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