Why is Silicon Valley Backing Trump? + A Glasses Company Acquires Supreme

0:00This episode is brought to you by On Investing, an original podcast from Charles Schwab. I'm Kathy Jones, Schwab's Chief Fixed Income Strategist. And I'm Lizanne Saunders, Schwab's Chief Investment Strategist. Between us, we have decades of experience studying the indicators that drive the economy and how they can have a direct impact on your investments. We know that investors have a lot of questions about the markets and the economy, and we're here to help. Join us each week as we explore questions like, how do you evaluate corporate bonds? And what sectors of the stock market are outperforming?

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0:55Support for this show comes from strawberry.me. Be honest. Are you happy with your job or are you stuck in one you've outgrown? or never wanted in the first place? Sure, you can probably list the reasons for staying, but are they actually just excuses for not leaving? Let a career coach from strawberry.me help you get unstuck. Discover the benefits of having a dedicated career coach in your corner. Go to strawberry.me slash unstuck to claim a special offer. Today's number,$45 million. That's how much Ken Griffin paid for, get this, a stegosaurus skeleton. True story. When I was 14, me and my buddy were masturbating to some hardcore dinosaur pornography.

1:41Unfortunately, my mother saw us.

1:54Get it, Dad? Get it? It's like a dad joke that's also a little bit pornographic. Welcome to Prof G markets. Today, we're discussing Trump's Silicon Valley backers and Supreme's latest buyer. But first, first, here with the news is Prop G analyst Ed Elson. Ed, what is the good word? What's going on with you? I'm pretty good, Scott. I want to get your honest reaction to Ken Griffin paying$45 million for a stegosaurus. What does that say about the state of the United States right now? Well, that too few people have too much fucking money. I mean, what else is to say about it? There's a hot market in dinosaur exoskeletons.

2:35I mean, look, good for him. Although, speaking along the lines of having too much money, I actually contemplating bidding on Einstein's letter to Truman, I think, warning him about the dangers of the atomic bomb. He has a, I think it's, I don't know if it's a written or a type letter, but they think it's going to go for three to four million. So this is how you know you're an old person is when you start bidding millions of dollars on handwritten letters. That's how you know you're getting old. The other way is, for the first time in my life, someone says, do you want to go on a cruise? And I think, yeah, that sounds kind of nice.

3:12Or I start thinking, anytime someone says the word pee, I need to pee. It's like, I could be walking out of a urinal. And if someone says, did you just pee? I'm like, I have to stop and go back and pee again. And you find like, I took a walk. Let's get back to me. I took a walk through the Rose Garden in Hyde. Was it Hyde Park or Regent's Park? I have no interest in roses. And I'm like, this is so beautiful. And I forced my sons to sit down and take a moment to smell the flowers. And I'm like, oh my God, I've become my grandmother. Anyways, this is what you have to look forward to. That's good.

3:50It's a nice change for you. What do you think of what it means when Ken Griffin spends that kind of money on a stegosaurus skeleton? Oh yeah, I just think, I think it's a really efficient use of capital. I think it says a good thing about our economy that there are people out there who have this much money to buy skeletons. I just think it shows that the markets are working and I, yeah, I think it's good. Do you feel good about it? You're one of these anti-capitalists. You think we need to move to a collective in communism? I think it's good he's spending it. Let me just say, I think it's better that he's spending it than hoarding it.

4:21I don't know. Whoever owned that skeleton now is living large. Like, whew. That's true. Do you hear Bob? He's bought a new boat. How do you do that? Well, he had some fucking dinosaur skeleton that he sold to some stupid white guy from Chicago. I like that story. That's a good point, actually. Yeah, why not? That makes me feel better. Should we get to the headlines? Yes. Let's start with our weekly review of Market Vitals.

4:49The S &P 500 hit a new record, then dropped sharply amid a tech sell-off. The Nasdaq had its worst day since 2022. The dollar declined, Bitcoin rose, and the yield on 10-year treasuries fell. Shifting to the headlines. The Biden administration proposed a new plan for national rent control, which will force landlords who own 50 or more units to either cap rent increases at 5 % or give up their tax credits. The proposal would apply to roughly 20 million rental units. And some late breaking news, President Joe Biden has dropped out of the race. We'll take a look at how the markets are reacting on Thursday's episode.

5:22Universal, Sony and Warner are suing Verizon for$2.6 billion over claims that the wireless provider has ignored piracy. The lawsuit alleges that the label sent more than 340 ,000 infringement notices to Verizon, but the company has refused to remove repeat offenders because they pay for better internet service. And finally, the UK's Competition and Markets Authority is investigating Microsoft over its hiring of inflection employees. The agency is in the first phase of an antitrust probe into the partnership and will decide in early September whether or not to launch an in-depth investigation. Scott, your thoughts.

5:57Let's start from the top. Well, rent control doesn't work. It ends up reducing housing stock and increasing prices. And it's nothing but a giveaway to essentially rich white people. When I was right out of UCLA, I had a job at Morgan Stanley and my best friend Lee, who had a job at Great Western Financial, a bank, and we were making good money. He said, we should apply for, we should rent a home in Santa Monica and see if we can get rent control. I'm like, those are impossible to get because everybody wants them, right? And he said, no, we're both, you know, these kind of high-income earning yuppies, and those are who the landlords want.

6:31The landlords are like, okay, if I'm going to get 80 applications for this, I'm going to pick the person who doesn't need a rent control department. They have so much money that I have absolutely no risk of non-payment. And so the result is that with rent control, you end up with a dearth of housing stock because nobody wants to billed because they can't get a return on their investment because there's going to be rent control placed on this asset they build. So it decreases supply. And all you end up doing is giving a gift to rich, you know, mostly rich, mostly white people who the landlord, you know, picks the safest bet in terms of economic security.

7:08It doesn't work. What they should be doing is figuring out legislation that makes it very difficult for local review boards to kill housing permits. They should be providing, if they need to, economic subsidies that encourage more and more building. This is straight, I mean, this is simple fucking economics. So this is all a long-winded way of saying we should move on to the next story. Verizon. I find this really interesting. I think in general, what you have is a group of people, a sector that has had the shit kicked out of it, specifically the traditional creative community. They have slowly but surely seen their economics get worse and worse.

7:43And in addition, there's been a Gini coefficient here, And that is Taylor Swift now sells more albums than all of jazz or all of classical music combined. So she's bigger than entire genres. That's a good sound. And everybody thought that online music was going to create this long tail. And there is a little bit more discovery. A great song can bubble up even if it doesn't get a contract with Warner Music or whatever. But for the most part, it's created a globalization of music where I think Sade is a billionaire because in every country in the world, including Muslim countries, she's like the fourth biggest or the sixth biggest artist.

8:17Like she has made, I think, hundreds of millions, if not billions of dollars. And by the way, she deserves it. That shit is buttery and sexy, Ed. I've never even heard of her. When you're fortunate enough, like every five years, when you're fortunate enough to get a lady back to your apartment, just trust me on this, it's Sade and Chardonnay. Boom, it's go time, Ed. Anyways, a little tip, a little tip. All right. So don't know how I got there. But these artists are, they're pushing back. And they're saying, we're just sick of platforms injecting themselves in between us and the consumer and starching most of the margin.

8:53And I think that they're basically lawyering up and saying, go after everybody because we need a bigger piece of this pie because spending, I believe, on music has actually gone up. But I think that it's gotten harder and harder for all but the top 1%. Supposedly, the U.S. economy loses about$13 billion annually as a result of music theft. And visit to music piracy sites increased 13 % last year to more than$17 billion. And I think they're fed up and they're trying to find ways to restore kind of an economic structure that helps them. I don't know much about the case itself. Do you have any thoughts here?

9:33Well, yeah, let's just go through what they're actually saying in this lawsuit. They're not saying that Verizon committed any copyright infringements. They're saying that Verizon customers committed copyright infringements and that Verizon didn't do anything about it. So this is quite different from the other lawsuits we've been seeing and that we've been covering, where there were all these other AI companies that were actually stealing the content. They were stealing the music. And those lawsuits, to me, were totally legitimate. And I think they'll win those lawsuits. this on the other hand is kind of a stretch like they're sort of as far as lawsuits go they're sort of scraping the barrel here i don't i don't really think they'll win having said that i do think it says something bigger about where the music industry is headed which is that after several years of getting pretty badly messed around with mostly by tech companies these music labels have said okay fuck this we're taking everyone to court and from a shareholder perspective, I think it is the way to do it because this isn't like a normal business.

10:36This isn't like, they're not going to make money cutting costs or increasing production, all the stuff that we usually talk about usually when we're talking about tech companies. This is an intellectual property business. And so the way they're going to make money is by lawyering up, just amassing an army of lawyers and winning as many cases in court as possible. So I don't think this lawsuit in particular makes much sense. I don't think that they'll win. But directionally speaking, going to court, I think that's a good idea. Yeah, agreed. I think you said it perfectly. Inflection? You should take this, Ed.

11:13This has sort of been your story, and you called this early. What are your thoughts here? I talked about this specific arrangement with inflection and Microsoft last week. And if you want my views on that, you can go listen to our previous episode. the most important story in AI that I think no one is really talking about is this surreptitious consolidation of power from the startup scene to big tech. Because this one, this Inflection Microsoft deal, this one was obvious. It was right there in the headlines. You know, Microsoft hires co-founder of Inflection and takes half of the staff, which means to me that this is the tip of the iceberg.

11:53because if big tech has gotten comfortable enough to do that right out in the open and even put out a press release about it and call it an organizational update, then what else are they comfortable with? What else are they doing to influence the startup industry and to basically swallow all of AI whole? But I do think that as we dig further and as more of these investigations proceed, I think we're going to find out just how deep the collusion in AI really goes, and also just how big big tech has gotten. I think that's exactly right. And I think we've said this before, you've been preaching on this.

12:33And this is, you know, typically new technologies that go to the existing players or the new ones, right? The phone kind of went to existing players, search and social went to new players. This is going to the existing players in an environment where the existing players are already too powerful. And they have tried to kind of do this jazz hands misdirect and say, oh, no, it's not Microsoft AI, it's open AI. And this case is really, really weird. Everybody, basically, they take the heart and lungs of inflection, they go over cooperatively in a pre-planned kind of weirdness to Microsoft, but supposedly inflection is still a company.

13:17I mean, I interviewed Reid Hoffman and he said, oh, well, we just had a board meeting. It's just very strange. I've never seen it before. Yeah. What was his opinion? I know the episodes are, I haven't listened to it, but what was his opinion on all of this? Well, he basically said that, no, it's still a company. We just had a board meeting and that he thinks there's going to be, I think he was worried that episode was going to end up in a court as evidence, but he said, no, I think there's going to be, I said, aren't you worried about concentration of power? And he said, no, I think there's going to be a bunch of new players.

13:47What is he going to say? My guess is they think they can wait out the administration. My guess is they're almost sort of hoping for a Trump administration that may or may not. I think they're all banking on the fact that the Trump administration, and this kind of leads into our next story, I think, will choose law and regulation based on personal relationships as opposed to the actual systemic law, right? So it'll be like, well, I like him. Leave them alone. But anyways, I think you were right here. We'll be right back after the break with a look at Trump's new donors in Silicon Valley.

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16:50We're back with Prof G Markets. It appears Silicon Valley may be turning red. Following his endorsement of Donald Trump, Elon Musk announced he'll be donating$45 million per month to AmericaPAC, a pro-Trump political action committee. The super PAC also has the backing of a number of high-profile investors and venture capitalists, including a pair of Sequoia Capital Partners. Meanwhile, Marc Andreessen and Ben Horowitz told employees at their firm that they plan to donate personal funds to pro-Trump organizations. Reportedly, they told staffers they think Trump can do more to support startups than Biden.

17:24Scott, initial reactions to Silicon Valley appearing to go red. It's really strange because Silicon Valley used to be kind of deep incandescent blue. In 2012, 83 % of the top tech firms' contributions went to Obama's election campaign. I mean, that's striking. 83 %? The powerful were vastly over-indexing blue. But look, it appears that Trump's kind of pro-business policies appeal to the Silicon Valley elite. The scary thing about an autocracy where there is not rule of law, it becomes who he likes. And so if you're a billionaire, chances are you're very focused on economic value. You're very excited about your companies.

18:11That's kind of what you, you know, the kind of commitment and passion for required for your business dealings to get to that point, make you obviously very invested in the success of that business. And I think they have figured out that the way we're going to be uber successful is to kiss this guy's ass, give money to the campaign and laws be damned. I mean, Donald Trump put out a tweet about Elon Musk saying he literally said in the tweet, if I asked him to get on his knees and beg, he would have. He was incredibly insulting, incredibly non-presidential, making a personal attack against Elon Musk.

18:46But Elon Musk is, well, the way I go from$120 billion to a quarter of a billion in net worth and get Starlink and tariffs against those Chinese players or EV companies like BYD. And no one gets worried that I control 70, 80 percent of low orbit satellites is if I kiss this guy's ass and announce publicly that I am donating$45 million a month to this campaign. And I find the concentration of wealth, you know, the scarier, it's much scarier than buying an exoskeleton of a dinosaur. What's scarier is that an individual can donate$45 million a month to a presidential campaign, especially when you have a guy that doesn't have any principles.

19:34There's not an ideologue in any way. And I'll just be like, all right, oh, okay, Elon wants this. He gave me a quarter of a billion dollars. He can have, you know, fine, put tariffs on BYD and young people won't have access to affordable EVs. Or, you know, he's in the flip is true, too. I think that companies that have stayed neutral or maybe have CEOs who have donated to Democratic campaigns, I think he's going to decide, oh, sorry, you're you don't get any, you know, Boeing, you can't bid on government contracts. tax. This is just becoming pure pay to play. And also, I just, I find it so gross that some of the people who are the most fortunate in our society don't want to pay it forward.

20:18They just want a low tax regime with no regulation that just, at the end of the day, that just gets them richer at the expense of what I would argue are. I'm really shocked is kind of one word, and disappointed that we're seeing this kind of massive influx of capital across it. I'm kind of flummoxed by it. I was really, really surprised. Do you have any thoughts? I think the thing that's getting to me is I feel like the thing that everyone loves about Trump is he's anti-establishment. He's sticking it to the media. He's sticking it to the man. He's draining out the swamp, et cetera. But let's just go through this list of the guys who have announced they are supporting Trump in the past month or so.

21:09So it's Elon Musk, Mark Andreessen, founder of Andreessen Horowitz, Ben Horowitz, also founder of Andreessen Horowitz, Doug Leone, founder of Sequoia, Joe Lonsdale, founder of Palantir, Bill Ackman, Pershing Square, David Sachs, Antonio Gracias, Valor Equity, Cameron and Tyler Winklevoss, the list goes on. But we should be clear, that is the most establishment list of people you'll see. I mean, these guys run the most powerful venture capital firms in the world, the most powerful private equity firms in the world, the most powerful tech companies in the world. It wouldn't be hyperbole to say that these guys run the country.

21:52They are the establishment. And I think the thing that bugs me is how they have branded themselves as these underdogs. Like, they're these Davids fighting against the establishment Goliath. And the thing that perplexes me even more is the fact that people actually believe that crap. And, you know, again, we're talking about politics because we have to right now. And I will acknowledge that there are also a lot of billionaires who donate to the Democratic Party too. I mean, we just talked about Reid Hoffman. He's one of the main guys behind that. He's not donating$45 million a month. But yes, sure, he's on the list too.

22:34But the idea that Marc Andreessen and David Sachs and Bill Ackman are out there fighting for working class people and, you know, fighting against the powers that be. They're taking on the big dogs as opposed to basically just supporting the guy who's going to make them even richer, as you have just said, and who at this point will likely throw them in his cabinet because he'll take whoever gives the most amount of money. He is, I mean, this is how the mafia works. He's a mob boss. So I just, I hope people can understand that this isn't about free speech. This isn't about DEI. This isn't about, you know, patriotism.

23:15This is about what it's always been. And that is its money and its power. Yeah, you're right. It becomes the mob is the right, uh, the right analogy. Also on a risk adjusted basis, you go quiet on criticizing Trump because he will, you get the sense he will try and levy or engage in retribution against his perceived political enemies. And he may even weaponize the Department of Justice and try and put otherwise innocent people in jail. Or at least that's he's making hints at that. So the upside of shitposting Trump or the downside is much greater than shitposting Biden. People who criticize Biden still feel licensed to as they should in a democratic society criticize him.

23:59Whereas I think people start feeling like they need to be more tempered in their criticism of Trump. And that's how you digress into an autocracy is that people are like, well, just don't say anything because he will in fact come for you and use the full weight of these institutions that can put you in jail or make impoverish you that he's not above. I mean, basically some of these court cases have said he's going to be essentially have a dictatorial powers. I say this as someone who's lived in London now for two years, and it was starting to feel this way when I left, but it's gotten just much more severe.

24:34I kind of don't recognize America. I always thought at the end of the day, it was about the law, about a group of people passing laws and having a voice, and some people trying to think long-term, and slowly but surely money has become more important. But this is now, and these two parties competing on ideologies around limited government and freedoms, you know personal freedom of the republican party and the importance of good government and civil rights that was it used to be actually republicans then it was democrats now the republicans have gone full no it's about money and kissing trump's ass that's it that's it i want to just give one example of that before we move on going back to the conviction the trump conviction earlier this year you know he was found guilty and the following day the donations went through the roof.