AI transcript
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0:01:41 – Today’s number, $400,000.
0:01:44 That’s how much Al Pacino paid his landscaper per year
0:01:47 to maintain a property he didn’t live in.
0:01:51 True story, the pool boy fucked my nanny.
0:01:53 So I ended up catching a cold.
0:01:55 True story, Ed.
0:01:57 My pool boy fucked my nanny.
0:02:00 So I caught the cold my wife had.
0:02:12 – Take some minute, but it’s fine.
0:02:13 – I think the funniest,
0:02:17 I think the funniest was the initial botch delivery.
0:02:19 That was my favorite part of the joke.
0:02:21 – I hope that stays in the edit.
0:02:22 – That happens a lot.
0:02:24 Welcome to Property Markets.
0:02:27 Today, we’re discussing Boeing’s terrible day.
0:02:30 Lot of jokes in there about air disasters,
0:02:32 but I’m not gonna make ’em.
0:02:34 And perplexity’s fourth funding round.
0:02:36 That’s where we are.
0:02:38 Boeing workers on strike and perplexity
0:02:40 is raising a fourth round.
0:02:43 But here for, oh wait, banter, I’m sorry.
0:02:44 It says banter, Ed.
0:02:46 – Stop giving it away.
0:02:48 You can’t read the script word for word.
0:02:50 What’s going on in the life of a 20-something
0:02:51 living in Brooklyn?
0:02:53 – I’m doing very well, Scott.
0:02:54 It’s been a busy week.
0:02:55 Doing a lot of interviews.
0:02:57 I just did two first-time founders interviews,
0:02:58 which are very exciting,
0:03:00 but I’m not gonna give any of the details away.
0:03:01 – No, you don’t wanna promote it.
0:03:02 You don’t want more downloads.
0:03:04 And for us to actually make money off
0:03:07 this Joey Baggedonan’s first-time founders podcast
0:03:09 that we’re supporting is your Vanity Project.
0:03:11 Why don’t you take up DJing and charge us to do that?
0:03:12 – I already do that.
0:03:14 – What else are you doing other than
0:03:15 first-time founders interviews?
0:03:17 What’s been going on?
0:03:20 – Let’s see, I got some Halloween parties coming up,
0:03:21 but I don’t have a costume yet.
0:03:22 Got any ideas for me?
0:03:24 – I have a Deadpool costume you can have.
0:03:25 – Oh, yeah?
0:03:26 – Yeah, it’s awesome.
0:03:27 My marigine got it for me.
0:03:28 – You still have it.
0:03:29 – Cheers, if you want it.
0:03:31 – Maybe, I might take you up on that.
0:03:32 That’s a good idea.
0:03:33 What are you gonna be?
0:03:34 – I’m very excited.
0:03:35 I’m going as Richard Simmons,
0:03:37 although I’m gonna be in London,
0:03:39 and either I have Halloween and me walking around
0:03:41 in dolphin short shorts with my son,
0:03:43 so he’ll be walking 20 meters ahead of me,
0:03:44 ’cause he’ll be so horrified.
0:03:47 They’re at that age where they’re not gonna
0:03:48 be Halloween for 20 years.
0:03:49 Halloween’s awesome when you’re a kid,
0:03:51 and then it’s awesome when you’re older.
0:03:52 – Yeah, exactly.
0:03:54 I don’t like Halloween myself these days.
0:03:56 – Oh, my God.
0:03:59 How can you not love Halloween?
0:04:01 – ‘Cause it’s like, the whole thing is just like,
0:04:02 wait, what are you?
0:04:03 And then everyone has to go around
0:04:04 and explain what they are.
0:04:06 And it’s like, I don’t know.
0:04:08 It’s just like, it feels so contrived to me.
0:04:09 – Well, I go as myself,
0:04:11 and people ask me what I’m supposed to be,
0:04:14 and I say, I was supposed to be a lot of things.
0:04:16 And then I start weeping.
0:04:18 – That’s good.
0:04:20 Get to the headlines, Ed.
0:04:22 – Let’s start with our weekly review of Market Vitals.
0:04:25 (upbeat music)
0:04:31 The S&P 500 declined, the dollar gained,
0:04:33 Bitcoin was flat,
0:04:35 and the yield on 10-year treasuries increased.
0:04:36 Shifting to the headlines.
0:04:38 Sales of existing homes in the US
0:04:41 fell 3.5% from a year earlier.
0:04:43 That’s their lowest level since 2010,
0:04:46 and on track for their worst year since 1995.
0:04:49 Tesla’s net income rose 17% in the third quarter
0:04:52 from a year earlier, beating analyst expectations.
0:04:54 Elon Musk also predicted vehicle growth
0:04:56 would reach at least 20% next year,
0:04:59 and the stock rose more than 20%
0:05:00 following that earnings report.
0:05:02 McDonald’s stock fell 10%
0:05:04 after its quarter-pounders were linked
0:05:06 to an E. Coli outbreak.
0:05:10 The illness has led to 10 hospitalizations and one death.
0:05:13 And finally, Sheehan’s profit declined 70%
0:05:16 in the first half of the year to just under $400 million.
0:05:19 Revenue growth also slowed to 23%.
0:05:21 That’s nearly half of what it was a year ago.
0:05:24 The deceleration in growth could complicate
0:05:26 the company’s plans for an IPO.
0:05:27 Scott, your thoughts starting
0:05:29 with this disappointing home sales data.
0:05:30 – It’s really wild.
0:05:33 The housing crisis or the housing sales
0:05:34 has keep getting worse.
0:05:36 So I would have guessed we would have bottomed out
0:05:37 about a year ago.
0:05:40 Also, I think people are sort of just giving up on housing.
0:05:41 They don’t see it any longer.
0:05:43 It’s kind of the American dream.
0:05:45 I think it’s really too bad.
0:05:46 I think it’s a supply problem.
0:05:47 We talk about interest rates.
0:05:51 We talk about having cheap capital, go buy a house.
0:05:52 I think there’s only one way out.
0:05:55 I think we need fairly significant government subsidies
0:05:57 to kind of put the private sector into action
0:06:00 to just start building a ton of houses
0:06:03 and also pass regulations that make it increasingly
0:06:05 difficult to block housing permits.
0:06:05 What are your thoughts?
0:06:08 – It’s massively disappointing to me,
0:06:10 especially as a young person
0:06:13 who wants to buy a house someday.
0:06:16 I mean, that is a personal objective of mine.
0:06:19 So I hate to see this news.
0:06:24 Having said that, yes, home prices relative to income
0:06:26 have never been higher.
0:06:30 I mean, it is out of control, the price of homes today.
0:06:32 But if you look back at the data
0:06:35 and if you also factor in mortgage rates
0:06:37 in addition to home prices,
0:06:41 it turns out that actually housing affordability today
0:06:43 in a holistic level
0:06:46 is around where it was in the mid 1980s.
0:06:47 And that’s because back then,
0:06:49 the mortgage rates were just way higher.
0:06:53 Like a 30 year rate was around 15% back then.
0:06:54 Today it’s around 6%.
0:06:56 So when you factor all of that in
0:06:58 from an affordability perspective,
0:07:01 things actually look very similar to the 1980s.
0:07:05 And now I’m 25 and who were the 25 year olds in the 1980s?
0:07:07 It was the boomers.
0:07:08 And who ultimately benefited
0:07:11 from this rapid transformation of the housing market
0:07:13 right when they hit their income earning years.
0:07:14 It was the boomers.
0:07:17 So I look at that data
0:07:19 and there are definitely very different dynamics
0:07:20 at play here.
0:07:23 For us, it’s a price issue because of supply.
0:07:26 And back then it was a rates issue.
0:07:29 But I am hoping just based on the fact
0:07:32 that I am in a kind of similar position
0:07:33 to where boomers were at my age.
0:07:36 I’m kind of hoping that something’s gonna change.
0:07:37 I don’t know exactly what it’s gonna be.
0:07:38 I don’t know what that would look like.
0:07:42 Hopefully it just means more housing permits, more supply.
0:07:43 But I do have hope.
0:07:45 And I think the right thing to do,
0:07:47 which is what I’m doing is just scouring real estate.
0:07:49 I’m trying to get an understanding of this market.
0:07:51 Not because I’m gonna buy something right now,
0:07:54 but just so that when things do change,
0:07:56 I will be ready to get involved.
0:07:58 And I would encourage other people my age to do the same.
0:08:01 – So when I was your age, I bought my first home at 27.
0:08:03 I was a year older than you when I bought my first home.
0:08:06 I had just gotten out of the hot school of business.
0:08:08 While I decided to start my own business,
0:08:09 the offer I had from a consulting firm
0:08:12 was for a hundred grand total comp.
0:08:14 My girlfriend was making, I think about 80.
0:08:18 So we had 180 grand and we bought a house in Petro Hill
0:08:21 in San Francisco for $285,000.
0:08:26 So one and a half, 1.6 times our annual income.
0:08:30 And we brought some money from her parents
0:08:31 and we bought our first home.
0:08:32 – Did you take out a mortgage on her?
0:08:33 – Oh yeah, we had a mortgage.
0:08:35 I don’t even remember the interest rate,
0:08:38 but two or three years later, maybe four years later,
0:08:41 I peaked early at, I bought the house that is no joke
0:08:43 on Noe Guerrero in 21st,
0:08:45 that is next door to where Mark Zuckerberg lives.
0:08:48 And I paid $760,000 for it.
0:08:51 And a few years later, I sold it for 920
0:08:53 and I thought it was a fucking real estate genius.
0:08:54 I thought, oh my God.
0:08:58 Pretty sure like his security lives in that house.
0:09:00 And I would have paid so much money
0:09:02 to just be able to sit out on my porch
0:09:03 and a wife beater and a lawn chair.
0:09:06 And when he come home like, how many teens did press?
0:09:07 How many teens are self-cutting today?
0:09:09 You fucking bitch.
0:09:11 I just would have given anything.
0:09:14 – I’m sure people are already doing that.
0:09:17 – Anyway, so, but where I was headed with this is,
0:09:22 if you think I was making 100 grand story of privilege
0:09:23 out of an elite business school,
0:09:26 2.8 times got you a house in San Francisco.
0:09:28 Now I bet the average compensation out of the high school,
0:09:33 again, these are good problems is about 200 or 225.
0:09:34 The average home I think in the Bay Area
0:09:36 or San Francisco now is 2.1 million.
0:09:41 So it’s gone from 2.8 times the salary of an MBA grad
0:09:42 to 10 times.
0:09:43 – Fucking insane.
0:09:45 – This needs federal action.
0:09:48 This needs a fairly serious subsidy or tax credit
0:09:52 for developers who figure out a way to build housing.
0:09:53 And then some sort of,
0:09:55 I don’t know if you have to go state by state,
0:09:58 especially there’s some mayors in, for example, Minneapolis
0:10:01 and in Austin who’ve done a good job of figuring out a way
0:10:02 to build more housing.
0:10:04 But I had a really interesting conversation
0:10:07 with Jessica Tarloff who’s my co-host
0:10:09 on another booming podcast.
0:10:10 I don’t know if you’ve met her.
0:10:11 – I don’t know.
0:10:12 Who is she?
0:10:15 – She said her and her husband like really good livings
0:10:16 and they’ve decided they live in Manhattan.
0:10:18 They decided to rent, not to buy.
0:10:20 And they could afford to buy, but they said,
0:10:22 and it was, it seemed simple, but it was sort of striking.
0:10:25 They said, our money is doing better in the market
0:10:29 than it would in a Tribeca condo.
0:10:31 And I thought that was really interesting
0:10:33 that they’ve made a conscious decision
0:10:34 to leave their money in the market
0:10:37 instead of putting all of it into a condo.
0:10:39 But I like the way you’re thinking.
0:10:40 I think, I do think at some point,
0:10:43 buying a house, understanding the market is the way to go.
0:10:45 – Certainly a case by case basis.
0:10:47 I think that as Ramit Sethi told us,
0:10:51 the cult of home buying is kind of a trap.
0:10:52 Sometimes renting is the right move.
0:10:54 Let’s move on to these Tesla earnings.
0:10:56 Tesla had a good quarter actually.
0:10:58 Revenue was up 8%.
0:11:02 Their energy and storage business was up 52%.
0:11:05 And margin growth was really good.
0:11:07 Operating expenses are down 6%
0:11:09 after they cut a 10th of the workforce.
0:11:12 So this is sort of what we’ve been looking for.
0:11:15 This isn’t the BS that we saw at the WeRobot event
0:11:16 at the Warner Brothers Studio.
0:11:20 This is real meaningful progress, it’s real data.
0:11:22 This is just about the performance
0:11:23 of the fundamental business.
0:11:26 And the fundamental business is doing pretty well.
0:11:28 Does it mean that it needs to,
0:11:31 does it warrant a 20% jump in the stock price?
0:11:32 I don’t think so.
0:11:34 I think it certainly warrants a jump.
0:11:37 The one thing I would flag though is the valuation still.
0:11:42 You know, it’s trading around 30% down
0:11:44 from its peak in 2021.
0:11:49 But it’s still trading at 79 times forward earnings,
0:11:52 which is roughly double the multiple of,
0:11:54 wait for it, Nvidia.
0:11:58 So if you wanted to value Tesla today on par with Nvidia,
0:12:00 the stock would need to come down 48%.
0:12:04 So good quarter, but Tesla is still way, way overpriced.
0:12:08 – The only thing I saw in this as I look through
0:12:12 the earnings was that it was revenue increasing 8%,
0:12:12 isn’t that big a deal?
0:12:16 I mean, that’s good for a car company.
0:12:18 But the story here, and they did a good job laying it out
0:12:22 on the earnings call was that it’s not the revenue increase,
0:12:24 it’s the revenue mix.
0:12:26 And that is the sale of higher margin products.
0:12:29 So storage batteries, which are used by utilities,
0:12:32 businesses and homeowners increase 52%.
0:12:36 And revenues from services, including charging jump 29%.
0:12:39 And those are higher margin offerings in their cars.
0:12:42 And they’ve also deployed more battery storage products
0:12:43 this year than it did in all of 2023.
0:12:45 So for all the Tesla bulls who say,
0:12:46 it’s not a car company, it’s an energy company,
0:12:47 it’s a services company.
0:12:51 Now they can legitimately say, see, I told you.
0:12:53 – Yeah, but it’s not an AI company.
0:12:54 And that’s my issue.
0:12:55 They’re not selling your robots.
0:13:00 – But to be fair, this more robust revenue mix
0:13:02 or growth in higher margin product categories
0:13:06 resulted in their gross margins increasing 200 basis points
0:13:09 and their net income increasing 17%.
0:13:13 And I think that’s an important lesson for entrepreneurs.
0:13:17 And that is when I had my firm L2,
0:13:20 I would say, okay, we can get,
0:13:24 we’d get paid if I come spoke or a one day symposium
0:13:26 or the people constantly want us to a consulting gig.
0:13:28 And rather than getting a half a million
0:13:29 to our consulting gig,
0:13:33 we’d much rather get a $200,000 annual recurring membership
0:13:35 because all revenues are created equally.
0:13:38 And revenue they get from their automobiles
0:13:39 is gonna have a much lower multiple on it
0:13:41 than revenue they get from services or charging
0:13:44 because they have higher margins, more sustainable.
0:13:45 I think the Tesla product lineup,
0:13:47 the quite frankly, is a little bit tired.
0:13:50 So this is about revenue mix, not about revenue growth.
0:13:51 – Should we talk about McDonald’s
0:13:55 and this E. Coli outbreak and the initial reactions?
0:13:56 – See, here’s the thing about what you wanna do
0:13:59 if you’re McDonald’s or in the fast food business.
0:14:01 You can kill hundreds of thousands of people
0:14:04 as long as you kill them slowly.
0:14:07 But if you kill a bunch in one day,
0:14:08 your stock gets taken down.
0:14:10 Like what, no, seriously what,
0:14:12 how many people do you think are gonna have colon cancer
0:14:17 this year because of a lifetime of McDonald’s?
0:14:20 I mean, it’s just if you price McDonald’s
0:14:22 to its externalities,
0:14:24 specifically if you price beef to what it costs
0:14:26 because of water, subsidized water,
0:14:28 and the health externality,
0:14:30 you know, a Big Mac would be 50 bucks.
0:14:33 So I don’t, I don’t especially like this firm.
0:14:35 I would just love to see an article
0:14:36 on how many people died today
0:14:40 because of long-term illness from this type of food.
0:14:42 Anyway, it’s easy for me to say.
0:14:44 – Yeah, I mean, the investor reaction,
0:14:47 I think people were pretty freaked out by this.
0:14:49 But I think the thing to remember about these outbreaks
0:14:51 is that in the food industry,
0:14:53 this actually happens all the time.
0:14:56 It happened to Wendy’s a couple of years ago
0:14:58 and it was E. Coli.
0:15:01 It’s happened to Taco Bell, Jack in the Box,
0:15:02 Tim Hortons, on and on.
0:15:04 This is sort of a rite of passage
0:15:05 in the fast food industry.
0:15:08 You have an outbreak, then you announce a recall
0:15:10 and then you kind of, you move on and life goes on.
0:15:14 What you don’t want is what happened to Chipotle
0:15:19 back in 2015, which is where there was an E. Coli outbreak.
0:15:23 20 people were hospitalized and zero people died,
0:15:28 but it just exploded into this giant international news story.
0:15:30 The media totally ran away with it.
0:15:31 It was really exciting.
0:15:33 Everyone was talking about it.
0:15:34 And as a result,
0:15:37 despite the fact that it was historically pretty standard,
0:15:41 sales dropped 20%, profits fell 50%
0:15:42 and the stock was cut in half.
0:15:44 And it was like the worst thing to happen ever.
0:15:47 So McDonald’s needs that to not happen.
0:15:49 My view, it won’t happen.
0:15:50 Why?
0:15:52 Because we’ve got a presidential election
0:15:52 coming up in two weeks.
0:15:55 I just don’t think there is enough steam in the media
0:15:58 to turn this into something bigger than it is.
0:16:01 My prediction is that, you know, come next week,
0:16:02 it won’t be an issue.
0:16:04 We’re focused on other things.
0:16:06 Chipotle, after it had that 50% cut,
0:16:09 it’s up six folds since then.
0:16:10 And this is pulse marketing,
0:16:13 but my first thought when I read about McDonald’s was like,
0:16:16 oh, it’s time for a colonoscopy.
0:16:19 And also I quite enjoyed that Michael Jackson drug.
0:16:21 Oh my God, that shit is money.
0:16:23 That shit is money.
0:16:25 God, that’s a good sleep.
0:16:26 That’s a good sleep.
0:16:28 And I love my jokes in there.
0:16:31 I’m like, well, you stroke my hair as you’re probing my hair.
0:16:34 It’s just, I’m full of so many jokes.
0:16:36 And they’re like, we’ve heard them all, any new ones?
0:16:38 Exactly, it’s like hosting this podcast.
0:16:39 Yeah.
0:16:42 But my first thought, I remember,
0:16:45 when I heard about the Chipotle E. coli outbreak,
0:16:47 you know what my first thought was?
0:16:49 Jesus, I’d like some Chipotle.
0:16:53 I think that Chipotle product is so outstanding.
0:16:55 I think it is just an amazing,
0:16:58 and actually it’s not, I wouldn’t call it health food,
0:17:01 but I will go as far to say it’s actually fairly healthy.
0:17:04 And it’s got the right fats, it’s fairly fresh.
0:17:07 And the most, I have such fondness or affection
0:17:11 for Chipotle because the first swag I ever received
0:17:13 when we started this Joey Baganona’s podcast,
0:17:16 about 300 episodes ago,
0:17:18 I just constantly talk about Chipotle.
0:17:19 And you know what they sent me?
0:17:23 They sent me a lifetime free card of Chipotle.
0:17:25 Like, and I had this card and I knew I was gonna get it.
0:17:29 So my kids are in Manhattan and we roll into Chipotle
0:17:31 and they order something and I pull out the card
0:17:32 and I’m just very slick about it.
0:17:33 My youngest one goes, what is that?
0:17:35 And I’m like, oh, it’s a Chipotle card.
0:17:36 So what do you get with it?
0:17:37 I’m like, well, I never have to pay for Chipotle.
0:17:38 Holy shit.
0:17:41 He has never been as impressed with me.
0:17:43 He just couldn’t believe it.
0:17:44 He wanted to see the card.
0:17:46 I want to say, what does it look like?
0:17:47 Yeah, it’s okay.
0:17:48 It looks like a, I don’t know.
0:17:50 It’s just a little, it looks like a credit card.
0:17:53 And it says Chipotle lifetime free or whatever.
0:17:56 I don’t use it because I’m lazy and I can’t find the card.
0:17:58 And I don’t know, I can buy my Chipotle.
0:18:00 But anyways, let’s talk about Shin.
0:18:01 Yeah, let’s talk about it.
0:18:03 Your reactions, the growth is slowing.
0:18:04 You’re an investor, right?
0:18:05 I am an investor.
0:18:07 It’s one of my biggest investments.
0:18:11 So, okay, let’s just be real here.
0:18:14 And granted, I have a vested interest in success as a company.
0:18:17 The bad news is its growth slowed to 23%.
0:18:22 The good news is it’s growing 23% at Amazon retail
0:18:26 was up 9%, Zara was up 7%, H&M was up 1%.
0:18:30 So, Shin is growing two and a half times as fast as Amazon.
0:18:32 I mean, I guess it’s all how you frame this.
0:18:34 When I got, when I heard about this,
0:18:36 I actually felt pretty good about my investment.
0:18:40 If a company that’s doing $36 billion in sales
0:18:42 is still growing 20, can you name any company
0:18:46 over 10 or 20 billion growing more than 20% a year
0:18:48 that isn’t valued at a trillion dollars?
0:18:50 I was gonna say NVIDIA and so you said that.
0:18:54 Right, I mean, there are firms that big growing that fast,
0:18:56 but they’re all worth more than a trillion dollars.
0:18:59 So, I don’t know, I like my prospects here, Ed.
0:19:00 I like my prospects.
0:19:01 What do you think?
0:19:02 What do I have this wrong?
0:19:03 – I don’t think you have anything wrong
0:19:04 on the financials.
0:19:05 I completely agree with you.
0:19:07 I think this business is still crushing it.
0:19:11 Where I continue to disagree with you,
0:19:13 and I don’t wanna rain on your parade
0:19:15 or be the woke police,
0:19:17 is the moral viability of this company.
0:19:20 – The moral viability will smell you,
0:19:23 you little indulgent virtue signaling millennial,
0:19:25 Brooklyn sandaled eyes.
0:19:29 – Don’t speak too soon ’cause wait ’til I drop this on you.
0:19:31 So, I’ve told you that I think
0:19:36 that there are valid concerns about child labor at Sheehan.
0:19:40 And it turns out, as of a couple of months ago,
0:19:42 they released a report.
0:19:44 They have been using child labor.
0:19:48 They found two cases of child labor in their supply chain.
0:19:50 And to be fair to them, they reported it
0:19:51 and they disclosed it
0:19:53 and they cut the ties with those suppliers.
0:19:55 But the fact remains, it’s like, wow,
0:19:57 how did they sell dresses for $10?
0:19:59 Well, the answer is that they’ve spent
0:20:02 the majority of their time employing children to do it.
0:20:05 – Okay, I’m going to, I spent some time looking at this.
0:20:08 The first was that they were using forced labor
0:20:08 for their cotton.
0:20:10 And they’ve actually gotten out of all cotton,
0:20:12 I believe all cotton production in China.
0:20:15 And they had a company that looks at clothes
0:20:16 and tries to estimate the amount of cotton
0:20:18 coming from a forced labor region.
0:20:20 And they actually had a lower count
0:20:22 than many of the other fast fashion guys.
0:20:24 So the management I’m known,
0:20:25 or at least the interaction I’ve had with them
0:20:29 is they are committed to, for economic reasons,
0:20:32 being the best or one of the better players
0:20:35 in this space around this stuff.
0:20:38 And I think when they found that out,
0:20:40 they disclosed it, which is unusual.
0:20:41 It wasn’t like Mark Zuckerberg going in front
0:20:42 of Congress and lying and saying,
0:20:44 I’ve heard actually social media is good
0:20:46 for the mental health of teens.
0:20:49 They said, we found it out, we’re disclosing it,
0:20:51 and we’re severing ties with these guys.
0:20:53 I would like to see a similar audit
0:20:56 across all the other fast fashion guys
0:20:58 and find out, yeah, where is their cotton
0:20:59 and where is their shipping made?
0:21:04 I agree that when you’re buying a t-shirt that’s three bucks,
0:21:06 it’s unlikely the supply chain is aspirational.
0:21:09 It’s just, it’s unlikely that the employees
0:21:11 are getting pet bereavement leave
0:21:13 and mental health counseling.
0:21:16 But I don’t, I believe management when they say,
0:21:18 we’re gonna try for economic reasons
0:21:20 to start our hat white here.
0:21:23 So I don’t, you know, if I sound defensive, I am.
0:21:27 But Donald Tang, the chairman has said to me straight up,
0:21:28 he’s looking me in the eye and said,
0:21:31 we’re gonna be the role model in,
0:21:33 they don’t call fast fashion an on-demand fashion
0:21:37 around a sustainable, progressive, ethical supply chain.
0:21:40 But they should be held accountable like anybody else.
0:21:41 – As you say, countless companies
0:21:43 have done countless bad things.
0:21:47 Apple has had supply chain and child labor issues as well.
0:21:50 You know, so has Nike.
0:21:51 I think the reality is, you know,
0:21:55 I just look at the company, I associate it with that.
0:21:56 It turns out it’s true.
0:21:58 It may be true of other companies,
0:22:01 but the reality is that for me at least,
0:22:03 I still hear the word Xi’en
0:22:06 and my initial gut reaction is not a huge fan.
0:22:09 And I would bet that a lot of people feel similarly.
0:22:11 And I think that’s why you’re seeing
0:22:13 some of these issues they’re having
0:22:15 with getting out to the public markets.
0:22:17 It’s also because they’re from China,
0:22:20 or at least the majority of the supply chain is in China,
0:22:22 but that’s just the gut reaction.
0:22:27 And so, yeah, I think it’s on them to address that.
0:22:29 And I think that starts with doing a very,
0:22:31 very thorough audit of their supply chains,
0:22:32 which they appear to be doing.
0:22:35 And maybe over time, they’ll get me on their side.
0:22:37 – Actually, Edward, you buy your clothes.
0:22:39 Where do I get the kind of like skateboarder
0:22:41 who things didn’t work out for a look?
0:22:45 – That’s good, that’s good.
0:22:48 I’ve been on a pretty big J-Crew kick recently.
0:22:49 – J-Crew?
0:22:52 So you’re just leaning into that whole Caucasian thing?
0:22:54 (laughing)
0:22:57 J-Crew, wow, I did not expect that.
0:22:59 – J-Crew, send me a lifetime card, please.
0:23:00 – Here you go.
0:23:02 (upbeat music)
0:23:03 – We’ll be right back.
0:23:06 (upbeat music)
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0:24:46 So I tried this ’cause daddy loves to drink.
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0:24:48 believe I’ve gotten more out of alcohol
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0:24:51 Anyways, took this thing.
0:24:53 I had two, maybe three drinks
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0:26:31 – We’re back with Profg Markets.
0:26:33 Boeing workers rejected a contract proposal
0:26:36 that included a 35% raise over four years.
0:26:38 As we discussed previously,
0:26:41 the workers are demanding a 40% pay increase.
0:26:43 That vote extended their strike
0:26:45 and made Boeing’s bad day worse,
0:26:46 because earlier that morning,
0:26:50 Boeing reported a quarterly loss of $6 billion,
0:26:52 its worst loss since 2020.
0:26:54 The company’s CFO also said it will continue
0:26:57 to burn cash into 2025.
0:26:59 The stock dropped 4% following those earnings
0:27:02 and went even lower after the union vote.
0:27:05 So Scott, let’s start with the strike.
0:27:08 Nearly two thirds of the workers voted
0:27:10 against this proposed contract.
0:27:12 What are your reactions to that result?
0:27:13 – Look, good for them.
0:27:14 They know they have power.
0:27:17 It seems like the bid ask here are not that far apart
0:27:19 and Boeing has incentive to solve this,
0:27:23 whereas Netflix had disincentive to solve the strike.
0:27:26 I wouldn’t be surprised if this was the kitchen sink order
0:27:28 where they just threw everything into it.
0:27:31 But it’s great, even if you’re the number two in a duopoly,
0:27:34 it’s great to be the number two in a duopoly.
0:27:38 The firm has a $500 billion backlog
0:27:40 of over 5,400 commercial clients.
0:27:44 I mean, that’s just a half a trillion dollar backlog.
0:27:46 And also the strike,
0:27:48 it may end up medium and long-term being a good thing
0:27:51 ’cause it gave the CEO Cloud Cover,
0:27:53 the CEO Kelly Ordberg Cloud Cover
0:27:55 to lay off 17,000 workers.
0:27:57 He’s like, okay, fine, you’re not happy.
0:27:59 We gotta cut costs.
0:28:01 They haven’t reported a full year profit since 2018.
0:28:03 They need to cut costs.
0:28:06 They need to get labor relations back on track.
0:28:07 Talk about a change in fortunes.
0:28:11 Boeing has declined 57% in the last six years
0:28:14 and Airbus has increased 45%.
0:28:17 I would argue that this IP, this brand,
0:28:18 it’s customer relationships.
0:28:19 And the fact there’s only two people
0:28:22 really producing planes at this scale.
0:28:25 They’re gonna be fine.
0:28:28 And I would bet this is actually a pretty good buy right now.
0:28:29 What are your thoughts?
0:28:31 – I don’t think I agree that they’re fine,
0:28:35 but just on the proposal that they are disagreeing on.
0:28:40 So the main thing or the one sticking point
0:28:46 is the difference between a traditional pension plan
0:28:48 and an individual retirement plan.
0:28:51 So what the Boeing workers really want,
0:28:53 they want the 40% pay increase,
0:28:54 but what is becoming clear,
0:28:57 because they said no to a 35% increase,
0:28:59 is that what they really want
0:29:02 is the restoration of this defined benefit plan,
0:29:04 this traditional pension plan
0:29:07 that Boeing removed back in 2014.
0:29:09 And this is kind of an interesting difference.
0:29:10 So like what is the difference
0:29:12 between a traditional pension plan
0:29:17 and individual retirement plan, like a 401k?
0:29:20 Well, unlike the 401k,
0:29:23 where the employer invests in your retirement account
0:29:25 during your time at the company,
0:29:28 the traditional pension basically just pays you
0:29:30 a predetermined amount of cash
0:29:34 that begins when you retire and ends when you die.
0:29:36 So it’s basically like a mini salary for life.
0:29:39 And this used to be the most common form
0:29:42 of retirement account in America.
0:29:45 Back in the 80s, around 40% of US retirement plans
0:29:47 were pension plans.
0:29:49 Today though, they’re very, very rare,
0:29:51 only 8% are traditional.
0:29:54 Meanwhile, the most common are the individual retirement
0:29:56 accounts, the 401k, that makes up 50%.
0:29:57 That’s what I have.
0:30:01 Most people I would imagine who are listening to this podcast,
0:30:03 if they’re offered a retirement plan
0:30:05 through their employer, it’s a 401k.
0:30:07 So I find it very interesting
0:30:10 that this is sort of the main problem.
0:30:13 It’s not actually about the amount of money
0:30:14 they’re receiving necessarily.
0:30:18 It’s really about how they are receiving it.
0:30:21 They want a monthly paycheck once they’ve retired
0:30:23 versus Boeing investing in their accounts now.
0:30:26 And Boeing has said, this is unacceptable.
0:30:28 We cannot do it.
0:30:31 So I’d love to get your view as an employer
0:30:34 who has set up retirement plans in the past.
0:30:37 Why is this such an issue for the workers?
0:30:40 And also why is it such an issue for Boeing?
0:30:42 Why doesn’t Boeing just say yes?
0:30:43 – So the workers are being smart.
0:30:46 They’re realizing that time goes fast
0:30:48 and at some point they’re gonna be retired
0:30:49 and they want a paycheck.
0:30:51 I would imagine the reason they’re pushing back
0:30:54 is the last thing you want is a liability
0:30:59 against an unproductive asset and that is a retired person.
0:31:03 So setting up a pension fund that might have obligations.
0:31:05 There are some companies that are technically bankrupt
0:31:08 if you calculate in their pension obligations.
0:31:12 What we do for you, Ed, is I say, I want you to save money.
0:31:14 So I don’t even know what we–
0:31:18 – Yeah, defined contribution and it’s a 5% match.
0:31:22 So if I invest 5% of my salary,
0:31:24 you match it and also invest 5%.
0:31:26 – I like to think of it as 100% match, bitch,
0:31:30 ’cause if you put 5% in, I’m doubling it to 10%.
0:31:34 But if at your age, we’re trying to eat our own cooking here.
0:31:37 At your age, if you get 5% of your salary
0:31:41 and you put it away, it goes into this thing, I match it.
0:31:42 So that’s 10%.
0:31:45 At the age of 26, if you can just do that
0:31:46 for the rest of your life,
0:31:48 regardless of whether or not this pod works or not,
0:31:50 as long as you can hold on to your job,
0:31:51 you’re gonna be fine.
0:31:53 And that’s powerful.
0:31:55 And I think all employers should encourage that.
0:31:58 I do believe in being a little bit paternalistic.
0:32:02 But other pensions are work here for 20 or 30 years
0:32:03 and we’re gonna give you,
0:32:06 this is a big problem in government or local governments.
0:32:09 And that is they have these pension plans with cops.
0:32:11 And they say, if you work 20 years,
0:32:13 you then get a pension the rest of your life.
0:32:14 You get payment.
0:32:18 And unfortunately, the cops who are smart will game it.
0:32:20 And what they say is we’re gonna give you 60%
0:32:24 of your salary the last two years of your tenure.
0:32:27 So what they do is they wink at their staffing sergeant
0:32:29 and they work 80 hours a week, their last two years,
0:32:31 where they get time and a half
0:32:34 and they end up making $220,000 the last two years
0:32:36 and they end up with $120,000 obligation
0:32:38 for the rest of this cop’s life.
0:32:41 And you end up with 13% incremental tax rates
0:32:43 in New York state because we have all of this
0:32:47 incredibly onerous pension liabilities.
0:32:50 So what I think, I’m all for,
0:32:53 I’m all for companies taking current profits
0:32:56 and matching, you know, I like the fact
0:32:59 that you show some discipline and I gross it up.
0:33:00 I like that.
0:33:03 And then if you leave, it’s portable, it goes with you.
0:33:05 And at 59 and a half or 65,
0:33:08 hopefully you have economic security.
0:33:10 What companies want to avoid and they can’t afford
0:33:13 and has kind of created some zombie companies
0:33:14 is this notion that if you work it
0:33:15 for a certain amount of time,
0:33:16 we’re just gonna keep paying you
0:33:18 a certain amount of your salary.
0:33:19 And they don’t fund it.
0:33:20 They don’t figure out a way.
0:33:22 They just assume the good times are gonna keep going
0:33:23 and that they’ll be able to pay it.
0:33:25 And then you end up with a company
0:33:28 who’s biggest or one of its biggest expense lines
0:33:30 is revenue going out to employees
0:33:32 who are not working, who are unproductive.
0:33:35 So this is a big issue.
0:33:36 What this clearly shows though,
0:33:38 is that this union is smart and thinking about,
0:33:42 okay, how do we set our members up
0:33:45 for long-term financial health?
0:33:47 99% of people, the lesson years are following.
0:33:48 99% of people will spend everything
0:33:50 that comes into their hands.
0:33:51 I’m kind of that way.
0:33:53 So what I do is as soon as I get money,
0:33:55 I start, I put it away.
0:33:57 I try and get it away from me where I can’t touch it.
0:33:59 That’s the way to go.
0:34:00 You never see it.
0:34:01 It doesn’t go into your hands.
0:34:05 You don’t think, oh, I’m going to Coachella with the guys.
0:34:07 You’re like, I don’t have the money.
0:34:10 And the money just, you never have it in your hands.
0:34:11 When I’m talking to young people
0:34:13 and they’re asking for advice on compensation,
0:34:16 my attitude is ask for more options.
0:34:18 Ask for more match.
0:34:20 Ask for the shit that’s going to build wealth,
0:34:22 not that’s going to get you a bigger flat screen
0:34:22 or a bigger apartment.
0:34:23 – Yeah, exactly.
0:34:26 It’s interesting that it does feel
0:34:30 like these pension plans are very outdated
0:34:34 in terms of just the concept of you’ve worked here
0:34:38 for 30 years and therefore you’re set for life.
0:34:41 You are a lifetime Boeing employee in a way.
0:34:43 And it does feel sort of outdated
0:34:45 because it’s just people aren’t working
0:34:48 their entire lives at one company anymore.
0:34:50 People are switching companies.
0:34:54 The idea of a company giving you sort of the stamp
0:34:56 of approval and then you’re on their paycheck
0:34:59 for the rest of your life to me just feels outdated,
0:35:02 which I think is also kind of an argument
0:35:03 in favor of Boeing.
0:35:05 But I do understand their points
0:35:07 and I do understand that these workers
0:35:08 have really gotten screwed.
0:35:11 Their compensation has only increased four percent
0:35:12 over the past eight years.
0:35:14 I mean, it is crazy.
0:35:16 They deserve something legitimate,
0:35:20 but I don’t know if a traditional defined benefit pension
0:35:21 is the way to go about it.
0:35:23 – It does feel very Angie Dickinson,
0:35:26 Johnny Carson, it does feel a little bit from an age gone by.
0:35:28 The broader meta learning here though
0:35:32 is that you have to try and fight your instinct
0:35:34 or supplement your instincts.
0:35:36 And it’s the following.
0:35:38 At your age, you just can’t imagine
0:35:40 you’re ever gonna be old
0:35:43 because for the majority of our species existence
0:35:46 on this planet, you haven’t lived past the age of 35.
0:35:51 So you literally, your brain cannot realistically imagine
0:35:54 you’re going to be my age.
0:35:56 And the other thing you can’t imagine
0:35:58 is how fast it’s gonna go.
0:36:01 And you wanna A, try and fight that instinct
0:36:04 and leverage that instinct or leverage the reality.
0:36:07 And that is if you continue to do that 5%
0:36:09 and then maybe you start making real money
0:36:12 and you go up to 10 or 20%, before you know it.
0:36:13 I mean, I’m not exaggerating.
0:36:15 I look at you and I think, oh, I look like Ed.
0:36:18 I look like a young, fairly awkward guy, but I look young.
0:36:24 I have this lame J. Crew shit, I relate to you.
0:36:25 And then I look in the mirror
0:36:28 and I look like a fish that swam too close to a reactor.
0:36:31 I look like I suffer from radiation sickness.
0:36:35 True story, people can’t imagine.
0:36:37 People basically, because I’m living very long,
0:36:42 people’s image of themselves stops evolving at 39 supposedly.
0:36:44 In other words- – 39.
0:36:45 – Yeah, you see yourself and you’re like,
0:36:47 oh, I’m getting older, I’m getting older, I’m 39.
0:36:51 And then every time you look in a mirror from the age of 39,
0:36:54 you’re like, Jesus fucking Christ, what is going on here?
0:36:55 – So interesting.
0:36:57 – You can’t, because here’s the thing,
0:36:59 you’re not supposed to be here.
0:37:03 All 7,000 of your ancestors were dead.
0:37:05 They never got to see how ugly you got.
0:37:07 – They weren’t getting colonoscopies every two months.
0:37:09 – They didn’t need Botox ’cause they were dead.
0:37:12 They never had wrinkles in their forehead.
0:37:14 Do you realize most people your age,
0:37:16 you’re gonna live to be 100.
0:37:18 So, and assuming you’re probably gonna work
0:37:21 till 70 or 75 if not later than that,
0:37:23 but that means you got 50 years.
0:37:27 And 50 years, I mean, just do the math.
0:37:29 I know we joke a lot, you make good money.
0:37:31 You make really good money for someone your age.
0:37:34 And well, just stop, you just make good money.
0:37:36 If you saved, if you managed to figure out a way
0:37:38 through matching and other things
0:37:39 to save 10% of your income,
0:37:43 and say you just grew your income from here 8% a year,
0:37:44 and you’re very talented,
0:37:45 you’re gonna grow it faster than that.
0:37:48 But say it just grew 8% a year.
0:37:52 At 10%, if the market goes up seven or 8%,
0:37:54 I would bet you’re gonna be worth $10 to $20 million
0:37:55 by the time you’re my age.
0:37:57 And that’s without an enormous win.
0:37:58 And that’s the problem.
0:38:00 Young people are always banking on the enormous win.
0:38:01 That’s what I did.
0:38:02 I’m like, I don’t need to save money.
0:38:04 I’m a baller, look at, you know,
0:38:06 and I’m gonna sell companies or I’m gonna do this.
0:38:08 So I was spent what I had.
0:38:10 And that’s just really stupid
0:38:14 because inevitably the market has a shock.
0:38:17 And, you know, you can end up like where I was
0:38:19 in your early 40s when a kid comes marching
0:38:21 out of your girlfriend and you don’t have much money.
0:38:24 And it’s very upsetting or very scary even.
0:38:27 So it seems like based on what you’re saying,
0:38:28 and I think I would probably agree with this,
0:38:33 the solution here is take the contribution plan
0:38:35 versus the traditional benefit plan,
0:38:39 but make them up it, get a really good deal,
0:38:41 get a really good contribution match.
0:38:43 And I feel like that’s the way to do it.
0:38:45 And I would bet that Boeing would be more amenable
0:38:49 to that agreement versus just doing an entire
0:38:52 wholesale turnaround and scrapping the contribution plan
0:38:54 and going back to the traditional pension.
0:38:56 I just don’t think there is a place
0:38:59 for the traditional pension plan in 2024 anymore.
0:39:00 – I absolutely agree.
0:39:01 I agree.
0:39:03 – Stay with us.
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0:41:11 – We’re back with Prodigy Markets.
0:41:13 Perplexity AI is in talks
0:41:16 for its fourth fundraising round of the year,
0:41:17 aiming to more than double its valuation
0:41:19 to $8 billion.
0:41:21 The AI search engine and chatbot
0:41:24 is seeking to raise $500 million in this round.
0:41:26 That’s roughly what the company was worth
0:41:28 just nine months ago.
0:41:30 So Scott, Perplexity is clearly following
0:41:32 open AI’s lead here.
0:41:34 What do you make of this funding round?
0:41:36 – I think Perplexity has done a great job
0:41:39 of creating a brand positioning that is really clean.
0:41:42 And that is, I think of it as the AI search engine.
0:41:46 Whereas I think of chat GPT and Claude as AI.
0:41:48 I think of them as their own unique different category.
0:41:52 Whereas I think of Perplexity as a true threat to Google.
0:41:55 To me, this feels like at eight billion.
0:41:58 I don’t know, it kind of feels like a deal to me here.
0:42:01 And they have annual revenue of 50 million.
0:42:02 Well, maybe it’s not cheap.
0:42:04 That’s 160 times revenue.
0:42:07 Both open AI and Anthropa traded around 40 times revenues.
0:42:10 So this one’s trading at four times in a multiple revenue.
0:42:13 But I don’t, I just like the positioning here.
0:42:15 It’s much smaller than chat GPT.
0:42:19 Perplexity has about 15 million monthly active users.
0:42:22 Roughly the same as Anthropa’s Claude,
0:42:24 which I think just raised money at 30 or 40.
0:42:27 Google’s Gemini has over 270 million active users.
0:42:29 So what is that about 18 times more?
0:42:33 And chat GPT has over 200 million weekly active users.
0:42:34 I’d like to invest in this company.
0:42:36 Would you like to invest in this company?
0:42:36 – I wouldn’t.
0:42:37 – You would not?
0:42:38 – No, I wouldn’t.
0:42:43 I mean, let’s just talk about what Perplexity actually is.
0:42:44 I think you sort of nailed it.
0:42:48 It’s kind of like the AI search engine.
0:42:51 And so what I find interesting about that
0:42:55 is that we say that it’s a competitor to chat GPT.
0:42:57 We say that it’s a competitor to Claude.
0:43:00 But actually, when you really think about it,
0:43:03 I mean, people are using chat GPT
0:43:06 for sort of more generative creative projects.
0:43:09 They’re having it write poems and, you know,
0:43:11 do this in the voice of Scott Galloway.
0:43:13 People are doing similar things with Claude.
0:43:17 The main thing that Perplexity offers is a search engine.
0:43:19 And so who are they competing with?
0:43:21 They’re really competing with Google.
0:43:22 That’s sort of the main competitor.
0:43:27 And right now, Google is far and away the best search product.
0:43:32 I mean, there is basically no question about that.
0:43:35 And they also have this massive,
0:43:38 massive pool of capital that they can tap into.
0:43:41 And so the main thing for me here is,
0:43:45 you know, why is Perplexity raising
0:43:47 for the fourth time this year?
0:43:49 And they raised around in January.
0:43:51 They raised another round three months later.
0:43:53 They raised another round in October.
0:43:54 And here they are again,
0:43:57 they want to raise $500 million
0:43:58 at an $8 billion valuation.
0:44:01 So they raised four rounds in one year.
0:44:02 And that tells me two things.
0:44:04 One, they must be growing rapidly.
0:44:06 It’s a good thing.
0:44:07 Two, more importantly,
0:44:11 they must be spending an absolute fuck ton on this business.
0:44:14 Because every time they’ve gone out,
0:44:15 they’ve raised the money,
0:44:18 they come back and they say, actually, we need more.
0:44:20 And so this to me is proof
0:44:22 of what we’ve been saying for a while.
0:44:24 And I don’t think this is a good thing for Perplexity,
0:44:28 which is that AI is becoming just a flat out arms race.
0:44:30 It’s not about who can outsmart the other.
0:44:31 It’s about who can outspend the other.
0:44:34 It’s the same thing that we saw in streaming.
0:44:37 And that’s great news for open AI.
0:44:39 They have demonstrated that they can just go out
0:44:42 and raise pretty much into infinity.
0:44:47 But for Perplexity, the fact that they’ve done four rounds,
0:44:49 I’m sure they’re sort of realizing
0:44:51 that the only way that we make it out alive here
0:44:54 is if we just keep on raising and keep on raising,
0:44:56 it’s basically grow or die.
0:45:00 And the size of these rounds we’re talking about,
0:45:03 $50 million, $100 million, $500 million.
0:45:05 Those numbers are way too small.
0:45:07 If you want to compete with open AI,
0:45:09 they just raised $6.6 billion.
0:45:12 They’re on track to spend $5 billion this year.
0:45:14 You have to think way, way bigger.
0:45:18 And so if I were an investor, I’d be very, very scared
0:45:20 because the only way you win
0:45:22 is by basically spending all of your money.
0:45:25 – You’re right, it’s an arms race.
0:45:26 I’m not surprised.
0:45:29 They don’t want, they can’t go out and raise billions
0:45:31 at a time, which is what required for compute
0:45:33 and staffing up.
0:45:35 So they’re just constantly raising money.
0:45:37 But you’re right, it’s an arms race,
0:45:38 but I would invest in this company
0:45:40 just because I think their positioning is so clean.
0:45:42 AI search is a really clean positioning
0:45:45 and they’re going after a $300 billion market.
0:45:46 – Okay, what about this?
0:45:48 If you could invest in,
0:45:50 if you have the opportunity to invest in open AI
0:45:51 or perplexity, who would you go for?
0:45:52 – Yes.
0:45:53 (laughing)
0:45:55 Have you learned anything?
0:45:58 We want to diversify.
0:45:59 I would like to invest in both.
0:46:02 By the way, Sam Altman and whoever the CEO of perplexity is,
0:46:05 I’m super easy to track down.
0:46:06 I’m not a journalist.
0:46:10 I’ve got to match Ed’s 401K, that bill’s coming up.
0:46:13 So Ed’s retirement, unless you want Ed eating cat food,
0:46:17 not funny, you need to let me into the steal.
0:46:21 You need to let the dog, let the dog’s gotta eat.
0:46:23 (laughing)
0:46:24 Let me go this way.
0:46:28 ChatGPT at $150 billion,
0:46:30 I can easily see of being worth $500 billion.
0:46:33 I can also see the cleanest AI search company
0:46:34 being worth $25 billion,
0:46:36 which is triple where it’s at right now.
0:46:37 – Yeah.
0:46:39 – So I like both of these companies.
0:46:41 I’m trying to figure out a way to get exposure
0:46:43 to the AI space other than buying Microsoft,
0:46:46 and it’s not easy, everything’s private.
0:46:49 So I don’t know, we need some exposure.
0:46:52 We need a little taste of some of this AI magic,
0:46:53 and then–
0:46:54 – Totally agree.
0:46:55 All I want is open AI,
0:46:57 and just the start that really gets me,
0:47:00 there are over 200 million users right now,
0:47:03 and only 10 million pay for it.
0:47:06 So that’s only 5%, probably less,
0:47:08 way less than 5% of the user base.
0:47:11 And a lot of people would say that’s a problem,
0:47:14 but I feel like that’s just a huge opportunity.
0:47:15 – They’re gonna get to a billion people,
0:47:16 and then they’re gonna flip on,
0:47:17 they’re gonna people–
0:47:18 – Flip the switch.
0:47:19 – Yeah, that’s exactly right.
0:47:20 They got people addicted to the format,
0:47:23 the UI, and the comfort with it,
0:47:24 and then they’ll flip the switch
0:47:26 and start monetizing the hell out of it,
0:47:28 or come up with amazing,
0:47:29 can you imagine using AI,
0:47:32 the most amazing singular ad,
0:47:34 they could run against the one search you do?
0:47:34 – Exactly.
0:47:36 – So yeah, this is, you’re right,
0:47:39 this thing is a juggernaut,
0:47:41 plus Sam Altman in his hush-tons,
0:47:44 he’s just very concerned about the world, Ed.
0:47:46 He’s worried about it,
0:47:48 he’s worried about, yes,
0:47:49 we need to work with government.
0:47:52 – Let’s take a look at the weekend.
0:47:56 We’ll see data on the personal consumption
0:47:58 expenditures index for October,
0:48:00 as well as earnings from Big Tech,
0:48:02 Google, Microsoft, Meta, Amazon,
0:48:04 and Apple are all reporting.
0:48:07 We’ll also see earnings from Starbucks,
0:48:09 Berkshire Hathaway, and Uber,
0:48:11 big earnings week coming up.
0:48:12 Do you have any predictions for us, Scott?
0:48:17 – My prediction is the Boeing at $155 a share today,
0:48:18 over the next year,
0:48:20 and we should time stamp it,
0:48:22 the way it’s going to outperform the market.
0:48:24 I think this is a great company with a great brand,
0:48:26 great products,
0:48:28 and it’s effectively into duopoly.
0:48:31 The global economy continues to grow.
0:48:34 A key component of the global economy is commerce.
0:48:36 Key to commerce is international flows.
0:48:39 Key to international flows is commercial jet transportation.
0:48:44 These are really difficult products to produce.
0:48:44 You just can’t,
0:48:48 you cannot spin up airplane manufacturer in even a decade.
0:48:51 It takes massive government subsidies,
0:48:53 massive engineering talent.
0:48:56 So anyways, Boeing will outperform the S&P
0:48:57 over the next 12 months.
0:49:00 – This episode was produced by Claire Miller
0:49:02 and engineered by Benjamin Spencer,
0:49:04 our associate producer is Alison Weiss,
0:49:05 Mia Silverio is our research lead,
0:49:07 Jessica Lang is our research associate,
0:49:09 Drew Burroughs is our technical director,
0:49:12 and Catherine Dillon is our executive producer.
0:49:13 Thank you for listening to Prof. G Markets
0:49:15 from the Vox Media Podcast Network.
0:49:18 Join us on Thursday for our conversation
0:49:19 with Aswath Damodaran.
0:49:22 He’s back only on Prof. G Markets.
0:49:27 ♪ Lifetimes ♪
0:49:33 ♪ You help me ♪
0:49:40 ♪ In kind reunion ♪
0:49:47 ♪ As the world turns ♪
0:49:52 ♪ And the dark lights ♪
0:49:57 ♪ Help me ♪
0:50:01 – Robinhood is introducing forecast contracts
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0:01:36 of a website or domain.
0:01:41 – Today’s number, $400,000.
0:01:44 That’s how much Al Pacino paid his landscaper per year
0:01:47 to maintain a property he didn’t live in.
0:01:51 True story, the pool boy fucked my nanny.
0:01:53 So I ended up catching a cold.
0:01:55 True story, Ed.
0:01:57 My pool boy fucked my nanny.
0:02:00 So I caught the cold my wife had.
0:02:12 – Take some minute, but it’s fine.
0:02:13 – I think the funniest,
0:02:17 I think the funniest was the initial botch delivery.
0:02:19 That was my favorite part of the joke.
0:02:21 – I hope that stays in the edit.
0:02:22 – That happens a lot.
0:02:24 Welcome to Property Markets.
0:02:27 Today, we’re discussing Boeing’s terrible day.
0:02:30 Lot of jokes in there about air disasters,
0:02:32 but I’m not gonna make ’em.
0:02:34 And perplexity’s fourth funding round.
0:02:36 That’s where we are.
0:02:38 Boeing workers on strike and perplexity
0:02:40 is raising a fourth round.
0:02:43 But here for, oh wait, banter, I’m sorry.
0:02:44 It says banter, Ed.
0:02:46 – Stop giving it away.
0:02:48 You can’t read the script word for word.
0:02:50 What’s going on in the life of a 20-something
0:02:51 living in Brooklyn?
0:02:53 – I’m doing very well, Scott.
0:02:54 It’s been a busy week.
0:02:55 Doing a lot of interviews.
0:02:57 I just did two first-time founders interviews,
0:02:58 which are very exciting,
0:03:00 but I’m not gonna give any of the details away.
0:03:01 – No, you don’t wanna promote it.
0:03:02 You don’t want more downloads.
0:03:04 And for us to actually make money off
0:03:07 this Joey Baggedonan’s first-time founders podcast
0:03:09 that we’re supporting is your Vanity Project.
0:03:11 Why don’t you take up DJing and charge us to do that?
0:03:12 – I already do that.
0:03:14 – What else are you doing other than
0:03:15 first-time founders interviews?
0:03:17 What’s been going on?
0:03:20 – Let’s see, I got some Halloween parties coming up,
0:03:21 but I don’t have a costume yet.
0:03:22 Got any ideas for me?
0:03:24 – I have a Deadpool costume you can have.
0:03:25 – Oh, yeah?
0:03:26 – Yeah, it’s awesome.
0:03:27 My marigine got it for me.
0:03:28 – You still have it.
0:03:29 – Cheers, if you want it.
0:03:31 – Maybe, I might take you up on that.
0:03:32 That’s a good idea.
0:03:33 What are you gonna be?
0:03:34 – I’m very excited.
0:03:35 I’m going as Richard Simmons,
0:03:37 although I’m gonna be in London,
0:03:39 and either I have Halloween and me walking around
0:03:41 in dolphin short shorts with my son,
0:03:43 so he’ll be walking 20 meters ahead of me,
0:03:44 ’cause he’ll be so horrified.
0:03:47 They’re at that age where they’re not gonna
0:03:48 be Halloween for 20 years.
0:03:49 Halloween’s awesome when you’re a kid,
0:03:51 and then it’s awesome when you’re older.
0:03:52 – Yeah, exactly.
0:03:54 I don’t like Halloween myself these days.
0:03:56 – Oh, my God.
0:03:59 How can you not love Halloween?
0:04:01 – ‘Cause it’s like, the whole thing is just like,
0:04:02 wait, what are you?
0:04:03 And then everyone has to go around
0:04:04 and explain what they are.
0:04:06 And it’s like, I don’t know.
0:04:08 It’s just like, it feels so contrived to me.
0:04:09 – Well, I go as myself,
0:04:11 and people ask me what I’m supposed to be,
0:04:14 and I say, I was supposed to be a lot of things.
0:04:16 And then I start weeping.
0:04:18 – That’s good.
0:04:20 Get to the headlines, Ed.
0:04:22 – Let’s start with our weekly review of Market Vitals.
0:04:25 (upbeat music)
0:04:31 The S&P 500 declined, the dollar gained,
0:04:33 Bitcoin was flat,
0:04:35 and the yield on 10-year treasuries increased.
0:04:36 Shifting to the headlines.
0:04:38 Sales of existing homes in the US
0:04:41 fell 3.5% from a year earlier.
0:04:43 That’s their lowest level since 2010,
0:04:46 and on track for their worst year since 1995.
0:04:49 Tesla’s net income rose 17% in the third quarter
0:04:52 from a year earlier, beating analyst expectations.
0:04:54 Elon Musk also predicted vehicle growth
0:04:56 would reach at least 20% next year,
0:04:59 and the stock rose more than 20%
0:05:00 following that earnings report.
0:05:02 McDonald’s stock fell 10%
0:05:04 after its quarter-pounders were linked
0:05:06 to an E. Coli outbreak.
0:05:10 The illness has led to 10 hospitalizations and one death.
0:05:13 And finally, Sheehan’s profit declined 70%
0:05:16 in the first half of the year to just under $400 million.
0:05:19 Revenue growth also slowed to 23%.
0:05:21 That’s nearly half of what it was a year ago.
0:05:24 The deceleration in growth could complicate
0:05:26 the company’s plans for an IPO.
0:05:27 Scott, your thoughts starting
0:05:29 with this disappointing home sales data.
0:05:30 – It’s really wild.
0:05:33 The housing crisis or the housing sales
0:05:34 has keep getting worse.
0:05:36 So I would have guessed we would have bottomed out
0:05:37 about a year ago.
0:05:40 Also, I think people are sort of just giving up on housing.
0:05:41 They don’t see it any longer.
0:05:43 It’s kind of the American dream.
0:05:45 I think it’s really too bad.
0:05:46 I think it’s a supply problem.
0:05:47 We talk about interest rates.
0:05:51 We talk about having cheap capital, go buy a house.
0:05:52 I think there’s only one way out.
0:05:55 I think we need fairly significant government subsidies
0:05:57 to kind of put the private sector into action
0:06:00 to just start building a ton of houses
0:06:03 and also pass regulations that make it increasingly
0:06:05 difficult to block housing permits.
0:06:05 What are your thoughts?
0:06:08 – It’s massively disappointing to me,
0:06:10 especially as a young person
0:06:13 who wants to buy a house someday.
0:06:16 I mean, that is a personal objective of mine.
0:06:19 So I hate to see this news.
0:06:24 Having said that, yes, home prices relative to income
0:06:26 have never been higher.
0:06:30 I mean, it is out of control, the price of homes today.
0:06:32 But if you look back at the data
0:06:35 and if you also factor in mortgage rates
0:06:37 in addition to home prices,
0:06:41 it turns out that actually housing affordability today
0:06:43 in a holistic level
0:06:46 is around where it was in the mid 1980s.
0:06:47 And that’s because back then,
0:06:49 the mortgage rates were just way higher.
0:06:53 Like a 30 year rate was around 15% back then.
0:06:54 Today it’s around 6%.
0:06:56 So when you factor all of that in
0:06:58 from an affordability perspective,
0:07:01 things actually look very similar to the 1980s.
0:07:05 And now I’m 25 and who were the 25 year olds in the 1980s?
0:07:07 It was the boomers.
0:07:08 And who ultimately benefited
0:07:11 from this rapid transformation of the housing market
0:07:13 right when they hit their income earning years.
0:07:14 It was the boomers.
0:07:17 So I look at that data
0:07:19 and there are definitely very different dynamics
0:07:20 at play here.
0:07:23 For us, it’s a price issue because of supply.
0:07:26 And back then it was a rates issue.
0:07:29 But I am hoping just based on the fact
0:07:32 that I am in a kind of similar position
0:07:33 to where boomers were at my age.
0:07:36 I’m kind of hoping that something’s gonna change.
0:07:37 I don’t know exactly what it’s gonna be.
0:07:38 I don’t know what that would look like.
0:07:42 Hopefully it just means more housing permits, more supply.
0:07:43 But I do have hope.
0:07:45 And I think the right thing to do,
0:07:47 which is what I’m doing is just scouring real estate.
0:07:49 I’m trying to get an understanding of this market.
0:07:51 Not because I’m gonna buy something right now,
0:07:54 but just so that when things do change,
0:07:56 I will be ready to get involved.
0:07:58 And I would encourage other people my age to do the same.
0:08:01 – So when I was your age, I bought my first home at 27.
0:08:03 I was a year older than you when I bought my first home.
0:08:06 I had just gotten out of the hot school of business.
0:08:08 While I decided to start my own business,
0:08:09 the offer I had from a consulting firm
0:08:12 was for a hundred grand total comp.
0:08:14 My girlfriend was making, I think about 80.
0:08:18 So we had 180 grand and we bought a house in Petro Hill
0:08:21 in San Francisco for $285,000.
0:08:26 So one and a half, 1.6 times our annual income.
0:08:30 And we brought some money from her parents
0:08:31 and we bought our first home.
0:08:32 – Did you take out a mortgage on her?
0:08:33 – Oh yeah, we had a mortgage.
0:08:35 I don’t even remember the interest rate,
0:08:38 but two or three years later, maybe four years later,
0:08:41 I peaked early at, I bought the house that is no joke
0:08:43 on Noe Guerrero in 21st,
0:08:45 that is next door to where Mark Zuckerberg lives.
0:08:48 And I paid $760,000 for it.
0:08:51 And a few years later, I sold it for 920
0:08:53 and I thought it was a fucking real estate genius.
0:08:54 I thought, oh my God.
0:08:58 Pretty sure like his security lives in that house.
0:09:00 And I would have paid so much money
0:09:02 to just be able to sit out on my porch
0:09:03 and a wife beater and a lawn chair.
0:09:06 And when he come home like, how many teens did press?
0:09:07 How many teens are self-cutting today?
0:09:09 You fucking bitch.
0:09:11 I just would have given anything.
0:09:14 – I’m sure people are already doing that.
0:09:17 – Anyway, so, but where I was headed with this is,
0:09:22 if you think I was making 100 grand story of privilege
0:09:23 out of an elite business school,
0:09:26 2.8 times got you a house in San Francisco.
0:09:28 Now I bet the average compensation out of the high school,
0:09:33 again, these are good problems is about 200 or 225.
0:09:34 The average home I think in the Bay Area
0:09:36 or San Francisco now is 2.1 million.
0:09:41 So it’s gone from 2.8 times the salary of an MBA grad
0:09:42 to 10 times.
0:09:43 – Fucking insane.
0:09:45 – This needs federal action.
0:09:48 This needs a fairly serious subsidy or tax credit
0:09:52 for developers who figure out a way to build housing.
0:09:53 And then some sort of,
0:09:55 I don’t know if you have to go state by state,
0:09:58 especially there’s some mayors in, for example, Minneapolis
0:10:01 and in Austin who’ve done a good job of figuring out a way
0:10:02 to build more housing.
0:10:04 But I had a really interesting conversation
0:10:07 with Jessica Tarloff who’s my co-host
0:10:09 on another booming podcast.
0:10:10 I don’t know if you’ve met her.
0:10:11 – I don’t know.
0:10:12 Who is she?
0:10:15 – She said her and her husband like really good livings
0:10:16 and they’ve decided they live in Manhattan.
0:10:18 They decided to rent, not to buy.
0:10:20 And they could afford to buy, but they said,
0:10:22 and it was, it seemed simple, but it was sort of striking.
0:10:25 They said, our money is doing better in the market
0:10:29 than it would in a Tribeca condo.
0:10:31 And I thought that was really interesting
0:10:33 that they’ve made a conscious decision
0:10:34 to leave their money in the market
0:10:37 instead of putting all of it into a condo.
0:10:39 But I like the way you’re thinking.
0:10:40 I think, I do think at some point,
0:10:43 buying a house, understanding the market is the way to go.
0:10:45 – Certainly a case by case basis.
0:10:47 I think that as Ramit Sethi told us,
0:10:51 the cult of home buying is kind of a trap.
0:10:52 Sometimes renting is the right move.
0:10:54 Let’s move on to these Tesla earnings.
0:10:56 Tesla had a good quarter actually.
0:10:58 Revenue was up 8%.
0:11:02 Their energy and storage business was up 52%.
0:11:05 And margin growth was really good.
0:11:07 Operating expenses are down 6%
0:11:09 after they cut a 10th of the workforce.
0:11:12 So this is sort of what we’ve been looking for.
0:11:15 This isn’t the BS that we saw at the WeRobot event
0:11:16 at the Warner Brothers Studio.
0:11:20 This is real meaningful progress, it’s real data.
0:11:22 This is just about the performance
0:11:23 of the fundamental business.
0:11:26 And the fundamental business is doing pretty well.
0:11:28 Does it mean that it needs to,
0:11:31 does it warrant a 20% jump in the stock price?
0:11:32 I don’t think so.
0:11:34 I think it certainly warrants a jump.
0:11:37 The one thing I would flag though is the valuation still.
0:11:42 You know, it’s trading around 30% down
0:11:44 from its peak in 2021.
0:11:49 But it’s still trading at 79 times forward earnings,
0:11:52 which is roughly double the multiple of,
0:11:54 wait for it, Nvidia.
0:11:58 So if you wanted to value Tesla today on par with Nvidia,
0:12:00 the stock would need to come down 48%.
0:12:04 So good quarter, but Tesla is still way, way overpriced.
0:12:08 – The only thing I saw in this as I look through
0:12:12 the earnings was that it was revenue increasing 8%,
0:12:12 isn’t that big a deal?
0:12:16 I mean, that’s good for a car company.
0:12:18 But the story here, and they did a good job laying it out
0:12:22 on the earnings call was that it’s not the revenue increase,
0:12:24 it’s the revenue mix.
0:12:26 And that is the sale of higher margin products.
0:12:29 So storage batteries, which are used by utilities,
0:12:32 businesses and homeowners increase 52%.
0:12:36 And revenues from services, including charging jump 29%.
0:12:39 And those are higher margin offerings in their cars.
0:12:42 And they’ve also deployed more battery storage products
0:12:43 this year than it did in all of 2023.
0:12:45 So for all the Tesla bulls who say,
0:12:46 it’s not a car company, it’s an energy company,
0:12:47 it’s a services company.
0:12:51 Now they can legitimately say, see, I told you.
0:12:53 – Yeah, but it’s not an AI company.
0:12:54 And that’s my issue.
0:12:55 They’re not selling your robots.
0:13:00 – But to be fair, this more robust revenue mix
0:13:02 or growth in higher margin product categories
0:13:06 resulted in their gross margins increasing 200 basis points
0:13:09 and their net income increasing 17%.
0:13:13 And I think that’s an important lesson for entrepreneurs.
0:13:17 And that is when I had my firm L2,
0:13:20 I would say, okay, we can get,
0:13:24 we’d get paid if I come spoke or a one day symposium
0:13:26 or the people constantly want us to a consulting gig.
0:13:28 And rather than getting a half a million
0:13:29 to our consulting gig,
0:13:33 we’d much rather get a $200,000 annual recurring membership
0:13:35 because all revenues are created equally.
0:13:38 And revenue they get from their automobiles
0:13:39 is gonna have a much lower multiple on it
0:13:41 than revenue they get from services or charging
0:13:44 because they have higher margins, more sustainable.
0:13:45 I think the Tesla product lineup,
0:13:47 the quite frankly, is a little bit tired.
0:13:50 So this is about revenue mix, not about revenue growth.
0:13:51 – Should we talk about McDonald’s
0:13:55 and this E. Coli outbreak and the initial reactions?
0:13:56 – See, here’s the thing about what you wanna do
0:13:59 if you’re McDonald’s or in the fast food business.
0:14:01 You can kill hundreds of thousands of people
0:14:04 as long as you kill them slowly.
0:14:07 But if you kill a bunch in one day,
0:14:08 your stock gets taken down.
0:14:10 Like what, no, seriously what,
0:14:12 how many people do you think are gonna have colon cancer
0:14:17 this year because of a lifetime of McDonald’s?
0:14:20 I mean, it’s just if you price McDonald’s
0:14:22 to its externalities,
0:14:24 specifically if you price beef to what it costs
0:14:26 because of water, subsidized water,
0:14:28 and the health externality,
0:14:30 you know, a Big Mac would be 50 bucks.
0:14:33 So I don’t, I don’t especially like this firm.
0:14:35 I would just love to see an article
0:14:36 on how many people died today
0:14:40 because of long-term illness from this type of food.
0:14:42 Anyway, it’s easy for me to say.
0:14:44 – Yeah, I mean, the investor reaction,
0:14:47 I think people were pretty freaked out by this.
0:14:49 But I think the thing to remember about these outbreaks
0:14:51 is that in the food industry,
0:14:53 this actually happens all the time.
0:14:56 It happened to Wendy’s a couple of years ago
0:14:58 and it was E. Coli.
0:15:01 It’s happened to Taco Bell, Jack in the Box,
0:15:02 Tim Hortons, on and on.
0:15:04 This is sort of a rite of passage
0:15:05 in the fast food industry.
0:15:08 You have an outbreak, then you announce a recall
0:15:10 and then you kind of, you move on and life goes on.
0:15:14 What you don’t want is what happened to Chipotle
0:15:19 back in 2015, which is where there was an E. Coli outbreak.
0:15:23 20 people were hospitalized and zero people died,
0:15:28 but it just exploded into this giant international news story.
0:15:30 The media totally ran away with it.
0:15:31 It was really exciting.
0:15:33 Everyone was talking about it.
0:15:34 And as a result,
0:15:37 despite the fact that it was historically pretty standard,
0:15:41 sales dropped 20%, profits fell 50%
0:15:42 and the stock was cut in half.
0:15:44 And it was like the worst thing to happen ever.
0:15:47 So McDonald’s needs that to not happen.
0:15:49 My view, it won’t happen.
0:15:50 Why?
0:15:52 Because we’ve got a presidential election
0:15:52 coming up in two weeks.
0:15:55 I just don’t think there is enough steam in the media
0:15:58 to turn this into something bigger than it is.
0:16:01 My prediction is that, you know, come next week,
0:16:02 it won’t be an issue.
0:16:04 We’re focused on other things.
0:16:06 Chipotle, after it had that 50% cut,
0:16:09 it’s up six folds since then.
0:16:10 And this is pulse marketing,
0:16:13 but my first thought when I read about McDonald’s was like,
0:16:16 oh, it’s time for a colonoscopy.
0:16:19 And also I quite enjoyed that Michael Jackson drug.
0:16:21 Oh my God, that shit is money.
0:16:23 That shit is money.
0:16:25 God, that’s a good sleep.
0:16:26 That’s a good sleep.
0:16:28 And I love my jokes in there.
0:16:31 I’m like, well, you stroke my hair as you’re probing my hair.
0:16:34 It’s just, I’m full of so many jokes.
0:16:36 And they’re like, we’ve heard them all, any new ones?
0:16:38 Exactly, it’s like hosting this podcast.
0:16:39 Yeah.
0:16:42 But my first thought, I remember,
0:16:45 when I heard about the Chipotle E. coli outbreak,
0:16:47 you know what my first thought was?
0:16:49 Jesus, I’d like some Chipotle.
0:16:53 I think that Chipotle product is so outstanding.
0:16:55 I think it is just an amazing,
0:16:58 and actually it’s not, I wouldn’t call it health food,
0:17:01 but I will go as far to say it’s actually fairly healthy.
0:17:04 And it’s got the right fats, it’s fairly fresh.
0:17:07 And the most, I have such fondness or affection
0:17:11 for Chipotle because the first swag I ever received
0:17:13 when we started this Joey Baganona’s podcast,
0:17:16 about 300 episodes ago,
0:17:18 I just constantly talk about Chipotle.
0:17:19 And you know what they sent me?
0:17:23 They sent me a lifetime free card of Chipotle.
0:17:25 Like, and I had this card and I knew I was gonna get it.
0:17:29 So my kids are in Manhattan and we roll into Chipotle
0:17:31 and they order something and I pull out the card
0:17:32 and I’m just very slick about it.
0:17:33 My youngest one goes, what is that?
0:17:35 And I’m like, oh, it’s a Chipotle card.
0:17:36 So what do you get with it?
0:17:37 I’m like, well, I never have to pay for Chipotle.
0:17:38 Holy shit.
0:17:41 He has never been as impressed with me.
0:17:43 He just couldn’t believe it.
0:17:44 He wanted to see the card.
0:17:46 I want to say, what does it look like?
0:17:47 Yeah, it’s okay.
0:17:48 It looks like a, I don’t know.
0:17:50 It’s just a little, it looks like a credit card.
0:17:53 And it says Chipotle lifetime free or whatever.
0:17:56 I don’t use it because I’m lazy and I can’t find the card.
0:17:58 And I don’t know, I can buy my Chipotle.
0:18:00 But anyways, let’s talk about Shin.
0:18:01 Yeah, let’s talk about it.
0:18:03 Your reactions, the growth is slowing.
0:18:04 You’re an investor, right?
0:18:05 I am an investor.
0:18:07 It’s one of my biggest investments.
0:18:11 So, okay, let’s just be real here.
0:18:14 And granted, I have a vested interest in success as a company.
0:18:17 The bad news is its growth slowed to 23%.
0:18:22 The good news is it’s growing 23% at Amazon retail
0:18:26 was up 9%, Zara was up 7%, H&M was up 1%.
0:18:30 So, Shin is growing two and a half times as fast as Amazon.
0:18:32 I mean, I guess it’s all how you frame this.
0:18:34 When I got, when I heard about this,
0:18:36 I actually felt pretty good about my investment.
0:18:40 If a company that’s doing $36 billion in sales
0:18:42 is still growing 20, can you name any company
0:18:46 over 10 or 20 billion growing more than 20% a year
0:18:48 that isn’t valued at a trillion dollars?
0:18:50 I was gonna say NVIDIA and so you said that.
0:18:54 Right, I mean, there are firms that big growing that fast,
0:18:56 but they’re all worth more than a trillion dollars.
0:18:59 So, I don’t know, I like my prospects here, Ed.
0:19:00 I like my prospects.
0:19:01 What do you think?
0:19:02 What do I have this wrong?
0:19:03 – I don’t think you have anything wrong
0:19:04 on the financials.
0:19:05 I completely agree with you.
0:19:07 I think this business is still crushing it.
0:19:11 Where I continue to disagree with you,
0:19:13 and I don’t wanna rain on your parade
0:19:15 or be the woke police,
0:19:17 is the moral viability of this company.
0:19:20 – The moral viability will smell you,
0:19:23 you little indulgent virtue signaling millennial,
0:19:25 Brooklyn sandaled eyes.
0:19:29 – Don’t speak too soon ’cause wait ’til I drop this on you.
0:19:31 So, I’ve told you that I think
0:19:36 that there are valid concerns about child labor at Sheehan.
0:19:40 And it turns out, as of a couple of months ago,
0:19:42 they released a report.
0:19:44 They have been using child labor.
0:19:48 They found two cases of child labor in their supply chain.
0:19:50 And to be fair to them, they reported it
0:19:51 and they disclosed it
0:19:53 and they cut the ties with those suppliers.
0:19:55 But the fact remains, it’s like, wow,
0:19:57 how did they sell dresses for $10?
0:19:59 Well, the answer is that they’ve spent
0:20:02 the majority of their time employing children to do it.
0:20:05 – Okay, I’m going to, I spent some time looking at this.
0:20:08 The first was that they were using forced labor
0:20:08 for their cotton.
0:20:10 And they’ve actually gotten out of all cotton,
0:20:12 I believe all cotton production in China.
0:20:15 And they had a company that looks at clothes
0:20:16 and tries to estimate the amount of cotton
0:20:18 coming from a forced labor region.
0:20:20 And they actually had a lower count
0:20:22 than many of the other fast fashion guys.
0:20:24 So the management I’m known,
0:20:25 or at least the interaction I’ve had with them
0:20:29 is they are committed to, for economic reasons,
0:20:32 being the best or one of the better players
0:20:35 in this space around this stuff.
0:20:38 And I think when they found that out,
0:20:40 they disclosed it, which is unusual.
0:20:41 It wasn’t like Mark Zuckerberg going in front
0:20:42 of Congress and lying and saying,
0:20:44 I’ve heard actually social media is good
0:20:46 for the mental health of teens.
0:20:49 They said, we found it out, we’re disclosing it,
0:20:51 and we’re severing ties with these guys.
0:20:53 I would like to see a similar audit
0:20:56 across all the other fast fashion guys
0:20:58 and find out, yeah, where is their cotton
0:20:59 and where is their shipping made?
0:21:04 I agree that when you’re buying a t-shirt that’s three bucks,
0:21:06 it’s unlikely the supply chain is aspirational.
0:21:09 It’s just, it’s unlikely that the employees
0:21:11 are getting pet bereavement leave
0:21:13 and mental health counseling.
0:21:16 But I don’t, I believe management when they say,
0:21:18 we’re gonna try for economic reasons
0:21:20 to start our hat white here.
0:21:23 So I don’t, you know, if I sound defensive, I am.
0:21:27 But Donald Tang, the chairman has said to me straight up,
0:21:28 he’s looking me in the eye and said,
0:21:31 we’re gonna be the role model in,
0:21:33 they don’t call fast fashion an on-demand fashion
0:21:37 around a sustainable, progressive, ethical supply chain.
0:21:40 But they should be held accountable like anybody else.
0:21:41 – As you say, countless companies
0:21:43 have done countless bad things.
0:21:47 Apple has had supply chain and child labor issues as well.
0:21:50 You know, so has Nike.
0:21:51 I think the reality is, you know,
0:21:55 I just look at the company, I associate it with that.
0:21:56 It turns out it’s true.
0:21:58 It may be true of other companies,
0:22:01 but the reality is that for me at least,
0:22:03 I still hear the word Xi’en
0:22:06 and my initial gut reaction is not a huge fan.
0:22:09 And I would bet that a lot of people feel similarly.
0:22:11 And I think that’s why you’re seeing
0:22:13 some of these issues they’re having
0:22:15 with getting out to the public markets.
0:22:17 It’s also because they’re from China,
0:22:20 or at least the majority of the supply chain is in China,
0:22:22 but that’s just the gut reaction.
0:22:27 And so, yeah, I think it’s on them to address that.
0:22:29 And I think that starts with doing a very,
0:22:31 very thorough audit of their supply chains,
0:22:32 which they appear to be doing.
0:22:35 And maybe over time, they’ll get me on their side.
0:22:37 – Actually, Edward, you buy your clothes.
0:22:39 Where do I get the kind of like skateboarder
0:22:41 who things didn’t work out for a look?
0:22:45 – That’s good, that’s good.
0:22:48 I’ve been on a pretty big J-Crew kick recently.
0:22:49 – J-Crew?
0:22:52 So you’re just leaning into that whole Caucasian thing?
0:22:54 (laughing)
0:22:57 J-Crew, wow, I did not expect that.
0:22:59 – J-Crew, send me a lifetime card, please.
0:23:00 – Here you go.
0:23:02 (upbeat music)
0:23:03 – We’ll be right back.
0:23:06 (upbeat music)
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0:25:24 – Robinhood is introducing forecast contracts
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0:26:31 – We’re back with Profg Markets.
0:26:33 Boeing workers rejected a contract proposal
0:26:36 that included a 35% raise over four years.
0:26:38 As we discussed previously,
0:26:41 the workers are demanding a 40% pay increase.
0:26:43 That vote extended their strike
0:26:45 and made Boeing’s bad day worse,
0:26:46 because earlier that morning,
0:26:50 Boeing reported a quarterly loss of $6 billion,
0:26:52 its worst loss since 2020.
0:26:54 The company’s CFO also said it will continue
0:26:57 to burn cash into 2025.
0:26:59 The stock dropped 4% following those earnings
0:27:02 and went even lower after the union vote.
0:27:05 So Scott, let’s start with the strike.
0:27:08 Nearly two thirds of the workers voted
0:27:10 against this proposed contract.
0:27:12 What are your reactions to that result?
0:27:13 – Look, good for them.
0:27:14 They know they have power.
0:27:17 It seems like the bid ask here are not that far apart
0:27:19 and Boeing has incentive to solve this,
0:27:23 whereas Netflix had disincentive to solve the strike.
0:27:26 I wouldn’t be surprised if this was the kitchen sink order
0:27:28 where they just threw everything into it.
0:27:31 But it’s great, even if you’re the number two in a duopoly,
0:27:34 it’s great to be the number two in a duopoly.
0:27:38 The firm has a $500 billion backlog
0:27:40 of over 5,400 commercial clients.
0:27:44 I mean, that’s just a half a trillion dollar backlog.
0:27:46 And also the strike,
0:27:48 it may end up medium and long-term being a good thing
0:27:51 ’cause it gave the CEO Cloud Cover,
0:27:53 the CEO Kelly Ordberg Cloud Cover
0:27:55 to lay off 17,000 workers.
0:27:57 He’s like, okay, fine, you’re not happy.
0:27:59 We gotta cut costs.
0:28:01 They haven’t reported a full year profit since 2018.
0:28:03 They need to cut costs.
0:28:06 They need to get labor relations back on track.
0:28:07 Talk about a change in fortunes.
0:28:11 Boeing has declined 57% in the last six years
0:28:14 and Airbus has increased 45%.
0:28:17 I would argue that this IP, this brand,
0:28:18 it’s customer relationships.
0:28:19 And the fact there’s only two people
0:28:22 really producing planes at this scale.
0:28:25 They’re gonna be fine.
0:28:28 And I would bet this is actually a pretty good buy right now.
0:28:29 What are your thoughts?
0:28:31 – I don’t think I agree that they’re fine,
0:28:35 but just on the proposal that they are disagreeing on.
0:28:40 So the main thing or the one sticking point
0:28:46 is the difference between a traditional pension plan
0:28:48 and an individual retirement plan.
0:28:51 So what the Boeing workers really want,
0:28:53 they want the 40% pay increase,
0:28:54 but what is becoming clear,
0:28:57 because they said no to a 35% increase,
0:28:59 is that what they really want
0:29:02 is the restoration of this defined benefit plan,
0:29:04 this traditional pension plan
0:29:07 that Boeing removed back in 2014.
0:29:09 And this is kind of an interesting difference.
0:29:10 So like what is the difference
0:29:12 between a traditional pension plan
0:29:17 and individual retirement plan, like a 401k?
0:29:20 Well, unlike the 401k,
0:29:23 where the employer invests in your retirement account
0:29:25 during your time at the company,
0:29:28 the traditional pension basically just pays you
0:29:30 a predetermined amount of cash
0:29:34 that begins when you retire and ends when you die.
0:29:36 So it’s basically like a mini salary for life.
0:29:39 And this used to be the most common form
0:29:42 of retirement account in America.
0:29:45 Back in the 80s, around 40% of US retirement plans
0:29:47 were pension plans.
0:29:49 Today though, they’re very, very rare,
0:29:51 only 8% are traditional.
0:29:54 Meanwhile, the most common are the individual retirement
0:29:56 accounts, the 401k, that makes up 50%.
0:29:57 That’s what I have.
0:30:01 Most people I would imagine who are listening to this podcast,
0:30:03 if they’re offered a retirement plan
0:30:05 through their employer, it’s a 401k.
0:30:07 So I find it very interesting
0:30:10 that this is sort of the main problem.
0:30:13 It’s not actually about the amount of money
0:30:14 they’re receiving necessarily.
0:30:18 It’s really about how they are receiving it.
0:30:21 They want a monthly paycheck once they’ve retired
0:30:23 versus Boeing investing in their accounts now.
0:30:26 And Boeing has said, this is unacceptable.
0:30:28 We cannot do it.
0:30:31 So I’d love to get your view as an employer
0:30:34 who has set up retirement plans in the past.
0:30:37 Why is this such an issue for the workers?
0:30:40 And also why is it such an issue for Boeing?
0:30:42 Why doesn’t Boeing just say yes?
0:30:43 – So the workers are being smart.
0:30:46 They’re realizing that time goes fast
0:30:48 and at some point they’re gonna be retired
0:30:49 and they want a paycheck.
0:30:51 I would imagine the reason they’re pushing back
0:30:54 is the last thing you want is a liability
0:30:59 against an unproductive asset and that is a retired person.
0:31:03 So setting up a pension fund that might have obligations.
0:31:05 There are some companies that are technically bankrupt
0:31:08 if you calculate in their pension obligations.
0:31:12 What we do for you, Ed, is I say, I want you to save money.
0:31:14 So I don’t even know what we–
0:31:18 – Yeah, defined contribution and it’s a 5% match.
0:31:22 So if I invest 5% of my salary,
0:31:24 you match it and also invest 5%.
0:31:26 – I like to think of it as 100% match, bitch,
0:31:30 ’cause if you put 5% in, I’m doubling it to 10%.
0:31:34 But if at your age, we’re trying to eat our own cooking here.
0:31:37 At your age, if you get 5% of your salary
0:31:41 and you put it away, it goes into this thing, I match it.
0:31:42 So that’s 10%.
0:31:45 At the age of 26, if you can just do that
0:31:46 for the rest of your life,
0:31:48 regardless of whether or not this pod works or not,
0:31:50 as long as you can hold on to your job,
0:31:51 you’re gonna be fine.
0:31:53 And that’s powerful.
0:31:55 And I think all employers should encourage that.
0:31:58 I do believe in being a little bit paternalistic.
0:32:02 But other pensions are work here for 20 or 30 years
0:32:03 and we’re gonna give you,
0:32:06 this is a big problem in government or local governments.
0:32:09 And that is they have these pension plans with cops.
0:32:11 And they say, if you work 20 years,
0:32:13 you then get a pension the rest of your life.
0:32:14 You get payment.
0:32:18 And unfortunately, the cops who are smart will game it.
0:32:20 And what they say is we’re gonna give you 60%
0:32:24 of your salary the last two years of your tenure.
0:32:27 So what they do is they wink at their staffing sergeant
0:32:29 and they work 80 hours a week, their last two years,
0:32:31 where they get time and a half
0:32:34 and they end up making $220,000 the last two years
0:32:36 and they end up with $120,000 obligation
0:32:38 for the rest of this cop’s life.
0:32:41 And you end up with 13% incremental tax rates
0:32:43 in New York state because we have all of this
0:32:47 incredibly onerous pension liabilities.
0:32:50 So what I think, I’m all for,
0:32:53 I’m all for companies taking current profits
0:32:56 and matching, you know, I like the fact
0:32:59 that you show some discipline and I gross it up.
0:33:00 I like that.
0:33:03 And then if you leave, it’s portable, it goes with you.
0:33:05 And at 59 and a half or 65,
0:33:08 hopefully you have economic security.
0:33:10 What companies want to avoid and they can’t afford
0:33:13 and has kind of created some zombie companies
0:33:14 is this notion that if you work it
0:33:15 for a certain amount of time,
0:33:16 we’re just gonna keep paying you
0:33:18 a certain amount of your salary.
0:33:19 And they don’t fund it.
0:33:20 They don’t figure out a way.
0:33:22 They just assume the good times are gonna keep going
0:33:23 and that they’ll be able to pay it.
0:33:25 And then you end up with a company
0:33:28 who’s biggest or one of its biggest expense lines
0:33:30 is revenue going out to employees
0:33:32 who are not working, who are unproductive.
0:33:35 So this is a big issue.
0:33:36 What this clearly shows though,
0:33:38 is that this union is smart and thinking about,
0:33:42 okay, how do we set our members up
0:33:45 for long-term financial health?
0:33:47 99% of people, the lesson years are following.
0:33:48 99% of people will spend everything
0:33:50 that comes into their hands.
0:33:51 I’m kind of that way.
0:33:53 So what I do is as soon as I get money,
0:33:55 I start, I put it away.
0:33:57 I try and get it away from me where I can’t touch it.
0:33:59 That’s the way to go.
0:34:00 You never see it.
0:34:01 It doesn’t go into your hands.
0:34:05 You don’t think, oh, I’m going to Coachella with the guys.
0:34:07 You’re like, I don’t have the money.
0:34:10 And the money just, you never have it in your hands.
0:34:11 When I’m talking to young people
0:34:13 and they’re asking for advice on compensation,
0:34:16 my attitude is ask for more options.
0:34:18 Ask for more match.
0:34:20 Ask for the shit that’s going to build wealth,
0:34:22 not that’s going to get you a bigger flat screen
0:34:22 or a bigger apartment.
0:34:23 – Yeah, exactly.
0:34:26 It’s interesting that it does feel
0:34:30 like these pension plans are very outdated
0:34:34 in terms of just the concept of you’ve worked here
0:34:38 for 30 years and therefore you’re set for life.
0:34:41 You are a lifetime Boeing employee in a way.
0:34:43 And it does feel sort of outdated
0:34:45 because it’s just people aren’t working
0:34:48 their entire lives at one company anymore.
0:34:50 People are switching companies.
0:34:54 The idea of a company giving you sort of the stamp
0:34:56 of approval and then you’re on their paycheck
0:34:59 for the rest of your life to me just feels outdated,
0:35:02 which I think is also kind of an argument
0:35:03 in favor of Boeing.
0:35:05 But I do understand their points
0:35:07 and I do understand that these workers
0:35:08 have really gotten screwed.
0:35:11 Their compensation has only increased four percent
0:35:12 over the past eight years.
0:35:14 I mean, it is crazy.
0:35:16 They deserve something legitimate,
0:35:20 but I don’t know if a traditional defined benefit pension
0:35:21 is the way to go about it.
0:35:23 – It does feel very Angie Dickinson,
0:35:26 Johnny Carson, it does feel a little bit from an age gone by.
0:35:28 The broader meta learning here though
0:35:32 is that you have to try and fight your instinct
0:35:34 or supplement your instincts.
0:35:36 And it’s the following.
0:35:38 At your age, you just can’t imagine
0:35:40 you’re ever gonna be old
0:35:43 because for the majority of our species existence
0:35:46 on this planet, you haven’t lived past the age of 35.
0:35:51 So you literally, your brain cannot realistically imagine
0:35:54 you’re going to be my age.
0:35:56 And the other thing you can’t imagine
0:35:58 is how fast it’s gonna go.
0:36:01 And you wanna A, try and fight that instinct
0:36:04 and leverage that instinct or leverage the reality.
0:36:07 And that is if you continue to do that 5%
0:36:09 and then maybe you start making real money
0:36:12 and you go up to 10 or 20%, before you know it.
0:36:13 I mean, I’m not exaggerating.
0:36:15 I look at you and I think, oh, I look like Ed.
0:36:18 I look like a young, fairly awkward guy, but I look young.
0:36:24 I have this lame J. Crew shit, I relate to you.
0:36:25 And then I look in the mirror
0:36:28 and I look like a fish that swam too close to a reactor.
0:36:31 I look like I suffer from radiation sickness.
0:36:35 True story, people can’t imagine.
0:36:37 People basically, because I’m living very long,
0:36:42 people’s image of themselves stops evolving at 39 supposedly.
0:36:44 In other words- – 39.
0:36:45 – Yeah, you see yourself and you’re like,
0:36:47 oh, I’m getting older, I’m getting older, I’m 39.
0:36:51 And then every time you look in a mirror from the age of 39,
0:36:54 you’re like, Jesus fucking Christ, what is going on here?
0:36:55 – So interesting.
0:36:57 – You can’t, because here’s the thing,
0:36:59 you’re not supposed to be here.
0:37:03 All 7,000 of your ancestors were dead.
0:37:05 They never got to see how ugly you got.
0:37:07 – They weren’t getting colonoscopies every two months.
0:37:09 – They didn’t need Botox ’cause they were dead.
0:37:12 They never had wrinkles in their forehead.
0:37:14 Do you realize most people your age,
0:37:16 you’re gonna live to be 100.
0:37:18 So, and assuming you’re probably gonna work
0:37:21 till 70 or 75 if not later than that,
0:37:23 but that means you got 50 years.
0:37:27 And 50 years, I mean, just do the math.
0:37:29 I know we joke a lot, you make good money.
0:37:31 You make really good money for someone your age.
0:37:34 And well, just stop, you just make good money.
0:37:36 If you saved, if you managed to figure out a way
0:37:38 through matching and other things
0:37:39 to save 10% of your income,
0:37:43 and say you just grew your income from here 8% a year,
0:37:44 and you’re very talented,
0:37:45 you’re gonna grow it faster than that.
0:37:48 But say it just grew 8% a year.
0:37:52 At 10%, if the market goes up seven or 8%,
0:37:54 I would bet you’re gonna be worth $10 to $20 million
0:37:55 by the time you’re my age.
0:37:57 And that’s without an enormous win.
0:37:58 And that’s the problem.
0:38:00 Young people are always banking on the enormous win.
0:38:01 That’s what I did.
0:38:02 I’m like, I don’t need to save money.
0:38:04 I’m a baller, look at, you know,
0:38:06 and I’m gonna sell companies or I’m gonna do this.
0:38:08 So I was spent what I had.
0:38:10 And that’s just really stupid
0:38:14 because inevitably the market has a shock.
0:38:17 And, you know, you can end up like where I was
0:38:19 in your early 40s when a kid comes marching
0:38:21 out of your girlfriend and you don’t have much money.
0:38:24 And it’s very upsetting or very scary even.
0:38:27 So it seems like based on what you’re saying,
0:38:28 and I think I would probably agree with this,
0:38:33 the solution here is take the contribution plan
0:38:35 versus the traditional benefit plan,
0:38:39 but make them up it, get a really good deal,
0:38:41 get a really good contribution match.
0:38:43 And I feel like that’s the way to do it.
0:38:45 And I would bet that Boeing would be more amenable
0:38:49 to that agreement versus just doing an entire
0:38:52 wholesale turnaround and scrapping the contribution plan
0:38:54 and going back to the traditional pension.
0:38:56 I just don’t think there is a place
0:38:59 for the traditional pension plan in 2024 anymore.
0:39:00 – I absolutely agree.
0:39:01 I agree.
0:39:03 – Stay with us.
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0:41:11 – We’re back with Prodigy Markets.
0:41:13 Perplexity AI is in talks
0:41:16 for its fourth fundraising round of the year,
0:41:17 aiming to more than double its valuation
0:41:19 to $8 billion.
0:41:21 The AI search engine and chatbot
0:41:24 is seeking to raise $500 million in this round.
0:41:26 That’s roughly what the company was worth
0:41:28 just nine months ago.
0:41:30 So Scott, Perplexity is clearly following
0:41:32 open AI’s lead here.
0:41:34 What do you make of this funding round?
0:41:36 – I think Perplexity has done a great job
0:41:39 of creating a brand positioning that is really clean.
0:41:42 And that is, I think of it as the AI search engine.
0:41:46 Whereas I think of chat GPT and Claude as AI.
0:41:48 I think of them as their own unique different category.
0:41:52 Whereas I think of Perplexity as a true threat to Google.
0:41:55 To me, this feels like at eight billion.
0:41:58 I don’t know, it kind of feels like a deal to me here.
0:42:01 And they have annual revenue of 50 million.
0:42:02 Well, maybe it’s not cheap.
0:42:04 That’s 160 times revenue.
0:42:07 Both open AI and Anthropa traded around 40 times revenues.
0:42:10 So this one’s trading at four times in a multiple revenue.
0:42:13 But I don’t, I just like the positioning here.
0:42:15 It’s much smaller than chat GPT.
0:42:19 Perplexity has about 15 million monthly active users.
0:42:22 Roughly the same as Anthropa’s Claude,
0:42:24 which I think just raised money at 30 or 40.
0:42:27 Google’s Gemini has over 270 million active users.
0:42:29 So what is that about 18 times more?
0:42:33 And chat GPT has over 200 million weekly active users.
0:42:34 I’d like to invest in this company.
0:42:36 Would you like to invest in this company?
0:42:36 – I wouldn’t.
0:42:37 – You would not?
0:42:38 – No, I wouldn’t.
0:42:43 I mean, let’s just talk about what Perplexity actually is.
0:42:44 I think you sort of nailed it.
0:42:48 It’s kind of like the AI search engine.
0:42:51 And so what I find interesting about that
0:42:55 is that we say that it’s a competitor to chat GPT.
0:42:57 We say that it’s a competitor to Claude.
0:43:00 But actually, when you really think about it,
0:43:03 I mean, people are using chat GPT
0:43:06 for sort of more generative creative projects.
0:43:09 They’re having it write poems and, you know,
0:43:11 do this in the voice of Scott Galloway.
0:43:13 People are doing similar things with Claude.
0:43:17 The main thing that Perplexity offers is a search engine.
0:43:19 And so who are they competing with?
0:43:21 They’re really competing with Google.
0:43:22 That’s sort of the main competitor.
0:43:27 And right now, Google is far and away the best search product.
0:43:32 I mean, there is basically no question about that.
0:43:35 And they also have this massive,
0:43:38 massive pool of capital that they can tap into.
0:43:41 And so the main thing for me here is,
0:43:45 you know, why is Perplexity raising
0:43:47 for the fourth time this year?
0:43:49 And they raised around in January.
0:43:51 They raised another round three months later.
0:43:53 They raised another round in October.
0:43:54 And here they are again,
0:43:57 they want to raise $500 million
0:43:58 at an $8 billion valuation.
0:44:01 So they raised four rounds in one year.
0:44:02 And that tells me two things.
0:44:04 One, they must be growing rapidly.
0:44:06 It’s a good thing.
0:44:07 Two, more importantly,
0:44:11 they must be spending an absolute fuck ton on this business.
0:44:14 Because every time they’ve gone out,
0:44:15 they’ve raised the money,
0:44:18 they come back and they say, actually, we need more.
0:44:20 And so this to me is proof
0:44:22 of what we’ve been saying for a while.
0:44:24 And I don’t think this is a good thing for Perplexity,
0:44:28 which is that AI is becoming just a flat out arms race.
0:44:30 It’s not about who can outsmart the other.
0:44:31 It’s about who can outspend the other.
0:44:34 It’s the same thing that we saw in streaming.
0:44:37 And that’s great news for open AI.
0:44:39 They have demonstrated that they can just go out
0:44:42 and raise pretty much into infinity.
0:44:47 But for Perplexity, the fact that they’ve done four rounds,
0:44:49 I’m sure they’re sort of realizing
0:44:51 that the only way that we make it out alive here
0:44:54 is if we just keep on raising and keep on raising,
0:44:56 it’s basically grow or die.
0:45:00 And the size of these rounds we’re talking about,
0:45:03 $50 million, $100 million, $500 million.
0:45:05 Those numbers are way too small.
0:45:07 If you want to compete with open AI,
0:45:09 they just raised $6.6 billion.
0:45:12 They’re on track to spend $5 billion this year.
0:45:14 You have to think way, way bigger.
0:45:18 And so if I were an investor, I’d be very, very scared
0:45:20 because the only way you win
0:45:22 is by basically spending all of your money.
0:45:25 – You’re right, it’s an arms race.
0:45:26 I’m not surprised.
0:45:29 They don’t want, they can’t go out and raise billions
0:45:31 at a time, which is what required for compute
0:45:33 and staffing up.
0:45:35 So they’re just constantly raising money.
0:45:37 But you’re right, it’s an arms race,
0:45:38 but I would invest in this company
0:45:40 just because I think their positioning is so clean.
0:45:42 AI search is a really clean positioning
0:45:45 and they’re going after a $300 billion market.
0:45:46 – Okay, what about this?
0:45:48 If you could invest in,
0:45:50 if you have the opportunity to invest in open AI
0:45:51 or perplexity, who would you go for?
0:45:52 – Yes.
0:45:53 (laughing)
0:45:55 Have you learned anything?
0:45:58 We want to diversify.
0:45:59 I would like to invest in both.
0:46:02 By the way, Sam Altman and whoever the CEO of perplexity is,
0:46:05 I’m super easy to track down.
0:46:06 I’m not a journalist.
0:46:10 I’ve got to match Ed’s 401K, that bill’s coming up.
0:46:13 So Ed’s retirement, unless you want Ed eating cat food,
0:46:17 not funny, you need to let me into the steal.
0:46:21 You need to let the dog, let the dog’s gotta eat.
0:46:23 (laughing)
0:46:24 Let me go this way.
0:46:28 ChatGPT at $150 billion,
0:46:30 I can easily see of being worth $500 billion.
0:46:33 I can also see the cleanest AI search company
0:46:34 being worth $25 billion,
0:46:36 which is triple where it’s at right now.
0:46:37 – Yeah.
0:46:39 – So I like both of these companies.
0:46:41 I’m trying to figure out a way to get exposure
0:46:43 to the AI space other than buying Microsoft,
0:46:46 and it’s not easy, everything’s private.
0:46:49 So I don’t know, we need some exposure.
0:46:52 We need a little taste of some of this AI magic,
0:46:53 and then–
0:46:54 – Totally agree.
0:46:55 All I want is open AI,
0:46:57 and just the start that really gets me,
0:47:00 there are over 200 million users right now,
0:47:03 and only 10 million pay for it.
0:47:06 So that’s only 5%, probably less,
0:47:08 way less than 5% of the user base.
0:47:11 And a lot of people would say that’s a problem,
0:47:14 but I feel like that’s just a huge opportunity.
0:47:15 – They’re gonna get to a billion people,
0:47:16 and then they’re gonna flip on,
0:47:17 they’re gonna people–
0:47:18 – Flip the switch.
0:47:19 – Yeah, that’s exactly right.
0:47:20 They got people addicted to the format,
0:47:23 the UI, and the comfort with it,
0:47:24 and then they’ll flip the switch
0:47:26 and start monetizing the hell out of it,
0:47:28 or come up with amazing,
0:47:29 can you imagine using AI,
0:47:32 the most amazing singular ad,
0:47:34 they could run against the one search you do?
0:47:34 – Exactly.
0:47:36 – So yeah, this is, you’re right,
0:47:39 this thing is a juggernaut,
0:47:41 plus Sam Altman in his hush-tons,
0:47:44 he’s just very concerned about the world, Ed.
0:47:46 He’s worried about it,
0:47:48 he’s worried about, yes,
0:47:49 we need to work with government.
0:47:52 – Let’s take a look at the weekend.
0:47:56 We’ll see data on the personal consumption
0:47:58 expenditures index for October,
0:48:00 as well as earnings from Big Tech,
0:48:02 Google, Microsoft, Meta, Amazon,
0:48:04 and Apple are all reporting.
0:48:07 We’ll also see earnings from Starbucks,
0:48:09 Berkshire Hathaway, and Uber,
0:48:11 big earnings week coming up.
0:48:12 Do you have any predictions for us, Scott?
0:48:17 – My prediction is the Boeing at $155 a share today,
0:48:18 over the next year,
0:48:20 and we should time stamp it,
0:48:22 the way it’s going to outperform the market.
0:48:24 I think this is a great company with a great brand,
0:48:26 great products,
0:48:28 and it’s effectively into duopoly.
0:48:31 The global economy continues to grow.
0:48:34 A key component of the global economy is commerce.
0:48:36 Key to commerce is international flows.
0:48:39 Key to international flows is commercial jet transportation.
0:48:44 These are really difficult products to produce.
0:48:44 You just can’t,
0:48:48 you cannot spin up airplane manufacturer in even a decade.
0:48:51 It takes massive government subsidies,
0:48:53 massive engineering talent.
0:48:56 So anyways, Boeing will outperform the S&P
0:48:57 over the next 12 months.
0:49:00 – This episode was produced by Claire Miller
0:49:02 and engineered by Benjamin Spencer,
0:49:04 our associate producer is Alison Weiss,
0:49:05 Mia Silverio is our research lead,
0:49:07 Jessica Lang is our research associate,
0:49:09 Drew Burroughs is our technical director,
0:49:12 and Catherine Dillon is our executive producer.
0:49:13 Thank you for listening to Prof. G Markets
0:49:15 from the Vox Media Podcast Network.
0:49:18 Join us on Thursday for our conversation
0:49:19 with Aswath Damodaran.
0:49:22 He’s back only on Prof. G Markets.
0:49:27 ♪ Lifetimes ♪
0:49:33 ♪ You help me ♪
0:49:40 ♪ In kind reunion ♪
0:49:47 ♪ As the world turns ♪
0:49:52 ♪ And the dark lights ♪
0:49:57 ♪ Help me ♪
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Scott and Ed open the show by discussing the decline in existing home sales, Tesla’s earnings, the McDonald’s E. coli outbreak, and Shein’s deceleration in growth in the first half of the year. Then Scott explains down why he thinks, despite the disappointing earnings, Boeing could be a buy. He and Ed also discuss why the pension plan is the biggest sticking point in negotiations for the striking workers. Finally, they break down Perplexity’s latest funding round and Ed explains why he’s not so bullish on the company.
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