LA Fires, Trump Trades, TikTok, and Legacy Media’s Fate — ft. Andrew Ross Sorkin

24:38Welcome back. Here's a conversation with Andrew Ross Sorkin, editor-at-large of DealBook at The New York Times and co-anchor of CNBC's Squawk Box. Andrew, thank you so much for joining us on Prof. G Markets. Thank you for having me. As you know, I'm a huge Scott fan and I'm a huge Ed fan. So here we are. You're an Ed fan. That's amazing. So I just want to start with Inauguration Day, which is next week. Just to get started, what are some of the main economic themes you're watching as we head into Trump's second turn now? Oh, goodness. I think I'm focused on probably two or three biggies. It's all the stuff everybody knows, though.

25:17It's inflation, inflation, inflation. I'm fascinated right this particular moment about the idea that we have, you know, rates that are supposed to be down in the twos, but happen in reality to be close to five now. And what that really means and how the market may become sort of a governor on this next administration away. We'll talk about that, I'm sure. I am fascinated by tariffs, which, of course, have a direct and interconnected relationship with inflation. and we'll see where that goes. And I'm fascinated, as I think we all are, by AI and what that's ultimately going to do, not just to our economy, but to our way of life.

26:00So I think all three of those things are probably going to intersect in unique, bizarre, and complicated ways over the next four years. You said the markets would be a governor of this administration. I find that a very interesting statement. What do you mean by that? So we're walking into a four-year period, or at least the next two years where this is a red country, right? We are going to have a Republican in the White House or Republicans that are going to control the Senate, Republicans that are going to control the House. Normally, you'd say that they're going to run everything. If there is any blockade to this administration's efforts and the Republicans to get what they want over the next, call it two years, because we'll see what happens in two years in the midterms, The only potential governor on them is, oddly enough, the bond market.

26:56If, in fact, the investor class around the world says, you know what, we're just not doing it this way. We don't like what's going on here. They can vote with their wallet and they can say, we are not going to be buying your bonds unless you're going to pay us a lot more for them. in which case everything becomes a lot more expensive for all of us. And that is the only thing, frankly, that I can even imagine that is a governor on the politics of our country over the next, call it two years. Good to see you, Andrew. So U.S. stocks now represent half of total market cap globally. They're trading, I think, a P in the 30s.

27:38They're sort of at a store. It's historically expensive right now. Do you think there's a chance 2025 might be the year we see sort of the rivers reverse? We might see flows out of the U.S., out of tech into non-U.S. markets? I think we've been waiting for that for a long time. And so I fear that if I tell you this is the year, I probably would have told you this was the year in 21, in 22, in 23, 24, 25. We are, what do they say? What's the phrase? We're the cleanest shirt in the hamper. I think we are still probably in a better place than much of the rest of the world. I don't see that actually reversing itself in the next year necessarily.

28:24But I do think these valuations are clearly, I don't know if they're at the top, top of the range, but they are high. It is very hard to not to look around and go, this whole situation is relatively priced for perfection. And then you start to think about all the things that could go wrong. And you look at the fact just historically that, you know, we just had a banner year in the stock market, 24, go back to 23, same thing. And so at some point, just history will tell you that it's got to go and it should go the other way. I remember many, many years ago, this is actually during the financial crisis, Jamie Jimmy Diamond's daughter, who I think was in high school at the time, said to him, Daddy, what's a financial crisis?

29:07Yeah, I remember this. And he said, it's something that happens every eight years. Well, if that's the case, we're long overdue. Yeah, it's nuts. What trends, if any, do you see? I mean, 90 % of active managers have underperformed their respective indices. The way I would describe the alternative investments sector right now is expensive but bad. Do you think there's a shakeout coming or do you think this is we're about to enter an era of stock picking again? Like talk about your industry, not media, but the alternative investments ecosystem. What do you see coming down the pike? OK, well, so right now, the alternative investment ecosystem and particularly private equity, you could argue, is actually broken.

29:54there have been so few exits in the private equity space right now that actually most U.S. pension funds have no cash to give. It's actually a very interesting phenomenon. So all of these private equity firms are running around the country trying to raise money from various pension funds. And they're all saying, you guys haven't had exits in years. We don't have cash to hand you because you still have our cash. Every year you're marking up these investments as if they're worth more, but you haven't exited. And so then, as you know, over the past couple of years, in part because the U.S. was tapped out, all these guys ran to the Middle East and started trying to raise money in Saudi and everywhere else.

30:38Well, guess what's happened over there? All of a sudden they're saying to themselves, you know, we got to start investing in Saudi and the Middle East ourselves. So actually, we're going to get a little tapped out, too. So unless there is a break in the market in a good way, meaning things have to break the right way for there to be a series of exits so that a lot of the sort of VC private equity world, which has been holding onto these assets, writing them these assets up, up, up, up, up, up, up with these valuations that may be real, but may be marked to make believe, depending on who you believe.

31:11If it works, they'll get out and maybe this whole thing can work again. At the moment, we're like in a little bit of like almost like a stuck moment. Why do you think that is? Is that a regulatory issue? What argument would they make as to why we haven't seen so many exits in the past few years? I think there's a combination of things going on. One is in venture capital, something changed. And I can't put my finger on specifically what it is. But just the duration, the whole time for venture capital investments has shifted materially. People have said they want to they almost want to enjoy the ride longer.

31:46And I think you saw it like Stripe is a good example of that. But there were so many companies where I think you saw them stay private for longer. And that has sort of changed the mindset on the private equity side. I think it's literally that they have not found these markets hospitable to actually be able to get out of these investments at the kind of multiples they want over the last couple of years. And as a result, their view is, let's not sell. Now, one of the things that they often talk about, and they're not wrong, but it's really a little bit of semantics. They say, you know, private equity is a lot less volatile than the public markets.

32:23Well, it's a lot less volatile than the public markets because you don't look at the price every day. So at some point, the rubber is going to meet the road. And we'll see, you know, do the valuations with which they've been holding these assets actually correlate to the quote-unquote market in the context of the public market. Yeah. Just in the theme of getting kind of a temp check on Wall Street, we've seen a somewhat significant decline in the markets over the past few weeks. At least the headline this week is that the S &P 500 has erased almost all of its gains since Trump was elected. How do you think investors on Wall Street are feeling right now going into inauguration day?

33:05We talked a little bit about what you're paying attention to, but what do you think they are paying attention to right now? I think they're paying a lot of attention to the 10-year note, which, as I said, has gone up, which means that our costs are going to go up. And that becomes more complicated for just about any business that relies on any type of credit and, frankly, the entire economy, if you think about it like that. And I think there was a lot of excitement, as you know, in the fall about this sort of idea that Trump was going to come in and this Trump trade and all of that. And, you know, at some point, I think people actually started to think, like think clearly or a little more clearly about just what kind of challenges and headwinds we face.

33:51And they're real. And I think there was almost a, I don't want to say a delusion, but, you know, there was lots of commentary about the complications of what was going to come next after Biden, what Trump could bring, what he couldn't bring. And, you know, the market, for the most part, most people in the markets, I think, are professional optimists. They have to be. And by the way, being optimistic has been a good thing over time. It's very hard to be a short seller. You know, I'm a journalist. I'm supposed to be a professional skeptic. So it's sort of, I'm at almost at odds with this whole sort of theory of the case.

34:29But I do think that there was an optimism. I think there still is an optimism. I don't want to say the optimism has gone away, but I think there's a recognition that by default, there's going to be greater challenges. Yeah, what do you think was that optimism when he was elected? I mean, you talked about the Trump trade. We've gone over a few of those in the past. Maybe the defense industry was something that could be a beneficiary of this administration. But what was fueling that optimism, do you think, in the markets? Was it sort of a regulatory optimism? Was it just, we have a new lease on life in America?

35:06What fueled that? I think it's probably best represented by the view of what Scott has talked about on this broadcast and in other places, sort of the tech bros. this view that, you know, Silicon Valley was being reined in by Washington, D.C. They're being reined in by the European Union, that all of a sudden they were going to have someone who had their back. Now, it's very hard to quantify what that actually means. But all of a sudden, but the concept was that that the Lena Khans of the world and the Gary Genslers running the SEC were going to be completely hands off or a lot more hands off and that they were going to be able to do lots more things that they have been up until now unable to do.

35:53I don't know if that's true, and I really don't know how you quantify that. And I think that's the hardest part. So you had, I think, people, this sort of animal spirits excitement period. I also think, by the way, mergers and acquisitions, there's going to be a lot more deal-making over the next couple of years. There's no question the backlog, the pipeline that I hear from talking to bankers and lawyers who are working literally around the clock right now trying to actually get deals announced even today, knowing that in two weeks, it's going to be a different administration. That's real. I want to pivot just for a moment to a sector you must be talking so much about on CNBC and AI in valuations.

36:31Consumer and retail companies trade at 0.5 to three times revenues. SaaS trade at six times revenues. And OpenAI and Anthropic are trading at somewhere between 60 and 80 times revenues. And while no doubt it's intoxicating, exciting, your mind spins with potential when you use these LLMs, I mean, there's a lot of expectation around revenue growth built into these valuations. What's your sense of the AI market? Are you a bull here, cautiously pessimistic? Do you think it's overvalued? What are your thoughts on AI and valuations right now? So on the valuation front, I still think the chip makers, anybody in the world of infrastructure, frankly, anyone in the world of energy, I think there's a long road ahead.

37:21I think from a directional perspective, just the path is that there's going to be more and more AI, if you will, and more and more need for chips, energy, and everything else. You could make the argument maybe that from a technological perspective, at some point we'll hopefully figure out the energy piece of this, meaning we'll figure out a way to make chips that require less energy. My bigger question is really on the software side when it comes to valuations. I wonder whether all of these large language models become somewhat commoditized. I would argue that some of them seem relatively similar to each other.

38:02You know, every month one's better than the other, but they're all sort of playing in the same place. It's shocking to me even that when you think about what Elon Musk is doing with XAI, that in a year, if you have enough money and enough NVIDIA chips, you too can create a large language model that is relatively competitive with others. And look, I give their team an enormous amount of credit. I think there's some very smart folks there. But if you had told me that, you know, Google and Microsoft and OpenAI and everybody else was working on these things for years and years and years and years and years and years, and all of a sudden, literally, I mean, literally, what Elon's done is spun this up in 12 months.

38:45It's incredible. And what does that say about the defensibility and the sort of the moat around the large language models? So then the question is, what are these large language models really worth? And are they just a feature? Is it just a feature of everything else? I also think it raises some real questions. If it's so great talking about valuations, what kind of moat is around every other business? Meaning you either have to take the position that the large language models are amazing, in which case they should have crazy valuations and everything else should be relatively destroyed and worthless because you and I will be able to make an app that competes with any of these things at any moment in time.

39:24Or you have to believe that the large language models are really not where the action is. and it's going to be everything else. It's probably somewhere in between. Stay with us.

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40:51We're back with Prof G Markets. Yeah, I just want to pivot us to TikTok, which is on the chopping block right now. It's set to be banned before Trump is inaugurated. And now there are rumors that it's going to be sold to Elon Musk. This is apparently what Beijing officials are talking about. I just love to get your view. Do you have any thoughts on how this TikTok saga will play out? Well, the idea that it would be sold to Elon Musk, I think is fascinating. There's a great irony in that, in that, by the way, there were a lot of Democrats that were pushing to have TikTok banned, if you remember.

41:28And so all of a sudden, this would get pushed into the hands of Elon Musk. And whatever algos they are running, you know, or that he's running, I think they wouldn't ultimately be happy with. At the same time, I think there are Republicans, I'm thinking of Steve Bannon and others, you know, even within the party, that would say they don't want Elon Musk having control of these things. There's probably an even larger question about just concentration and power, and I don't know where Donald Trump would land there. And then to layer on top of all of that, there's a real question, which is if China is prepared to sell to Elon Musk and only to Elon Musk, what does that say about the leverage and influence that China must think that they have over Elon Musk by dint of his factories and Tesla business in the nation state that is China?

42:24And then it probably raises a whole secondary order of questions, which is, if China feels this way, how should we as Americans feel that people are calling him the co-president of the United States? Yes, exactly. Yeah. How do you think that dynamic between Elon Musk and President Trump will play out? I think this is a big question many of us are asking ourselves. Scaramucci, who we had on, says Elon's going to get stabbed in the back and then he's going to be thrown out. I mean, that's his view on anyone who works with Trump. but it is beginning to maybe feel that way the more that people say that elon musk is our co-president and the more that people might assume that as you're pointing out perhaps he's compromised in certain ways because of his ties to china how do you think that relationship with trump will play out first of all i don't know if he's compromised or not and i i i like to think the best of folks so just i i want to well i do want to say that words in your mouth yeah all of these people there's like a betting line on how quickly this relationship is going to end i actually don't think it ends so quickly, and I'm not sure it ends at all.

43:24And the reason is prior to the election, Trump actually needed Elon. By the way, he needed Elon's money, right? That was what tied them together. Now that Trump is president, Elon needs Trump, given his businesses, both Tesla, particularly SpaceX and the like. So I think that there's lots of, you know, if you always just follow the money and think about the incentives, you have to say to yourself that Elon would want to align himself with the president now. And I think it would actually be hard to extricate himself. Meaning if the president pushes him away, that's a problem for him. Yeah. So I was on your sister network, MSNBC, and I said that - You were awesome, by the way.

44:12I watched it. Oh, thanks, Andrew. And I loved it. And I'm not pandering to you. You were so good. Go on. Anyways, the part you probably didn't see because MSNBC clipped it was I said that for the first time in a nation's history, a 30 year old isn't doing as well as his or her parents, which is why we put an insurrectionist and a rapist in office in the White House. And Mika took the time at the end of the show to say, to fact check me and said he was found liable of sexual abuse. I think she was doing her job. What I said was technically inaccurate and she did her job. If I had said that, if they had posted the full clip on social media, social media would have loved it and circulated it, and they would have made more money.

45:01But instead, traditional media, Comcast, under the auspices of being sued, has to hire bright people to fact check me. And I appreciate it. I get it wrong all the time. And not put it out there. And as a result, traditional media under the quote unquote auspices of moderation or censorship, if you're left or right, is shrinking because they have to – their means of production and fact-checking, they are basically trying to run a race with one foot tied behind their back. And meanwhile, social media is playing tennis without a net. So this long-winded way and a word salad of asking, what do you think of this decision to no longer moderate or censor from meta?

45:52and are you worried that traditional media just can't compete when they are subject to a set of standards and liability that the medium where people two-thirds of people now get their news no longer needs to fact check no longer needs to have anything resembling liability i mean quite frankly let me put it this way isn't comcast just fucked well i i hope not And I don't think so. I actually do think that people come to established news organizations that hopefully do have credibility. And I know people have lots of questions about it. No, I and I recognize that. I recognize that. But I think that there's I think there's a distinction between journalists who hopefully are trying to act in good faith and institutions that can put resources behind real news gathering.

46:40I mean, you go look at this L.A. wildfire and some of the folks who've been out there on the ground. Now, you could argue that there's there there's classic sort of legacy, traditional news reporters out there doing that work. And then there's all sorts of other people. Some of it is great citizenry journalism. Right. And you're seeing it right off the phone. And that's great. And some others are making up stuff left and right. And the big question that I have is, as a society, just how we're going to contend with that piece of it. If we are not holding the social media companies effectively accountable for some form of truth, and again, I know there's debates about what truth is today, but, you know, if right now the sky is blue here in New York and— And no, it's not.

47:27It's DEI. But but that's the point. If we can't agree that the sky is blue, if we can't agree the sky is blue today and there is not a cloud in the sky, we've got a problem. And so I think on the basics, we need to actually at least make sure that those things are taken care of. They are not today. And clearly the worst part is that the most sensational news, which is often wrong, gets the most attention. And by the time there's even an opportunity to quote unquote correct it, nobody sees it. And that is, to me, the scariest part about what's happening in the social media sphere. But this has been a perennial problem for more than a decade now.

48:09I've been thinking about this a lot as someone who is kind of in the media, especially now that we've got Trump coming in on January 20th. I've been trying to think about how to maintain trust and how to just stay on top of this cultural shift that really antagonizes people like you. And I feel like you're kind of the most, in my view, the most sober, you're the most sober figure in the traditional legacy establishment, media engine, whatever we want to call it. And so I was very interested to hear just how you are dealing with that. And perhaps if you have a plan or if you have any ideas for how you're going to deal with the news in the next four years.

48:54You know, look, ultimately, I think this is an issue. It's this age-old question of trust. And who do you trust? And I think that actually one of the things that this medium, by the way, podcasts and social media and everything else, while social media can undo trust very quickly, you can also create trust and clearly has created trusted brands and trusted people. And I think that I hate the word authentic, but I do think that you, Ed, and Scott are super authentic and the people who follow you, if you will, genuinely trust you. And it's not necessarily that they trust every word that you're saying is accurate.

49:35They trust, hopefully, that they believe that what you're saying is in good faith. It's that you believe what you're saying is true, that you've done the homework, that you've thought about these things, that you've spent time with other smart people debating these things. And so while they may not agree with your conclusion, they look at both of you and say, these guys are trying, right? And I think that matters. I think the traditional legacy media business needs to do, we all need to do a better job of connecting with the reader, viewer, listener in that way. Because oftentimes, I think in the sort of TV business or in the newspaper business, it comes across as more two-dimensional, right?

50:27You're reading it on a page. You're seeing it in TV with bright lights and fancy graphics and all sorts of stuff happening. And it's harder to connect in that way. But I do look, I'm somebody when I read a newspaper today or watch a television, I'm usually reading. I'm usually reading the byline, meaning I read the byline. Then I decide whether I'm going to continue with the story. and I think big media companies are now trying to hopefully and will have to continue to try to collect they have to become people collectors they're going to have to collect the trusted people that have those relationships with an audience one last question for me um if it wasn't clear you are one of my heroes professionally you know when I think about how So I'd like my career to end up.

51:19You're sort of one of the first people that comes to mind. My final question to you, do you have any heroes of your own? Is there anyone you look up to professionally or someone who you have drawn inspiration from? So many people. You know, I started my career at the New York Times when I was 18 years old. I think Scott knows this story, working for a guy named Stuart Elliott, who is still my hero. He was the advertising columnist at the New York Times. And what he had was what I just described, trust with a particular audience. At the time, he covered the advertising industry, but that industry read him like a religion.

51:58They believed in what he was writing because he was so in it. He was so deep in it. and he demonstrated his care for the art of it and how much he both loved that world but also held that world accountable. And I think people really, you could feel that. By the way, Scott is gonna think I'm pandering to him. I remember when Scott, long before he was a podcaster and a great speaker and a great writer, he was trying to take on the New York Times, actually, as an activist investor. Do you remember this, Scott, back in the day? Yeah, I remember, Andrew. You remember. And I have watched with great admiration and more than that, actually, the career that Scott's had and what he's been able to do and describe in sort of the public space as almost a public intellectual.

53:01I don't know if you think of yourself as a public intellectual, Scott, but I think you've forced and created lots of important conversations and discourse in this country that has been super important. So, you know, it's not a long list, but there's a couple of people who I've really admired. By the way, authors. There's some great authors that I've admired and TV writers and all sorts of things. So just before I get to my last question, this is a true story. I was on the board of the New York Times and we go over compensation for the top people in succession plan. And this was in 2008. So what, six, 17 years ago.

53:38So you must have been like five. I don't know how old you were, but you were, you were, you were a big name. Like 29, maybe 30. 29, 30. And your name came up. And everyone we're talking about, I guess they were thinking about giving you some role and we were trying to cut costs or whatever. it was. And someone brought up, and I'm not exaggerating, everyone around the table, from the publisher, Arthur Sulzberger, to Janet Robbins, to every board member went, pay him whatever he wants. Everyone was like, this kid is our LeBron James. It's like the entire boardroom was, pay him. Everyone's like, fuck him.

54:19Cut her salary 20%. Let her walk. Let her go to Oh, that kid? Pay him whatever he wants. I love that. You were literally the Cole Palmer of journalism. Anyway, my last question. I think of you as an entrepreneur. You've started kind of these businesses within platforms. And you've got, obviously, media. You've got TV. You've got newsletters. You've got events. You do books. if you were to pick kind of one business or which businesses are you planning to overinvest in and which might you underinvest? Like which what side of your business flywheel do you think holds the most potential for you? And which do you think are probably going to decline in terms of your own human capital?

55:10That's just a great question. I imagine, look, I still think that journalism is the core of everything I do. Interviewing people, talking to people, reporting into the night, working the phones last night on the TikTok story and trying to talk to insiders who are involved. I still think that is, for me, the coin of the realm. And that's where I learn the most. And that ultimately infuses any kind of side project, whether it be a book or a TV show or this or that. So, you know, to me, that is always in my career, I think, going to be the core. I would have told you a decade ago that, you know, the entertainment space seemed like that's where the riches of the business might be.

56:01Because, you know, folks who were producing movies or television shows, you know, there was back end points and this and that and all sorts of things. I don't know whether I think given streaming and just what's happened to that whole business, I'm not sure economically that that is, you know, that Jerry Seinfeld, they say is, you know, made a billion dollars or whatever it is. I don't I don't think that can be accomplished in the same way that it used to be. I think potentially that the news business could actually, especially with AI. I know everybody's scared of AI in the news business. And maybe it'll accrue only to, you know, a sort of a winners and losers cast.

56:43But I actually do think that there's still huge opportunity in journalism, especially because of this trust question. Because the trust question exists, I think it represents an opportunity from a business perspective and hopefully from a national discourse one too. Andrew Ross Sorkin is a financial columnist for the New York Times and the editor at large of Dealbook. He's also the co-anchor of Squawk Box, CNBC's signature morning program, and the author of the bestselling book, Too Big to Fail. Andrew, it was an honor having you on. Thank you so much for joining us. It was an honor to be on. God bless you.

57:15And Ed's professional hero. I'm not jealous at all, but let's see if he pays your bonus bitch this year. Jesus Christ. Here you go. Andrew. I love you, man. Canadian spy. No one should forget that. Canadian spy. No one should forget that. Hold on. Now I thought I'm an American spy, part of the 51st state. That's right. Oh, there you go. Well played, sir. Touche. Touche. Andrew, we're obviously huge fans. Thanks so much for your time. Me too. I'll talk to you soon. Thanks. This episode was produced by Claire Miller and engineered by Benjamin Spencer. Our associate producer is Alison Weiss. Mia Silverio is our research lead.

57:51Jessica Lange 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. If you liked what you heard, give us a follow and join us for a fresh take on markets on Monday.

58:30And the dark lights in love.

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