AI transcript
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0:00:31 Enzo.
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0:00:39 Lots of us feel like we understand our dogs.
0:00:45 But scientists who actually study dogs say we might be a bit overconfident.
0:00:51 We’re just not as smart as we think we are when it comes to understanding our dogs.
0:00:56 This week on explain it to me, do we actually know what our dogs are feeling?
0:00:59 Or are we just fooling ourselves?
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0:01:04 Today’s number?
0:01:06 $100,000.
0:01:12 That’s how much taking one personal finance class will earn you over the course of your lifetime.
0:01:15 According to CNBC, that number may even be conservative.
0:01:19 Well, this is our 211th episode.
0:01:24 So the way I see it, you should have made about $21.1 million by now.
0:01:25 You’re welcome.
0:01:30 And if you haven’t made $21 million, well, I don’t know what to tell you.
0:01:32 You should probably just listen harder.
0:01:36 Money market’s mad.
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0:01:40 The show goes on!
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0:01:46 Welcome to Prof G Markets.
0:01:47 I’m Ed Elson.
0:01:49 It is July 2nd.
0:01:51 Let’s check in on yesterday’s market vitals.
0:01:56 The major indices closed the day mixed after the Senate passed the GOP tax bill back to the House.
0:02:00 The S&P ended the day nearly flat, and the Nasdaq fell 0.8%.
0:02:02 The Dow rose 0.9%.
0:02:08 Solar stocks rallied on news that the Senate removed the excise tax on wind and solar projects from the bill.
0:02:10 That’s a provision that we covered on yesterday’s episode.
0:02:13 Subsidies for the industry, however, will still come to an end.
0:02:18 And meanwhile, the dollar remained at its lowest level since 2022.
0:02:21 Okay, what else is happening?
0:02:27 Tesla shares plunged over 5% on Tuesday after President Trump publicly called for a review
0:02:32 and possible rollback of federal subsidies supporting Elon Musk’s companies.
0:02:37 In a late-night Truth Social post, Trump claimed Musk had received, quote,
0:02:42 more subsidy than any human being in history and suggested that without government support,
0:02:46 he would, quote, probably have to close up shop and head back home to South Africa.
0:02:50 The president later said he would take a look at deporting Elon
0:02:55 before specifically urging Doge to investigate and potentially cut subsidies for Tesla.
0:02:59 Tesla is now trading at around $300 per share.
0:03:02 That is down 14% from its monthly high in June.
0:03:06 Okay, so the Elon-Trump drama continues.
0:03:08 It all started at the beginning of the month
0:03:11 when Elon called the big, beautiful bill a disgusting abomination.
0:03:13 Trump called him crazy.
0:03:15 Tesla stock crashed.
0:03:17 Then the fuse started to kind of dissipate.
0:03:19 Tesla climbed back up.
0:03:22 Now it’s heating back up and Tesla is down again.
0:03:27 So up, down, up, down, such is the nature of Tesla and of Elon and of Trump.
0:03:33 This is, in my view, par for the course, which is why I was a little surprised to see such
0:03:35 a strong reaction from the markets.
0:03:40 The stock fell on Monday when this all got going, fell again yesterday, and ended up closing down
0:03:41 5%.
0:03:43 That is a pretty significant drop.
0:03:47 And considering the fact that we’ve seen this movie before, I would have thought that Wall
0:03:51 Street would have a different reaction, perhaps a more muted reaction.
0:03:58 As many others have pointed out, this whole feud between Elon and Trump is mostly kayfabe.
0:03:59 It’s WWE.
0:04:01 It’s performative wrestling.
0:04:02 It’s a great show.
0:04:05 But beyond that, it isn’t too meaningful.
0:04:11 So why is it that investors decided, no, this is meaningful and we are worried about it?
0:04:16 Well, to find out, our producer, Claire, spoke with Dan Ives, Global Head of Research at Wedbush.
0:04:20 Look, I mean, you don’t want Trump to be an enemy for Musk.
0:04:26 And I think the reality is that everyone wants Musk to take a step further back from politics
0:04:28 because this is not the time.
0:04:33 And the last thing you want to see, especially with autonomous and the regulatory framework,
0:04:38 is Trump to start to have a harsher stance toward Musk and what’s ahead.
0:04:40 That’s why the stock’s down.
0:04:42 And it’s a soap opera.
0:04:46 Look, it’s really, this is like a junior high school BFF.
0:04:56 How much of this drawdown do you think is really about them fighting and the distraction of it all?
0:05:02 And how much of it is actually about the threat, the real threat of Tesla losing government support?
0:05:05 I think the threat, the bark’s worse than the bite.
0:05:08 Because the reality is EV subsidy is going to go away.
0:05:11 Space program is essentially built on SpaceX.
0:05:15 So in other words, if they took away space, there’d be no US space program.
0:05:20 So I think the threat is less a concern.
0:05:27 It’s really more about you don’t want Trump to get on his bad side, especially when it comes
0:05:32 to autonomous and the roadmap and the regulatory at this juncture.
0:05:35 And I think that’s why the stock’s down.
0:05:39 So what would that, yeah, what would that roadblock really look like, do you think?
0:05:43 What was the worst case scenario for where Trump could really hurt Tesla?
0:05:49 Well, do you want a green light on a federal autonomous roadmap that gets fast tracked?
0:05:54 You don’t want him to slow roll things because that’s essentially what they had when it came
0:05:55 to Biden, right?
0:05:59 I mean, that was some of the frustration moves it to the state.
0:06:04 Red tape never gets any going, especially given what’s happened in China.
0:06:08 It was about federal autonomous roadmap accelerated.
0:06:14 So the last thing you want to do as an investor is wake up to this back and forth between Trump
0:06:15 and Musk.
0:06:15 Right.
0:06:18 Last question for you.
0:06:24 You’re a longtime Tesla bull and you were really vocal back in April about wanting Elon to
0:06:27 leave the White House, leave Doge.
0:06:28 I remember reading your notes back then.
0:06:37 So when you wake up to these feuds breaking out again very publicly, what do you think to
0:06:39 yourself with this?
0:06:41 Like, are you exhausted yet?
0:06:46 Look, it’s frustrating because there’s so much great stuff on the horizon for Tesla.
0:06:51 If this was an Intel situation, it wouldn’t even matter because it’s not, you’re talking
0:06:53 about maybe a value stock or whatever.
0:06:57 The frustration is that politics, it takes on a life of its own.
0:07:02 But every time you see this, it just puts, it’s like a, you know, puts fuel sort of in
0:07:05 the fire and it’s not what you want to see as Tesla investor.
0:07:10 So look, I don’t want to just write off what these tax credits and subsidies mean for Tesla.
0:07:16 They were instrumental to Tesla’s rise and they still play a role on the income statement.
0:07:21 I mean, Tesla made more than $2 billion last year selling carbon credits.
0:07:27 And that was important for Tesla, not in terms of revenue, but in terms of profitability, because
0:07:30 of course, the overhead on selling credits is basically zero.
0:07:37 But to Dan’s point, these tax credits might not be the main thing investors are worried
0:07:37 about.
0:07:44 What they might be more worried about is the robotaxi, specifically what Trump could do to
0:07:49 get in the way of the robotaxi and to get in the way of Elon’s ability to put those robotaxis
0:07:50 on the road.
0:07:54 And that makes sense because that would be a big problem for Tesla.
0:08:01 Tesla is, despite all of Elon’s cheerleading, way behind in the robotaxi race.
0:08:06 Waymo’s already got one and a half thousand robotaxis across 10 different cities.
0:08:08 They’re now completing a quarter of a million rides a week.
0:08:11 They just applied for a permit in Manhattan.
0:08:16 So the last thing Tesla needs right now is a regulatory roadblock.
0:08:19 That could put them behind even further.
0:08:25 And I think this is a reminder that this isn’t really about subsidies or tax credits or even
0:08:25 Trump.
0:08:29 Again, this is all about the robotaxi.
0:08:31 That’s the most important thing here.
0:08:35 And the way things look right now, they’ve still got a long way to go.
0:08:45 Factory activity in the U.S. contracted in June, marking the fourth consecutive month of
0:08:46 manufacturing decline.
0:08:50 That is according to the Institute for Supplier Management’s Manufacturing Index.
0:08:54 That index has not shown an expansionary reading since February.
0:08:56 So not great.
0:09:01 However, according to Susan Spence, who is the chair of the ISM’s Manufacturing Business
0:09:04 Survey Committee, that rate of contraction has slowed.
0:09:09 But that reading is just one piece of the manufacturing puzzle.
0:09:11 We’ve also had some other data come in recently.
0:09:16 The index of new manufacturing orders fell last month for the fifth month in a row.
0:09:19 The same was true of the Manufacturing Employment Index.
0:09:25 And finally, the Fed’s most recent measure of manufacturing capacity utilization showed a flat
0:09:28 line in May after a sharp decrease in April.
0:09:35 So despite Trump’s promise in March to make America the, quote, manufacturing superpower of
0:09:41 the world once again, the data is telling us, no, we are in fact in decline when it comes
0:09:48 to manufacturing, not in some grand cataclysmic way, but certainly in a way that is quite obvious
0:09:49 and quite material.
0:09:55 And so I think the question we have to ask then is, how much of this is Trump’s fault?
0:09:57 Is it his policies?
0:10:00 Is it tariffs that is doing this to manufacturing?
0:10:02 Or is it something else?
0:10:04 Claire spoke with Shannon Grein.
0:10:08 She is the vice president and economist for Wells Fargo Corporate and Investment Banking.
0:10:12 And Grind pointed out that manufacturing has been in a rut since 2023.
0:10:15 It’s just that the cause of the weakness keeps shifting.
0:10:18 First, the industry suffered from this hangover after the pandemic.
0:10:22 Then we had these higher borrowing rates, which put a damper on activity.
0:10:25 Then uncertainty around the presidential election.
0:10:31 But today, the newest cause of the pain, according to Shannon, is, in fact, Trump’s tariffs.
0:10:38 Yeah, so we’re seeing manufacturers across different industries just kind of wait and see what happens
0:10:39 with tariffs.
0:10:42 So you’re seeing that halting and behavior, again, across industries.
0:10:46 You see it anecdotally within the ISM manufacturing data we got this morning.
0:10:52 We hear anecdotally from a lot of the clients we speak to on a regular basis that just this
0:10:57 uncertainty, this on-again, off-again tariff policy or approach that the Trump administration
0:11:04 is working with is causing manufacturers to just kind of sit on their hands and wait before
0:11:07 they make major changes to their operating procedures.
0:11:13 So we have not heard of a lot of manufacturers on-shoring operations in the wake of tariffs.
0:11:19 It’s really more of a kind of confused state, if you will, where businesses don’t really know
0:11:22 how to act because they’re not really sure what tariffs are going to remain in effect for how
0:11:28 long, and then you have these kind of self-imposed deadlines as well with reciprocal tariffs and all
0:11:35 of this uncertainty around tariff policy that’s just making bigger, larger decisions for businesses
0:11:36 harder in this environment.
0:11:42 Are you seeing any evidence of inflationary pressures that might be keeping manufacturers
0:11:44 from kind of going forward?
0:11:45 Yeah, yeah.
0:11:49 So the uncertainty is causing a change in behavior to an extent, right?
0:11:54 So early in the year, we saw many businesses beyond manufacturers pull forward demand for
0:11:56 inputs in terms of imports.
0:11:59 So they brought forward inventory to the extent they can.
0:12:04 They stocked up inventory to help cushion the blow of the initial tariff effect, which should
0:12:10 delay to an extent potential cost pressure or inflationary pressure if manufacturers are able
0:12:11 to rely on those inventories.
0:12:16 But that can only last for so long, particularly if tariffs remain in effect or if we see a further
0:12:17 escalation.
0:12:24 So some of those behavioral shifts should cushion the inflation effect, but we do expect
0:12:27 to see inflation materialize more in the consumer price data later this summer.
0:12:30 And we have begun to see some of those initial signs.
0:12:36 So the ISM manufacturing data we’re talking about throughout our conversation right now, we did
0:12:40 see the increase in the prices paid measure, which means that manufacturers are paying higher
0:12:41 prices for their inputs.
0:12:46 They’re also reporting longer wait times, which could have to do with some of the supply
0:12:51 bottleneck that’s coming from the tariff uncertainty as well as geopolitical conflicts that are occurring
0:12:55 at the moment, which is just kind of the early signs of price pressure.
0:13:00 So we’re definitely seeing those early indications, but we haven’t yet fully seen it translate to
0:13:02 a broader pickup in consumer prices.
0:13:06 But we still expect it will, just taking a few more months for it to show up in the data.
0:13:13 Looking towards the second half of the year, how concerned are you that these contractions
0:13:14 will get worse?
0:13:20 And do you think tariffs will start to kind of rear their ugly head?
0:13:21 Yeah, it’s a great question.
0:13:25 I think it’s what we’re all trying to figure out right now in terms of how big of an impact
0:13:25 it will have.
0:13:32 And it’s really challenging because we’re dealing with a type of fiscal shock from tariffs that
0:13:36 we haven’t experienced in a number of decades when we had a very different economy, right?
0:13:41 So the tariffs at these levels are really rivaling rates we haven’t experienced in a very long
0:13:42 time.
0:13:46 And our expectation is that you’re seeing this weakness show up in the manufacturing sector
0:13:52 first, given it’s more goods related and manufacturers are dealing with the brunt of tariffs
0:13:52 initially.
0:13:57 But we do expect it to kind of fan out to the broader economy in the second half of the year.
0:14:03 And I think really importantly, we’ve seen more recently the first quarter GDP data be
0:14:03 revised.
0:14:08 We’ve seen some consumer spending estimates that were a bit weaker than we expected previously.
0:14:10 So you are seeing some signs of softening.
0:14:15 I think there’s this broad narrative that the economy is doing fine and we’re kind of seeing
0:14:17 our way through tariffs without feeling much pain.
0:14:22 But I think if you look for it, you can see the glimmers of weakness starting to show up.
0:14:24 And the manufacturing sector is certainly one of those.
0:14:29 So in the second half of the year, we are looking for a fairly significant slowdown in broad
0:14:34 growth, including manufacturing, but really stemming from higher prices leading to a pullback
0:14:35 in consumer spending.
0:14:40 And then also just the moderation of the labor market, causing income growth to slow a bit
0:14:44 and consumers really not being able to continue to spend on a lot of discretionary goods and
0:14:44 services.
0:14:47 So it really is due to tariffs.
0:14:51 And really, I think more importantly, maybe not even just the tariff rate, but the uncertainty
0:14:53 that the tariffs are causing more broadly for the economy.
0:14:58 So look, the decline of American manufacturing isn’t a Trump story.
0:14:59 I mean, this is a longer story.
0:15:01 It’s played out over many years.
0:15:07 It has to do with this shift in our priorities away from manufacturing towards services.
0:15:11 It was compounded during the pandemic and Shannon covered all of that.
0:15:15 But what is so striking is how direct she was about this.
0:15:19 Trump actually has had an impact on manufacturing.
0:15:21 That is what the data is telling us.
0:15:25 And so far, he has only made the situation worse.
0:15:28 It was already a grim picture in America.
0:15:31 And now it is getting even grimmer.
0:15:37 And before we end here, I just want to follow up on my incessant predictions about tariffs and
0:15:40 about how they will increase inflation by the end of the year.
0:15:44 I’ve said this many times, despite everything that Trump and Besson have said.
0:15:45 They’ve said, no, no, no.
0:15:47 Look at inflation.
0:15:48 Inflation is moderating.
0:15:50 I have said, no, it’s going to happen by the end of the year.
0:15:57 If you were to build a very simple economic model that just simply mapped out how the tariffs
0:16:02 will impact the economy, how they will show up over time, how they will funnel through,
0:16:08 you would probably expect that the industries that would be impacted first would be the ones
0:16:13 that sit at the top of the supply chain, the ones that deal with all of the inputs in the
0:16:15 economy, not the outputs.
0:16:19 In other words, you would expect that it would hit manufacturing.
0:16:22 And that is exactly what Shannon is telling us.
0:16:28 And I think what we’re learning here is that the tariff story is playing out exactly the
0:16:30 way we all expect it.
0:16:32 This is the beginning of the tariff story.
0:16:39 And no one really seems to care about it right now because very few of us interact with factories.
0:16:44 I mean, yes, we’re reading this ISM data, but we’re not seeing it in our daily lives.
0:16:50 But as soon as it hits Main Street, as soon as it hits the retailers, when it gets to Walmart,
0:16:55 when it gets to Target, when it gets to Best Buy, suddenly that is going to be the moment
0:16:57 where we’re all going to wake up.
0:16:59 And at that point, I think we’re going to look around.
0:17:01 We’re going to look at the damage we caused.
0:17:03 We’re going to look at all the debris.
0:17:06 And we’re finally going to realize what we’ve done to ourselves.
0:17:13 After the break, a look into why Robinhood shares hit an all-time high.
0:17:14 Stay with us.
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0:19:24 What’s up, y’all? It’s Kenny Beecham.
0:19:33 The 2024-2025 NBA season is over, but all that means for us is that the 2025-2026 season is already beginning.
0:19:40 On Small Ball, we’ll be talking about breaking news, major trades, and all the exciting developments the offseason has in store.
0:19:41 Which teams are tearing it down?
0:19:44 Who is retooling to make a championship push?
0:19:48 And what teams are leaving me dumbfounded by their lack of direction?
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0:20:04 Robinhood shares moderated down yesterday after they hit a record high on Monday,
0:20:10 following an announcement to start offering tokenized shares of private companies such as OpenAI and SpaceX.
0:20:15 This was part of a broader crypto rollout from Robinhood, which Wall Street loved.
0:20:21 As I mentioned, the stock retreated yesterday, but it initially surged 12% on the announcement.
0:20:26 We also saw multiple new ratings from investment firms, including Mizuho and Canta Fitzgerald,
0:20:31 which both increased their price targets for the stock to roughly $100 per share.
0:20:39 The stock closed yesterday at $92, and so far this year, it has climbed, get this, 135%.
0:20:42 So, just an unbelievable year for Robinhood.
0:20:47 Now, what was Wall Street so excited about with this announcement?
0:20:51 Well, it was this private company tokenization program.
0:20:53 And you might ask, what is that?
0:20:54 What does that mean?
0:20:56 Just some context.
0:21:01 You might remember a couple of weeks ago, Scott and I were discussing this issue of access in the private markets,
0:21:07 where many of the most important companies, like OpenAI and SpaceX, are not going public.
0:21:09 They’re staying private.
0:21:16 And as a result, the only people who can invest in those companies are the institutional VCs who have access to them.
0:21:24 So, if you are a regular retail investor, you cannot invest directly in OpenAI or SpaceX until they go public.
0:21:28 Well, this is Robinhood’s solution to that problem.
0:21:36 They are going to issue crypto tokens that act as representative shares of these private companies.
0:21:41 And the way they do that is they buy shares in the private company, like OpenAI.
0:21:48 And then for every share of OpenAI they own, they will issue a crypto token, which you can then buy on Robinhood.
0:21:51 And that way, you can invest in OpenAI.
0:21:55 So, this program is only available in Europe for the moment.
0:21:58 They do plan to eventually launch in the U.S. too.
0:22:03 The goal of tokenization, said Robinhood’s general manager of crypto, Johan Kerbrat,
0:22:06 is to let anyone participate in this economy.
0:22:08 We wanted to make sure we were giving access.
0:22:14 So, let’s take a quick listen to the pitch at the launch event, which, by the way, took place on the French Riviera.
0:22:23 Imagine how your investing portfolio would change if it were possible to get early exposure to private companies like SpaceX and OpenAI,
0:22:25 which are now worth billions of dollars.
0:22:28 That would be exciting to do, wouldn’t it?
0:22:32 But why talk about doing it later when we can do it right now?
0:22:39 I’m holding in my hands right now the keys to the first-ever stock tokens for OpenAI.
0:22:45 Okay, so this seems to fix the problem that I have long been highlighting,
0:22:49 the fact that the highest-quality companies are staying private.
0:22:55 And as a result, regular investors cannot participate in this AI revolution that everyone keeps talking about.
0:22:59 The only people who can access it are the VCs, the institutional investors.
0:23:03 Well, this from Robinhood says you can participate.
0:23:09 If you want a slice of OpenAI, you can just go on Robinhood and buy the OpenAI token.
0:23:16 That way, you have a stake in the value and the growth of these incredible private companies that are refusing to go public.
0:23:19 That is at least how it appears.
0:23:21 But is that how it is?
0:23:26 Well, that is a very different question, and the answer is not really.
0:23:32 And I want to highlight this, because I think a lot of people might buy these tokens and get excited about them,
0:23:36 thinking that this is the same thing as investing in these companies.
0:23:37 But it isn’t.
0:23:42 Because a token, while it looks a lot like a stock, is not a stock.
0:23:47 And this gets back to the fundamentals of what a stock actually is.
0:23:51 And it might seem basic, but in this context, it’s important.
0:23:59 Whenever I get into these crypto arguments, and I say something about how crypto tokens aren’t real, or they’re not legitimate,
0:24:06 the response I often get is, well, what makes a stock any more real or legitimate than a token?
0:24:07 What’s the difference?
0:24:12 And the answer is that a stock is a legal contract.
0:24:18 They might seem ethereal, you can’t see them, but the reality is they’re actually very concrete.
0:24:21 A stock is a legal claim of ownership into a business.
0:24:25 You receive a stake in the company’s earnings, the assets, the dividends.
0:24:28 You get to vote on company’s decisions.
0:24:35 And if you don’t receive any of those things for whatever reason, well, then you can sue the company because they acted illegally.
0:24:38 And that is what makes a stock real.
0:24:41 It is bound by the rules and regulations of the law.
0:24:50 A token, on the other hand, is less real because a token, simply put, is not subject to the same laws.
0:24:55 And that is a result of our just general lack of regulation around crypto.
0:25:00 And so these open AI tokens and these SpaceX tokens, they suffer from the same problem.
0:25:07 Yes, Robinhood may claim that those open AI tokens are backed one-to-one by open AI shares.
0:25:16 But imagine Robinhood is hacked, or it goes insolvent, or it just collapses, and suddenly all of those open AI shares disappear.
0:25:20 Well, so too, then, would the value of your tokens.
0:25:28 And unlike if you had invested in this company yourself, you now have no legal recourse to get that value back.
0:25:28 Why?
0:25:31 Because the open AI shares were never yours.
0:25:33 They were Robinhood’s.
0:25:35 All you had were these tokens.
0:25:41 And the only reason those tokens had any value in the first place is because Robinhood told you they did.
0:25:49 In other words, this whole system is dependent on your believing in Robinhood and their promise to honor the value of those shares.
0:25:58 And that is very different from owning a legal contract that requires you to honor the value of the stock, lest you face the full force of the law.
0:26:03 And even beyond this, there are many other ways that this differs from a stock.
0:26:05 Do you get voting rights with these tokens?
0:26:06 No.
0:26:09 Do you get audited financial disclosures?
0:26:09 No.
0:26:11 Do you get custody protections?
0:26:11 No.
0:26:12 Do you get dividends?
0:26:15 Maybe, but we’re not really sure yet.
0:26:19 In sum, it looks like a stock, but it isn’t a stock.
0:26:25 So don’t go buying these SpaceX tokens and then tell all your friends, oh, I’m an investor in SpaceX.
0:26:26 You’re not an investor in SpaceX.
0:26:30 You’re an investor in a token that was made up by Robinhood.
0:26:33 And to be clear, this isn’t to disparage Robinhood.
0:26:39 I actually think that what they’re doing is innovative and I like their intentions here.
0:26:40 But let’s be real.
0:26:48 The idea that this solves the problem of access in VC and in private equity, it’s simply not true.
0:26:51 This is, at best, a Band-Aid solution.
0:27:00 If you really want to open up the private markets to regular investors, to retail investors, you don’t need crypto and you don’t need tokens.
0:27:03 What you need is regulatory reform.
0:27:11 You need to change the accredited investor rules to allow for regular people to buy direct stakes in private companies.
0:27:12 That’s how you solve this.
0:27:17 And the good news is that legislation is making its way through Congress right now.
0:27:18 It recently passed the House.
0:27:21 Now it needs to go to the Senate and then the president.
0:27:24 We’ll see what happens, but it seems we’re on the right track.
0:27:29 But is Robinhood going to democratize access to startups with tokens?
0:27:31 No.
0:27:33 This isn’t a problem you solve with crypto.
0:27:36 It’s not a problem you solve with blockchain either.
0:27:38 This is a lot simpler than that.
0:27:41 You solve this with regulation.
0:27:44 Okay, that’s it for today.
0:27:48 Thanks for listening to Prof G Markets from the Vox Media Podcast Network.
0:27:49 I’m Ed Elson.
0:27:50 I’ll see you tomorrow.
0:28:18 Prof G Markets from the Vox Media Podcast Network.
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0:01:46 Welcome to Prof G Markets.
0:01:47 I’m Ed Elson.
0:01:49 It is July 2nd.
0:01:51 Let’s check in on yesterday’s market vitals.
0:01:56 The major indices closed the day mixed after the Senate passed the GOP tax bill back to the House.
0:02:00 The S&P ended the day nearly flat, and the Nasdaq fell 0.8%.
0:02:02 The Dow rose 0.9%.
0:02:08 Solar stocks rallied on news that the Senate removed the excise tax on wind and solar projects from the bill.
0:02:10 That’s a provision that we covered on yesterday’s episode.
0:02:13 Subsidies for the industry, however, will still come to an end.
0:02:18 And meanwhile, the dollar remained at its lowest level since 2022.
0:02:21 Okay, what else is happening?
0:02:27 Tesla shares plunged over 5% on Tuesday after President Trump publicly called for a review
0:02:32 and possible rollback of federal subsidies supporting Elon Musk’s companies.
0:02:37 In a late-night Truth Social post, Trump claimed Musk had received, quote,
0:02:42 more subsidy than any human being in history and suggested that without government support,
0:02:46 he would, quote, probably have to close up shop and head back home to South Africa.
0:02:50 The president later said he would take a look at deporting Elon
0:02:55 before specifically urging Doge to investigate and potentially cut subsidies for Tesla.
0:02:59 Tesla is now trading at around $300 per share.
0:03:02 That is down 14% from its monthly high in June.
0:03:06 Okay, so the Elon-Trump drama continues.
0:03:08 It all started at the beginning of the month
0:03:11 when Elon called the big, beautiful bill a disgusting abomination.
0:03:13 Trump called him crazy.
0:03:15 Tesla stock crashed.
0:03:17 Then the fuse started to kind of dissipate.
0:03:19 Tesla climbed back up.
0:03:22 Now it’s heating back up and Tesla is down again.
0:03:27 So up, down, up, down, such is the nature of Tesla and of Elon and of Trump.
0:03:33 This is, in my view, par for the course, which is why I was a little surprised to see such
0:03:35 a strong reaction from the markets.
0:03:40 The stock fell on Monday when this all got going, fell again yesterday, and ended up closing down
0:03:41 5%.
0:03:43 That is a pretty significant drop.
0:03:47 And considering the fact that we’ve seen this movie before, I would have thought that Wall
0:03:51 Street would have a different reaction, perhaps a more muted reaction.
0:03:58 As many others have pointed out, this whole feud between Elon and Trump is mostly kayfabe.
0:03:59 It’s WWE.
0:04:01 It’s performative wrestling.
0:04:02 It’s a great show.
0:04:05 But beyond that, it isn’t too meaningful.
0:04:11 So why is it that investors decided, no, this is meaningful and we are worried about it?
0:04:16 Well, to find out, our producer, Claire, spoke with Dan Ives, Global Head of Research at Wedbush.
0:04:20 Look, I mean, you don’t want Trump to be an enemy for Musk.
0:04:26 And I think the reality is that everyone wants Musk to take a step further back from politics
0:04:28 because this is not the time.
0:04:33 And the last thing you want to see, especially with autonomous and the regulatory framework,
0:04:38 is Trump to start to have a harsher stance toward Musk and what’s ahead.
0:04:40 That’s why the stock’s down.
0:04:42 And it’s a soap opera.
0:04:46 Look, it’s really, this is like a junior high school BFF.
0:04:56 How much of this drawdown do you think is really about them fighting and the distraction of it all?
0:05:02 And how much of it is actually about the threat, the real threat of Tesla losing government support?
0:05:05 I think the threat, the bark’s worse than the bite.
0:05:08 Because the reality is EV subsidy is going to go away.
0:05:11 Space program is essentially built on SpaceX.
0:05:15 So in other words, if they took away space, there’d be no US space program.
0:05:20 So I think the threat is less a concern.
0:05:27 It’s really more about you don’t want Trump to get on his bad side, especially when it comes
0:05:32 to autonomous and the roadmap and the regulatory at this juncture.
0:05:35 And I think that’s why the stock’s down.
0:05:39 So what would that, yeah, what would that roadblock really look like, do you think?
0:05:43 What was the worst case scenario for where Trump could really hurt Tesla?
0:05:49 Well, do you want a green light on a federal autonomous roadmap that gets fast tracked?
0:05:54 You don’t want him to slow roll things because that’s essentially what they had when it came
0:05:55 to Biden, right?
0:05:59 I mean, that was some of the frustration moves it to the state.
0:06:04 Red tape never gets any going, especially given what’s happened in China.
0:06:08 It was about federal autonomous roadmap accelerated.
0:06:14 So the last thing you want to do as an investor is wake up to this back and forth between Trump
0:06:15 and Musk.
0:06:15 Right.
0:06:18 Last question for you.
0:06:24 You’re a longtime Tesla bull and you were really vocal back in April about wanting Elon to
0:06:27 leave the White House, leave Doge.
0:06:28 I remember reading your notes back then.
0:06:37 So when you wake up to these feuds breaking out again very publicly, what do you think to
0:06:39 yourself with this?
0:06:41 Like, are you exhausted yet?
0:06:46 Look, it’s frustrating because there’s so much great stuff on the horizon for Tesla.
0:06:51 If this was an Intel situation, it wouldn’t even matter because it’s not, you’re talking
0:06:53 about maybe a value stock or whatever.
0:06:57 The frustration is that politics, it takes on a life of its own.
0:07:02 But every time you see this, it just puts, it’s like a, you know, puts fuel sort of in
0:07:05 the fire and it’s not what you want to see as Tesla investor.
0:07:10 So look, I don’t want to just write off what these tax credits and subsidies mean for Tesla.
0:07:16 They were instrumental to Tesla’s rise and they still play a role on the income statement.
0:07:21 I mean, Tesla made more than $2 billion last year selling carbon credits.
0:07:27 And that was important for Tesla, not in terms of revenue, but in terms of profitability, because
0:07:30 of course, the overhead on selling credits is basically zero.
0:07:37 But to Dan’s point, these tax credits might not be the main thing investors are worried
0:07:37 about.
0:07:44 What they might be more worried about is the robotaxi, specifically what Trump could do to
0:07:49 get in the way of the robotaxi and to get in the way of Elon’s ability to put those robotaxis
0:07:50 on the road.
0:07:54 And that makes sense because that would be a big problem for Tesla.
0:08:01 Tesla is, despite all of Elon’s cheerleading, way behind in the robotaxi race.
0:08:06 Waymo’s already got one and a half thousand robotaxis across 10 different cities.
0:08:08 They’re now completing a quarter of a million rides a week.
0:08:11 They just applied for a permit in Manhattan.
0:08:16 So the last thing Tesla needs right now is a regulatory roadblock.
0:08:19 That could put them behind even further.
0:08:25 And I think this is a reminder that this isn’t really about subsidies or tax credits or even
0:08:25 Trump.
0:08:29 Again, this is all about the robotaxi.
0:08:31 That’s the most important thing here.
0:08:35 And the way things look right now, they’ve still got a long way to go.
0:08:45 Factory activity in the U.S. contracted in June, marking the fourth consecutive month of
0:08:46 manufacturing decline.
0:08:50 That is according to the Institute for Supplier Management’s Manufacturing Index.
0:08:54 That index has not shown an expansionary reading since February.
0:08:56 So not great.
0:09:01 However, according to Susan Spence, who is the chair of the ISM’s Manufacturing Business
0:09:04 Survey Committee, that rate of contraction has slowed.
0:09:09 But that reading is just one piece of the manufacturing puzzle.
0:09:11 We’ve also had some other data come in recently.
0:09:16 The index of new manufacturing orders fell last month for the fifth month in a row.
0:09:19 The same was true of the Manufacturing Employment Index.
0:09:25 And finally, the Fed’s most recent measure of manufacturing capacity utilization showed a flat
0:09:28 line in May after a sharp decrease in April.
0:09:35 So despite Trump’s promise in March to make America the, quote, manufacturing superpower of
0:09:41 the world once again, the data is telling us, no, we are in fact in decline when it comes
0:09:48 to manufacturing, not in some grand cataclysmic way, but certainly in a way that is quite obvious
0:09:49 and quite material.
0:09:55 And so I think the question we have to ask then is, how much of this is Trump’s fault?
0:09:57 Is it his policies?
0:10:00 Is it tariffs that is doing this to manufacturing?
0:10:02 Or is it something else?
0:10:04 Claire spoke with Shannon Grein.
0:10:08 She is the vice president and economist for Wells Fargo Corporate and Investment Banking.
0:10:12 And Grind pointed out that manufacturing has been in a rut since 2023.
0:10:15 It’s just that the cause of the weakness keeps shifting.
0:10:18 First, the industry suffered from this hangover after the pandemic.
0:10:22 Then we had these higher borrowing rates, which put a damper on activity.
0:10:25 Then uncertainty around the presidential election.
0:10:31 But today, the newest cause of the pain, according to Shannon, is, in fact, Trump’s tariffs.
0:10:38 Yeah, so we’re seeing manufacturers across different industries just kind of wait and see what happens
0:10:39 with tariffs.
0:10:42 So you’re seeing that halting and behavior, again, across industries.
0:10:46 You see it anecdotally within the ISM manufacturing data we got this morning.
0:10:52 We hear anecdotally from a lot of the clients we speak to on a regular basis that just this
0:10:57 uncertainty, this on-again, off-again tariff policy or approach that the Trump administration
0:11:04 is working with is causing manufacturers to just kind of sit on their hands and wait before
0:11:07 they make major changes to their operating procedures.
0:11:13 So we have not heard of a lot of manufacturers on-shoring operations in the wake of tariffs.
0:11:19 It’s really more of a kind of confused state, if you will, where businesses don’t really know
0:11:22 how to act because they’re not really sure what tariffs are going to remain in effect for how
0:11:28 long, and then you have these kind of self-imposed deadlines as well with reciprocal tariffs and all
0:11:35 of this uncertainty around tariff policy that’s just making bigger, larger decisions for businesses
0:11:36 harder in this environment.
0:11:42 Are you seeing any evidence of inflationary pressures that might be keeping manufacturers
0:11:44 from kind of going forward?
0:11:45 Yeah, yeah.
0:11:49 So the uncertainty is causing a change in behavior to an extent, right?
0:11:54 So early in the year, we saw many businesses beyond manufacturers pull forward demand for
0:11:56 inputs in terms of imports.
0:11:59 So they brought forward inventory to the extent they can.
0:12:04 They stocked up inventory to help cushion the blow of the initial tariff effect, which should
0:12:10 delay to an extent potential cost pressure or inflationary pressure if manufacturers are able
0:12:11 to rely on those inventories.
0:12:16 But that can only last for so long, particularly if tariffs remain in effect or if we see a further
0:12:17 escalation.
0:12:24 So some of those behavioral shifts should cushion the inflation effect, but we do expect
0:12:27 to see inflation materialize more in the consumer price data later this summer.
0:12:30 And we have begun to see some of those initial signs.
0:12:36 So the ISM manufacturing data we’re talking about throughout our conversation right now, we did
0:12:40 see the increase in the prices paid measure, which means that manufacturers are paying higher
0:12:41 prices for their inputs.
0:12:46 They’re also reporting longer wait times, which could have to do with some of the supply
0:12:51 bottleneck that’s coming from the tariff uncertainty as well as geopolitical conflicts that are occurring
0:12:55 at the moment, which is just kind of the early signs of price pressure.
0:13:00 So we’re definitely seeing those early indications, but we haven’t yet fully seen it translate to
0:13:02 a broader pickup in consumer prices.
0:13:06 But we still expect it will, just taking a few more months for it to show up in the data.
0:13:13 Looking towards the second half of the year, how concerned are you that these contractions
0:13:14 will get worse?
0:13:20 And do you think tariffs will start to kind of rear their ugly head?
0:13:21 Yeah, it’s a great question.
0:13:25 I think it’s what we’re all trying to figure out right now in terms of how big of an impact
0:13:25 it will have.
0:13:32 And it’s really challenging because we’re dealing with a type of fiscal shock from tariffs that
0:13:36 we haven’t experienced in a number of decades when we had a very different economy, right?
0:13:41 So the tariffs at these levels are really rivaling rates we haven’t experienced in a very long
0:13:42 time.
0:13:46 And our expectation is that you’re seeing this weakness show up in the manufacturing sector
0:13:52 first, given it’s more goods related and manufacturers are dealing with the brunt of tariffs
0:13:52 initially.
0:13:57 But we do expect it to kind of fan out to the broader economy in the second half of the year.
0:14:03 And I think really importantly, we’ve seen more recently the first quarter GDP data be
0:14:03 revised.
0:14:08 We’ve seen some consumer spending estimates that were a bit weaker than we expected previously.
0:14:10 So you are seeing some signs of softening.
0:14:15 I think there’s this broad narrative that the economy is doing fine and we’re kind of seeing
0:14:17 our way through tariffs without feeling much pain.
0:14:22 But I think if you look for it, you can see the glimmers of weakness starting to show up.
0:14:24 And the manufacturing sector is certainly one of those.
0:14:29 So in the second half of the year, we are looking for a fairly significant slowdown in broad
0:14:34 growth, including manufacturing, but really stemming from higher prices leading to a pullback
0:14:35 in consumer spending.
0:14:40 And then also just the moderation of the labor market, causing income growth to slow a bit
0:14:44 and consumers really not being able to continue to spend on a lot of discretionary goods and
0:14:44 services.
0:14:47 So it really is due to tariffs.
0:14:51 And really, I think more importantly, maybe not even just the tariff rate, but the uncertainty
0:14:53 that the tariffs are causing more broadly for the economy.
0:14:58 So look, the decline of American manufacturing isn’t a Trump story.
0:14:59 I mean, this is a longer story.
0:15:01 It’s played out over many years.
0:15:07 It has to do with this shift in our priorities away from manufacturing towards services.
0:15:11 It was compounded during the pandemic and Shannon covered all of that.
0:15:15 But what is so striking is how direct she was about this.
0:15:19 Trump actually has had an impact on manufacturing.
0:15:21 That is what the data is telling us.
0:15:25 And so far, he has only made the situation worse.
0:15:28 It was already a grim picture in America.
0:15:31 And now it is getting even grimmer.
0:15:37 And before we end here, I just want to follow up on my incessant predictions about tariffs and
0:15:40 about how they will increase inflation by the end of the year.
0:15:44 I’ve said this many times, despite everything that Trump and Besson have said.
0:15:45 They’ve said, no, no, no.
0:15:47 Look at inflation.
0:15:48 Inflation is moderating.
0:15:50 I have said, no, it’s going to happen by the end of the year.
0:15:57 If you were to build a very simple economic model that just simply mapped out how the tariffs
0:16:02 will impact the economy, how they will show up over time, how they will funnel through,
0:16:08 you would probably expect that the industries that would be impacted first would be the ones
0:16:13 that sit at the top of the supply chain, the ones that deal with all of the inputs in the
0:16:15 economy, not the outputs.
0:16:19 In other words, you would expect that it would hit manufacturing.
0:16:22 And that is exactly what Shannon is telling us.
0:16:28 And I think what we’re learning here is that the tariff story is playing out exactly the
0:16:30 way we all expect it.
0:16:32 This is the beginning of the tariff story.
0:16:39 And no one really seems to care about it right now because very few of us interact with factories.
0:16:44 I mean, yes, we’re reading this ISM data, but we’re not seeing it in our daily lives.
0:16:50 But as soon as it hits Main Street, as soon as it hits the retailers, when it gets to Walmart,
0:16:55 when it gets to Target, when it gets to Best Buy, suddenly that is going to be the moment
0:16:57 where we’re all going to wake up.
0:16:59 And at that point, I think we’re going to look around.
0:17:01 We’re going to look at the damage we caused.
0:17:03 We’re going to look at all the debris.
0:17:06 And we’re finally going to realize what we’ve done to ourselves.
0:17:13 After the break, a look into why Robinhood shares hit an all-time high.
0:17:14 Stay with us.
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0:19:24 What’s up, y’all? It’s Kenny Beecham.
0:19:33 The 2024-2025 NBA season is over, but all that means for us is that the 2025-2026 season is already beginning.
0:19:40 On Small Ball, we’ll be talking about breaking news, major trades, and all the exciting developments the offseason has in store.
0:19:41 Which teams are tearing it down?
0:19:44 Who is retooling to make a championship push?
0:19:48 And what teams are leaving me dumbfounded by their lack of direction?
0:19:49 Don’t miss Small Ball with Kenny Beecham.
0:19:53 New episodes drop every Friday, available on YouTube and wherever you get your podcasts.
0:19:59 We’re back with PropG Markets.
0:20:04 Robinhood shares moderated down yesterday after they hit a record high on Monday,
0:20:10 following an announcement to start offering tokenized shares of private companies such as OpenAI and SpaceX.
0:20:15 This was part of a broader crypto rollout from Robinhood, which Wall Street loved.
0:20:21 As I mentioned, the stock retreated yesterday, but it initially surged 12% on the announcement.
0:20:26 We also saw multiple new ratings from investment firms, including Mizuho and Canta Fitzgerald,
0:20:31 which both increased their price targets for the stock to roughly $100 per share.
0:20:39 The stock closed yesterday at $92, and so far this year, it has climbed, get this, 135%.
0:20:42 So, just an unbelievable year for Robinhood.
0:20:47 Now, what was Wall Street so excited about with this announcement?
0:20:51 Well, it was this private company tokenization program.
0:20:53 And you might ask, what is that?
0:20:54 What does that mean?
0:20:56 Just some context.
0:21:01 You might remember a couple of weeks ago, Scott and I were discussing this issue of access in the private markets,
0:21:07 where many of the most important companies, like OpenAI and SpaceX, are not going public.
0:21:09 They’re staying private.
0:21:16 And as a result, the only people who can invest in those companies are the institutional VCs who have access to them.
0:21:24 So, if you are a regular retail investor, you cannot invest directly in OpenAI or SpaceX until they go public.
0:21:28 Well, this is Robinhood’s solution to that problem.
0:21:36 They are going to issue crypto tokens that act as representative shares of these private companies.
0:21:41 And the way they do that is they buy shares in the private company, like OpenAI.
0:21:48 And then for every share of OpenAI they own, they will issue a crypto token, which you can then buy on Robinhood.
0:21:51 And that way, you can invest in OpenAI.
0:21:55 So, this program is only available in Europe for the moment.
0:21:58 They do plan to eventually launch in the U.S. too.
0:22:03 The goal of tokenization, said Robinhood’s general manager of crypto, Johan Kerbrat,
0:22:06 is to let anyone participate in this economy.
0:22:08 We wanted to make sure we were giving access.
0:22:14 So, let’s take a quick listen to the pitch at the launch event, which, by the way, took place on the French Riviera.
0:22:23 Imagine how your investing portfolio would change if it were possible to get early exposure to private companies like SpaceX and OpenAI,
0:22:25 which are now worth billions of dollars.
0:22:28 That would be exciting to do, wouldn’t it?
0:22:32 But why talk about doing it later when we can do it right now?
0:22:39 I’m holding in my hands right now the keys to the first-ever stock tokens for OpenAI.
0:22:45 Okay, so this seems to fix the problem that I have long been highlighting,
0:22:49 the fact that the highest-quality companies are staying private.
0:22:55 And as a result, regular investors cannot participate in this AI revolution that everyone keeps talking about.
0:22:59 The only people who can access it are the VCs, the institutional investors.
0:23:03 Well, this from Robinhood says you can participate.
0:23:09 If you want a slice of OpenAI, you can just go on Robinhood and buy the OpenAI token.
0:23:16 That way, you have a stake in the value and the growth of these incredible private companies that are refusing to go public.
0:23:19 That is at least how it appears.
0:23:21 But is that how it is?
0:23:26 Well, that is a very different question, and the answer is not really.
0:23:32 And I want to highlight this, because I think a lot of people might buy these tokens and get excited about them,
0:23:36 thinking that this is the same thing as investing in these companies.
0:23:37 But it isn’t.
0:23:42 Because a token, while it looks a lot like a stock, is not a stock.
0:23:47 And this gets back to the fundamentals of what a stock actually is.
0:23:51 And it might seem basic, but in this context, it’s important.
0:23:59 Whenever I get into these crypto arguments, and I say something about how crypto tokens aren’t real, or they’re not legitimate,
0:24:06 the response I often get is, well, what makes a stock any more real or legitimate than a token?
0:24:07 What’s the difference?
0:24:12 And the answer is that a stock is a legal contract.
0:24:18 They might seem ethereal, you can’t see them, but the reality is they’re actually very concrete.
0:24:21 A stock is a legal claim of ownership into a business.
0:24:25 You receive a stake in the company’s earnings, the assets, the dividends.
0:24:28 You get to vote on company’s decisions.
0:24:35 And if you don’t receive any of those things for whatever reason, well, then you can sue the company because they acted illegally.
0:24:38 And that is what makes a stock real.
0:24:41 It is bound by the rules and regulations of the law.
0:24:50 A token, on the other hand, is less real because a token, simply put, is not subject to the same laws.
0:24:55 And that is a result of our just general lack of regulation around crypto.
0:25:00 And so these open AI tokens and these SpaceX tokens, they suffer from the same problem.
0:25:07 Yes, Robinhood may claim that those open AI tokens are backed one-to-one by open AI shares.
0:25:16 But imagine Robinhood is hacked, or it goes insolvent, or it just collapses, and suddenly all of those open AI shares disappear.
0:25:20 Well, so too, then, would the value of your tokens.
0:25:28 And unlike if you had invested in this company yourself, you now have no legal recourse to get that value back.
0:25:28 Why?
0:25:31 Because the open AI shares were never yours.
0:25:33 They were Robinhood’s.
0:25:35 All you had were these tokens.
0:25:41 And the only reason those tokens had any value in the first place is because Robinhood told you they did.
0:25:49 In other words, this whole system is dependent on your believing in Robinhood and their promise to honor the value of those shares.
0:25:58 And that is very different from owning a legal contract that requires you to honor the value of the stock, lest you face the full force of the law.
0:26:03 And even beyond this, there are many other ways that this differs from a stock.
0:26:05 Do you get voting rights with these tokens?
0:26:06 No.
0:26:09 Do you get audited financial disclosures?
0:26:09 No.
0:26:11 Do you get custody protections?
0:26:11 No.
0:26:12 Do you get dividends?
0:26:15 Maybe, but we’re not really sure yet.
0:26:19 In sum, it looks like a stock, but it isn’t a stock.
0:26:25 So don’t go buying these SpaceX tokens and then tell all your friends, oh, I’m an investor in SpaceX.
0:26:26 You’re not an investor in SpaceX.
0:26:30 You’re an investor in a token that was made up by Robinhood.
0:26:33 And to be clear, this isn’t to disparage Robinhood.
0:26:39 I actually think that what they’re doing is innovative and I like their intentions here.
0:26:40 But let’s be real.
0:26:48 The idea that this solves the problem of access in VC and in private equity, it’s simply not true.
0:26:51 This is, at best, a Band-Aid solution.
0:27:00 If you really want to open up the private markets to regular investors, to retail investors, you don’t need crypto and you don’t need tokens.
0:27:03 What you need is regulatory reform.
0:27:11 You need to change the accredited investor rules to allow for regular people to buy direct stakes in private companies.
0:27:12 That’s how you solve this.
0:27:17 And the good news is that legislation is making its way through Congress right now.
0:27:18 It recently passed the House.
0:27:21 Now it needs to go to the Senate and then the president.
0:27:24 We’ll see what happens, but it seems we’re on the right track.
0:27:29 But is Robinhood going to democratize access to startups with tokens?
0:27:31 No.
0:27:33 This isn’t a problem you solve with crypto.
0:27:36 It’s not a problem you solve with blockchain either.
0:27:38 This is a lot simpler than that.
0:27:41 You solve this with regulation.
0:27:44 Okay, that’s it for today.
0:27:48 Thanks for listening to Prof G Markets from the Vox Media Podcast Network.
0:27:49 I’m Ed Elson.
0:27:50 I’ll see you tomorrow.
0:28:18 Prof G Markets from the Vox Media Podcast Network.
Ed breaks down how Tesla’s stock reacted to Elon Musk’s latest fight with Trump, what the latest manufacturing data signals about the economy, and why Robinhood is making a big bet on tokenized shares of private companies.
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