Prof G Markets - The Whole Market Looks Expensive — Is it Time to De-Risk?

Episode Date: November 17, 2025

Scott Galloway and Ed Elson break down the idea that there is “no place to hide” in the stock market and look for alternative places to invest. Then, they turn to the AI race between China and the U.S. and discuss a new startup that is helping China pull ahead. Finally, they dig into why the housing crisis is getting worse and whether or not the 50 year mortgage will help the problem.   Subscribe to the Prof G Markets newsletter  Order "Notes on Being a Man," out now Note: We may earn revenue from some of the links we provide. Subscribe to No Mercy / No Malice Follow the podcast across socials @profgmarkets Follow Scott on Instagram Follow Ed on Instagram and X Learn more about your ad choices. Visit podcastchoices.com/adchoices

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not you? Try O-D-U for free at Odu.com. That's O-D-O-O-O-O-com. Today is number 90. That's the percentage of people in Finland who say most people can be trusted. In America, that number is just 30%. Ed, one day, I'll pretend to be gay, I'll make lots of female friends, gain their trust, become their confidant, and then when they least expect it, Bam, I'll fuck their boyfriends I think the key to being offensive is It has to be funnier than it is offensive And I don't think I got there with this one

I think that one was more offensive than funny It's always a really blurry line with these jokes I've got to tell you Yeah, how are you? I miss you I'm doing well, I'm doing well, I miss you you're a busy man I don't know about you but and I mean this sincerely

I never miss people until I see them I'll see I know I'm a bunch of my friends from college my fraternity buddies are coming to our live pivot tomorrow in L.A. And I don't I never miss them and then I see them and I miss them. The only people I've ever actually miss when they're not around are my boys

but when I see people I'm like oh I miss this person. Yeah you kind of remember what it's like to be with them yeah I feel that Yeah, that's right. What do you've been up to? What have you been doing while I'm... I've just been reading Epstein emails all morning. That's all I can do. Let me guess. Really good news for the president. He's been exonerated. It is a hoax, right? Nothing to see here. Move along. I assume you've been reading them. I mean, I can't get enough of them. I love when these emails get leaked.

I mean, the best was when Elon was buying Twitter and then we saw all the correspondence and the text between him and all of these Marshalls of the Universe CEOs. and tech executives, but now we're getting that with Epstein and Larry Summers. We got it with my old boss, Michael Wolfe. Yeah, he was advising him, right? That's right. And by the way, this is what Michael does. I mean, a lot of people seem to want to think, oh, this compromises Michael Wolff. No, his whole thing is that he establishes relationships with all of these very precarious people

such that he can get the scoop, which is why he released all the Epstein tapes last year. And as he said before, to almost no effect, people seem to not want to care about Trump and his very obvious relationship with Epstein. Either way, these emails are amazing, just for pure entertainment reasons. Will it go anywhere? Probably not. I don't know. But that's what I've been doing with my time.

I love how all of a sudden you're a guardian of a pedophile. You're a enabler now. You're making excuses for Michael Wolfe. I don't know, Michael, but I'm obsessed with his videos with Joanna Coles. talking about. I mean, he has unbelievable sources, and I find him actually compelling as a journalist under an author. Oh, yeah. But I watched his video last night talking about it, and you could tell he was visibly rattled. No. Oh, I thought so. No. You don't think so? I mean, of course, if your name is out there being released by the government, sure. Affiliated with Epstein, giving him advice. Yeah,

that would rattle most people. He's released tapes with talking with Epstein before. We all know that that's part of his thing was his friendship with Epstein, as it was his friendship with Steve Bannon and Donald Trump. Like, he does this. Look who's triggered defending their enabling pedophile friend? Look who's triggered. Like, you know what? You know what this means for you when you get canceled in a few years? This means what you know now is that I will be out there defending you. Yeah, no, I get it. I actually, yeah, I don't. He was providing legal, or he was giving them counsel. I guess if you're going to get the kind of contacts and relationship that a guy like Michael has, obviously, that he's going to say, all right, this is what I would do, right?

That's exactly right. What if you're my, it's like Max von Saito in this great film, Hannah and her sisters, when his younger girlfriend is breaking up with him, he's like, you're my link to the outside world. You can't leave me. You're sort of my link to this world. I've been way too busy doing stupid stuff. What have been the other really interesting? Any other really interesting emails that distract you? Well, one thing that is so striking about these emails is they're so poorly written,

and I can't tell whether that's Epstein himself or just maybe the way these guys communicate with each other, but it's like there's no grammatical structure, and it's kind of hilarious. But the other thing, some of these emails are so petty. Like he's giving relationship advice to Larry Summers, who's, like, annoyed about some relationship that went wrong, and he's doing it with all these other CEOs who are like, should I trust this woman? And Epstein's like, no, she's a hooker, like, fuck her.

Like, it's very boisey gossipy. Like, these people are still children at heart, even though they're kind of running the world. That's part of the thing that I love about it, too. I mean, it's like, it's keeping up with the Kardashians' billionaire edition. It's funny, it struck me that if any of these people end up in prison, they should be forced during the release program to read Strunken why it's elements of style over and over again.

I can't stand. It's something I inherited from my mother. My mother, despite leaving school at the age of 13, was kind of a grammar tiger mom. And I was just horrified. Chelsea Hamler wrote an email to pivot or an email to Kara saying, you have to tell Scott to stop saying anyways.

And I'm like, oh, she's right. She's right. I should never say that. And I literally saw my mom going, like, horrified it. Um, anyways, I'm, uh... I like anyways. It's any way. I know it's anyway.

I like how you say it, though. I appreciate that, brother. You're being kind, and I appreciate how you're... You've already committed to defending me when this all comes burning down in a house of scandal. Gotta happen. You know what? Should we get to the headlines? Let's start.

Now is the time to fly. I hope you have plenty of the world of all. Last week, we said, spoke with Professor Aswath Demodran, and he said something quite striking. He said that for the first time ever, he is thinking about moving his money into cash and also perhaps collectibles. He said there is, quote, no place to hide in the stock market. And that was quite striking. He's not alone. Investors have been dumping the debt of America's big tech companies. Meanwhile, Goldman Sachs strategists predict that U.S. equities will likely underperform global peers for the next

decade. They recommended that investors, quote, diversified beyond the US. And then late last week, we saw a broad sell-off in tech stocks, as many were worrying about valuations and the economy and interest rates triggered another wave of caution in the investor community. In some, Scott, there is increasing anxiety about the stock market, increasing bearish sentiment that isn't really being reflected in the prices of stocks right now, but at least it's being talked about. I mean, Michael Burry, Shorting, Nvidia and Palantir was quite notable, and we'll get into what happened there in a moment, because there are some updates on that story. But I think the TLDR here is we're seeing a lot more people and a lot more respectable people

such as Asworth, who are saying, I'm not very convinced. by the price of stocks right now, and perhaps we're going to enter a downturn. Now, I'm not going to make any predictions as to whether that's actually about to happen, and we can talk about that in a moment, but it was striking, how bearish he was. So let's just start there. What were your reactions to Professor Demoderin and what he thought about stocks right now? I think it's really powerful that role models. There's just so many people out there who know more than you.

I'm a big believer in experts and or people that you look to for guidance around things. And if you have a little bit of success, it's so easy to develop done in Kruger where you think that you have real insight and wisdom across every issue. I suffer from that. And Aswath, I've known Aswath now for 25 years, just looking back on every recommendation or piece of advice, nobody gets it right all the time of the markets, but generally speaking, he's gotten a more right than anyone I've ever met.

And the thing I love about him is he's able to screen out his political biases. I have no idea what his politics are. But I remember when I was saying, Facebook's going to get cut in half or Tesla. It was because I just really don't like these people. And he would just sort of say, oh, no, you know, met as a buy. It's a cash generating juggernaut. I mean, yeah, maybe it's bad for kids, but as a stock, you want to buy it right now. and I find that he generally is like one of these Josh Brown folks and that he's like,

what could go right? And that he's like, you just want to have a bias towards staying in the market. And so what he was, it was the first time I sort of heard in his voice like, yeah, everything's overvalued. And it was rattling for me because I've known him for a quarter of a century. I have never heard that tone from him of just like he was reaching so far to try and find value that he started talking about collectibles and just saying gold's overvalued. I mean, just everything just, even the defensive stuff, he's like, he basic, his basic message was, yeah, there's nowhere to hide right now because everything feels overvalued. And I started thinking, well, what does that mean? I would argue for someone your age, that means diversifying, but.

I think someone your age should always be in the market because you just don't know. And again, my other friend from Ritholtz management, Barry Rittholtz, emailed me and said, you know, I'm a big fan of the economists called the crash correctly, the dot com. And it called it in 97. I said, and the markets went up another 30%. And he immediately emailed me and said, Scott, you're thematically correct. But the NASDAQ actually doubled from 97 to 99. And so it's very hard. it's incredibly hard to time.

I think people your age who have the longer time horizon and a greater risk tolerance because you can make the money back be diversified, but I would still say be in the market. I think a guy my age or people my age

who quite frankly don't have the time to make it back, I do believe, and it has since talking to my thought, so for example, Apple and Amazon, which are still, I think, good stocks, I'm actually thinking about going, I have no leverage now,

which is the first time in my life. I have almost no debt on my houses, and I don't think I have anything on margin right now. Actually, I have a little bit of margin in one account, but I'm actually thinking of substantially ramping down my exposure to the markets and not going into European markets or not reallocating into different asset classes, but quite frankly, putting 10, 20 percent of my liquid net worth,

maybe 30 percent, just into cash. because it did feel he's been more right than wrong around this stuff and I have never heard Aswath this bearish and it wasn't panicky he's not like that he's just look at this look at this look at this it just feels relative to historical norms overvalued

so much of this is about timing and to your point of what Barry told you about how they said in 97 there's a bubble, and they were kind of right, but then the Nasdaq doubled. Just the perfect example of why you should not be trying to time the recession, time, the correction, time, the bubble bursting. Michael Burry just shut down his hedge fund last week. He deregistered from the SEC.

He liquidated the fund. He's returning all of the money back to the LPs. and as Aswath said, you know, he's probably right that Invidia perhaps is overvalued, certainly right that Palantir is overvalued. I can put some force behind that. But that's not the question here. The question is, can you get the timing right? And the timing is almost impossible to game. I mean, he miraculously got the timing right in 2008. So he wasn't, and barely. Barely. He almost got wiped out. He almost got wiped out. And now he looks like the clairvoyant, but there were plenty of clairvoyance back then, actually,

who were saying this is probably bubble territory. What happened was he probably just got quite lucky on the timing, and then he made a killing. And then everyone said, okay, Michael Burry can see the future. But, you know, this is a timing problem, and you're not going to get the timing right that old adage the markets can stay irrational longer than you can stay liquid and it is a very jim chanos this incredibly smart guy short seller he he basically closed his fund julian robertson who was short all these tech stocks basically closed his fund he like threw in the towel one of the legendary investors in 98 and then ultimately he was right but he couldn't stay liquid and couldn't, I mean, I, you know, I was going short some of these companies by selling

selling call options saying, okay, Palantir, that makes no fucking sense. It made no sense at 70 times revenues. Well, now it's at 100 times revenues. So you're going to be more right than wrong when you have an optimism bias or constantly ask yourself what could go right. And when you go short stocks, you're facing, you're swimming upstream, because Because of demographics and productivity increases through innovation, the natural trajectory of the markets is up and to the right. And meme stocks go crazy sometimes, distinct of how insane it is that they're at these valuations. Even Jerome Powell said that these stocks are fairly highly valued. And the Schiller PE, which compares the S&P's 500 price to its average inflation adjusted earnings over the past decade, is now higher than get this ed, than it's.

It's been 99% of the time, and peaks in this metric have historically coincided with negative 10-year stock returns, including 1929, 1966, and 2000. And something else that Aswa said that really struck me was, it's not that means that in the next 90 days or next 18 months, we're going to wake up one morning and at Black Friday. He said, typically what happens is it just unwinds slowly. And so, for example, everyone talks about the crash. One of the things we got from our conversation was Andrews O'Sorkin was there really wasn't any one big day. It just kind of the air just left the balloon over two years, three years. And if you invested in stocks, I think in the 70s, you almost anybody woke up 10 years later and their portfolio was worth less than when they'd invested in 1970. I think a lot of people assume that it's two or three.

or four years where you have losses. And usually, you know, that is kind of the time frame. But we should point out, just as you're saying, there have been periods in U.S. stock market history where the losses occurred over a 10-year span. So it actually happened in 2009. So in the 10 years before 2009, U.S. stocks lost about 37 percent of their value. So basically what you're measuring here is from peak bubble in the next 10 years to 2009, you're looking at a huge destruction of value. So that is an example where actually there was a 10-year period where stocks went down quite significantly. And there have been other periods where you have losses over 10 years. As you mentioned, 1974, the 10 years before that, you had a period of losses.

also happened in 1939, the 10 years before that, also happened in 1921, 1857, 1842. So the point being, what Aswath is describing there is you might have a decline in the stock market that lost 10 years. And by the way, we've actually seen 20-year periods before. It happened in 1932, the 20 years before that, stocks lost 14% of their value. It's happened also between 1837 and 1857, where stocks lost 10% of their value.

So it does happen, actually. And I think this is probably a point that maybe we haven't been acknowledging enough on this podcast. It's like it's very infrequent and it's very unlikely in the large scheme of the US stock market. But it is possible. and even if you disagree with Aswat's position right now, you should at least consider the possibility

that he might be right, that there is a possibility that over the next 10 years, the stock market could have a negative return. That's possible. Or at the very least, a lackluster return. That's certainly, that's probably probable. So you just shouldn't write that off.

And I think it leads us to a place of, okay, what do we do about that? The first thing we have to do, we have to be mentally prepared and also economically prepared for the off chance that the next 10 years could be negative. And for different people, it means different things. For me, it doesn't really mean that much because I'm pretty young and I'm not really going to be selling anytime soon anyway. I just need to be in the market heads down. But it means things for different people depending on where you are in life. And I think what he brings up and we can get into whether he's

Right. That is Asworth. But what he brings up is a very real possibility. You could have pretty negative stock market returns over a period as long as 10 years. It is possible. You would normally think, okay, the Magnificenten 10 are overvalued. I need to move to more overweight defensive stocks. But even these traditionally boring defensive stocks look expensive. Consumer staples, such as Walmart and Costco, these are mature, low-margin businesses. they're trading at invidia level valuations far above their 10-year averages. And then you think, well, okay, what about alternative investments? Gold is up 55% this year on pace for its best performance since 1979.

Okay, I'll put some money in Bitcoin. Well, that just touched an all-time high in October. And by the way, I finally threw in the towel and bought some shares in a Bitcoin treasury company. I like to talk about my losses, just not my wins. Got in at 14 bucks a share. I think it closed at like $6.80 and $80. 50% destruction in like two months. The one place that Aswath said there might be value on a risk-adjusted basis, and it's my biggest investment is real estate. He said, look, there's just a structural shortage of real estate,

and we're short and estimated two to three million homes, and this shortage could, you know, he thinks, be turned into an opportunity for investment. Which is crazy, by the way, considering, I mean, real estate prices have also gone way up, not as much as stocks, but still record highs. I'm trying to think, okay, so if you don't want to go buy apartments and get your in-laws to manage them, which I have done, let's put those people to work. You can buy a REIT or, so for example, the IShares core US REIT ETF, USRT, has both residential and commercial exposure and is only up 3% year to date. So I've tried to get away from making stock recommendations and just tell people what I'm doing, and then you decide on your own what you do. But I'm trying to find what I'll call special situations. So I'm now working with a fund actively trying to find tariff claims.

And because I see that as something, I don't want to say it's disconnected from the market, but I would definitely call that a special situation. And then also I'm contemplating buying. And these are stories of privilege. I'm contemplating buying another home in Manhattan because of all of my assets, the worst performing one has been my home in Manhattan. I mean, there's some assets that have gone down on value, but New York real estate, I think the existential threat of the new mayor has been vastly overrated. All these idiots who say, I'm leaving.

I'm like, okay, fine, see ya. Good. And I think New York is still singular. I think we're still going to continue to attract the most, the secret sauce, and that, quite frankly, is Ed Elson and Claire Miller, who the greatest arbitrage or economic driver in history is really talented young people who are willing to work their asses off and take risks. That's the secret sauce of any economy. And more of that secret sauce is poured over Manhattan than any place in the world. There's just a lot of people, even I think much more than San Francisco, the most talented people in every industry have one thing in common and they think, you know, I need to kind of punch my ticket and get to Manhattan for a few years. And I don't think that's changed. So, and then I look at my place. I've owned real estate since 2017 in New York. It really hasn't gone up much. I did the numbers. I think it's up, I think it's grown about 2% a year. And that's not to say it's a buy. But I feel as if, okay,

I was kind of hoping a bunch of stuff would come up for sale when Mondami was elected mayor. I haven't seen that or when people thought he was going to get elected. I think all of this is like, I'm, I'll be in my sisters. And then, you know, she's still around. Exactly. So I'm thinking about real estate, but also moving more into cash. Because I have been, the way I've gotten into so much trouble at

and snatch defeat from the jaws of victory is I've always been so risk-aggressive, as is the case for an entrepreneur. And it's really paid off for me until it hasn't. And that is, being levered and borrowing money to start businesses and doubling down on stocks and borrowing on margin, God, it was fun from like 92 to 99. And then it became really unfun. And then it got so much fun again in 2001, and it got really unfun in 2008. And it's been it's been disco since 2009, but now I'm thinking, okay, I don't want to go back to the, to the, it sucks part of the program. And so I'm thinking about substantially scaling down my, my quote-unquote risk profile and shifting some money into cash and shifting some money into special sits that are

somewhat uncorrelated and into real estate. Yeah, that question of like, how do you find the, the non-correlative asset is sort of the big question that every investor's asking themselves. And gold is such an interesting example because it's supposed to be like the anti-stock, the anti-dollar, and yet it's also having this kind of tech-leg run-up. I mean, it's more than doubled in the past five years. Bitcoin people said it was the same thing. And then, you know, we've seen multiple times over and over again, it proves that it is in fact highly correlated with the stock market. When the stock market goes up, it goes up. It goes down, it goes down.

So that has been a big question. The question does then become, you know, where do you hide if there's no place to hide? Like, where are you supposed to be finding value? And I think it's really interesting where your mind is going in terms of special situations, also perhaps real estate. That makes sense to me. But I think the most important thing you say there is there is more incentive there's more reason today to start to think about de-risking,

decreasing your leverage, you know, figuring out where you're overexposed and trying to sort of reduce your exposure in those places. And I think that is the thing that people should be thinking about. If you're overexposed in any one company, which you definitely are because of how much tech has run up, don't sell it, but start to trim, start selling, in very modest increments, over time, not to eliminate the position, but just to make the

portfolio more balanced. You shouldn't have more than 5% of your portfolio in any one stock. So that's the first thing. The other thing I think people should be considering more now is I think you should be considering the non-U.S. stocks and the non-U.S. index funds. I still do think, as we said at the beginning of year, that there is value. to be had in many foreign markets. China's trading at 15 times earnings. Brazil's trading at 10 times earnings. These are pretty cheap multiples, and that doesn't mean you should stock pick, but I do believe that kind of diversifying away from the US, which has had this massive run-up, and congratulations, you've done well, especially if you're heavy tech. But I do think that we're

approaching the time where you start to, you know, gather up your gains and your wins and start to try to spread it out a little bit more. The other thing you could do, which I think is interesting, and Goldman has been talking about this too, is invest in the equal weight S&P, because as we know, all of the returns have been concentrated into a handful of tech companies, to the point where the S&P itself is not super diversified. I mean, NVIDIA is now more than 7% of the S&P. So that's just, that's just too high. You don't want more than 5%, as I said, in any one company. And if you're buying the S&P, you're buying 7.5% exposure to Nvidia. So I think going equal weight, that kind of balances things out, and you'll be slightly less exposed to tech. And then there's what you say,

which is cash, or get into bonds. You know, there's fixed income, there's T bills, there's T bonds, you could even just buy a diversified treasury index, or you could just buy T-bills directly from the government online. But it does feel that we're approaching the de-risking part of the cycle. And that's not to say that tech could have continued to run up over the next year, perhaps the next two years, but most likely you're going to see some more modest returns. if we're just looking at the course of history,

and you're probably going to see some sort of correction. I will say I'm a lot less bearish than I think Aswath is, and I can get into that. But what you say there about de-risking, I do think that's important. I'm still stuck on the part where you said it was really interesting where my mind is going. I think it's more tortured than interesting. And, Ed, the idea of you having real insight into what the fuck is going,

going on in the shit show, fun house of horrors in my head is so frightening to me. You would just, you would call your parents and say, I love what I'm doing. I'm making really good money. I love my colleagues, but I just can't be anywhere near this freak show called Scott Galloway. So be careful. Don't, don't open that door. I try to moderate my exposure to your mind, similar to portfolios. People say, oh, he's an introvert.

He doesn't like people. That's not true. I just want to make sure people to really get the full picture of what's going on here. But as usual, a lot of what I said, the data is not supporting. The team did some research. So New York real estate isn't outperforming the stock market, but it's been a decent investment. The average yearly rate of return on investment has been 5 to 7%. I'd be curious what the luxury market has done.

But if you go, if you put money away when you're 21 and it only grows 6 to 7%, keep in mind you'll have 31 times the amount of money when you're retiring. Well, I will say only someone in your economic weight class could buy it. So I agree with you in the directional strategy. But I would, I mean, this whole conversation is premised on this very bearish thesis that Aspart DeMotoran seems to have, which is he thinks the stock market's overvalued. He wants to get into perhaps cash. he wants to maybe look at, you know, fixed income or at least make that a large part of his portfolio. I just want to end this by saying, like, maybe he's right, but I'm nowhere near at the level of bearers that I think he is. I still think that there is a ton of value in

AI, and I think there are plenty of tech companies that are not that overvalued and that are actually very well diversified and that are being managed very responsibly. Of course, there are companies that aren't Open AI as an example. We went over that last week. But I think there are companies that are good. And I think one great example would be meta, which is trading at 20 times forward earnings, which is actually a little bit lower than the S&P average. And yes, they are investing heavily in AI. And maybe it doesn't work out. But unlike Open AI, they actually have the money and the cash flows to actually do this. They can withstand a correction. And they're doing this in a reasonable way. So even if we do see a correction, even if the AI bubble pops,

meta is going to be fine. Business is going to still be running very strong. They'll have plenty of cash. It's a great company, great fundamentals. Another example we've talked about is Amazon. Stocks had a pretty big run-up over the past few months, so closer to fully value than it was before. But having said that, just in terms of this AI bubble, is it causing huge overvaluations? Because chat GPT was launched in November of 2022. Amazon was at 176 at the time. It's at 240 today. So over the past three years, that's a 36% return.

That's an annual return of around 11%. That's not that crazy. I mean, it's a little bit more than the S&P's historical return. So if the AI bubble is causing one of the most AI exposed companies in the world, which is Amazon, the data center juggernaut. If it's causing that company to yield an 11% annual return, that would mean that either we're not in that much of a bubble or the bubble hasn't really infected Amazon that much. But I do think there is still value, and companies will get hurt. But as we've discussed before, it's the companies that are biting

off more than they can chew, that are extending their leverage out too much. And, you know, that are becoming too dependent on this future vision of AI and not the cash flows they can bring in today. Again, every year we do a big tech stock pick, and we're careful to say, outperform the rest, because my belief is if the rest of the MAG 10 goes down 50%, I think Amazon will go down less. There's no safe harbor here if there's a kind of drawdown

that I think we're due for in AI. But the reason why Amazon has underperformed, despite the fact that they are centered or position of benefit from AI, is that their cloud, which has the greatest market share of the cloud providers, is seen as not as AI enabled. And so it's actually this notion that their cloud offering is developed, a reputation as not being the most AI enabled or friendly or AI-adept cloud, which I think is kind of not, I mean, their stock hasn't underperformed. underperformed relative to its peers.

And what Aswas said is, these companies just haven't made the kind of all-in bets on AI that everyone else has made. You know, if he said, and it really shocked me that Invidia was the most, you know, the scariest, one of the most overvalued.

And I said, well, what about Palantir? And he said, oh, well, you've gone from the Magnum of the 7-8 Magnum's in 10, I would say Palantir. But you brought up something that is actually overlooked in the world of investing, and that is, I can, every board I've been on, I feel like I come in and I talk to the guy

when a CEO's on the call, I can usually tell when we're about to have a board meeting, and that is the CEO starts getting defensive, and you can just hear this strain and anxiety in his or her voice. And carp and Altman have shown uncharacteristic stress and defense. offensiveness in their voice recently. Those are dangerous, yeah, dangerous positions. Well, we forget, these people are human. There's no way for them just to compartmentalize everything. And I get the sense they know they're out over their skis.

And people are asking really hard questions. They're having a tough time giving good answers for. Open AI 100% in a very dangerous position. The response from Sam Outman is a total tell. Also, the numbers are a total tell. Very dangerous. By the way, if Open AI goes out of business, and there are real concerns as to what that could do to the larger markets,

but say they go insolvent or there's some issue with the timing or they go bankrupt or whatever, I mean, what's going to happen to them? If we're being realistic, they're just going to be folded into Microsoft. Like Microsoft already pretty much owns OpenAI. They own all of the IP. They have access to all of the IP. They have a substantial ownership over the profits. It's like, in that scenario, I don't think it just takes down the whole market in a really big way.

It's going to take down certain companies. Like, Oracle, as an example, would be a company that's going to get massively beaten up because of that. Because they have, they're so leveraged, basically, and they have these contracts with Open AI, which would put it in a really dangerous position. But, again, there are companies that are managing their balance sheets. fine. Microsoft's doing a pretty good job of it. Met is doing a good job of it. Amazon, Google, you know, I'm just, again, I'm less concerned than I think some others are. And so I just think it's important to like give both sides a little bit of weight because I don't think

the takeaway from this is, you know, you need to sell, you need to get out of the stock market. It's still an open question. And we're obviously going to keep on looking. into it, but I just don't want us to conclude, like, oh, no, Aswat's worried. I should be worried, too. Okay, so Open AI, last round was $500 billion. If that company were to go away, first I'd be right, it wouldn't go away. It would fold into Microsoft or something else at, say, a valuation of $1 or $200 billion, a destruction in the private markets of $300 billion. That's big, but it's not going to take it down the economy. The reason it would take down the economy or have a serious impact on consumer confidence amongst the wealthiest 10% of responsible

for the consumer spending. This is the domino effect, and that is, if Open AI gets a shit kicked out of it and announces it's just not growing the way it hoped, they're the, you know, they're the canary in the coal mine for Nvidia, which is a $5 trillion company. Invita goes down 80%, which is just not unthinkable. That's a $4 trillion destruction and capital. There's no way that wealthy households all over America don't go, oh, fuck, and start pulling back. their spending, which has a disproportionate impact on the entire economy. I mean, so open AI is not the biggest domino, but it'd be the first domino that starts tipping over much bigger dominoes. Ooh, that was a good analogy.

Invidia is definitely a big question mark. It's tough because the valuation, I don't think, is completely crazy because the growth, the fundamental growth has been crazy. So, I mean, the business is on a tear. I think the question is, will that continue? But what I can tell you with certainty, everyone is over-exposed to Nvidia, because if you earn the S&P, your position is seven and a half percent. So you are too exposed, so trim. That's the answer. We'll be right back after the break, and if you're enjoying the show so far, send it to a friend, and please follow us if you haven't already. Support for the show comes from public.com.

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view of your financial situation and risk tolerance. Learn more and get started at SOFI.com slash profji IRA. That's SOFI.com slash profcci IRA. This is a paid advertisement by SOFI technologies and is not intended to be financial advice. We talked a lot on the show about how China is closing the gap in the AI race, but now there is fresh evidence that it may actually be pulling ahead. A Chinese startup called Moonshot just released a new open source model that outperformed open AI and perplexity across several benchmarks. Plus, it is four times cheaper to run at scale than GPD-5.

This news dropped just days after Jensen Huang told the Financial Times, quote, China is going to win the AI race. He later clarified that China is, quote, nanoseconds behind and that the US needs to win by racing faster, but clearly this issue is top of mind for him. Scott, another new model out of China. This one is called Kimmy K2 Thinking. It's from this company Moonshot.

It costs them $4.5 million to train it, which is 1,500 times less than what Open AI spent on R&D this year, outperforming Open AI's models, outperforming complexities models, a lot cheaper to run. We've been saying this. You know, China's just going to flood the market with cheap AI. Here's another one, your reactions. If I were revising Xi, and I was the head of the CCP and strategy,

I would be doing exactly what they're doing. And that is I'd say, I know, just dump a bunch of cheap, outstanding AI into the market. It's going to put real pressure on these companies that are driving the majority American market, which is driving the economy, and we're going to just, we're just going to kick him so hard in the nuts. This is our biggest prediction for 2026 that the AI trade unwinds in the U.S. at the hands of government-sponsored subsidization of Chinese AI, and they're going to do the equivalent. We used to bitch about them dumping steel, I think, into the U.S. market in the 80s, thinking if they sold steel below cost, they would consolidate the market, put all U.S. steel

manufacturing, out of business, and then consolidate the markets, and what to what Amazon or Netflix have done. I think they're essentially engaging in the most, in my opinion, the most, is this true? The most seminal geopolitical action right now is Chinese dumping of AI. Your thoughts, Ed? Well, I think the most important thing is the price. So Kimi K2, four times less expensive than GPT5. So, I mean, we've discussed the pricing before, but let's just go through it again, so people understand. So Anthropic, or Claude, it costs $15 per million tokens.

GPD5 costs 10. Kimi K2, which is this new Chinese one, is $2.50. Quinn Plus, which is Alibaba's one, that's, again, Chinese, $1.20. And Deepseek, which everyone knows is also Chinese, $1.10. 10 cents. So they're producing comparably performing AI that is, in some cases, 10 times cheaper than America's models. And the question that you have to ask is, okay, why is it so much cheaper to create AI in China? That seems like a pretty fucking big deal. The answer is energy. It's because China produces way more energy than America, double the energy than America produces.

And where are they leading? You look at the statistics, it's renewables. Two times more wind power, three times more solar power, six times more hydroelectric power, and they are continuing to invest in renewable energy. And so that's why electricity in China is cheaper. it's more than, it's less than half the cost of energy in America. And so it's just so funny because why are we not investing in energy, specifically renewable energy?

Because we've decided that it's woke. That's the only reason. I mean, and it's happening as we speak. They're terminating grants. They're making the permitting process way more. difficult. If you want to build a solar project in America today, there's a new rule where you now have to get a personal sign-off from Doug Bergen. That's their big new energy policy. Doug Bergen has to say yes and give it the okay. I mean, that is just a bureaucratic nightmare.

And again, why are we doing it? We've decided it's woke. There's no other reason. And it's just so funny how the anti-woke movement is like the new woke movement. It's the same group think ideological capture that led us down some arguably some questionable paths during the woke era and now it's happening in reverse and we're falling behind on AI. The reason, again, just connect the dots. The reason that the models in China are 10 times less expensive is because of the energy costs. It's because they produce way more energy. And they haven't decided that building a solar farm is woke and indicative of liberal capture. So, I mean, there's a pretty clear thing that we need to do here. And that is, for whatever

reason, clean energy, renewable energy, green energy has been classified as woke, and Republicans refuse to touch it. And in many cases, they go in and they cut the funding and they gut those projects. So I don't know what we need to do, Scott, but you're the branding expert. How do we rebrand renewable energy as not woke how are we going to do that well that is i as is in the number one new york times bestselling book notes on being a man which by the way you did not bring up you did not bring up um so i brought it up last time if i've been everyone's using this term toxic masculinity i don't think there's any such thing i think there's cruelty criminality abuse of power but masculinity should be an aspirational thing but there's a weirdness

around, I think Trump was really, I think Trump flying into the quote unquote, not masculinity, but into this faux weird coarseness plus cruelty equals masculinity, fucked up sense of gendering things, that it really worked for him, unfortunately. And so now he's trying to, anything that feels progressive is feminine, is weak, and should be ignored. But what we need to do somehow, is make smart, equal, patriotic, equal, cool, equal, it doesn't even need to be a gender. Degender it, for God's sakes. I mean, Texas, which is not known as a progressive, you know, you might even argue like Old West masculinity or whatever, or Old South, I don't know what the term would be, Texas. They have more wind power. They're the largest producer wind power in the nation because the economics work. But this stupid feminization and conflating renewables with femininity and progressiveness, which they then say are bad things, and we need to, for real men, we're going to go after oil and like whatever pollutes the most, that's me strong like bull.

Okay, just put that shit aside and say, I understand the notion that if we should have strategic oil reserves, we should continue. need to drill, the greatest arbitrage in history is fossil fuels, and we need to be mindful of climate change, but pick your poison and we have to be economically competitive, I get it. But to decide that somehow renewables make you less manly, which is some fucked up way conflated with leaderships, that's that you ignore, you know, the renewables, which, I mean, at a very basic level, we don't know where oil is going. We don't know if it's going to spike to $200 a barrel or going down to $10 a barrel.

It is really hard to predict the price of oil. It is a fairly safe prediction that in a decade, solar and wind are going to be less expensive than they are now. Every year, technologies march around battery technology, around the dynamics of trying to get more energy from a rotating windmill or a hydroelectric capability or so every year it gets cheaper and better. And there's occasionally a blip up,

but for the most part, the investment, especially by the Chinese in renewables, which has been much more dramatic than us, they are very good at scale in figuring out a way to drive the cost down. Their strategy is the same as Walmart or Netflix or Amazon, and that is push your cost down,

pass on those price decreases to the end consumer, consolidate the market. They're about market share at a lower price. That's, their economy strategy is the same strategy as Amazon, Costco, Walmart. Our strategy in the U.S. has been to elevate perceived value through IP protection and branding and innovation. We have different, you know, we go at different sides. And some people would argue that China's moving up the food chain and now getting an innovation around automation and robotics, et cetera. But this is a really good bet on renewables for any other reason.

you just, I am 98% confident. Renewables are going to be less expensive in 10 years than they are now. I have no fucking idea where oil is going to be. And so it just seems, okay, let's, how do we make smart and competence aspirational and cool again, as opposed to offending people and going back to the 50s, including the way we treat immigrants and non-whites and women, somehow that's, cool and masculine and macho. So I do think there needs to be a rebranding of, and to a certain extent, we stuck our chin out as progressives. We said, okay, let's end every email by declaring our pronouns and have land acknowledgments every time we open a fucking conference. It's so fascinating how much damage that actually did to America just because of how much it pissed people off. And just as you say that, it becomes almost, I mean, I mean, We shouldn't apply too much blame to pronoun sign-offs.

But in a funny way, the most extreme wokeness has come back to bite us to the point where the other side has gotten so insane that they are now deciding that they need to cut clean energy projects because if you're building renewable, it just brings up thoughts in your head of land acknowledgments and pronouns at the end of emails. I mean, it's just so striking how much that struck a chord in Americans and how much it has actually put America behind to the point where we're not producing enough energy

to build the frontier technology, which is AI. Like, we're literally falling behind in the AI race because, and you've got to connect these dots here, because we're not producing enough renewable energy, and the reason we're not producing enough renewable energy is because we've decided that it's too woke. Like, it's crazy how these things connect to us. each other. The basic cycle of politics in America for the last, I don't know how long it's been

definitely for the last decade or last 20 years, is that Democrats are well-intentioned and in an effort, a noble effort to repair the injustices of the past, and also Democrats have been obsession with grabbing social virtue, even if it means ignoring programs that actually impact the material and psychological well-being of Americans, they go crazy and take shit way too hard. Oh, a 6-4 transgender woman shows up to an NC2A swim meet. Well, let's all applaud and look at each other and pretend that it's inspirational. A bike race with his cash awards, a transgender woman crosses the finish line five minutes before the rest of the pack. Five minutes in a bike race? In a bike race? And we all applaud. Anyway, I'm a little triggered. I don't know how we got

here. Should we get back to AI and maybe the housing crisis? We're a little all over the place today. I can't focus. I'm like a 17-year-old right now. Here's the ending point that I will end us on. Average price per megawatt hour of electricity in China, $88. Average price in America, $188. There is a huge disparity here, and we are falling behind. And we can say that it's because of wokeness or anti-wokeness, and I really do think that's a big piece of it, or anything else, but the point being, we're clearly falling behind. So clearly we need to do something about it. So gutting our renewable energy programs, probably not a very good idea. And it's certainly not going to be very persuasive to do it all in the name of anti-wokeness.

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public.com slash disclosures. We're back with Proftery Markets. The U.S. housing crisis is somehow getting even worse. New data revealed that the median first-time home buyer is now 40 years old, which is the oldest on record. And first-time buyers accounted for just 21% of purchases last year, which is roughly half the historical average. Meanwhile, the administration is pitching a 50-year mortgage as the potential answer to this problem. They claim it will make ownership more affordable for younger buyers. God, so much bad news in this episode today, I've got to tell you. Scott, how is the housing crisis getting even worse? And is this 50-year mortgage idea going

to fix it? So first off, I do think the 50-year mortgage is a bad idea. It ends up. It lowers your payment marginally, but then you just build equity at a slower pace. I think one of the advantages of a home is an investment. If you account for maintenance and taxes and upkeep, Homes have not performed other asset classes, but it does perform. It is a great way to build wealth because people have a tendency, if they're a little short at the end of the month or they have a choice between taking vacation and putting another $400 or $1,000 in their Vanguard ETF, they might choose to take a vacation or spend the money. Whereas if it's about tightening your belt and not getting kicked out of your house, you'll do that. So it's sort of a forced mechanism of forced savings. In addition, it does create bond and momentum towards relationships. There's just something very psychologically rewarding around building something with somebody, and you start practicing building something on a life with someone by getting a house, spending the weekends going to Home Depot,

to see immigrants have their heads stamped on by people at mass agents. That's what I like about Home Depot. Back into politics, he couldn't resist. You need to get off this pivot tour. I blame pivot. It is. It's all pivot's fault. That's right.

And by the way, it hurts our revenues. Advertisers hate politics. Anyways, back to housing. It's psychologically accretive. It's a great way of forced savings. It helps young people find partners or create momentum towards long-lasting relationships. So it's a huge issue, both sociologically and economically. And we're just headed in the wrong direction.

And what I hate about this is we act as if these problems are unfixable. Instead of spending all this money on all this stupid shit, ranging from tax cuts to ice to taking the military's budget from $870 billion to a trillion, with a substantial amount of money but a fraction of those expenditures, we could provide incentives to the private development community and also pass federal legislation around YIMBY laws, whether it's getting rid of height requirements, getting rid of dump shit. like you don't have to have a parking space for every three units, getting rid of making it easier to sue if you don't approve of certain permits. Because my generation, the bottom is, my generation is just a fucking selfish. And that is we figured out a way to increase our net worth by creating a rejectionist exclusionary culture where we make it harder to get into college and harder to get new housing permits to prove such of the value of the assets. I already go up in value. And if we unleash the...

the private sector and developers and created, found unincorporated lands near city centers or in areas a little bit cheaper, manufactured homes cost 50% as much, on lease, give tax subsidies to developers and regulatory coverage and YMB laws such that there was just, it shouldn't be drill baby drill, it should be build baby build. And just say in 10 years we're going to build eight million incremental homes, which is going to substantiate. And then weigh in with a full faith and credit, have something similar to FHA or VH or Veterans of Fair Loans, give people, I would be agist, under the age of 40, have a goal. If you make the average household income of $72,000 and under the age of 40, you qualify for a, you know, two or three percent,

whatever the money is the government can borrow at, and low down payments, and we're going to unleash the private sector of developers to make just a massive influx of affordable housing. I mean, Singapore, we can't do this because we don't have the money. Singapore gives homes away. They say if you work for the government or you have a certain qualification, we'll give you home because it's a great way to build wealth and a great way for you to feel good about Singapore. Well, they build those homes.

I mean, they built a ton of housing. I mean, it's still, I just, I don't want to be able to think that like, oh, you can just make the, I mean, you've got to build the thing in the first place. Yeah. So the bottom line is the incumbents like to pretend. They use words like globalization and network effects. No, these problems have common sense solutions. It's just the incumbents want to spend all of our additional capital on tax cuts.

And it's like, no, you're right. This shit's going to cost money. All right, that's the bad news. The good news is we know how to fix this shit. We fucked it up. We can unfuck it. And the most basic thing to fix America right now is pretty straightforward. Put more money in the pockets of young.

young people. They're 24% less wealthy than they were 40 years ago. I am 72% wealthier. That's the problem. That's the basis for dissatisfaction, anxiety, a lack of household formation, self-harm, people feeling bad about America, people going to the extreme right in listening to these fucking weirdo gropers or gropers or whatever the hell they're called, these little fascists, or going to the way fucking left and saying, oh, Socialism and communism. Now, trust me on this, capitalism's brought more people out of poverty than, and it's the least bad system of its kind. You want to solve all this shit. You want to create more. You want to mend the social fabric. Simple. Take money out of the pockets of wealthy senior people who keep voting themselves more fucking money and transfer it into the pockets of people under the age of 40. Full stop. That's doors one, two, and three. And on housing, just build more. And it's funny because everyone seems to understand this now. Like, you mention all of those housing policies that are supposed to promote supply, which are now happening. And of course, there's the abundance thing that's become a big deal. But what is interesting is, like, we're also seeing these stupid financial engineering proposals that I thought we all agreed were not going to work.

but the 50-year mortgage is a perfect example. It's like, oh, how do we fix the home ownership problem? Let's just increase the amount of time that the loan is extended over from 30 years to 50 years because that's going to decrease your monthly payments. Yes, it'll decrease your monthly payments, but it means more months. So you're actually going to be paying more. So that's not going to fix the problem. And then there's the other financial engineering thing that has come up in the New York City mayoral election,

which is like, oh, just freeze the rent. Like, we can just fix it by just freezing it, and then you don't have to pay more. And again, and we've been over this, but that doesn't work because it disincentivizes construction, sends rents up everywhere else, and it does nothing to address the underlying problem of supply. So I'm just so sick of us having this argument,

like, how do we fix the housing? It's like, build more houses. That's all you need to do. It's a supply problem. It's easy to figure out. We can all agree supply problem. And by the way, I do think we're making more progress on this. But a lot of the ballot measures in New York City,

it was fast-tracked affordable housing construction, you know, simplify the review process for housing projects, the Road Act, the Road to Housing Act, which again, it's going to streamline the permitting process. It's also got an interesting grant program where it actually rewards local governments who figure out ways to increase housing supply. So basically, governments being like,

do whatever you need to do to increase the housing and we'll just pay you money. That's a great idea. And that's passed in the Senate. We're going to move on to the House. So there are ways to do it. But the answer is not financial engineering. It's not saying, oh, figure out a new financing process through 50-year mortgages. Oh, just have more rent controls. Freeze the rent in these locations. It's just like get more supply into the system. And you can do that through reducing regulatory burden, and you can also use technology to do it. You mentioned some of those technological innovations, but, you know, we do just need to industrialize construction. And, yeah, Ezra Klein's right. It's about abundance. It's about increasing the supply.

He's a tall drink of lemonade. He's gotten through a glow up, hasn't it? They're like, let's put some facial hair on that man. He really has. Everyone loves him. I'm getting a little sick of him. I've got to tell you. I like Ezra. I'm just seeing him everywhere. I like him, too. He's getting a little too successful for me. I think he's, I'm pretty, I'm not sure.

I think he's like trying to position himself or run for president. I feel like he could. Everyone loves him. I just see him everywhere and then I get jealous because his podcast bigger than I was. Yeah, we're making more money, though. He works for the Times and they won't let him do host readovers because, you know, they're, they're so fucking virtuous. No, sell Z-biotics, bitches. Let's make some Benjys.

Let's splash the cash. Let's fling the bling, my brother. 100%. That's why we're winning. I think that's all we got for today, Scott. God, that was around the world. Jesus. That was...

Let's take a look at the week. That felt like my first marriage. I'm like, wait, what just happened? What just happened? God. It was interesting, and there were some high moments. But where the fuck am I? How did I get here?

The week ahead, we will get a temperature check on the American consumer from Home Depot, Target, Walmart, and Lowe's. They are all reporting earnings. Clana will report for the first time since going public. And, of course, all eyes will be on NVIDIA as it reports Wednesday night. Scott. So back to me. I'm back in San Francisco. Here we go.

Here we fucking go. I literally can't stand it here, and I'm trying to figure out why, because it is a beautiful city. It's the most beautiful city in the nation, I think. And I think it's because I just fucking hated it here. I was like, I was married, and we used to have to do shit,

like go to Napa and do wine tastings. And, like, oh, God. There's no late-night drinking spots here. It's true. There's no way to policy, no clubs. People would invite you, like, sailing or mountain biking and Mount Tam. And I'm like, oh, God, I got to pretend to like this shit.

Awful. City closes at 10 p.m. I'm waiting for you to turn this into a prediction. You've got to figure it out somehow. Okay, my prediction, I can't help it. It's going to be a political one. There's going to be some fucking crazy shit out of the White House in the next seven days. With all the upscene files coming out, all these emails that you referenced at the beginning,

they have to pull out a nuclear weapon of distraction. and they're either going to start bombing, like they're either going to go into Venezuela and start, you know, military action against Venezuela. Some crazy shit is going to come out of the White House in the next seven days because they need to detonate literally a nuclear device

to distract from these Epstein emails, which are starting to dribble out. Okay. Here are the credits. This episode was produced by Claire Miller and engineered by Benjamin Spencer, our associate producer is Alison Wyss. Meera is our research leader, our research associates are Isabella Kinsel, Dan Chalon, and Chris Nodanahue, Drew Burroughs is a technical director, and Catherine Dillon is our executive producer.

Thank you for listening to ProfG Markets from ProfG Media. Tune in tomorrow for a fresh take on markets. Reunion As the waters And the dark flies In love, love, love, love.