The Trump Trade & The Vibecession — ft. Kyla Scanlon

26:15I think it's the right thing to do with Google. One of the firms just released a buy rating on Google and a sell rating on Meta because they're saying that Google is going to gain steam again. And I think this acquisition could be a sign that Google is finally moving in the right direction and thinking about the long term. So I think the two things that the tech sector is going to have to focus on moving forward is cybersecurity. AT &T just had a huge breach, a huge data breach. You know, phone numbers were released on the dark web. That is catastrophic. It's something that should have never happened.

26:49Investing in cybersecurity is the one way to combat that. And so it's good that Google's doing that now and it's probably going to be a value add long term. But then the tech companies are going to have to think about investing in energy. So Sam Altman himself, the CEO of OpenAI, has said that we can't keep on producing these models because they're just using too much energy. We're going to have to have something like nuclear fusion in order to keep these things running. And so I think for tech, just to focus on the real world and then ensuring that the technology isn't released on the dark web is going to be how they continue to add value moving forward.

27:26Because investors have already placed so much faith and hope in these companies that they're going to have to show them that there's a world beyond apps and monetizing search. Do you think investors should be focusing on energy stocks as well? I I mean, you mentioned this AI demand will lead to a high demand in energy. Is that a sector that you're looking at right now? Yeah. So, like, nothing I say isn't best advice, obviously. But, yeah. We relate. Yeah. But I think energy is something really important. There's a lot of startups in the hard tech space where they're like, okay, how do we solve these real world problems that we've kind of ignored over the past few years as we focused on data collection, as we focused on advertising, as we focused on sort of monetizing apps, right?

28:16I think that it's really exciting what's happening in energy. Like there's a lot of innovation in hydro. There's a lot of innovation in wind. And for the first time ever, the U.S. is actually an energy producer rather than an energy importer. So we're exporting more than we import, which is really great. And there's a lot of government money going towards, you know, how do we sort of rotate away from fossil fuels? And so I think energy is just you look at the situation in Texas and it's obvious that we have to do something. Like those people have no electricity and there has to be backups. So I think energy is just very fascinating, and it's something that we should spend a lot more time thinking about.

28:56So this podcast could probably be fairly accurately called the NVIDIA Celebration Hour. We talk about NVIDIA so much, but there has been one stock that has outperformed NVIDIA, and that is Abercrombie & Fitch. It's up 350 % in the past year, and it really is an incredible case study. Can you walk us through how Abercrombie has resurrected the brand and pulled off this comeback? Yeah, Abercrombie has been one of my favorite companies to talk about because I think that they've done a really great brand turnaround. And when you're thinking about like a company like NVIDIA, like they sort of have like these sectoral things that they're benefiting from.

29:35But Abercrombie is really just benefiting from a consumer that they've managed to age with, which is like, you know, the millennial. And so Abercrombie was once known as this company that was like a little bit scary to go to. Like if you went to the ball, it was really dark and the music was really loud. And the models, which is what they called their employees, were oftentimes meant to be intimidating. Like they were not meant to be friendly. They were meant to kind of scare you away. You can't tell me you never took a photo with one of those guys. Oh, I never did. But I'm sure people did. That was the thing back in the day.

30:09I remember my sisters would go to these Abercrombie stores and they'd take selfies with the male models. Are you serious? Yeah. Oh, wow. But sorry, I didn't mean to interrupt you. Go ahead. No, that's a fun fact. But that was just not probably a great long-term plan. And what I really love about Abercrombie is they have been around for a long time. So they outfitted Teddy Roosevelt. Right. So like they've been sort of this company that has managed to navigate the waves, but they experienced a lot of backlash. Like when their former CEO took over, Mike Jeffries, he kind of designed the company into, you know, a selfie with the models company versus a company that's focused on perhaps producing good clothing.

30:55And so Abercrombie has really benefited from the wave of the 1990s, like sort of this nostalgia core where people want low-rise baggy jeans. They've really invested abroad too. So they focused on gathering sales overseas. They've also focused on influencer marketing, which is kind of, you know, what you have to do in this day and age. Invest it online. Almost 50 % of their net sales come from online. And they've also focused on women. Women are tremendous spenders, and that's in the data. I'm not just saying that. And all of that has really created a really strong brand strategy where their margins are up, net sales are up, and they've been able to sell clothes and outperform NVIDIA.

31:39Yeah, it really is an incredible example of kind of running into the fire because, I mean, there was a non-zero probability Abercrombie was going to go bankrupt. and that so there was real risk investing in this company a few years ago does anything else out there remind you of abercrombie i think there's a lot of companies that have kind of this really good turnaround story domino's pizza is another good example like they're basically an e-commerce company that sells pizza um and so one of the best reforming stocks of the last decade and they've had an incredible turnaround story too perhaps some of the tobacco companies like they got pretty beat up when nicotine wasn't so popular.

32:20Now nicotine is quite popular again. So you have these companies that have been able to weather the winds of time. And I think those companies tend to get oversold because people are like, oh, they just can't keep on doing it. And somehow they do. So what about, there's now more and more articles looking at the AI space saying that just the revenue, the expectation of revenues to support the current valuations in the sector are just sort of untenable. Any thoughts? Yeah. No, it makes sense that you all were in NVIDIA. What'd you call it? Cheer podcast or something? NVIDIA Celebration Hour. Because like that's kind of what you've had to do for the past couple of months.

33:01It's like, oh yeah, NVIDIA is just what I'm going to pin my hopes and dreams on. But with any bubble, which is what we are in with AI, there is a moment of reality where people are like, oh, you know, what actually is this going to do for the average consumer or the average business? And with AI, there's like a$500 billion gap between, as I'm sure you all have talked about, between like what they've spent and what they're expected to make. And so I think it's really good that people are looking at this and saying like, well, where's all that money going to come from? Like, where is AI going to get$500 billion?

33:36And I think it's going to happen. Like, you can look at the patterns of the tech bubble, where there was like an early version of Airbnb that failed because it was just too early. And so I think with any sort of bubbly scenario, which AI is, there are going to be applications that are too early and they're going to lose out on money, but eventually they'll sort of gain steam again. Are you familiar with this Buffett index where he looks at the ratio of the total market cap of stocks relative to GDP? And right now it's at sort of a historic high, like the same types of ratios we saw in 2007 and 1999.

34:14Any thoughts on this ratio and whether that indicates we're in for a correction? Yeah, maybe. I think numbers have to be taken into context with other numbers, right? And I think the market has been considered overvalued for quite a long time. I was listening to Goldman Sachs podcast about markets this morning, and the person they were interviewing was like, yeah, the market's overvalued, but it won't stop going up. And I think that's what I think as well. It's like, you know, for whatever reason, it just keeps on continuing. Investors see a lot of hope in the United States, obviously. They see a lot of excitement in the tech companies and now the small caps.

34:52So yeah, I think it's overvalued. But I don't think that necessarily means that it has to go down. I think in the post-pandemic, you know, stock market economy situation, a lot of our metrics have stopped meaning what we thought that they meant. Same with like yield curve inversion. Like it doesn't necessarily mean that a recession is coming. It's just something to take into account with other metrics. And I would consider Buffett's metric in a similar light. You coined this term vibe session, which we love and I think a lot of people love, which basically describes this disconnect between the actual economy versus our perception of the economy.

35:29And the reality over the past few years is that the economy has actually been quite strong, but we have perceived it or the public has perceived it to be weak unless we have been in a vibe session. The vibes have been off, not the actual data. I'd love to get your read on the vibes right now. The economy is still quite strong. The perception of the economy has somewhat recovered according to sentiment surveys. But, you know, we just had an assassination attempt on the man who appears to be our next president. What are the vibes like right now? And why do you say that he appears to be? Just out of curiosity.

36:12Based on prediction markets? Yeah, I mean, I think that, so like there's a way to quantify Vibes, which is the consumer sentiment surveys, like UMICH, UMICH again releases a consumer sentiment survey. And what's really tough about that is that they've changed how they collect data. So they were doing like, you know, phone call surveys, and then they switched to web-based. And when they switched to web-based surveys, all of a sudden the answers got a little bit weird. Really? Yeah. Like people were predicting like 15 % inflation on the web-based survey. And so that's a mess. And so the vibes were improving, but now we have like this weird data collection thing where there's something like to talk about within that.

36:59Like, why did it get so weird when we switched to the web? And that has shown that the vibes are declining. They were going up a little bit, but people are still feeling quite worried. Whenever I talk about the VIBE session, I always make sure to point out structural affordability problems. Like we do have a housing crisis. We do have elder care costs that are$10 ,000 a month on average. Child care costs are up 32 % since 2019. And so all of those are going to impact how people feel about their economic circumstances. And of course, they're going to feel bad. We also have media headlines that are, you know, trending negative.

37:36Of course, people are going to feel bad about that. And as you're saying, you know, there's an assassination attempt on a former president and a current, you know, presidential candidate. Yeah, it's hard not to not to feel bad. You said the toughest part about investing is holding on. Can you can you say more about that and how investors should be thinking about holding on during this economic and political environment? Is that essentially, you know, don't don't time the markets, don't sell? Yeah. I mean, what do they say? Time in the market is better than timing the market. There it is. And so I think that's key.

38:11And I think during times of uncertainty, people have a desire to sell because they're scared. And so I think just during times of uncertainty, it's important to hold on to investments that you believe in, to continue investing, because the stock market does go up 53 % of the time. And the stock market is essentially a bet on America continuing to grow. And so if you believe in those two things, it makes sense to hold your money into stuff that you believe in. Stay with us.

38:54we're back with property markets so one of the reasons we started the podcast was to try and increase or improve financial literacy for young people what do you think are the greatest barriers to wealth creation for young people it's the idea that you have to own a home i think that's interesting yeah so if you look at the distribution of financial assets from the federal reserve which is a chart that I talk about quite a bit, you can see that the bottom 50%, and this is more income versus age, but they have all of their wealth tied up into housing. They don't have a lot of equity ownership. They don't have a lot of business ownership.

39:28They own homes. And so I think for young people, there is an expectation that one day you're going to be a homeowner, you're going to achieve the American dream, and everything's going to be perfect and wonderful, and that's how you're going to build wealth, right? And even when you talk to policymakers, they're like part of the reason that we focus so much on housing is because that's the way that middle America builds well. And so the more that I've talked about housing and the more that I've talked about, you know, economic circumstances for middle America, how can we help people, right? It really is about having a conversation about investing, which is what you all are doing such a great job at.

40:03It's like, how do we educate people about the stock market? And so I think that's what young people really struggle with is like that barrier to entry in the market. Like there are apps like robin hood but that feels like gambling right um there are apps like public but it's just confusing like where do you begin and so i think it's just sort of getting your foot in the door like how do you take that first step towards becoming an investor i think that just can be quite overwhelming for people and there's always tomorrow right like it can always start tomorrow um and so we also don't teach people this in school like we just send them out in the world and i hope they figure it out.

40:39Housing's an interesting one because, and I'm of two minds of this, you know, a disproportionate amount of wealth among baby boomers is in their house, right? And I totally get that if you look at sort of too many young people fall into the illusion that they have to own a home and they end up being kind of house poor and it ends up decreasing mobility and almost being kind of an anchor, whereas if they'd put the money and the maintenance and all the taxes into just an index fund, they would have been better off. Having said that, it's also, I found at least, I think for a lot of people, young people, it's a means of forced investing.

41:20And that is people have a tendency to make their mortgage payment. And there's a lot of psychological benefit or psychic impact, but it's like buying a stock. You have to look at it opportunistically, right? buying homes out of foreclosure in Miami in 2011 was just an incredible way to build wealth, believing you have to own real estate no matter what. So you lever up and borrow and cash out everything to buy. Spent$3 million on a one bedroom in Brooklyn, probably not a great idea right now. Isn't it sort of like every other asset class and that it just requires hard work and discipline around the individual situation?

41:56It's so weird to categorize. It's almost like when we talk about Europe, it's like, well, you're talking about Greece or Ireland. And when we say, housing is a good or a bad investment, aren't we being too reductive? And it's really about the specific asset we're talking about? Yeah. I think every conversation is usually too reductive. It's real tough. The economy is so personal and everybody has such a personal experience with it. But I think to your point about how do we have this conversation and what does it mean? I think for a lot of young people, there are times, if you're in Nevada or where I'm from, Kentucky, like you probably should buy a house.

42:33They're not super expensive. Rates are a little too high right now, but they should be coming down soon, depending on what the Federal Reserve does. And so there is opportunity to buy a house. But in a place like SF, which might be on the decline, maybe that's not a good place to buy a house. So there is specificity to location. There's specificity to circumstances. But I also think you're right that a lot of the boomer and this is something you do a great job talking about um a lot of the older people have tax incentives to stay in their home and so there's a lot of supply that's sort of trapped between generations that normally would have passed on at this point like boomers own most of the three and four bedrooms when at this point it should be probably millennials and gen x who we always forget to talk about thank you i think that's that's i feel Well, we do.

43:24We go right to millennials and it's like Gen X. Yeah, I know. We're obsessed with millennials for some reason. I don't know if their media is better, their music is better. But anyways, I've seen a couple of, I feel as if I know you because I follow you on all these different video platforms. But you've talked about the importance of better kind of zoning or breaking down zoning regulations and subsidies to encourage development of housing. And I think you even talked specifically about, is it true that you talked about specifically what Minneapolis is doing well to encourage housing development?

43:55Can you speak more to that? Yeah, no, Minneapolis and Montgomery County, Maryland. Also, Burlington, Vermont has done a good job in Austin, Texas. And so those are four cities that have reformed their zoning. So Minneapolis was like, okay, we can rethink zoning. Like we can probably build more affordable housing in these areas. So we're going to do that. Burlington, Vermont was like, listen, we can build more of the missing middle of housing, which is, you know, duplexes, triplexes, townhomes. So, you know, we don't have to have just apartment buildings and single family homes. We can have more dense homes that are being built.

44:29Austin, Texas reformed their zoning. It just keeps on approving housing across the board. San Diego has also approved, I think, a record high of housing because of zoning, because of funding from the government, whatever it ends up being. And so zoning can be really restrictive towards building new homes because, for example, I think it's 90 % of Los Angeles is zoned single family. And so that means you can just build little houses everywhere, which is great because who doesn't want a little house? But you also have to have apartments. You have to have sort of this transitional housing as well.

45:04Or housing that lasts people their whole lives. You know, spending a whole life in an apartment is totally okay. But you have to have choices. And so zoning reform is a way to achieve that. It's also a way to redesign our cities. And those four cities that I talked about have done a really good job. Montgomery County, Maryland, the government has begun to intervene in the bidding process. And so developers have to have a 20 % margin in order to build. Because they're developers. Like, they have to make a profit. And they're not going to build if they don't see the profits coming through, which is just a business model.

45:37But Montgomery County, Maryland was like, okay, well, we can help out. We can take these projects, we can bid, and then we can sort of help the developers get to the finish line. And so they've built, I think, 800 units of housing for people, just sort of intervening in the bidding process. I want to shift to career advice as we wrap up. You're the youngest guest we've had on this show. Oh, cool. You're 26, 27? I just turned 27. Yeah. Just turned 27. Okay. So, Ed, you're younger than Kyla, right? I am younger. Yeah. Yeah. So, I get this, acting like, yeah, this is just incredible. We'd have someone.

46:13We'd make the incredibly dumb decision to allow someone this young on the podcast. You've been featured in Bloomberg. You've been featured in the New York Times. You've been featured in the Financial Times. You have written a massively successful book. I'd love to get your view as a fellow, very young person. what do you think it takes to succeed professionally in 2024? Guts. I think you have to be brave. Yeah. I think that's like something I've had a hard time with. It's like, how do you balance bravery and like, what does bravery look like in this context? And so for me, like, you know, I produce stuff online.

46:52And so what do I talk about? How do I explain it? And how do I make sure that what I'm talking about is serving the most people? And I also think one thing that, you know, and this is specific to like being online. So I'll, or producing content online for people. Um, and I can talk like broader as well, but how we talk a lot about problems and we don't oftentimes talk about opportunities. And when you talk about opportunities, there's opinion that is involved because some people will disagree on whatever solution that you're proposing or backing. And so you kind of have to be brave about like advocating for certain policy positions for certain things that you think should be implemented.

47:29Like I'm a big advocate for housing. A lot of people disagree with that. And so you kind of have to be brave in what you're saying. And then of course, have data to back up whatever your opinion is. But I think broadly, in order to succeed in 2024, you have to tune out the noise. There's a lot of stuff going on. And it's really easy to get wrapped up in it and to lose focus and to let fear kind of dictate whatever path you're going on. And so it's important to listen to people that you believe and to also consume outside of that, but know what is true and what isn't and to know where your beliefs lie.

48:08I'm surprised to hear you say that, because the majority of the comments in my social media feed are just so thoughtful and kind. People are just so really loving and really supportive. Me too. I'll bet her comment section looks a lot different. Just a last question here. What do you think a lot of times when we talk about how things are just financially, quantitatively, that the data is just crystal clear that young people are facing headwinds for the first time that previous generations haven't faced? And what I get back a lot is, Scott, all this wealth that you're claiming is, you know, prevalent among older people that eventually these young people are going to get it.

48:52So it's really their money and you shouldn't be this worried. What are your thoughts on this argument? Maybe. Sure. I mean, I think that that is a very long-term view. And normally I am such an advocate for the long-term. I think long-term thinking is key. But I think that there's immediate solutions to some of the problems that we're facing. And I would say that, yes, like the wealth will get passed down eventually. But what we're about to see is the greatest wealth transfer in history. And it's going towards people's children. Rich people's children. Really rich people. And so it's going to create more wealth inequality because we don't really have an inheritance tax that works.

49:33Um, and so for people like me who I'm not going to inherit much of anything, uh, that is going to exacerbate inequality in a really big way. And so, yes, like the boomers will pass on the wealth eventually, perhaps they'll pass on the torch of power one day. We'll see. Uh, but I would say that just thinking that it'll happen and we shouldn't worry about it is, is not the best way to think about it because it's just going to exacerbate the inequality that we already have. So you don't think it's healthy for young people to not focus on their careers and to give up and just wait for their parents to die?

50:09No, I don't think so. And I think a lot of people are kind of trapped in that right now. Yeah. And the problem is they're not dying soon enough. That's what I'm saying. That's right. Ed can relate. All right. Read us out, Ed. Kyla Scanlon is the founder of a financial education company, Bread, and a creator. She writes a weekly newsletter, makes YouTube videos, hosts the Let's Appreciate podcast, and posts almost daily short-form videos about the economy and markets. Her first book, In This Economy, How Money and Markets Really Work, is available now. Kyla, thank you for coming on. Thanks for having me.

50:40We love Kyla Scanlon. Oh, thank you.

50:53Algebra of Wealth. Scott, we talked with Kyla about the importance of being brave in your career. In your book, The Algebra of Wealth, you said, quote, courage is cheaper than Chanel and it works better. Can you talk about a moment when being brave has helped you in your career? After I left Morgan Stanley, I didn't know what to do. I moved back in with my mother. I was thinking about graduate school, but I didn't think I I had the grades to get in. So I started something called Stress Busters Video. I went and bought$6 ,000 of VHS tapes from a video store that had been discovered was engaged in money laundering.

51:31So I got to buy these tapes for like two or three bucks a pop. So I bought a thousand tapes, put them in this Rubbermaid cart. And I started going around each of the offices in Century City and the kind of the Twin Towers there and offering people rentals. That was my first business. And so I got from Morgan Stanley where I was wearing Hermes ties and flying business class. And I would have to sneak past or pay off the security guard to get in with my cart in the elevator. And I remember walking into a law firm and this woman, this receptionist stood up and said, get the hell out of here and started screaming at me.

52:13And I turned around and I accidentally shut the door on my hand because it was so rattled. And so I had to use one left hand to pull this heavy cart out. and I'm sitting in the lobby or the elevator bank with like one hand nearly broken, living at home with a fucking laundry cart of VHS tapes. And that's the kind of risk and public humiliation you have to be willing to take if you wanna be really successful. And the reality is 99 % of people aren't willing to take those risks. People talk a big game about being entrepreneurs and the first thing I asked them is, are you willing to go to work? And as a reward for working 60 hours a week at the end of the month, you get to sign the front of a check, not the back of a check.

53:06When I started L2 for the first 14 months, I would have to go home at the end of the month and my mother of my two babies would complain that I wasn't home enough and she was right. And then I would have to say, well, okay, also just FYI, I need to put$70 ,000 into the business. That is not fun. And it's ugly. It's scary. So I don't know what you want to call it, risk aggressiveness or courage. But if you're not ready to take those sorts of risks, risk public humiliation, risk losing really hard-earned money, you're not going to punch above your weight class and you're not cut out to be an entrepreneur.

53:50And I think what Kyla was saying is that to put yourself out there and talk about economics and the markets in a public format, you're risking public humiliation. A, you might be wrong. And even if you're not wrong, people are going to try and shame you. People are going to say rude things about you. So there's just no getting around it. Now, let me move to what has helped me. I've developed thick skin early on. I think I've told you I ran for every office in high school and lost every election, and I was fine, and I developed a lot of calluses, which was actually quite helpful for me. But also, atheism, in the sense that I know how fast time is going, and everyone I'm worried about, what they think of me and being embarrassed in front of, they're all going to be dead soon, as am I.

54:32And I find it's actually quite liberating and gives me a lot of confidence. But 100%, If you want to score above your weight class, you're going to have to get comfortable taking uncomfortable risks. This episode was produced by Claire Miller and engineered by Benjamin Spencer. Our associate producer is Alison Weiss. Our executive producers are Jason Stavis and Catherine Dillon. Mia Silverio is our research lead and Drew Burrows is our technical director. Thank you for listening to Prof G Markets from the Vox Media Podcast Network. We'll be back with a fresh take on markets on Monday.

55:11You help me In kind reunion As the world turns And the dark flies In love, love, love, love