AI transcript
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0:01:57 Today’s number, 80,000.
0:01:58 That’s how many pounds of butterkoska
0:02:02 were called last month after forgetting to add milk
0:02:04 to the ingreeding list.
0:02:05 Fuck.
0:02:07 So what happens if you drink all this tequila?
0:02:08 Seriously.
0:02:10 Today’s number, 80,000.
0:02:12 That’s how many pounds of butterkoska were called last month
0:02:16 after forgetting to add milk to the ingreeding list.
0:02:18 Today’s number, 80,000.
0:02:21 That’s how many pounds of butterkoska were called last month
0:02:24 after forgetting to add milk to the ingreeding list.
0:02:25 True story, Ed.
0:02:29 One day, my mom caught me masturbating in the bathtub.
0:02:31 And I thought she’d be mad, Ed, but instead,
0:02:33 she’d just stopped buying margarine.
0:02:47 I’m not even sure what that means.
0:02:48 How are you, Ed?
0:02:49 How are you?
0:02:51 I’m very well.
0:02:52 We finally got there.
0:02:53 Took a while.
0:02:55 Seems like you had a pretty big night last night, no?
0:02:57 Oh my God, should I do some name dropping?
0:03:00 So do you have a posse of friends
0:03:02 that you can just call, text at any moment?
0:03:03 Like, what are you doing?
0:03:04 Let’s grab a drink?
0:03:05 I’d like to think so, yeah.
0:03:06 Yeah, so I’d like to think so.
0:03:07 Fuck you, man.
0:03:09 Just take my advice.
0:03:12 So my friend Scott Sabal used to be that guy
0:03:12 for me in New York.
0:03:15 Anyways, died of a rare form of leukemia,
0:03:16 but we’re not going to talk about this.
0:03:17 This is a happy story.
0:03:20 So now I don’t have a posse of like textable drinking buddies.
0:03:23 And I liked to both text and drink.
0:03:27 And so last night, hanging out, I got nothing to do, Ed.
0:03:31 I’m in New York, I’m a sea-less celebrity,
0:03:32 and I got nothing to do.
0:03:34 And I know there’s something great going on,
0:03:36 and I also know that I’m just not a part of it.
0:03:39 And so I text my new friend, Justin Thoreau,
0:03:41 of Beetlejuice fame.
0:03:43 And I’m like, dude, what are you doing?
0:03:44 You want to grab a drink?
0:03:45 And he’s like, I’m headed to this
0:03:47 Hyundai Genesis reveal event.
0:03:48 And he’s like, I know, I know.
0:03:49 Weakest Flex in the world.
0:03:50 And he’s like, come.
0:03:52 So I’m like, I’m on my way.
0:03:54 So I went and saw the new Hyundai Genesis,
0:03:57 which is lovely, which is lovely.
0:03:58 And then we’re like, okay,
0:04:00 am I gonna get a free Genesis here?
0:04:01 Why are we here?
0:04:03 So we’re like, oh, like let’s go to zero bond.
0:04:06 And then we text our buddy, George Han.
0:04:09 I’m like, come out and not drink with us.
0:04:11 I’m trying to be better about inviting people out
0:04:13 to drink with me, even if they’re in recoveries,
0:04:14 to think that’s it.
0:04:16 They can know I can no longer be friends with these people,
0:04:19 but I’m not gonna be that way and George is always fun.
0:04:21 George always acts a little fucked up,
0:04:22 even when he’s not.
0:04:25 So he rolls in and then,
0:04:27 and this is totally name dropping, but I don’t care.
0:04:31 At nine o’clock, I know AC 360 in.
0:04:34 So like at nine 10, I text Anderson Cooper.
0:04:37 I’m like, Brohemian Rhapsody playing now at zero bond.
0:04:38 Come join us.
0:04:39 And he’s in the car.
0:04:40 He’s like, I’m in the car, I’m on my way.
0:04:45 The four of us sat at zero bond and drank tequila sodas,
0:04:47 except for George Han.
0:04:49 And we had the best time.
0:04:50 – That’s amazing.
0:04:51 – Oh, it’s awesome.
0:04:55 And the lesson I’m trying to take away from it is,
0:04:57 it’s easy to think other people are super busy
0:04:59 and they are, but you never know.
0:05:01 If you’re not busy, just like start texting people.
0:05:02 What are you doing?
0:05:04 And it was great to hang out with them,
0:05:06 but what I loved about it was we’re both like,
0:05:09 we’re all guys that’s trying to find friends.
0:05:13 And daddy went deep in the paint last night.
0:05:15 I’m switching to tequila according to Justin.
0:05:18 It’s a cleaner burn and I was about to hangover.
0:05:21 So I still feel a little bit slow today.
0:05:23 So you’re going to have to do what I do
0:05:25 on basically every podcast ad.
0:05:27 You’re going to have to carry the show.
0:05:30 You’re going to have to carry the show.
0:05:31 – All right, let’s start with our weekly review
0:05:32 of market vitals.
0:05:35 (upbeat music)
0:05:42 The S&P 500 came down from its post-election high.
0:05:44 The dollar continued to climb.
0:05:47 Bitcoin surpassed $90,000 for the first time.
0:05:49 – Fucking A, Ed.
0:05:50 (laughing)
0:05:52 – And the yield on tenure treasury’s increased.
0:05:53 – Who doesn’t own a coin?
0:05:54 Raise their hand.
0:05:55 Who doesn’t own a coin?
0:05:56 Raise your hand.
0:05:58 – Shifting to the headlines.
0:06:02 Spotify’s monthly active users grew 11% to 640 million
0:06:03 in the third quarter.
0:06:06 The company is on track for its first year of profitability
0:06:09 with a better than expected forecast for the fourth quarter
0:06:11 and shares rose 8%.
0:06:14 Gambling company Flutter reported third quarter earnings
0:06:18 that beat analyst expectations with revenue up 27%
0:06:19 from a year earlier.
0:06:21 The company also raised its full year guidance
0:06:23 due to strong results outside of the US
0:06:27 and shares climbed almost 7% following that earnings report.
0:06:30 Disney’s stock rose 9% after its streaming unit
0:06:32 and studio business reported strong growth.
0:06:35 Disney Plus marked its second consecutive quarterly profit
0:06:38 gaining 4.4 million core subscribers.
0:06:39 And the company also issued guidance
0:06:42 that projects a jump in profits over the next three years.
0:06:45 And finally, activist investor Elliot Management
0:06:48 has built a $5 billion stake
0:06:50 in industrial conglomerate Honeywell.
0:06:53 That’s Elliot’s largest investment in a single stock.
0:06:55 They want Honeywell to break up its aerospace
0:06:59 and automation businesses into two separate companies.
0:07:02 Scott, let’s start with Spotify’s
0:07:04 very strong earnings, your reactions.
0:07:07 – So its stock is 150% a year to date
0:07:11 and they’ve raised a ton of money massively spent
0:07:15 to essentially consolidate the streaming music market.
0:07:16 And I would argue people say,
0:07:16 what about Apple?
0:07:17 What about Amazon?
0:07:19 I think if you’re into music,
0:07:22 I just think you have to have a Spotify subscription.
0:07:24 And occasionally people try to act alternatively.
0:07:25 Like, well, I like Apple.
0:07:26 – That’s me.
0:07:27 – You don’t listen to Spotify?
0:07:30 – I know, for me, it’s just a switching over issue.
0:07:31 I know it’s a better platform,
0:07:33 but it’s just a pain to switch over.
0:07:34 – Oh, I think they do such a good job,
0:07:38 but they’re taking a page out of the Netflix book
0:07:39 and they’ve overspent.
0:07:42 But for the first time, it appears to be working
0:07:43 and they appear to be kind of hitting
0:07:45 the same sort of escape velocity
0:07:47 that Netflix hit about, I don’t know,
0:07:50 seven, eight years ago or five or years ago,
0:07:51 where they really are the default player
0:07:54 in subscription music.
0:07:58 And paid subscribers jumped 12% to 250 million.
0:08:00 The profit margin reached 31%.
0:08:01 That’s up 26%.
0:08:05 That knocked on Spotify with it was basically a music co-op
0:08:07 passing through all the revenues of the artists.
0:08:09 And now it appears they have so much power
0:08:10 that they’re probably cutting better deals
0:08:13 in terms of revenue share or lack thereof.
0:08:15 And Spotify, I get this, since 2015, last nine years,
0:08:18 has seen its revenue grow eight-fold.
0:08:20 And it struggled to achieve full-year profitability
0:08:23 ’cause it kept reinvesting, but that has changed this year.
0:08:26 It’s gone into profitability, which is like putting
0:08:28 an investor’s lips around a crack pipe.
0:08:30 It means you can’t take it away.
0:08:33 And to get there, again, I think the CEO took a page
0:08:36 from Netflix’s playbook emphasizing tighter cost discipline.
0:08:38 The company has also cracked down on password sharing
0:08:40 and raise prices twice in the past year.
0:08:42 I think basically they are on fire.
0:08:45 If this is like Netflix, it still could triple
0:08:47 or quintuple from here if they have
0:08:49 the kind of market power I think they have.
0:08:51 ‘Cause Netflix supposedly had other competitors,
0:08:53 but did they really, did they really add?
0:08:55 So I’ve always loved Spotify.
0:08:59 It was my stock pick of like 2021 or something.
0:09:01 And it went nowhere for three years.
0:09:03 It was flat for the longest time.
0:09:04 – You were just so early.
0:09:05 – That’s it.
0:09:06 I was early, Ed.
0:09:07 I wasn’t wrong.
0:09:08 I was early.
0:09:11 Yeah, that’s what my ex-wife used to say.
0:09:12 And it’s not bad.
0:09:14 You’re just early all the time.
0:09:15 Blimey, I’ll be here all week.
0:09:16 Try the deal.
0:09:21 Okay, so get on Spotify and use their AIDJ.
0:09:23 It is fucking amazing.
0:09:24 It is so good.
0:09:26 It has figured out that every song for me
0:09:31 should either be Tom Petty or Tom Petty or Yellow
0:09:33 or occasionally Calvin Harris to make me feel
0:09:36 like I’m not 100 years old and it just works.
0:09:39 My whole thing, Ed, is choice is a bad thing.
0:09:43 I only want things where there is no choice.
0:09:46 And I love Spotify AI because a lot of times
0:09:49 when I’m home and I’m on prescription grade pharmaceuticals
0:09:50 and I want to dance,
0:09:53 I don’t know the perfect dance music.
0:09:55 And Spotify figures out, you know,
0:09:59 I think at what time what my mood is, it’s really powerful.
0:10:00 – I’m glad you mentioned the AIDJ
0:10:02 because I think the thing that I’ve been thinking about
0:10:05 with Spotify right now and what they’re really good at
0:10:08 is unlike a lot of other tech companies
0:10:11 that just come out with these kind of meaningless product
0:10:14 updates that no one really cares about.
0:10:18 I feel like every product update from Spotify,
0:10:19 the users just love.
0:10:22 So they have video podcasts now,
0:10:24 which they’ve sort of doubled down on recently
0:10:25 to compete with YouTube.
0:10:29 And there are now more than 300,000 video podcasts
0:10:30 across Spotify.
0:10:32 That’s another great product update.
0:10:34 They have podcast comments now,
0:10:37 basically opening up a comment section.
0:10:39 And then I think the best thing that they did
0:10:42 from a product perspective was Spotify Wrapped,
0:10:44 which was sort of the year-end review
0:10:47 of all the stuff you’ve been listening to.
0:10:50 And, you know, when they did that, it exploded,
0:10:53 it went viral, Apple Music ended up having to copy them
0:10:56 and they have just a worse version of it.
0:10:59 Clearly the engineers there, the product managers,
0:11:00 they’re very scrappy.
0:11:03 They’re constantly figuring out new ways to package
0:11:06 and deliver this content.
0:11:08 And I think, you know, the market’s now recognizing this.
0:11:13 As you said, it’s talks up nearly 150% in the past year.
0:11:15 It’s starting to look perhaps a little expensive,
0:11:17 but in this case, I think it’s warranted.
0:11:19 This is just a great quarter.
0:11:20 And I agree with you.
0:11:22 I think this is a great company
0:11:23 and clearly they’re doing something right
0:11:25 from a management perspective.
0:11:27 And let’s move on to Flutter now.
0:11:29 So this is a gambling company.
0:11:33 They own brands like Betfair and Sky Betting
0:11:34 and Paddy Power.
0:11:37 If you’re from the UK, you’ll recognize those names.
0:11:40 But in the US, they also own Fanduil.
0:11:42 And the story of this earnings report
0:11:44 is all about America.
0:11:50 So US revenue jumped 51% to $1.3 billion.
0:11:53 A big source of revenue was the NFL.
0:11:55 The CEO said that betting activity,
0:11:57 I found this quite staggering,
0:11:59 betting activity on some of the NFL games
0:12:02 that are happening right now is actually higher
0:12:06 than betting activity on last year’s Super Bowl.
0:12:09 So sports gambling is absolutely soaring.
0:12:11 And if you want to ride that wave,
0:12:13 this is the stock, Flutter Entertainment.
0:12:15 I’m uncomfortable with all of this,
0:12:18 but the reality is the fastest way to scale your company
0:12:21 with high margin revenue is to have some sort of tap
0:12:24 into some sort of addictive weakness of the species.
0:12:25 And this is doing that.
0:12:27 Having gambling on your phone
0:12:30 and having it be so frictionless is really,
0:12:34 I think really troubling, but at the same time,
0:12:37 it’s a great, it’s just not getting around it.
0:12:38 It’s a great business.
0:12:41 Fanduil has almost, they control almost half the market.
0:12:44 They have 46% market share.
0:12:46 Americans spent a record 120 billion
0:12:47 on sports waders in 2023.
0:12:50 That’s up 28% from 2022.
0:12:51 This year, sports betting is expected
0:12:53 to surpass 150 billion.
0:12:56 – 150, I just want to like emphasize that,
0:13:01 $150 billion in sports bets, that’s a crazy number, no?
0:13:03 – Yeah, it’s huge.
0:13:05 People, you know, it’s fun.
0:13:08 And I mean, it really is passing out crack.
0:13:11 $50 free for your first bet, right?
0:13:12 Free money for your first bet.
0:13:13 – It’s also just such a shame
0:13:17 that like the most ascendant companies
0:13:21 and assets right now are just totally unproductive
0:13:23 in terms of the actual real economy.
0:13:26 Like I wish that the best performing assets
0:13:27 were actually productive.
0:13:30 This is not societally productive.
0:13:31 – Well, the only thing I’ll wrap up with
0:13:33 is people will say, well, Scott,
0:13:34 investing in the stock market is gambling.
0:13:35 This is no different.
0:13:36 No, it is different.
0:13:40 If you invest in the stock market and you don’t trade
0:13:41 over time, you’re gonna make money.
0:13:44 When you gamble, if you enjoy it, fine,
0:13:45 just like the way you enjoy drinking alcohol
0:13:48 or buying tennis shoes, it’s consumption.
0:13:49 This is consumption.
0:13:51 It’s not investing and be clear.
0:13:54 Keep track of how much psychic enjoyment you’re getting
0:13:56 because in terms of money, you’re gonna walk away
0:13:58 from the table eventually over time with less money.
0:14:00 – Let’s move on to Disney earnings.
0:14:01 Very solid quarter.
0:14:04 Not much really jumped out to me apart from the fact
0:14:06 that this is the second quarter in a row
0:14:09 where the streaming business has been profitable.
0:14:11 So last quarter was the first time
0:14:12 that streaming was profitable.
0:14:15 And we said, well, maybe they’ve got this whole
0:14:16 streaming thing figured out.
0:14:18 I think this earnings report confirms it.
0:14:22 They have finally figured out streaming,
0:14:24 which is essential for Disney
0:14:27 because the traditional TV business is essentially
0:14:28 in free fall.
0:14:31 Just this number here from the earnings report,
0:14:34 operating profit on that traditional TV business
0:14:37 was down 38% this quarter.
0:14:39 And that’s despite all of the election spending
0:14:41 and that’s despite owning ABC.
0:14:43 So they need streaming to work out
0:14:45 and it looks like that’s what’s happening.
0:14:46 – It’s doing really well.
0:14:49 I think the movies are, the movies are meaningful,
0:14:51 the revenue from the parks meaningful,
0:14:52 but from the market perspective,
0:14:54 the results of the streaming division are profound.
0:14:57 And the streaming division had a great, great quarter.
0:14:59 I like it because I like Bob Iger
0:15:00 and this is gonna give him a chance.
0:15:03 Like he was stupid enough to go back to Afghanistan
0:15:04 but on a second tour,
0:15:07 he’s gonna get another medal pinned on his uniform.
0:15:09 He’s gonna get to leave this combat zone
0:15:12 called traditional media, a hero again.
0:15:16 – I thought you’d analogize Disney with Afghanistan.
0:15:18 – Well, ad supported media right now.
0:15:19 – Point taken, yeah.
0:15:21 I mean, it is hand to hand combat.
0:15:23 And the thing about Disney,
0:15:24 they’re one of the survivors
0:15:26 ’cause they have this singular positioning around family
0:15:29 and unbelievably deep IP and it’s starting to pay off.
0:15:31 And also it’s paying off for them
0:15:33 ’cause they stood the test of time
0:15:37 through what is this walking through the desert,
0:15:39 if you will, of consolidation.
0:15:41 And for the first time in two years,
0:15:43 Netflix is no longer increasing their spend.
0:15:46 So every other company doesn’t have to follow them down
0:15:48 this rabbit hole of unsustainable spend.
0:15:49 And there’s also pricing power.
0:15:51 Netflix is kind of creating
0:15:54 and elevating the ceiling around pricing
0:15:55 and they’re raising their prices,
0:15:58 which gives everyone cloud cover to raise their prices.
0:15:59 I think it’s good for Disney,
0:16:01 good for Bob Iger, good for the planet.
0:16:02 I think it’s a great company.
0:16:03 I hope it stays independent.
0:16:05 And it was one of my stock picks last year,
0:16:08 Disney and Warner Brothers, so we’ll see.
0:16:10 But yeah, I think, good for them.
0:16:11 Congratulations, great quarter.
0:16:13 – We’ll move on to Elliot’s investment,
0:16:15 activist investment in Honeywell,
0:16:17 which is this industrial conglomerate.
0:16:19 I think this is interesting for two reasons.
0:16:23 One, it’s Elliot’s biggest single company investment
0:16:24 ever, $5 billion.
0:16:27 So this is a very high conviction bet.
0:16:29 And two, what they are suggesting
0:16:31 from an activist perspective
0:16:34 is right out of the prog markets playbook.
0:16:37 Specifically, this is all about the conglomerate tax,
0:16:39 which you’ve talked about a lot on this podcast,
0:16:40 which is that conglomerates
0:16:44 tend to get these slightly depressed valuations
0:16:47 because investors don’t really reward diversification,
0:16:49 what they really care about is focus and growth.
0:16:50 And that’s a lot harder to do
0:16:53 when you’re operating multiple businesses.
0:16:55 Honeywell is a great example of that
0:16:56 because their aerospace business
0:16:59 and their automation business,
0:17:00 they’re two very different things.
0:17:03 And oftentimes when one has performed,
0:17:05 the other has lagged and vice versa.
0:17:07 So I think this is a great idea from Elliot,
0:17:10 split them up, have an aerospace company
0:17:12 and an automation company.
0:17:14 The only question I would have
0:17:16 is are the partners at Elliot management
0:17:17 listening to this podcast?
0:17:19 Because if they are,
0:17:21 we deserve some credit and we deserve a cut.
0:17:22 – Oh, 100%.
0:17:25 Yeah, there’s no doubt a check coming our way.
0:17:26 Yeah, I like this stuff.
0:17:29 Like sometimes when a stock gets below a certain amount,
0:17:32 the hole is less than the sum of its parts.
0:17:35 And that’s the strategy here.
0:17:37 So the stock’s up 12% year-to-date,
0:17:38 but the industrial sector,
0:17:42 ETF is up 25%, so it’s underperformed the market.
0:17:43 And then it’s kind of,
0:17:45 one of these themes among all the economy companies
0:17:47 is growing by shrinking.
0:17:48 And that is, we’ve talked about this,
0:17:51 the market rewards deconglomerization.
0:17:52 Gs break up in April,
0:17:54 G-aero space stock had risen more than 25%.
0:17:57 And G-vernova shares have risen more than 20%.
0:17:59 Honeywell trades at 27 times earnings,
0:18:02 while G-aero space trades at 32 times earnings.
0:18:04 So I wouldn’t be surprised if they
0:18:06 decide to do this themselves
0:18:08 or come up with some sort of extra dividend.
0:18:10 They give Elliot their pound of flesh.
0:18:12 The guy who handled Elliot better
0:18:13 than anyone was Mark Benioff.
0:18:14 And they showed up and said,
0:18:15 “You’re spending too much money.”
0:18:17 And rather than the traditional,
0:18:21 you have insulted me, good sirs,
0:18:23 and circle the wagons and hire lawyers
0:18:25 and proxy solicitors and comms people
0:18:26 to shitpost the activists.
0:18:28 They say, “Okay, we can learn from you.”
0:18:32 Mark Benioff uses his cloud cover to cut costs.
0:18:36 AI came in and Salesforce stock is now at an all-time high.
0:18:37 And essentially what you do as an activist investors,
0:18:40 you just show up with a big stake and say, “We’re here.”
0:18:42 And if the stock goes up on its own,
0:18:43 if we’re wrong and the stock goes up on its own,
0:18:45 fine, we’ll sell and congratulations, you win.
0:18:47 If it doesn’t, then you need to do what we say
0:18:49 or we’re gonna start nominating directors.
0:18:52 So you get a little bit of a free call option
0:18:54 if the stock is cheap enough.
0:18:55 So I like these things.
0:18:57 I think, you know, they go through a cycle
0:19:00 where they conglomerize and they deconglomerize.
0:19:03 Anyways, the aerospace and automation,
0:19:05 do they need to be in the same umbrella?
0:19:06 And it’s the basic notion of CEO.
0:19:10 So love to diversify by having bigger company
0:19:12 and diversify or smooth out their earnings.
0:19:15 When again, investors don’t need CEOs to do that for them.
0:19:16 They can diversify on their own.
0:19:17 So I like this.
0:19:20 We’ll be right back after the break
0:19:23 with a look at one of ChatGPT’s first victims.
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0:20:55 You already know that AI is transforming
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0:22:55 More than a year ago, ChatGPT took a bite
0:22:57 out of a leader in the ed tech space.
0:23:00 Chegg, a textbook and homework help provider,
0:23:03 was a big winner during COVID as learning moved online.
0:23:05 And then the AI hype cycle began.
0:23:06 And Chegg was one of the first companies to say
0:23:09 that ChatGPT was stifling its growth.
0:23:13 18 months later, the company is telling the same story.
0:23:15 Chegg’s earnings last week showed revenue, subscribers
0:23:18 and web traffic all fell by double digits
0:23:19 in the latest quarter.
0:23:22 The company is also laying off 21% of its workforce,
0:23:26 its second round of big job cuts this year.
0:23:28 Scott, Chegg was still blaming ChatGPT
0:23:31 for his problems on its latest earnings call.
0:23:33 It has lost half a million paid subscribers
0:23:34 since the launch of that product.
0:23:38 Shares are down around 99% from 2021,
0:23:41 erasing $14.5 billion in value.
0:23:43 And according to the Wall Street Journal,
0:23:46 bond traders doubt this company will be able
0:23:48 to pay its debts.
0:23:52 Is it safe to say that ChatGPT has claimed its first victim?
0:23:53 – It’s really interesting.
0:23:55 So if you look at the industry,
0:23:59 as they were supposed to be disrupted by AI,
0:24:01 I’ve been predicting to be healthcare.
0:24:03 It was supposed to be education.
0:24:05 It hasn’t happened in education.
0:24:06 Actually, the top 100 universities
0:24:08 are a stronger, stronger than they’ve ever been.
0:24:10 And I’m so confident about disruption.
0:24:11 I started an ed tech company
0:24:14 and quite frankly, it just hasn’t panned out.
0:24:16 Chegg came in, people, it was a COVID darling.
0:24:20 A lot of people trapped indoors, taking courses,
0:24:21 but it’s off 99%.
0:24:24 And some of this is not their fault
0:24:27 or the market dynamics
0:24:29 well as Trump individual performance.
0:24:31 But this company was gonna get cut in half.
0:24:34 Now, why is it been cut by 99%?
0:24:37 I just think the comms here is terrible.
0:24:41 I think to blame ChatGPT is to say ChatGPT is our enemy.
0:24:42 Okay, you’re fighting an enemy.
0:24:46 This is the Albanian army taking on the third Reich right now.
0:24:49 So if you identify that ChatGPT is coming for us
0:24:52 and they’re our enemy, it’s like, okay, that’s too bad.
0:24:54 And we understand and you’re right, it’s their fault.
0:24:56 But you’re fucked.
0:24:59 Because if in fact you’re right and they’re your enemy
0:25:01 and they’ve identified this as a space they wanna go after
0:25:05 or that consumers are using agents to help them
0:25:09 with their studies or essentially find the same utility
0:25:11 they were finding for you at a higher price,
0:25:14 we see no reason why that problem won’t get just worse.
0:25:16 The interesting thing here is what you said about the debt.
0:25:18 I’d love to know what the debt is trading at
0:25:21 because I believe someone is gonna make real money here.
0:25:22 And who is that?
0:25:23 I think a distressed credit investor
0:25:25 is gonna come in and buy the bonds.
0:25:28 And if they do in fact blow their covenants
0:25:29 and the thing goes into bankruptcy,
0:25:31 I think whoever owns the bonds will come in,
0:25:32 cut a lot of costs,
0:25:35 say this is no longer a growth company,
0:25:37 this is a distressed asset,
0:25:40 but they do have revenues have fallen 18%,
0:25:43 subscribers have fallen 20%,
0:25:45 which means they still have 80% of their subscribers.
0:25:50 So this is probably still a pretty decent company.
0:25:52 It’s just that somebody’s gonna have to come in here
0:25:55 and massively cut costs and recognize
0:25:57 we’re no longer a growth company,
0:25:59 we’re a company in decline.
0:26:02 But if we can cut costs faster than the decline,
0:26:03 we’re still gonna have something here.
0:26:07 And they probably have invested a massive amount of money.
0:26:08 I don’t know what the market cap is,
0:26:11 but if it’s off 99%, that means it’s like a hundred.
0:26:12 – It’s 170 million.
0:26:15 – Okay, I’d be curious how much debt they have,
0:26:18 but I would think distressed credit investors
0:26:19 are looking at those bonds and saying,
0:26:24 okay, can I own this company for tens or hundreds
0:26:26 of millions of dollars and say it’s probably worth
0:26:28 a couple of billion dollars to someone else.
0:26:31 They have a subscriber base who are still paying,
0:26:34 companies not going to zero.
0:26:37 The best investments I have ever made
0:26:40 have been pulling bankrupt companies out of bankruptcy
0:26:43 at a very low price in things like consumer products
0:26:46 or the yellow pages and then consolidating
0:26:48 or seeing if there’s other acquisitions
0:26:49 of other distressed companies in the space
0:26:52 cutting costs faster than the revenue declines.
0:26:54 And you can usually pick them up really cheaply
0:26:57 and then you can make a lot of money.
0:27:00 And the analogy I was using is that in 1999,
0:27:02 people knew Blockbuster was going away.
0:27:04 So you could buy a Blockbuster franchise
0:27:06 for two and a half times, it’s cashflow.
0:27:09 They did go away, but it took another 12 years.
0:27:11 So if you bought companies at two and a half times cashflow
0:27:15 and they went another 12 years, you made a lot of money.
0:27:16 And I think that’s the case here.
0:27:18 So I look at this and I think, okay, that’s interesting.
0:27:21 First kind of public chat GPT victim,
0:27:23 although there’s probably others not as obvious,
0:27:25 but I actually think a distressed credit investor
0:27:28 is probably looking at the bonds right now.
0:27:30 – Yeah, you mentioned, there are probably others.
0:27:35 I mean, I looked into this, I really couldn’t find many.
0:27:38 And I’d be interested to know maybe our listeners
0:27:39 can identify some companies
0:27:42 that have really gotten crushed by AI.
0:27:45 But I do find it interesting because, you know,
0:27:48 there was all of this catastrophizing and speculation
0:27:50 around how AI was gonna put all of these companies
0:27:53 out of business, it was gonna take all these jobs.
0:27:55 And here we are two years into this revolution
0:27:59 and the big victim of AI is Chegg,
0:28:03 which is just like a kind of irrelevant company,
0:28:04 barely any employees at all.
0:28:06 I mean, they cut 20% of the workforce,
0:28:09 but that’s only around 300 employees
0:28:12 who are losing their jobs to AI, I guess.
0:28:16 And so it’s interesting to me and I’m a little surprised
0:28:21 at how undestructive AI has proven to be.
0:28:25 So I guess the question that I would pose to you,
0:28:27 which companies or which sectors do you think
0:28:32 are going to get hit by AI as hard as Chegg just has,
0:28:37 or is the AI catastrophizing just too overblown?
0:28:38 – Well, first off,
0:28:40 anyone in customer service, right, gets hit pretty hard.
0:28:43 But if I were to look at large sectors of companies,
0:28:45 there’s software as a service
0:28:47 and we decided that as a palindrome,
0:28:49 it’ll be services of software.
0:28:52 So travel agencies, publicly traded travel agencies.
0:28:56 I wonder how real estate agencies are gonna fare
0:28:57 in a world of AI.
0:29:02 I don’t know, that’s a super interesting question
0:29:07 around who are chat GPTs next victims.
0:29:09 – Yeah, I mean, it feels like the entire economy
0:29:12 has figured out a way to get AI on their side.
0:29:12 – I like that.
0:29:13 – Or at least, at the very least,
0:29:15 they’ve made it seem that way.
0:29:17 And I guess the big mistake by Chegg
0:29:20 was saying where AI is not on our side.
0:29:23 As you said, AI is our enemy.
0:29:25 But I mean, I look at the rest of these companies
0:29:29 and no one’s been taken to the woodshed by AI
0:29:30 the way we thought,
0:29:33 unless I’m just missing something massive here.
0:29:36 – What I find is, if you’re really worried about something,
0:29:39 it usually doesn’t happen because you prepare for it.
0:29:41 It’s when you don’t see the comet coming.
0:29:42 You know, no dinosaur thought,
0:29:46 I’m really freaked out about a meteor hitting Earth.
0:29:48 That wasn’t their biggest worry.
0:29:49 I don’t know, I don’t know how anxious
0:29:51 dinosaurs would begin with.
0:29:52 – They’re struggling with mental health, yeah.
0:29:54 – Yeah, who knows, right?
0:29:58 I don’t know, being the prospect of being eaten
0:30:00 while you’re sleeping or while you’re drinking
0:30:01 from a while is pretty like,
0:30:04 that is still my favorite TikTok
0:30:06 ’cause the little cheetah comes up
0:30:09 to the watering hole for a little refreshment.
0:30:11 And it’s such a peaceful little waterhole
0:30:15 until an 18 foot croc takes that bitch into the water.
0:30:18 And I mean, I just never get sick of that.
0:30:19 And whenever I see an animal drinking at a waterhole,
0:30:21 I’m like, okay, here we go.
0:30:25 Anyways, I don’t know how I was going with that,
0:30:27 crocodiles, it’s the stuff you don’t see coming.
0:30:29 What do you think, what do you think,
0:30:32 what sectors do you think are gonna be most disrupted by AI?
0:30:33 – This is my point.
0:30:35 I don’t think anyone’s gonna be,
0:30:37 I don’t think anyone’s gonna be hurt
0:30:39 in the same way that Chegg did, is my view.
0:30:42 I just, I think what’s gonna happen is gonna be slow
0:30:44 and we’re gonna figure out a way
0:30:46 to make AI work for us.
0:30:51 So I mean, to me it’s telling the fact that we’re here
0:30:55 and the big loser is this tiny company
0:30:57 that no one cared about anyway.
0:31:01 But maybe I’ll eat my words, we’ll see.
0:31:03 One detail I did find interesting though
0:31:04 that I wanna bring up.
0:31:08 So apparently the employees of Chegg a couple of years ago
0:31:10 actually asked for an AI budget
0:31:14 ’cause they felt that AI would be helpful to the business,
0:31:15 would help with automating their answers.
0:31:20 And supposedly the leadership denied that request.
0:31:23 And so I feel like there are some big questions here
0:31:28 for leaders and for managers of companies
0:31:29 around how to innovate.
0:31:31 Because in this case, the leadership said,
0:31:32 “No, we don’t need to do that.”
0:31:35 And they look stupid now, obviously.
0:31:38 But I’m sure there are many other situations
0:31:40 where an employee has come to leadership and said,
0:31:43 “Hey, there’s this new technology, we have to do it.”
0:31:47 And the manager has said, “Thanks, but no thanks.
0:31:49 “We’re gonna focus on this other stuff.”
0:31:50 And it probably ended up being the right decision.
0:31:52 And the example that comes to mind for me
0:31:53 is like the metaverse.
0:31:56 I mean, how many employees three years ago
0:31:58 were going up to their managers and saying,
0:32:00 “You don’t understand, metaverse is the next big thing.
0:32:01 “We gotta do it.”
0:32:05 And the guys who said, “No, are the ones who look smart now.”
0:32:08 But in this case, if you’re at Chegg,
0:32:11 you really screwed over the entire company
0:32:12 by not embracing AI.
0:32:14 So I guess my question to you would be,
0:32:17 what are some of the learnings here for leaders?
0:32:19 It’s essentially an innovators dilemma question.
0:32:23 How do you correctly allocate your resources
0:32:27 while not risking falling way behind as Chegg has done?
0:32:30 – Well, I mean, just hearing you talk,
0:32:34 what I think is it’s not sectors that’ll be the losers.
0:32:36 It’ll be the companies in every sector
0:32:39 that don’t incorporate AI into their business operations.
0:32:42 It’d be like saying, we knew that the windtail revolution
0:32:43 was gonna have a huge impact on the economy,
0:32:46 but it wasn’t like PCs took out the auto industry
0:32:48 or took out the restaurant business.
0:32:51 It was the companies that didn’t adapt
0:32:52 in a corporate technology into their everyday business
0:32:55 operations were beaten by the companies
0:32:56 in their sector that did.
0:32:58 I think the same is probably true here.
0:33:01 I don’t think, again, I think there’ll be winners
0:33:04 and losers in every category,
0:33:07 but will there be like five or six industries
0:33:08 that just go away?
0:33:10 I don’t know, I don’t know, we’ll see.
0:33:13 – We’ll be right back after the break
0:33:15 with a look at the new Department of Government Efficiency.
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0:35:28 Donald Trump has named Elon Musk and Vivek Ramaswamy
0:35:30 as the heads of a new entity
0:35:33 called the Department of Government Efficiency.
0:35:35 In a statement, Trump said the department
0:35:39 will dismantle bureaucracy/regulations and expenses
0:35:41 and restructure federal agencies.
0:35:42 He also called it, quote,
0:35:45 “The Manhattan Project of Our Time.”
0:35:47 Scott, your initial reactions
0:35:49 to the Department of Government Efficiency,
0:35:53 also known as DOGE aka Doge.
0:35:56 – Well, I think the fact that they have two heads
0:35:59 of a department on efficiency kind of says it all,
0:36:02 and that is this makes no fucking sense.
0:36:05 So first off, budget cuts aren’t
0:36:07 within a president’s constitutional power.
0:36:09 Only Congress controls federal spending
0:36:13 and may or may not act on outside advice.
0:36:16 And all of these Congress people have districts
0:36:18 that are all making money from federal contracts
0:36:21 and have a lot of employees that work for the government.
0:36:23 So, you know, you may wanna slow your roll here.
0:36:27 The, an official government agency cannot be created
0:36:28 without an act of Congress.
0:36:32 So it’s unclear if DOJA would exist within the government
0:36:33 or outside of it.
0:36:36 And effectively this efficiency group,
0:36:39 air quotes, is more bureaucracy, not less.
0:36:43 And look, every single administration
0:36:46 has had something similar talking about
0:36:48 how to eliminate bureaucracy
0:36:50 and inefficiency in government.
0:36:52 But let’s, let’s just be real.
0:36:53 Mandatory spending, including social security,
0:36:55 Medicare and federal debt interest
0:36:57 consumes two thirds of the budget.
0:36:59 So they’re gonna try and make, find, you know,
0:37:04 squeeze blood from a turnip that is one third of the budget.
0:37:06 Elon Musk claimed at a Trump rally in October
0:37:07 that the federal budget could be cut
0:37:09 by at least $2 trillion.
0:37:11 That’s just not true.
0:37:14 To cut $2 trillion, Musk would have to eliminate
0:37:17 both social security and national defense spending.
0:37:19 And also, if you did that kind of cut,
0:37:23 you would send the economy into immediate recession
0:37:26 because, you know, we have, what is it about a third
0:37:31 of our GDP center, actually 38% is total government spending.
0:37:34 That’s actually less than Japan, which spends 42%.
0:37:36 UK at 43 and Germany at 48.
0:37:39 So we’re spending less on government than other places.
0:37:42 Now granted, they would argue they get more services
0:37:43 for their employees.
0:37:45 We may be in fact, more inefficient.
0:37:48 The US public sector employs one in seven workers,
0:37:49 so 14% of workers.
0:37:52 And that’s more than Germany’s 13% of Mexico’s 12%,
0:37:54 but less than France’s 21%.
0:37:57 So I don’t, I find this kind of a lot of jazz hands.
0:38:00 And just to be clear,
0:38:03 when we’re talking about the person running
0:38:06 the quote unquote efficiency department,
0:38:08 let’s look at his track record, all right?
0:38:12 So if you look at the auto industry,
0:38:17 you have BMW at about $1.1 million per employee, right?
0:38:23 You have Ford at $980,000 per employee,
0:38:26 General Motors 1.02 million per employee,
0:38:28 Mercedes 950,000 per employee,
0:38:32 and who brings up the rear at $740,000 per employee,
0:38:36 the least efficient automobile company, Tesla.
0:38:41 So granted, he was able to maintain a minimum viable product
0:38:44 with Twitter by laying off 80% of the employees,
0:38:48 but he also registered an 80 plus percent decline in revenue.
0:38:51 So anything resembling a reasonable conversation
0:38:53 would go like this.
0:38:56 We have to put a cap or start reducing
0:38:58 or means testing entitlements.
0:39:01 Not everyone should be entitled to entitlements.
0:39:03 I should not get Social Security.
0:39:05 I’m not sure I should be eligible for Medicare
0:39:07 ’cause I have the money.
0:39:09 We are going to have to raise revenues,
0:39:11 which is Latin for taxes.
0:39:13 Corporate taxes are at their lowest rate since 1938.
0:39:15 The 25 wealthiest Americans are paying somewhere
0:39:18 between an effective tax rate,
0:39:20 depending on who you talk to, between seven and 16%,
0:39:24 but they’re paying less than most middle-income workers.
0:39:27 But the notion that Musk and Vivek Ramaswani
0:39:30 are gonna come in and find $2 trillion in savings,
0:39:32 good luck with that.
0:39:34 And I just also like to, I mean, I don’t know if you saw,
0:39:39 but the new secretary of the interior is David Hasselhoff
0:39:42 and Jane Lynch’s character from Glee
0:39:45 is the new secretary for health and human services.
0:39:47 I mean, this isn’t even a cabinet.
0:39:50 It’s fucking dancing with the stars.
0:39:53 My complaint with this is I can’t tell
0:39:56 how serious it is about the problem.
0:40:01 And the feeling that I get is that this is mostly just
0:40:07 a way to kind of put up a finger at the establishment
0:40:09 and that by putting Elon in charge
0:40:11 and putting Vivek in charge,
0:40:14 this is less about addressing the deficit
0:40:17 and more about like owning the libs.
0:40:20 And that to me is a shame
0:40:22 because this is a massive, massive problem
0:40:24 and everyone agrees it.
0:40:28 Like everyone agrees that the deficit needs to be solved
0:40:31 and everyone agrees that it would be great
0:40:32 to have a more efficient government.
0:40:36 But to your point, this has been tried
0:40:37 several times in the past.
0:40:39 Clinton tried to do it, Reagan tried to do it,
0:40:41 Bush tried to do it, Obama tried to do it.
0:40:44 And the other side to it, which you also brought up,
0:40:48 is that we need to raise tax revenue.
0:40:52 Like if you want to get back in the green as a government,
0:40:56 then we need to figure out a way to raise more taxes
0:40:57 as a percentage of our GDP.
0:41:00 And the reality is that our nation
0:41:04 has one of the lowest tax revenues as a percentage of GDP
0:41:07 among all developed nations.
0:41:11 In addition, like Vivek, Vivek has talked about
0:41:13 getting rid of all of these government agencies.
0:41:16 Like he wants to get rid of the DOE and the DOJ.
0:41:20 And I just, I wish he would have a sober conversation
0:41:22 about the numbers here.
0:41:25 If you were to get rid of every government agency
0:41:29 apart from the Department of Defense, which is huge,
0:41:30 if you were to get rid of all of them,
0:41:35 you would only reduce our spending by at less than a 10th.
0:41:37 Like these numbers are tiny,
0:41:39 that what we spend all of our money on
0:41:44 is as you said defense and social security and healthcare.
0:41:47 It adds up to 75% of our entire budget.
0:41:49 – So let’s talk about the Department of Education.
0:41:52 It has about a $220 billion budget.
0:41:54 Some of the things they do with that money,
0:41:56 they fund Title I of the Elementary
0:41:58 and Secondary Education Act,
0:41:59 which provides supplemental funding
0:42:02 to high poverty K through 12 school districts.
0:42:05 They have the head, they fund the Head Start Program,
0:42:07 which provides vital childcare services
0:42:09 for many low income and rural communities
0:42:10 across the country.
0:42:13 The department also administers Pell Grants.
0:42:15 Who is here speaking to you right now?
0:42:19 Because of Pell Grants, yours truly.
0:42:22 These are investments in lower income households
0:42:23 that couldn’t go to college,
0:42:25 which I could not have done without Pell Grants.
0:42:28 And by the way, those are investments.
0:42:31 They’re not entitlements, they’re investments.
0:42:34 A lot of the money that goes to seniors is welfare.
0:42:36 A lot of things like Pell Grants
0:42:37 and the Department of Education are investments
0:42:39 because you start making these investments
0:42:41 as a very credible argument
0:42:43 that I end up continuing to live with my mom
0:42:46 instead of paying a shit ton of taxes, which I do.
0:42:47 These are four leaning investments
0:42:51 or you increase government spending on police fire,
0:42:56 rehabilitation, mental illness, diabetes,
0:42:58 incarceration.
0:43:01 I would argue the problem is we can’t connect it
0:43:03 as quickly as they’d like.
0:43:04 I would argue the Department of Education
0:43:06 is probably one of those departments
0:43:08 where over the medium and long term,
0:43:12 we see a really strong return on investment.
0:43:16 You know, Project 2025 is talking about eliminating
0:43:18 the Department of Education,
0:43:19 which they describe as a one-stop shop
0:43:21 for the woke education cartel.
0:43:24 – Yeah, it’s just like, that’s just an unserious proposal.
0:43:25 – Yeah, so.
0:43:27 – It’s just not even about politics.
0:43:30 It’s like, can we actually have like a legitimate conversation
0:43:30 about the problem?
0:43:31 – I don’t know.
0:43:32 Where I see with all of this,
0:43:35 whether it’s Roe v. Wade being overturned
0:43:38 or this ridiculous notion about efficiency,
0:43:41 here’s who’s gonna get hurt.
0:43:44 It kind of preys on the most vulnerable, right?
0:43:46 My kids don’t need the Department of Education
0:43:48 either will yours.
0:43:53 But a middle-class family, a family in rural America,
0:43:54 kids who couldn’t afford to go to college
0:43:57 or junior college or need student loans,
0:44:00 are in poor school districts that don’t get the funding
0:44:02 they need ’cause they don’t have rich parents
0:44:06 showing up and bidding $5,000 for lunch with Ed Elson
0:44:08 or whatever these stupid charity auctions.
0:44:11 You know, this is, again, if you reverse engineer
0:44:14 to who really gets hurt with these policies,
0:44:15 it’s the most vulnerable.
0:44:18 And do we need a more efficient government?
0:44:19 Are there places to cut spending?
0:44:20 100%.
0:44:24 But what I would do if I were a Democrat is,
0:44:28 and I am a Democrat, is like, look, we’ll go one for one.
0:44:31 You or one for two.
0:44:34 For every dollar you increase or we find in cuts,
0:44:37 you’re gonna raise $2 in taxes.
0:44:40 There’s been an explosion in wealth and prosperity.
0:44:43 We keep coming up with reasons to save businesses
0:44:46 and stimulus and PPP.
0:44:49 Oh my God, what if Delta actually goes out of business?
0:44:51 But then when they’re printing money,
0:44:52 you wanna lower taxes on them?
0:44:55 So look, we need government.
0:44:57 I do believe government is too big.
0:45:00 When it gets to this point or even bigger than this point,
0:45:01 it starts to crowd out.
0:45:03 Private investment, I do think there’s something
0:45:05 to the notion that we shouldn’t be,
0:45:08 whatever it is, 38% of GDP, we should be under 30%.
0:45:09 I get it.
0:45:11 But the only way realistically,
0:45:12 we’re gonna have a serious conversation
0:45:15 is to cap increases in spending,
0:45:17 cut in areas where we can,
0:45:20 but also you gotta talk about the revenue side.
0:45:21 I mean, what’s next?
0:45:24 They’re gonna nominate Matt Gaetz to be Attorney General.
0:45:26 Oh wait, oh wait.
0:45:28 Anyways, I’m all riled up, Ed.
0:45:31 I’m gonna just take the other side of this now, though.
0:45:34 There is a positive to this,
0:45:36 that Elon and Vivek heading up this new department.
0:45:40 And to me, it’s exemplified by a tweet
0:45:43 that was put out by the new official account
0:45:45 for the Department of Government Efficiency
0:45:46 that was posted on X.
0:45:48 And I really like this.
0:45:50 They said, quote,
0:45:52 “We are very grateful to the thousands of Americans
0:45:54 “who have expressed interest in helping us.
0:45:57 “We don’t need more part-time idea generators.
0:46:01 “We need super high IQ, small government revolutionaries
0:46:04 “willing to work 80 plus hours per week
0:46:06 “on unglamorous cost-cutting.
0:46:10 “If that’s you, DM this account with your CV.
0:46:14 “Elon and Vivek will review the top 1% of applicants.”
0:46:16 I love this.
0:46:18 And I love the language they’re using here.
0:46:21 And it was an incredibly popular post.
0:46:22 I mean, people were liking it.
0:46:24 They were commenting on it.
0:46:26 They were saying, let’s fucking go.
0:46:30 And it’s a very bro-y comment section.
0:46:33 But what it has done clearly
0:46:36 by putting Elon and Vivek in charge
0:46:40 is that these great marketing tools for attracting talent.
0:46:42 Because I think previously,
0:46:43 one of our biggest issues in America
0:46:46 has been that it’s not cool to work for the government.
0:46:49 But clearly what’s happening here is,
0:46:51 whether you like Elon and Vivek or not,
0:46:53 they’re clearly making it sexier
0:46:55 to work for the government.
0:46:59 On that tweet, the way that they’re sort of making it exciting
0:47:03 that we’re gonna be cutting costs in an unglamorous way.
0:47:06 But we need the smartest people in America to help us do it.
0:47:09 That, to me, is the right direction.
0:47:13 And if using Elon and Vivek are the ways to do it,
0:47:14 I’m actually all for it.
0:47:15 – I like that.
0:47:17 I think that’s really insightful.
0:47:19 And you’re absolutely right.
0:47:21 We need to make government jobs aspirational.
0:47:26 And if we can use two aspirational, very successful men
0:47:28 to create that aspiration around government work,
0:47:31 I love how you’re calling balls and strikes.
0:47:32 And I think that’s true.
0:47:33 I think that is a positive.
0:47:36 And anything that attracts brighter human capital
0:47:39 into government service, that is the silver lining here.
0:47:41 – Yeah, they just need to be honest
0:47:44 about what this is all for.
0:47:47 And if this just becomes a giant talking point
0:47:50 to own the libs, this is not productive.
0:47:51 – And no one owns me.
0:47:52 I’m my own woman.
0:47:54 I’m fucking Mary Tyler Moore in Minneapolis
0:47:56 throwing my hat into the air.
0:48:00 You’re gonna make it after all.
0:48:02 – Ask your parents, Ed.
0:48:03 Ask your parents.
0:48:04 – I’ll do that.
0:48:07 ♪ Love is all I’m gonna need to waste it ♪
0:48:12 ♪ You can never tell me why don’t you take it ♪
0:48:16 ♪ You’re gonna make it after all ♪
0:48:18 – Let’s take a look at the week ahead.
0:48:21 We’ll see earnings from Nvidia, Target, Walmart, and Lowe’s.
0:48:24 And we’ll also see consumer sentiment data for November.
0:48:26 Do you have any predictions for us, Scott?
0:48:28 – Mine is kind of weird.
0:48:31 So a bunch of companies, smart companies bought up these
0:48:34 cheap and supposedly dying local news stations.
0:48:36 And do you ever watch local news?
0:48:37 – Never.
0:48:38 – It’s hilarious.
0:48:39 It’s literally hilarious.
0:48:42 It’s some guy, the weatherman is like constantly predicting,
0:48:44 “Hey, I love the size of golf balls.”
0:48:47 And it’s usually some older guy with good hair
0:48:49 who makes you feel comfortable.
0:48:51 And some hot young woman who’s hoping, you know,
0:48:53 she’s gonna get Katie Couric’s job
0:48:57 or I don’t know, Savannah Guthrie’s job someday.
0:48:59 And the two of them have a nice pleasant banter.
0:49:02 And basically they do the weather, they do local sports.
0:49:03 And in between them, they have a bunch of segments called,
0:49:06 “This is what stupid people did in our neighborhood today.”
0:49:08 But these companies hemorrhage money
0:49:10 for 20 months every two years.
0:49:14 And then for four months, they have a tsunami of money
0:49:16 that washes over them in the form of political advertising.
0:49:18 ‘Cause the general consensus to date
0:49:20 has been that old people vote
0:49:22 and old people watch local news.
0:49:24 And so they quintuple their ad rates
0:49:26 and they just rake in money
0:49:28 for the four months leading up to the election.
0:49:32 I think those local TV stations and their owners
0:49:34 are about to get disrupted.
0:49:36 As I think one of the externalities
0:49:39 or realizations of this election
0:49:42 is that TV generally does not work.
0:49:44 If you wanna influence seven-year-old white women,
0:49:46 which is the viewer of MSNBC,
0:49:49 go on and you’ll reach a million people.
0:49:54 But if you wanna reach 55 million 34-year-old males,
0:49:55 go on Rogan.
0:49:58 I think you’re gonna see a tsunami of capital,
0:50:00 election spending capital,
0:50:03 transition out of local broadcast news stations
0:50:06 or local broadcast stations into podcasts.
0:50:09 And I think we’re about to see this cute little anomaly
0:50:12 in the markets be dislocated or slash disrupted.
0:50:14 I think local TV stations
0:50:16 are about to get the shit kicked out of them
0:50:18 and that capital election spending,
0:50:20 which is only getting bigger and bigger,
0:50:22 is about to flow.
0:50:23 I already see this happening.
0:50:26 All these people are clearly planning to run for president,
0:50:29 are calling me and seem to be very interested in me right now
0:50:30 and expressing their viewpoint
0:50:33 and telling me how much they love our work on young men,
0:50:34 which they do, these are good people,
0:50:38 but they’re also interested in starting to come on our podcast
0:50:40 ’cause everyone has noticed
0:50:44 that the technology that doesn’t work is knocking on doors
0:50:46 and that the person with the most money
0:50:48 is not unlike in the past necessarily the winner here.
0:50:50 Kamala raised more money.
0:50:52 It’s the person that’s smartest about media
0:50:55 and going after media that attracts old people
0:50:56 who’ve already made up their mind doesn’t work,
0:51:00 but young men who are more persuadable.
0:51:03 People go to cable TV, people go to local news
0:51:07 or go to cable news to sanctify their religion
0:51:09 or their positions and their religion
0:51:10 is their political views.
0:51:13 People, young men go to podcasts to actually learn.
0:51:14 There are more open there.
0:51:15 And then if you look at the numbers,
0:51:18 anyways, my prediction is the following,
0:51:21 local news stations loss is gonna be podcast gains
0:51:24 and we’re gonna about to see these kind of tired,
0:51:27 non-innovative companies that have had this sugar high
0:51:29 from political spending.
0:51:32 I think that’s about to come to a fairly abrupt end.
0:51:34 – Yeah, and I would also just add,
0:51:37 I think you gotta throw social media into the mix too
0:51:40 because what you just described about local news channels,
0:51:42 like here’s a compilation of stupid things people did
0:51:44 in the neighborhood this week.
0:51:47 That’s TikTok except with presenters.
0:51:49 So you can get the same product on TikTok.
0:51:51 That’s what TikTok is for.
0:51:52 That’s where all the young people are.
0:51:55 And it’s pretty staggering how much more money
0:52:00 these campaigns spent on TV ads versus social media ads.
0:52:01 They should be on TikTok
0:52:03 and they should be on Instagram Reels,
0:52:07 which to me is gonna translate to even greater profits
0:52:09 for bite dance and meta.
0:52:12 (upbeat music)
0:52:14 – This episode was produced by Claire Miller
0:52:16 and engineered by Benjamin Spencer.
0:52:18 Our associate producer is Allison Weiss.
0:52:19 Mia Silverio is our research lead.
0:52:21 Jessica Lange is our research associate.
0:52:23 Drew Burris is our technical director
0:52:25 and Catherine Dillon is our executive producer.
0:52:27 Thank you for listening to “Profogy Markets”
0:52:29 from the Vox Media Podcast Network.
0:52:31 Join us on Thursday for a conversation
0:52:35 with Jigga Shah, only on “Profogy Markets”.
0:52:40 ♪ The lifetimes ♪
0:52:48 ♪ You held me ♪
0:52:53 ♪ In kind reunion ♪
0:53:00 ♪ As the world turns ♪
0:53:04 ♪ And the dark lights ♪
0:53:07 ♪ La la la la la ♪
0:53:15 (upbeat music)
0:53:20 – I am so bullish on podcasting last night.
0:53:22 I think next year you could make, I don’t know,
0:53:24 15 and 18 bucks an hour if you keep this up.
0:53:26 This could get, yeah.
0:53:29 If you keep, add just a little motivation,
0:53:30 a little motivation.
0:53:34 If you keep working this hard and my predictions come true,
0:53:36 I’m gonna get to buy two Ferraris.
0:53:37 – I can’t wait.
0:53:38 I cannot wait.
0:53:41 – All right.
0:53:47 – Secretary of Transportation, Joe Exotic.
0:53:49 – Support for the show comes from Alex Partners.
0:53:52 Did you know that almost 90% of executives
0:53:55 see potential for growth from digital disruption?
0:53:58 With 37% seeing significant or extremely high
0:54:01 positive impact on revenue growth.
0:54:04 In Alex Partners’ 2024 Digital Disruption Report,
0:54:06 you can learn the best path to turning that disruption
0:54:08 into growth for your business.
0:54:10 With a focus on clarity, direction,
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0:54:22 by reading Alex Partners’ latest technology industry insights
0:54:27 available at www.alexpartners.com/box.
0:54:32 That’s www.alixpartners.com/vox.
0:54:37 In the face of disruption, businesses trust Alex Partners
0:54:39 to get straight to the point and deliver results
0:54:41 when it really matters.
0:54:46 – Many songs are written to make us dance,
0:54:48 others to deal with heartbreak.
0:54:51 But it’s the rarest song that makes us feel freaky.
0:54:53 I’m musicologist Nate Sloan,
0:54:54 and I’m songwriter Charlie Harding.
0:54:56 And on this week’s episode of Switched On Pop,
0:54:59 we delve into a trilogy of new releases
0:55:00 from well-established freaks.
0:55:03 Lady Gaga, Tyler the Creator,
0:55:05 and along the way to return the cure.
0:55:08 – Listen to the musicology of freaky songs
0:55:11 on Switched On Pop presented by Nissan.
0:55:13 (upbeat music)
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0:00:28 Get started at hubspot.com/marketers.
0:00:30 [MUSIC PLAYING]
0:00:33 Support for this show comes from Constant Contact.
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0:01:17 Support for this podcast comes from Anthropic.
0:01:21 It’s not always easy to harness the power and potential of AI.
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0:01:57 Today’s number, 80,000.
0:01:58 That’s how many pounds of butterkoska
0:02:02 were called last month after forgetting to add milk
0:02:04 to the ingreeding list.
0:02:05 Fuck.
0:02:07 So what happens if you drink all this tequila?
0:02:08 Seriously.
0:02:10 Today’s number, 80,000.
0:02:12 That’s how many pounds of butterkoska were called last month
0:02:16 after forgetting to add milk to the ingreeding list.
0:02:18 Today’s number, 80,000.
0:02:21 That’s how many pounds of butterkoska were called last month
0:02:24 after forgetting to add milk to the ingreeding list.
0:02:25 True story, Ed.
0:02:29 One day, my mom caught me masturbating in the bathtub.
0:02:31 And I thought she’d be mad, Ed, but instead,
0:02:33 she’d just stopped buying margarine.
0:02:47 I’m not even sure what that means.
0:02:48 How are you, Ed?
0:02:49 How are you?
0:02:51 I’m very well.
0:02:52 We finally got there.
0:02:53 Took a while.
0:02:55 Seems like you had a pretty big night last night, no?
0:02:57 Oh my God, should I do some name dropping?
0:03:00 So do you have a posse of friends
0:03:02 that you can just call, text at any moment?
0:03:03 Like, what are you doing?
0:03:04 Let’s grab a drink?
0:03:05 I’d like to think so, yeah.
0:03:06 Yeah, so I’d like to think so.
0:03:07 Fuck you, man.
0:03:09 Just take my advice.
0:03:12 So my friend Scott Sabal used to be that guy
0:03:12 for me in New York.
0:03:15 Anyways, died of a rare form of leukemia,
0:03:16 but we’re not going to talk about this.
0:03:17 This is a happy story.
0:03:20 So now I don’t have a posse of like textable drinking buddies.
0:03:23 And I liked to both text and drink.
0:03:27 And so last night, hanging out, I got nothing to do, Ed.
0:03:31 I’m in New York, I’m a sea-less celebrity,
0:03:32 and I got nothing to do.
0:03:34 And I know there’s something great going on,
0:03:36 and I also know that I’m just not a part of it.
0:03:39 And so I text my new friend, Justin Thoreau,
0:03:41 of Beetlejuice fame.
0:03:43 And I’m like, dude, what are you doing?
0:03:44 You want to grab a drink?
0:03:45 And he’s like, I’m headed to this
0:03:47 Hyundai Genesis reveal event.
0:03:48 And he’s like, I know, I know.
0:03:49 Weakest Flex in the world.
0:03:50 And he’s like, come.
0:03:52 So I’m like, I’m on my way.
0:03:54 So I went and saw the new Hyundai Genesis,
0:03:57 which is lovely, which is lovely.
0:03:58 And then we’re like, okay,
0:04:00 am I gonna get a free Genesis here?
0:04:01 Why are we here?
0:04:03 So we’re like, oh, like let’s go to zero bond.
0:04:06 And then we text our buddy, George Han.
0:04:09 I’m like, come out and not drink with us.
0:04:11 I’m trying to be better about inviting people out
0:04:13 to drink with me, even if they’re in recoveries,
0:04:14 to think that’s it.
0:04:16 They can know I can no longer be friends with these people,
0:04:19 but I’m not gonna be that way and George is always fun.
0:04:21 George always acts a little fucked up,
0:04:22 even when he’s not.
0:04:25 So he rolls in and then,
0:04:27 and this is totally name dropping, but I don’t care.
0:04:31 At nine o’clock, I know AC 360 in.
0:04:34 So like at nine 10, I text Anderson Cooper.
0:04:37 I’m like, Brohemian Rhapsody playing now at zero bond.
0:04:38 Come join us.
0:04:39 And he’s in the car.
0:04:40 He’s like, I’m in the car, I’m on my way.
0:04:45 The four of us sat at zero bond and drank tequila sodas,
0:04:47 except for George Han.
0:04:49 And we had the best time.
0:04:50 – That’s amazing.
0:04:51 – Oh, it’s awesome.
0:04:55 And the lesson I’m trying to take away from it is,
0:04:57 it’s easy to think other people are super busy
0:04:59 and they are, but you never know.
0:05:01 If you’re not busy, just like start texting people.
0:05:02 What are you doing?
0:05:04 And it was great to hang out with them,
0:05:06 but what I loved about it was we’re both like,
0:05:09 we’re all guys that’s trying to find friends.
0:05:13 And daddy went deep in the paint last night.
0:05:15 I’m switching to tequila according to Justin.
0:05:18 It’s a cleaner burn and I was about to hangover.
0:05:21 So I still feel a little bit slow today.
0:05:23 So you’re going to have to do what I do
0:05:25 on basically every podcast ad.
0:05:27 You’re going to have to carry the show.
0:05:30 You’re going to have to carry the show.
0:05:31 – All right, let’s start with our weekly review
0:05:32 of market vitals.
0:05:35 (upbeat music)
0:05:42 The S&P 500 came down from its post-election high.
0:05:44 The dollar continued to climb.
0:05:47 Bitcoin surpassed $90,000 for the first time.
0:05:49 – Fucking A, Ed.
0:05:50 (laughing)
0:05:52 – And the yield on tenure treasury’s increased.
0:05:53 – Who doesn’t own a coin?
0:05:54 Raise their hand.
0:05:55 Who doesn’t own a coin?
0:05:56 Raise your hand.
0:05:58 – Shifting to the headlines.
0:06:02 Spotify’s monthly active users grew 11% to 640 million
0:06:03 in the third quarter.
0:06:06 The company is on track for its first year of profitability
0:06:09 with a better than expected forecast for the fourth quarter
0:06:11 and shares rose 8%.
0:06:14 Gambling company Flutter reported third quarter earnings
0:06:18 that beat analyst expectations with revenue up 27%
0:06:19 from a year earlier.
0:06:21 The company also raised its full year guidance
0:06:23 due to strong results outside of the US
0:06:27 and shares climbed almost 7% following that earnings report.
0:06:30 Disney’s stock rose 9% after its streaming unit
0:06:32 and studio business reported strong growth.
0:06:35 Disney Plus marked its second consecutive quarterly profit
0:06:38 gaining 4.4 million core subscribers.
0:06:39 And the company also issued guidance
0:06:42 that projects a jump in profits over the next three years.
0:06:45 And finally, activist investor Elliot Management
0:06:48 has built a $5 billion stake
0:06:50 in industrial conglomerate Honeywell.
0:06:53 That’s Elliot’s largest investment in a single stock.
0:06:55 They want Honeywell to break up its aerospace
0:06:59 and automation businesses into two separate companies.
0:07:02 Scott, let’s start with Spotify’s
0:07:04 very strong earnings, your reactions.
0:07:07 – So its stock is 150% a year to date
0:07:11 and they’ve raised a ton of money massively spent
0:07:15 to essentially consolidate the streaming music market.
0:07:16 And I would argue people say,
0:07:16 what about Apple?
0:07:17 What about Amazon?
0:07:19 I think if you’re into music,
0:07:22 I just think you have to have a Spotify subscription.
0:07:24 And occasionally people try to act alternatively.
0:07:25 Like, well, I like Apple.
0:07:26 – That’s me.
0:07:27 – You don’t listen to Spotify?
0:07:30 – I know, for me, it’s just a switching over issue.
0:07:31 I know it’s a better platform,
0:07:33 but it’s just a pain to switch over.
0:07:34 – Oh, I think they do such a good job,
0:07:38 but they’re taking a page out of the Netflix book
0:07:39 and they’ve overspent.
0:07:42 But for the first time, it appears to be working
0:07:43 and they appear to be kind of hitting
0:07:45 the same sort of escape velocity
0:07:47 that Netflix hit about, I don’t know,
0:07:50 seven, eight years ago or five or years ago,
0:07:51 where they really are the default player
0:07:54 in subscription music.
0:07:58 And paid subscribers jumped 12% to 250 million.
0:08:00 The profit margin reached 31%.
0:08:01 That’s up 26%.
0:08:05 That knocked on Spotify with it was basically a music co-op
0:08:07 passing through all the revenues of the artists.
0:08:09 And now it appears they have so much power
0:08:10 that they’re probably cutting better deals
0:08:13 in terms of revenue share or lack thereof.
0:08:15 And Spotify, I get this, since 2015, last nine years,
0:08:18 has seen its revenue grow eight-fold.
0:08:20 And it struggled to achieve full-year profitability
0:08:23 ’cause it kept reinvesting, but that has changed this year.
0:08:26 It’s gone into profitability, which is like putting
0:08:28 an investor’s lips around a crack pipe.
0:08:30 It means you can’t take it away.
0:08:33 And to get there, again, I think the CEO took a page
0:08:36 from Netflix’s playbook emphasizing tighter cost discipline.
0:08:38 The company has also cracked down on password sharing
0:08:40 and raise prices twice in the past year.
0:08:42 I think basically they are on fire.
0:08:45 If this is like Netflix, it still could triple
0:08:47 or quintuple from here if they have
0:08:49 the kind of market power I think they have.
0:08:51 ‘Cause Netflix supposedly had other competitors,
0:08:53 but did they really, did they really add?
0:08:55 So I’ve always loved Spotify.
0:08:59 It was my stock pick of like 2021 or something.
0:09:01 And it went nowhere for three years.
0:09:03 It was flat for the longest time.
0:09:04 – You were just so early.
0:09:05 – That’s it.
0:09:06 I was early, Ed.
0:09:07 I wasn’t wrong.
0:09:08 I was early.
0:09:11 Yeah, that’s what my ex-wife used to say.
0:09:12 And it’s not bad.
0:09:14 You’re just early all the time.
0:09:15 Blimey, I’ll be here all week.
0:09:16 Try the deal.
0:09:21 Okay, so get on Spotify and use their AIDJ.
0:09:23 It is fucking amazing.
0:09:24 It is so good.
0:09:26 It has figured out that every song for me
0:09:31 should either be Tom Petty or Tom Petty or Yellow
0:09:33 or occasionally Calvin Harris to make me feel
0:09:36 like I’m not 100 years old and it just works.
0:09:39 My whole thing, Ed, is choice is a bad thing.
0:09:43 I only want things where there is no choice.
0:09:46 And I love Spotify AI because a lot of times
0:09:49 when I’m home and I’m on prescription grade pharmaceuticals
0:09:50 and I want to dance,
0:09:53 I don’t know the perfect dance music.
0:09:55 And Spotify figures out, you know,
0:09:59 I think at what time what my mood is, it’s really powerful.
0:10:00 – I’m glad you mentioned the AIDJ
0:10:02 because I think the thing that I’ve been thinking about
0:10:05 with Spotify right now and what they’re really good at
0:10:08 is unlike a lot of other tech companies
0:10:11 that just come out with these kind of meaningless product
0:10:14 updates that no one really cares about.
0:10:18 I feel like every product update from Spotify,
0:10:19 the users just love.
0:10:22 So they have video podcasts now,
0:10:24 which they’ve sort of doubled down on recently
0:10:25 to compete with YouTube.
0:10:29 And there are now more than 300,000 video podcasts
0:10:30 across Spotify.
0:10:32 That’s another great product update.
0:10:34 They have podcast comments now,
0:10:37 basically opening up a comment section.
0:10:39 And then I think the best thing that they did
0:10:42 from a product perspective was Spotify Wrapped,
0:10:44 which was sort of the year-end review
0:10:47 of all the stuff you’ve been listening to.
0:10:50 And, you know, when they did that, it exploded,
0:10:53 it went viral, Apple Music ended up having to copy them
0:10:56 and they have just a worse version of it.
0:10:59 Clearly the engineers there, the product managers,
0:11:00 they’re very scrappy.
0:11:03 They’re constantly figuring out new ways to package
0:11:06 and deliver this content.
0:11:08 And I think, you know, the market’s now recognizing this.
0:11:13 As you said, it’s talks up nearly 150% in the past year.
0:11:15 It’s starting to look perhaps a little expensive,
0:11:17 but in this case, I think it’s warranted.
0:11:19 This is just a great quarter.
0:11:20 And I agree with you.
0:11:22 I think this is a great company
0:11:23 and clearly they’re doing something right
0:11:25 from a management perspective.
0:11:27 And let’s move on to Flutter now.
0:11:29 So this is a gambling company.
0:11:33 They own brands like Betfair and Sky Betting
0:11:34 and Paddy Power.
0:11:37 If you’re from the UK, you’ll recognize those names.
0:11:40 But in the US, they also own Fanduil.
0:11:42 And the story of this earnings report
0:11:44 is all about America.
0:11:50 So US revenue jumped 51% to $1.3 billion.
0:11:53 A big source of revenue was the NFL.
0:11:55 The CEO said that betting activity,
0:11:57 I found this quite staggering,
0:11:59 betting activity on some of the NFL games
0:12:02 that are happening right now is actually higher
0:12:06 than betting activity on last year’s Super Bowl.
0:12:09 So sports gambling is absolutely soaring.
0:12:11 And if you want to ride that wave,
0:12:13 this is the stock, Flutter Entertainment.
0:12:15 I’m uncomfortable with all of this,
0:12:18 but the reality is the fastest way to scale your company
0:12:21 with high margin revenue is to have some sort of tap
0:12:24 into some sort of addictive weakness of the species.
0:12:25 And this is doing that.
0:12:27 Having gambling on your phone
0:12:30 and having it be so frictionless is really,
0:12:34 I think really troubling, but at the same time,
0:12:37 it’s a great, it’s just not getting around it.
0:12:38 It’s a great business.
0:12:41 Fanduil has almost, they control almost half the market.
0:12:44 They have 46% market share.
0:12:46 Americans spent a record 120 billion
0:12:47 on sports waders in 2023.
0:12:50 That’s up 28% from 2022.
0:12:51 This year, sports betting is expected
0:12:53 to surpass 150 billion.
0:12:56 – 150, I just want to like emphasize that,
0:13:01 $150 billion in sports bets, that’s a crazy number, no?
0:13:03 – Yeah, it’s huge.
0:13:05 People, you know, it’s fun.
0:13:08 And I mean, it really is passing out crack.
0:13:11 $50 free for your first bet, right?
0:13:12 Free money for your first bet.
0:13:13 – It’s also just such a shame
0:13:17 that like the most ascendant companies
0:13:21 and assets right now are just totally unproductive
0:13:23 in terms of the actual real economy.
0:13:26 Like I wish that the best performing assets
0:13:27 were actually productive.
0:13:30 This is not societally productive.
0:13:31 – Well, the only thing I’ll wrap up with
0:13:33 is people will say, well, Scott,
0:13:34 investing in the stock market is gambling.
0:13:35 This is no different.
0:13:36 No, it is different.
0:13:40 If you invest in the stock market and you don’t trade
0:13:41 over time, you’re gonna make money.
0:13:44 When you gamble, if you enjoy it, fine,
0:13:45 just like the way you enjoy drinking alcohol
0:13:48 or buying tennis shoes, it’s consumption.
0:13:49 This is consumption.
0:13:51 It’s not investing and be clear.
0:13:54 Keep track of how much psychic enjoyment you’re getting
0:13:56 because in terms of money, you’re gonna walk away
0:13:58 from the table eventually over time with less money.
0:14:00 – Let’s move on to Disney earnings.
0:14:01 Very solid quarter.
0:14:04 Not much really jumped out to me apart from the fact
0:14:06 that this is the second quarter in a row
0:14:09 where the streaming business has been profitable.
0:14:11 So last quarter was the first time
0:14:12 that streaming was profitable.
0:14:15 And we said, well, maybe they’ve got this whole
0:14:16 streaming thing figured out.
0:14:18 I think this earnings report confirms it.
0:14:22 They have finally figured out streaming,
0:14:24 which is essential for Disney
0:14:27 because the traditional TV business is essentially
0:14:28 in free fall.
0:14:31 Just this number here from the earnings report,
0:14:34 operating profit on that traditional TV business
0:14:37 was down 38% this quarter.
0:14:39 And that’s despite all of the election spending
0:14:41 and that’s despite owning ABC.
0:14:43 So they need streaming to work out
0:14:45 and it looks like that’s what’s happening.
0:14:46 – It’s doing really well.
0:14:49 I think the movies are, the movies are meaningful,
0:14:51 the revenue from the parks meaningful,
0:14:52 but from the market perspective,
0:14:54 the results of the streaming division are profound.
0:14:57 And the streaming division had a great, great quarter.
0:14:59 I like it because I like Bob Iger
0:15:00 and this is gonna give him a chance.
0:15:03 Like he was stupid enough to go back to Afghanistan
0:15:04 but on a second tour,
0:15:07 he’s gonna get another medal pinned on his uniform.
0:15:09 He’s gonna get to leave this combat zone
0:15:12 called traditional media, a hero again.
0:15:16 – I thought you’d analogize Disney with Afghanistan.
0:15:18 – Well, ad supported media right now.
0:15:19 – Point taken, yeah.
0:15:21 I mean, it is hand to hand combat.
0:15:23 And the thing about Disney,
0:15:24 they’re one of the survivors
0:15:26 ’cause they have this singular positioning around family
0:15:29 and unbelievably deep IP and it’s starting to pay off.
0:15:31 And also it’s paying off for them
0:15:33 ’cause they stood the test of time
0:15:37 through what is this walking through the desert,
0:15:39 if you will, of consolidation.
0:15:41 And for the first time in two years,
0:15:43 Netflix is no longer increasing their spend.
0:15:46 So every other company doesn’t have to follow them down
0:15:48 this rabbit hole of unsustainable spend.
0:15:49 And there’s also pricing power.
0:15:51 Netflix is kind of creating
0:15:54 and elevating the ceiling around pricing
0:15:55 and they’re raising their prices,
0:15:58 which gives everyone cloud cover to raise their prices.
0:15:59 I think it’s good for Disney,
0:16:01 good for Bob Iger, good for the planet.
0:16:02 I think it’s a great company.
0:16:03 I hope it stays independent.
0:16:05 And it was one of my stock picks last year,
0:16:08 Disney and Warner Brothers, so we’ll see.
0:16:10 But yeah, I think, good for them.
0:16:11 Congratulations, great quarter.
0:16:13 – We’ll move on to Elliot’s investment,
0:16:15 activist investment in Honeywell,
0:16:17 which is this industrial conglomerate.
0:16:19 I think this is interesting for two reasons.
0:16:23 One, it’s Elliot’s biggest single company investment
0:16:24 ever, $5 billion.
0:16:27 So this is a very high conviction bet.
0:16:29 And two, what they are suggesting
0:16:31 from an activist perspective
0:16:34 is right out of the prog markets playbook.
0:16:37 Specifically, this is all about the conglomerate tax,
0:16:39 which you’ve talked about a lot on this podcast,
0:16:40 which is that conglomerates
0:16:44 tend to get these slightly depressed valuations
0:16:47 because investors don’t really reward diversification,
0:16:49 what they really care about is focus and growth.
0:16:50 And that’s a lot harder to do
0:16:53 when you’re operating multiple businesses.
0:16:55 Honeywell is a great example of that
0:16:56 because their aerospace business
0:16:59 and their automation business,
0:17:00 they’re two very different things.
0:17:03 And oftentimes when one has performed,
0:17:05 the other has lagged and vice versa.
0:17:07 So I think this is a great idea from Elliot,
0:17:10 split them up, have an aerospace company
0:17:12 and an automation company.
0:17:14 The only question I would have
0:17:16 is are the partners at Elliot management
0:17:17 listening to this podcast?
0:17:19 Because if they are,
0:17:21 we deserve some credit and we deserve a cut.
0:17:22 – Oh, 100%.
0:17:25 Yeah, there’s no doubt a check coming our way.
0:17:26 Yeah, I like this stuff.
0:17:29 Like sometimes when a stock gets below a certain amount,
0:17:32 the hole is less than the sum of its parts.
0:17:35 And that’s the strategy here.
0:17:37 So the stock’s up 12% year-to-date,
0:17:38 but the industrial sector,
0:17:42 ETF is up 25%, so it’s underperformed the market.
0:17:43 And then it’s kind of,
0:17:45 one of these themes among all the economy companies
0:17:47 is growing by shrinking.
0:17:48 And that is, we’ve talked about this,
0:17:51 the market rewards deconglomerization.
0:17:52 Gs break up in April,
0:17:54 G-aero space stock had risen more than 25%.
0:17:57 And G-vernova shares have risen more than 20%.
0:17:59 Honeywell trades at 27 times earnings,
0:18:02 while G-aero space trades at 32 times earnings.
0:18:04 So I wouldn’t be surprised if they
0:18:06 decide to do this themselves
0:18:08 or come up with some sort of extra dividend.
0:18:10 They give Elliot their pound of flesh.
0:18:12 The guy who handled Elliot better
0:18:13 than anyone was Mark Benioff.
0:18:14 And they showed up and said,
0:18:15 “You’re spending too much money.”
0:18:17 And rather than the traditional,
0:18:21 you have insulted me, good sirs,
0:18:23 and circle the wagons and hire lawyers
0:18:25 and proxy solicitors and comms people
0:18:26 to shitpost the activists.
0:18:28 They say, “Okay, we can learn from you.”
0:18:32 Mark Benioff uses his cloud cover to cut costs.
0:18:36 AI came in and Salesforce stock is now at an all-time high.
0:18:37 And essentially what you do as an activist investors,
0:18:40 you just show up with a big stake and say, “We’re here.”
0:18:42 And if the stock goes up on its own,
0:18:43 if we’re wrong and the stock goes up on its own,
0:18:45 fine, we’ll sell and congratulations, you win.
0:18:47 If it doesn’t, then you need to do what we say
0:18:49 or we’re gonna start nominating directors.
0:18:52 So you get a little bit of a free call option
0:18:54 if the stock is cheap enough.
0:18:55 So I like these things.
0:18:57 I think, you know, they go through a cycle
0:19:00 where they conglomerize and they deconglomerize.
0:19:03 Anyways, the aerospace and automation,
0:19:05 do they need to be in the same umbrella?
0:19:06 And it’s the basic notion of CEO.
0:19:10 So love to diversify by having bigger company
0:19:12 and diversify or smooth out their earnings.
0:19:15 When again, investors don’t need CEOs to do that for them.
0:19:16 They can diversify on their own.
0:19:17 So I like this.
0:19:20 We’ll be right back after the break
0:19:23 with a look at one of ChatGPT’s first victims.
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0:22:55 More than a year ago, ChatGPT took a bite
0:22:57 out of a leader in the ed tech space.
0:23:00 Chegg, a textbook and homework help provider,
0:23:03 was a big winner during COVID as learning moved online.
0:23:05 And then the AI hype cycle began.
0:23:06 And Chegg was one of the first companies to say
0:23:09 that ChatGPT was stifling its growth.
0:23:13 18 months later, the company is telling the same story.
0:23:15 Chegg’s earnings last week showed revenue, subscribers
0:23:18 and web traffic all fell by double digits
0:23:19 in the latest quarter.
0:23:22 The company is also laying off 21% of its workforce,
0:23:26 its second round of big job cuts this year.
0:23:28 Scott, Chegg was still blaming ChatGPT
0:23:31 for his problems on its latest earnings call.
0:23:33 It has lost half a million paid subscribers
0:23:34 since the launch of that product.
0:23:38 Shares are down around 99% from 2021,
0:23:41 erasing $14.5 billion in value.
0:23:43 And according to the Wall Street Journal,
0:23:46 bond traders doubt this company will be able
0:23:48 to pay its debts.
0:23:52 Is it safe to say that ChatGPT has claimed its first victim?
0:23:53 – It’s really interesting.
0:23:55 So if you look at the industry,
0:23:59 as they were supposed to be disrupted by AI,
0:24:01 I’ve been predicting to be healthcare.
0:24:03 It was supposed to be education.
0:24:05 It hasn’t happened in education.
0:24:06 Actually, the top 100 universities
0:24:08 are a stronger, stronger than they’ve ever been.
0:24:10 And I’m so confident about disruption.
0:24:11 I started an ed tech company
0:24:14 and quite frankly, it just hasn’t panned out.
0:24:16 Chegg came in, people, it was a COVID darling.
0:24:20 A lot of people trapped indoors, taking courses,
0:24:21 but it’s off 99%.
0:24:24 And some of this is not their fault
0:24:27 or the market dynamics
0:24:29 well as Trump individual performance.
0:24:31 But this company was gonna get cut in half.
0:24:34 Now, why is it been cut by 99%?
0:24:37 I just think the comms here is terrible.
0:24:41 I think to blame ChatGPT is to say ChatGPT is our enemy.
0:24:42 Okay, you’re fighting an enemy.
0:24:46 This is the Albanian army taking on the third Reich right now.
0:24:49 So if you identify that ChatGPT is coming for us
0:24:52 and they’re our enemy, it’s like, okay, that’s too bad.
0:24:54 And we understand and you’re right, it’s their fault.
0:24:56 But you’re fucked.
0:24:59 Because if in fact you’re right and they’re your enemy
0:25:01 and they’ve identified this as a space they wanna go after
0:25:05 or that consumers are using agents to help them
0:25:09 with their studies or essentially find the same utility
0:25:11 they were finding for you at a higher price,
0:25:14 we see no reason why that problem won’t get just worse.
0:25:16 The interesting thing here is what you said about the debt.
0:25:18 I’d love to know what the debt is trading at
0:25:21 because I believe someone is gonna make real money here.
0:25:22 And who is that?
0:25:23 I think a distressed credit investor
0:25:25 is gonna come in and buy the bonds.
0:25:28 And if they do in fact blow their covenants
0:25:29 and the thing goes into bankruptcy,
0:25:31 I think whoever owns the bonds will come in,
0:25:32 cut a lot of costs,
0:25:35 say this is no longer a growth company,
0:25:37 this is a distressed asset,
0:25:40 but they do have revenues have fallen 18%,
0:25:43 subscribers have fallen 20%,
0:25:45 which means they still have 80% of their subscribers.
0:25:50 So this is probably still a pretty decent company.
0:25:52 It’s just that somebody’s gonna have to come in here
0:25:55 and massively cut costs and recognize
0:25:57 we’re no longer a growth company,
0:25:59 we’re a company in decline.
0:26:02 But if we can cut costs faster than the decline,
0:26:03 we’re still gonna have something here.
0:26:07 And they probably have invested a massive amount of money.
0:26:08 I don’t know what the market cap is,
0:26:11 but if it’s off 99%, that means it’s like a hundred.
0:26:12 – It’s 170 million.
0:26:15 – Okay, I’d be curious how much debt they have,
0:26:18 but I would think distressed credit investors
0:26:19 are looking at those bonds and saying,
0:26:24 okay, can I own this company for tens or hundreds
0:26:26 of millions of dollars and say it’s probably worth
0:26:28 a couple of billion dollars to someone else.
0:26:31 They have a subscriber base who are still paying,
0:26:34 companies not going to zero.
0:26:37 The best investments I have ever made
0:26:40 have been pulling bankrupt companies out of bankruptcy
0:26:43 at a very low price in things like consumer products
0:26:46 or the yellow pages and then consolidating
0:26:48 or seeing if there’s other acquisitions
0:26:49 of other distressed companies in the space
0:26:52 cutting costs faster than the revenue declines.
0:26:54 And you can usually pick them up really cheaply
0:26:57 and then you can make a lot of money.
0:27:00 And the analogy I was using is that in 1999,
0:27:02 people knew Blockbuster was going away.
0:27:04 So you could buy a Blockbuster franchise
0:27:06 for two and a half times, it’s cashflow.
0:27:09 They did go away, but it took another 12 years.
0:27:11 So if you bought companies at two and a half times cashflow
0:27:15 and they went another 12 years, you made a lot of money.
0:27:16 And I think that’s the case here.
0:27:18 So I look at this and I think, okay, that’s interesting.
0:27:21 First kind of public chat GPT victim,
0:27:23 although there’s probably others not as obvious,
0:27:25 but I actually think a distressed credit investor
0:27:28 is probably looking at the bonds right now.
0:27:30 – Yeah, you mentioned, there are probably others.
0:27:35 I mean, I looked into this, I really couldn’t find many.
0:27:38 And I’d be interested to know maybe our listeners
0:27:39 can identify some companies
0:27:42 that have really gotten crushed by AI.
0:27:45 But I do find it interesting because, you know,
0:27:48 there was all of this catastrophizing and speculation
0:27:50 around how AI was gonna put all of these companies
0:27:53 out of business, it was gonna take all these jobs.
0:27:55 And here we are two years into this revolution
0:27:59 and the big victim of AI is Chegg,
0:28:03 which is just like a kind of irrelevant company,
0:28:04 barely any employees at all.
0:28:06 I mean, they cut 20% of the workforce,
0:28:09 but that’s only around 300 employees
0:28:12 who are losing their jobs to AI, I guess.
0:28:16 And so it’s interesting to me and I’m a little surprised
0:28:21 at how undestructive AI has proven to be.
0:28:25 So I guess the question that I would pose to you,
0:28:27 which companies or which sectors do you think
0:28:32 are going to get hit by AI as hard as Chegg just has,
0:28:37 or is the AI catastrophizing just too overblown?
0:28:38 – Well, first off,
0:28:40 anyone in customer service, right, gets hit pretty hard.
0:28:43 But if I were to look at large sectors of companies,
0:28:45 there’s software as a service
0:28:47 and we decided that as a palindrome,
0:28:49 it’ll be services of software.
0:28:52 So travel agencies, publicly traded travel agencies.
0:28:56 I wonder how real estate agencies are gonna fare
0:28:57 in a world of AI.
0:29:02 I don’t know, that’s a super interesting question
0:29:07 around who are chat GPTs next victims.
0:29:09 – Yeah, I mean, it feels like the entire economy
0:29:12 has figured out a way to get AI on their side.
0:29:12 – I like that.
0:29:13 – Or at least, at the very least,
0:29:15 they’ve made it seem that way.
0:29:17 And I guess the big mistake by Chegg
0:29:20 was saying where AI is not on our side.
0:29:23 As you said, AI is our enemy.
0:29:25 But I mean, I look at the rest of these companies
0:29:29 and no one’s been taken to the woodshed by AI
0:29:30 the way we thought,
0:29:33 unless I’m just missing something massive here.
0:29:36 – What I find is, if you’re really worried about something,
0:29:39 it usually doesn’t happen because you prepare for it.
0:29:41 It’s when you don’t see the comet coming.
0:29:42 You know, no dinosaur thought,
0:29:46 I’m really freaked out about a meteor hitting Earth.
0:29:48 That wasn’t their biggest worry.
0:29:49 I don’t know, I don’t know how anxious
0:29:51 dinosaurs would begin with.
0:29:52 – They’re struggling with mental health, yeah.
0:29:54 – Yeah, who knows, right?
0:29:58 I don’t know, being the prospect of being eaten
0:30:00 while you’re sleeping or while you’re drinking
0:30:01 from a while is pretty like,
0:30:04 that is still my favorite TikTok
0:30:06 ’cause the little cheetah comes up
0:30:09 to the watering hole for a little refreshment.
0:30:11 And it’s such a peaceful little waterhole
0:30:15 until an 18 foot croc takes that bitch into the water.
0:30:18 And I mean, I just never get sick of that.
0:30:19 And whenever I see an animal drinking at a waterhole,
0:30:21 I’m like, okay, here we go.
0:30:25 Anyways, I don’t know how I was going with that,
0:30:27 crocodiles, it’s the stuff you don’t see coming.
0:30:29 What do you think, what do you think,
0:30:32 what sectors do you think are gonna be most disrupted by AI?
0:30:33 – This is my point.
0:30:35 I don’t think anyone’s gonna be,
0:30:37 I don’t think anyone’s gonna be hurt
0:30:39 in the same way that Chegg did, is my view.
0:30:42 I just, I think what’s gonna happen is gonna be slow
0:30:44 and we’re gonna figure out a way
0:30:46 to make AI work for us.
0:30:51 So I mean, to me it’s telling the fact that we’re here
0:30:55 and the big loser is this tiny company
0:30:57 that no one cared about anyway.
0:31:01 But maybe I’ll eat my words, we’ll see.
0:31:03 One detail I did find interesting though
0:31:04 that I wanna bring up.
0:31:08 So apparently the employees of Chegg a couple of years ago
0:31:10 actually asked for an AI budget
0:31:14 ’cause they felt that AI would be helpful to the business,
0:31:15 would help with automating their answers.
0:31:20 And supposedly the leadership denied that request.
0:31:23 And so I feel like there are some big questions here
0:31:28 for leaders and for managers of companies
0:31:29 around how to innovate.
0:31:31 Because in this case, the leadership said,
0:31:32 “No, we don’t need to do that.”
0:31:35 And they look stupid now, obviously.
0:31:38 But I’m sure there are many other situations
0:31:40 where an employee has come to leadership and said,
0:31:43 “Hey, there’s this new technology, we have to do it.”
0:31:47 And the manager has said, “Thanks, but no thanks.
0:31:49 “We’re gonna focus on this other stuff.”
0:31:50 And it probably ended up being the right decision.
0:31:52 And the example that comes to mind for me
0:31:53 is like the metaverse.
0:31:56 I mean, how many employees three years ago
0:31:58 were going up to their managers and saying,
0:32:00 “You don’t understand, metaverse is the next big thing.
0:32:01 “We gotta do it.”
0:32:05 And the guys who said, “No, are the ones who look smart now.”
0:32:08 But in this case, if you’re at Chegg,
0:32:11 you really screwed over the entire company
0:32:12 by not embracing AI.
0:32:14 So I guess my question to you would be,
0:32:17 what are some of the learnings here for leaders?
0:32:19 It’s essentially an innovators dilemma question.
0:32:23 How do you correctly allocate your resources
0:32:27 while not risking falling way behind as Chegg has done?
0:32:30 – Well, I mean, just hearing you talk,
0:32:34 what I think is it’s not sectors that’ll be the losers.
0:32:36 It’ll be the companies in every sector
0:32:39 that don’t incorporate AI into their business operations.
0:32:42 It’d be like saying, we knew that the windtail revolution
0:32:43 was gonna have a huge impact on the economy,
0:32:46 but it wasn’t like PCs took out the auto industry
0:32:48 or took out the restaurant business.
0:32:51 It was the companies that didn’t adapt
0:32:52 in a corporate technology into their everyday business
0:32:55 operations were beaten by the companies
0:32:56 in their sector that did.
0:32:58 I think the same is probably true here.
0:33:01 I don’t think, again, I think there’ll be winners
0:33:04 and losers in every category,
0:33:07 but will there be like five or six industries
0:33:08 that just go away?
0:33:10 I don’t know, I don’t know, we’ll see.
0:33:13 – We’ll be right back after the break
0:33:15 with a look at the new Department of Government Efficiency.
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0:33:20 hit follow and leave us a review on ProfG Markets.
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0:35:25 – We’re back with Broff G Markets.
0:35:28 Donald Trump has named Elon Musk and Vivek Ramaswamy
0:35:30 as the heads of a new entity
0:35:33 called the Department of Government Efficiency.
0:35:35 In a statement, Trump said the department
0:35:39 will dismantle bureaucracy/regulations and expenses
0:35:41 and restructure federal agencies.
0:35:42 He also called it, quote,
0:35:45 “The Manhattan Project of Our Time.”
0:35:47 Scott, your initial reactions
0:35:49 to the Department of Government Efficiency,
0:35:53 also known as DOGE aka Doge.
0:35:56 – Well, I think the fact that they have two heads
0:35:59 of a department on efficiency kind of says it all,
0:36:02 and that is this makes no fucking sense.
0:36:05 So first off, budget cuts aren’t
0:36:07 within a president’s constitutional power.
0:36:09 Only Congress controls federal spending
0:36:13 and may or may not act on outside advice.
0:36:16 And all of these Congress people have districts
0:36:18 that are all making money from federal contracts
0:36:21 and have a lot of employees that work for the government.
0:36:23 So, you know, you may wanna slow your roll here.
0:36:27 The, an official government agency cannot be created
0:36:28 without an act of Congress.
0:36:32 So it’s unclear if DOJA would exist within the government
0:36:33 or outside of it.
0:36:36 And effectively this efficiency group,
0:36:39 air quotes, is more bureaucracy, not less.
0:36:43 And look, every single administration
0:36:46 has had something similar talking about
0:36:48 how to eliminate bureaucracy
0:36:50 and inefficiency in government.
0:36:52 But let’s, let’s just be real.
0:36:53 Mandatory spending, including social security,
0:36:55 Medicare and federal debt interest
0:36:57 consumes two thirds of the budget.
0:36:59 So they’re gonna try and make, find, you know,
0:37:04 squeeze blood from a turnip that is one third of the budget.
0:37:06 Elon Musk claimed at a Trump rally in October
0:37:07 that the federal budget could be cut
0:37:09 by at least $2 trillion.
0:37:11 That’s just not true.
0:37:14 To cut $2 trillion, Musk would have to eliminate
0:37:17 both social security and national defense spending.
0:37:19 And also, if you did that kind of cut,
0:37:23 you would send the economy into immediate recession
0:37:26 because, you know, we have, what is it about a third
0:37:31 of our GDP center, actually 38% is total government spending.
0:37:34 That’s actually less than Japan, which spends 42%.
0:37:36 UK at 43 and Germany at 48.
0:37:39 So we’re spending less on government than other places.
0:37:42 Now granted, they would argue they get more services
0:37:43 for their employees.
0:37:45 We may be in fact, more inefficient.
0:37:48 The US public sector employs one in seven workers,
0:37:49 so 14% of workers.
0:37:52 And that’s more than Germany’s 13% of Mexico’s 12%,
0:37:54 but less than France’s 21%.
0:37:57 So I don’t, I find this kind of a lot of jazz hands.
0:38:00 And just to be clear,
0:38:03 when we’re talking about the person running
0:38:06 the quote unquote efficiency department,
0:38:08 let’s look at his track record, all right?
0:38:12 So if you look at the auto industry,
0:38:17 you have BMW at about $1.1 million per employee, right?
0:38:23 You have Ford at $980,000 per employee,
0:38:26 General Motors 1.02 million per employee,
0:38:28 Mercedes 950,000 per employee,
0:38:32 and who brings up the rear at $740,000 per employee,
0:38:36 the least efficient automobile company, Tesla.
0:38:41 So granted, he was able to maintain a minimum viable product
0:38:44 with Twitter by laying off 80% of the employees,
0:38:48 but he also registered an 80 plus percent decline in revenue.
0:38:51 So anything resembling a reasonable conversation
0:38:53 would go like this.
0:38:56 We have to put a cap or start reducing
0:38:58 or means testing entitlements.
0:39:01 Not everyone should be entitled to entitlements.
0:39:03 I should not get Social Security.
0:39:05 I’m not sure I should be eligible for Medicare
0:39:07 ’cause I have the money.
0:39:09 We are going to have to raise revenues,
0:39:11 which is Latin for taxes.
0:39:13 Corporate taxes are at their lowest rate since 1938.
0:39:15 The 25 wealthiest Americans are paying somewhere
0:39:18 between an effective tax rate,
0:39:20 depending on who you talk to, between seven and 16%,
0:39:24 but they’re paying less than most middle-income workers.
0:39:27 But the notion that Musk and Vivek Ramaswani
0:39:30 are gonna come in and find $2 trillion in savings,
0:39:32 good luck with that.
0:39:34 And I just also like to, I mean, I don’t know if you saw,
0:39:39 but the new secretary of the interior is David Hasselhoff
0:39:42 and Jane Lynch’s character from Glee
0:39:45 is the new secretary for health and human services.
0:39:47 I mean, this isn’t even a cabinet.
0:39:50 It’s fucking dancing with the stars.
0:39:53 My complaint with this is I can’t tell
0:39:56 how serious it is about the problem.
0:40:01 And the feeling that I get is that this is mostly just
0:40:07 a way to kind of put up a finger at the establishment
0:40:09 and that by putting Elon in charge
0:40:11 and putting Vivek in charge,
0:40:14 this is less about addressing the deficit
0:40:17 and more about like owning the libs.
0:40:20 And that to me is a shame
0:40:22 because this is a massive, massive problem
0:40:24 and everyone agrees it.
0:40:28 Like everyone agrees that the deficit needs to be solved
0:40:31 and everyone agrees that it would be great
0:40:32 to have a more efficient government.
0:40:36 But to your point, this has been tried
0:40:37 several times in the past.
0:40:39 Clinton tried to do it, Reagan tried to do it,
0:40:41 Bush tried to do it, Obama tried to do it.
0:40:44 And the other side to it, which you also brought up,
0:40:48 is that we need to raise tax revenue.
0:40:52 Like if you want to get back in the green as a government,
0:40:56 then we need to figure out a way to raise more taxes
0:40:57 as a percentage of our GDP.
0:41:00 And the reality is that our nation
0:41:04 has one of the lowest tax revenues as a percentage of GDP
0:41:07 among all developed nations.
0:41:11 In addition, like Vivek, Vivek has talked about
0:41:13 getting rid of all of these government agencies.
0:41:16 Like he wants to get rid of the DOE and the DOJ.
0:41:20 And I just, I wish he would have a sober conversation
0:41:22 about the numbers here.
0:41:25 If you were to get rid of every government agency
0:41:29 apart from the Department of Defense, which is huge,
0:41:30 if you were to get rid of all of them,
0:41:35 you would only reduce our spending by at less than a 10th.
0:41:37 Like these numbers are tiny,
0:41:39 that what we spend all of our money on
0:41:44 is as you said defense and social security and healthcare.
0:41:47 It adds up to 75% of our entire budget.
0:41:49 – So let’s talk about the Department of Education.
0:41:52 It has about a $220 billion budget.
0:41:54 Some of the things they do with that money,
0:41:56 they fund Title I of the Elementary
0:41:58 and Secondary Education Act,
0:41:59 which provides supplemental funding
0:42:02 to high poverty K through 12 school districts.
0:42:05 They have the head, they fund the Head Start Program,
0:42:07 which provides vital childcare services
0:42:09 for many low income and rural communities
0:42:10 across the country.
0:42:13 The department also administers Pell Grants.
0:42:15 Who is here speaking to you right now?
0:42:19 Because of Pell Grants, yours truly.
0:42:22 These are investments in lower income households
0:42:23 that couldn’t go to college,
0:42:25 which I could not have done without Pell Grants.
0:42:28 And by the way, those are investments.
0:42:31 They’re not entitlements, they’re investments.
0:42:34 A lot of the money that goes to seniors is welfare.
0:42:36 A lot of things like Pell Grants
0:42:37 and the Department of Education are investments
0:42:39 because you start making these investments
0:42:41 as a very credible argument
0:42:43 that I end up continuing to live with my mom
0:42:46 instead of paying a shit ton of taxes, which I do.
0:42:47 These are four leaning investments
0:42:51 or you increase government spending on police fire,
0:42:56 rehabilitation, mental illness, diabetes,
0:42:58 incarceration.
0:43:01 I would argue the problem is we can’t connect it
0:43:03 as quickly as they’d like.
0:43:04 I would argue the Department of Education
0:43:06 is probably one of those departments
0:43:08 where over the medium and long term,
0:43:12 we see a really strong return on investment.
0:43:16 You know, Project 2025 is talking about eliminating
0:43:18 the Department of Education,
0:43:19 which they describe as a one-stop shop
0:43:21 for the woke education cartel.
0:43:24 – Yeah, it’s just like, that’s just an unserious proposal.
0:43:25 – Yeah, so.
0:43:27 – It’s just not even about politics.
0:43:30 It’s like, can we actually have like a legitimate conversation
0:43:30 about the problem?
0:43:31 – I don’t know.
0:43:32 Where I see with all of this,
0:43:35 whether it’s Roe v. Wade being overturned
0:43:38 or this ridiculous notion about efficiency,
0:43:41 here’s who’s gonna get hurt.
0:43:44 It kind of preys on the most vulnerable, right?
0:43:46 My kids don’t need the Department of Education
0:43:48 either will yours.
0:43:53 But a middle-class family, a family in rural America,
0:43:54 kids who couldn’t afford to go to college
0:43:57 or junior college or need student loans,
0:44:00 are in poor school districts that don’t get the funding
0:44:02 they need ’cause they don’t have rich parents
0:44:06 showing up and bidding $5,000 for lunch with Ed Elson
0:44:08 or whatever these stupid charity auctions.
0:44:11 You know, this is, again, if you reverse engineer
0:44:14 to who really gets hurt with these policies,
0:44:15 it’s the most vulnerable.
0:44:18 And do we need a more efficient government?
0:44:19 Are there places to cut spending?
0:44:20 100%.
0:44:24 But what I would do if I were a Democrat is,
0:44:28 and I am a Democrat, is like, look, we’ll go one for one.
0:44:31 You or one for two.
0:44:34 For every dollar you increase or we find in cuts,
0:44:37 you’re gonna raise $2 in taxes.
0:44:40 There’s been an explosion in wealth and prosperity.
0:44:43 We keep coming up with reasons to save businesses
0:44:46 and stimulus and PPP.
0:44:49 Oh my God, what if Delta actually goes out of business?
0:44:51 But then when they’re printing money,
0:44:52 you wanna lower taxes on them?
0:44:55 So look, we need government.
0:44:57 I do believe government is too big.
0:45:00 When it gets to this point or even bigger than this point,
0:45:01 it starts to crowd out.
0:45:03 Private investment, I do think there’s something
0:45:05 to the notion that we shouldn’t be,
0:45:08 whatever it is, 38% of GDP, we should be under 30%.
0:45:09 I get it.
0:45:11 But the only way realistically,
0:45:12 we’re gonna have a serious conversation
0:45:15 is to cap increases in spending,
0:45:17 cut in areas where we can,
0:45:20 but also you gotta talk about the revenue side.
0:45:21 I mean, what’s next?
0:45:24 They’re gonna nominate Matt Gaetz to be Attorney General.
0:45:26 Oh wait, oh wait.
0:45:28 Anyways, I’m all riled up, Ed.
0:45:31 I’m gonna just take the other side of this now, though.
0:45:34 There is a positive to this,
0:45:36 that Elon and Vivek heading up this new department.
0:45:40 And to me, it’s exemplified by a tweet
0:45:43 that was put out by the new official account
0:45:45 for the Department of Government Efficiency
0:45:46 that was posted on X.
0:45:48 And I really like this.
0:45:50 They said, quote,
0:45:52 “We are very grateful to the thousands of Americans
0:45:54 “who have expressed interest in helping us.
0:45:57 “We don’t need more part-time idea generators.
0:46:01 “We need super high IQ, small government revolutionaries
0:46:04 “willing to work 80 plus hours per week
0:46:06 “on unglamorous cost-cutting.
0:46:10 “If that’s you, DM this account with your CV.
0:46:14 “Elon and Vivek will review the top 1% of applicants.”
0:46:16 I love this.
0:46:18 And I love the language they’re using here.
0:46:21 And it was an incredibly popular post.
0:46:22 I mean, people were liking it.
0:46:24 They were commenting on it.
0:46:26 They were saying, let’s fucking go.
0:46:30 And it’s a very bro-y comment section.
0:46:33 But what it has done clearly
0:46:36 by putting Elon and Vivek in charge
0:46:40 is that these great marketing tools for attracting talent.
0:46:42 Because I think previously,
0:46:43 one of our biggest issues in America
0:46:46 has been that it’s not cool to work for the government.
0:46:49 But clearly what’s happening here is,
0:46:51 whether you like Elon and Vivek or not,
0:46:53 they’re clearly making it sexier
0:46:55 to work for the government.
0:46:59 On that tweet, the way that they’re sort of making it exciting
0:47:03 that we’re gonna be cutting costs in an unglamorous way.
0:47:06 But we need the smartest people in America to help us do it.
0:47:09 That, to me, is the right direction.
0:47:13 And if using Elon and Vivek are the ways to do it,
0:47:14 I’m actually all for it.
0:47:15 – I like that.
0:47:17 I think that’s really insightful.
0:47:19 And you’re absolutely right.
0:47:21 We need to make government jobs aspirational.
0:47:26 And if we can use two aspirational, very successful men
0:47:28 to create that aspiration around government work,
0:47:31 I love how you’re calling balls and strikes.
0:47:32 And I think that’s true.
0:47:33 I think that is a positive.
0:47:36 And anything that attracts brighter human capital
0:47:39 into government service, that is the silver lining here.
0:47:41 – Yeah, they just need to be honest
0:47:44 about what this is all for.
0:47:47 And if this just becomes a giant talking point
0:47:50 to own the libs, this is not productive.
0:47:51 – And no one owns me.
0:47:52 I’m my own woman.
0:47:54 I’m fucking Mary Tyler Moore in Minneapolis
0:47:56 throwing my hat into the air.
0:48:00 You’re gonna make it after all.
0:48:02 – Ask your parents, Ed.
0:48:03 Ask your parents.
0:48:04 – I’ll do that.
0:48:07 ♪ Love is all I’m gonna need to waste it ♪
0:48:12 ♪ You can never tell me why don’t you take it ♪
0:48:16 ♪ You’re gonna make it after all ♪
0:48:18 – Let’s take a look at the week ahead.
0:48:21 We’ll see earnings from Nvidia, Target, Walmart, and Lowe’s.
0:48:24 And we’ll also see consumer sentiment data for November.
0:48:26 Do you have any predictions for us, Scott?
0:48:28 – Mine is kind of weird.
0:48:31 So a bunch of companies, smart companies bought up these
0:48:34 cheap and supposedly dying local news stations.
0:48:36 And do you ever watch local news?
0:48:37 – Never.
0:48:38 – It’s hilarious.
0:48:39 It’s literally hilarious.
0:48:42 It’s some guy, the weatherman is like constantly predicting,
0:48:44 “Hey, I love the size of golf balls.”
0:48:47 And it’s usually some older guy with good hair
0:48:49 who makes you feel comfortable.
0:48:51 And some hot young woman who’s hoping, you know,
0:48:53 she’s gonna get Katie Couric’s job
0:48:57 or I don’t know, Savannah Guthrie’s job someday.
0:48:59 And the two of them have a nice pleasant banter.
0:49:02 And basically they do the weather, they do local sports.
0:49:03 And in between them, they have a bunch of segments called,
0:49:06 “This is what stupid people did in our neighborhood today.”
0:49:08 But these companies hemorrhage money
0:49:10 for 20 months every two years.
0:49:14 And then for four months, they have a tsunami of money
0:49:16 that washes over them in the form of political advertising.
0:49:18 ‘Cause the general consensus to date
0:49:20 has been that old people vote
0:49:22 and old people watch local news.
0:49:24 And so they quintuple their ad rates
0:49:26 and they just rake in money
0:49:28 for the four months leading up to the election.
0:49:32 I think those local TV stations and their owners
0:49:34 are about to get disrupted.
0:49:36 As I think one of the externalities
0:49:39 or realizations of this election
0:49:42 is that TV generally does not work.
0:49:44 If you wanna influence seven-year-old white women,
0:49:46 which is the viewer of MSNBC,
0:49:49 go on and you’ll reach a million people.
0:49:54 But if you wanna reach 55 million 34-year-old males,
0:49:55 go on Rogan.
0:49:58 I think you’re gonna see a tsunami of capital,
0:50:00 election spending capital,
0:50:03 transition out of local broadcast news stations
0:50:06 or local broadcast stations into podcasts.
0:50:09 And I think we’re about to see this cute little anomaly
0:50:12 in the markets be dislocated or slash disrupted.
0:50:14 I think local TV stations
0:50:16 are about to get the shit kicked out of them
0:50:18 and that capital election spending,
0:50:20 which is only getting bigger and bigger,
0:50:22 is about to flow.
0:50:23 I already see this happening.
0:50:26 All these people are clearly planning to run for president,
0:50:29 are calling me and seem to be very interested in me right now
0:50:30 and expressing their viewpoint
0:50:33 and telling me how much they love our work on young men,
0:50:34 which they do, these are good people,
0:50:38 but they’re also interested in starting to come on our podcast
0:50:40 ’cause everyone has noticed
0:50:44 that the technology that doesn’t work is knocking on doors
0:50:46 and that the person with the most money
0:50:48 is not unlike in the past necessarily the winner here.
0:50:50 Kamala raised more money.
0:50:52 It’s the person that’s smartest about media
0:50:55 and going after media that attracts old people
0:50:56 who’ve already made up their mind doesn’t work,
0:51:00 but young men who are more persuadable.
0:51:03 People go to cable TV, people go to local news
0:51:07 or go to cable news to sanctify their religion
0:51:09 or their positions and their religion
0:51:10 is their political views.
0:51:13 People, young men go to podcasts to actually learn.
0:51:14 There are more open there.
0:51:15 And then if you look at the numbers,
0:51:18 anyways, my prediction is the following,
0:51:21 local news stations loss is gonna be podcast gains
0:51:24 and we’re gonna about to see these kind of tired,
0:51:27 non-innovative companies that have had this sugar high
0:51:29 from political spending.
0:51:32 I think that’s about to come to a fairly abrupt end.
0:51:34 – Yeah, and I would also just add,
0:51:37 I think you gotta throw social media into the mix too
0:51:40 because what you just described about local news channels,
0:51:42 like here’s a compilation of stupid things people did
0:51:44 in the neighborhood this week.
0:51:47 That’s TikTok except with presenters.
0:51:49 So you can get the same product on TikTok.
0:51:51 That’s what TikTok is for.
0:51:52 That’s where all the young people are.
0:51:55 And it’s pretty staggering how much more money
0:52:00 these campaigns spent on TV ads versus social media ads.
0:52:01 They should be on TikTok
0:52:03 and they should be on Instagram Reels,
0:52:07 which to me is gonna translate to even greater profits
0:52:09 for bite dance and meta.
0:52:12 (upbeat music)
0:52:14 – This episode was produced by Claire Miller
0:52:16 and engineered by Benjamin Spencer.
0:52:18 Our associate producer is Allison Weiss.
0:52:19 Mia Silverio is our research lead.
0:52:21 Jessica Lange is our research associate.
0:52:23 Drew Burris is our technical director
0:52:25 and Catherine Dillon is our executive producer.
0:52:27 Thank you for listening to “Profogy Markets”
0:52:29 from the Vox Media Podcast Network.
0:52:31 Join us on Thursday for a conversation
0:52:35 with Jigga Shah, only on “Profogy Markets”.
0:52:40 ♪ The lifetimes ♪
0:52:48 ♪ You held me ♪
0:52:53 ♪ In kind reunion ♪
0:53:00 ♪ As the world turns ♪
0:53:04 ♪ And the dark lights ♪
0:53:07 ♪ La la la la la ♪
0:53:15 (upbeat music)
0:53:20 – I am so bullish on podcasting last night.
0:53:22 I think next year you could make, I don’t know,
0:53:24 15 and 18 bucks an hour if you keep this up.
0:53:26 This could get, yeah.
0:53:29 If you keep, add just a little motivation,
0:53:30 a little motivation.
0:53:34 If you keep working this hard and my predictions come true,
0:53:36 I’m gonna get to buy two Ferraris.
0:53:37 – I can’t wait.
0:53:38 I cannot wait.
0:53:41 – All right.
0:53:47 – Secretary of Transportation, Joe Exotic.
0:53:49 – Support for the show comes from Alex Partners.
0:53:52 Did you know that almost 90% of executives
0:53:55 see potential for growth from digital disruption?
0:53:58 With 37% seeing significant or extremely high
0:54:01 positive impact on revenue growth.
0:54:04 In Alex Partners’ 2024 Digital Disruption Report,
0:54:06 you can learn the best path to turning that disruption
0:54:08 into growth for your business.
0:54:10 With a focus on clarity, direction,
0:54:12 and effective implementation,
0:54:14 Alex Partners provides essential support
0:54:16 when decisive leadership is crucial.
0:54:18 You can discover insights like these
0:54:22 by reading Alex Partners’ latest technology industry insights
0:54:27 available at www.alexpartners.com/box.
0:54:32 That’s www.alixpartners.com/vox.
0:54:37 In the face of disruption, businesses trust Alex Partners
0:54:39 to get straight to the point and deliver results
0:54:41 when it really matters.
0:54:46 – Many songs are written to make us dance,
0:54:48 others to deal with heartbreak.
0:54:51 But it’s the rarest song that makes us feel freaky.
0:54:53 I’m musicologist Nate Sloan,
0:54:54 and I’m songwriter Charlie Harding.
0:54:56 And on this week’s episode of Switched On Pop,
0:54:59 we delve into a trilogy of new releases
0:55:00 from well-established freaks.
0:55:03 Lady Gaga, Tyler the Creator,
0:55:05 and along the way to return the cure.
0:55:08 – Listen to the musicology of freaky songs
0:55:11 on Switched On Pop presented by Nissan.
0:55:13 (upbeat music)
Follow Prof G Markets:
Scott and Ed open the show by discussing Spotify and Disney’s earnings, a gambling company’s strong third quarter results, and Elliot Management’s activist investment in Honeywell. Then Scott breaks down how Chegg allowed ChatGPT to take its business to the woodshed and why he thinks the ed tech company’s bonds could make for a lucrative investment. He and Ed consider how fears of AI’s negative impact on certain sectors may have been overstated. Finally, they discuss the newly proposed Department of Government Efficiency and highlight one potential benefit it could bring to the nation.
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