0:00:10 Finding your personal style isn’t easy, and the fashion powers that be aren’t making it any easier on us.
0:00:17 The best way to make sure they move a lot of units is to make stuff that is, to put it indelicately, sort of boring.
0:00:23 This week on Explain It To Me, how to cut through the noise and make sense of your own fashion sense.
0:00:26 New episodes every Sunday morning, wherever you get your podcasts.
0:00:39 Hey, it’s Marques from the Waveform Podcast, and I wanted to tell you about a special episode we just released called Your Favorite Creators’ Favorite Cameras.
0:00:42 This is pretty much the biggest behind-the-scenes video on the internet.
0:00:47 We talked to Casey Neistat on why he switched cameras after shooting Canon for so many years,
0:00:53 one of the hosts of the travel game show Jetlag, The Game, whose award-winning show is entirely shot on iPhones,
0:00:56 and tons of other tech, food, and filmmaking creators.
0:01:03 So, if you want to see how your favorite creator is filming their videos, be sure to check out Waveform wherever you listen to your podcasts.
0:01:06 Today’s number, $16.6 billion.
0:01:11 That’s the record amount American consumers lost to scammers and cybercriminals last year.
0:01:15 Ed, I just don’t have a joke about that, but I heard a lot of young men listen to this podcast,
0:01:18 so I have the ultimate pickup line.
0:01:18 You ready, Ed?
0:01:19 Mm-hmm.
0:01:21 You go up to someone you’re attracted to, and you say,
0:01:22 Can you take a picture of me?
0:01:24 Everyone always says yes, right?
0:01:25 No one ever says no to that.
0:01:26 Yep.
0:01:27 And then you say,
0:01:29 Can you turn on the mirror function and take a picture of the two of us?
0:01:31 And she’ll say,
0:01:32 Why?
0:01:33 And you say,
0:01:36 Because someday I’m going to show it to our kids.
0:01:38 Boom!
0:01:51 Ed, that’s how you lose your virginity at 19.
0:01:52 No, it isn’t.
0:01:54 Absolutely not.
0:01:55 Well, hold on.
0:01:56 Claire, would that work?
0:01:57 That’s a good line, no?
0:01:58 I don’t know.
0:02:00 It depends how cute he is.
0:02:00 Yeah.
0:02:02 Better be very handsome.
0:02:04 This guy better be incredibly handsome.
0:02:06 That’s a very telling comment,
0:02:08 because the difference between romance and creepiness
0:02:12 is the perceived attractiveness of the person making the overture.
0:02:15 And it’s impossible to know,
0:02:17 is this creepy or romantic?
0:02:21 Scott, have you ever actually used one of these pickup lines in real life?
0:02:22 I think they’re hilarious.
0:02:23 I love the whole,
0:02:25 Do you believe in love in first sight,
0:02:27 or should I walk by again?
0:02:27 Or, you know.
0:02:28 I love that shit.
0:02:35 But, no, my current and hopefully future partner
0:02:39 20, whatever, 21 years ago,
0:02:41 I just went up to her at the pool at the Raleigh Hotel
0:02:42 and I said, where are you guys from?
0:02:43 So, that wasn’t much of a line.
0:02:45 That wasn’t that creative.
0:02:47 But I was much more handsome then,
0:02:49 so I didn’t need to be that creative.
0:02:51 I think pickup lines are more for banter.
0:02:52 Certainly on this show.
0:02:53 Yeah.
0:02:53 How about you?
0:02:55 What’s been your approach?
0:02:57 I’ve always been, where are you from as well?
0:03:00 But I feel like it would be cool
0:03:03 to have an actually good pickup line
0:03:05 that’s provably worked.
0:03:07 But I feel like the thing that we’re learning,
0:03:09 at least in the past two minutes,
0:03:11 is that a lot of this has to do with,
0:03:12 are you handsome?
0:03:13 I don’t know.
0:03:15 I don’t think that’s as true or not as true for men.
0:03:16 I think women,
0:03:17 I think men get turned on with their eyes
0:03:18 and women get turned on with their ears.
0:03:20 I think if a guy has a good rap.
0:03:22 Yeah, but to get in there at the very beginning.
0:03:23 If you can make a woman laugh,
0:03:26 you can ask her out on a date.
0:03:29 I think it’s all about the rap.
0:03:31 I think women are much more thoughtful
0:03:34 in terms of their criteria for mating than dudes.
0:03:36 Well, by the way, Ed, I didn’t say handsome.
0:03:37 I said cute.
0:03:37 Cute.
0:03:40 Which could mean funny, charismatic, confident.
0:03:42 It’s all about the way he says it.
0:03:43 That’s a good point.
0:03:45 Ed rolls up and dials up the English accent.
0:03:46 He’s like, I’m from Princeton.
0:03:49 I went to Princeton.
0:03:51 Get to the headlines, Ed.
0:03:54 Let’s start with our weekly review of Market Vitals.
0:04:04 The S&P 500 climbed, the dollar rose, Bitcoin jumped,
0:04:06 and the yield on 10-year treasuries fell.
0:04:07 Shifting to the headlines.
0:04:11 U.S. GDP shrank 0.3% in the first quarter,
0:04:14 marking the economy’s first contraction in three years.
0:04:16 A surge in imports as companies raced
0:04:19 to get ahead of tariffs led to a sharp drop in net exports.
0:04:21 The major indices all fell in that news.
0:04:25 China’s factory activity fell into its worst contraction
0:04:26 in nearly two years.
0:04:29 New export orders also dropped to their lowest level
0:04:30 since December 2022.
0:04:34 In response, Chinese officials have pledged support
0:04:36 for affected businesses and workers.
0:04:38 And finally, Amazon has launched
0:04:41 its first internet satellites into orbit
0:04:43 in a bid to compete with SpaceX’s Starlink.
0:04:46 The company’s plan, called Project Kuiper,
0:04:49 should begin providing broadband service later this year
0:04:51 and eventually will deploy a constellation
0:04:54 of 3,200 satellites.
0:04:58 So let’s start here, Scott, with this GDP report.
0:05:02 A lot of people are seeing this report and they’re saying,
0:05:04 look how bad this is, look at what Trump’s done,
0:05:06 look how bad this is for the economy,
0:05:08 the economy’s contracting, etc.
0:05:11 And I just want to point out, before we dig into it,
0:05:13 that’s not really what’s going on here.
0:05:15 I think there are two things to note.
0:05:18 One, this is a measurement of the economy
0:05:20 before the tariffs went into effect.
0:05:23 This is Q1, so we’re not actually seeing the impact
0:05:24 of the tariffs themselves.
0:05:28 And two, the reason you’re seeing this contraction
0:05:31 is more of an accounting blip than anything.
0:05:35 And I just want to remind us of what GDP actually is,
0:05:37 just some macro 101 here.
0:05:41 GDP is an equation.
0:05:43 I mean, it’s a measurement of our economic output,
0:05:46 but the way we get to that number is an equation.
0:05:49 And one of the elements in that equation
0:05:51 is something called net exports,
0:05:55 which is basically you take our total exports
0:05:57 and you subtract our total imports.
0:05:59 And that’s supposed to tell you
0:06:01 how much stuff we actually made in America.
0:06:04 And so what that basically means,
0:06:07 if you have a giant increase in imports
0:06:08 into your country,
0:06:12 that’s going to mean that the net exports number goes down,
0:06:14 which means that the GDP number will go down.
0:06:17 And that’s what happened last week
0:06:20 because everyone knew in Q1 that tariffs were coming.
0:06:24 And so everyone scrambled to ship as many products
0:06:26 as they possibly could into the US
0:06:27 before the tariffs went into effect.
0:06:32 And that’s why we saw imports into America surge 41%,
0:06:35 which ultimately had a negative impact on GDP.
0:06:39 This isn’t the big tariffs are bad report
0:06:40 that you might think it is.
0:06:44 It’s the next GDP report that we will see in July.
0:06:47 That’s the one that’s going to tell us what’s really going on.
0:06:49 And that’s the one where I think we can have
0:06:53 a more honest analysis of what tariffs have done to America.
0:06:55 But Scott, your reactions to this GDP report,
0:06:57 which made a lot of headlines
0:06:59 and a lot of people were quite freaked out about it.
0:07:00 I don’t love GDP.
0:07:03 And also GDP is a bit of a lagging indicator.
0:07:07 And I think that the Trump administration can rightfully say
0:07:11 this is more about the economic policies of Biden
0:07:12 than it is about us.
0:07:15 And your analysis around the surge in imports
0:07:18 kind of contaminating the data is the correct one.
0:07:20 But why have we had a surge in imports?
0:07:24 Because people feel insecure about the economy
0:07:25 or specifically these tariffs.
0:07:28 And when I look at the uncertainty index,
0:07:31 which has hit a new high since like the 80s,
0:07:32 and consumer confidence,
0:07:34 which has hit a new low since COVID,
0:07:37 what it largely pretends is that
0:07:40 we’re going to see a decline in GDP in the next quarter.
0:07:43 I believe you’re going to see a dramatic decrease
0:07:45 in inventory in stores.
0:07:49 If you just look at those incredible kind of heat maps
0:07:50 of shipping lanes,
0:07:54 there are all these ships in kind of Hong Kong Harbor
0:07:56 that are just waiting to be loaded
0:07:57 and aren’t being loaded.
0:07:59 And then the port of Los Angeles,
0:08:00 which I believe is the biggest port
0:08:02 in the Western Hemisphere,
0:08:05 there’s very little offloading taking place.
0:08:06 So at some point,
0:08:08 and I don’t know if the lag is two weeks or two months,
0:08:10 you’re just going to see an absence of inventory
0:08:13 in stores.
0:08:14 And consumers have gotten to the point
0:08:16 where if they can’t get what they want,
0:08:18 they’re so used to such a robust supply chain,
0:08:18 they’re going to think,
0:08:20 A, if they’re not feeling good
0:08:21 about the consumer economy,
0:08:23 they don’t want to as aggressively buy
0:08:25 that new home gym or whatever.
0:08:28 And B, if the products they want are available,
0:08:30 they use that as an excuse just not to buy.
0:08:33 So I think winter is coming.
0:08:34 And that is,
0:08:36 I would imagine the next quarter,
0:08:36 there’s going to be,
0:08:37 you know,
0:08:38 they’ll find another reason to blame
0:08:39 Hunter Biden or something.
0:08:41 But this is,
0:08:43 they get a pass on this one, right?
0:08:46 But the fact that there’s,
0:08:47 again,
0:08:49 this massive surge in imports
0:08:50 is because our economy
0:08:53 is making asymmetric,
0:08:55 irrational decisions
0:08:58 based on an unpredictable administration
0:09:01 and unpredictable economic policy.
0:09:02 That sort of reminds me of
0:09:03 one of his latest,
0:09:06 Trump’s latest truths on Truth Social.
0:09:08 I hate that we have to call them truths,
0:09:09 but that’s what they are.
0:09:12 But he basically said,
0:09:14 so when the stock market ripped
0:09:15 after he was elected,
0:09:16 he said,
0:09:18 welcome to the Trump stock market.
0:09:20 And today,
0:09:21 I think last week,
0:09:23 he posted this truth,
0:09:25 this tweet that said,
0:09:27 this is the Biden stock market
0:09:27 that I inherited.
0:09:30 And it was sort of marking
0:09:31 his first hundred days in office,
0:09:31 which have been
0:09:33 one of the worst
0:09:34 stock market performances
0:09:36 for the start of a presidency
0:09:38 ever in America.
0:09:40 And it is sort of
0:09:41 a reminder
0:09:42 of how
0:09:45 basically his strategy
0:09:47 to distract
0:09:49 us from what is really going on.
0:09:50 You mentioned there
0:09:52 that GDP is a lagging indicator
0:09:54 and we can’t necessarily blame
0:09:55 Donald Trump
0:09:56 entirely
0:09:58 on this contraction
0:09:58 or at least
0:10:00 that’s not the right
0:10:01 argument to make.
0:10:02 But when it comes
0:10:03 to the stock market,
0:10:05 which is not a lagging indicator.
0:10:06 Forward-looking indicator.
0:10:07 The stock market is live,
0:10:08 real-time,
0:10:09 forward-looking indicator.
0:10:10 That’s the thing
0:10:11 to focus on.
0:10:12 And that’s the part
0:10:14 where you cannot say
0:10:16 this is the Biden stock market.
0:10:17 The stock market is live,
0:10:18 it’s real-time,
0:10:20 this is the Trump stock market.
0:10:22 S&P down 4%,
0:10:24 the Nasdaq down 8%
0:10:25 year-to-date.
0:10:26 So that’s the argument
0:10:28 that you definitely cannot make,
0:10:29 which of course he is making.
0:10:29 Agreed.
0:10:31 Let’s move on to this
0:10:32 manufacturing data.
0:10:34 China had its largest drop
0:10:36 in manufacturing activities
0:10:37 since 2023.
0:10:39 Export orders fell
0:10:39 to their lowest level
0:10:40 since COVID.
0:10:41 UBS,
0:10:42 Goldman Sachs,
0:10:43 are now lowering
0:10:44 their GDP growth forecast
0:10:45 for China
0:10:47 to lower than 4%.
0:10:49 And just for some context there,
0:10:51 we discussed this earlier
0:10:51 this year.
0:10:52 China,
0:10:53 at the beginning of the year,
0:10:54 had a growth target
0:10:56 of 5%
0:10:57 positive GDP growth.
0:10:59 So it looks like,
0:11:00 you know,
0:11:00 they’re not going to come
0:11:01 anywhere near that.
0:11:02 In fact,
0:11:03 I think we actually predicted that
0:11:05 or we at least said
0:11:06 that 5% was too ambitious.
0:11:09 So this manufacturing data
0:11:09 has come out.
0:11:10 It’s not looking good.
0:11:10 Scott,
0:11:11 your reactions
0:11:12 to this new data?
0:11:13 They likely will be hurt
0:11:15 more than us
0:11:15 in the short term.
0:11:17 But their tolerance
0:11:18 for pain
0:11:18 is much greater
0:11:19 than ours.
0:11:21 And I think
0:11:21 over the medium
0:11:22 and the long term,
0:11:22 China’s actually
0:11:23 a winner
0:11:25 because I think
0:11:25 they’re going to be
0:11:26 more aggressive
0:11:26 about establishing
0:11:27 relationships
0:11:29 with new partners
0:11:30 that’ll be more apt
0:11:32 or less reticent
0:11:32 to engage
0:11:33 in business
0:11:33 with them.
0:11:34 And also,
0:11:35 you’re already seeing
0:11:36 that basically
0:11:37 we’re thrusting
0:11:38 the EU
0:11:38 into the arms
0:11:39 of China
0:11:40 and vice versa.
0:11:41 Chinese e-commerce
0:11:42 exports to the US
0:11:43 fell by 65%
0:11:44 last month,
0:11:45 but exports
0:11:45 to Europe
0:11:47 rose by 28%.
0:11:48 And also,
0:11:48 what we forget
0:11:49 is that Europe
0:11:49 is actually
0:11:50 a bigger trading partner.
0:11:52 So that’s 28%
0:11:53 on a bigger number.
0:11:55 So the big winner
0:11:56 in the short term
0:11:58 is the EU
0:11:59 because you’ve got
0:11:59 to think
0:12:00 that a lot
0:12:01 of these factories
0:12:01 want to keep
0:12:02 their assembly lines
0:12:03 humming.
0:12:05 And so they’re going
0:12:05 to call a lot
0:12:06 of potential customers
0:12:07 in Europe
0:12:08 and say,
0:12:08 hey,
0:12:09 I can get you
0:12:09 a great deal
0:12:10 on this widget.
0:12:11 I mean,
0:12:12 this is effectively
0:12:12 the way I would
0:12:13 describe it.
0:12:14 America’s not dead,
0:12:15 but it’s the equivalent
0:12:16 of a death
0:12:17 of the kind of
0:12:18 existing post-World War II
0:12:21 world order
0:12:22 as led by
0:12:22 the United States.
0:12:23 And that is
0:12:24 these traditional
0:12:25 trading alliances
0:12:26 that were built up
0:12:27 over the last 80 years
0:12:28 of trust,
0:12:29 rule of law,
0:12:30 intellectual property.
0:12:32 It feels like
0:12:33 that is dead.
0:12:33 And what we have
0:12:35 is the largest yard sale
0:12:37 from an estate sale
0:12:37 from this rich old lady
0:12:38 down the street
0:12:39 who died.
0:12:41 And everyone’s showing up
0:12:42 and trying to figure out
0:12:43 how do they get their piece
0:12:44 of a $25 trillion economy.
0:12:46 I think our economy
0:12:47 is going to shrink
0:12:48 and a lot of other nations
0:12:49 are going to try
0:12:49 and figure out
0:12:50 how they fill that void
0:12:51 by either trade relationships
0:12:52 with each other,
0:12:53 making,
0:12:54 you know,
0:12:55 grabbing market share
0:12:56 from U.S. companies
0:12:57 that will no longer
0:12:58 have the same
0:13:00 most favored nation status
0:13:01 that they enjoy
0:13:02 with their international partners.
0:13:03 And you’re going to see
0:13:03 a lot,
0:13:04 in my opinion,
0:13:04 you’re going to see
0:13:04 a lot of small
0:13:05 and medium-sized businesses
0:13:06 go out of business
0:13:08 in the U.S.
0:13:11 and that economic activity
0:13:12 will be picked up
0:13:13 by other people
0:13:15 when the global economy
0:13:18 fills in those holes,
0:13:18 if you will.
0:13:20 So it’s interesting
0:13:21 to try and think about
0:13:22 who are the winners
0:13:22 in the short,
0:13:23 the medium,
0:13:24 and the long-term.
0:13:25 Biggest loser
0:13:25 in the long run,
0:13:26 hands down the U.S.,
0:13:27 both short,
0:13:27 medium,
0:13:28 and long,
0:13:28 I think.
0:13:30 But I think the EU
0:13:31 is actually going to be
0:13:32 a big winner here
0:13:34 because I got to think
0:13:35 China’s showing up
0:13:36 and saying,
0:13:36 hey,
0:13:37 the sale of the century
0:13:38 is right now
0:13:40 on Chinese goods.
0:13:41 I think this data,
0:13:43 it sort of highlights
0:13:43 the point that
0:13:44 Ryan Peterson made
0:13:45 when he came on the podcast,
0:13:46 which was he was really
0:13:47 trying to emphasize,
0:13:49 which the Trump administration
0:13:50 doesn’t seem to understand,
0:13:52 that trade is
0:13:53 a positive sum game.
0:13:54 You know,
0:13:56 when you make something
0:13:58 and I decide to buy it,
0:13:59 we’re actually
0:14:00 both benefiting there.
0:14:02 We’re both receiving value
0:14:03 from the transaction.
0:14:05 So when we decide
0:14:05 as a nation
0:14:06 that we want to get
0:14:07 into a trade war
0:14:07 with China,
0:14:09 it means that
0:14:10 we lose out
0:14:10 in a lot of ways
0:14:11 in America
0:14:12 in the form of
0:14:13 we have less stuff,
0:14:14 which leads to higher prices.
0:14:16 And also China loses
0:14:18 because they’re losing business.
0:14:19 They want to make stuff
0:14:20 and ship it over to us.
0:14:22 And we’re now beginning
0:14:22 to see that
0:14:24 reflected in the data.
0:14:24 And that’s what
0:14:26 this manufacturing activity data
0:14:27 tells us.
0:14:28 China is losing.
0:14:29 It’s actually
0:14:30 negatively impacting
0:14:31 their GDP.
0:14:33 But of course,
0:14:33 that’s going to be
0:14:34 the same story
0:14:35 over in America.
0:14:36 And your point,
0:14:37 I think,
0:14:37 is the right one.
0:14:39 Who are the winners here?
0:14:40 And it is so interesting
0:14:41 to see Europe
0:14:43 being reflected
0:14:44 or proven
0:14:44 as a winner
0:14:46 in this data.
0:14:46 You know,
0:14:47 we talked recently
0:14:48 about how China
0:14:49 is trying to rekindle
0:14:50 these relationships.
0:14:51 They’re sending
0:14:52 all these trade delegations
0:14:53 to Europe.
0:14:53 They went to Hungary
0:14:54 and Sweden
0:14:55 and Germany.
0:14:57 And I was sort of thinking,
0:14:59 I wonder if that’s going to work.
0:14:59 Like,
0:15:00 I wonder if Europe
0:15:01 buys that.
0:15:02 And to me,
0:15:04 those numbers
0:15:04 you mentioned,
0:15:06 exports to the U.S.
0:15:07 down 65%,
0:15:07 but exports
0:15:08 to Europe
0:15:10 up 28%.
0:15:11 And as you mentioned
0:15:12 as well,
0:15:13 off a large base,
0:15:14 my takeaway
0:15:15 is it’s working.
0:15:17 Europe is also
0:15:18 beginning to lift
0:15:19 some of these tariffs
0:15:20 that they had on China,
0:15:22 specifically EVs.
0:15:22 They’re beginning
0:15:24 to open negotiations
0:15:24 back up.
0:15:26 It does certainly feel
0:15:27 that as we close off
0:15:28 this relationship
0:15:29 with China,
0:15:30 we’re basically
0:15:31 sending China
0:15:32 into the arms
0:15:35 of all of our allies,
0:15:36 essentially.
0:15:37 I think Americans
0:15:38 are about to get a very,
0:15:39 eat a very cold lunch
0:15:40 in terms of
0:15:42 recognizing
0:15:43 just how
0:15:45 good they had it
0:15:46 past tense
0:15:47 that we had
0:15:48 so many amazing
0:15:49 trading relationships
0:15:49 that resulted
0:15:51 in a robust supply chain,
0:15:52 really inexpensive products,
0:15:53 tremendous opportunities
0:15:54 for entrepreneurs,
0:15:55 that whenever you start
0:15:56 an American company,
0:15:57 you have access
0:15:58 to global markets.
0:15:59 when I started L2,
0:16:00 when we got
0:16:01 like employee 30,
0:16:02 we opened an office
0:16:03 in London
0:16:04 and then when we got
0:16:05 to employee 60,
0:16:07 we started pitching
0:16:08 clients in China
0:16:09 and when you go over there
0:16:12 as an American company,
0:16:14 you’re pretty well received
0:16:15 and you understand
0:16:16 the cultures
0:16:17 and it’s easy
0:16:18 to do payments
0:16:19 and the contracts,
0:16:20 the business contracts
0:16:21 were not that difficult.
0:16:23 I think that’s
0:16:25 all about to change.
0:16:25 Let’s talk about
0:16:26 Project Kuiper.
0:16:28 We’ve been hearing
0:16:28 about this
0:16:29 for a while now.
0:16:30 This is Amazon’s
0:16:31 satellite internet project.
0:16:32 It’s basically
0:16:33 Amazon’s equivalent
0:16:34 of Starlink
0:16:35 and last week
0:16:35 they launched
0:16:36 their very first
0:16:38 satellites into orbit,
0:16:40 27 satellites to be exact.
0:16:41 The plan is to
0:16:42 eventually increase
0:16:43 that number
0:16:44 to 3,200.
0:16:46 So potentially
0:16:47 a big moment
0:16:47 for Amazon,
0:16:49 also potentially
0:16:50 a big moment
0:16:51 for Starlink,
0:16:52 but I think it’s
0:16:54 mainly just a reminder
0:16:55 of how far ahead
0:16:56 Starlink is
0:16:58 in this satellite race
0:16:58 right now.
0:16:59 I mentioned those
0:17:01 27 satellites
0:17:02 that Amazon launched.
0:17:03 Starlink has
0:17:05 7,200 satellites
0:17:06 in orbit
0:17:07 right now.
0:17:08 It makes up
0:17:09 62%
0:17:11 of all of the
0:17:11 active satellites
0:17:12 that are currently
0:17:13 orbiting the Earth.
0:17:14 So even if
0:17:15 Amazon were
0:17:15 to hit
0:17:16 that target
0:17:18 of 3,200
0:17:18 and who knows
0:17:19 when they’ll hit it,
0:17:20 they would still be
0:17:21 way behind Starlink.
0:17:22 Starlink is
0:17:24 the undisputed
0:17:24 leader
0:17:26 in satellite broadband.
0:17:27 No one comes
0:17:27 even close.
0:17:28 So Scott,
0:17:29 your reactions
0:17:30 to Amazon
0:17:30 trying to get
0:17:31 in the game here
0:17:32 and how they
0:17:33 might compete
0:17:34 with Starlink.
0:17:34 I think I’m
0:17:35 more bullish
0:17:35 on Amazon
0:17:36 than you
0:17:36 and just to call
0:17:37 balls and strikes,
0:17:38 we had the
0:17:39 internet go out
0:17:40 here in London
0:17:42 and Drew
0:17:43 immediately
0:17:44 scrambled the jets
0:17:44 and we had
0:17:45 someone,
0:17:45 this guy
0:17:46 came over
0:17:46 and he went
0:17:47 out and bought
0:17:48 a Starlink
0:17:48 a portable
0:17:49 and he hooked
0:17:49 it up
0:17:50 and it wasn’t
0:17:50 as good
0:17:51 but within
0:17:51 four hours
0:17:51 we had
0:17:52 pretty robust
0:17:53 broadband.
0:17:53 The product
0:17:54 is exceptional
0:17:56 and I just
0:17:57 think it’s
0:17:57 strange
0:17:58 and almost
0:17:59 kind of weird
0:17:59 that we would
0:18:00 let one
0:18:01 man control
0:18:02 two-thirds
0:18:03 of low-Earth
0:18:03 satellites,
0:18:04 low-Earth
0:18:05 orbit satellites.
0:18:05 That to me
0:18:06 feels almost
0:18:06 like a security
0:18:07 risk.
0:18:08 Where I’m
0:18:10 more bullish
0:18:10 on Amazon
0:18:12 is that I don’t
0:18:12 think Amazon
0:18:14 needs to get
0:18:15 to product parity
0:18:16 because I think
0:18:17 the vision here
0:18:17 if I were
0:18:18 Jeff Bezos
0:18:18 I’d wait
0:18:19 until I had
0:18:19 a decent
0:18:20 product
0:18:21 and then
0:18:21 you know
0:18:21 what I’d
0:18:22 stitch it in
0:18:22 with?
0:18:23 The Kuiper
0:18:23 offering?
0:18:24 What?
0:18:25 Amazon Prime.
0:18:27 82% of
0:18:28 Americans
0:18:30 have Amazon
0:18:31 Prime,
0:18:31 it’s arguably
0:18:32 the most
0:18:32 successful
0:18:33 and largest
0:18:33 loyalty
0:18:34 program
0:18:34 in history
0:18:35 and maybe
0:18:35 the second
0:18:35 largest
0:18:36 recurring
0:18:37 revenue
0:18:37 product
0:18:38 in history
0:18:38 maybe
0:18:38 behind
0:18:39 Netflix
0:18:39 or
0:18:40 I guess
0:18:40 Microsoft
0:18:41 Office.
0:18:42 Their brand
0:18:43 is so deep
0:18:44 in terms of
0:18:44 trust in a
0:18:45 consumer offering
0:18:47 and I think
0:18:48 that Musk is
0:18:48 beginning to
0:18:49 contaminate his
0:18:50 brands.
0:18:51 Bezos will
0:18:52 close the gap,
0:18:52 they have the
0:18:53 gap capital.
0:18:54 To your point,
0:18:54 I’m not sure
0:18:55 they ever
0:18:55 actually catch
0:18:56 up,
0:18:57 but they’re
0:18:58 talking about
0:18:59 they want
0:18:59 to have
0:18:59 3,200
0:19:00 satellites.
0:19:01 But I think
0:19:02 if they get
0:19:02 there,
0:19:03 say to 80
0:19:04 or 90%
0:19:05 of Starlink,
0:19:06 it’ll force
0:19:07 Starlink’s
0:19:07 hand and I
0:19:08 think or SpaceX
0:19:08 and it’ll have
0:19:09 to go public
0:19:09 for access to
0:19:10 more cheap
0:19:10 capital.
0:19:11 But this is
0:19:12 going to be a
0:19:13 celebrity death
0:19:13 match.
0:19:14 Also,
0:19:16 one of the
0:19:16 things we talk
0:19:16 about in
0:19:17 brand strategy
0:19:18 is one of
0:19:18 the keys or
0:19:19 kind of pillars
0:19:20 of branding
0:19:20 is just
0:19:20 awareness.
0:19:22 if you think
0:19:23 about the
0:19:23 products you
0:19:24 purchase,
0:19:25 you’re really
0:19:26 unlikely to
0:19:27 purchase a
0:19:27 product you’ve
0:19:28 never heard of
0:19:29 or you’re much
0:19:29 more inclined to
0:19:30 purchase anything
0:19:32 you hear of the
0:19:32 brand.
0:19:32 Oh, I would
0:19:33 buy a Toyota.
0:19:34 For big
0:19:34 purchases, you
0:19:35 just don’t want
0:19:36 to buy anything
0:19:36 that you haven’t
0:19:36 heard of.
0:19:37 Think about it
0:19:37 just on a
0:19:38 personal level,
0:19:39 people’s brands.
0:19:40 I think it’s
0:19:40 something like 40
0:19:41 times more likely
0:19:42 to respond to
0:19:42 an email from
0:19:43 someone you know
0:19:44 or even if you
0:19:44 don’t know them
0:19:45 well, you’ve
0:19:45 just heard of
0:19:46 them than
0:19:47 someone whose
0:19:47 name you don’t
0:19:48 recognize.
0:19:49 So awareness
0:19:50 is enormous
0:19:51 and I think
0:19:52 Kuiper is
0:19:52 about to
0:19:53 become one
0:19:53 of the fastest
0:19:54 zero to 60
0:19:55 brands in
0:19:56 history and
0:19:56 that is I
0:19:57 would bet less
0:19:59 than 1% of
0:19:59 the US
0:20:00 population knows
0:20:01 brand Kuiper
0:20:02 right now and
0:20:02 I would bet 60
0:20:03 to 80% by the
0:20:04 end of the
0:20:04 year know it
0:20:06 because it’s
0:20:06 going to be
0:20:07 constantly in
0:20:08 the news,
0:20:08 right?
0:20:09 I mean it
0:20:09 ends up that
0:20:10 maybe shooting
0:20:11 Katy Perry
0:20:11 into space
0:20:12 wasn’t a bad
0:20:12 idea.
0:20:12 It was probably
0:20:13 a bad idea
0:20:13 to bring her
0:20:14 back but
0:20:15 maybe this
0:20:18 technology that
0:20:18 he’s spending
0:20:19 all this money
0:20:20 on is for a
0:20:20 reason, right?
0:20:21 Other than
0:20:21 sending his
0:20:22 girlfriend into
0:20:23 space and
0:20:24 Amazon has the
0:20:25 capital, they
0:20:25 have the
0:20:25 technical
0:20:26 expertise, I
0:20:27 bet they’re
0:20:27 going to find
0:20:28 a lot of
0:20:28 people from
0:20:29 SpaceX are
0:20:29 willing to go
0:20:30 to work for
0:20:30 them.
0:20:31 This could be
0:20:33 to Starlink
0:20:33 what Old
0:20:33 Navy is to
0:20:36 get 80% of
0:20:37 the quality for
0:20:37 50% of the
0:20:38 price and
0:20:38 there’s a
0:20:39 market for
0:20:39 that.
0:20:40 And the
0:20:41 moment they
0:20:41 stitch it
0:20:42 into Amazon
0:20:43 Prime, I
0:20:43 think the
0:20:44 thing gets
0:20:44 10, 15,
0:20:45 20% of
0:20:45 households.
0:20:47 It made
0:20:47 me, you
0:20:47 know, I’ve
0:20:49 been slowly
0:20:50 but surely
0:20:50 burning down
0:20:51 my U.S.
0:20:51 equities.
0:20:52 I’ve been
0:20:52 selling Apple
0:20:53 and a little
0:20:53 bit of Amazon
0:20:54 and I’m
0:20:54 actually now
0:20:55 thinking about
0:20:55 holding on to
0:20:55 my Amazon
0:20:56 because I
0:20:56 think the
0:20:59 countervailing
0:20:59 forces here,
0:20:59 speaking of
0:21:00 China, two
0:21:01 thirds of
0:21:02 Amazon’s
0:21:02 businesses in
0:21:03 the U.S.
0:21:03 and I think
0:21:03 the U.S.
0:21:04 can be negatively
0:21:04 impacted.
0:21:05 But I
0:21:05 think this
0:21:05 is very
0:21:06 exciting for
0:21:07 Amazon and
0:21:08 I just love
0:21:09 seeing a
0:21:10 company that’s
0:21:11 as important as
0:21:12 SpaceX get a
0:21:12 competitor.
0:21:12 I think it’ll
0:21:13 make them both
0:21:13 better.
0:21:13 So I’m
0:21:15 actually really
0:21:15 excited.
0:21:16 Starlink, by
0:21:16 the way, so
0:21:17 far has
0:21:18 projected revenue
0:21:19 in 2025 of
0:21:19 $12.3
0:21:20 billion.
0:21:20 That’s up
0:21:22 57%.
0:21:23 7.6
0:21:23 million
0:21:24 subscriptions
0:21:24 projected by
0:21:25 the end of
0:21:25 2025, a
0:21:27 65% increase.
0:21:28 Again, 7.6
0:21:28 million.
0:21:28 Keep in
0:21:30 mind, Amazon
0:21:31 I think has
0:21:33 about 110 or
0:21:34 120 million
0:21:34 households.
0:21:35 have Prime.
0:21:36 Over 200
0:21:37 million subscribers
0:21:39 globally, 180
0:21:40 million adults in
0:21:41 the United States
0:21:42 are Amazon Prime
0:21:43 members.
0:21:44 That’s like most
0:21:44 of them.
0:21:45 Basically, more
0:21:46 people have
0:21:46 Amazon Prime
0:21:47 than have a
0:21:47 Christmas tree,
0:21:48 own a gun,
0:21:49 or have kids.
0:21:50 You’ve honestly
0:21:51 completely sold me
0:21:51 on it.
0:21:52 I’m totally with
0:21:53 you and it seems
0:21:53 to make so much
0:21:54 sense for Amazon’s
0:21:55 business, which
0:21:56 they have a
0:21:57 history of getting
0:21:58 into businesses
0:21:59 that are somewhat
0:21:59 indispensable.
0:22:00 You know, they
0:22:03 get into household
0:22:04 products, they get
0:22:04 into groceries,
0:22:05 buy Whole Foods,
0:22:07 they get into
0:22:08 healthcare, content,
0:22:09 all these kinds of
0:22:10 businesses where
0:22:12 it’s like something
0:22:13 you just have to
0:22:14 have, and then
0:22:15 they make it a
0:22:16 recurring subscription.
0:22:18 And it does feel
0:22:19 like the next
0:22:20 planet to conquer
0:22:21 is broadband and
0:22:22 the internet.
0:22:23 And so I think
0:22:23 you’re probably
0:22:24 right.
0:22:25 Just a question of
0:22:26 how it would
0:22:27 actually work.
0:22:28 What do you think
0:22:29 the offering would
0:22:30 actually look like?
0:22:30 Do you think it’s
0:22:32 like a premium
0:22:33 Amazon Prime
0:22:34 subscription that
0:22:35 gives you some
0:22:36 sort of discount
0:22:39 on a Kuiper
0:22:40 satellite dish?
0:22:41 Yeah, it’ll be
0:22:41 something like
0:22:42 Amazon Prime Plus
0:22:43 where it’s like,
0:22:44 okay, flip the
0:22:45 switch on here,
0:22:46 tell us when you’re
0:22:47 home, give us a
0:22:48 window, and we’re
0:22:48 going to come
0:22:49 install this cool,
0:22:50 elegant, whatever it
0:22:51 is, and overnight
0:22:52 you have massively
0:22:54 blinding internet
0:22:55 speeds.
0:22:57 And the thing that
0:22:57 people underestimate
0:22:58 is just how lazy
0:22:59 consumers are.
0:23:00 I got so excited
0:23:01 about Jeff Bezos
0:23:02 standing up to
0:23:03 Donald Trump and
0:23:04 deciding to post
0:23:04 tariffs next to
0:23:06 every product that
0:23:07 I went out, no
0:23:08 joke, or I went
0:23:08 out, I went on
0:23:10 Amazon, and I
0:23:12 ordered 16 Bose
0:23:14 Ultra headphones for
0:23:14 the team.
0:23:15 And I thought,
0:23:16 okay, I’m going to
0:23:18 spend $6,400 on
0:23:18 Amazon, and I’m
0:23:19 going to go on
0:23:20 Threads and Blue
0:23:21 Sky and Virtue
0:23:22 Signal about how
0:23:22 great it is that
0:23:23 Amazon is doing
0:23:24 this.
0:23:24 And then that
0:23:25 motherfucker
0:23:25 caves.
0:23:28 And so I’m
0:23:30 like, I’m
0:23:31 threading, good
0:23:32 for him, he
0:23:32 reached down, and
0:23:33 despite all the
0:23:33 human growth
0:23:34 hormone, he
0:23:34 found these
0:23:35 little, little,
0:23:36 tiny, little,
0:23:37 wee things called
0:23:38 testicles, and
0:23:39 decided to put
0:23:40 them into action,
0:23:40 good for him,
0:23:41 good on Bezos.
0:23:42 If only he’d
0:23:43 known he would
0:23:43 have gotten the
0:23:44 backing of Scott
0:23:45 Galloway, maybe
0:23:45 he would have
0:23:46 stuck with it.
0:23:47 Literally, I’m
0:23:48 like, I am
0:23:49 literally, I
0:23:50 thread, this is
0:23:50 what leadership
0:23:52 looks like, send,
0:23:52 and all of a
0:23:53 sudden I get a
0:23:53 text from Kara
0:23:54 Swisher, he
0:23:55 caved, he
0:23:56 caved.
0:23:57 She saw
0:23:59 my thread, and
0:23:59 literally as she
0:24:00 saw my thread, she’s
0:24:00 like, he
0:24:01 caved, you’re
0:24:02 wrong, he
0:24:03 caved, he’s a
0:24:04 fucking wimp and
0:24:04 a loser.
0:24:06 And I’m like, and
0:24:07 so I go back to
0:24:08 Amazon, and I
0:24:09 cancel my order.
0:24:09 I was just
0:24:10 going to say, do
0:24:11 we get the
0:24:11 headphones?
0:24:11 No, we
0:24:12 don’t.
0:24:13 No, bitch,
0:24:13 call Amazon,
0:24:15 call Bezos and
0:24:16 tell him to start
0:24:16 acting like an
0:24:17 American.
0:24:17 All right, I’ll
0:24:18 take it up with
0:24:18 him.
0:24:19 But the
0:24:19 moral of the
0:24:21 story is it is
0:24:23 so seamless to
0:24:23 add and take
0:24:24 things away from
0:24:26 Amazon Prime that
0:24:27 the moment it
0:24:28 pops up and it
0:24:29 says, Scott, Amazon
0:24:31 Prime Plus includes
0:24:32 this blinding
0:24:35 broadband, wow, I
0:24:37 would bet, God, I
0:24:37 don’t know, I
0:24:38 would bet by the
0:24:42 end of 27, you
0:24:43 could very easily
0:24:44 see Kuiper have
0:24:45 more penetration
0:24:46 than Starlink.
0:24:46 You’ve
0:24:46 certainly
0:24:47 convinced me.
0:24:48 I’m definitely
0:24:49 more bullish today
0:24:50 than I was
0:24:51 yesterday.
0:24:53 We’ll be right
0:24:54 back after the
0:24:55 break with a
0:24:55 look at big tech
0:24:56 earnings.
0:24:57 If you’re enjoying
0:24:57 the show so far,
0:24:58 be sure to give
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0:28:44 We’re back with PROPG
0:28:44 markets.
0:28:46 All right, let’s get into
0:28:47 big tech earnings.
0:28:49 Microsoft, Meta, Apple, and
0:28:50 Amazon all reported earnings
0:28:51 last week.
0:28:52 We’re recording this a day
0:28:53 later, hence why we’re
0:28:54 dressed differently so that
0:28:55 we could react to these
0:28:55 earnings.
0:28:56 We’ll start with a look at
0:28:59 Microsoft and Meta, whose
0:29:00 shares both rose pretty
0:29:01 significantly after earnings
0:29:02 here.
0:29:03 Microsoft posted record
0:29:05 revenue and record
0:29:05 profits.
0:29:07 Beat on the top and bottom
0:29:07 lines.
0:29:10 shares rose 9%, which
0:29:11 now makes Microsoft the
0:29:13 most valuable company in
0:29:14 the world, ahead of
0:29:14 Apple.
0:29:17 Meta was also a beat, beat
0:29:18 on the top and bottom
0:29:18 lines.
0:29:20 Revenue rose 16%.
0:29:22 Shares in Meta rose 6%
0:29:22 after hours.
0:29:25 Really great quarters for
0:29:26 Meta and Microsoft.
0:29:28 Scott, your reactions to
0:29:29 these two earnings?
0:29:30 Well, Daddy went deep in
0:29:31 the paint last night.
0:29:34 I’m not used to working
0:29:35 on Friday.
0:29:36 I’m used to long walks
0:29:37 with the dog and trying to
0:29:38 get this newsletter out.
0:29:39 As you can tell by the
0:29:40 way I’m dressed.
0:29:42 Yeah, my green juice.
0:29:44 Most importantly, the
0:29:45 door women from
0:29:47 Children did a pop-up last
0:29:48 night at the Broadwick
0:29:49 Hotel, and it was pretty
0:29:49 good.
0:29:50 It was pretty good.
0:29:51 I spilled drinks on all
0:29:53 my friends, which at the
0:29:54 time was kind of a bummer,
0:29:55 but it’s brought me real
0:29:56 joy today, just thinking
0:29:58 about that moment.
0:30:00 I mean, literally, I went
0:30:01 and got four drinks, and
0:30:03 not an ounce of it was not
0:30:05 on them within about 30
0:30:06 seconds.
0:30:06 Anyways, okay.
0:30:08 So, look, there’s just
0:30:09 no getting around it.
0:30:10 All of these terms have
0:30:12 kind of gone from, it’s
0:30:13 like good, better, best in
0:30:14 terms of their earnings.
0:30:16 Revenue up 13%, as you
0:30:17 said.
0:30:18 What was really impressive
0:30:19 was their cloud unit.
0:30:20 Revenue rose 33%.
0:30:22 That’s just incredible, and
0:30:24 then net income up 18%.
0:30:26 The CapEx was interesting.
0:30:28 You highlighted the first
0:30:29 thing I noticed, and that
0:30:30 is CapEx declined for the
0:30:31 first time.
0:30:32 And I wonder how much of
0:30:35 that is DeepSeq has given
0:30:35 them a little bit of
0:30:36 pause saying, maybe we
0:30:37 don’t need to build nuclear
0:30:40 power plants, and we’re not
0:30:41 in an arms race, that maybe
0:30:43 there is a fork in the road
0:30:45 here, or a plan B, where our
0:30:48 AI future may not require the
0:30:49 CapEx we’d initially
0:30:50 thought, so it feels like
0:30:51 they’re maybe taking a
0:30:52 pause on that.
0:30:54 And then, its stock is up
0:30:57 13%, because people keep
0:30:58 saying, all right, if
0:31:00 you’re, how do I, what is
0:31:01 the defensive play?
0:31:02 What is the recession-proof
0:31:02 stock?
0:31:04 And Microsoft brings you
0:31:04 kind of the peanut butter
0:31:07 of a tech company with
0:31:09 pretty decent growth, with
0:31:10 the chocolate of a
0:31:11 defensive company, right?
0:31:13 Because it really is, it’s
0:31:15 pretty well diversified, it’s
0:31:16 global, and it’s hard to
0:31:18 see how, other than impact
0:31:20 on the global economy, how
0:31:21 it can, you know, it would
0:31:23 be really hurt versus an
0:31:26 Amazon by its, by the
0:31:26 tariffs.
0:31:27 I think it gets about half
0:31:27 its revenues from
0:31:28 overseas, whereas Amazon
0:31:29 gets two-thirds of its
0:31:30 revenues here.
0:31:31 So, it has both this
0:31:32 recurring revenue stream of
0:31:34 the largest corporate
0:31:36 recurring revenue base in
0:31:37 history with Microsoft
0:31:38 Office that I think, you
0:31:40 know, 5,000 of the
0:31:41 corporate 5,000 companies
0:31:44 use, and then it has the
0:31:46 rocket fuel of a nice AI
0:31:46 overlay.
0:31:49 So, it benefits from
0:31:50 probably some of this
0:31:51 insecurity because it’s
0:31:53 seen as quality in what is
0:31:54 arguably right now a flight to
0:31:55 quality.
0:31:55 Your thoughts?
0:31:56 Yeah, I think that’s all
0:31:56 right.
0:31:57 And I think the most
0:31:59 important number was the
0:32:00 cloud growth.
0:32:01 I mean, I’ve said this
0:32:03 before, but I think if
0:32:04 you’re in the AI business
0:32:07 today, that’s all Wall
0:32:08 Street really cares about.
0:32:09 You can beat on overall
0:32:10 revenue, which they did.
0:32:12 You can beat on overall
0:32:13 profits, which they did.
0:32:14 But the thing that Wall
0:32:15 Street really wants to
0:32:16 see is, are you
0:32:18 outperforming in terms of
0:32:20 their expectations for
0:32:22 cloud growth or, in other
0:32:23 words, AI growth?
0:32:25 And that is what they
0:32:25 proved here.
0:32:27 Microsoft Azure, which is
0:32:28 their cloud unit, and we
0:32:29 should just call it their
0:32:30 AI unit.
0:32:30 That’s where they’re
0:32:32 selling compute to AI
0:32:33 companies.
0:32:36 That revenue rose 33%.
0:32:37 And Wall Street’s
0:32:38 expectations for that
0:32:39 business was 29%.
0:32:41 Also, the guidance for
0:32:42 that unit for Microsoft
0:32:44 Azure, they expect the
0:32:45 number in this current
0:32:47 quarter, so when they
0:32:48 next report earnings, they
0:32:50 expect growth to be 35%,
0:32:51 so even higher.
0:32:52 And that also beat
0:32:53 expectations.
0:32:55 So that’s the number that
0:32:56 Wall Street really cares
0:32:56 about.
0:32:57 The opposite effect
0:32:59 happened with Amazon,
0:33:00 which we’ll get to in a
0:33:00 second.
0:33:03 But yes, the CapEx that
0:33:04 you mentioned, that also
0:33:04 jumped out to me.
0:33:07 $21.4 billion, that’s a
0:33:08 lot.
0:33:09 But it is a decline from
0:33:11 the previous quarter, and
0:33:13 it’s the first CapEx
0:33:14 decline for Microsoft in
0:33:15 more than two years.
0:33:17 You pointed out that maybe
0:33:18 this is a response to
0:33:18 DeepSeq.
0:33:20 I think that’s definitely a
0:33:21 possibility.
0:33:22 I was wondering if maybe
0:33:24 it’s a response to just
0:33:25 the tariff environment.
0:33:26 I mean, we’re just living
0:33:28 in a more uncertain
0:33:30 economic environment right
0:33:31 now, and I wonder if
0:33:33 because of that, they
0:33:35 were thinking we’re going
0:33:36 to go all in on AI
0:33:37 beforehand, and now they’re
0:33:38 beginning to pare back
0:33:39 some of those
0:33:40 ambitions, start to play
0:33:41 things a little bit
0:33:41 safer.
0:33:43 CapEx is still going to
0:33:44 grow, but it’s just not
0:33:44 going to grow as fast as
0:33:45 they said it would last
0:33:45 year.
0:33:47 So I wonder if that’s, it
0:33:48 could be DeepSeq.
0:33:49 I wonder if it could be a
0:33:50 tariff response too.
0:33:51 What’s interesting about
0:33:53 Meta, moving on to
0:33:55 Meta here, Meta had the
0:33:55 opposite.
0:33:56 They are actually
0:33:58 accelerating their CapEx
0:33:58 investment.
0:34:00 They raised CapEx
0:34:01 guidance from what was
0:34:03 previously a high end of
0:34:05 $65 billion to now
0:34:06 $72 billion.
0:34:08 So Microsoft, meanwhile,
0:34:10 is playing it safe.
0:34:12 Meta appears to be
0:34:13 actually leaning into the
0:34:14 uncertainty.
0:34:16 The number that really
0:34:18 jumped out to me was
0:34:19 3.43 billion.
0:34:21 That’s the number of
0:34:23 users who use a Meta
0:34:25 app every single day.
0:34:26 That’s the daily active
0:34:26 user number.
0:34:28 It’s up 6% year over
0:34:30 year, which means that
0:34:31 more than 40% of the
0:34:34 entire world population
0:34:36 is getting on a Meta
0:34:36 app, whether it’s
0:34:38 Instagram or Facebook or
0:34:39 WhatsApp, they’re using it
0:34:40 every single day.
0:34:41 I find the most
0:34:42 interesting application of
0:34:43 AI from a shareholder
0:34:44 standpoint is actually
0:34:45 pretty boring, and that
0:34:47 is it’s Meta’s ability
0:34:49 to increase the
0:34:50 targeting of their
0:34:51 products.
0:34:53 So they are not only
0:34:54 increasing their
0:34:57 revenue, I think their
0:34:59 revenue or the way they
0:35:00 monetize their traffic has
0:35:01 gone up, their CPMs have
0:35:03 gone up, or they’re able to
0:35:03 charge more.
0:35:05 But not only that, their
0:35:08 AI, which feeds into the
0:35:10 recommendation engine or the
0:35:11 recommendation systems,
0:35:13 contributed to a 35% increase
0:35:14 in time spent on threads,
0:35:17 7% increase in time spent on
0:35:18 Facebook.
0:35:18 That’s amazing.
0:35:19 That’s like getting
0:35:20 younger people to watch
0:35:21 MSNBC, right?
0:35:23 If you can get more people
0:35:24 to spend more time on
0:35:25 Facebook, that’s not easy at
0:35:25 this point.
0:35:27 6% increase in Instagram.
0:35:30 And then if you think
0:35:32 about, you know, one of the
0:35:33 predictions we have for this
0:35:34 year was that Meta was
0:35:35 going to be the AI company
0:35:36 at 25 because they’re the
0:35:38 second largest purchaser of
0:35:39 GPUs from an NVIDIA.
0:35:41 And I personally, I don’t
0:35:42 know if you’ve noticed this,
0:35:44 I have found that Instagram
0:35:46 Reels is increasingly taking
0:35:49 time from TikTok for me.
0:35:52 And I noticed a tangible
0:35:56 difference in the quality of
0:35:57 the algorithm, of TikTok’s
0:35:59 algorithm to serve me content
0:35:59 that was relevant.
0:36:01 And it feels to me like
0:36:03 Instagram Reels has somewhat
0:36:04 closed that gap.
0:36:06 And I think that’s leveraging
0:36:08 AI and all this back and
0:36:10 forth and nonsense between
0:36:12 Trump and China over banning
0:36:13 TikTok, not banning it, and
0:36:14 the fact that Meta has such a
0:36:16 built-in user base already.
0:36:17 I think it’s starting, I
0:36:18 think there’s, quite frankly,
0:36:19 I think they’re actually
0:36:20 starting to pull back or
0:36:22 claw back some of that share
0:36:24 from TikTok.
0:36:27 Let’s move on to Apple and
0:36:27 Amazon.
0:36:30 So Apple, they had better than
0:36:32 expected sales, up 5% overall.
0:36:34 They missed their sales
0:36:35 estimates in China, falling
0:36:36 more than 2%.
0:36:38 They also warned about
0:36:38 tariffs.
0:36:39 They said tariffs will add
0:36:41 $900 million to its costs
0:36:42 this quarter.
0:36:45 Shares fell 4% in after
0:36:45 hours.
0:36:46 And then we also saw
0:36:48 earnings from Amazon, which
0:36:49 was also a beat, same as
0:36:50 Apple.
0:36:52 But they gave guidance that
0:36:53 Wall Street considered
0:36:54 cautious, and they also
0:36:56 missed slightly on their
0:36:57 AWS growth.
0:36:59 And shares in Amazon fell
0:37:00 more than 3%.
0:37:02 So both companies actually,
0:37:04 when you just look at the
0:37:05 earnings compared to
0:37:07 expectations, pretty solid
0:37:09 quarters at face value.
0:37:11 But there were just some
0:37:13 signs of weakness in there
0:37:13 that Wall Street didn’t
0:37:16 like, and both stocks
0:37:16 fell.
0:37:17 Your reaction?
0:37:18 I thought Apple had the
0:37:19 least impressive earnings
0:37:20 of the bunch, although I
0:37:22 was surprised that they, I
0:37:23 think last quarter, their
0:37:25 revenue was basically flat
0:37:26 year-on-year, which is
0:37:28 weird for a company or
0:37:28 unacceptable for a
0:37:29 company trading at a
0:37:31 price-earnings multiple of
0:37:31 34.
0:37:34 And even 5% isn’t sort of
0:37:34 tech.
0:37:35 It’s no longer really
0:37:36 considered a growth
0:37:36 company.
0:37:38 And I think, was it
0:37:40 Catherine Rampell, or I
0:37:43 forget who was on the
0:37:44 pod and summarized it
0:37:45 perfectly, or maybe it was
0:37:46 Kyla Scanlon, who said
0:37:47 that Apple is a mature
0:37:49 company trading as if it’s a
0:37:49 growth company.
0:37:50 I think that was me.
0:37:51 That was you?
0:37:54 What is it about you that
0:37:55 reminds me of thoughtful
0:37:57 women in economics?
0:38:01 Anyways, Edwina.
0:38:06 The services revenue was the
0:38:06 highlight.
0:38:08 It grew 12% to $27 billion,
0:38:10 even though that has slowed
0:38:12 down, or it’s a slow since
0:38:13 2023, it’s still double-digit
0:38:14 growth.
0:38:16 Wearables fell 5%, missing
0:38:18 estimates, so that’s kind of,
0:38:19 that’s not good.
0:38:22 The other thing that kind of
0:38:25 shows an unusual operational
0:38:26 misstep, I was really excited
0:38:27 about Apple Intelligence.
0:38:29 I thought that if anyone could
0:38:31 sort of consumerize other
0:38:32 people’s massive cat-backs
0:38:35 around AI, I thought it was
0:38:36 going to be Apple, that they
0:38:37 would just organize my
0:38:38 photos and come up with sort
0:38:40 of very useful ways to speak
0:38:42 to my AirPods and say, oh,
0:38:44 we’re out, it’s loud, I’m
0:38:44 taking the volume down.
0:38:45 They do that a little bit,
0:38:47 but I would have thought there
0:38:48 would be a bunch of cool
0:38:49 things, little features that
0:38:50 they would be able to
0:38:50 leverage.
0:38:51 Totally drop the poll on
0:38:51 that, yeah.
0:38:53 And they’ve branded it
0:38:53 brilliantly.
0:38:54 They call it Apple
0:38:55 Intelligence, the AI
0:38:57 features, but they’ve been
0:38:58 delayed again.
0:39:00 And it’s kind of, it’s
0:39:00 unusual.
0:39:02 Apple usually kind of under
0:39:03 promises and over delivers.
0:39:06 So that, they don’t appear
0:39:08 to have the same depth of
0:39:10 human capital around AI, some
0:39:11 of the other guys.
0:39:13 I still feel that, I still
0:39:14 own some Apple, I’ve been
0:39:15 selling it down.
0:39:16 I think it’s overvalued at a
0:39:19 PE of, you know, it’s net
0:39:22 income growth in 2024, negative
0:39:24 3% versus Microsoft at up
0:39:28 21, Alphabet up 36, Amazon
0:39:30 up 95, Meta up 65, and
0:39:32 NVIDIA up 145%.
0:39:34 And yet Apple trades at the
0:39:36 same PE multiple as
0:39:40 Microsoft at 33, more than
0:39:41 Amazon, it’s at 31, and
0:39:42 Alphabet’s at 18.
0:39:43 I mean, if you just look at
0:39:44 these things from a pure
0:39:45 valuation bottoms-up
0:39:47 standpoint, it looks like
0:39:48 Alphabet’s the least
0:39:50 expensive, and it looks like
0:39:50 Apple is the most
0:39:51 expensive.
0:39:52 Yeah, absolutely.
0:39:53 And there was just another
0:39:54 red flag in terms of this
0:39:56 idea that Apple is this
0:39:57 mature company that’s
0:39:58 trading as if it were a
0:39:58 growth company.
0:40:00 They announced another
0:40:01 buyback program.
0:40:02 Yeah.
0:40:03 $100 billion in buybacks.
0:40:04 They also boosted the
0:40:06 dividend by 4%.
0:40:08 If you’re trading at 30 to
0:40:11 33 times earnings, you’re
0:40:13 trading as a growth company,
0:40:14 which means that the market
0:40:15 should be expecting that
0:40:16 you’re investing in growth.
0:40:17 you’re investing in new
0:40:19 products, you’re investing in
0:40:19 new services.
0:40:21 Instead, they’re just using
0:40:22 all of this capital and all
0:40:25 this cash to just repurchase
0:40:26 shares.
0:40:28 And as Aswata Motrin says, I
0:40:29 mean, this is sort of the
0:40:30 bread and butter of the
0:40:31 corporate life cycle.
0:40:33 That’s what you do when you’re
0:40:34 in the mature stage.
0:40:35 That’s what you do when you’re
0:40:36 a middle-aged company and
0:40:37 you’re on the way out.
0:40:39 You start buying back shares.
0:40:42 So, I mean, I was a little
0:40:45 surprised by how the stock
0:40:46 pulled back because I thought
0:40:48 overall, the earnings compared
0:40:50 to expectations were pretty
0:40:50 solid.
0:40:52 But I wonder if people are
0:40:54 starting to realize that
0:40:55 actually, the multiple here
0:40:57 doesn’t really make sense.
0:40:59 This is not the growth company
0:41:00 that we thought Apple was,
0:41:02 you know, 10, 15 years ago
0:41:03 when it was on the cutting
0:41:04 edge of technology and
0:41:05 innovation.
0:41:06 Because what we’re seeing here
0:41:08 is that, I mean, every time I
0:41:09 see a buyback, I’m like, oh,
0:41:10 you’re running out of ideas.
0:41:11 Understood.
0:41:13 You’re being sensible about it,
0:41:14 but you are running out of
0:41:14 ideas.
0:41:16 And that’s sort of the vibe I
0:41:17 get from Apple right now.
0:41:20 And I wonder if Wall Street’s
0:41:21 getting the same message.
0:41:23 This is, I think Apple is
0:41:24 ground zero for what I call
0:41:26 the great, you know, reversal
0:41:27 of flows in the rivers.
0:41:28 And that’s what I’m writing
0:41:29 about in today’s No Mercy,
0:41:30 No Malice.
0:41:31 And that is, I think Apple
0:41:33 could increase its earnings
0:41:34 by 20 or 30 percent over the
0:41:35 next five years.
0:41:36 And I think the stock’s still
0:41:37 going to go down because
0:41:39 trading at that multiple,
0:41:41 I just don’t think it can
0:41:41 outrun the multiple
0:41:42 contraction that it’s about
0:41:43 to experience.
0:41:46 I bought Apple in 2000, I
0:41:48 think in 10 or 11, and I
0:41:48 bought it.
0:41:49 It was growing much faster.
0:41:50 I think it was still growing
0:41:51 high single or low double
0:41:51 digits.
0:41:53 And I think I bought it at a
0:41:54 PE of 10.
0:41:56 So the company could continue
0:41:57 to perform.
0:41:58 And I still think the stock is
0:41:59 going to struggle because I
0:42:01 just think that it’s the most,
0:42:02 I think it’s the most widely
0:42:03 held stock in the world.
0:42:06 It kind of identifies or marks
0:42:07 American tech.
0:42:09 And I think as these rivers of
0:42:11 capital begin to reverse flow,
0:42:12 there’s just no way that won’t
0:42:14 come out of what is the most
0:42:16 valuable, iconic company in
0:42:18 America when people look at it
0:42:19 and say, great company, we love
0:42:19 it.
0:42:21 But if it’s really, if it’s
0:42:23 growing low single digits, does
0:42:24 it really connote a growth like
0:42:25 valuation?
0:42:26 Yeah, I agree.
0:42:28 It’s also quite telling that the
0:42:30 day that the company, the day
0:42:31 that a company announced a
0:42:33 $100 billion share buyback
0:42:36 program was the same day that
0:42:38 that same company was ousted as
0:42:39 the most valuable company in the
0:42:39 world.
0:42:41 Like that’s just not a good, you
0:42:43 would not expect those two things
0:42:44 to be true at the same time, but
0:42:45 they were last week.
0:42:47 Let’s just quickly go to Amazon.
0:42:50 They also beat on the top and
0:42:52 bottom lines, pretty strong
0:42:54 quarter actually, the ad business
0:42:56 was a big beat, ad sales grew
0:43:00 19%, but the stock fell almost
0:43:00 4%.
0:43:03 And why did that happen?
0:43:04 As I mentioned earlier, what
0:43:07 Wall Street cares about is AI and
0:43:09 AWS, which we could also just say
0:43:11 is their AI unit, their cloud
0:43:13 unit, their compute unit, that
0:43:15 actually slightly missed on revenue
0:43:15 expectations.
0:43:18 Still, it grew 17%, pretty
0:43:21 good, $29.3 billion.
0:43:23 But Wall Street wanted more.
0:43:25 They wanted 29.4.
0:43:28 And if you’re in the AI business, it’s
0:43:29 the dynamic we’ve discussed.
0:43:32 Beating expectations here means you
0:43:33 need to blow expectations out of
0:43:34 the water.
0:43:37 Even a slight miss on that one
0:43:38 business unit, that’s a big problem
0:43:40 for Wall Street, which is why I think
0:43:42 the stock fell so significantly.
0:43:43 Any thoughts on Amazon, Scott?
0:43:45 Well, Amazon is the most vulnerable
0:43:47 probably the magnificent seven to
0:43:48 tariffs.
0:43:50 One, two-thirds of its businesses in
0:43:52 the US versus most of big techs is
0:43:54 somewhere between half and one-third.
0:43:55 Medica only gets a third of their
0:43:56 business domestically.
0:43:58 And obviously, they import a lot of
0:44:00 products that will have tariffs on
0:44:00 them.
0:44:04 In addition, as goes AWS, goes Amazon.
0:44:05 I mean, Amazon is essentially a cloud
0:44:07 provider now with a retail unit.
0:44:09 And when you don’t beat expectations
0:44:11 on what is considered the white meat
0:44:13 of your business, that your stock’s
0:44:14 going to get hit.
0:44:17 Also, and this is a prediction, and I’m
0:44:19 as everyone who listens to this
0:44:21 podcast know, I am rotating out of US
0:44:23 stocks and my Amazon position into
0:44:25 European and Asian holdings.
0:44:28 And I’m about to sell down some Amazon
0:44:30 and put it in Alibaba because I think
0:44:32 what you’re going to see over the next
0:44:36 year is that Alibaba’s cloud unit will
0:44:40 get an unnatural surge from European
0:44:43 purchasers who are fed up with always
0:44:44 defaulting to American companies for
0:44:46 their cloud and infrastructure needs.
0:44:49 And I think a year ago, if you’d showed
0:44:52 up to the CEO of Mercedes or LVMH as
0:44:56 the CEO, as Joe Tsai would probably, or
0:44:57 the head of the cloud unit for Alibaba
0:44:59 and said, we’d like to handle your data
0:45:00 like China, no fucking way.
0:45:03 Now, I don’t think they’re seen as much
0:45:05 more mendacious as the US.
0:45:08 So I think Alibaba’s cloud unit is going
0:45:09 to get more meetings across Europe and
0:45:12 Latin America than they would have before
0:45:15 this nonsense from the US.
0:45:15 Yeah.
0:45:18 And plus, if you’ve got China investing
0:45:19 heavily in AI, if China’s made it their
0:45:22 mission of AI self-sufficiency, that’s
0:45:26 certainly going to be a win for Alibaba if
0:45:27 they can just start selling more compute to
0:45:28 Chinese companies.
0:45:33 Just one clarification before we finish up
0:45:34 here on this story.
0:45:37 I just want to clarify, like, this quarter,
0:45:39 it was very strong.
0:45:43 And I’ve seen people, probably not very smart
0:45:45 people, but people saying like, oh, things
0:45:46 are going well.
0:45:47 Look, look at the tech earnings.
0:45:50 Like, maybe things aren’t all so bad when
0:45:51 it comes to tariffs.
0:45:54 I just want to clarify, this is the quarter
0:45:56 ending March 31st.
0:45:58 So this doesn’t, none of these earnings
0:46:00 reflect anything about the tariffs.
0:46:02 The only thing that they might reflect,
0:46:04 which is what I was kind of looking for,
0:46:06 and which we sort of covered when we
0:46:09 discussed the GDP report, is it could
0:46:12 reflect this pull-forward dynamic, which
0:46:15 is this effect where, you know, consumers
0:46:17 know that tariffs are coming.
0:46:19 They know that prices are about to go way
0:46:20 up.
0:46:23 And so maybe they’re actually rushing to
0:46:25 buy in big numbers in this quarter, in this
0:46:28 previous quarter that was just reported.
0:46:31 And so I was interested to see, like, you
0:46:33 know, especially with Apple, for example, where
0:46:35 we saw all these headlines of how iPhone
0:46:37 prices are going to go way, way up.
0:46:40 We would have seen that reflected in this
0:46:43 previously reported quarter.
0:46:45 We would have seen, if that was really what
0:46:47 was happening, people are sort of panicked
0:46:49 buying an iPhone, or if you want to upgrade
0:46:52 your iPhone, you do it right before tariffs
0:46:52 happen.
0:46:54 That’s what we would have seen in this quarter.
0:46:57 And actually CNBC asked Tim Cook about this
0:46:58 specifically.
0:47:02 They said, you know, did you, is this pull-forward?
0:47:04 Are you seeing pull-forward in the earnings?
0:47:07 And he said that he saw, quote, no evidence
0:47:08 of pull-forward.
0:47:11 And I just, I don’t know, I wonder about that.
0:47:15 Like, I wonder, one, what would evidence actually
0:47:16 look like?
0:47:20 Like, how would you know that that was what was
0:47:20 happening?
0:47:24 And two, if we’re seeing signs of pull-forward
0:47:27 everywhere else, in the car industry, in the
0:47:30 clothing industry, even in those GDP numbers where
0:47:33 you saw this massive influx of imports, you know,
0:47:35 why wouldn’t we see it with the iPhone?
0:47:37 And why wouldn’t we see it with all the rest of
0:47:37 these tech earnings?
0:47:43 So on that aspect, I’m a little bit hesitant or
0:47:46 just suspicious of how strong these earnings were
0:47:47 across the board.
0:47:50 And I do wonder if the dynamic that we’re seeing is
0:47:54 everyone rushing in to buy right before prices go way
0:47:55 up with the tariffs.
0:47:59 And it’ll be interesting to see in the next quarter, that’s
0:48:00 when we’re going to see the real tariff effect.
0:48:03 It’ll be interesting to see if we see a drop-off in
0:48:03 demand there.
0:48:04 That’s really insightful.
0:48:08 It’s sort of the AR-15 effect that whenever a Democrat
0:48:11 would get elected, people go out and buy more guns
0:48:13 for fear that gun legislation is actually going to get
0:48:13 some traction.
0:48:16 But Apple really doesn’t have anything that interesting
0:48:19 right now or new or fresh, so to speak.
0:48:22 And that’s really, I would have guessed that they would
0:48:22 have been flat.
0:48:25 And I think you’re absolutely right that there was
0:48:27 probably some pull forward.
0:48:30 And also, there is no way that Tim Cook would
0:48:31 acknowledge that.
0:48:33 Because what that’s saying is, oh, it’s not our
0:48:35 products, it’s not our marketing, it’s not the quality
0:48:36 of our offering.
0:48:39 It’s an unnatural sugar high that’s going to suppress
0:48:42 product sales in the following quarters because a lot
0:48:44 of people have pre-purchased things that we’re going to
0:48:46 purchase the next or subsequent quarter.
0:48:48 So I think that’s really interesting.
0:48:49 I hadn’t thought about that, and I think you’re
0:48:49 absolutely right.
0:48:52 We’ll be right back with a look at what’s happening
0:48:53 to student debt.
0:48:56 If you’re enjoying the show so far, hit follow and leave
0:48:58 us a review on the ProfitU Markets feed.
0:49:13 Tell me if this sounds interesting to you.
0:49:18 A pickup truck with no screens, no stereo, no paint,
0:49:22 no automatic windows, basically no features of any kind.
0:49:26 But it costs less than $20,000, and you get to decide
0:49:28 almost everything about it.
0:49:31 That is the story of the Slate truck from a company called
0:49:32 Slate Auto.
0:49:35 And it might be the most interesting car we’ve seen in years.
0:49:38 This week on The Verge Cast, we talk all about the Slate
0:49:42 truck, plus what’s going on in the antitrust trials against
0:49:46 Meta and Google, and why the App Store on your iPhone might
0:49:47 change forever.
0:49:50 All that on The Verge Cast, wherever you get podcasts.
0:49:57 The regular season’s in the rearview, and now it’s time for the
0:49:58 games that matter the most.
0:50:01 This is Kenny Beecham, and playoff basketball is finally here.
0:50:04 On Small Ball, we’re diving deep into every series, every crunch
0:50:08 time finished, every coaching adjustment that can make or break a
0:50:09 championship run.
0:50:11 Who’s building for a 16-win marathon?
0:50:14 Which superstar will submit their legacy?
0:50:17 And which role player is about to become a household name?
0:50:21 With so many fascinating first-round matchups, will the West be the
0:50:22 bloodbath we anticipate?
0:50:24 Will the East be as predictable as we think?
0:50:26 Can the Celtics defend their title?
0:50:30 Can Steph Curry, LeBron James, Kawhi Leonard push the young teams at the
0:50:30 top?
0:50:33 I’ll be bringing the expertise, the passionate, genuine opinion you need
0:50:36 for the most exciting time of the NBA calendar.
0:50:40 Small Ball is your essential companion for the NBA postseason.
0:50:43 Join me, Kenny Beecham, for new episodes of Small Ball throughout the
0:50:44 playoffs.
0:50:47 Don’t miss Small Ball with Kenny Beecham, new episodes dropping through the
0:50:50 playoffs, available on YouTube and wherever you get your podcasts.
0:50:58 Should university presidents take public stances on political issues or
0:50:58 remain neutral?
0:51:03 And I think people like me who have access to platforms like yours should
0:51:05 speak out to stop authoritarianism.
0:51:10 I’m Preet Bharara, and this week, Wesleyan University President Michael
0:51:14 Roth joins me on my podcast, Stay Tuned with Preet, to discuss the role of
0:51:19 college leaders in turbulent times and why he has chosen to speak out as the
0:51:22 Trump administration takes aim at higher education.
0:51:25 The episode is out now.
0:51:29 Search and follow Stay Tuned with Preet wherever you get your podcasts.
0:51:38 We’re back with Prof G Markets.
0:51:42 For the first time in five years, the Department of Education is restarting forced
0:51:46 collections on borrowers who have defaulted on their federal student loans.
0:51:52 The move affects 5.3 million people who were in default before the pandemic and could put
0:51:53 millions more at risk.
0:51:59 Although federal loan payments resumed in October 2023, forced collections had remained
0:51:59 paused.
0:52:04 Until now, borrowers who have fallen behind are already seeing their credit scores drop,
0:52:10 And the White House has warned that it can and will seize wages, tax refunds, and even
0:52:12 pensions to recover unpaid debts.
0:52:20 So, Scott, I just want to clarify what’s really happening here and where things stand.
0:52:24 Just a reminder, Trump paused these student loan payments when COVID hit.
0:52:28 And so if you had student loans at that time, you weren’t getting billed.
0:52:31 Now, that was supposed to expire in Biden’s term.
0:52:34 But then Biden decided to extend this student loan freeze.
0:52:39 He actually tried to go even further, tried to cancel $340 billion worth of student debt,
0:52:42 but it was struck down by the Supreme Court.
0:52:45 So he ended up only partially forgiving these student loans.
0:52:48 And then these payments resumed in 2023.
0:52:54 But what didn’t resume and what will resume today is this forced collection of student loans.
0:52:59 This is where the government comes in and they just start taking the money if you are in default.
0:53:02 And what does being in default actually mean here?
0:53:08 It means that you have missed your payments for 270 days or more.
0:53:12 So for people in that position, if you haven’t made your payment in 270 days,
0:53:18 those are the people from whom the government is now going to start collecting these payments.
0:53:22 So, Scott, your reactions to this news and what it might mean for our economy.
0:53:24 There’s a lot of moral hazard here.
0:53:26 And that is my understanding is most student debt,
0:53:29 most people with student debt haven’t made a payment in five years.
0:53:35 And keep in mind the people who have student debt are the most fortunate third of Americans
0:53:37 who got to go to college.
0:53:43 And also debt is, it sucks to be a grownup, but if you take out debt, you’re supposed to pay it back.
0:53:49 And also there’s a bit of a mythology here or semantics or incorrect nomenclature,
0:53:50 and that is payments have been stalled.
0:53:53 No, payments have been made, but they’re being made by all taxpayers
0:53:57 because someone has owed this money and someone needs to collect interest on it.
0:54:02 And so it’s the U.S. government or U.S. taxpayers, all of us,
0:54:09 who are registering now the financial imposition of these student loans not being paid back.
0:54:11 And I think it sucks to be a grownup.
0:54:13 I think you take out this debt, you got to pay it back.
0:54:17 The same way if you took out an auto loan or a mortgage and you weren’t paying it,
0:54:19 they’d come for you or they’d come for the asset.
0:54:21 And in this case, they can’t repossess your degree.
0:54:25 The real issue is that the cost of higher education is just too high,
0:54:27 and it’s just kind of much faster than inflation.
0:54:28 That’s the culprit.
0:54:30 So then the question is, well, how does it come down?
0:54:33 And one of the reasons it continues to accelerate faster than inflation,
0:54:36 similar to any other bubble, is because of cheap credit.
0:54:41 And that is you go into a university and there’s a nice lady in a pantsuit
0:54:43 with a big college logo over her head saying,
0:54:45 always invest in yourself, you’re going to be fine.
0:54:49 And then you get a degree from a Joey Bag of Donuts University
0:54:53 that is part of the cartel where we all raise our prices exactly the same amount.
0:54:56 And then you get out and find out you can’t get a job and end up as a barista
0:54:58 and you have $150,000 in student debt.
0:55:05 And the issuing university of that debt or the sponsoring university is not on the hook
0:55:05 for any of that debt.
0:55:08 Whereas Toyota does some diligence.
0:55:10 Toyota says, okay, if there’s no way this person can pay back the money,
0:55:12 we’re not going to loan them the money.
0:55:15 Because if we have to repossess the Toyota, it’s going to cost us money.
0:55:17 We’re not going to be able to resell it for as much.
0:55:22 Whereas the incentive for any university with government-backed student loans and accreditation,
0:55:24 and by the way, the people accrediting these universities are the incumbents,
0:55:29 is just to encourage people to take out more and more student loans, regardless of the credit risk.
0:55:35 And until consumers start shopping around or holding their university accountable
0:55:37 and saying, this fucking sucks.
0:55:41 I borrowed a lot of money and I can’t pay it back and it’s your fault.
0:55:49 There’s no pressure on these universities to lower their tuition and they still have access to cheap credit.
0:55:54 The real solution here would probably be to put these universities on the hook for a portion of that bad student debt.
0:56:03 Such that they would say, okay, we have found that 40% of people with philosophy majors have a difficult time paying back their student debt.
0:56:08 So if you are a philosophy major, we’re going to limit the amount of student debt you have to X.
0:56:16 And because they want to have as much cheap free capital, they won’t be able to raise tuition as fast as they have.
0:56:22 So I’m really mixed here because I feel for younger people who I think have gotten a raw deal on so many levels.
0:56:29 I like the idea of programs where some sort of, you know, working in industries where you don’t,
0:56:35 that traditionally aren’t that high paying, whether it’s education or practicing medicine in rural areas or national service,
0:56:40 you should have your student loans, debt repayment, delayed, lower interest, whatever, forgiven.
0:56:46 But the idea of a generation of people just believing that debt doesn’t really count for them,
0:56:49 I don’t think that ends up anywhere good either.
0:56:51 But net-net, we got to go after the problem here.
0:56:55 And the problem is skyrocketing higher education costs.
0:56:56 Yeah.
0:57:03 But I think that highlights a big problem, which is that for all these people going into college and taking on this debt,
0:57:11 the trouble is that a lot of these young people don’t really understand what the debt is because no one’s fully explained it to them.
0:57:18 And just some statistics here, one in five student loan borrowers say they borrowed more than they needed just because it was offered.
0:57:22 One in five also say they don’t even know their current loan balance.
0:57:29 And then you throw into the mix the fact that the president, the previous president, said, don’t worry, it’ll all be forgiven.
0:57:32 And then suddenly we have a turnaround.
0:57:35 It’s not going to be forgiven.
0:57:39 And actually it’s business as usual starting today, starting May 5th.
0:57:48 And I think Trump criticized Biden actually correctly here and said he sort of made you a false promise that he couldn’t make good on.
0:57:49 And that is what happened.
0:57:50 He made a false promise.
0:57:52 The Supreme Court struck it down.
0:58:02 And what I worry about is that there is now a generation, my generation, who believes that maybe it’ll be canceled in the future.
0:58:04 Maybe something will happen.
0:58:06 Maybe this is actually on the table.
0:58:21 And so the consequences of that are going to be really bad because I think there are going to be a lot of people who say, you know what, I’m just not going to pay it because who knows, maybe in a few years Congress will vote on this and I won’t have to pay the debt.
0:58:23 And what is that going to do?
0:58:27 That’s going to absolutely obliterate my generation’s credit scores.
0:58:31 I mean, we can talk about the forced collections and what that’ll do to people.
0:58:35 But to me, the big downside is what it’s going to do to credit ratings.
0:58:37 And Liberty Street did this analysis.
0:58:47 They found that each time you miss a student loan payment, every delinquency on your student loan debt, your credit score drops by around 150 points.
0:58:53 And I think this is the real concern for young people and the part that they don’t take seriously.
0:59:00 And I just want to paint a picture of what a bad credit score can do to you in case people don’t really realize.
0:59:04 I mean, for starters, you pay higher interest rates.
0:59:06 Two, it can affect your employment.
0:59:09 I mean, a lot of employers actually check your credit.
0:59:10 And if you have bad credit.
0:59:11 I was just going to say that.
0:59:12 Yeah, it can cost you a job.
0:59:15 It affects your ability to rent.
0:59:18 I mean, landlords check your credit.
0:59:21 If you have a low score, you pay higher security deposits.
0:59:26 In many cases, you’re flat out rejected from getting that apartment or that home.
0:59:34 And then four, and this is probably like the worst of it, is it just completely hamstrings your ability to access credit.
0:59:37 I mean, you can get rejected for mortgages.
0:59:39 You can get rejected for auto loans.
0:59:42 You can even get rejected to have a basic credit card.
0:59:47 It just completely cripples your financial freedom.
0:59:52 And with long, long-term consequences that aren’t necessarily your fault.
0:59:59 And I just worry that these young people don’t understand that or they don’t take it that seriously.
1:00:06 And they’re going to sort of hedge their bets on this very unlikely scenario where it’s all just forgiven overnight.
1:00:08 I don’t think that’s going to happen.
1:00:11 You need to pay these loans.
1:00:13 You can’t just go into delinquency.
1:00:14 You can’t go into default.
1:00:17 It’s going to completely ruin you for a long time.
1:00:22 I know someone who got a job at a prestigious bulge bracket investment bank and literally showed up the first day.
1:00:24 And they said, we need to speak to him.
1:00:25 So we have to rescind the offer.
1:00:26 We did a credit check and you have terrible credit.
1:00:33 And we can’t have you selling or structuring securities when you have a low credit score.
1:00:42 Also, if you really want evidence that we are fucking your generation, one of the only forms of debt that’s not dischargeable in bankruptcy is student loan debt.
1:00:47 So if I declare bankruptcy, I can get out of almost every piece of debt.
1:00:49 Now, granted, I have to give up all my assets.
1:00:50 Actually, that’s not true.
1:00:55 If I own a home in Florida, I can homestead it and I get to hold on to my home, even if I declare bankruptcy and clear out all my debts.
1:00:57 But except for student debt.
1:01:05 So if you think about the one person who, if they hit hard times, deserves kind of a do-over button, it should be young people in student debt.
1:01:08 It’s a very upsetting situation.
1:01:14 But and also, I think it calls up the need for what I call in high school adulting classes.
1:01:14 Yes.
1:01:17 I think that there should be a class.
1:01:18 It’s just like basics.
1:01:20 Like, what does the interest rate on my credit card mean?
1:01:21 Right?
1:01:22 Yeah.
1:01:23 Basic adulting.
1:01:25 What is required to get an apartment?
1:01:30 When you want to rent an apartment, what do you need to do and possess and have?
1:01:32 And what’s a general ratio for how much you should be spending?
1:01:36 We need to make sure that young people understand the rules.
1:01:42 They need to we need to make sure that young people understand what debt is, what they’re signing up for by taking on debt.
1:01:51 And then the other thing I think that this brings up, which we need to young people to really think about, is like, what is actually the value of a college education?
1:01:54 Like, is it really worth it for you?
1:01:58 And for many people, for different people, there’s going to be a different answer.
1:02:00 I mean, we know it leads to higher earnings.
1:02:04 We’ve seen the data on higher marriage rates, better health outcomes.
1:02:09 You know, so, you know, we we know some of the data.
1:02:14 But I wonder if we need to sort of change the conversation to instead of, is college worth it?
1:02:19 We need to be more specific and say, is college worth it if you’re taking on debt?
1:02:26 If you’re not taking on debt, if your parents are paying for it, it’s an absolute no-brainer because you’re essentially going for free.
1:02:27 Of course, you should go to college.
1:02:33 But if you’re levering up to go, I think that’s a completely different question.
1:02:45 And there’s this one stat that our team found, which I find very illustrative here, which is that for college grads who took on student debt, one third of them say that college is not worth the cost.
1:02:49 For college grads who didn’t, that number is 16%.
1:02:59 So there’s a massive gap in the ROI on college, depending on whether you are taking on debt for it, which of course makes sense.
1:03:02 If you’re getting the product for free, there’s only upside.
1:03:03 It’s great.
1:03:06 But if you’re putting yourself in a hole, it’s a totally different thing.
1:03:11 So I guess, one, we should reframe the question, and two, I will pose it to you.
1:03:16 Is college worth it if you’re going to take on significant student debt?
1:03:18 There’s no yes or no answer there.
1:03:19 It’s a function of nuance.
1:03:20 That is one.
1:03:23 A lot of it comes down to the university you get into.
1:03:32 If you get into MIT and you are cut out and feel like you can get through four years at MIT, I don’t care if you have to borrow a quarter of a million dollars.
1:03:33 It’s worth it.
1:03:35 For the rest of your life, you’re taken seriously.
1:03:38 For the rest of your life, people have an inclination to hire you.
1:03:48 And the scary thing, and the thing that’s good in some ways and bad in others, is your school, Princeton, if you have any economic hardship, they have so much money, they’ll give you financial aid.
1:04:03 So what happens is really good kids, because of this bullshit rejectionist, exclusivity, LVMH strategy that every elite university has adopted such that they can raise tuition faster than inflation, and the faculty and the alumni feel good about this luxury brand they have.
1:04:07 And it makes the value of the degree go up because it’s harder and harder to get them.
1:04:10 We’ve been able to raise tuition faster than inflation.
1:04:11 The alumni love it.
1:04:12 They give us a bunch of money.
1:04:15 And anyone who gets in who needs economic help gets it.
1:04:21 But the problem is a lot of kids don’t get into an elite school, and they get arbed down to a second-tier school.
1:04:26 So my strategy with these kids is always, I need you to get into more than one school.
1:04:37 And once you get into the school, the university, all of a sudden, it goes from they’re a seller to a buyer in the sense that they really want you once you get in, because they have something called yield.
1:04:44 And their ranking is largely determined by a variety of factors, including what percentage of people who are admitted actually end up going.
1:04:51 So ideally, what you want to do is to get admitted to more than one university, and ideally competitive universities.
1:05:03 So, for example, if you get, and I don’t know if that’s the way any longer, but it used to be, if you got admitted to both Duke and UVA, and UVA saw you got into Duke, UVA would give you a full ride if you went to UVA, because they were direct competitors with Duke.
1:05:06 So the key is, you need to be a consumer.
1:05:12 You need to get into more than one university and then start calling them and saying, you know, finances are a struggle for me.
1:05:13 What do you offer in terms of financial aid?
1:05:17 I’m into several universities, including your closest competitor, this university.
1:05:18 What can you offer me?
1:05:20 But students don’t take a consumer.
1:05:26 They’re much more likely to negotiate on a hotel room or shop every store in the world.
1:05:31 But once they get into the university, they kind of sit back and just take their price takers.
1:05:32 They shouldn’t be.
1:05:34 But this is the thing that’s so tough.
1:05:35 It’s their kids.
1:05:50 I mean, you’re describing this and you’re describing the habits of a very sophisticated and experienced negotiator who knows exactly what’s at stake, knows all the dynamics at play, knows exactly what to say and what the leverage is.
1:05:55 Which is actually, I mean, most grown adults don’t understand that.
1:05:56 I barely understand that.
1:05:58 It’s actually a very hard thing to do.
1:06:01 And I think it’s very important what you’re saying.
1:06:05 And I hope there are young people applying to college who could hear this.
1:06:11 But I think what’s so unfair and so upsetting is, like, we’re telling children to do this.
1:06:20 Children who have no experience, who have no understanding of what any of this means, who don’t even really understand what interest rates are or what a loan is.
1:06:22 And that, to me, is what’s so upsetting.
1:06:32 The standards that we are holding them to, to evaluate these actually quite complex and nuanced economic issues, are just unbelievably high.
1:06:37 And we don’t seem to hold regular functioning adults to those same standards.
1:06:39 And to me, it’s just so unfair.
1:06:44 Ed, everything we do in our society is a subtle transfer of wealth and opportunity from the young to the old.
1:06:47 And we used to love young people.
1:06:48 We used to love more than that.
1:06:52 When I was your age, we used to love unremarkable young people, right?
1:06:53 I mean, think about it.
1:06:54 I got Pell Grants.
1:07:00 I had access to a world-class university that had a 74% admissions rate.
1:07:03 And once I got there, my tuition every year was $1,300.
1:07:12 And I could work my ass off over the summer and have part-time jobs and show up the next year, despite the fact I wasn’t getting any financial assistance from my parents.
1:07:28 And that, for me, started an upward spiral of prosperity where I got to engage in the economy, I got to find a mate, I got to have children, I got to build a business, and all of that reverse engineers to America used to love young, unremarkable people.
1:07:29 And now it no longer does.
1:07:38 Now it feels America is about trying to identify the children of rich kids and a freakishly remarkable one-percenters and try and turn them into billionaires.
1:07:42 And higher ed is the tip of that spear in terms of losing the script.
1:07:56 We’ve become hedge funds that offer classes at the elite side, and the mid-tier are basically terrible value for kids that puts a lot of them into debt that they can’t discharge and starts them with this anchor around their neck.
1:07:57 And what a shocker.
1:08:00 We have the most obese, anxious, and depressed generation in history.
1:08:04 So that question around whether college is worth it, it’s a nuanced conversation.
1:08:08 What is an easy question to answer is, are we fucking young people?
1:08:10 That’s an easy one, 100%.
1:08:13 Let’s take a look at the week ahead.
1:08:19 We’ll see earnings from Palantir, AMD, Novo Nordisk, Uber, Disney, and Shopify.
1:08:23 And the Federal Reserve will also meet and announce its next interest rate decision.
1:08:26 Scott, any predictions for us?
1:08:27 Well, I made it.
1:08:43 I think by the end of 27, Kuiper is—it’ll be hard to suss out because it’ll be in a larger Amazon umbrella, but that Kuiper will be worth more than Starlink and will have greater penetration in the United States as it’ll be stitched into the Amazon Prime++ program.
1:08:45 They should change the name first.
1:08:46 Kuiper is not a very good name.
1:08:51 It kind of sounds like the AI villain in a Bond film, Kuiper.
1:08:52 What does Kuiper say?
1:08:56 Yeah, change that, and then I think the prediction comes true.
1:09:01 This episode was produced by Claire Miller and the engineer by Benjamin Spencer.
1:09:03 Our associate producer is Alison Weiss.
1:09:04 Mir Solverio is our research lead.
1:09:06 Isabella Kinsel is our research associate.
1:09:08 Dan Shallon is our intern.
1:09:09 Drew Burrows is our technical director.
1:09:12 And Catherine Dillon is our executive producer.
1:09:15 Thank you for listening to Prof G Markets from the Vox Media Podcast Network.
1:09:21 Join us on Thursday for our conversation with Michael Semblist, only on the Prof G Markets feed.
1:09:53 We’ll see you next time on Thursday for our conversation with Michael Semblist, only on the Prof G Markets.
1:09:58 We’ll see you next time on Thursday for our conversation with Michael Semblist.
1:09:59 We’ll see you next time on Thursday for our conversation with Michael Semblist.