The Prof G Pod with Scott Galloway - Prof G Markets: Live From SXSW

Episode Date: March 11, 2024

Live from SXSW at Atlassian’s Austin office, Scott and Ed break down Nelson Peltz’s white paper on Disney and the dangers of a proxy fight. They also discuss the latest TikTok ban and Scott explains why he thinks this one will work. Finally, they address the big question: given the tremendous AI-driven market rally, are we in a bubble? Learn more about your ad choices. Visit podcastchoices.com/adchoices

Support for this show comes from Constant Contact. If you struggle just to get your customers to notice you, Constant Contact has what you need to grab their attention. Constant Contact's award-winning marketing platform offers all the automation, integration, and reporting tools that get your marketing running seamlessly, all backed by their expert live customer support. It's time to get going and growing with Constant Contact today.

Ready, set, grow. Go to ConstantContact.ca and start your free trial today. Go to ConstantContact.ca for your free trial. ConstantContact.ca This week's number, 26. That's the percentage of the nation's wind energy produced in Texas. Number one in the nation. Ed, true story.

I have a site where I send out pictures of my windmill. I call it OnlyFans. It's actually surprisingly tame. I had a really dirty one, and I told it backstage, and I'm like, no, don't do that. Don't do that. Are you sure? Actually, I don't know if you heard this, Ed,

but you know how a woman in Texas gets access to legal abortion? How's that? Trespass. You asked for it. You asked for it. Welcome to the Austin office of Atlassian. By the way, who came up with that name? Whoever came up with that name either was a bully or was bullied a lot.

Atlassian? That is serious. I mean, I'm on testosterone. Atlassian? Anyways, here we are at the Austin office of Atlassianian for south by southwest was that right that was amazing that was perfect um yeah i can tell atlassian's probably already regretting this sponsorship but that's okay um we don't have much time so we're just going to get straight into this and i'm going to start with our weekly review of Market Vitals. The S&P 500 hit a new record.

The dollar fell. Bitcoin reached an all-time high. And the yield on 10-year treasuries dropped. Shifting to the headlines. In his House testimony, Fed Chair Jerome Powell said the central bank is still on track to cut interest rates this year. However, he remains cautious around the timing of those cuts. Wall Street now expects that the first rate reduction won't come until June. China set its GDP growth target for 2024 at 5%. That's the same target rate

it set last year when growth came in at 5.2%. However, Beijing did not offer specific details on how it plans to achieve that goal. The EU fined Apple $2 billion for anti-competitive conduct. Regulators said Apple has been using its app store to obstruct competition with its music streaming rivals, mainly Spotify, for a decade. And finally, Elon Musk sued OpenAI for abandoning its founding goal of benefiting humanity and instead prioritizing profits. In response, OpenAI published past emails from Musk which encouraged the company to raise $1 billion in funding and become, quote, less open. Where should we start?

So let's start. I just saw Elon. I was over at the Four Seasons and I saw this guy in a cowboy hat. And I saw Trevor Noah. He's so handsome. I couldn't stop staring at the guy. And then there was Elon Musk.

Anyway, so look, this, if you look at the emails, he's basically suggested that he made a play for the company. He wanted to take it over and said that they, he actually suggested that it turned into a for-profit. And they said, that's a great idea, but we don't want you involved. He made a play to be the CEO and the largest shareholder. And they said, no.

And I joke that, you know, I sold Netflix at ten bucks a share It's now at 520. So I'm angry. I've lost power. I've lost wealth. So I'm gonna sue Netflix There is no written agreement between the two between on Elon Musk and the company that they would pursue any any specific vision so this is nothing but a nuisance lawsuit and This is bad for the economy, because if you start a small firm and your old firm or other firms start legally harassing you, it's very difficult to raise money. It's very difficult to attract employees under the auspice of a lawsuit. So I just think this is all around bad. Hopefully a judge will recognize it for what it is

and dismiss it right out of hand. Now, what are real binding contracts? When you tell someone that you're going to buy their company for $44 billion and you sign up and down that you're buying it, and then you decide that in a fit of mania, you may have overpaid for something worth $10 billion, and you try and get out, that's an enforceable contract. When you agree to pay people severance if you fire them, and then you say, no, I'm not paying you, that's an enforceable contract.

What he's claiming is not, there is no contract. So I just think it's a nuisance lawsuit and kind of the love language of Elon Musk and Donald Trump appear to be lawsuits. So anyways, I think that goes nowhere. Exactly. And the point is that the suit is for a breach of contracts. But as you mentioned, you look through the lawsuit and you get to around page 41, you start to realize that actually there was no contract at all. All they have is an email chain where Sam says, oh, it's going to be open source. It's going to be nonprofit. This is going to be good for humanity, et cetera.

And then the quote unquote agreement that they talk about is an email from Elon Musk saying, I agree. And that's it. And so every legal analyst will tell you that is no sufficient grounds for a breach of contract lawsuit. Shall we move on to the Fed chair and his statements in the House? Chairman Powell, I think, I thought it was wonderful that Taylor Swift was Times Person of the Year. I cannot stand her music, but I'm a total Swifty. I think she's an inspiration. I can't imagine a better role model for a young woman than Taylor Swift. You know, she's nice, pays her people well, you know, doesn't have profanity in her songs, doesn't appear to have had a shit ton of surgery. Seems to be in a healthy romantic relationship. Is a baller billionaire. I mean, how could you carve a better role model

out of a factory of lesser role models for young women? So I'm a huge Taylor Swift fan. She won person of the year. In terms of who's had the most impact last year, I would argue it was actually Chairman Powell. Because inflation is how revolutions start. They don't start because of an invading army or people are upset about laws being passed. They start because every day someone shows up and they say, I can no longer afford

beef. I need chicken. I can no longer afford chicken. I need rice. Their purchasing power goes down. That's literally how societies digress into chaos, or most often it's this boring thing called inflation. And Chairman Powell raised interest rates 500 basis points in 15 months. That is historic. No one's ever done that before in a Western economy. And he got all sorts of shitposting from senators on the left saying that, well, people can't afford their mortgages and credit card payments, and inflation has dropped down below 3%. And here's where we are with our economy right now. We have the highest GDP growth of any large economy in the world, with the exception of the Kingdom of Saudi Arabia, while having the lowest inflation. That's almost impossible to pull off.

We have the most dramatic job growth in history in the last year. I mean, it's literally, if you showed these numbers to an economist, they would say that's impossible. You can't do it. The market's touching new highs. Now, the problem is similar to technology or what William Gibson said about technology is prosperity is here. It's just not evenly distributed.

And so a lot of people are upset and they have every right to be upset. But that's a function of policy choices That's a function of income inequality because of tax structure that transfers money from lower middle-income households to rich households But if you were to try and architect an economy, I mean literally this is it and just speaking in terms of America right now We're food independent. We're energy independent. Harmless, friendly Canada to the north, harmless Mexico to the south. Ocean's protecting us. No one is lining up for Chinese or Russian vaccines. The greatest technological innovation of the last 20 years is within a seven-mile radius of San Francisco International Airport. So for all the

ship posting in California, they basically recreated the entire global auto industry in terms of market capitalization in the last six weeks. So something is working here. And we're also in striking distances, much controversy as there is around some of the things going on on Canvases. We're in striking distance of becoming the first multicultural democracy

in the history of the world. 51% of Harvard's incoming freshman class is non-white. I mean, we are, everyone, every nation in the world would kill for our problems. Remember how China was supposedly going to kick our ass and was going to surpass our economy? In the last three years, the Chinese stock market has shed $6 trillion in value. There are seven companies in America that have added $3 trillion in the last 12 weeks. So you may not like America. And I worry that we're raising a generation of people

because media likes to catastrophize. We're raising a generation of people that don't like America and that's fine. But we're at least bad than anywhere in the world right now. And I think a lot of that reverse engineers to very bold actions taken by the Fed chair. So as much as we were hoping the kind of the punch bowl

was gonna be put back in front of us such that we could have really low interest rates to drive growth, which is great, which is fun, especially for wealthy people who can borrow against their stocks and make more investments. This guy, I defer to him. He has pulled off a masterclass in how to essentially create a Goldilocks economy. Under the auspices, I mean, you got to give the president some credit here, but the economy here and the level of prosperity is staggering. Unfortunately, because of tax policy or idolatry of innovators

and sort of a lottery optimistic economy where we all believe we're going to be in that 1%, and I can prove to all of us mathematically that 99% of our children will not be in the top 1%, we have a massive amount of prosperity, but it hasn't translated to progress, right? And that is lower and middle-income households are actually doing better,

but not nearly as better as the amount of prosperity recognized by other people. And we're reminded of that benchmark and that we're not doing well every day by algorithms. Long-winded answer. I think he's doing a great job We should move on to The EU finding two billion dollars for anti steering violations. One of my heroes is EU competitive Commissioner and Margaret vest year. She's not she's just not impressed or scared of these guys And if you think about the US you would you would not want to give up big tech for all of their

downsides weaponization of our elections right income inequality teen depression I mean there's a lot making our discourse more coarse there's a lot of negatives on a net level they're positives they add tremendous prosperity create a ton of good jobs a lot of of utility, right? The problem is with the word net. And that is we tend to make binary decisions because that's the easiest way to process information when we say, well, if they're a net good, then leave them alone. Well, pesticides are a net good.

Fossil fuels are a net good, but we still have an EPA and an FDA. So we should absolutely hold them accountable. Go to Europe, they don't have nearly the upside. They get all of the downside. They get all of the teen depression and weaponization of their elections and the coarse discourse. They get a fraction of the upside. There are very few hospitals or universities with names on the sides from Facebook or Google billionaires in Cologne or Glasgow. So like we get all the shit. We're

the sewer system, but we're not getting clean water. And so that is stiff in the backbone of EU regulators. And their innovation, quite frankly, is regulation. What was interesting about this fine is that estimates were going to be that it was 500 million. It was 2 billion. Now let's talk about why they were fined. They were fined because Spotify has said, we can't compete. This is anti-competitive behavior. And it goes something like this. If Visa, think about the App Store at Apple. I think of the best analogy as a credit card company that provides security, easy transfer of information, right? The user or the merchant gets paid, the consumer knows or has incredible utility, I give a credit

card. So there's a lot of technology, trust, safety, security, right? In exchange, Visa or Amex gets somewhere between one and a half and 3% of the transaction. That is effectively the role the app store plays. Surety of the transaction, security, certain safety checks, quality control, and they take between 15% and 30%. Now, what if Visa charged 30% credit card fees, 30% to every retailer? And then they decided, you know what? We see opportunity. We're going to go vertical into retail, and we're going to buy Lululemon. And if you shop at Lululemon, we, Visa slash Lululemon, don't have to pay the 30%. So Lululemon can price their products 30% below Allo or Nike. No retailer could compete with Visa slash Lululemon.

That is exactly what happens when Apple goes into the music business and Spotify has to pay that 15% or 30% tax, but Apple Music doesn't. So when a company that owns the rails starts competing directly and going vertical, that is the definition of anti-competitive behavior. And Marguerite Vestager saw this and has fined them $2 billion. And these fines are perfect, except they have one flaw.

They need another zero. And that is $2 billion sounds like a lot of money. It's not. It's basically their free cash flow for, I think, about nine days. That's not an exaggeration at Apple. If you had a parking meter in front of your house that costs $100 an hour, but the parking ticket was 25 cents, you would break the law. And that's the series of incentives we have in the United States. We spend years going after these companies. We find them nine days, nine weeks of their cash flow. In exchange, they continue to engage in this behavior where they make hundreds of billions of dollars in shareholder value. So the fines are fine. They just all lack a zero. This was

the biggest in a while. I think it's a great thing. We'll be right back. We're back with ProfitGMarkets. As we've discussed previously, Disney has been battling a proxy fight with activist investor Nelson Peltz. He wants to replace two board members and issue a new plan for the company. Well, last week, his firm, Triand Partners, released a white paper that laid out that plan. The document recommended, among several things, merging Hulu with plus reducing disney's production of sequels establishing a ceo succession plan and quote taking more shots on goal disney shareholders will vote in three weeks whether to appoint nelson and his partner jay rasulo to the board now scott i'm going to turn this to you back in October you predicted that Nelson Peltz would successfully secure a board seat on Disney

We'll find out in three weeks. But for now, I'm just wondering has your position at all changed? So, I don't know if he's gonna get the seat what I would say is the following that The analysis should be done through the lens of governance not who's more popular or who's more like Bob Iger's really likeable Got these great cashmere sweaters, super handsome. You know, he's very good at media. Do you want to come to the premiere of Frozen? I mean, he's really good. Like all of these guys, basically every CEO you meet was the fraternity rush chairman. They're really likable. Nelson Peltz is not as likable, not nearly as likable. Bob Iger should absolutely give Nelson Peltz a seat on the board. Fiduciary is a wonderful word. As a board member, you're supposed to be a fiduciary for all

stakeholders, the community, shareholders, employees. You get your options, you get your pay, and then you're supposed to think about other people. A great way to create a sense of being a fiduciary on a board is if someone buys a lot of stock. That puts them in the shoes of other shareholders. The total amount of shares owned by all of the board members on Disney, many of whom are very wealthy, is $15 million. Pelts is about $800 million. I think right there, he gets a seat on the board. Now let's look at the numbers. The S&P is up, I think, 80% in the last five years. Netflix up 70%. Disney's down 1%. And yet they've managed to pay themselves a lot of money. So if someone shows up and buys $800 million with a stock, they deserve to be on the board.

And as someone who has served on a lot of public company boards, the easiest way to get someone to shut up is to put them on the board because then they have access to public, non-public material information and they have to stop shit posting the company. The other thing you find, I'll use an example. This will be the weakest flex in the world. I bought 17% of Gateway Computer. Remember them? When I say I raised like 80 million bucks and I'm like, cow spots. I'm a brand guy. I get it. They have shelf space at Best Buy. We're going to buy this

thing. It was trading at a buck 50 a share for 78 million bucks. We bought 70% of the company. And I showed up and I said, I demand two seats on the board. And I ran a proxy fight. I got my two seats on the board and I showed up and I first board meeting went through this long presentation. We have a nice brand. We should sell to Acer. I already know the people there. We can sell a three bucks a share. Everybody makes enough money. We're off, we're gone. And they listened very quietly, very politely. And then they said, Scott, we engaged Goldman Sachs two years ago to sell the company. And we've been trying for the last 24 months to sell it. And the lesson I learned, and I'm still learning, is that when you come

into a situation from the outside, what you generally find is that you're not as smart as you thought, and they're not as dumb as you'd hoped. So what I would suggest to Bob Iger is he says to Nelson, come on in, the water's fine. And his ideas are all sort of, they're out there. It's nothing that unique, right? But instead, like almost every, I would say 50 to 70% of really brain-dead corporate decisions that make no sense, it involves a man in a midlife crisis because ego gets in the way. This is easy. Negotiate, fly down there, tell them he's great, play golf with them. Interesting idea.

What, you think we should merge Hulu? And we've been thinking about that, but I'd love to hear your ideas. Would you like a seat on the board? I can't give you two. Would you like one? I'm sure we could figure this out together. Put them on your board

and then stop this nonsense distracting everyone in the company. It's going to cost tens, if not hundreds of millions of dollars. It's going to cost tens, if not hundreds of millions of dollars. It's going to take every senior manager tens of hours each week to deal with this shit and move on. But now it's become about ego. I ruined a company doing this. I started a company called Red Envelope. And basically, the guy who took my job as chairman was a guy named Mike Moritz, arguably the most successful venture capitalist in history.

My partner wrote a memo saying that Mike was using Red Envelope as the dumping ground for the failed products of Sequoia portfolio companies. I got all angry and said, Mike, you are not serving up to your fiduciary duty. Two days later, I was kicked off the board. So I was kicked out of the band that I started. And I was very bored at the time. I was living with my mother, longer story. And a lonely, a lonely guy, lonely bored guy

with a little bit of money is a dangerous person. So I thought I'll start a full-scale proxy fight to replace the entire board because I'm pissed off. And we put, and Mike, who was a master of the universe decided, oh no, our CEO was incompetent, but he decided because I wanted her out. She was amazing. The two of us literally ruined the company, literally ruined it because I was so insecure and angry and he was so insular and master of the universe that neither of us would just go, well, okay, what would be best for the company right now? Why can't we come to some sort of

solution to get back to building shareholder value? It was a really good company and we just fucked it because of our egos. These guys are doing the same thing. Disney's much stronger and has much more immunity than a red envelope, but they are wasting time, they are wasting shareholder value. Put on your big boy pants, put them on the board, move on. You know, I had a lot of follow-up questions, but that was about 10 minutes, so we're going to move on. Okay, sorry. Sorry. A House of Representatives committee unanimously advanced a bipartisan bill last week that would force ByteDance to divest TikTok. And if it doesn't, the app will be banned. Ahead of that committee vote, TikTok pushed a pop-up screen on the app encouraging users to call their representatives and tell them to vote against the bill.

It said, quote, don't let the government strip 170 million Americans of their constitutional right to free expression, and then users flooded Congress with calls. So we'll see if that sways anyone when the bill heads to the floor vote this week. Scott, in July of last year, you called for a ban on TikTok. Yep. You said, quote, do I have your attention? You do. I'm going to pull up a text that's

related here. Okay, good. Go ahead. Sorry, I'm getting bored. He's got to head out. Is the bar open? I get it. I got it. Hold on, hold on, hold on. Let me just read your quote, which is, the platform's potential for espionage is a concern, but its use for propaganda is a clear and present danger, and real action is needed. So is this the kind of action you're looking for? So just big picture. The best thing in terms of playing offense that could happen in the world economically, and maybe from a defense perspective, would be if the two largest economies kissed and made up. The fact that China and the U.S. are withdrawing from each other is dangerous, and also literally the largest tax cut in the history

of the modern world would be if we re-embraced and this Cold War was thawed, because about 30% of everything in this room either came from or came through China. And if we re-embraced and this Cold War was thawed. Because about 30% of everything in this room either came from or came through China. And if we can figure out a way to take our innovation, our consumerism, our capital, and their unbelievable supply chain and labor force, that's just a champagne and cocaine combination that makes everything cheaper in the world. And it also makes us less likely to start firing missiles at each other over the Straits of Taiwan. So I see a strategic imperative and real benefit to China and the US, a thaw in the relations. We should just get along. They have an unemployment problem.

We have an inflation problem. They have a growth problem. I mean, we can solve each other's problems. The company, BYD, is that it? The EV company? They should absolutely come into the US. They're not a security threat. We should have more cheap electric cars. We should have more competition. That's a great thing. That's not a security threat.

Are they going to all of a sudden lock the steering wheels and drive us to Beijing? I mean, what's going to happen? We can figure out if they're transmitting data. Xian, this low-cost apparel manufacturer, sustainability. I think young people, some in this room, your purchasing power has been cut in half over the last 40 years as people my age sequester more and more wealth. You should have the opportunity to buy cool fashion and feel good about yourselves.

And I think that's important. And this company is probably, I think, got this amazing supply chain. They are not part of the CCP, as far as I can tell. Shein should, in my opinion, we've lost a huge opportunity not taking the public on the NYC, the NASDAQ. TikTok should be banned full stop. Full stop. We have let the CCP implant in the back of the head

a neural jack into the wet matter of almost every person under the age of 25. So what if you said, well, the CCP owns the New York Times, CNN, The Atlantic, Washington Post, MSNBC, Fox News, NBC, CBS, and just for fun, let's throw in, I don't know, Gannett. The CCP owns all of them. Would we be down with that? Well, the share of attention commanded people under the age of 25 is greater than that. You are where you spend your time. And the frame of people under the age of 25 is a media company

with direct ties to the CCP. And there's evidence of this. There are eight times as many pro-Ukraine videos on Reels than on TikTok. There's 600 times more Uyghur and Free Tibet videos on Reels than on TikTok. So one of two things is happening. Either Mark Zuckerberg has his thumb on Free Tibet, Uyghur, Israel, and Ukraine issues. He's decided, I care about this stuff. I'm going to pervert the algorithms. Or the CCP is suppressing Uyghur, Free Tibet, and dialing up content that might divide us. And it's a few things. One I want to acknowledge, young people have a healthy

revulsion to what their parents think. That's healthy. Oh, dad thinks this, I'm going to think this. Israel has not draped itself in glory. But that delta is three times greater than the delta between young people and old people in Vietnam across anything. Something is going on here. So are we really comfortable with a future generation of civic nonprofit, government, and military leaders seeing the world through a frame of something controlled by the CCP. And here's the good news. I mean, I'll give you an example. Has anyone got this? Stop a TikTok shutdown, and it tells you who to call, and you just call, and you call your representative. I didn't get this. They figured out for whatever reason I shouldn't get this.

You know who got it? My 13-year-old son. Right there, that's the problem. They're discerning what messages my 13-year-old should get versus his father. I'm uncomfortable with that to begin with. So what kind of messages are, if you believe as I do, the CCP has a strategic imperative in depositioning and weakening our role around the world, and they have the frame through which young people see the world, wouldn't they be stupid not to do this? It's what we do. We have a division of the army called PSYOPs. You know what they do? They try and find and invest and foment and cultivate media properties in other parts of the world so we can play a pro-American and an anti-adversary content calendar. Can you imagine what the Mossad or the CIA would do with this? And by the way, let's put all of that aside.

Let's just talk about trade symmetry. If they're going to let Tesla into China, we should let BYD into the U.S. That makes sense. What American media company is in China? None. They're not going to let us talk to their youth. No way would they let an American company influence what their youth see. And finally, just practically speaking, you're not going to lose your TikTok. A ban is terrible use of words. They're saying if you don't sell this thing, we're going to ban it.

They will sell it because there's too much money involved. The reason TikTok in the secondary market is trading at a $250 billion value on secondary market for secondary shares is because of this overhang around US political tensions. Their biggest investors are in China and in the US and they're capitalists, General Atlantic Partners, Sequoia, some very big hedge funds and investors in China. They're not going to let that $250 billion be wiped out. When the threat is credible, this bill passes within a few weeks, ByteDance announces they are selling to Western interests, they get to keep their money,

and you still get your TikTok. This isn't a ban. This is saying we need the ownership structure to change for defense reasons. I think it's going to happen. Well, I just want to go back to the bill itself. And one of the things you often bring up is this difference between being right and being effective.

And when I look at this bill, two things strike me. One is it's very short. It's only 12 pages long. And they've had a long time to figure this out. And two is how similar it is to an executive order that was issued four years ago by Trump. How does this end in a different outcome? They're being smarter. And the Trump ban was, you know, his blood sugar went up, ban it. Then he moved on to something else. I mean, essentially the Chinese and the Russians have figured out they were like a cat chasing a dot. They're just like, just wait them out. And by the way, I give the president and the White House a lot of credit here because I think

it'd be easier to wait till after the election. I don't think this is going to get him. I'm not sure this is going to help him. This is a big moving part. And a lot of young people will get angry. A lot of Congress people trying to look like they're under the age of 90 will talk about TikTok and freedom of expression. They'll be like, we should let TikTok into the... I mean, you're about to see so much ridiculous posturing, right? I want to be clear. I have been wrong on this so far. I said two years ago that it was going to be banned, and it hasn't been. I think it should be.

And based on some conversations I've had with public officials, it feels like there's bipartisan support. And people say, well, it's not popular with the citizenry. Well, either it was World War II There's bipartisan support. And people say, well, it's not popular with the citizenry. Well, either it was World War II when we started shipping armaments across the Atlantic. That's what leadership looks like. I think very smart people have decided this, in fact, is a security threat. And by the way, we're going to get our cake and get to eat it too.

And also the value of TikTok, when China announces that they're spinning it to Western, it'll double in value the next day. So what do we get? An absence of a security threat. You're still going to get your TikTok and the shareholders are going to double the value of this thing overnight when the cloud of this issue goes away. So I think this is a win-win-win issue. And I think it's going to happen. Every time I say that, every time I say that, it doesn't happen. We'll be right back. We're back with ProfgMarkets. So far this year, the S&P 500 has posted 16 record closes.

It's also on its longest winning streak in more than 50 years. Meanwhile, the Nasdaq is up 10% year to date, and last week it also reached a record high. What's driving this rally is of course AI. As we discussed a couple weeks ago, NVIDIA added nearly 280 billion dollars in market value in one day, which substantially lifted indexes around the world. We're now reaching a point though where that excitement is turning into anxiety and some analysts are suggesting that we might be entering into a bubble. In fact, some think we're already in one. For example, two weeks ago, Apollo Global's chief economist, Torsten Slocke,

wrote, quote, the current AI bubble is bigger than the 1990s tech bubble. Scott, you are a veteran of the dot-com era. In 1999, you started an e-commerce company, Red Envelope, which we've discussed. You also took that company public. Given your experience, do you believe we're in a bubble?

If you look at the PE of the tech companies in 1999, they were trading at about 62. These are trading at about 59. But the underlying economics of these companies is far more impressive than the batch of companies measured at 99. These companies are actually, if you look at their growth and their earnings,

you could almost justify this valuation. But here's the thing. If you're under the age, especially if you're under the age of 35 in this audience, every frame, every piece of media from CNBC, even the words we choose, is meant to fuck you and transfer wealth from you to me. The fear is that we're in a bubble and the stocks, these stocks could crash. Okay, quick survey. How many of you, let's divide you into two groups. There's people in this room who are investing. You're at a point in your life where you're trying to sequester money from your consumption and invest. You're investing. There's other people who are on the back nine

and aren't working as much and need more money and they're harvesting their investments. You're either in investment mode or you're in harvest mode. How many of you are in investment mode? How many of you are in investment mode? How many of you are in harvest mode? Okay, about 70, 80% investment mode, 20% harvest mode. If you're in investment mode, if you're the 80% people here,

you want a bubble, you want a crash. Because the entire shooting match for your wealth when you're my age is your ability to buy these companies at a reasonable price. I am here for three reasons. One, where and when I was born. Being born a white heterosexual male in California in the 60s was winning the lottery on just a ton of dimensions. The economy, the unfair advantage I got, the irrational passion for my well-being of my mother, and three, the University of California

that when I applied to UCLA, I had 76% admissions rates and $1,200 a year tuition. By the way, I had to apply twice to get in. True story. It's now $34,000 a year and the admissions rate is 9%. That's why I'm here. The reason I'm here and I can say whatever I want, I can be as profane as I want.

I mean, let's be honest, I'm pretty close to getting canceled or shamed a lot, right? Is because I am economically secure. And why am I economically secure? I'm talented. I'm not a humble, I think I'm remarkably talented. I'm not a humble person. I'm in the top 1% which puts me in a room

With the population of Germany 75 million people my life my economic security is well above that. It's because in 2008 We let the economy crash we bailed out banks, but we didn't bail out the economy crash. We bailed out banks, but we didn't bail out the economy. So guess what I did? I took the $800,000 I had to my name, decent amount of money, not as much as I'd hoped given I'd started companies, right? And I split it 400,000 here, 400,000 here. Here was Apple, here was Amazon, right? Those stakes are worth $37 million today. Because I got to buy in during my income earning years, because we let the markets crash. The greatest intergenerational theft in history is if you were under the age of 40, maybe even 45, the government and our leaders have decided to keep me rich. Oh, a million

people dying from a virus? That would be bad. But what would be tragic is that the NASDAQ went down. So let's ramp up the debt because you and your kids are going to have to pay it back and make sure the NASDAQ and the stock stay high. And it was robbery from you because you never got a chance to buy Amazon or Apple at a decent price. You're buying in at the highs because you're in investing mode. So is it a bubble? For your sake, I hope so.

I hope so. And also, the structurally scary thing here is not that the markets collapse. That's not scary. The scary thing is what might be going on here is an absolute structural shift in the economy where there are a small number of companies, people, regions, they get all of the gains.

S&P up 24% last year. What an amazing year. No, it wasn't. About 1.2% of the companies were responsible for all of the gains. Okay, that's the definition of income inequality about to happen. When we don't have a robust set of winners, we have a small number of people, a small number of companies taking it all. The Russell 2000, small businesses, right? 40% of them now have negative earnings in a strong economy. In 1990, it was 18%. So the really frightening thing is, are we moving to a Darwinian business environment, all caps, where there are a small number of apex predators eating

everything. And unless you're in one of the seven of those 500 companies, you have flat returns. That's the fear. So I think we need a lot more antitrust. I think at some point, I don't think any company should be worth more than a trillion dollars. I think we should break up Apple. I think we should break up NVIDIA. And guess what? More job growth, right? Higher wages competing for people. And by the way, those stockholders would get hurt. Who's done really well over the last 30 years? People who own stocks. Who hasn't done as well? Small business, medium-sized business, and wage earners. Wages have been flat for the last 40 years. The stock market is screened. Productivity has gone up like crazy. If minimum wage matched productivity, it'd be at 23 bucks an hour, not at

7.25. We have a hindsight bias. We think, oh, I'm smart. I mean, how many of you actually bought NVIDIA? I didn't. I didn't. And by the way, if NVIDIA goes down 50% tomorrow, okay. Unless you bought it in the last 14 weeks, you still made money. If it went down 18%, unless you bought it in the last 15 months, you still made money. But how on earth are you going to find your Apple and Amazon like I did so you can have economic security when all we're doing is a set of economic policies to ensure the incumbents, the already wealthy, the baby boomers stay rich. That's not the priority. Everyone should have a shot. When we bailed out Shake Shack and every goddamn business during COVID, it meant that the recent graduate of the Brooklyn Culinary

Academy couldn't come in and buy a restaurant for pennies on the dollar. Churn, turnover, full-body contact capitalism is meant to provide young people with opportunities and the ability to buy into assets at a price when they're in their income earning years and the market's correct. And we are slowly but surely justifying a series of policies such that there's never a correction, such that you never get a chance to buy in. That was a word salad. Well. I mean, I think the argument that Nvidia would make here is that actually everyone can participate in this.

And you mentioned, you know, I haven't bought Nvidia, but Nvidia is the third highest weighting in the S&P. Yeah. And it's the third highest weighting in the NASDAQ. So there's likely not a single retirement account in America right now that doesn't include Nvidia. So in a way, we already have that exposure, but what you're describing is, you know, astronomical returns that you experience. So what would your advice be whether or not this is a bubble? We track the questions we get. The questions I get the most are, interestingly enough, from mothers asking for parenting advice about their sons. The second most is from young men asking for career advice and investment advice.

And on investment advice, the question I'm getting hands down the most right now, is it too late to buy NVIDIA? Seriously. Because people see it and their greed glands get going and they're like, should I be buying? And then it's too expensive. And then it goes up another 20%. It's stressful just watching the thing, or I find it stressful having not bought it. And this is the only advice I can give you, is that the financial services sector, every hedge fund, every alternative investment, every branded financial services company is a giant grift. My colleagues down the hall at NYU in the finance department have done a ton of analysis, and basically every hedge fund, every asset class that's branded that charge you fees have underperformed the S&P by the amount of their fees. The NVIDIA plays the

following. You buy a low-cost index fund. And the S&P, the thing I love about the S&P index fund is it's sort of a self-selection fund because every year they kick out companies not doing well and they bring in the companies that are doing well. They kick out Kodak and they bring in Salesforce. And you have low-cost fees. And here's the thing, as a young person, you don't need to be a hero. Your asset is time. And you got to trust me on this. It was an instant ago, I was in this room when I was 25. It was an instant. And so if I said to you, save $1,000 a month, you're all at Atlassian, you're all at South by Southwest. If you really tried hard, you could probably save a thousand bucks a month. If you're 25 or 30 or 35 and you

save a thousand bucks a month and you put it in a low cost index fund, you're going to be financially secure. Now maybe, and you're probably, if you're like me, I didn't do that. And I ended up in a very vulnerable spot when my first kid came along at 42. I'm like, Jesus Christ, I'm not as economically secure as I thought. Cause I fell into the of thinking, I'm a baller. I've taken a company public. I'm waiting for the 10, 50, $100 million payday and it's going to happen. Check my shit out. It's going to happen. And it didn't. A divorce, the dot bomb implosion, the great financial recession, I ended up with a lot less money than I thought. And if I had just put a little bit of money away and recognized a flaw in the species, the majority of the species for the majority of the time on our planet has not lived past 35.

So we can't calibrate time. You are going to be my age. 99.4% of you will live to be 65. And it's gonna happen so fast. Do yourself a favor and have a plan B, and that is get rich slowly. And you can. You know, the thing I would end on more like a hallmark moment, investing compounds, it's like relationships. Every wonderful relationship I have

is a function of early in my life, I made small investments. Text them, what's going on? I made efforts, little efforts, checked in, showed concern, right? Those relationships compound generosity, showing people concern, regard, consistently in a disciplined way from a young age, you wake up with these enormously, dramatically more valuable relationships than you'd ever anticipated.

Relationships and generosity compound too. You don't need to be a hero. You don't wanna try and find the needle in the haystack. Buy the whole haystack. And every month put a little bit of money in an index fund because everyone on CNBC, not everyone, but 90% of them are grifters. Grifters charging you two and 20 for what? So you can feel special because you got into some fund or you saw their

commercial low cost index funds. And for God's sakes, don't day trade. Don't day trade. Back to you, Ed. Let's take a look at the week ahead. We'll see inflation data for February from the consumer and producer price indices. We'll also see earnings from Adobe, Oracle, and Soho House. And finally, Reddit is kicking off its IPO roadshow. Do you have any predictions? My prediction is the back half of the year, we're going to see an IPO palooza. I think it's going to be a great Q3 and Q4 for IPOs. And everyone is waiting, the bankers, companies, they're all waiting for one or two companies to inspire the market with a huge pop first day trading. That'll

get everyone's greed glands going. There are hundreds of billions of dollars in funds that do nothing but invest in IPOs. And we've had one of the slowest IPO markets last two years that we've had in 40 years. So who's the icebreaker? Who's gonna set the IPO markets on fire with big one day pops? This is speculative.

It's dangerous to do this because everyone on Twitter will remind me when I get it wrong. But the two companies that I think are going to be the icebreakers that set the IPO markets on fire over the next six months are going to by Claire Miller, who's sitting right there, and engineered by Benjamin Spencer. Our executive producers are Jason Stavis and Catherine Dillon. Mia Silverio is our research lead, and Drew Burrows is our technical director. Thank you for listening to Prof G Markets here in the Atlassian Austin office from the Vox Media Podcast Network.

Join us on Wednesday for office hours, and we'll be back with a fresh take on markets on Monday. Thank you, Scott. Thank you, Ed. You held me in kind reunion. As the world turns and the dove flies. In love, love, love, love.