Prof G Markets - OpenAI’s Exodus, the Rise of Palantir, and the Longshoremen’s Strike

Episode Date: September 30, 2024

Scott and Ed open the show by discussing the DOJ’s antitrust lawsuit against Visa, Meta’s new AR glasses and the recent executive resignations at OpenAI. Then Scott explains why Palantir is one of the most overvalued companies in tech, and why he thinks the brand has resonated with retail consumers. He also advises current Palantir employees on what he thinks they should do with their stock options. Finally, Scott and Ed break down the Longshoremen’s demands and discuss the impact a potential strike could have on the economy.  Order "The Algebra of Wealth," out now Subscribe to No Mercy / No Malice Follow the podcast across socials @profgpod: Instagram Threads X Reddit Learn more about your ad choices. Visit podcastchoices.com/adchoices

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Ready, set, grow. Go to ConstantContact.ca and start your free trial today. Go to ConstantContact.ca for your free trial. ConstantContact.ca Today's number, 6.5 million. That's how many liters of beer festival attendings consumed at Munich's Oktoberfest in 2023. Ed, I didn't know if you know this, but my wife is German, and I have her rank me on a scale of 1 to 10 whenever we have sex.

And the other night when I tried anal, she went, 9, 9. So, Ed, I think I'm improving. Ed, I just, ass play never gets old for me. It never gets old. Yeah, I could tell. It's my go-to. It's my go-to. Yep.

I could tell that, too. You are in Germany right now. You're in Munich. How's it going? Good segue, Ed. Yep. You're welcome. I am in Munich and I'm staring out the window here at the Hasenplatz, I forget what it's called, Masterplatz. Anyways, and there's a giant Ukrainian flag and a giant Israeli flag. I absolutely love Germany. I think Germany is one of the more progressive, like, shit-together countries. If I spoke German, I would live in Munich. I absolutely love it here. I think it's a wonderful society,

fantastic football, very progressive. They know how to make amazing cars. They work hard. They party hard. I just, I love it here. Have you spent much time in Germany, Ed? I was in Germany with you that one time. Oh, yes, I'll never forget it.

When was that? You and I and our team went to Munich for DLD. Oh, yes. I'll never forget it. When was that? You and I and our team went to Munich for DLD. Oh, that's right. DLD. And we went out and we partied in the basement of the,

what was that hotel called? The Bayerische Hof or whatever it's called. Bayerische Hof. Yeah, that's right. So, yeah, no, I love Munich too. But importantly,

are you going to be able to experience Oktoberfest? I'm going to attend tonight if I get No Mercy, No Malice done. But, yeah, I'll probably go for that. I'm not a. But importantly, are you going to be able to experience Oktoberfest? I'm going to attend tonight if I get no mercy, no malice done. But yeah, I'll probably go for that. I'm not a huge Oktoberfest fan. Why do I not really believe you? Well, I don't. Here's the thing.

I don't look good in shorts. You need to wear a kilt. You look good in a kilt. Yeah, I could do that. Except my kilt. I have the big black kilt. It's really hard to travel with. It's giant.

It's like, it's literally like traveling with drapes. It takes its own suitcase. Anyways, enough of this shit. Get to the headlines, Ed. Stop's giant. It's literally like traveling with drapes. It takes its own suitcase. Anyways, enough of this shit. Get to the headlines, Ed. Stop stalling. Nine! Nine! Stop stalling. Let's start with our weekly review of market vitals. The S&P 500 rose, the dollar was flat, Bitcoin climbed, and the yield on 10-year treasuries increased. Shifting to the headlines. The Justice Department is suing Visa for allegedly monopolizing the debit card market. Officials say Visa used various anti-competitive practices, including paying competitors to stay out of the market. The complaint marks the Biden administration's first

major antitrust case in the financial services industry. Meta unveiled a new prototype of augmented reality glasses at the MetaConnect conference. The new product, Orion, will use eye tracking and a wristband to help users navigate apps with movements. And finally, OpenAI's chief technology officer, Meera Marathi, along with multiple other executives, has resigned. The exits come as OpenAI considers transitioning to a for-profit company and giving CEO Sam Altman a 7% equity stake. Scott, your thoughts, starting with this new complaint from the DOJ. So I've never met a breakup I didn't like, and my sense is it's impossible. There's a general cadence here, and that is, in most societies,

what happens is there's a group of talented, hardworking, and lucky people who get very successful and very wealthy, and they can't help but unwittingly, and there's nothing malicious here, but they start becoming close to government officials. And effectively, the same thing happens with corporations, and that is one gets so good and so talented, and they get, as a result of that success, are able to attract cheaper and cheaper capital that other people just can't compete with, and they can overinvest and kind of run away with it. And people will argue, well, okay, but the icons of yesterday never survive. But along the way, they can do a lot of damage and squelch innovation, right? When AT&T was broken up, we found out there was cell, fiber, data, analytics all trapped at AT&T Bell Labs that they're paying people not to compete with them,

right, using predator pricing and then basically paying people to be the default card and, you know, playing real hardball, that this is probably, I don't know, probably a good example of something pretty boring that has gone flown under the radar for a while. What are your thoughts? You know, when you look at the complaint, they're sort of saying that Visa is just ubiquitous in debit card processing. They control 60% of the debit transaction market. And as you point out, they're using these partnerships

that they have with financial institutions to box out competitors. Now, just one side note, they say that they're boxing out young companies and startups, but who they're really boxing out is PayPal and Apple. I mean, these are not really small companies. These are huge companies. And I get the complaint, but I'm sort of like, well, what else is Visa supposed to do? Because, you know, when you're a payments processor, there isn't really much you can do to innovate in that space other than maybe bringing down prices, which they are already doing. Their prices are actually very low. And if you want to maintain, you know, growth and if you want to maintain market share, you know, yeah, you want to maintain your partnerships. And maybe that means paying them more and trying to box out your competitors. And it feels like what's happening with Visa is exactly what has happened

in the utility industry. And that is, you know, once upon a time, there were these electrical companies and these water companies and telecom companies, that they're all, you know, considered normal products. And eventually, they developed into these natural monopolies. And at a certain point, the government was like, okay, this is a utility now. This is a different type of product, and we're going to regulate it differently. And so what I'm seeing here with the payments processing is I feel like at this point, processing debit cards and credit card transactions is essentially a utility. It's the same as telecom.

It's the same as telecom. It's the same as water services. And it feels like that's how we should be treating it from a regulatory standpoint. It feels like we should be considering it an essential part of societal infrastructure, and we should start regulating this as if it were a utility. I think that's a really solid argument, and that is, being a monopoly is in and among itself illegal, because in some instances, like, itite investments you need to make in security and liquidity and maybe scale lets you bring your prices down. I think you're making a solid argument. However, I think most retailers would say, we have to carry Visa. We have no choice. We just have no choice. And we'd like alternative options, but these guys show up and we have to, as a merchant, we have to work with Visa, which gives them too much pricing power. In addition, you mentioned something, you said,

okay, say in fact that scale does have its benefits and they can show that as they grow bigger and bigger, the third-party merchants and consumers both benefit through lower fees. Okay, fine. But use the word utility. And utilities have a government official regulating them and actually providing input and supervising their strategy and their price increases or decreases, right? Because they can't have all of a sudden a utility that's given government approval to basically be the only power supplier, say, you know, we're going to raise rates 8% a year when inflation is going up 2% a year. So this is an interesting one. I think your points are valid.

Curious though, what credit card do you care? What does Ed Elson pay with? Because your payment system, there are certain brands that are self-expressive benefit. Your shoes, your watch, the university you went to, the company you work for. Like if you work for a cool podcasting company, you finally get a girlfriend is what I've heard. But what is the credit card you use and does in your mind or payment system, does it have any sort of self-expressive benefit for you? I use Amex and the answer is absolutely yes. Do you have a green card, a platinum card? What do you have? Platinum, baby. Oh, you're platinum. And do you use it for signaling or do you use it because of the benefits?

Because it costs what, three or 500 bucks a a year it really is all signaling to me when i think about it i mean i don't care that much about the benefits i really think that it's it's i think these benefits and i think this signaling is kind of the greatest scam in history i mean it really is i like that it's made of metal and i like that it looks cool uh and i like what it says so i mean just to be completely transparent with you i think it's pretty much all signaling for me. But I know that it is the same for you, right? Well, I was going to say what you just said is really pathetic. But if you want to sound really, really pathetic, like uber pathetic, imagine taking your platinum card, literally just spray painting it black and then charging dudes $5,000

a year. And I have paid that. I figured it out. If I'd taken all the money I'd spent for the pleasure of owning a platinum card that's been sprayed painted black and invested it in the S&P, I think I'd have like $1.3 million. So my friend, a bunch of us young entrepreneurs back in the 90s used to get together and we'd go out to dinner. And I remember once my buddy, Greg Shove, who was working at AOL, he was a big cheese at AOL, goes, ah, it's my turn. I got this. You know, we were all trying to signal to each other where it was like fighting for the bill, like not because we were generous or nice, but because we wanted to pretend we were ballers and he threw his credit card out and it hit like a fucking wrench and went gunk gunk gunk and it was this weird titanium black thing and we're all like what the fuck

and we pick it up and we're all passing it around and the thing was impossible to break it was like a weapon and it was an amex and turin card and, oh my God. Anyway, so I called them and I said, my name is Scott Gell. I'm kind of a big deal. I've heard about this thing called the Centurion card. I'd really like to apply for one. And this is what they said. They said, hold on a moment. They transferred me. And the person came on. I said the same thing. And the person said, I love this. They said, sir, we value your business, but we can neither confirm nor deny the existence of so-called black card. And I'm like, oh, my God. I must have one of these things.

So I went on. I did some research before there were blogs. And I found out all you need to do to get a black card, there's no status in it. You have to spend $250,000 on any one American Express account. And if you spend $250,000 in a calendar year, the person whose card that is gets an invitation to Centurion. So I was running profit at the time and I forced everybody to,

if you went to fucking Chipotle and didn't use my gold card, which was just so ridiculous. You want to talk about cheesy? Gold card. What the hell does a gold card mean? Anyways, so finally it came. Finally it came and it was beautiful. And my assistant, I was on vacation. She opened everything and she threw it out. I'm not exaggerating. I called them and said,

send me the goddamn invitation again. They denied it even existed. I went down to the trash looking for that thing. I dug through the trash looking for my invitation to the centurion card. Anyways, finally got one. And I've had it for, gosh, I guess about 27 years now. And I find that it was good in two situations. One, if you're recruiting somebody, I thought it was powerful because a young person is impressed by that stuff. And if you're paying for lunch, they see you have a black card. It kind of says, okay, the guy I might be coming to work for has his shit together. And also quite frankly, for mating, any high margin product, any high margin product is signaling. We were talking about universities, Ferraris, anything that has more than 60 or 70 points of gross margin is meant to make you more attractive to the other sex. It's either software or it's meant to make you more attractive to the other sex, it's either software or it's meant to make you more attractive to the other

sex or make you feel closer to God. A lot of beautiful artisanship has been sequestered to religious institutions, so it's been hardwired into our psyche that if you hear beautiful music and smell candles and see the most beautiful frescoes on the ceiling, that there's a decent chance God hangs out there. And so when you see the slope on the back of a 911 or the mesh of a Bottega Veneta bag, I do think it steals you and makes you feel like you're in the presence of something supernatural. Anyways, what's our next story here, Ed? Let's get your reactions to the new Meta AR glasses,

the Meta Orion. What do you think of that? Look, let me go this way. They came out with a product. I think that's 250 bucks. So it's a 10th of the price of the mixed reality headset. I think if you go meta on this, if you will, it all goes back to Mark Zuckerberg figured out about eight years ago he was always going to be Cinder Pichai or Tim Cook's bitch as long as they controlled the vertical interface via the phone with the end consumer, that he was always subject to someone else's blood sugar level if he didn't control the end device. And so they've tried a lot of things. They've tried the portal. They've tried a phone. They're trying to figure out a way to go direct

to consumer and go vertical and control the distribution. And typically a brand, once it gets above a certain dollar volume, starts opening its own store so it can take greater command or control of its own destiny through vertical distribution. And Zuck's been trying to do this for a long time and has burned tens of billions of dollars trying to establish the headset, his vertical distribution. This probably will at some point succeed once it gets to the point, I think they were smart to partner with Ray-Ban, but once they get to the point in probably five to 10 years where the cameras are sophisticated enough and the microprocessors are powerful and smart enough to be elegantly seamed into your glasses or your sunglasses fine, this is going to put the mixed reality set, I think, pretty much out of business. It's 60% or 70% as good

as the mixed reality headset from Apple, and it's 10% of the price. On a product value relative to the Apple headset, it's just a superior offering. What are your thoughts, Ed? I think Mark Zuckerberg's been listening to you. I mean, I think you said that VR headsets were stupid because they're too uncomfortable, and they make you look stupid. They make you look uncool. And so this is his response is he's come out with a headset that isn't uncomfortable. It weighs six times lighter

than the Vision Pro. It's a hundred grams. And that was actually one of the first things that Mark Zuckerberg said about it at the event. And also it looks cool-ish. You know, it passes as perhaps a style statement. Now, I don't think it looks cool enough where people are actually going to wear it, but credit to Zuckerberg, because the best thing he said at this event, in my view, was, quote, the right way to look at Orion is a time machine. These glasses exist, they are awesome, and they are a glimpse of a future that is going to be pretty exciting. In other words, I think what he's saying is, this isn't the product that's going to change things. This isn't going to affect our business materially. But what it does do is it sends a message

to Apple, to Microsoft, and to Wall Street that augmented reality is coming and do not get it twisted. Meta is going to be a leader in that space. And it was reflected in the stock movement. The stock increased right after the event. So I think Mark Zuckerberg is kind of crushing it right now. He seems rational in a way that he hasn't been before. He seems relatable and weirdly cool in a lot of ways. And you look at his favorability scores, especially among people my age, it has skyrocketed in the past year. And it all happened after he started

getting into gold chains and t-shirts and going on podcasts and talking about jujitsu. So he has committed what I think is probably the best rebrand of the decade so far. Let's just wrap up here on the headlines with what's going on with OpenAI. Mira Marati has just resigned. And I just want to go through the timeline of the OpenAI management team here, because it's very strange. I mean, you'll remember a year ago, Sam Altman

was fired, and then he was promptly rehired. And soon after that, the president, Greg Brockman, resigned. And later, the chief scientist and co-founder, Ilyas Hatskiva, resigned. And then in August, another co-founder, John Shulman, left, and he went to go to Anthropic. And now the CTO has resigned. So my question for you, why is everyone leaving OpenAI? I don't think they're doing it voluntarily. There's that saying, if you stab the prince, you better kill him. I mean, essentially, these people were either directly or indirectly involved in his ouster where they didn't kill him,

where Satya Nadella said, okay, that's really adorable and cute guys, but he's going back on the board and he's going to be the CEO. And I think they were all on the green mile. And I don't know what her role is in it, but basically, my guess is they said, look, we're going to let things calm down, and then I'm going to bring in my folks. I think they're also about to give him 7% of the company, which will be worth, according to the most recent valuation, around $10 billion. So he's sort of, I think, earned the trust and the credibility of the marketplace. He really is kind of the Bill Gates or the Steve Jobs of this generation. And I think he gets to do what he wants. And I think with the equity he has at his disposal and the money has at his disposal, he just wants to bring in his own team.

And my guess is the past few years have been very exhausting or trying for a lot of these people, and they all want to go do their own thing. I don't know, but I would bet once he returned, senior management, sorry guys, you tried to kill me and you didn't, you're on the green mile. From my understanding, the mirror was one of his advocates. Does that change your view? I don't know, but initially when this company started, it had sort of this crunchy granola AI to save the whales. Does that change your view? So, yeah, let's save the dolphins on weekends. This is an opportunity for all of us to get our Gulf Streams, and it's quickly pivoted to being a for-profit. And my guess is a lot of the senior managers who probably are going to reap tens of millions, maybe even hundreds of millions of dollars from their time there and their tenure there and their stock options. For those of them that are thinking, you know, I just don't want to be around for the next evolution of this. I don't know if they're – I would guess that it's a combination of them being forced out or saying like, it's time for you to go on. I want to bring in my own crew that's not going to stand by and let a coup happen. I don't know what her role was or wasn't in this, but it's not shocking

to me that he's totally changing over the management team. When you have that kind of capital and that kind of equity and that kind of brand equity, And I just did an AMA at Section. And one of the questions was, I have an offer to go run AI at a Fortune 500 company that's not that prestigious, or I can take a much more junior role at OpenAI. And I'm like, oh, go to OpenAI. When there's a rocket ship taking off, even if you have a shitty seat in economy, you get on the rocket ship. And you'll be branded for the rest of your life as someone who worked at OpenAI in the fairly early days, which is like getting an MBA from Wharton or Stanford. So I don't think this is going to have any impact on

the company. I think they just have so much momentum. I think he's such an outstanding leader. And the fact that they're able to raise money at 150 billion means they're just going to have all the capital they need to kind of keep on trucking, so to speak. I just want to end the headlines with just a callback to a prediction that we made. People might remember he was saying over and over he has no financial stake in OpenAI. It's a not-for-profit company, etc., etc. And our prediction was pretty simple. There is no way he isn't going to make out with a shit ton of cash from this operation. This is the easiest prediction ever. Sam Altman, directly or indirectly, is going to make billions of dollars from OpenAI.

So, yeah, he got rich off OpenAI. And, uh, shocker. Yeah, don't you remember that senator here? Well, Senator Kennedy from Louisiana. I don't have any equity. You make a lot of money, do you? No. I'm paid enough for health insurance.

I have no equity in OpenAI. Really? That's interesting. You need a lawyer. I need a what? You need a lawyer or an agent. I'm doing this because I love it. I'm only interested in saving the world.

Don't regulate us. There's no need to. I don't like money. I don't like money. Yeah. Uh-huh. We'll be right back after the break with a look at Palantir. Fox Creative. This is advertiser content from Zelle.

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and how do they find their next great idea. Invest 30 minutes in an episode today. Subscribe wherever you get your podcasts. Published by Capital Client Group, Inc. Support for this show comes from Grammarly. 88% of the work week is spent communicating, typing, talking, and going back and forth on topics until everyone is on the same page. It's time for a change. It's time for Grammarly. Grammarly's AI ensures your team gets their points across the first time, eliminating

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contractor. Its stock is up 125% year-to-date, thanks in part to the AI wave, and has almost quintupled since 2022. And as of last week, the company has officially made it into the S&P 500. Meanwhile, the CEO, Alex Karp, has garnered a cult following. On Reddit, he's known as Daddy Karp. And by making pro-America proclamations such as, quote, we founded this company to be a ray of light to America and our Western allies, he has rallied a base of retail investors who hold about 40% of the company's shares. So Scott, on the one hand, it's looking like Palantir is a bit of a meme stock. On the other hand, it's a very serious business with government contracts

accounting for more than half of its revenue. What do you make of this company's success and the fact that it is up 125%, just incredible year to date? So right now, this company looks to be one of the most overvalued companies in tech. Snowflake and Microsoft trade at 77 and 37 times earnings, respectively. Palantir trades at 218. And this guy isn't the head of an analytics company or whatever the fuck they call themselves. He is an amazing storyteller. And he understands some of the keys around brand as person. He has personified the company. He creates this mystery around it. Just as Tesla has always tried to say, oh no, we're not a car company,

we're an energy company, or we're a battery company, or we're a software company. Because if anyone actually, if he came out and said, oh yeah, we're an analytics company, like MicroStrategy or like, I don't know, Gardner or whatever,

they'd go, okay, you trade within this range. But he creates this, he kind of cloaks all of this in the shroud of mystery that our biggest client, although we can't confirm it, is the CIA. And his hair, the look, the distinct look, he's turned himself into a media personality when on Bill Maher. And there's always an opportunity in branding to zig when everyone else is zagging. As everyone was like virtue signaling and letting Google employees stage a walkout during lunch because for to show empathy for the palestinian people jesus christ what a

bunch of fucking jerks yeah that'll show them do a walkout over lunch yeah that's going to cause change that's really going to foment change i mean all this virtue signaling and bullshit wokeness pretending to give a goddamn about these issues as they're literally consuming the or creating products that generate the incremental electricity demand of Argentina. And this guy goes, fuck that. And he's like, we're here to help America. We have no problems working for the Department of Defense. Now, I'm done with the politically correct bullshit of Silicon Valley. And people still don't really understand the company is shrouded in secrecy, not because it has to be, but because it creates this illusion

of innovation. And he's created this brand, this kind of mystical, mysterious, techie, deep, dark secrets in with the defense department, can do amazing things, can do amazing sort of scary things. And he's very pro-America in the midst of this zombie apocalypse of useful idiots roaming Palo Alto. And it has resonated with retail consumers. And if you look at it, they actually have a much bigger ownership stake amongst retail consumers. And retail consumers tend to be more about momentum and brand than they do about underlying fundamentals. And this company is just trading at kind of a valuation that just quite frankly doesn't make any sense. So is it a great company? Yes. Is he a good CEO? Yes. And he is the new premier storyteller in the world of tech and his shareholders are benefiting from it.

I do want to sort of double click on this, on this idea of fiduciary duty, especially because, you know, 40% retail ownership, 36 times sales, I think you said something like 220 times earnings. It's pretty clear to me that Palantir is overpriced and something of a meme stock at this point. And it's sort of because of him. And I'd just like to get your take on whether you think that is good or bad management. In other words, a CEO who sort of uses their charisma and uses their storytelling ability to inflate the stock to a price that is quite quite frankly, going to be a little bit unsustainable. I'm wondering if you think that that is an example of fulfilling your fiduciary duty,

or is it possible that perhaps it is betraying it? I think it's the former, Ed. I mean, as a CEO, you're trying to tell a story such that you can pull the future forward, right? Was it irresponsible of me to raise $15 million off a PowerPoint deck at a pre-money valuation of $35 million? Did I have an obligation to my investors to say, I'm just a guy who's 34 with a shaved head? And I remember after I raised the money thinking, I've committed fraud. I don't know what the fuck I'm doing. Which company is this?

Brand Farm, my e-commerce incubator backed by Goldman Sachs, JP Morgan, and Maveron back in 1999. We closed in December of 99. And spoiler alert, it didn't turn out well. It was literally like two months later, the Da Bomb implosion. But if you have the gift of storytelling, as long as you don't commit fraud and start putting electric vehicles on a mountain and then angling the camera such that it looks like the car actually has an engine in it. I mean, as long as you don't break the law or commit fraud, if your ability to attract cheap capital because of your storytelling, your majesty, your good looks, your charm, we're proud of the progress we've made. We need to do better. Whatever it might be.

Or Jeffrey Bezos' 1997 shareholder letter, if you read it, you just want to buy stock in the goddamn thing. That ability to raise capital at a cheaper price than your competitors gives you the ability to pull the future forward and maybe grow into that stock price. So what this guy's done is absolutely, I think he's being a great fiduciary. His employees are getting rich and he's now going to have access to cheaper capital to build out infrastructure, technology, hire better, brighter, faster, smarter people and make investments his competitors can't keep up with and sort of pull away with it. And that's kind of the job of a CEO. What I would suggest is that anyone that works at Palantir and has options that distinct of how excited you might feel about Alex or your company or colleagues, that you do one thing. Sell.

Sell as much as you can right now. You're never going to look back, and I believe even if the stock goes up, really be pissed off at yourself for selling at 218 times earnings. We'll be right back after the break with a look at the longshoreman strike. that often. They see your product, they want to buy it, and then they buy it. That's about as complex as it gets. But under the hood of that process, there are a lot of really complicated things happening that have to go right in order for that sale to go through. Stripe handles the complexity of financial infrastructure, offering a seamless experience for business owners and their customers. For example, Stripe can make sure that your customers see their currency and preferred payment method when they shop. So checking out never feels like a chore. Stripe is a payment and billing platform supporting millions of businesses around the world, including companies like Uber, BMW, and DoorDash.

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Roughly 45,000 workers at 36 seaports from Maine to Texas are expected to walk out of the job, halting half of the nation's cargo indefinitely. The International Longshoremen's Union is demanding higher wages and a ban on automating freight movements. The United States Maritime Alliance, which represents the ports, has called their demands unreasonable, and the two sides have not met for contract negotiations since June. Scott, you've been particularly outspoken on unions and on strikes over the past year. What do you make of this potential strike from the International Longshoremen's Association? I think if they're in a position of leverage, I like middle-class workers getting more money. I believe in the right to

assemble, the right to strike. And if they're in a position to demand those sorts of wages, technically that's a function of supply and demand, fine, more power to them. What makes no sense and never works is trying to ban or put the genie back in the bottle in terms of automation and technology. You can save off the wolves from the door for a little while, but eventually, if you're able to do it domestically because your union or your contacts with government are so strong, then those jobs ultimately just end up getting off short or at some point they start offloading shit in Mexico and driving it up in trucks or something like that. But these guys make about, I guess, about 39 bucks an hour, about 81,000 a

year, up 11% since the start of their expiring six-year contract. Over the same period, inflation has increased 24%. So they're 13% down. Now, that's a far cry from the 77% they're asking for. So they absolutely deserve a raise. And I would imagine supply and demand would probably agree with that. And J.P. Morgan transportation analysts believe that this strike could cost the economy $5 billion a day or about 6% of GDP. Now, this is one of those instances where the president has authority to intervene, but he said he doesn't plan to take action, especially as he gets closer to the election. Last thing he wants to do is fuck up his union vote. The notion of trying to hold off automation, that's just not going to work.

I don't even think there's a way to do that. And I think it's just sort of a ridiculous ask. What they could ask for is more money for worker retraining or an agreement with the port to upskill some of these folks so they understand this technology or can perhaps even get into programming around this technology or whatever it might be. I'm in Munich and I did this, I had this chart on worker retraining funds, and the U.S. allocates far less money for worker retraining than any developed nation in the world. But anyways, back to me. So, red envelope, I got kicked off of the board by Sequoia Capital, who the representative there was not only really aggressive and ignorant, but he knew absolutely nothing about retailer brands and was supporting this incompetent CEO and was also using

the company as a dumping ground for the failed products of his portfolio company. I got into a pissing match with him. I lost. I got kicked off the board and I spent the next two years trying to raise capital. This is legendary investor, Michael Moritz, by the way. There you go. Most powerful man in venture capital. Also really an awful human being. Anyway, so I raised a bunch of money, came back in thinking I was the conquering hero back, and first Christmas or first holiday, I sweep out the old board, put in my people. And basically the cruel truth or the secret, the uncomfortable secret, especially retail, is that you lose money for 44 weeks and you print money for eight weeks, basically from Thanksgiving through Christmas,

and you make all your money in that short period. So during that period, we have these software guns at our Kentucky, Ohio Fulfillment Center, and the software that spits out the label spits out, I think, 12,000 of the wrong address. So we sent 12,000 gifts to the wrong homes. That is devastating because if retailers were not trying to create moral hazard or the wrong incentives, when you want to return something, it would be more economical for them to say, just keep it. Because to return it, clean it, restock it, and then resell it is more expensive than just telling you to keep it. But they don't want to create incentive to just start lying. Returns are a fucking nightmare for retailers. Anyways, so we have 12,000 gifts

going to the wrong people. So we have a customer service nightmare at the call center, angry customers, and just thousands of returns we weren't anticipating. In addition, the Longshoremen went on strike in Long Beach, and a disproportionate amount of our holiday merchandise was stuck on a cargo ship eight miles off the coast of Long Beach. And there was nothing we could our letter of credit where we would tap it to make these big inventory purchases before the holiday set. I'm worried about the credit markets. We're pulling your line. So all three of these things basically took our stock from like $7 to $0.70 in two or three weeks. And within, I think, about two or three months, we were chapter 11 going through a reorganization. I'd also like to add that all the vendors got paid, all the employees maintained their jobs, but the equity holders, including. They're just going to delay the onset of the strike and

not get anything more if they come up to the table and say, you're not allowed to use technology. That's just not going to work. One of the things that we like to think about on this podcast when it comes to strikes and unions is who has the leverage? Who actually has the bargaining power? When we looked at the WGA and the writer's strike, it was very clear to us that the writers had very little leverage, and that's why they got a shady deal. And the same was true of the SAG-AFTRA strike. But there's one number that you mentioned there that I think is crucial here, and that number was 6%. And that is the percentage of daily GDP in America that will be lost if all of these guys go on strike. It will cost the US $5 billion

per day. It is a huge amount of money that they are putting at risk. And, you know, your own story there, they essentially put you out of business. They were the nail in your coffin. And so, you know, they are asking for some pretty unreasonable demands. Ban robots. That's ridiculous. Increase salaries by 77%. That seems crazy. But those numbers actually don't matter as much as that 6% number. They can ask for whatever they want because they have so much power. If they want to go on strike, they pretty much will get whatever they're asking for.

And we saw this happen with the UPS strike as well. The UPS workers were making some pretty, perhaps unreasonable demands, and they got them because we need the UPS workers. We cannot allow our postal system to go out of business. So I get the feeling that they're too important, they're too systemic to our economy, that actually they could come back and say, okay, we'll give you a 77% raise. in a position of leverage where they need their skills to keep the economy operating and they can still make money by giving them substantial raises, then I feel they deserve it. If they can get it, then quote unquote, they deserve it. Deserve and fare are kind of weird words. This is strategic. They're doing it for a reason at this time of the year, right? This is when literally everyone's like, okay, they're calling their local representative or they're calling the port and they're saying, if I can't get my shit in my store for the holidays, I'm out of business.

So I really hope you guys can figure this out. And they're calling the representative saying, if I can't figure out a way to get, you know, these stuffed animals to, you know, Mike and Betty's toy store in Wausau, Wisconsin, we're fucked. Yeah, and to keep prices down. I mean, if they go on strike and we gunk up the supply chain even more, prices are going to skyrocket,

which is going to be an absolute nightmare. You know, this is a delicate situation. My guess is they kind of, the ports or whoever is the employing agency here holds their nose and just tries to work this out sooner rather than later and i'm sure the president is urging them to do that uh but yeah i don't you know at least look these guys these guys don't have their head up their ass they're they're a little bit unrealistic about asking to put a pause on technology but it strikes

me that an economy this strong, with retail as strong as it is right now, with the fact that their wages have not kept pace with inflation, a big ask is not unreasonable. They won't get that, but they'll get something pretty substantial, and there's money there. There's juice to squeeze from the lemon called commerce that ports play a big role in. In contrast to the WGA, they're like, I know, let's strike at a time when the people paying us are in a world of hurt. I'd like to do a quick profile of the president of the International Longshoremen's Association. This guy is named Harold Daggett. He is the president of the union. He is infamously

aggressive. He has posted videos publicly dissing Biden. He recently posted a video saying, I will cripple you if you don't meet our demands. He's also accused of having ties to the mob. People think that because he has these ties to the mob, that's how he worked his way up to be president of the ILA. And my favorite stat is that last year, he received in compensation from the International Longshoremen's Association $728,000. He is one of the most well-compensated union leaders in America, probably the best compensated. He seems like maybe a strategic genius, the way he's going at this, the way he's timing this strike, the way he's being so aggressive. And it feels like, you know, you can

call those demands unreasonable, but I'll bet that that's all part of the plan. A guy running this big an organization, him making $720,000, I don't have a problem with that. And also, I think he seems mostly, I think he seems like an impressive man because I am shit scared of him right now. Right. So I hope that he's, I think he's a very good man. I'm with you. I'm with you, Mr. Daggett. Best of luck to you.

Let's take a look at the week ahead. We'll see the unemployment rate for September and earnings from Nike. Scott, any predictions? There is some new data coming out showing that when states legalize gambling, bankruptcies go up somewhere between 20 and 35%. And I worry that we're raising especially a generation of boys who seem to be more prone to addiction who are just going to slipstream right into different types of drug and gambling addictions. I think we are going to see just an upsurge in rehab facilities treating gambling addiction, bankruptcies, and suicide for people. Gambling addiction actually has the highest suicide rate because people don't know. A lot of times, Ed, if you were addicted to meth, we would know it and we would try and do something about it.

But if you got in over your head and online gambling and you felt like there was no way out, nobody knows it. And that'sves, the president of the American Institute for Boys and Men, just came out with a study showing that the incremental deaths of despair among young men has gone up so dramatically since 2004. We've lost an incremental 400,000 men, which is how many men we lost in World War II. And I think it's just going to get worse. And I know this is a terrible prediction, but unfortunately, gaming stocks are going to surge. These private equity companies rolling up rehab clinics are going to see a huge increase. Nova Nordisk and GLP-1 drugs are going to boom because they're going to start using GLP-1 to try and treat gambling addictions. But we are literally going to spit out millions of young men who are craving and ready and teed up to be addicts. Nine! Nine! Yeah, that is a very depressing prediction. Isn't that awful?

One in ten bankruptcies are a result of gambling. I mean, it's getting pretty crazy. Are you gambling much? No. You know what's weird? When I go to Vegas now, I don't gamble. I used to love to gamble. I don't gamble anymore.

You just go to magic shows? Yeah. Yeah, that's what I do. Magic shows. This episode was produced by Claire Miller and engineered by Benjamin Spencer. Our associate producer is Alison Weiss. Our executive producer is Catherine Dillon. Mia Silverio is our research lead and Drew Burrows is our technical director. Thank you for listening to Profiteer Markets from the Vox Media Podcast Network. Join us on Thursday for our conversation with Lina Khan, chair of the FTC, only on Profiteer Markets from the Vox Media Podcast Network. Join us on Thursday for our conversation with Lina Khan, chair of the FTC, only on Profit Markets. In kind reunion

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