The Prof G Pod with Scott Galloway - Prof G Markets: ByteDance’s Black Box, Target’s Inventory Turnaround, and the Resale Watch Market

Episode Date: November 20, 2023

Scott shares his thoughts on the latest revenue numbers from ByteDance, and whether or not we can trust any numbers coming from a private Chinese company. He also breaks down Target’s huge earnings beat, and discusses why luxury watches shouldn’t be treated as investments. Learn more about your ad choices. Visit podcastchoices.com/adchoices

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NMLS 1617539. This week's number, 30 million. That's the record number of air travelers expected this thanksgiving true story i shot my first turkey this thanksgiving the other shoppers at whole foods were freaked the fuck out go oh wait that's how we do Welcome to Prop G Markets. That's the other podcast. And I just found out that you and the team want to pre-record two shows so you can take Thanksgiving. You don't have Thanksgiving.

You're British. You have, like, Boxing Day or Celebrating the Queen or whatever it is you do. Well, I do celebrate Thanksgiving, and I'm looking forward to it. Yeah, let me guess. You don't put on Thanksgiving. You bogart off of some generous family that, oh, he's such a nice British kid, and he went to Princeton, which means he's safe. Bring him over.

I'm doing it with my family. Going to see my sisters in California, yeah. Going to San Francisco will be great. Now I feel bad. Does your sister have kids? Yeah, that's right. Does your sister have kids? No.

And where do they live in California? My sister just moved to Palo Alto because her husband just started at business school. And my other sister is in San Francisco. Is her husband at Stanford? Mm-hmm. Oh, good. So when podcasting finally hits the rocks, you can go move in with them. He's going to be successful.

He's going to be good. That's right. What are you doing, Scott? I's going to be successful. He's going to be good. That's right. What are you doing, Scott? I'm going to be in Florida. We had rented our house out in Delray Beach to this guy who started a company that's backed. And he basically skipped town and fled to Australia. So we have our house back. So we're going to go have Thanksgiving in our home in Florida.

And it'll be nice. My sons will get to see all their friends. And we'll get to see our friends. I love Thanksgiving. We were actually, we had a company dinner last night and the rumors floating around that you want to move back to Florida. Quite frankly, I'm just struggling with London weather. I didn't realize what an impact it would have on my mood as in I can't wait to leave all the time. I love, I love the UK. I love British people. I love the Premier League, but I just can't handle the winter there. And I'm on planes a lot.

I'm in Florida right now for this Live Nation speaking gig, and I've got MasterCard in a week back in Florida. I'm just on planes a lot again, which at my age is just not what you want to be doing. So I'm thinking about in two or three years when we move back to the US and hopefully my oldest gets into college and my youngest is thinking about high school. But where would you live? Well, I think you should move to New York.

The thing about New York, this is the problem, is my son. I don't, for some reason, him in high school in New York kind of intimidates me. I feel, and to be fair, the kids I know who were born and raised in New York are actually shockingly well-balanced. I just, I don't know if I want I know who were born and raised in New York are actually shockingly well-balanced. I just, I don't know if I want to give them a high school experience in New York.

I feel like the people who raise their kids in New York, or most of them do it because they need to be in New York because dad or mom has a big job there. But I think kind of high school should be, I don't know, somewhere else, I think. Anyways, enough of my moving. Ed, get on to the headlines. Let's start with our weekly review of market vitals. The S&P 500 climbed through the week and had its best day since April. The dollar fell, Bitcoin was volatile, and the yield on 10-year treasuries fell. Shifting to the headlines. The Consumer Price Index showed inflation fell to 3.2% in October,

down from 3.7% the month before. Stocks rallied broadly on hopes that the Federal Reserve has won its fight against inflation and will not raise rates again this year. Meanwhile, UK inflation slowed to 4.6%, down from 6.7% the month prior. That's the country's slowest rate since October of 2021. President Biden met with China's Xi Jinping, sowing more optimism in the markets that the country's economic ties might be improving. Stocks that rely heavily on China for production and revenue posted strong gains after the meeting.

Catalan, which makes the syringes used to deliver Ozempic, forecasted its production capacity for syringes used to deliver Ozempic, forecasted its production capacity for syringes will be booked out until fiscal year 2026 due to demand for the weight loss drug. The stock rose 13%. The PGA Tour is offering equity ownership in the league to its professional golfers. Commissioner Jay Monahan said the tour will be stronger if players are, quote, more closely aligned with the commercial success of the business. As we covered in a previous episode, the PGA is merging with Live Golf and the DP World Tour. SpaceX is reportedly exploring an initial public offering for Starlink as soon as next year. According to Bloomberg News, the company has been moving its

satellite business into a subsidiary, But Elon Musk posted, quote, false on X and did not elaborate. And finally, we've got one more headline that broke after our regular recording. So I'm coming to you now from my home in Brooklyn. OpenAI's board of directors has ousted CEO Sam Altman from the company. In a blog post, the company said, quote, Mr. Altman's departure follows a deliberative review process by the board, which concluded that he was not consistently candid in his communications with the board, hindering its ability to exercise its responsibilities. The board no longer has confidence in his ability to continue leading OpenAI, end quote. The company's chief technology officer, Meera Marathi, will serve as interim CEO.

For more on this developing news, check out our special episode from the weekend. So we predicted last year, and this is when we got right, that inflation would fall as fast as it had accelerated, and 3.2%. I mean, we're bumping up against the Fed's target of 2.5%. I thought the more exciting news was actually that inflation was coming down in the UK where it had been frighteningly high. I mean, people don't understand. Inflation starts revolutions because inflation, you get reminded every day. You go to Kroger's and you have your weekly list of groceries. And this year, it's $180, not $130 or $140. I mean, it just hits you every day and you get angry and you start

blaming, you can't help it, but you blame the current leadership, whether it's their fault or not. So inflation is always an existential threat to the current people in power, mood around the country. So I'm thrilled to see it come down. Also, the markets are ripping because everyone thinks, well, maybe we're going to get the punch bowl back. And that is non-market artificially suppressed interest rates that make borrowing money and buying stocks and bidding up stocks part of kind of standard operating procedure. So the markets just began to rip, especially the growthy stuff that's highly dependent on low interest rates because they need money to finance their companies because they're losing money to finance this incredible growth. So it's less expensive to finance this growth. And the cash flows that the market discounts back that they're expecting in the future get discounted back at a lower rate, all adding up to this enterprise value that increases dramatically in a low interest rate environment and decreases dramatically when interest rates accelerate.

So this is probably the biggest news of the week. By the way, do you want to hear my 10 Downing story, Ed? Do I have a choice? True story. I got contacted by a special advisor to the prime minister and said, we hear you're in the UK. We'd like to put you on some sort of advisory board around tech or media. And I got very excited, bragged to my kids, put on a suit and tie, drop everywhere that I've been invited to attend Downing. I roll up in my Uber Lux, because this was a big day for me. I bomb out. There's a huge crowd outside of 10 Downing. I cut past the line. I'm like, I'm sorry, I have an appointment. And I go up to the security guard and all the machine guns, and they say, ID, please. And I get my ID, and he's like, I'm sorry, I don't have you down on the schedule. And I'm like, you know, of course I turned into the real Scott, which is an arrogant prick. And I'm like, well, you need to check your list again as I have an appointment here. And again, he's like, I'm sorry, you're not on the list. So I called the individual who set this all up and

she picks up the phone and she's like, oh my God, I'm so sorry. We have big news today. I guess David Cameron's back in government. They sacked a bunch of people. It's like, I forgot to call you. We're not meeting with you. And I'm like, no problem. Got back in my car and took off and had to go back. And I walk in and everyone's like, what was it like? Did you meet the prime minister? And I'm like, no, they didn't have me down on the schedule. I'm back at home.

Anyways, that was my brush with UK greatness. By the way, sorry, just on the inflation point, I think we should mention that UK inflation is coming down, but if you look at food prices, food prices are up 10% year over year. It was energy that brought it down, right? Exactly. It's the energy prices that are down. So if you think about it from an actual UK consumer experience, the UK still has a ton of work to do on inflation. Yeah, no doubt. But it was crazy town. I mean, the UK had this, well, there's peanut butter and chocolate is a good thing. I don't know, nitro and glycerin or, I don't know, spinach and I don't know, what's something else that's bad?

Beets or something. Combination of high inflation and low productivity. The UK is the only nation in Europe that hasn't grown in five years. 90% of their IPOs over the last 10 years are below their offering price. And when you look at the assets the UK brings to the table, a democracy, incredible universities, a massive amount of capital, really impressive education system. The entrepreneurial culture here, I would argue it's here, but it's mostly around serving other rich people. It just makes no sense that this country wouldn't be, quite frankly, booming in an information-driven economy. But they said, I know, how can we elegantly fuck this up? And they managed to do it with Brexit. And also, this head-up-your-ass economic policy is where the last prime minister said, I know, let's cut taxes on the wealthy, but they can't print money the way we can.

So the market said, sorry, that's a really bad idea. So the UK has a story of snatching defeat from the jaws of victory, just like the English national team in World Cup. But anyways, don't cancel meetings on me, 10 Downing. How embarrassing is that? How embarrassing is that? I just, I'm trying to imagine that moment where you you got the call and then turned to the security guard. You're like, oh, yeah, yeah, actually, you're right. I'm not on the list.

Oh, never mind. I didn't even say anything. I just literally, literally slithered away. You know that Homer Simpson's meme where he goes back into the bushes? I couldn't even look him in the eye. I just kind of stepped back and looked away. I was like a dog that's been caught in the trash. Like they won't look at you.

That is awful. If I don't look at him, you know, if I don't look at him, he doesn't exist. They're trying to get into a nightclub. Anyways. It's awful. I've done a lot of that. Yeah. A lot of that.

I have friends inside. Xi Jinping. Xi and Biden meeting is really good news because effectively the largest tax cut in the world right now would be if the world's largest and second largest economy is kissed and made up and said, all right, our IP, our innovation, your manufacturing might, let's, you know, let's boogie together and cool things down. And I think they see, I think they both have a mutually vested interest in kind of re-embracing, if you will. And so I think that's, I think the market in the world really likes to see that. Can I just, sorry, I just want to point out one other thing on China. Oh, fuck, you're getting opinions. That really bothers me. Go ahead. Go ahead. Yeah, that's right. The other thing that they mentioned out of the meeting was the fentanyl crisis, and it's sort of a serious note. But I just, I do really appreciate the fact that Biden is finally pressing Xi Jinping on the fentanyl crisis, specifically the fact that all the fentanyl that's coming through Mexico is basically all

being produced in China. And they came out of that meeting with, you know, they called it an outline of an agreement of how they're going to address this issue. And it's possible that it was just kind of a message to please voters like myself. But in my view, this issue just deserves so much more attention. 77,000 fentanyl deaths in the past year. I'm just glad that Biden is finally recognizing it and addressing it publicly and apparently taking steps to prevent it. Like you said, I hope it's real because it is. We have people close to us here at Prop G that lost family members because of fentanyl. So it is, you just hear tragedy after tragedy. And so many, I mean, 77,000 is just insane.

And the way the media reports on it, it's like, oh, 77,000 overdoses. It's like, these are not overdoses. This is just, these are poisonings. It's like these are not overdoses this is just these are poisonings it's like biochemical murder basically. Bio-warfare is one way to look at it that's really interesting yeah just moving on Catalan we gotta give props to our analyst Mia Silverio she called this she found I tasked the team with saying what are the outer rings of the ozempic economy and she found these two companies that are suppliers and said, these are probably good buys right now. Their stocks have been hammered. And one of them was Catalan. And then literally a week later, the stock pops 13%. So let's give

all our money to Mia. She should be a hedge fund manager. The PGA Tour, this is smart. It's good business practice to give the people driving value in your company, make them, if you want people to act like owners, you got to make them owners. And them saying to their best athletes, or basically to everyone, here's a small, here are options on equity in the league. That's just smart. Silicon Valley really did kind of pioneer this whole notion that you should give equity or ownership to everybody. It just didn't used to be like that. It used to be just the senior management. And I mean, even just here at Prop G, I don't think this is the kind of company that gets sold, if you will. But we make good money and media is a great business.

So we have profit sharing. And the result is, you know, the people feel like owners and they don't take massive amounts of time off around key holidays like Thanksgiving. Oh, wait, never mind. Never mind. Never mind. Scratch that. Scratch that. Anyways, SpaceX. Look, you know, I don't like the man. Starlink is a juggernaut. This thing would be a monster. Just a monster. I don't know if it's going to go public next year, but when it does, it's already built one of the best brands in the world. So I think it's going to be just enormous. And we'll see, but it is genuinely a 10x better product. Everyone I talk to that buys Starlink

says this is a better product. And there's all sorts of commercial uses for it. I think planes are going to have it or commercial aviation is going to have it. But even homes in more rural areas, I guess you buy Starlink, it's pretty easy to set up and boom, you have lightning fast internet and broadband. They're expected to generate $10 billion in revenue next year, which is just huge. And according to Elon, the company's now reached break-even. And that's a massive turnaround from last year when he said the goal was to, quote, not go bankrupt. I mean, he always says stuff like that. But yeah, incredible business and very lucrative investment, probably. I believe it's the most actively traded private stock whenever I get... Or SpaceX is. Yeah, SpaceX. Whenever I get emails from those secondary

market platforms, they list the most actively traded stock in the secondary market and SpaceX is always at the top. We'll be right back after the break with a look at ByteDance. We're back with Profit Markets. Reporters from the information obtained new financial data on TikTok owner ByteDance, and the numbers showed the Chinese company is continuing to grow. Second quarter revenue surged more than 40% to $29 billion. That growth rate was far higher than competitors. Meta's revenue, for example, rose 11% in the same period.

The new data was also broken out by region and showed sales from outside of China accounted for only 20% of the company's total revenue. Since TikTok is not available in China, its Chinese equivalent is another ByteDance-owned app called Douyin. That means TikTok generated at most $6 billion in quarterly revenue. Scott, we've discussed ByteDance and its dominance before. Any reactions to this newer data? I mean, the shocking thing here is how little revenue as a percentage of their total revenue they're getting from reportedly getting from TikTok abroad.

And I wonder if that's their attempt to say TikTok is not the juggernaut that all of these pundits are saying, and it's not that big a company and you don't need to worry. I just wonder, are these numbers bullshit or are they just numbers that they make up to try and thread the needle between ensuring this company is valuable if and when it goes public, but reallocating the revenues to places outside of the U.S. such that it doesn't raise the suspicion or inspection of U.S. regulators and media here. What are your thoughts? Yeah, I guess the thing that annoys me is this is one of the biggest social media apps in the U.S. and in the world. And it is a reminder of how little we know about ByteDance and how little

we know about how it makes money. And it just feels so dangerous because one of the great benefits of having a publicly traded company is just the fact that you get general disclosures. We know how Meta makes money, so that enables us to know what questions to ask. And more or less, it helps us figure out how to regulate it. But ByteDance is this total black box. So I guess my question to you would be, do you think the US, before we flat out ban the app, as people have been talking about, do you think we should be putting more pressure on China and on ByteDance to start releasing some semblance of regular financial disclosures? Or is that just a lost cause? Yeah, good luck with that. I think we banned the app. And I think under the threat of a decredible threat, where we actually are on the eve of

banning it, I think they'd probably say, well, okay, we'll spin it out to U.S. interests or, you know, put the servers all in the U.S. with absolutely no links back to engineers in mainland China. Until that happens, I don't know. I don't think you can trust anything that's coming out of a private company, any of the numbers that come out of a private company. They are, you know, I think Alibaba's numbers are real. When they want to monetize or want to access Western financial markets, they realize they have to play by the rules. And I think those disclosures have veracity to them. A private company, I don't, you know, I think they just sat down and said, what would be best for the company and the CCP? Not in that order. But let's

assume the top line growth of 40% and the number 29 billion are real. What that means is based on recent private transactions where the company bought shares back from employees, that ByteDance is a great investment right now because the revenue multiple at Alphabet is 5.8. And by the way, that's down. Meta at 6.9 and ByteDance, it's 1.9. And ByteDance, according to this, is growing faster than Meta at 23% and Alphabet at 11%. And again, ByteDance grew 40%. So the number and why this should be kids. Kids in the U.S. spent 52 minutes a day on Netflix. Right there, that's a problem. Jesus Christ, our kids are spending an hour a day on Netflix, whatever. I spent a lot of time on TV, probably more when I was a kid. YouTube, 77 minutes. I still think YouTube is probably the most under-recognized platform media company. People are so obsessed

with meta and reels and TikTok. YouTube is taking share from TV like crazy, but then wait for it. TikTok, 113 minutes a day. So if the CCP owned YouTube and Netflix, would we be down with that? The problem is that people of my generation who get to make the decisions and the people we elect and the people in the White House either are on TikTok very little or they're actually not on it. You're not allowed to be on it. And I think the problem is TikTok's hiding in plain sight. I don't think they understand just how good it is, how dominant it is. I think they're more of a juggernaut than people think. I think it's the only internet company in the world right now that is sandbagging its numbers such that it doesn't raise the alarm

bells. And from an investment standpoint, if you had access to shares in the private market of this company, I would argue it's probably a pretty good value and that it being banned in the U.S. maybe has already been priced in. Yeah. Do you think that's the reason that it's so undervalued is just there's like it's all just regulatory risk? Yeah, I think that's right. Also, people don't know how to buy stock in the private market. And there is some real geopolitical risk here. The big players, you know, the institutional investors, you know, they have such good jobs. They're kind of paid to just not get fired. They have such good jobs that you really want to be the guy that came in at a quarter of a trillion dollars in the bite dance.

And then a week later, Biden does ban it. That's how you get fired. But there's just no getting around it. It's trading at a substantial discount. The two big U.S. retailers Target and Walmart reported earnings last week. Target's revenue fell 4%, but due to tighter inventory management and lower costs, the company increased its net income by a whopping 36%. Shares rose more than 17% after that report. Over at Walmart, it was a different story. Sales rose 5% and earnings beat expectations,

but the company also gave a cautious outlook on consumer spending for Q4, which slightly spooked the market. The stock fell 6% after the report. Scott, this is all coming after a slightly weak retail sales report from the U.S. Commerce Department. Retail spending is down in October. It's the first decline we've had since March. What's your overall outlook on retail right now? So the most kind of seminal business influence of 2023 hasn't been AI or supply chain. What's your overall outlook on retail right now? So the most kind of seminal business influence of 2023 hasn't been AI or supply chain. It's been the year of efficiency. Progrudently, I have to acknowledge that when Elon Musk cuts the staff at Twitter 80% and it still

has, you know, it's still up, it's still running, most consumers wouldn't know. I mean, they might seem more Islamophobic and drastically more anti-Semitic content and more hate speech. I mean, it's definitely become the sewage system of a sewer. But in terms of the actual functionality, the fact it was able to cut 80% of employees kind of shows this company was pretty fat. And then Meta came in and said, we can get the great taste of lower costs without the calories of declining revenues, and we're going to triple our stock price. And the year of efficiencies is now extended to retail, because if its sales aren't up, but its profits jump dramatically, unless there was some sort of income gain that it

recognized due to accounting, essentially that all leads to the same place, and that is they have cut costs. So this was kind of the year of efficiency, it sounds like, for Target. What was interesting is this is definitely a tale of two worlds. Walmart had the flat sales or the anemic sales without the cost cutting. The CEO there, Doug McMillan, said that they could have done better keeping a lid on costs and warned about slowing sales. So in sum, it looks like Target got more kind of Zuckerberg-y and musking around cost cutting. Cost of sales increased 5% while operating an SGA at Walmart declined 3%. And the reasons for resilience, Walmart makes more than half of its annual revenue from selling groceries. And I wonder if

Walmart is now on the Ozempic sell list. I just got to think. So 40% of America is obese, 70% is obese or overweight. I would imagine it's that or more in terms of Walmart shoppers. And so when you get half your revenue from grocery and people are probably going to have a few less high margin salty snacks, ice cream in fatty foods in their cart, that's going to register an impact. And even the Walmart CFO acknowledged that impact in their last earnings call. So I think Walmart, because of its dependence on grocery, is on the Olympic hit list right now. Yeah, just some more detail on Target's year of efficiency. So yeah, their sales are down 4% and their cost of sales are down 8%, hence why you're seeing that earnings bump. But the main takeaway is that

they've fixed their inventory management. And I don't know if you remember when we discussed Target around a year ago, the trouble is that they've fixed their inventory management. And I don't know if you remember when we discussed Target around a year ago, the troubles that they were dealing with this thing called inventory glut, which is basically that downstream of all these supply chain issues that we were seeing, they had miscalculated their orders and they just had too many items on their hands. And so now their inventory, their total inventory is 14% lower compared to last year. What I was surprised by is the extent to which fixing that, that is the inventory management, can reduce your costs. And I know you have some experience in retail.

I mean, you started an e-commerce company 20 years ago. So talk to us about the relationship between inventory management and expenses and how that can positively impact earnings. of capital. And as long as you hold those beach towels in a warehouse or they're in transit, the value of those towels goes down. And that $100, you're still paying interest on it. You're still paying a cost on it. So the faster you can move stuff through your supply chain and get consumers to spend $130 on those $100 of towels, the more profitable you are. So the number of times you turn inventory is directly correlated to how profitable you are. And as a matter of fact, the best run retailer in the world has inventory turn of infinite, and that is Amazon now gets the majority of its e-commerce revenues from its third-party retailers where they take no inventory, where they just create the platform, match buyers and

sellers, but they never actually take license to the inventory themselves. They never have to put out their own capital. They never have to put these items in a warehouse and watch them atrophy in value. So that's the best inventory turn model in the world. And that's why platforms are so powerful is you never actually have to take license now, put your own capital for it. In a case like Target or Walmart, they've got to buy the case of ginger ale. So the faster they can get that money back at a profit is directly correlated to the profit. So it's all about supply chain. Now, the focus on supply chain has been so intense on efficiency that during COVID, what

we found is there was no slack. What do I mean by that? You're in the business of garage doors. You sell garage doors. You've figured out a way with technology and information systems and flexible supply chain and real-time analytics that once you take an order, once you build and get all the parts together and import the stuff from Turkey and from Indonesia and you assemble a garage door, literally the next day it's out the door. You have very few garage doors in inventory. Well,

that's good, right? Until COVID shuts down the supply chain and that factory in Turkey gets shut down and you can no longer get whatever it is, that widget or template that you needed for the garage door. And guess what? You have absolutely none in the warehouse. And so what some brands have done is they have purposely said, we need our inventory levels to raise a little bit, especially high margin retailers, such that if there is an interruption in the supply chain, we have a little bit of slack. Because everything was optimized for efficiency, including when I was on the board at Urban Outfitters, we had just too much manufacturing and production coming out of small regions in China. So when there's a supply

chain interruption there, it literally kind of shuts down the stores. But inventory turn, supply chain information systems, this is really what Walmart does really well. They hold on to shit for less time than almost anybody. They're like, once we own it, it's a ticking time bomb. It's going down in value. We want money for it. We are in the moving business, not in the storage business. And again, the most profitable company or the best retailer, not even the most profitable, has a $1.5 trillion market cap versus Walmart at $460 and Target at $60 because their biggest business, they don't take inventory risk. They're just a platform. And then finally, there was an interesting topic on earnings, which was theft. And Target's been talking about how it's been struggling with

theft for a while now. And it said that that was the reason that they closed nine stores this quarter. And another topic that came up was the glass panel that all of these retailers are putting in front of products, then you have to press a button and someone comes and opens up the door for you. The Targeto said he thinks that customers actually like those panels he said he said quote actually what we hear from guests is a big thank you what because it means like the products they want are in stock but then there's a survey showing that 26 of consumers say they'd shop at a different store rather than ones where the products are under a lock and key. Another 26% said they'd shop online instead. I mean, I know how important this is in terms of earnings,

but it's fun to talk about. What are your thoughts on locking up products behind that? My thoughts are the CEO of Target thinks we're idiots. I mean, that's just not true. And I don't like to shop. I don't like to go out. I'm very privileged. I can get shit. I get everything kind of delivered to my house. But as I'm heading out of town, I'm like, okay, I need some deodorant. I just need stuff, right?

And so I went to a CVS. I couldn't get over. Everything was behind these little guarded plastic things. And I thought, and you press it, and it says customer service and deodorant. And I don't want some guy knowing that I use old spice or whatever it is I use, you know, to get rid of my musk. I just think there's got to be a better way because it really slows down the shopping experience. It's frustrating. And I hope that they can come up with some sort of system. There's got to be laws. I think that, oh God, I'm going to sound like Giuliani or a total

Republican here. I think you've got to figure out a way to put the algebra to turns in place. And that if you steal this shit, we're going to find you. It really is getting kind of crazy. And I think it really, it's such an enormous tax on people. You know, it takes you 20 minutes to do what should take five minutes. I sound like a total Karen right now. By the way, I bought an SUV. It's a white Suburban. I named it Karen.

Get it? White Suburban. That's why people come to the show, Ed. We'll be right back after the break with a look at luxury watches. We're back with ProfgMarkets. Prices for luxury watches on the secondary market have dropped to a two-year low. That's according to Bloomberg's Subdial Watch Index, which tracks the 50 most traded watches by value. Since the index's peak in 2020, pre-owned Rolex and Patek Philippe watches have declined by 28% and 47%, respectively. Scott, the pre-owned watch market had a massive spike

around 2021. I was around the time when crypto was soaring. It's now come back to earth. Do you think it's fair to say that this was a bubble and that the bubble has popped? I wouldn't say it was a bubble. I think that the 1% economy was a gift that kept on giving. And the watch industry has done the same thing as the diamond industry. And that is they've managed to create this illusion that these things are store of value. And also for the first time, the luxury market is taking a bit of a hit. It's not a bubble popping. It's more like a healthy correction. And someone sent me the

charts of LVMH and Netflix. LVMH is down substantially and Netflix is up 47% and said the market thinks the recession is coming and people are going to be spending more time at home and spending less money. And I think that there's some of that baked in here. Also, I just don't think you can ignore the kind of the great white shark in the watch market, and that is Apple, who has been very steadfast, committed tons of capital, iterated, and now the Apple Watch sells more units than the entire Swiss watchmaking industry. And I think that's catching up to them. In addition, I just think wealthy people are a little bit feeling a little less confident than they used to maybe. Why do you think that is as a wealthy person? My horns are definitely more in. I've had a bad year in the market so far, year to date. And also,

I was one of these idiots, but hindsight's 20-20. I got mortgages with five-year terms, and they all sort of came to term in the last year or coming to term in the next year, meaning I have to refinance them. And instead of refinancing them at 2.4%, I have to refinance them at 7 or 8. And so what I've done is I've taken, and this is, again, as a position of privilege, I've taken some of my excess capital and I've just paid off my mortgages. The way I see it is that's guaranteed return of 8%. I'm like, well, okay, just pay down your mortgage and you're getting 8% a year. Whereas if rates had still been at 3%, I would have rolled into another mortgage and I would have had a lot of excess capital to buy more stocks, which would have sent the markets up

and perhaps buy another Panerai. So I don't think there's any getting around it. Interest rates absolutely dampen or squelch discretionary purchases because you have to spend more money on the essentials. Or in my case, you spend, you decide not to finance your housing because the costs have gone up so much. I found it interesting that there are all these watch indices that are basically treating these watches as if they're a legitimate asset class, which maybe they are. Do you think of watches as a viable asset class? Would you ever buy a watch as an investment? Have you ever bought one as an investment? True story. When I was 19, my mom bought me my first nice watch. We did not have a lot of money money it was like a really cool tag heuer and i'm at crew practice and the thing the buckle comes off and i watch my watch slide down the oar into

bologna creek and marina del rey literally five days after she bought it for me oh yeah it was like it was really was like a very upsetting at the time anyways i probably own four or five i don't have a ton of watches but you're not a watch guy, maybe. Yeah, I don't have a ton of nice things. I have nice homes. I don't own a car. I'm more about spending money on travel and also giving money away. Hashtag don't kill me. But no, I don't think watches.

The watch industry and the luxury industry is trying. The only thing I think of it as an investment is I think it'll be a nice moment if I don't lose them before then to give them to my sons on key moments when they get older. Hopefully, the Panerai will still be in, and I think it will be. That'll be a nice moment. But the diamond industry and the luxury industry and the watch industry have all created this myth, and the handbag industry is trying to do this, that these things are stores of value. And generally speaking, they're not. The majority of people never sell them. It's pure consumption.

It's not investment. And you might think it's investment to make you feel better or rationalize your consumption, but no, you're spending the money. That money's gone. So I assume your advice to young people would be just never consider this an investment. Look, I think that having one nice watch, I think it's a wonderful gift. It was meaningful when my mom bought me that watch. It was meaningful. And it's very strong signaling. A lot of people will say you can basically sum up a person in terms of their economic weight class by looking at their shoes and looking at their watch. And I think when someone like you is in your mating years, I empathize with wanting to have a nice watch. Well, let me ask you, do you own a nice watch? I have a Tissot. Yeah, that's nice. Was it given to you own a nice watch? I have a Tissot. Yeah, that's nice. Does it, it did, was it given to you in a meaningful environment or? Yeah, yeah. My, my, my dad

gave it to me. It was, it was very nice. And I mean, I talk about watches all the time with my friends and. What's your dream watch? This is, I mean, this is the discussion we're having. I mean, I do actually love Rolexes, but the, they are so, they are so ubiquitous at this point in terms of like that's the banker bonus watch that everyone gets. So I don't know. It's a tough one. My first, my ex-wife, I should say, bought me a really beautiful, what did she buy me? No, I don't remember. She's out of my life.

A really meaningful gift. That's good. Yeah. And I buy watches. I buy watches for employees of my companies. I think it's important and meaningful, and I like it. Keepsakes, whatever they call them. It's an entire industry, but you buy them for consumption.

They are not stores of value or investments. Let me put it this way. If you end up selling your watch, it means things are not going well for you. Yeah. All right, let's take a look at the week ahead. We'll see the minutes from the last Federal Reserve meeting, and we'll also see earnings from NVIDIA and a few more retail stocks, including Lowe's, Best Buy, and Dick's Sporting Goods. Do you have any predictions? Yeah, the year of efficiency is hit retail, and we're going to see over the next couple of quarters really outstanding earnings in contrast to really lackluster revenue growth from some of the bigger retailers. Best Buy is a really

well-managed company, and I would imagine that they have adopted this strategy almost right away. So I think we're going to see shockingly strong earnings in the face of anemic top-line revenue growth in the world of retail. This episode was produced by Claire Miller and engineered by Benjamin Spencer. Our executive producers are Jason Stavros and Catherine Dillon. Mia Silverio is our research lead and Drew Burrows is our technical director. Thank you for listening to Property Markets from the Vox Media Podcast Network. Join us on Wednesday for office hours and we'll be back with a fresh take on markets every Monday. Happy Thanksgiving, everybody. You held me in kind reunion

As the world turns And the dove flies In love, love, love, love