remains and wins. This is the one that makes me believe he will withdraw
0:14:33 in the coming days. Joseph Biden and his family have experienced staggering loss.
0:14:39 It’s difficult to know the specific dynamics of a family, but it’s a safe bet his family
0:14:48 loves him a great deal. The worst outcome for their husband, dad, brother wouldn’t be losing to Trump.
0:14:56 It would be a second term. His life would become an awkwardly choreographed dance,
0:15:03 family and aides trying to sequester him from public view. He’d experience an infinite number
0:15:10 of small private and public humiliations every day as he succumbs to a foe that cannot be defeated,
0:15:19 see above, biology. Staying in may be what he wants and what the Bidens believe they want,
0:15:26 but with some distance, his loved ones will recognize that remaining in the race presents
0:15:35 two outcomes, bad and worse. Seriously, for those of us who’ve cared for a parent in their 80s,
0:15:40 imagine his life should he win for the next four and a half years.
0:15:46 I don’t believe his family will let that happen to him. I think love wins here.
0:16:02 Life is so rich.
0:16:12 [BLANK_AUDIO]

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0:01:04 [Music]
0:01:09 Welcome to ProfG Markets. I’m Ed Elson and I have some good news and I have some bad news.
0:01:13 The bad news is that we are unfortunately missing Scott this week.
0:01:18 He’s floating around in Greece on a yacht right now, and I’m very embarrassed to say this on his behalf,
0:01:22 but he does not have Starlink. I know he’s been talking a lot about that.
0:01:27 He has standard Wi-Fi on the SuperYacht and apparently it’s not good enough to record a podcast.
0:01:31 So he’s out of commission, but here’s the good news.
0:01:35 We have our favorite New Yorker, Stan again, for Scott this week.
0:01:39 He’s the co-founder and CEO of Ritt Holtz Wealth Management. He’s a regular on CNBC.
0:01:43 We’re working on that. He’s a sharper, meaner, hungry version of the dog
0:01:46 and at this point, a great friend of this podcast.
0:01:49 Ladies and gentlemen, please welcome the one and only, Josh Brown.
0:01:51 Josh, thank you so much for joining us.
0:01:53 I’m just going to pause for applause.
0:01:56 [Applause]
0:01:59 Hey, I actually got an update on Scott’s Odyssey.
0:02:00 Oh, you did?
0:02:03 He has just passed between Cilla and Corebdis.
0:02:04 Okay.
0:02:07 The crew has slaughtered the cattle of Helios,
0:02:15 and shortly they will be arriving at the land of the lotus eaters on route to Calypso’s Island.
0:02:20 So we’re getting updates sporadically, and I will keep you posted.
0:02:24 Do you want to deliver a message to Scott who’s going to be listening to this episode
0:02:28 when he’s probably in Bodrum or I don’t know where else he goes, the Aeolian Islands somewhere?
0:02:31 I’m going to let my performance on the pod be the message.
0:02:33 [Laughter]
0:02:35 Let’s speak for itself. All right, I love it.
0:02:37 We’re already off to a great start.
0:02:40 I’m not too worried about this one, so let’s start with the headlines.
0:02:46 [Music]
0:02:49 A GameStop shareholder filed a lawsuit against Keith Gill,
0:02:52 also known as Roaring Kissy for an alleged pump and dump scheme.
0:02:57 Martin Radev claimed Gill was manipulating the stock for his own gain after Gill’s posts in May
0:03:00 triggered a 180% rise in GameStop shares.
0:03:03 However, Radev dropped the suit within days of the filing.
0:03:07 Warren Buffett has reworked his will to put nearly all of his remaining wealth,
0:03:10 about $130 billion, in a charitable trust.
0:03:13 The billionaire said his three children will oversee the trust
0:03:16 and unanimously decide where to donate the money once he dies.
0:03:21 And finally, the Supreme Court voted to overturn a 40-year-old decision
0:03:24 that provided increased regulatory authority to federal agencies.
0:03:28 A decision known as Chevron deference created a legal precedent
0:03:32 that courts should defer to federal agencies on how to interpret laws from Congress.
0:03:36 With the ruling now overturned, federal agencies are likely to face
0:03:39 increased legal challenges when regulating things such as the environment,
0:03:41 healthcare, and taxes.
0:03:45 Let’s start, Josh, with this Roaring Kitty lawsuit,
0:03:48 which we discussed a little bit when you were on the show last time,
0:03:49 but there have been more developments.
0:03:51 One, the lawsuit.
0:03:56 Two, he also bought a stake in this company, this pet retailer Chewy,
0:03:58 which caused the stock to rise 20%.
0:04:01 So this is kind of becoming Keith Gill’s playbook.
0:04:05 He buys a large stake in a small kind of questionable company.
0:04:07 He posts about it on Twitter.
0:04:09 He watches the stock explode.
0:04:14 And then it’s up to him if he wants to hold or sell any reactions to Roaring Kitty
0:04:16 and his influence on the markets right now.
0:04:18 Well, I’m a freedom of speech guy.
0:04:21 So from my perspective, he’s an investor.
0:04:26 There is no rule that says he can’t come out and say he bought a stock.
0:04:30 In fact, I would argue he is more transparent in his transactions
0:04:33 than most professionals on the street.
0:04:38 If he were a hedge fund manager, the minimum requirement that he would have to meet
0:04:43 would be to file within 45 days of the end of the quarter,
0:04:46 whatever positions he finished the quarter holding,
0:04:49 which means in real time he would never have to say a word.
0:04:52 So if anything, he’s been more transparent.
0:04:56 I think the guy should be able to buy and sell at will.
0:05:02 And I think if he chooses to reveal his portfolio, there’s nothing wrong with that.
0:05:07 Where it gets into a gray area is if we think he is deliberately manipulating the stock
0:05:10 in order to pump and dump on other investors.
0:05:13 The truth is he’s not selling.
0:05:17 So to have a pump and dump, there’s got to be a dump, right?
0:05:21 So I have no problem with what Keith Gill is doing.
0:05:26 And the last part of this is no one’s putting a gun to anyone’s head
0:05:29 and forcing them to follow his trades.
0:05:31 People are doing that of their own volition.
0:05:35 So I think he should be able to get long, get loud,
0:05:39 so long as he’s not running a foul of manipulation rules,
0:05:42 which it does not appear that that’s what’s happening.
0:05:44 Which is likely why it was rescinded.
0:05:46 It seemed a flimsy argument to begin with.
0:05:49 What if he sold though? Do you have any opinions on that?
0:05:51 Say he did dump everything.
0:05:52 It’s America.
0:05:54 Would that change your opinion on this?
0:05:56 He’s allowed to.
0:05:59 I’m not saying he should get an exception and be able to do something
0:06:02 that any investor isn’t able to do.
0:06:07 And honestly, again, in the first go round with the meme stocks,
0:06:10 he was among the most transparent people.
0:06:13 He came out and said, I haven’t sold, I haven’t sold.
0:06:15 Okay, I’m planning to sell.
0:06:21 And, you know, again, this is, it’s strange because it’s very rare
0:06:24 that an individual investor who is not registered,
0:06:26 who is not running a fund,
0:06:29 who is not working in an asset management firm,
0:06:32 would have this much influence over the actions of other investors.
0:06:36 If you tell me, Bill Ackman came out and said, you know,
0:06:38 he’s long a stock.
0:06:41 I could understand why so many people would want to follow him in.
0:06:45 This is just one of those weird, fluky things that there’s not much precedent.
0:06:48 He doesn’t work professionally on Wall Street.
0:06:53 He’s just an individual and he’s got an army of hundreds of thousands
0:06:55 of people who want to do what he’s doing.
0:06:59 And he’s got tens of millions of people who are paying close attention to it.
0:07:01 It’s really rare.
0:07:03 I can’t think of another example of it.
0:07:09 And I don’t think that that means that he should be held to some above and beyond standard
0:07:12 that no one else is held to, even professional investors.
0:07:15 Yeah, it’s interesting because it is so similar to everything we’ve seen.
0:07:17 I mean, you mentioned Bill Ackman.
0:07:20 I think the other example that Scott’s been talking about is Chimath
0:07:23 or any of these other guys who have gone on CNBC and pumped the stock.
0:07:26 And then they indeed do dump the stock.
0:07:28 It’s a very similar thing.
0:07:32 I know that people had complaints with some of these guys, but it feels like,
0:07:35 I hadn’t thought of what you just said, which is the difference with this guy
0:07:37 is he’s not a traditional player.
0:07:40 He’s not your average hedge fund manager or investor.
0:07:43 He’s sort of outside of the in group.
0:07:50 Do you think that’s why we’re seeing so much chaos and anger and issue?
0:07:54 Is that why people are taking issue with this because he’s not one of the traditional players?
0:07:55 Maybe.
0:07:59 I mean, look, if you’re not a professional, but you buy over 5% of a public company,
0:08:01 you still have to file notify.
0:08:03 So that rule applies to everyone.
0:08:07 And as far as I can see, he is doing what he’s supposed to be doing.
0:08:10 He is disclosing this activity.
0:08:14 The fact that he’s not a professional, is that creating chaos?
0:08:16 I don’t think so.
0:08:22 I think these are small, heavily shorted stocks with small market caps
0:08:26 and a torrent of buying from a million people at once,
0:08:33 especially utilizing options, is going to lead to that sort of wild volatility.
0:08:35 But here’s the thing about the stock market.
0:08:38 It’s like going to an amusement park.
0:08:40 You choose which rides you want to ride.
0:08:42 I don’t do log flumes.
0:08:46 I don’t want to walk around with wet sneakers.
0:08:52 So even if the log flume looks like it’s going to be the best attraction in the park,
0:08:55 I’m not forced to do it if I don’t want to do it.
0:09:02 No one is telling any other investor that they need to start trading in shares of GameStop and Chewy and AMC.
0:09:04 Just don’t take that ride.
0:09:05 100%.
0:09:09 Or if you want to take that ride, buckle up and understand what’s happening there.
0:09:13 And you went through the park, you’re in the investment game,
0:09:15 but you don’t have to ride all the rides.
0:09:16 100%.
0:09:17 I love that.
0:09:21 We’ve got a guy who is suing the log flume because he got wet at the end of the ride.
0:09:25 Yeah, maybe get off the log flume is how I would think about it.
0:09:29 Let’s move on to Buffett and his charitable trust.
0:09:33 So $127 billion to this charitable trust that’s overseen by his children.
0:09:37 I’m not one of these radical, effective, altruist guys,
0:09:41 I do believe in just generally speaking,
0:09:43 we should be allocating capital efficiently,
0:09:47 whether that’s in private investment or in, in this case, philanthropy.
0:09:56 And what’s striking about this move to me is there is no overarching mission or theme or vision as to where this money is going to go,
0:09:58 how it’s going to be put to work.
0:10:01 He simply handed it over to his children.
0:10:03 He said, OK, it’s yours.
0:10:05 You guys go figure out where to donate all this money,
0:10:09 which is very different from, say, the Gates Foundation,
0:10:11 which a lot of people are making these comparisons,
0:10:15 which has been extremely precise, extremely intentional about its strategy.
0:10:19 And then I look at this and it’s like, there’s no real strategy at all.
0:10:22 Maybe I’m being a little cynical.
0:10:25 It is charity after all and, you know, $130 billion.
0:10:27 It’s going to make a difference somewhere.
0:10:31 But what is your reaction to this, to this move by Warren Buffett?
0:10:33 Do you agree with, with my cynicism?
0:10:35 I think I disagree, Ed.
0:10:43 It’s true that Warren Buffett doesn’t specifically talk intensively about, you know, where he wants his money to go.
0:10:47 But it’s not true that we can be sure there is no plan.
0:10:49 Understand what’s happening here.
0:10:56 He’s turning the money over to his family members and they’ve got their own foundations.
0:11:04 And effectively, he’s putting it in their hands and they are pretty specific in what they’ve done philanthropically over the years.
0:11:14 We do wealth management for high net worth individuals and a lot of the stuff that we do is involved with funding our clients philanthropy.
0:11:19 So I have a couple of people in-house who specialize in this sort of situation.
0:11:23 And I turn this over to them to get their take on what’s been announced.
0:11:28 And I want to quote Gary Polford, who is in our Orange County office.
0:11:35 And he said, “I believe what he has created is a charitable foundation with a trust structure.”
0:11:41 So Buffett is calling it a charitable trust, but we think it’s a foundation that is structured as a trust.
0:11:48 That is different from a foundation that’s structured as a corporation, which is what you’ll see most of the time.
0:11:56 The difference here is that if Warren Buffett dies and his money is in a corporate foundation,
0:12:03 the officers of the corporation can change the bylaws and therefore they can change the philanthropic focus of the corporation.
0:12:07 This is different. This looks more like an irrevocable trust.
0:12:13 What makes it irrevocable is if he dies, that’s the end. Nothing can really be changed there.
0:12:20 So the kids couldn’t in some situations say, “Actually, I don’t want to donate this. I want to keep this for myself.”
0:12:22 You’re saying that that couldn’t happen.
0:12:30 Correct. Now, Susie runs the Sherwood Foundation, which focuses on reproductive rights and college scholarships if you read their tax filings.
0:12:39 Howard Buffett runs the Howard G. Buffett Foundation, which specifically works for food security, conflict mitigation, and combating human trafficking.
0:12:48 Peter Buffett, the other son, leads something called the Novo Foundation. Those are projects that include working with indigenous communities.
0:12:56 Warren Buffett is basically saying this, “It should be used to help the people that haven’t been as lucky as we have been.
0:13:03 There’s eight billion people in the world, and me and my kids, we’ve been in the luckiest one hundredth of one percent.
0:13:10 There’s lots of ways to help people.” So yes, it’s broad, but no, it’s not that unspecific.
0:13:20 He knows what the pet causes are of his children, and that seems to be what he would prefer to have happen here rather than set up some corporation
0:13:27 that ten years after his death could completely choose to go in a different direction.
0:13:34 Yeah, it seems that he’s also just putting a lot of trust and faith into his kids that they’re going to make the right decisions here.
0:13:41 I mean, this is basically his life’s work that he’s handed over to them, which is pretty remarkable when you think about it.
0:13:48 Yes, but it should be pointed out, Susie, Howard, and Peter have spent their lives on philanthropy.
0:13:57 They’re not software developers, they’re not lawyers, right? So they have always had this responsibility.
0:14:02 They’ve grown up with it, immense, unspendable, unfathomable wealth.
0:14:10 This is $130 billion, most of it Berkshire Hathaway stock, and the kids have grown up.
0:14:18 Kids, I don’t know, they’re in the 60s. The adult children of Warren Buffett are not strangers to giving responsibly.
0:14:21 Let’s finally move on to this Supreme Court decisions.
0:14:27 Now, this is different from the presidential immunity decision, which has also been making a lot of headlines.
0:14:35 We’re focusing on this Chevron decision because, generally speaking, has more of a direct effect on companies and on markets.
0:14:44 Overall, it’s going to mean less regulation for companies because what the decision does is it withdraws the power from federal agencies.
0:14:57 It takes away their ability to adjudicate based on their interpretation of the law, and that’s going to be less incentive for companies to comply with federal agency regulations.
0:15:08 This is generally a win for corporate America. As I’ve said on this podcast before, I feel that corporate America has gotten enough wins recently.
0:15:22 Do we really need to hand corporate America another win, which will likely come at the expense of a whole host of other things, such as consumer protection and health and safety, and all these things that regulations exist for.
0:15:26 That’s why we have regulation. What is your take on this?
0:15:35 So this Chevron thing dates back to 1984, and so for 40 years, this has been a hobby horse of the business community.
0:15:46 I think the big takeaway here is it’s just a continued rollback of things that the business community doesn’t want.
0:16:02 One of those things is being called in front of an in-house tribunal, for example, or having a disagreement with a regulator be adjudicated with no jury, with no judge, or with a judge, but under the terms of the agency itself.
0:16:15 And the Supreme Court just ruled against the SEC and their use of in-house tribunals as being unconstitutional in a case on June 27th, Supreme Court versus Jarkeesie.
0:16:31 So this is somebody that the SEC was seeking civil penalties for securities fraud, and Jarkeesie’s argument was, “No, the Seventh Amendment requires you to bring this to action in a court of law, and I am entitled as a defendant to a trial by jury.”
0:16:44 So this will slow down, I think, the ability of government agencies to quickly interpret the rules that Congress has set up and then make a judgment.
0:16:49 It’s definitely a victory for the Chamber of Commerce, folks. I don’t think anyone would argue otherwise.
0:17:08 Scott is certainly very pro-regulation, and he makes that opinion very clear. I think I would say I feel the same way. How do you feel about this as an investor, as someone who has a financial interest in the success of corporate America?
0:17:29 I’m pro-regulation, so my wealth management firm is 10 years old. We’ve already had two on-site examinations, which is pretty much the standard. Somewhere between three and five years, a registered investment advisor should expect the SEC to send a letter and then follow up and conduct an examination.
0:17:43 And, you know, it’s a lot of work. It’s a ton of document production. It’s a ton of back and forth. But in the end, if that doesn’t happen, if that doesn’t exist, no one would trust a registered investment advisory firm like mine.
0:17:57 We’re doing business in all 50 states. If there’s this sense among the general public that nobody’s paying attention and there are firms doing whatever they want and running through the rules willy-nilly, it doesn’t benefit us.
0:18:10 So I actually, the way I think about regulation on Wall Street and in the investment advisory world, it’s a barrier of entry to bad actors, and it increases the public trust.
0:18:24 And they don’t see it. The public doesn’t really see all of the work that regulators do. They hear about things every once in a while when there’s a blow-up, like the Arkegos hedge fund, for example, or Bernie Madoff or FTX.
0:18:33 But they don’t see the day in, day out, dotting eyes and crossing T’s that, in my opinion, keeps the train on the track.
0:18:41 So I’m pro-regulation. And, you know, I think the thing that we always have to guard against as a society is regulatory overreach.
0:18:53 When somebody at the head of an agency decides that they want to redefine what the rules are and they want to use fines and they want to use public executions as the way they’re going to do that.
0:18:57 Like, I think that’s the other end of the spectrum that, of course, nobody wants to say.
0:19:04 Would you say that you’re alone in that opinion in terms of people on Wall Street? Are you a rare breed?
0:19:13 No, I wouldn’t say that. There are 18,000 registered investment advisory firms. And I think what they mostly have in common, of course, a few bad apples at all times.
0:19:26 But what they mostly have in common is their rule followers. The type of people who are attracted to wealth management are not renegade, rockstar, Steve Jobsian, you know, geniuses who want to break the rules.
0:19:32 It’s just not the type of people who gravitate toward our side of the business.
0:19:38 So I don’t think I’m alone in that. I think if you talk to a typical investment advisor, and again, we’re not a hedge fund.
0:19:49 We’re not high-flying investment bankers. If you talk to a typical person in my neck of the woods, in my part of the industry, they would probably say something similar to what I’ve just said.
0:19:53 Alright, we’ll be right back with Josh’s reaction to the presidential debate.
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0:23:23 We’re back with “PROFG Markets”. The presidential debate was largely considered a disaster.
0:23:29 While Trump was his usual chaotic self, Biden showed much more notable signs of age than he has previously.
0:23:37 His answers were slow, halting, and confused. By the end of the night, even prominent Democrats were calling for Biden to step aside for a new candidate.
0:23:46 Now, Josh, we’re going to discuss Wall Street’s reaction to this debate, but I first just want to offer an observation about this idea of managing expectations.
0:23:51 And this is something we talk a lot about on this show, particularly as it relates to earnings calls.
0:24:00 And that is, if you are a company and you’re about to report a bad quarter, let the market know ahead of time.
0:24:07 Give them some signals. Tell them maybe it’s the demand is softening or that the macroeconomics aren’t as good as they used to be.
0:24:14 Give them some guidance and make it clear that you know what the problems are and you also know how to address them.
0:24:18 Now, let’s shift to Biden’s performance here in this debate.
0:24:26 This to me was like delivering the worst earnings call ever and at the same time doing nothing to prepare your investors for it.
0:24:32 He had, you know, this weak, raspy voice. They’re saying he had a cold. Tell us he had a cold ahead of time.
0:24:37 Tell us that he’s tired. Tell us, you know, maybe he’s not as good as he used to be. That’s what he’s now saying.
0:24:47 But tell us something and don’t lie to us that he’s sharp as a tack and then suddenly shock us with the reality of the situation on the biggest stage in the world.
0:24:54 You are, you know, you’re a student of the markets and I feel like a lot of markets is just communication.
0:24:59 Is this not one of the worst PR management disasters you’ve ever seen?
0:25:14 You know, look, I’m not I’m not a partisan like I’m not I’m not somebody that’s overly political. But I think I think even even if you’re even if you’re someone that is hoping the Democrats win the White House or you’re OK.
0:25:24 I don’t think Biden has like diehard Biden fans. But like if you’re a pro Biden person, it’s probably because you’re anti Trump or anti Trump’s policies.
0:25:32 Right. Fine. But so even if you’re in that camp, a couple of things you have to admit. Number one, it was the Biden camp that wanted the debate.
0:25:41 So talk about mismanaging expectations. Not only did they not sandbag or give you any sense that, hey, guys, debating is not really his thing.
0:25:42 Right.
0:25:49 They actually pushed they actually pushed for it. Trump would have been perfectly happy to have no debates. He doesn’t need them.
0:25:57 He doesn’t he doesn’t necessarily win as a result of debates. He wins as a result of the rallies and his own social media activity.
0:26:05 So he didn’t. So so not only did they not manage the situation or prepare us, it went hard the other way.
0:26:12 It gave people the impression that Biden was about to kick the door down. The other thing I would say is he’s never been good at this.
0:26:23 He was good. He was good enough at debates throughout his career, but I don’t think I’ve ever seen him do well in a situation where you’ve got to come up with rapid fire answers.
0:26:30 He’s got a stutter even when he was younger. This is just not his strong suit. I heard some of the coverage on MSNBC.
0:26:35 I was curious to hear if there would be as much panic there as there was at CNN. There wasn’t.
0:26:36 Oh, there wasn’t.
0:26:51 There are prime time people came out the next night and said, Lawrence O’Donnell, his monologue is no president as part of his duties as the president ever has to debate anyone else in a format like this.
0:26:58 It’s not part of the job. It may be a part of how you get the job, but it’s not part of the job. So don’t worry.
0:27:14 If that’s the best argument for why we should just gloss over this, the impression that people now have is everything the anti-Biden people have been saying is wrong with him has now been confirmed.
0:27:28 We’ve all seen it with our own two eyes. So you could say, well, who cares? He never has to debate again once he wins. All right, fine. But for most people, that’s not the takeaway they’re going to have.
0:27:31 The takeaway they’re going to have is this is not the guy right now.
0:27:40 Yeah. Lawrence O’Donnell can gloss over it all he wants, but look at the prediction markets. Biden’s chances of winning fell 30% after that debate. So a huge drop.
0:27:59 Well, so from a market perspective, the knee-jerk reaction that we saw was what’s called a bare steepener. So in English, we saw the two-year treasury rise about five basis points, very little, because everyone knows the short-term rates are coming down.
0:28:05 They don’t come down by the end of this year. They’ll be coming down next year. But longer-term rates is where the action was.
0:28:23 And so you had that steepening of the yield curve, which is indicative of Wall Street placing a bet that the Trump tax cuts, the Tax Cuts and Jobs Act 2017 tax cuts will be extended because it’s less likely that Biden will win, more likely that Trump will win.
0:28:37 And that’s also sort of pricing in a faster economy, the rise in 10-year rates. So that was the Wall Street reaction. And if you look at the betting marketplace predicted, that’s confirming that.
0:28:49 And the reason why I like predicted better than polls, predicted is people buying contracts on Kamala Harris, on Biden, on Trump winning the election. And that’s people putting up their own money.
0:29:05 Not people blowing smoke at a pollster or people virtue signaling to their neighbor. That’s like actual dollars being bet. And immediately, you saw Trump separate himself from Biden, and you saw the Harris contract pick up steam as well.
0:29:21 That’s a great point. Just going back to the Treasury yields, you mentioned that that’s Wall Street placing a bet. One, placing a bet, I assume, that Trump is going to win. And two, that the tax cuts will go through. How does the tax cuts going through relates to higher yields?
0:29:32 Let me just clarify that. The tax cuts aren’t going through. The issue is that they will sunset at the end of 2025 if they are not extended.
0:29:43 So a Trump presidency means a higher likelihood that he will be signing the bill in the White House that extends those tax cuts. Why is that meaningful on Wall Street?
0:29:57 Well, number one, we’re not going to have a billionaire’s tax, which is a minimum 25% tax on billionaires. One of the difficult things about taxing billionaires is they don’t exactly have W-2s.
0:30:09 So they’re not paying income tax the way people that are on a salary pay income tax. But more importantly, the corporate tax rate under Trump was taken down to 21%.
0:30:20 Biden says he wants it up at 28%. That would have a material impact on the stock market and probably on economic growth. So that’s really acutely felt in stock prices.
0:30:34 Number two, or number three, the buyback tax, Biden wants to quadruple. I think it’s a 1% excise tax on share buybacks and Biden wants that to be 4% or 5%.
0:30:48 Again, that would have a material impact on the stock market. If those things are not going to happen and the TCAJ is going to be extended, then you would bet on faster economic growth.
0:30:57 That curve steepener makes sense in the Treasury curve. And you would certainly bet on a better stock market. And I think that’s exactly what the reaction was to the debate.
0:31:06 It sounds like Wall Street, all they care about really are the tax cuts. I want to bring up one other economic proposal that Trump has proposed, which is the tariffs.
0:31:17 He wants to charge 60% on goods coming from China and 10% on goods coming from everywhere else, which every economist has said is going to make everything in America more expensive.
0:31:28 And the number that they’re saying is that for middle income families, it’s going to be an extra $1,700 per year. Larry Summers called it, quote, “a prescription for the mother of all stagflations.”
0:31:39 These tariffs, and by the way, I can’t tell if he’s actually serious about them. I mean, I can’t tell if it’s a legitimate proposal or if he’s just saying it to kind of rally up the base.
0:31:51 But these tariffs seem to me to be probably the worst economic idea that Trump has ever come up with. Is Wall Street not more worried about this? I mean, couldn’t this lead to…
0:31:58 I mean, if Larry Summers is predicting stagflation, this could lead to a depression. Why doesn’t Wall Street care about this?
0:32:06 Wall Street doesn’t think he’s going to do it. I think part of the way Trump operates is he throws something out there to provoke a reaction.
0:32:16 We saw him do that with NATO. And look, again, I’m not like a Trump guy, but you can’t argue with the fact that he threatened to pull out of NATO.
0:32:24 And within a month, Germany, France, all of these countries started writing checks again and honoring their commitments to NATO.
0:32:37 So in a very weird way, his threatening of NATO, which at the time looked like, oh my God, he’s about to roll back a 50-year, 60-year peace we’ve had since World War II.
0:32:49 But in reality, the effect that that provoked throwing that out there and just like a grenade and just letting it go off, the effect that that provoked actually strengthened NATO.
0:32:58 So look, there was a meeting of CEOs with Trump, I think, last week. Nobody does press after that.
0:33:02 People are like sneaking into the building. Nobody wants to be seen talking to him.
0:33:10 But I think there’s the public Trump who throws grenades. And then I think there’s the private Trump who’s much more pragmatic.
0:33:17 And one of the observations that I had about Trump during his first term, where I wasn’t so freaked out every time he tweeted something,
0:33:21 he sort of agrees with the last person he talks to.
0:33:30 Now, the problem in the first term was he had this maniac, I forget the guy’s name, Peter or something or other, as his economic advisor,
0:33:38 maybe one of the ones that’s like indicted or something now, who had written a book about why China needs to be tariffed into the Stone Age.
0:33:46 So that was a guy in his ear. He had ban in his ear. He had China hawks, professional China hawks in his ear.
0:33:52 But he does kind of have a tendency to just like sort of listen to whoever the last person he talks to.
0:33:56 And as evidence of that, he got a meeting with Kim Kardashian.
0:34:06 And the next thing you know, he was freeing people from prison. That was not the platform, the tough on crime pro law enforcement platform.
0:34:14 So that’s why I’m not so freaked out about it. The third thing I would say, the experience of 2018, I think, taught him something.
0:34:21 There were two separate 20% declines in the S&P 500 in calendar 2018.
0:34:27 The Fed played a role in that. The Fed was tightening during the onset of those Chinese tariffs.
0:34:36 So if you think back, 2017, the S&P went up like 25%. It was a great year. Why? We got the Tax Cuts and Jobs Act in November or December.
0:34:40 So the market ran up into that. We were pricing it in in advance.
0:34:47 2018, you get like an 18% sell-off in February. You get another one into Christmas Eve.
0:34:55 Both of those caused by global economic strain as a result of the first round of Trump tariffs.
0:35:06 I think he’s heavily fixated on the stock market. And I think he does not want to repeat what went on in 2018, which, by the way, was not a great midterm election for him.
0:35:13 The tariffs were unpopular on both sides. So I’m not as worried about that as maybe other people are.
0:35:22 It’s interesting because it sounds like what you’re saying is Wall Street just believes to its core that Trump is on Wall Street side.
0:35:28 Well, he is. Exactly. And even if he says that he’s going to go through with these tariffs, they’re like, “No, he won’t.”
0:35:35 Because ultimately, his true loyalty lies with us and he’s not going to do anything to piss us off.
0:35:40 Or he will do them. And then when he pulls them off, the Dow Jones will go up a thousand points. You see?
0:35:41 That’s a good point. Yeah.
0:35:50 You see, there’s an element of showmanship. There’s an element of bluffing. And he gives himself the option of saying he’s going to do this big bad thing,
0:35:57 seeing how other people react to it. And then at the last minute, saving the day by calling it off.
0:36:06 Dude, I don’t want to ascribe too much like strategy to him or give you the impression that I think he’s playing 12-dimensional chess.
0:36:16 But just going by the first term, to say that because he said something from behind a lectern, it’s definitely what he’s going to do.
0:36:19 I think it would be a really big mistake.
0:36:22 We’ll be right back. Stay with us.
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0:37:54 We’re back with Prodigy Markets.
0:38:01 Shifting focus to the stock market itself, there’s been some debate on which candidate would be better for the stock market.
0:38:02 So just some numbers here.
0:38:07 The S&P generated an annual return of 16% during Trump’s tenure under Biden.
0:38:10 The number was 12% or 12% so far.
0:38:17 At the same time, on average, markets have performed better under Democrat presidents versus Republicans.
0:38:21 12% under Democrats, 8% under Republicans.
0:38:23 Slightly an obtuse question, but we’re having fun here.
0:38:26 Which candidate do you believe would be better for the stock market?
0:38:33 On the surface, I think the stock market itself, if I can anthropomorphize the billions of trades that go through each day,
0:38:37 I think the stock market itself believes it would be better under Trump.
0:38:39 We’ve done tons of work on this.
0:38:47 And the actual reality is this is very fluky and dependent on factors that have nothing to do with who the president is.
0:38:59 Clinton comes in immediately following a recession and the savings and loan crisis in the early 1990s and the spike in oil prices as a result of the first Iraq war.
0:39:10 He comes in and it just so happens that the internet and mobile telephony both basically have their renaissance during his second term.
0:39:12 It’s nothing that he did.
0:39:19 Barack Obama took office literally after Lehman Brothers went under and made off and the great financial crisis.
0:39:22 He had one of the all-time great starting points.
0:39:25 He was sworn in on January 20, 2009.
0:39:28 The stock market bottomed in March of ’09.
0:39:36 Are we going to say that Barack Obama’s policies led to the stock market tripling or did he inherit a stock market that had just been cut in half?
0:39:39 Twice in seven years, by the way.
0:39:42 So these things are very fluky.
0:39:49 I think the other thing to observe is actually the best outcome is a president from one party and either party, it doesn’t matter.
0:39:52 And a Congress that’s under the control of the other party.
0:39:56 Those actually are the things that have led to the best possible outcomes.
0:39:58 And let’s go back to Clinton.
0:39:59 He’s in the White House.
0:40:05 Newt Gingrich takes over Congress in ’94, contracts with America.
0:40:07 And we get six years of incredible prosperity.
0:40:14 So it’s not true that any one party is necessarily better or worse for stock prices.
0:40:18 The real story is that stocks go up three out of every four years.
0:40:20 This goes back 95 years.
0:40:23 You could tell me at some point that paradigm will shift.
0:40:24 Okay, maybe.
0:40:30 But really what’s more important in the long run is corporate profits and interest rates.
0:40:32 And here’s the setup right now.
0:40:40 All 11 of the S&P 500 sectors are expected to have earnings growth in calendar 2025.
0:40:47 And we know that the Fed’s next move, whether it happens in July, September, December is lower.
0:40:57 So if I tell you the most important things are corporate profits and interest rates, the setup is not looking bad, regardless of which these guys ends up winning in November.
0:41:01 Yeah, we’ve had the best half of an election year for the stock market.
0:41:03 And this is the best half in 50 years.
0:41:07 The S&P is up nearly 15% year-to-date.
0:41:13 And that’s also saying something because generally speaking, if you just look at the data, election years have been pretty good for the stock market.
0:41:18 But it sounds like you’re saying that we could expect this to continue regardless of the candidate.
0:41:22 I think you’ll get some volatility as we get closer to the election.
0:41:34 One thing that’s interesting, my firm’s chief market strategist put out a note last night, Callie Cox, she notes that the month of June is the calmest month for stocks in five years.
0:41:39 We’ve had effectively no volatility so far this summer.
0:41:44 We haven’t had a down 1% day for the S&P 500 since April.
0:41:59 She went back and looked at 50 years of market history and on average, so half the years more, but on average, the S&P 500 has seven down 1% or worse days during the course of any given summer.
0:42:13 So I would say the incredible calmness in the market that we’ve experienced in June historically should not be expected to be repeated in July and August.
0:42:23 So we are, I think, in a really interesting place because of the AI boom, the nature of the companies that are involved in it.
0:42:32 They happen to be the most stable companies with the most stable cash flows, the biggest cash cushions, the largest market caps, the most institutional support.
0:42:37 And that is why we’ve had this placid S&P 500 beneath the surface.
0:42:39 There’s been much more turmoil.
0:42:50 It’s just that those stocks are so much smaller and less consequential that if you’re an index fund investor, which more than half the population is, you don’t feel the volatility of those individual stocks.
0:43:04 It’s very interesting because you mentioned that because the political volatility is higher than ever right now and then you compare that to the stock market and the market’s reaction and you’ve just described it as placid.
0:43:09 Has it surprised you just sort of the lack of correlation between the two?
0:43:12 I don’t believe the political volatility is higher than ever.
0:43:22 In 1998, Bill Clinton spent that year testifying about sleeping with interns and whether or not he lied about it.
0:43:27 But there were impeachment proceedings and 1998 was an incredible year for the stock market.
0:43:28 Why?
0:43:32 Because the market doesn’t prioritize political volatility.
0:43:39 The market prioritizes, remember what I said, earnings growth or lack thereof and interest rates.
0:43:48 We had had a massive interest rate cut, emergency cut in the summer of 1998 after the currency crisis rippled through Asia and Russia.
0:43:58 And in the meanwhile, we had this internet build out, this Y2K build out that was propelling earnings, not just for tech, but for the entire economy.
0:44:08 And so as a result, that political volatility, which I would argue is as great or greater than what we’re experiencing at this current moment.
0:44:10 It’s debatable, but fair.
0:44:13 Well, Trump had two impeachments.
0:44:16 We had that volatility.
0:44:17 And it’s back.
0:44:21 We had a riot at the Capitol.
0:44:24 You would argue this is more volatile than that.
0:44:25 I wouldn’t.
0:44:27 Yeah, I don’t think it was more volatile than that.
0:44:35 But it goes to a larger point, which is that the market seems to be largely unresponsive to those sort of volatile events.
0:44:41 I mean, what we saw during the pandemic too, and the market was generally doing very well.
0:44:48 And it didn’t seem to be tied to whatever fundamentals were happening in the market did not seem tied to what was happening in politics.
0:44:53 Do you think that generally that we maybe overestimate how the two are connected?
0:44:55 Well, I don’t think professionals do.
0:44:57 I think civilians overestimate.
0:44:59 I think they draw connections that just aren’t there.
0:45:04 When the market reopened after JFK was assassinated, it went up.
0:45:06 Most people don’t know that.
0:45:07 Did not know that.
0:45:08 It’s so interesting.
0:45:13 No, I think it only took five months for the market to regain what it had lost after 9/11.
0:45:23 So this idea that geopolitics has this sustained impact on stock and bond prices is just flatly incorrect.
0:45:24 It’s just incorrect.
0:45:28 In fact, it’s World War II that put an end to the depression.
0:45:29 Yeah.
0:45:33 So one of the things that people forget, look at the pandemic.
0:45:37 2020, the stock market closed higher.
0:45:44 So if I told you in January, hey, Ed, two months from now, your employer is going to tell you to stay home for the rest of the year.
0:45:47 The kids will be out of school nationwide.
0:45:50 A million Americans are going to die.
0:45:54 The president is going to pretend that nothing’s happening.
0:45:58 There’s going to be a black plague spreading around the earth.
0:46:02 Would your assumption be stock market ends the year up?
0:46:03 Absolutely not.
0:46:12 The thing that people forget is that when something negative happens in geopolitics, there is usually a policy response.
0:46:16 And that policy response is just keep shopping.
0:46:17 Yeah.
0:46:18 More growth.
0:46:19 Here’s money.
0:46:20 Yeah.
0:46:22 Buy fucking meme stocks.
0:46:23 Here’s money.
0:46:27 Go open your Robin Hood and gamble.
0:46:31 I wish I could say it more artfully.
0:46:34 So I think you have to know the history.
0:46:36 You have to understand the history.
0:46:38 I’m not saying, oh, never worry about anything.
0:46:42 I’m just saying for every action is a reaction.
0:46:49 And for every geopolitical crisis, there’s probably going to be a policy response if it affects the economy.
0:46:56 And those policy responses lead to higher earnings, higher profits, higher stock prices, not immediately, but ultimately.
0:47:02 You and I are talking right now within 3% of all-time highs for the S&P 500.
0:47:05 What else could you conclude?
0:47:10 Just to wrap up here, what would your advice be to investors when they read the news?
0:47:11 I mean, it’s going to be–
0:47:13 Don’t read the news.
0:47:16 Yeah, I was going to say, is it don’t read?
0:47:17 Don’t pay attention.
0:47:18 Don’t worry about it.
0:47:21 How much should we be– because it’s going to be an assault.
0:47:22 Okay.
0:47:23 It’s not don’t worry about it.
0:47:24 It’s don’t react to it.
0:47:25 That’s the answer.
0:47:37 Now, if you had been reading reports in early 2020 from the Italian Alps or dispatches from Wuhan, China, and you had gotten this idea that, you know what?
0:47:39 This sounds really bad.
0:47:41 This sounds like it’s going to get much worse.
0:47:43 I’m selling my stocks.
0:47:48 You might have had a temporary reprieve where you would have said, “Thank God I got out.”
0:47:50 You know how long that lasted for?
0:47:52 11 days.
0:47:54 11 days.
0:48:07 If you had done the same thing a generation earlier during the Ebola scare, which I think was 2014, you would have missed out on some of the best years in the S&P had you not known when to buy back in.
0:48:09 So it’s not don’t worry about it.
0:48:11 Definitely worry about it.
0:48:16 The better thing to say is don’t think that your reaction is going to be the right one.
0:48:22 And don’t think that there’s some sort of logic whereby something scary happens in the news.
0:48:25 Therefore, something scary is going to happen in the market.
0:48:26 I love that.
0:48:27 Let’s take a look at the week ahead.
0:48:36 We’ll see the consumer price and producer price indices for June and second quarter earning season kicks off with JP Morgan, Wells Fargo, Citi, and Black Rock all reporting.
0:48:40 And finally, we will get the lowdown from Scott on his vacation in Greece.
0:48:43 Josh, thank you again for filling in today.
0:48:45 You have a book coming out September 3rd.
0:48:46 It’s available for pre-order now.
0:48:48 Could you tell us a little bit about it?
0:48:51 Yes, the book is called You Weren’t Supposed to See That.
0:49:02 And some of the things that we talked about in terms of inequality and the issues with our economy and why it’s not working for anyone, those things are in part the focus of the book.
0:49:08 So I have much more to say on these topics and you will be able to read all about it this September.
0:49:10 And Josh, where should people follow you?
0:49:12 Just don’t.
0:49:14 You’ll find Josh.
0:49:18 I have a podcast that’s called The Compound and Friends.
0:49:19 It’s twice a week.
0:49:20 We talk markets.
0:49:24 I’m not like doing Twitter shit.
0:49:26 Don’t worry about following me.
0:49:27 You’ll be better off.
0:49:28 I’ll be better off.
0:49:29 It’s fine.
0:49:37 As the CEO and co-founder of Ritholt’s Wealth Management, his new book You Weren’t Supposed to See That, Secrets Every Investor Should Know, is available for pre-order now.
0:49:40 Josh, you are the hero we need and don’t deserve.
0:49:41 Thank you so much for joining us.
0:49:42 Thanks, Ed.
0:49:44 And thanks, Scott, for the shot.
0:49:47 And I’ll be listening next week.
0:49:49 Thanks, guys.
0:49:52 This episode was produced by Claire Miller and engineered by Benjamin Spencer.
0:49:54 Our associate producer is Allison Weiss.
0:49:56 Our executive producer is Jason Stavins and Catherine Dillon.
0:49:58 Mia Silverio is our research lead.
0:50:00 And Drew Burrows is our technical director.
0:50:03 Thank you for listening to ProfG Markets from the Vox Media Podcast Network.
0:50:09 Join us on Thursday for our conversation with Anthony Scaramucci, only on ProfG Markets.
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