The AI Bubble Is Real — Here’s How to Prepare for the Pop

26:35because at your age, in terms of emotional wellbeing, the thing that really fucked me up was I would have rather have lost money by being in the market and having it go down than miss opportunity. The biggest angst I felt when I was a younger person was missing out on upside. It's firmer. Yeah, I got less emotional pain having a stock go from 10 to seven than thinking I should buy this stock and I didn't and then watching it double. That drove me crazy. But all roads lead to the same place. Diversification, always be in the market, and low cost, low fees. We should also mention the other big trend that is happening in the markets right now is gold hitting$4 ,000 for the first time ever.

27:23It hit$4 ,000 last week. It's up 121 % since the end of 2022. It's up more than 50 % so far this year. It is the best performing asset class of the year. By far, it's doing better than Bitcoin. Global gold ETFs hit$472 billion in AUM in September. That is up 23 % quarter over quarter. So huge growth, all-time high. I think this is the other part of the markets that we need to kind of think about. Why is this happening? and it really has to do with this issue of loose monetary policy and this idea of debasement the idea that uh we're we are getting looser and looser with our monetary policy around the world we're seeing inflation that is higher and longer around the world and when you talk to people about okay why are you buying gold it really goes back to central bank policy and that is according to surveys, 95 % of central banks around the world are planning to expand their gold reserves over the coming year.

28:30So I think this is the other thing. A lot of people, if you're not super excited about AI, a lot of people are super excited about gold. And it's been one of the best performing assets of the year. Going back to your point about FOMO, a lot of people seem to, There is a belief that gold is this hard asset. It's this sort of safe asset. And in a lot of ways, I think it gets this sort of narrative protection against the concept of FOMO, which you just brought up. I just want to point you to a quote that one of our guests, Robert Hayworth, said on the podcast when we talked about gold. This is what he said about why gold is ripping up so much right now.

29:14We don't see evidence that central banks are buying yet. We're seeing some evidence that speculators are actually pushing this up. ETF holdings are moving higher. If we look at the commitments of traders data from the CFTC, right, we're seeing more futures demand coming into the market. So it's really speculatively driven at this point. We don't. And it takes a long leg to see what central banks are buying to know if that's really kicking it off. So I find this really interesting because gold has been positioned as this hedge against exuberance in a way. you know, if you're worried about the stock market, if you're worried about too much concentration in AI, maybe you go for gold instead.

29:56If you're worried about governments printing money, maybe you go for gold instead. It is sort of the safe haven asset. But what Robert is basically telling us is actually the same forces that are driving up AI are also driving up gold. And that is momentum and speculation. It's not that central banks are actually buying the gold. Yes, they're buying more gold. But what's driving up the extreme rally, the reason it's at 4 ,000 all-time high, is because people are anticipating what the central banks are going to do. It's not the actual gold itself. It's the gold ETFs. It's the gold futures. So this is actually a momentum trade that is happening right now, which to me is very similar to what we see with Bitcoin and it's very similar to what we see with AI.

30:42In other words, the speculative assets are the ones that are driving up prices right now. And, you know, a lot of people would disagree, say gold isn't that speculative. I think we just heard it from Robert Hayworth. Actually, it is speculative. And that's why the price is at$4 ,000. I just want to get your reactions to that. I would have thought that it was one kind of a debasement trade, that the weakening of the dollar obviously sends it out. I think gold being in the news every day largely also creates it as a more sort of viable asset class. And people think, oh, I should probably buy a little bit of gold.

31:16So I think that's part of the momentum narrative. But also I think of it as when you kind of want to flight to safety, the ultimate go-to was treasuries, U.S. treasuries. And I think that there is more risk around treasuries right now or less confidence than there's been. And you'd think that'd be reflected in the yields going up. But I also think it's reflected in people thinking, well, maybe I should diversify my more conservative investments. And gold is seen as one of those. So I think it's benefiting from the fact that people no longer think of treasuries as the ultimate safe haven. And so they're looking for other stores of value.

31:57But the momentum point was interesting because just us talking about gold and the fact that it can, it's not your father's gold anymore. It's not a sleeping asset that it can go up this much brings in a new level of speculative investor that thinks, I want some of that juju or whatever, that mojo. Because traditionally, growing up, gold was sort of this thing that you held on to it, but it was like holding on to cash almost. It just didn't do a hell of a lot. But I see it as, and again, I tend to look at the current administration through clouded glasses. I see it as less faith in the full faith and credit of the government's ability to pay back interest on treasury bills, that they're looking for other safe havens.

32:42Yes, that is certainly what's driving it at the first level. And that's why you'd see part of the increase. But I think what's really interesting is that that has formed the base for which a larger momentum trade has emerged. And when I think about defining 2025 in terms of the stock markets, financial markets, and investing, to me, it's sort of like, this is the year of the risk asset. I mean, I think what we're seeing is that risk assets across the board are exploding. The counterargument to that would be, well, no, look at gold. Gold is the safe haven asset. Gold is the anti-risk asset. But I think what I would point out is that, actually, this is kind of a matter of perspective.

33:24and in my view, you look at gold right now, actually gold is a risk asset. It's got no cash flows. It's got questionable underlying value. And if people aren't buying for the value of gold itself, if people are buying because they think other people, i.e. central banks, want gold, if they think that there's some distant hyperinflationary future, again, that is speculation. This is a risky asset. This is a risky investment. So I think actually that the rise in gold, the rise in Bitcoin, the rise in AI, to me, those are all pointing to the same direction, which is people are making more speculative bets in 2025.

34:06They're actually, it's not this safe haven that you think it is. That was the beginning of the story, but the story has sort of transmutated over time and it's now really a momentum trade. We'll be right back after the break. If you're enjoying the show so far, hit follow and leave us a review on Profit Markets.

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37:51We're back with ProfG Markets. Tesla's year is not exactly going according to plan. At the start of 2025, Elon Musk pledged Tesla would build 10 ,000 Optimus robots for internal use. But last week, the information reported that the company has abandoned that plan and the head of the Optimus project has just left for Meta. That setback is just one example of the broader challenges Tesla is facing. The company's U.S. market share just dropped to its lowest point since 2017. Sales in Europe dropped 43 % year over year in August. Meanwhile, last week's launch of cheaper versions of the Model Y and Model 3 failed to impress investors.

38:28The stock fell 4 % on the news. And as former president of Tesla, John McNeil, put it when I interviewed him on our Daily Show, he said Tesla is a car company in transition. So, Scott, not looking good for Tesla right now. We can get more into the details of why. Your reactions to what's happening with Tesla at the moment? Well, in transition, I mean, essentially you have a company, what is it worth? $1.4 trillion trying to figure out a way to go into a company that might be worth$1.4 trillion because they'll do anything to try and fool people into believing this is not a car company. Because if it was a car company, it'd be worth 10 % of its worth now.

39:08So let's say it's a robot company. And my understanding is the person who was running the optimist group left to go to Meta and took a cut in pay because he wanted out of there so badly. I mean, it feels like the David Copperfield of the modern economy is Elon Musk, who's saying, look over here while I try and stuff a car company that's rabid back into the hat here and fool people that this is an AI slash SaaS company. He's trying to, I mean, the transition is the following. He's trying to transition to be kind of this AI company with mobility, with satellites, with broadband, and with an LLM with Grok.

39:45And the robots were nothing but an attempt to say, I mean, keep in mind at the beginning of the year, he said that they were gonna, he put a projection on it and said that ultimately 80 % of their EBIT or their 80 % of their enterprise value would come from robots. And they basically just now said they're kind of putting the robot thing on pause. So I just wonder at some point when everyone yells at the magician, you know, you're a fake because they're doing everything they can to try and keep people's gaze diverted from what this is. And that is a company, an EV company, that is declining dramatically.

40:22They've delayed production of these bots, right? So that's not working. The bot thing isn't working. They said it was going to be 80 % of Tesla's enterprise. That's clearly not true. And the core business is struggling. Tesla's had a 7.4 % sales increase year over year. But that masks real weakness because this was the last quarter where that$7 ,500 tax credit was available. So you should have seen a massive sugar high as you did at Ford where EV sales were up 20 % and GM, they were up 107%. He's got a limited amount of time just as the kingdom of Saudi Arabia has a certain amount of time in a fuse burning around transitioning away from a fossil fuels economy.

41:06Otherwise, it's just Russia. And it's a very vulnerable economy. Tesla's the same thing. They have to transition out of an automobile company. And he keeps, again, using these weapons of mass distraction. He just raised a ton of money for Grok. I don't know if at some point he's going to fold in SpaceX, but the autonomous thing isn't working. I mean, autonomous isn't working, or he's definitely a distant number three player right now. The optimist, the latest weapon of mass distraction is clearly just that, a mass distraction, the optimist robots. and the automobile, the core business, which is now worth more than every other automobile company combined, is not collapsing, but it's getting, you know, the business is maturing and other people are catching up.

41:53So the amazing thing is that the stock is still up 14 % this year and trades at 17 times sales. Ford and GM trade at less than 0.5 times sales. BYD trades at 1.1 times sales. So Ford and GM, legacy companies, not as profitable, not the same margins. Tesla trades at 34 times what those companies trade at. And BYD, which is eating Tesla's lunch in the sense that it is producing way more, has a better car to lower price. Tesla's trading at 16 times what BYD trades at. And again, this isn't financial advice, but this, with the exception of Palantir, I would argue, is the most overvalued company in the world.

42:36But it's become, I believe, a meme stock, an investment in Musk, an investment in AI. But he's lost one of his weapons of mass distraction because it's clear that the optimist was all jazz hands. 100 % agree to most overvalued company in the world. I mean, every time the data comes out, I cannot understand for the life of me how on earth you can justify this ridiculous batshit valuation. I mean, just to reemphasize some of the data there, you mentioned those September sales that everyone was like, oh, great. Tesla sales were up. They were up 7%. Again, you might think that's good until you realize that was pull forward demand because the EV tax credit was expiring.

43:21So everyone was trying to buy their electric vehicle before the tax credit expires and the prices of these EVs goes up. So you think, oh, it's good. And then you realize, oh, wait, the Ford EVs, those sales are up 20%. The GM EVs, those sales are up 107%. And you compare it to Tesla sales up 7%. So that's not good. Then you look at these cheap models that they unveiled last week. And this was supposed to be like a big deal. Oh, we've got these great new cheap Teslas. Those cheap models cost$37 ,000 and$40 ,000. They are actually more expensive than what a premium Tesla cost before the EV tax credit expired.

44:01So this is what the EV tax credit has done to the price of Teslas. Teslas are up, and now their cheap cars are actually more expensive than their premium cars used to be. And then as you mentioned, BYD, compare it to the Seagull, their cheapest option in China, which costs$8 ,000. So what's going to be really interesting now that their cheap model is$40 ,000, that's a cheap Tesla. What's going to happen when we see sales after this EV tax credit expiration, which just happened? What's going to happen to sales next month and the month after that? These are the real questions. So what we have here is a car business that is in decline.

44:41It's just not a debate. That is what is happening to Tesla. And so you think, okay, how do you justify the$1.4 trillion valuation? Well, it's got to be the robots and the robotaxes. We just learned that the robot, the optimist robot, the production is being delayed. We just learned that the guy who was running that segment, running that business, he just left to go to Meta. And then you might think, oh, Zuckerberg must have offered him like some billion dollar pay package like he's been doing to all these AI researchers. He left and he took a pay cut to go to Meta. He willingly decided to leave what is supposed to be the business that's going to drive 80 % of Tesla's market value.

45:26He took a pay cut to go somewhere else, to go to Meta. I can't think of a more bearish signal for the optimist robot than that, which leaves you with, okay, the only thing that could justify this, the only thing is the robotaxi. that that's the only thing that makes sense here and again clearly the market is in over its head in some way because waymo is the leader so if if if tesla's worth 1.4 trillion dollars you should be adding a trillion dollars in market cap to google waymo is far and away the leader you have all of these other competitors you have uber getting into the autonomous game like nothing should indicate to you that Tesla is set to take over autonomous taxis?

46:11Or at least you need to be a lot more discerning if that is your belief. I think essentially this company, well, let's ask ourselves, and Josh said this, what could go right? Like what could happen that would justify Tesla's valuation or maybe even put the stock up? One, I think the closest path to shareholder value to justify this valuation would be if they made real progress, if they accelerated and made a ton of progress around autonomous. And they do have a built-in advantage. One, they have more data. And I don't know if that data is useful, but they have digitally tracked hundreds of millions, if not billions of miles with their pre-existing built-in fleet of cars too.

46:56They can go more vertical. Their technology, they can produce technically an autonomous car for, I believe,$30 ,000 or$40 ,000, whereas Waymo cars are somewhere between$200 ,000 and$250 ,000. And that will probably come down as they get more scale. But there is a built-in advantage or cost advantage because Tesla is vertical, so to speak, and has chosen the less expensive technology. So it strikes me that if someone were to say, okay, what is it about? And then if someone were to say in a year the stock is up, I would say, okay, they've shown real progress around autonomous, or they've been able to link in terms of usage, synergy, whatever you would want to call it, a booming grok, right?

47:39That basically Tesla shareholders are now, if they were any way like to wrap it into grok and X and create some sort of like AI company that's vertical around autonomous, I think he's trying to figure out a way to wrap all of these things under sort of an AI umbrella, but it would be one, autonomous, or two, some sort of ability to create an AI halo from Grok over Tesla. Because just standing alone, it's just becoming increasingly clear that Tesla is what it is. And that is a company that wraps steel around an axle and a battery. It's a car company. It's an EV car company, which should trade at a higher multiple because it's a bigger potential market.

48:29And they're better at making EVs, I would argue, than the Ford and General Motors and Stellantis. So they should be trading at one-time sales, not 17 or whatever it is. I feel like the biggest distractions in history are Trump's attempt to keep Epstein out of the news and must to try and say anything about Tesla and trying to get people to believe that, no, this is not a car company. This is AI or autonomous or something else. I just re-emphasize what you said about what he said. He said, optimist robot, these humanoid robots, he said it's going to make up 80 % of Tesla's market value. And the guy who runs that business just left to go to Meta.

49:11I'm just so freaked out about all of this, these synthetic relationships. Would you want a robot in your house? If it did the laundry, maybe. Maybe cooked or something? But that's not going to happen for 20 years, 30 years. I mean, he keeps on telling it's going to happen next year. They haven't even started production. Actually, this really is a better question for your girlfriend. She could answer this. What's it like having a robot in your house?

49:39We'll be right back after the break. For more markets content, hit follow and sign up for our newsletter at profgmarkets.com slash subscribe.

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52:01We're back with Prof G Markets. The Economist just published an article that investigated what is holding Europe back. Europe doesn't have a single company in the global top 25 companies, while the US has 20. They also have a startup ecosystem that is really lagging behind the US. And their conclusion in this article is that it's too expensive to fire people. and because it's too expensive to fire people, it creates a risk-averse culture where companies hesitate to bet big, which got us thinking, maybe one of the reasons why the US is so dominant, so innovative, maybe it's because we can fire people, the freedom to fail and take chances.

52:41That might be what gives America its edge. Scott, you've been on both sides. You've done hiring, you've done firing. What do you make of this idea, This idea that actually, because you can fire, because we have weaker severance laws, weaker severance protections in America, that might be the secret to America's innovation. I think it's a big part of our innovation. I mean, there's so much. When people ask me, what is the difference in the U.K. between the U.K. and the U.S.? I mean, if you just sort of, in 1995, equal productivity,$45 per hour, Europe and the U.S., it's gone to like$75 in the U.S.

53:24per hour, and it stayed flat. that Europe literally, for the most part, hasn't grown in 20 or 30 years. And I think a lot of that comes down to risk aggressiveness. People are willing to take much more bigger swings. There's$5 million, a lot of it's capital, $5 million in venture capital available for every startup in the U.S. versus$1 million in Europe. And part of that is that if things don't work, you can pivot. So I'll use an example. I started a company seven years ago called, I think we called it Section 4, then we changed the name to Section. It was meant to be, don't laugh. Jesus Christ said, don't laugh.

54:00You're laughing at my startups. I'm laughing that you don't remember the name of the company you created. I don't remember. My job was just to sell it and raise money or just to, anyways. Sorry, this is the craziest statement of all time. I founded this company a few years ago. I think it was called - What was it called? It was either called Google or Joey's Edibles. I can't remember. Anyways. It was called Section 4. Section four, that's right. Thank you. Mia Silverio, our lead data analyst work there. So now it's just called Section, and now we've changed the name to Section AI. Initially, it was meant to be 80 % of graduate degree classes or graduate business classes for 10 % of the price.

54:44And then we started using AI. And then essentially we found that people were coming to us and saying, you seem to understand AI. Can you help us upscale our employees? And the pivot has been to what I'll call the adoption layer. And that is, per some of these studies, you've had a lot of companies spend a lot of money on site licenses with Anthropic or OpenAI only to find out six months later their employee, their workforce has not adopted it and is not using it. So in comes section to help L 'Oreal or whoever figure out, all right, how do you train employees? How do you get them upscaled around their specific tasks, make them more efficient so that they're not threatened?

55:20That company, we went to 20 to 120 people, all right? Now, when things weren't working and we got to like$10 million down in cash, if this had been a company in France, we probably would have had to have closed down the company because that$10 million would have been needed for severance. And in addition, we never would have gotten to 120 people because when you can't fire people, the reality is you're much more reticent to hire them. So if you want a flexible workforce, if you want more innovation, if you want more risk taking, you can't punish people for taking risks. And along the same lines, one of the other incredible features about the United States is our bankruptcy laws.

56:05And that is we're fairly forgiving. If a company has too much debt, it can go BK and basically gets to start over, crush down the debt or take out all the equity. The equity holders get crushed, go to zero, reformat the debt and keep the assets inside of the company because it might be a good company that's just over levered. also personal bankruptcy. You're out of college. You think you're making good money. You're spending a lot. You don't really understand how much money you're making. You get in and out over your skis. Credit card bills keep mounting. You're paying stupid interest rates because no one ever, people taught you calculus but not how to calculate the interest rate on your credit card.

56:46You can declare bankruptcy. And while it's terrible for your credit, you basically get to start over. And that is a wonderful thing. What does that do? It encourages risky behavior on the part of people and of companies. And you're not afraid or as afraid in the United States to hire people because you know you can fire them. And I remember my first few companies, we never even hired people initially. We'd always hire them as contractors initially and then moved them to full-time employees. So I think this is really a key component of the U.S. economy is our ability to hire and fire. And also something I didn't realize or, you know, young people, especially your generation that have been in an economy that's kind of been up into the right.

57:34I find that because of concierge parenting and social media, that kids, when I do see them, when they do get laid off, it was never easy, but it seems like kids of your generation take it especially hard. And what I would say is that the worst thing that can happen to a young person is that they stay at a company and the company doesn't really think they're great. The company, they're just good enough. And I've had conversations with people, with people I really liked. And I'm speaking in one specific example, a great kid. And I sat him down and said, I don't know why, but the CEO just doesn't think that much of you.

58:13I think you should look for another job because I think you're really good. and for some reason the person who's going to make all kind of have a tremendous amount of domain over your future here is just not impressed with you and i want i like you enough and i want you to do well enough and he ended up going to work for another company i was on the board of and he's done really well but you're you're not doing yourself any favors oftentimes it's a blow in the short term and look people got to pay their mortgage and all that but if you're somewhere where your human capital isn't being put to good use and isn't appreciated, that's not the place for you.

58:50You want to get out. You want to find a place where you excel, the company's growing, they can afford you, they like you. And what you have in Europe, I think a lot of times are these kind of zombie companies and zombie employees where they think, okay, they're just good enough to hold on and they're more expensive to fire than they are just to keep around and let them go sideways. So also just for morale, and people don't like to say this out loud, everyone talks about, look, the key is great hiring, but occasionally on a regular basis as a CEO, I believe it is good for morale to have what I call a strategic firing.

59:26And that is someone is clearly not pulling their weight and you get rid of them. Because what that says to everybody else in a weird way is we appreciate you. Not everyone just gets to be here. You are working harder and you are better than the people we let go. And we recognize that. Otherwise, there's a tendency to regress to the median and everybody says, why am I working so damn hard when Bob over here is just not that good? So again, the faster you can fire, the quicker you can hire. Just to go over the data that really backs this point up. So the cost of firing an employee in America costs the company roughly seven months of that employee's wages.

1:00:06When you look at it in Germany, the cost of firing an employee is 31 months of their wages. And in France, it is 38 months of their wages. So essentially what you have here is it's a lot cheaper to fire people in America, which makes companies more willing to fire. And I think I agree with you. It makes companies more willing probably to hire because, you know, you're calculating less opportunity costs. It's not going to be a huge issue if you need to let them go. So you're down to be nimble and pick them up. and maybe that's good for innovation. I'm sure that could be true. Along these lines, though, a lot of this got me thinking about a conversation with Catherine Anne Edwards, the labor economist, who, you know, her point that really resonated with me, at least, is one thing that we need to emphasize more in America is just stronger labor protection laws.

1:01:00And we weren't talking about severance, and I think I'm actually with you on severance laws in America. But, you know, she was talking about, for example, universal paid sick leave, universal paid maternity leave. She was pointing out that these are issues, especially for women, that actually lowers labor force participation, makes it more difficult to join companies because they don't get the kind of benefits that you get in Europe, specifically when it comes to sick leave, specifically when it comes to family leave. And I thought that was the right point. But then there's the other side to this, which is, okay, well, maybe if you take the Europe model, maybe if you lean into benefits for workers, for employees, if you make it more expensive to keep them, essentially, then that could be, again, a suppressor on innovation.

1:01:55But I'm not the founder and I'm not the CEO here, so I want to get your reactions to that. It's complicated because the species needs to continue and we need young people to have kids. So to say, to constantly preach about the importance of young people meeting and having the opportunity and the economic wherewithal to have kids and then to say, no, all employees should be at will, I just think that's hypocritical. And I remember how hard it was for my partner working at Goldman with two kids under the age of five. The market is solving for a lot of this, not all of it, because the best companies recognize that 60 % of our college graduates are women, and most women at least want the option to have kids.

1:02:37And so the criteria for selecting a company is how they treat women, and specifically, you know, how are they around maternity and leave benefits. So the competitive pressures have naturally—I mean, I'm not exaggerating. women used to get two weeks off to have a kid back when I was a kid. I mean, there was no Google and six months maternity leave. That just wasn't, that didn't exist. There was absolutely no recognition that women have ovaries and actually need to give birth and should be at home with the baby. You know, this is a tough one. Where do you land? The species needs to continue. The market is figuring a lot of this out because women are the most qualified and most educated, so they want to make family-friendly offices for them.

1:03:23I do think that the government has a role here. We're the only one of the G7 nations that doesn't have universal childcare. And if we want to bring more women into the workforce and increase workforce participation, there's a myth that America loves to work. Americans work hard, but we actually, not that many people work. Up to 350 million people, only 165 million work. So if we want greater workforce participation, I think universal childcare is an absolute must. But I just want to go back to hiring and firing because I've thought about this a lot. I think I've probably hired 1 ,200 or 1 ,500 people.

1:03:56I've probably fired 300 or 400 people. If you're put on a PIP, a performance improvement plan, start looking for another job. The moment, fairly or unfairly, you've put on a quote-unquote performance improvement plan, it means somebody no longer has confidence in you and you should just try and find another job too. As a manager or a CEO of a company, I don't think I've ever fired anyone on the day I was supposed to. I always put it off. I hate it. You're rocking someone's world. It's a awful, it is hands down the worst part of the job. It's just awful. But my advice to any manager is, I would say 90 % of the time I have fired someone too late.

1:04:37I don't think I've ever fired someone too early. You have a gut that's not working out. In a small and a medium-sized company, you don't have the resources, the wherewithal, the bandwidth to try and figure out. The kind of the progressive woke view is, oh, it's all about the company. And if they only have the right role and if we switch bosses and they have a bet, no, no. When you're a small or medium-sized business, it's hand-to-hand combat. If someone can't figure out a way to figure out how to add value almost from the get-go, you should probably move them out. And my view is around firing is the following, hire slow, fire fast.

1:05:11And what you can do when you fire fast is then you immediately become exceptionally generous. You can give them more severance. And essentially my approach to firing has always been the same thing. We're letting you go. Here are some reasons. We can talk about it, but it's not going to change the outcome. What I want to move to is a conversation around what we're going to do for you. You can be angry. You can be upset. You shouldn't be scared. We're going to keep you on for as long as you need, and we're going to try and help you find another position such that this is a win for you. But I find that your ability to be generous like that oftentimes is based on your ability to fire quickly instead of keeping someone way too long, and then it becomes totally obvious, and then quite frankly, you can't be as generous.

1:05:58So my attitude is you're rapacious about the decision, but then you're very maternal, paternal, whatever the term is, around the terms of them leaving and such that they're not scared. You know, they go home and they have a terrible conversation with their spouse, but they're not afraid. It's like, okay, you're going to have health insurance. We're going to pay you for as long as you need, and we're going to help you find another job. What do you think of this thesis, this idea that this is part of the reason why Europe is behind and this is why they're lacking in innovation? I mean, I kind of like it as a theory, but I'm also hesitant to just be like, this is why.

1:06:36I mean, I think there's got to be a lot of reasons. But what do you think of that as one of the explanations? It's absolutely multidimensional. There's a lot of reasons, but this is a big part of it because the West's attitude towards business is ready, fire, aim. Let them, we err on the side of a lack of regulation, right? Let Uber go into Argentina, not even get business licenses. Let Airbnb start renting out people's apartments without getting any licenses whatsoever. Let AI molest traditional IP. Now, in every one of those instances, you can make an argument for why it's wrong. But generally speaking, a lack under-regulating has worked out really well for the U.S.

1:07:18versus over-regulating. because as they're sitting there trying to figure out how to save the whales and how to be carbon neutral and what's right for special interest groups, we're just blowing right fucking by them with companies that are moving a lot faster. So there is a certain, if you were to just look at economically, where I part company with what I'll call the techno libertarians and the people who claim to be capitalists is you want full body contact corporations. You want to let them, You want to let your winners run. But quite frankly, you want to tax them at higher rates such that you can make you can afford to have retraining, greater unemployment benefits, universal child care.

1:07:58But in terms of the actual combat on the field, give them the weapons they need and then stay the fuck out of the way and then tax them. Corporations have their lowest tax rates since 1939. But try and do away with as much regulation as possible that gives them the opportunity to move faster than their European or their Chinese counterparts. And then with that full-body contact violence, they hopefully become the best in the world, generate a lot of profits, and then tax them at a real rate. And when people get laid off because they're in that full-body thunderdome, we can give them more unemployment.

1:08:33when women can enter the workforce because they have universal childcare, right? Basic, we can reinvest in worker retraining when someone loses a job because they're in an industry that's in decline. So I'm of low regulation, but high taxation. So I guess it's a mix of the two, but I think it's a big component of why I'm on the board or was on the board of a French company. We were very careful about hiring people because it's like, if it doesn't work, I mean, basically you almost can't fire them. You can't afford to fire them. Three years, you'd rather keep them around, even if they're bad, than have to pay them what amounts to three-year severance to just do nothing.

1:09:20Yeah, just find something for them, anything, right? And so this is, I absolutely, also to a certain extent, Ed, I mean, I hate to say this, But that anxiety and a little bit of that fear is very motivating. You know, America at the end, my dad, who was a Scottish immigrant, said something that always stuck with me. He said, America is a terrible place to be stupid. I would argue America is the worst place to be unlucky. But America is comfortable with the following. We are comfortable with a zeitgeist that is winners and losers. We want really talented, hardworking, and lucky people to garner more assets than any individuals in the world.

1:10:00At the same time, we're also comfortable with, quite frankly, having a safety net that is much more porous and lower to the ground. We have made a conscious decision that if you don't work in this country or you're not lucky, your life is going to be worse here. But if you're really good at what you do and you keep trying and keep taking risks, your life's going to be better than anywhere else in the world. America has basically decided that they are comfortable with that complexion of a society. I think the only part where we run into trouble is, yes, it's good to have a system where it's full-body contact, more innovation, more wealth creation, more valuable companies.

1:10:35It's all well and good. But again, to your point of the taxation, it's like, well, why do we live in this incredibly prosperous society, this incredible economy, and yet many Americans are unable to afford their groceries? How could it be that someone in America is living with that situation, living in the most prosperous nation in the world, and then meanwhile you've got Bezos, who's deconstructing hundred-year-old bridges and flying his 400-foot yachts through those bridges? Point being, I agree with you in terms of you want to loosen regulation, let companies do their thing. I also agree with you when it comes to taxation, but you can't have it both ways.

1:11:15You need some way of redistributing that wealth, redistributing that value creation such that people live decent lives. And it shouldn't be that we have this incredibly innovative and prosperous and wealthy society, and yet we can't get our act together on something like universal childcare, I mean, that exists in all of the European nations that we ascribe as sluggish and low growth. You'd think they don't have the money to pay for anything. Somehow they figure it out. There's a difference between just the kind of libertarian view of the free markets and capitalism. And that is we're moving towards just basic free markets and kind of a libertarian, low-touch, low-government involvement.

1:11:53That ends up with a small number of people who garner most, if not all, of the resources, most of the romantic opportunities, most of the political power. And then they don't think of themselves as bad people, but they give money to the right people and figure out a way to soak all the oxygen and all the resources into a smaller and smaller group of people. And then at some point, the bottom 99 percent realize the fastest way to triple their income is to kill the 1 percent or to overthrow them in some form of revolution. That is the basis. As has happened throughout history over and over again.

1:12:24The greatest innovation in history is the middle class in America. It's an accident. Republicans would have you believe that it's a self-occurring organism, that if you just let the market go, the middle class will thrive. No, the middle class is an accident. It's not supposed to exist. People who are very talented and well-connected garner a disproportionate amount of resources, use that economic power to weaponize and overrun government, create regulatory capture, and just fucking run away with it. And that's kind of the story of the S &P over the last 20 years. You have to redistribute money back.

1:12:56Let me use the R word, redistribution. You have to tax. Our periods of greatest economic growth are when our corporations have been paying 50, 60, 80 percent tax rates. And I go back to Daniel Kahneman. The difference between making 10 or 15 million dollars a year makes you no more happier. So why on earth would you not have incremental tax rates above a certain amount of 60%, 70 % on individuals and have an alternative minimum tax of at least 30 % on corporations such that you can have universal child care, such that you can have training, such that you can have Pell Grants, such that you can have tax incentives to create more housing to bring down the cost of housing?

1:13:33You also need, I'm going off base here, off script here, you need a massively aggressive FTC and DOJ to make sure no one set of companies like 10 control 40 % of the S &P. But all of these are common sense solutions that other governments have implemented and we implemented basically from 1945 to about 2010. But we have become weaponized by old people and by rich people who are basically following the same tact as every third world nation. and that is they've said, you know what? Enough is just not fucking enough for me, right? I want policies that take me from 1 billion to 8 billion then to 80 billion and then to 280 billion.

1:14:10I'm not saying we don't need billionaires, but do we really need someone worth$400 billion while we're cutting, while we're about to double the tax credits for Obamacare to children? I mean, like William Gibson said about the future, it's here, just not evenly distributed. Well, prosperity, unprecedented historic prosperity is here in America. It's just not evenly distributed. Capitalism does not work. It collapses on itself unless you consistently redistribute capital from the most fortunate, most blessed, and best performing companies and individuals back into the middle class. And if you don't do that, there's no basis to build an economy.

1:14:49The whole point of an economy is to build a middle class. Full stop. Anyways, thank you for my TED Talk. Let's take a look at the week ahead. Earnings season will kick off. We've got JP Morgan, Goldman, Citi, Bank of America, Morgan Stanley, and Wells Fargo all reporting. We'll also see earnings from ASML and Johnson & Johnson. Scott, do you have any predictions? I don't know, Ed. Let's just say that either Palantir or Tesla are off 40 % or more by end of Q1 2026. Let's put that down. on Palantir or Tesla off 40 plus percent by end of Q1 2026. What do you think? I always want to say yes. And we're always wrong.

1:15:35Yeah. I wouldn't be surprised if you made the same prediction last year. It should be. I mean, it makes absolutely no sense. I'm just, I really struggle with this company. It never seems to fall down, but it has to at some point. I just don't know about the timing. I know it will. I I know it will come down by 40 % at some point. I just don't know about Q1. It's hard to say. Either that or you're going to decide you've had it with my bullshit, move to Vermont and raise labradoodles, raise hypoallergenic labradoodles with that lovely girlfriend of yours. And maybe you're going to fire me. You apparently love to fire people.

1:16:14Yeah, it hasn't happened yet. It hasn't happened yet, you know. 18 bucks an hour, you're a decent deal.

1:16:26This episode was produced by Claire Miller and engineered by Benjamin Spencer. Our associate producer is Alison Weiss. Mia Silverio is our research lead. Our research associates are Isabella Kinsel, Dan Chalon, and Kristen O'Donoghue. Drew Burrows is our technical director, and Catherine Dillon is our executive producer. Thank you for listening to Prof G Markets from Prof G Media. Tune in tomorrow for a fresh take on the markets.

1:16:55You have me in kind reunion As the world turns And the dark flies In love, love, love, love

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