In short
Prof G Markets - Episode Summary
Episode Title
Has Apple Lost Its Mojo? + BlackRock’s $23B Bet on the Panama Canal
Hosts
- Scott Galloway
- Ed Elson
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Episode Breakdown
Key Topics Discussed
- Disney Layoffs
- Disney announced layoffs of nearly 200 employees (6% of its workforce in ABC News Group and Disney Entertainment Networks).
- The decision is seen as a response to declining linear networks revenue and operating income.
- Walgreens Going Private
- Walgreens is officially going private after a $10 billion deal with Sycamore Partners.
- Discussion around Walgreens' struggles with competition and management failures.
- Scott raises concerns about the high rate of bankruptcy among private equity-owned companies.
- Ontario Cancels Starlink Contract
- Ontario's decision to cancel its $100 million contract with Starlink following tariffs and perceived economic attacks.
- The hosts discuss the implications for Starlink and Elon Musk.
- BlackRock's Investment in the Panama Canal
- BlackRock-led consortium acquired two major ports on either side of the Panama Canal for $23 billion.
- Discussion on the geopolitical implications and the financial rationale behind the deal.
- Apple’s Product Launches
- Overview of Apple's latest product announcements, including a new MacBook Air and iPad Air.
- Scott expresses concern over Apple's declining innovation and his decision to sell his Apple stock.
- Both hosts predict a bearish outlook for Apple’s stock in the coming months.
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Detailed Insights
Disney Layoffs
- Context: ABC's workforce reduction is part of broader trends in linear TV, where ad revenues are declining.
- Implications: Major shifts in media consumption habits are forcing companies to consolidate and cut costs.
Walgreens Going Private
- Deal Overview: The acquisition reflects Walgreens' long-standing issues, including management mistakes and legal challenges regarding opioids.
- Scott's Argument: The reliance on private equity could lead to increased risk, with one in five such companies facing bankruptcy.
Ontario's Cancellation of Starlink
- Political Statement: The move reflects a growing sentiment against U.S. tech companies amid economic pressures.
- Musk’s Challenges: The cancellation may signal a backlash against Musk's companies, impacting Starlink's revenue in Canada.
BlackRock's Investment
- Strategic Move: The acquisition is viewed as a way to control key infrastructure, with potential for significant profit through tolls.
- Geopolitical Context: The deal occurs in a climate of heightened political rhetoric regarding U.S. control over the Panama Canal.
Apple’s Product Launches
- Product Analysis: The new products, while featuring upgrades, lack significant innovation.
- Stock Valuation Concerns: Scott notes the high PE ratio (37) amidst stagnant growth, prompting him to begin selling his shares.
- Predictions: Both hosts predict that Apple's stock may fall below $200 within the next six months due to declining consumer interest and innovation.
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Key Takeaways
- Market Trends: Major companies are restructuring in response to economic pressures and shifts in consumer behavior.
- Investment Strategies: The hosts advocate for careful reevaluation of tech investments in light of high valuations and stagnant growth.
- Geopolitical Dynamics: Business decisions are increasingly influenced by political factors, particularly in technology and infrastructure.
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Closing Remarks The hosts encourage continual engagement with financial literacy and market trends, emphasizing the importance of discussing money as a means of navigating capitalism effectively.
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Subscribe and Connect
- Follow the Podcast: Available on major platforms, with new episodes Monday through Friday.
- Social Media: Connect with the hosts on Instagram, Threads, and X for additional insights and updates.
Written by AI. May contain mistakes. Listen to the episode to check what was said.
Transcript
Automatic transcript. May contain errors.0:00This episode is brought to you by On Investing, an original podcast from Charles Schwab. I'm Kathy Jones, Schwab's Chief Fixed Income Strategist. And I'm Lizanne Saunders, Schwab's Chief Investment Strategist. Between us, we have decades of experience studying the indicators that drive the economy and how they can have a direct impact on your investments. We know that investors have a lot of questions about the markets and the economy, and we're here to help. Join us each week as we explore questions like, how do you evaluate corporate bonds? And what sectors of the stock market are outperforming?
0:31So Kathy will analyze what's happening in the bond market and at the Fed, and I'll give you our latest analysis of the equities market and the U.S. economy. And we often interview prominent guests from across the world of investing and business. So download the latest episode and subscribe at schwab.com slash oninvesting or wherever you get your podcasts.
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1:35Or what that clunking sound from your dryer is? With Thumbtack, you don't have to be a home pro. You just have to hire one. You can hire top-rated pros, see price estimates, and read reviews all on the app. Download today. Today's number,$145 million. The co-founder of fintech startup Aspiration was arrested last week for allegedly conspiring to defraud his investors of$145 million. And by the way, we called bullshit on this company four years ago. Speaking of climate change, Ed, what do climate change deniers and pedophiles have in common? What's that? They're both fucking the next generation.
2:25That's good. Great joke. Yeah, the pedophile stuff never gets old. What's going on with you? What are you up to? I'm doing very well. I'm in New York. I'm excited for South by Southwest. We're going to be heading over this weekend. Of course, this episode will be out by the time we're there, but I think it's going to be great. You know what I'm really excited for, though, is the flight back. Why is that? Flying with you. Oh, I'm sorry. I meant to tell you that there's just not enough. Not enough seats. There's only seven seats on the plane. Yeah. How many seats are on the plane? I don't know. I haven't counted.
3:01I can't go here. There's no way I don't come across as the world's biggest douchebag talking about the number of seats. You're right. I'm setting you up for failure. How about let's set you up for success here and just talk about this aspiration situation, because you wrote about this four years ago. This is, by the way, one of my first jobs at Prof G Media was you were talking about this company, Aspiration, and it was my job to go in and do the research because you had this feeling that this company, which was selling credit cards, but also positioned itself as helping with climate change. You said, this is definitely a bullshit company.
3:37You had the team look into it. I looked into it and we determined, yes, this company is fake. We have a clip from what you said about this company on the Prof G pod.
3:49One example, one example of reaching too far into the barrel, aspiration. a finance firm that claims its products can, open quote, change climate change, end quote. In August, the company announced it was going public via SPAC at a$2.3 billion valuation. Change climate change. That would be awesome. Except there's a catch. This is a fucking debit card. He's so good. Banger. And now the guy's been arrested for fraud. By the way, it never went public because I think investors eventually caught on to this. But he's now been arrested. You called it. It was such an attempt to drape yourself in social justice while offering something pretty borderline fraudulent.
4:32They were they were saying that we take a portion of your credit card fees and invest in sustainable companies. And if you read their website, and we got some financial information, we dug in. This was a shitty little credit card company charging onerous fees, claiming to do something they weren't doing, and saying, oh, but we're a new economy company. And they had famous investors. They had actors. A friend of mine, it ends up, was an investor and called me and sort of put pressure on me, but said, do you want to speak to management? I think you got this wrong. I said to him, I said, we'll just call him Bob.
5:11I'm like, Bob, this is a fucking fraud. This is WeWork with a climate change veneer smeared over it. I thought that was going to get more attention than the WeWork post because I thought it was even more obvious of fraud. Few people actually knew what Aspiration was, which I think is why it was so prescient of you to point it out. I just want to point out what some of the red flags we found with this company were. So the first red flag was that they were trying to SPAC, and there were just a bunch of kind of bullshit companies that were SPACing. They did have a giant celebrity investor list. One of those investors was Leo DiCaprio.
5:45That was kind of a red flag. And then as we looked into it, it started to get worse and worse. So they had this ESG fund that they called the Redwood Fund, and they charged these exorbitant fees on it. But when we looked at the actual portfolio, what we found is that it was just a regular portfolio. And they even had positions in Southwest Airlines, which, of course, burns through fuel, and also a fracking company, which was hilarious. Their worst crime, though, was this thing called EBITDA. God, a community-based EBITDA, we work. Exactly. This was earnings before interest, taxes, depreciation, amortization, and marketing.
6:22And according to this company, they were EBIT damn profitable. But then you look at the fine print and you realize they were spending 150 % of their revenue on marketing. So they're trying to position themselves as a profitable company, but they're saying, oh, this marketing thing, we're spending basically all of our money on marketing, but don't worry about that. We're profitable. And that was sort of our, that was, I would say our biggest red flag. This company is bullshitting their investors. And so Nevis backed, and now the guy's going to jail. I loved Adam Newman's initial redefinition of EBITDA, and it was like, earnings before everything else, earnings before Dolly Parton, earnings before March Madness.
7:00It was just, it was like, let's pretend that profits are top-line revenues before expenses. Let's just get rid of this pesky thing called expenses so we can say, pretend that we're profitable. But yeah, I appreciate the recognition and drinks on me this week in Austin. I can't wait. Let's get into our weekly review of MarketVitals.
7:31The S &P 500 declined, the dollar slid, Bitcoin was volatile, and the yield on 10-year treasuries climbed. Shifting to the headlines. Disney is laying off nearly 200 employees, or 6 % of its workforce in its ABC News Group and Disney Entertainment Networks divisions. As part of the cuts, the company is also shutting down political and data journalism site FiveThirtyEight, which it acquired in 2013. Walgreens is officially going private after closing a$10 billion deal with Sycamore Partners. The private equity firm is expected to keep Walgreens' core U.S. retail business while potentially selling off or spinning out other parts of the company.
8:08And finally, Ontario cancelled a Starlink contract worth 100 million Canadian dollars after U.S. tariffs on Canadian imports took effect. Scott, let's get your thoughts starting with Disney deciding to lay off 200 employees, nearly 6 % of the workforce at ABC and their entertainment networks. It just makes sense. This is part of capitalism, and that is they need to consolidate, bulk up, and then cut costs. These companies should have one back end as far as news, and if they have different front-facing brands that appeal to different audiences, that's fine. But last year, Disney's linear networks revenue declined 9 % and operating income was down 16%.
8:52They're not alone here. U.S. linear TV advertising will decrease an estimated 4 % annually through 2030, which doesn't seem like a lot. But when it's going for another five years, 4%, it means it's going to lose a quarter of its revenue or a fifth. And that means – that's just real pain because some of those costs are fixed. So you're talking probably they're probably going to shed another 20 or 30 percent of the workforce over the next five years. I just had lunch with a fairly famous news anchor who is fantastic at what she does. And she's one of the lucky ones. She's still making a lot of money, but I think her salary got cut by 30 percent.
9:32And you're seeing you're seeing cuts across the most famous anchors of like 20 to 80 percent. Joy Reid, Chuck Todd, Jim Acosta, and Lester Holt. All fantastic at what they do or did. All too expensive. And George Stephanopoulos, his contract's been renewed, though he had to take a pay cut from his previous$20 million deal. He's lucky he got his deal a few months ago. I think it'd even be less now. Rachel Maddow renegotiated. She is the friends or the anchor of MSNBC. She had to reduce her pay from$30 to$25 million. Yeah, cry me a river. That's not too much. Anyway, so look, the market is doing what it's supposed to do.
10:12It's reshaping the winners and the losers. You're going to see, I think, private equity come in here. You're going to see a lot of consolidation. I think Disney is a survivor because of this unique singular positioning around family and just the incredible IP they have. I also wonder if this is an interesting take private opportunity. But anyways, what are your thoughts? Yeah, I find this interesting because I visited the ABC studio last week. one of the producers on ABC News took me around, and it was really cool. And I was just kind of struck by how impressive this operation was. Like, the office looks like a cross between, like, NASA airspace control and also, like, the trading floor of Goldman Sachs.
10:51And it's filled with people, like gaffers and technicians and coordinators. I was asking him, like, what do all of these people do? He's like, oh, this guy's on this team, this guy's on this team. I mean, it's thousands of people, literally. It's actually 3 ,300 people. But in the back of my mind, the whole time as I'm walking around, I'm like, this is amazing. But there is no way this makes any sense economically. The fact that you have, as you said, revenues down 9%, operating income down 16%, 6 million people canceling their cable subscriptions in 2024. And yet the operation looks like it's the headquarters of the CIA.
11:27So I was sort of walking around like, okay, something has to give here. And that's what we're seeing. In this case, the thing that's giving is the workforce. And as you say, this isn't the first time we've seen this headline. And yeah, I don't think it's the last time we'll see this headline. I think we're going to see many, many more headlines like this. Well, if you look at the means of production, and I did some analysis here, we're making three to four times the revenue per employee. And granted, we're small, but the means of production are so much less expensive in podcasting. Now, granted, there's very, you know, there aren't that many winners, but if you can figure out kind of a new media platform and keep it kind of lean and mean, you can just see what's happening here.
12:13It's just incredibly challenging for these folks. I was jokingly describing the anchors as pilots for Pan Am in the 70s and that it's high prestige. They're banging stewardesses. Everyone's impressed by them. But I'm like, your days are numbered. Pretty soon you're going to be on an Embraer from Lubbock, Texas to Amarillo making$38 ,000 a year. That's a great analogy. I personally, the way I register it is 10 years ago when I was asked to come on CNN, I just was so excited. I remember the first time Anderson had me on his show. And I was so, I thought, wow, I've made it. And now, unless it's someone I'm personal friends with or I don't go on because it's like the juice isn't worth the squeeze.
12:54To come across as intelligent in the work and the prep you need to do, not that many people are watching it. By the way, I just got asked for the first time to go on CNN and then they canceled on me in the last minute. Most hilarious part is that I was in for the 5 a.m. slot. They pushed me to next week, so I'll do it again. But I think the juice is worth the squeeze for me, I'll say that. A hundred percent. And plus, I mean, you're literally, you're going to be exposed to dozens and dozens of new fans. 5 a.m. on CNN. That is literally like a 90-year-old that can't sleep. I'll take it. I think that's great.
13:26Congratulations. I didn't know about that. Well, it hasn't happened yet, and they'll probably cancel on me again. But yeah, broadcast television. What's interesting, though, is it still there's you'll see this. There's still a prestige value. And that is when people see you on I used to go on Fox every week. And when people see you on TV, for some reason, there's just this veneer of prestige, romanticism or credibility that you don't get anywhere. unless, of course, you have a guest role on The White Lotus. But let's bring this back to me. Let's bring this back to me. Anyways, linear TV. It's not doing well.
14:03It's not doing very well. Agreed. Captain fucking obvious. Let's talk about Walgreens, which is going private, being bought out by this private equity firm, Sickenmore Partners. is this is kind of a big moment for this very iconic American company. This company has been around for 120 years. It's been a public stock for almost 100 years. It's been public since 1927. And now you have this icon of American consumerism, and it's being bought out by a PE firm for a tenth of what it used to be. Ten years ago, this company was worth$100 billion. The price tag today is$10 billion. Your reactions to this news, Scott?
14:49I think they're just overstored. I think they're doing the right thing. Again, capitalists in the markets are work. I can't believe this thing was ever worth$100 billion. What I'd be curious, and I don't know if you have any information on this, is that my go-to is, well, this is Amazon, another victim of Amazon. But I don't really know. Do you have any thoughts on what's actually going on here? I think it's a whole confluence of things. And the way I would summarize it is just bad management. I think probably one of their worst mistakes is just their inability to modernize their pharmacy business, which they really depend on.
15:20Those Walgreens pharmacies were incredibly traditional when you compare it to the pharmacies at somewhere like CVS. And I think they woke up one day and telehealth had taken off and reimbursement rates had come way down. And they just got crushed, especially against CVS, which was establishing itself in the pharmacy benefit manager business too. They also bought Village MD, which was a disaster. They were just too late to the party. They bought that company after COVID. It didn't work. They ended up taking a$6 billion impairment charge. And then I think the final thing were these lawsuits. They just got a ton of lawsuits and most of them they settled on.
16:02And just this year, a couple months ago, they got sued by the DOJ for essentially selling opioids illegally. So I think just, it's kind of simple. From a management perspective, it's been a disaster. I think the question is, what does Sycamore do with this company? Where do they go from here? It's expected they're going to split it up into three units, where you have Walgreens Pharmacy. They also own Boots in the UK, which I'm sure you're very familiar with now, which is their UK pharmacy. And their healthcare unit, which is called Shields Health. And Sycamore did a similar thing to Staples, which they bought back in 2017.
16:40One interesting stat from the team that I'd like to get your reaction to, one in five private equity-owned companies go bankrupt within 10 years of acquisition. And that is 10 times higher than the rate of publicly-owned companies. So I guess the question I would pose to you is, what does Sycamore do with this company? And could they just bankrupt the company, possibly, based on that stat? I mean, clearly they're going to cut costs. They're probably going to change management and severely reduce costs. And the issue, the hard part about retail is that you have to enter into these very risky business contracts called a lease.
17:18And everybody wants the same real estate. And the owners of this real estate are smart at maximizing their revenue by signing up for a 10-year lease. So when you pick, I mean, you have to be very thoughtful. So in kind of the history of retail is restoration hardware goes public and they think we got to grow. So they signed a bunch of bad leases. They're really promiscuous. And then similar to Walgreens, three and four Walgreens are not profitable. And it's a 10-year weeping sore. Unless you declare bankruptcy, you can't get out of that lease. So you're just losing money. So real estate ends, what are they going to do?
17:55They're going to let a ton of these leases expire. and hopefully shored up. As it relates to private equity and bankruptcy, that's not surprising because private equity is usually, let's take all of its cash flows and use it to lever up such that we can have more upside and finance the acquisition with cheap debt. And when it doesn't work, they declare bankruptcy. Now, having said that, the debtors or the bondholders charge a certain interest rate that calculated in the risk of default. And when the bondholders, when it defaults, the bondholders get to seize the assets. And when a private equity company or a private equity-backed company has to, you know, when it goes bankrupt, generally speaking, the private equity, all the equity capital they put in, they also get wiped out.
18:36So it does lever up and, you know, go risk on on a company, but it also creates a certain sense of urgency. I think private equity has been good and that good for society. I'm not one of these people that says, oh, they're ruining everything. I don't think that's true. There's a lot of entrepreneurs who've made a lot of money selling to private equity. And the thing I like about private equity is they're usually very good at getting management vested in terms of the upside of success. They're actually quite generous, whereas venture capitalists, I find, are primarily just, with rare exception, just mendacious fuck douchebags who pretend to give a shit about anybody and then wash the founders out.
19:12Speaking for a friend, but so I like, I enjoy working with private equity. I think debt tightens the focus, if you will. And most of the time, these things, it does make sense. And also, there's two parties to the trade. The company doesn't have to sell the private equity. They've entered into this agreement knowingly. The people who are financing this debt enter into this trade knowingly and are getting a good, hopefully a good interest rate to reflect the risk. But this is a company that's a shadow of itself. It sounds to me, what I would want to know is what percentage of their leases are coming up for renewal that we can get out of, because that's the obligation here that is most scary.
19:54And that's why a lot of retailers, good retailers, declare bankruptcy, because then they can go and cherry pick and hold on to the leases they want and get out of the contractual agreements with the leases that are hurting them. So I wouldn't be surprised. I bet this, I wouldn't be surprised if Sycamore actually does pretty well here. Do you want to hear my CVS and opiate story yet? Please. My CFO came in at L2, came in to me and said, I need to speak to him. So, she's like, there's some really crazy charges at drugstores all over Manhattan. And I looked at him, I'm like, yeah, this is not me.
20:29This doesn't make any sense. I'm like, it must be fraud. He's like, no, it's not fraud. It's your assistant. And it ends up that my assistant was addicted to opiates and was going to every doctor in Manhattan getting a script for opiates and then going into a CVS or a Walgreens and not only getting her opiates, but buying a thousand or$2 ,000 in cosmetics or gifts. And she was not only a criminal, she was a stupid criminal and she would sign for everything and have it delivered to her house. Yeah, we think it's you. Get this. She managed to spend, I think over five months or seven months,$120 ,000 on my corporate card at various cvs and walgreens all over manhattan and i remember calling this is probably why walgreens failed they lost her they lost her and i remember calling i'm like look that we have an issue here uh you you are clearly addicted to something there's 120 000 on charges on my card and not only that i'm like she's like oh i don't know what you're talking about i'm like they you've signed for the shit at your address your signatures on this stuff you you decided to have someone drop it off at your apartment, which wasn't like, you know, you're not exactly what I'd call a very, you know, this is disorganized crime.
21:42And she immediately went into rehab, claimed disability, and tried to sue us for the options that we owed her. She dropped the case when I said I was going to turn it over to the Manhattan DA if she didn't drop the case. But anyways, that was my last assistant, Ed. That was my last assistant. that. I'm glad we learned that. Yeah, we learn a lot about hiring decisions on this show. Let's talk about Ontario and their decision to cancel the contract with Starlink. I think you predicted something like this would happen, or you at least kind of warned about it, that Starlink, you know, one big problem for Elon Musk would be if people start cancelling Starlink contracts.
22:24It's kind of an incredible move. The premier of Ontario, Doug Ford, had some interesting things to say about this. And we've got a clip. So let's take a listen. U.S.-based businesses will now lose out on tens of billions of dollars in revenues. They only have President Trump to blame. I'm also urging all 444 municipalities to do the same. And I'm thrilled to see some are already stepping up. For example, Mayor Patrick Brown and the city of Brampton and many other cities. As part of this government-wide procurement ban, we're going one step further. We're ripping up Ontario's contract with Starlink.
23:06It's done. It's gone. We won't award contracts to people who enable and encourage economic attacks on our province and our country. Kind of baller. Your reaction, Scott? I think Musk, when he saw this, I think this probably sent a chill down his spine. If people start canceling Starling contracts, I mean, they're already throwing shit at Teslas on the road. I just canceled a Tesla last night on Uber. I'm starting to cancel if it's a Tesla when it comes up. I think that Canada, I think this guy's making the right move, and I think you're only going to see more of it. I think people have just had it.
23:45What's a shame is that we don't have the same type of leadership here in the United States. There hasn't been a single CEO who has stood up and said, I am not going to participate in this pay-for-play kleptocracy. I'm not giving to the campaign. I am not going to be paraded around. You either have laws that affect all of us or none of us, but I have had it. And we haven't had anyone that shows the balls of this leader up in Ontario. And it is so disappointing the domino theory of cowardice that has infected the rich and Fortune 500 CEOs. I can't think of one who has spoken out all under the auspices of quote unquote shareholder value.
24:26Well, folks, your stakeholders include Americans. It is incredibly disappointing that we aren't showing a fraction of leadership that this guy is showing. But I think you say, I mean, the domino theory of cowardice. I think this is basically showing that we're about to see the domino theory of revolt. I mean, this guy's the first one to do it. And it's only$100 million, which is not a big deal for Starlink, which did$8 billion in revenue last year. But Canada overall is Starlink's second largest market behind the US. They've got half a million Starlink subscribers in Canada. And I think what this shows is, you know, this guy's the first to do it, but we're going to see a domino effect.
25:05And I think all of these other provinces follow suit. I don't think you want to be a leader in Canada who looks weak up against Donald Trump. And what we're seeing is that the entire nation is sort of coming together and rallying against a common enemy. And there's just this one stat I found fascinating from YouGov. 82 % of Americans say they consider Canada to be an ally. In Canada, that number is now 33%. I think this is what is going to probably push Musk out of government, or he's going to decide he's going to try and declare victory and leave, because if you look at startling customer base, I mean, Tesla is already crashing.
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25:48It's literally imploding. I don't know if you saw this video of Mardi Gras and someone, a Tesla truck, or whatever you call it, was rolling down, and everyone started to storm. shit out of it.
26:03Starlink was his growth vehicle. And there's one and a half million customers of Starlink in the US. You referenced that there's 530 ,000 in Canada, the second largest market. That's real. And then the number three market, Mexico at 435 ,000. And then the number four is Brazil, who probably doesn't feel that great about Musk, who was threatening, was fucking with their internal politics. So Starlink's value in the private markets, it's the most valuable company, one of the most valuable private companies and the most traded in the secondary market. And I think it's a third of a trillion dollars.
26:40I think it's trading at three or 350 billion. That number is going to come way down because if they can't show the kind of growth that they've been showing, also you are seeing a lot of, you want to talk about greed glands going. if I'm Telesat or Explore, the competitors, they have no trouble raising a shit ton of money right now. And because there is about to be a big gap in the marketplace for this type of broadband provider. That's what happened with Twitter. And then you saw all those Twitter competitors rise up and now Threads is - Threads, Blue Sky, Post. Yeah, that's right. I mean, some of them kind of failed.
27:19The one I invested in, but is that what you're saying, Ed? Is that what you're saying, the one I invested in? The one I managed to pick? That was what I was hinting at. Okay. Okay.
27:31We'll be right back after the break with a look at BlackRock's investment in the Panama Canal. If you're enjoying the show so far, be sure to give Prof G Markets a follow wherever you get your podcasts.
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29:26From Pushkin Industries, I'm Jonathan Goldstein, and Heavyweight is back. The new season is bigger than ever. Bigger hopes. I keep waiting for this moment when he says, Mom, I get it. I'm sorry. Bigger dreams. Tom Hanks wants to meet with you. This is a real chance and bigger heartbreaks. I thought it would be my movie moment. And maybe he would even whisper in my ear, I've always been in love with you. Check out new episodes of Heavyweight on Apple Podcasts.
30:10We're back with Prof G Markets, A BlackRock-led consortium has acquired two major ports on both sides of the Panama Canal for nearly$23 billion. The ports were previously owned by a Hong Kong-based conglomerate, but the deal still requires approval from Panama, which retains control of the canal. BlackRock CEO Larry Fink personally pitched the deal to Trump after the president expressed interest in having the ports and the canal controlled by the US. Scott, your initial reactions to BlackRock buying those ports from this company, C.K. Hutchison. On the face of it, it sounds like a great idea. I mean, if you think about the most valuable companies in the world are essentially toll bits, right?
30:54Amazon makes a ton of their money sort of saying, all right, rent our cloud services. But the real toll is that if you want to have access to half of the U.S. e-commerce market, you got to be on our platform. And then we just collect a toll. It used to be 24 % of third-party revenues when you put your shoe company on their platform. Now it's about, they get 45 % because you have one toll road, they're the toll booth. If you want to reach online consumers, there's two big toll booths. There's Meta and there's Google. They collect a toll to reach every consumer that's increasingly spending their day online.
31:30So I love this idea of an analog toll that says, okay, we get you coming and going across this incredible feat of engineering and leadership, the Panama Canal. But you got to think to get to propel through the water a several thousand metric ton vessel and have it go another whatever it is, 6 ,000 miles or 8 ,000 miles around this thing versus just slip through that little ditch we dug through Panama. If they can figure out a way to collect money on the in and the out, I've never heard a transportation company say, the Panama Canal has gotten too expensive, so we're just going to take the long way.
32:06Yeah. I think we should just like remind ourselves of the context here. I mean, I think everyone probably knows a couple of months ago, Trump said he wanted to reclaim the Panama Canal. He said the Panama Canal had been taken by China and that America needed to take it back. And then there was that notorious moment where he was asked if he would use military force to take it over and he didn't rule it out. Now, of course, it's not true that China owns the Panama Canal, but it is true that there are companies with ties to China which own and control many of the ports that are in the Panama Canal.
32:41And one of those companies is this company we're talking about, C.K. Hutchison, which is this company based in Hong Kong. It's owned by this billionaire Li Ka-xing. And now they are selling those ports that are on either side of the canal to BlackRock. Now, there's been some questions around how much does this have to do with Trump? How much does this have to do with geopolitics? And one of the heads of C.K. Hutchison, which owned the ports, he said it has nothing to do with Trump. He said, quote, I would like to stress that the transaction is purely commercial in nature and wholly unrelated to recent political news concerning the Panama ports.
33:19I just want to get this out of the way. That's totally a lie. No question about it. this had everything to do with politics. It's been extensively reported that this company only started looking to sell right after Trump made those comments about Panama and about China. So let's just be clear from the get-go, this is 100 % a geopolitical response. There's no doubt about it. Having said that, I think what the guy at C.K. Hutchison is trying to get at is that from a commercial perspective, this was an amazing deal for them. The origins of the deal were political, but the result was a success because the value of those ports that they sold, as determined by analysts, was$13 billion.
34:05They sold it for$23 billion. So they got a nearly 80 % premium on those assets. That is huge. And by the way,$23 billion is more than the entire market cap of the company before the deal. And as a result, shares in the company skyrocketed. They were up 20%. So it's a huge success for this company, C.K. Hutchison. And I think that begs the question, okay, they sold it for 80 % above market value. Why was BlackRock down to pay? Why were they down to splurge that much in what is now the largest infrastructure deal in the company's history, how did that make sense to them? And I have some initial thoughts, but I'll throw it back to you.
34:52What do you think was the draw for BlackRock here? I would have just thought that they believe that their average price per vessel of$341 ,000 that's charged to get through the Panama Canal, that they believe they can take that$341 ,000 number much higher. No, I think what's in it for BlackRock and what made this worth it is what it does to their relationship with the president. Because he looks excellent now. You know, he was talking about how he wants the US to control the Panama Canal and people were ragging on him saying this guy doesn't know what he's doing. And he pulled it off and at no cost to the government.
35:30The whole thing was paid for by BlackRock. And there is no denying this only happened because of him. So he looks like a genius now. He gets to brag about it in his speeches. In fact, that's exactly what he did in his address to Congress. And most importantly, I think he is now grateful to Larry Fink and to BlackRock, who are officially in his good books now. And that's so important because for a long time they weren't. This is the company that spearheaded the ESG movement that told investors that DEI is central to everything they do. This is the company that, just generally speaking, the Republicans hated.
36:12And so I think Larry Fink saw this opportunity. There was a chance to get on Trump's good side, to make him look like the hero. And it only cost him, you know, a few billion dollars. So in my view, it was probably worth it. I didn't immediately connect that this gets them in Trump's good graces, but I can see the argument. If so, I can't imagine they would make this sort of capital outlay. I think that would be being a bad fiduciary just to cozy up to a guy who's going to be in office another three years and nine months and quite frankly in about two years. Don't you think that is an economic decision at this point?
36:50I feel like what we're seeing with these companies is actually it is your fiduciary obligation to suck up to the president. I think your analysis is more thoughtful than mine. I just assume that if they could put a toll booth on both sides of the Panama Canal, that if you do the math, I would bet it costs a lot more than an incremental$340 ,000 to take that ship around, to go the long way. And they sense that and say, all right, we're capturing 10 % of the savings here. We should be capturing 30 % or 40%. 40%. Fair enough. I think in the context of what they've been doing recently, I mean, just a couple of months ago, we didn't discuss this on the podcast, but they withdrew from this climate initiative with the United Nations.
37:31They also, they just released their annual report. They cut all references of DEI in their report. They backpedaled from ESG a ton. And this is just a huge turnaround from 2021 when they were kind of leading this charge. Like, they were at the forefront of DEI and ESG. I'll quote Larry Fink in their 2021 annual report. He said, quote, we must embed DEI into everything we do. And then poof, suddenly the DEI is gone. Suddenly the ESG is gone. And he's making phone calls to the Trump saying, hey, that thing you were talking about, this Panama thing, we're really interested and we think we can represent the US.
38:11I've switched. which I'm now, when I'm interviewing people, I'm saying, oh, he's a DUI hire. I think you're a DUI hire. Yeah, I've never had a DUI. I'm surprised. Thanks for that. Back in the 80s and 90s, we all used to get fucked up and take to Sunset Boulevard and basically death traps. But anyways, good times. Youth. Youth. We'll be right back with a look at Apple. And if you're enjoying the show so far, hit follow and leave us a review on Prof G Markets.
39:09Thank you. with your money feels effortless. Visit mercury.com to learn more. Mercury is a financial technology company, not a bank. Banking services provided through Choice Financial Group, Column N.A., and Evolve Bank and Trust members FDIC. Support for this show comes from Airbus. It took 100 years for electric vehicles to catch on. Modern solar panels? Half a century. Lithium batteries? Decades to go from their debut to daily use. It's a pattern. Energy tech breaks through, stalls, and then something tips the scales. But for every success, there are even more almosts. So what if there was a breakthrough sitting at this crossroads right now?
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41:03We're back with ProfG Markets. Apple has unveiled a range of new products, including an updated MacBook Air. The MacBook Air got a$100 price cut in the US, a sign the company isn't raising prices due to tariffs, at least for now. Apple also introduced a new iPad Air and a high-end Mac Studio desktop featuring a chip designed to handle advanced AI models. Apple's stock initially dropped 3 % following the product announcement, but it recovered to finish the day flat. But Scott, I just want to recognize up front, this news in and of itself is not very interesting or important. There's a new MacBook Air out, who cares?
41:40But I think the reason it's worth covering is because to me, it's indicative of just how far Apple has fallen from a product perspective. I just want to go through the new features in this computer, this grand MacBook Air release. So the new features include a new and improved M4 chip, okay? A new and improved video conferencing camera. It can connect to three external monitors. It comes in a new color, sky blue, and that's it. Those are the impressive new features of the new MacBook Air. And by the way, the iPad Air, which came out in the same weekend, also very underwhelming. Their big new update is an AI email summarization feature for, quote, more stable typing experience.
42:28This is the company that invented the iPhone. What happened, Scott? Yeah, this is a giant snooze. And just in terms of what I'm doing, I'm actually selling, starting to sell my Apple stock. Apple and Amazon have been my biggest holdings for the last 15 years. I bought Apple when it was trading at a PE of 9, and now it's trading at a PE of 37. Yeah, I think historically it's traded in an average of around 18. And trailing 12 months, it's 37 or 38. Forward earnings, it's 31, 32. And it's growing 2%. And quite frankly, its product lineup is just anemic. And in addition, the overlay there is I do believe that we're going to see the rivers, the flow of the river of capital into the U.S.
43:16I think those rivers are about to reverse. We've talked about it ad nauseum on this show. So I'm going to take the capital gains hit, and I am selling down my Apple and my Amazon, which are trading at extraordinary multiples. And with Amazon, you could sort of justify it, I think, because of their cloud business. Apple is arguably the best brand in the world, but the company's no longer growing. I think the mixed reality headset was just comical. and so in this notion of spatial computing is going to be the next thing i mean they're well set up for ar they're they're going to be a relevant company for a long long time let me i don't see how they can justify a pe of 37 or 38 on on a company that's not growing it's top line revenue so is it a great company is it going to continue to be really relevant yeah it just i I just think it's overvalued right now.
44:12Yeah, my perspective is pretty much identical to you. I think this is kind of the final straw for me. I've been waiting for Apple to get their mojo back. But every single announcement is just such a snooze. And yeah, this is the final straw. I think I'm officially bearish on Apple. I think that's the right move to sell or at least trim your holdings. By the way, that's what Berkshire Hathaway did last year. I think it was probably the right move. I think the stock will fall below$200. in the next six months, maybe the next 12. I think there are just two major problems with Apple. The first is the products.
44:49And the second is, as you say, the valuation. And let's just go over the products here. Every iPhone today looks the same as it did 10 years ago. And the same can be said of the iPad. And the same can be said of the MacBook. The only innovation we've seen from a hardware perspective with Apple is this headset, which so far has been a disaster based on all the data that we know about the only other exciting product was the Apple car which they cancelled last year so they're not growing from a hardware perspective and by the way I think this is why we're seeing all these ridiculous ads from Apple I don't know if you saw their Super Bowl ad but it was this video talking about their Genmoji feature which is basically they're using AI to allow users to create new emojis.
45:38And they also have these billboards plastered all over New York. You've probably seen them. It's kind of embarrassing, I think, from the company. I think the reason they're doing it is because they have nothing else to advertise. We can talk about their software as well, which has been underwhelming. They just did this new iOS update. People don't like it. I also don't like it. I think one of the worst changes they did was to the Photos app, which I don't know if you've used it recently. It's just, it's extremely unintuitive. Siri is terrible. It was supposed to compete with ChartGPT. It won't.
46:07Apple Music is failing compared to Spotify. Apple Podcast is failing compared to Spotify and compared to YouTube. In sum, the products aren't exciting anymore. And then there's this added layer of the valuation, which we can talk about. Trading at 38 times earnings. The company is still valued as a growth company. And I just want to put it in perspective with other companies. 38 times earnings, that is higher than Microsoft. whose revenue is growing at 16%. It's also higher than Meta, whose revenue is growing at 22%. It is very close to the valuation of NVIDIA, which trades at 40 times earnings, and they're growing at 114%.
46:46Apple's revenue last year grew 2%. It's flatlining. So it's a long way of saying I'm very aggressively with you on this. I don't think the valuation makes sense. I think the only way you can justify that multiple for Apple is if you really believe in Apple intelligence and the AI player. If you believe that AI is just going to absolutely turbocharge all of their products and make them exciting again. But I would just burst that bubble once again and say they just released Apple intelligence. 41 % of iPhone users didn't bother to try it. And of those that did, 70 % said they don't like it. So I don't see how we can justify this as a growth company anymore.
47:35I think this is officially a mature company, which means that it should be valued as a mature company. I don't think this can continue. Yeah, it's interesting. And it's easy for me to say, because it's a very difficult business. But if Apple were coming out with its project Titan, if Apple were just about now, and if it had not canceled Titan, it would have been coming out with a car just about now. Can you imagine how well positioned they would have been against Tesla? Yeah, exactly. I think they would have found the justification for that PE just in the customer list. I think they would have built the most valuable customer list or waiting list in history.
48:10And that is, I think several million people would have come up with five or 10 grand just to be on that waiting list. And they could have said, I think that would have justified. When everyone was trying to justify the 38 PE, which they're going to run out of reasons to justify, I think they could have pointed to that list. and the self-expressive benefit brand of Apple, which immediately identifies you as one of the wealthiest, most creative 14 % of the globe because a billion people have iOS. The other real self-expressive benefit item in people's lives that they're willing to spend a lot of money on is their car.
48:39So I just think the Apple car would have been the most elegant way to say I'm creative and wealthy and I think they would have done a good job. They could have outsourced the manufacturing. Anyways, I think they are kicking themselves that they didn't go the distance around Titan. Just in terms of your decision to sell, when did you officially make that decision? And also just on a slightly separate point, what are the tax implications there? The tax implications are ugly because I bought Apple at about eight bucks a share or 12 bucks a share. So I've recognized a huge gain. I've sold some along the way, but there's just no getting around it.
49:10I'm going to have to pay 22 or 23.8 % taxes, which is enormous, but I think it's worth it. And my decision was, I have a friend of mine who runs a hedge fund that actually has my biggest allocation called Alana Partners, a guy named Orlando Marchant, who was a Tiger Cub and now manages money for family offices. And he's just been sending me all these graphs about just how incredibly expensive U.S. growth is and how inexpensive the rest of the world is. And the stat that has just blown my fucking mind is that if you were to price all U.S. assets, they would be$70, including their equity value and their debt.
49:48And if you were to price the rest of the world sans the U.S., it'd be$30. So would you rather own the U.S. at 70 bucks or the rest of the world for 30? And I am acting on that. I am selling down my U.S. growth portfolio and I'm investing in Europe. The problem is I'm already a little bit late. Europe is up, I think, 11 or 12 percent. The EU markets are up substantially and the U.S. is flat. But I am rotating out of the U.S. and my kind of growth plays, I'm overexposed in growth because I invest in a lot of private companies in the US, but I'm gonna get out of Amazon and Apple and reallocate that capital into Brazilian and European stocks.
50:27What percentage of your Apple holdings will you sell? I'll probably sell all of it. All of it? Yeah, I think I'm probably gonna sell all of it. You don't wanna own any Apple. I'm so overexposed by virtue of what I do. you realize when you look at diversification, you're not only going to look at your assets, you got to look at your cash flows. Do you realize the majority of our cash flows are linked to the U.S. tech market? That's what this podcast is. You're very invested in U.S. tech. Who listens to this podcast such that our advertisers will pay us a lot of money such that I can pay you, you know, nine, 10 bucks an hour.
51:02The reality is tech. You're an investor in tech. You're an investor in U.S. tech. People who are tracking South African value stocks aren't listening to this podcast. People who track American markets, which are dominated by tech, are listening to this podcast, meaning that you at Elson, if you were really, really smart about diversification, you would not be investing in U.S. tech because you are very tight. This is what I didn't understand when I was your age. I was so over-invested in U.S. tech. Running a brand strategy firm in Northern California, my entire livelihood was tied to the fortunes of tech.
51:36All my clients were either Kleiner Perkins portfolio companies or HP or Apple or, you know, I had these big kind of US tech companies. And then because that's what I knew and I thought, oh, this is where the future is, I'd take all my excess cash flow and I'd buy tech stocks. So when 2000 came, I ended up going from being worth a lot of money for a 30-year-old, 36, to being worth negative$2 or$3 million in the space of about three months. So we are over-invested in U.S. tech by virtue of the fact of what we do for a living. So I'm going to take basically everything that's not nailed to the ground right now and get out of U.S.
52:17growth in tech. Well, next time I'm going to need to hear what those actual European companies are, because I look at the European. I'm going to go into an index. I might go into a levered index from Drexound, but I'm going to go into a diversified mix ETF or index around EU value stocks. And are there any companies in the index or any companies that you're seeing in Europe that you think, oh yeah, they're doing well? Well, I just like a lot. I think Mercedes is a great company trading at a fairly low multiple. Porsche is on sale relative to where it was. L 'Oreal is an amazing company. Shell, BP.
52:48You know, there's just, there's a lot of, you know, LVMH has come off a lot. That's not value, but it's come off a lot. There are a lot of great European companies. I'm very excited about Europe. A lot of this is confirmation bias. But I think Europe has been, you know, we have, we've had this conversation. Europe has been left for dead. It's not. I spent a lot of time in Europe, incredible universities, a lot of very hardworking people. It doesn't have the risk capital. It should. But I think that's going to change. I think PE is getting their green glands going. And I think they're finally going to start acting like a union and take advantage of their size.
53:23So I'm very excited about Europe. And I'm very, you know, the bottom line is American tech is still going to do really well. It's just too fucking expensive. Let's take a look at the weekend. We'll see the consumer and producer price indices for February. And we'll also see earnings from Oracle, Adobe and Williams-Sonoma. Scott, do you have any predictions? I want you to make a prediction, Ed, and I think you just made one. My prediction would be that Apple is sub$200 in the next six months. I think that their numbers are flatlining, their hardware revenue is down, and they've been leaning on a narrative.
53:59And I think that narrative is fizzling out because you can just look at their products and you can look at their ads. It's becoming very clear this is a very mature and increasingly uninteresting company. I'm not sure how I feel about you selling all of your Apple. I'm also not sure how I feel about you going totally out of U.S. growth entirely. I think there's still a lot of value in U.S. tech in companies like, you know, NVIDIA and Google, for example, I'm pretty bullish on. But Apple, I think that's probably a good idea to trim. So I'm excited to see you in Texas. The last time I was in Texas, I was in Lubbock and I came across a sheep farm and there was a farmer fucking a sheep on the side of the road.
54:40And I said, in New York, we shear sheep. And he said, I'm not shearing her with anyone. I'll see you in Austin. I'll see you in the great state of Texas. This episode was produced by Claire Miller and engineered by Benjamin Spencer. Our associate producer is Alison Weiss. Mia Silverio is our research lead. Isabella Kinsel is our research associate. Drew Burrows is our technical director. and Catherine Dillon is our executive producer. Thank you for listening to Prof G Markets from the Vox Media Podcast Network. Join us on Thursday for our South by Southwest episode only on Prof G Markets.
55:17Lifetimes
55:22You have me In kind reunion
55:33As the world turns And the dark flies In love
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56:21Last lap alert. The Daily Tech Showcase roars into Richmond Raceway. October 14th. And the biggest names in tech are in the driver's seat. Apple, AWS, Meta. It's the main event for education, government, healthcare, manufacturing, and enterprise leaders ready to hit the gas on innovation. Time's running out. Claim one of the last few spots at daily.com slash VA25 before the checkered flag waves.
From the publisher
Scott and Ed open the show by discussing Disney’s latest round of layoffs, why a private equity firm is taking Walgreens private, and Ontario’s decision to cancel its Starlink contract. They then analyze BlackRock’s decision to buy the ports on either side of the Panama Canal, breaking down why it could be a highly profitable move. They also discuss what Apple’s newest product launches reveal about the state of the company. Scott explains why he’s begun offloading his Apple stock, while Ed makes a prediction about where shares are headed in the next six months.
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