SpaceX Returns to Earth, Tesla's Shrinking Powers and Atlassian Ruins Loom

0:00This is a very confused conversation. It's because we're in three different parts of the world. I mean, that would be the benign interpretation of why we've got problems right now. I'm Adam Schwab. I'm Adir Shifflin. And this is The Contrarians with Adam and Adir.

0:20And we are back, episode 224. This is a special episode because we're filming a business edition on Saturday. Usually we get come to you without ask us anything, but we had so much demand for business stories. There's so much happening at the moment. So we thought we'll hit up a few business stories, bit of new stuff, get some views, my dear. We've got some great stuff happening. Did you see, I saw an article in The Fin last week. This is somewhat business related, but you see the AFR article that talked about extreme inflation in European luxury hotels. Obviously, this is highly relevant to you as much as anyone because we're talking about luxury hotels, the benchmark in Europe used to be$800 a night.

0:55And now that same high status hotel might push$2 ,000 a night. Since 2018, that iconic hotel Il Pilicano in Italy, do you know that one? So I don't know that hotel, but before you go on, let me ask you just for some clarification. Luxury hotel, by that you mean things like Amman and those kinds of hotels? You don't mean like a Four Seasons or something like that? No, I think Four Seasons would definitely fall into luxury. Like you look at Four Seasons in Sicily where they filmed White Lotus, that's a$3 ,000 a night minimum. So that's more than these places. So it depends on – obviously there's different Four Seasons, but absolutely Four Seasons falls in high-end luxury, no doubt.

1:38It would be very unusual, just to put this out there, it would be very unusual for me to stay in like the Amman Hotel hotels absolutely not for me even though St. Regis hotels I don't like the feel of those at all I mean you know I could be persuaded to like them if they sponsored and gave me a ton of free room nights but at the moment I'm really not a massive fan of those hotels so I think those ultra lux you know as you've just outlined three thousand dollars a night for a standard room generally those type of hotels don't appeal to me because firstly I don't get the value out of them and secondly the clientele that frequent those hotels are not the people that i want to be spending time with i think the most expensive hotel i ever stayed at was many years ago it could have been 10 years ago probably not that long and it was i was going to meet mark cuban down in like south the southern part of california socal as they say in the lingo and uh it was a hotel called the montage hotel and um it was so expensive so expensive and the i think there is once you pass a certain point there is a direct inverse correlation between how high the price is and the low quality of the people that frequent that hotel basically so anyway continue i don't know your italian hotel i'm interested to hear this story i didn't see the story in the paper So Il Pilicano has gone from$800 to$2 ,700 a night.

3:09The Ritz Carlton has gone from$620 to$3 ,122. Le Bristol Paris has gone from$1390 to$3380. That said, between 2019 and 2025, room revenue for luxury hotels such as Mandarin Oriental and Four Seasons has grown 73%, so not quite as much as that really high end. If you look at the four-star offerings, like a Grand Mercura, instead of three and a half four-star, or a four-point Sheridan, So four-point Sheraton is sort of brand below Sheraton, which Sheraton sort of comes in a low five-star. Four points would be a classic four-star. That's gone up only 50%, roughly the same as inflation. Interestingly, if you look at occupancy rates in luxury hotels, this hasn't really come from – so this inflation hasn't come from occupancy growth, as in huge demand from lots of people.

3:55Occupancy only inched up 2 % last year to reach mid-70s, which is kind of average. which if you look at luxury hotels, which is kind of the ones we talked about, they're only about 50 % full. And some people in AFR know this is a reference to the Verblen effect, which we talked about a few weeks ago, which is the psychological phenomenon explaining why customers want what they cannot afford, named after economist Thorstein Verblen. The quirk flips supply and demand metrics for desire that grows alongside prices. So it appears what we very much have here is the Hermes effect, this sort of real luxury good that has completely detached from value versus like a premium good, which premium goods, as we know, the choir guys tell these really well, premium goods are priced highly because they give really high utility, but luxury goods completely detach from any kind of utility.

4:48So you've got Ile Pilicano, a hotel to cap in France, very much the Hermes bags of hotels it seems. Well, I will say one word that I think explains this entire phenomenon. And it is based on activity that I saw with my own eyes in Sydney at a luxury hotel. And this one word, can you guess what my one word is, Mike, that I'm about to say that explains all of this? Like social media cloud? Instagram? Well, I would be, yes, I would be more particular because you might know if you speak English, that's two words. Instagram's one word. No, but Mike's social media, that's two words. I said it's one word.

5:27I thought you were talking about Instagram, so there's a crossover. Yes, I'm talking about Instagram. This is a very confused conversation. It's because we're in three different parts of the world. I mean, that would be the benign interpretation of why we've got problems right now.

5:43So I think this is driven by Instagram. I see this, I'm going to just be very rude and say, disgusting behavior when I go to hotels. and there's a beautiful lounge that overlooks the harbour and there are people who are maybe much younger than the typical kind of clientele but not always and they're just taking like 150 ,000 photos of themselves in these locations and I think what we've seen, without going into like a massive rant on the direction of capitalism, basically social media is the most narcissistic invention in the history of humanity and now people are using it almost, I don't want to say exclusively, but there's a huge use of it to try to communicate to people that you're a winner.

6:31And the number one way that seems to be playing out with more and more cohorts is surrounding yourself with crazily expensive, extravagant luxury. And I think that accounts for a lot of the growth in luxury, especially amongst people who are under the age of 40? I think you've confused the symptom and the cause a little bit. I think that's definitely a symptom or maybe it's a co-cause. I think that the real cause is government policy that has allowed the rich to get so much richer and everyone else to kind of tread water or go backwards. So if you're poor, you've gone backwards. If you're middle class, you're at best treaded water, maybe gone backwards.

7:06And this is a throwback from the COVID days of money printing essentially. And it was pre-COVID as well, but really accelerated during COVID where almost every government in the world, bar a couple of honorary mentions, thought we'll try and tackle this ridiculous virus with just a wave of money printing. We'll shut down the economy. We'll create this massive levels of asset inflation. As we talk about many times, inflation is simply too much money chasing too few goods. And we've got too much money, especially in rich people. So the money, when inflation happens, money goes to the rich, the asset owners.

7:35And those asset owners now have lots and lots of money and they're spending it on stuff they don't really need, which is really, and some of this is the guy who owns a luxury hotels business, although we sell everything, not just luxury, but it's gone to hotels like Hotel De Cap and it goes to Ritz-Carlton. It goes to these high-end hotels that are able to charge and they're just acting rationally. They're just charging as much as they can because there's a cohort of the population who have gotten so much richer at the expense of everyone else. Well, you say that, but I'll tell you the bit of what you've said I don't – is not – I'm not even going to say I don't agree with.

8:04I'm just going to tell you based on my personal observations, the bit that is not aligned with what you've just said is that when I look at who's staying in these luxury hotels and who's in the lounges, it's not rich people. These do not look like rich people to me. These look like the same people that are buying a Louis Vuitton bag on a credit card. I do not think, like maybe if you walk in, private jets, that's the domain of rich people. First class is still the domain predominantly of rich people, partly because you can't get any points flights in first class anymore, basically but like that's the domain of rich people probably the i'm guessing but you can correct me if i'm wrong the thirty thousand dollar luxury trips that you sell you know when you go on as part of a group on private charters those great things they're probably wealthy people but in a hotel let forget the three thousand dollars you can stay in the cheapest room in sydney in a five-star hotel a good five-star hotel you go and find the right day of the week or whatever, you can pay$400 or less to stay in that room on the right day of the week.

9:12You do not have to be rich to do that. And in my experience, I've seen the reverse happen. It used to be that these hotels had business people being compensated for being road warriors in return for staying in nice stuff. And the hotels give them status to try to make them feel special because they spend no time at home with their families. So it's like the compensation and and also rich people and now I think that whilst those two are still in these hotels there are a hell of a lot more of young people and people that certainly do not come across as being wealthy they might be some of them probably are but um that's not the vibe that I get you know if you stay in a lot of these hotels you don't really need to take 150 ,000 photos for Instagram every time you stay in one of them do you or maybe you still do I don't know but like yeah I think that it feels the clientele's changed.

10:04I'm not talking about those hotels you're talking about. I think the Sydney hotels that sort of oscillate between 400 and 1100, I think that's the focus of the ultra luxury segment. I think the only ultra luxury hotel in Sydney really is Capella, Park Hyatt maybe. Capella's really, and there's going to have a world office story pretty soon, and you'd probably put Crown in there as well. It would be pretty close. But I think if you look at the Hotel de Capps, if you look at the riches in London, these are significantly more expensive. I stayed at, and obviously I never pay for these hotels. I'd only ever stay there if I was as part of a sort of assignment writing for our magazine.

10:37But when we stayed at Atlantis Royale in peak week in January, in what would have been most people paying at least$3 ,000 a night, probably more, probably upwards of$5 ,000. Like the clientele and that, there was no, when you go to the pool area upstairs, there was a bit of that, what you saw, because you can actually just pay to get in there. If you look at the hotel itself, it was almost predominantly Russian oligarchs almost, and the only ones who could afford it. I actually thought that's exactly what you were going to say. I thought it would be like 30 % Arab sheiks from around the Middle East and 70 % Russian oligarchs and you.

11:16That was what I thought the mix was going to be. There was some Australians in there, but very few, a couple of Australian families. If you look at that week, because I was in – the week before us, Roger Federer I think was staying there. I think Ronaldo, Cristiano Ronaldo was staying there. So that was the peak, peak week, as in the Christmas week. Oh, yeah, yeah. That's the week I was invited to stay when those guys were there. Yeah, yeah, yeah. I think they had your room reserved. I think Cristiano took it. I was in the week after, which was one – that was like the week after festive, but still super expensive.

11:44And that was – it was mostly Russian, very wealthy Russian customers, very few that I could – and this is a big hotel. I'm obviously in a pretty expensive place at the moment on safari on assignment. And most of the guests, there's a lot of Americans, a couple of Europeans. So it tends to be sort of wealthier Americans, kind of the boomer wealthy Americans whose dollar goes further. So 2 ,000 Australians, 1 ,200 US or whatever. So it makes it more affordable for sure. You're there. You're on this safari on assignment. It's very hard for me to keep a straight face. So you're there. I didn't realize you've pulled that bait and switch on them.

12:20Well, that is very impressive. Congratulations. I'm sure you're going to write an incredible article on it. I'm saying that actually very seriously. But you have got – not only do you have the most impressive life that many, many people would be desperate to swap, but the way you were able to leverage that life is in a group of N equals one, I would say. So that's off. So I just want to put it out there and say I would not pay$3 ,000 a night at a hotel under any circumstances. Yeah, I certainly wouldn't pay that. I've experienced it, but I wouldn't pay it. If you look at – and we're on a new Safari, which is an experience, a bit different.

12:56You could probably pay that for an experience, but at an actual just a pure hotel room, you can't obviously justify that cost. Let's move on because obviously we're trying to keep this episode nice and tight for our listeners on a busy Saturday morning. Let's move on to SpaceX quickly. So we've seen SpaceX share price has proven to be far more rational than its sister company, Tesla. Maybe more on that in a second, with its share tumbling well below its IPO price. We're recording this effectively Thursday and Wednesday, Thursday. And as we see, SpaceX share price is currently 119 a share. Its IPO price is 135 and it hit 202.

13:30That was when Elon Musk was briefly the world's first trillionaire. I should say that was like three weeks ago. So it's not like we're talking months duration here. SpaceX market cap's down to about 1.5 trillion, meaning Elon's wealth is down to around$760 billion. While some blamed the failure of last week's Starship launch for the share price drop, smarter observers are pointing to the rapid drop in confidence around AI, with much of SpaceX's absurd valuation being due to Musk's promises of space-based data centers and, of course, the runaway valuations of Anthropic and OpenAI. In the past week, OpenAI has delayed its float until 2027 and has also been sued by Apple and it's had its third highest ranking exec, Fiji Simo, announced she is leaving.

14:13Meanwhile, China-based Moonshot AI last week released Kimi K3 to widespread acclaim, with many experts saying its performance almost rivals that of OpenAI and Anthropics' most frontier models, which would be the new Opus model and, of course, the Fable model, but for, of course, a fraction of the price, as much as 70%, 80 % less price. And to make things worse, Meta, a couple of weeks ago, basically gave up on its model ambitions, is now renting out its compute. Do you think we'd get this one right quite so quickly? Well, I would say the reason for the movement in SpaceX, both up and down, is because human beings ultimately are 99.99 % emotion masked in, and I don't even know what the other 0.01 % is.

15:00I just don't want to say 100 % because there must be something else in there as well, but I can't find it. And I think everything is just wrapped in this wrapper of whatever it is that you want to be. If you want to be perceived as rational, here's a wrap, the emotion in a wrapper of like reason. If you want to be like whatever you want to be. And so when the share price was flying at IPO, the hype machine was at full tilt. And Elon is a one man hype machine. Even he can't maintain that hype by himself for a month. and it was at a time when it felt like whatever you bought is just going to go up but emotion at the moment is like bouncing like you know the rubber balls that you drop on the ground they fly up in the air and they plummet and that's the human emotion to do with making money in the stock market at the moment you know you say it's like a casino you're right and at the moment we're in just a trough of fear so now panic has set in and it's like oh anything we buy some bad announcement is going to come out.

16:00China has just built whatever, which by the way, I think is overhyped in my view. We don't have to talk about that now. So China's got this thing that's going to tank AI and then this thing's bad. And so we're in a negative emotion. And I think that like SpaceX, it's like the most leveraged bet to the greed, fear, emotional dichotomy on stock markets. And that is basically why it's fallen. And if you wanted to do the real value, I think you said you think this is, you could get to roughly a 50 % valuation relative to the IPO? That was your number? If you look, I wrote an article June 25th. I almost called the top of this thing.

16:39And I said, probably closer to 150 billion or less. If you're allowing a big Elon premium, maybe you get to 300 billion. And what is it now? Now it's 1.5 trillion. It was 2.3 trillion. Okay. So you want it to fall 80 to 90 % still, to be fair. So you might not be wrong. I mean, I can't, I wouldn't ever advocate shorting the Elon religion. And I think it's unlikely to fall down to this kind of level with Elon still being like a functional human being involved in this business. But I do think that all of this is the complete absurdity of the casino right now. And as I said to you, my general view is everything is connected.

17:22And so young people, they can't make money the old-fashioned way, especially not in Australia anymore with these new taxes coming in. Can't get a house, can't get a head. So what do you do? Oh, go put money into ways that maybe three days after you put money in, it's tripled. Or four weeks after you put money in, it's gone up 5x. Or you find a company that's 30 years old, and one year later, it's gone up 17x. That's Sandisk. And so this is what's going on. I think all of these things are connected. I think like the housing crisis and protests in the cities and a booming stock market and all of these things are related.

17:59And I don't think it's going to end well. In fact, I don't see how it can end well. And nothing made me happier than China releasing this and then the air starting to hiss out of the bubble of AI in the US. Because I actually think a good, long, slow hiss for the next six months might save us from a crash. But I mean, that never happens. So this would be the first time. But yeah, that's how I feel about SpaceX. And I think that's nothing to do with exploding rockets. Actually, what SpaceX does could not be less relevant to the valuation. What's interesting is SpaceX, obviously, even excluding the AI staff, if you simply look at Starlink, which is a great business, and assume the SpaceX rocket business is simply a means for getting more Starlinks in the atmosphere.

18:48Starlink's still an incredible business, growing really quickly, huge TAM. I'm on Starlink right now. It's unbelievable. It's so much better than any other product. Well, you think it's unbelievable because you're on your side of it. Ask us if it's unbelievable. It's pretty good. It's pretty good. It's pretty good. Compared to what it could have been. If you look at, you've got Leo, which is Amazon's coming up, but they're still miles behind. So I think if you look at SpaceX has got real powers and so Starlink's got real powers and a real genuine business. And that's obviously dropped down to 1.5 trillion.

19:17But look at Tesla, which is obviously Elon's other business. And I love my Tesla. Hang on, hang on, hang on. Hit the brakes. Before you get your Tesla, hit the brakes. Starlink. Starlink has got powers. What do you think Starlink's powers are? I'm very interested to know. We've talked about Starlink's powers before. I was having a deeper think about it. And remind me what you think the powers are, because I kind of became more cynical about the powers of Starlink the more I read about this category. I think it's got two really big powers. One is scale. It's got three quarters of the satellites on earth are Starlink satellites.

19:49So scale can eventually be gotten to from other scale businesses, but this is going to take a long time for someone to hit this kind of scale. It's clearly got scale. I can't disagree with scale. No, I can't disagree with that. You're right about that. I agree. And I argue cornered resource. It's got satellites owned. It's got the fact that it's got SpaceX. SpaceX has got the biggest rockets in the world. It's the best at it. And it's got a free carry on SpaceX rocket. So I'd argue it's got some cornered resource as well. No, I think you're right. You reminded me. I think when you bring SpaceX's rockets into the Starlink part of their powers, yes, I think you're correct about that.

20:27I'll tell you a bit of trivia that you might find interesting. You know, when you get on a plane and the internet is terrible, it's not Starlink. People always blame bandwidth for that. Because that's like what everyone, like ISP has always advertised bandwidth. And so people say, oh, bloody narrow bandwidth, it sucks. But probably the main reason that your internet is slow on a plane is because traditional internet services on a plane, they've had to bounce up to like a geostationary satellite in orbit. And in order to get, basically a geostationary satellite means the satellite orbits the earth at exactly the speed that the earth is spinning.

21:02So it always stays over the same place. it looks like it's standing still but it's moving very quickly and there's a certain height you need to have your satellite in order for that speed match to happen i think it's like 34 or 35 000 kilometers above the earth which by the way still only one tenth of the way to the moon to give some perspective but and so it takes time like when you ping you have this latency where the signal has to go all the way up 35 000 kilometers and then come all the way back down it doesn't matter how wide the pipe is, like it still has to bounce. And so that takes like half a second or a second.

21:35Like when you click, it takes time. And by the way, that's why they throttle streaming on these kind of planes because it just takes – that sucks the bandwidth down. Plus you've got latency. And Elon, his satellites are all in low Earth orbit. That's where Starlink is, which is like maybe – I reckon that's 500 kilometers above the Earth versus like 35 ,000 kilometers. And so this is like tenths of a second, less, hundreds of a second, bounce, bang. And so all the latency is gone. Like these things are only a bit higher than the International Space Station. And so people often look up in the sky and they say, a satellite and the moon, that's about the same in the International Space Station.

22:13But like, you know, they're not. There's a lot of space going on there between us and the moon. And so that's one reason. But these satellites that Elon has stuck in low Earth orbit, like the rocket is a cornered resource. I misunderstood you. I thought you were going to say the satellites are a cornered resource. They are for a minute, but there will be other satellites launched. This is not the world's hardest thing to do. And figuring it out once Elon's done it is a lot easier. So I'm not sure. If you fast forward five or six years, I suspect there certainly will be other providers available that could deliver a similar service.

22:48There's definitely going to be other providers. And we've seen Amazon's working on it. So people will definitely, I'm sure China comes up with something. But Starlink's got a massive lead. I think in five years, I still have a decent lead. And then I can start going into people's phones. I can definitely start running a telecommunication system super cheaply. So I think that is, to me, a really good business. And obviously, all the value in this business. But what doesn't make sense is you've got Starlink, which is a great business, albeit it's still early days, but a great business making money, et cetera, et cetera.

23:16And you've got Tesla, which is a legacy business. Tesla makes some money. Tesla makes like$9 billion operating income last year. So it's not a zero profit business, but it's not growing. its profitability. But worst of all, Tesla's got no powers because every little power it may have had has been being consumed by a BYD or whoever else, the 50 other Chinese competitors. BYD is smashing Tesla for production, smashing Tesla for scale. As much as I love my Tesla, I'm not sure how many more Teslas I'll buy. I think Tesla's got shrinking powers. Tesla's still worth 1.15 trillion itself. For a business that makes 9 billion in a super competitive landscape, that probably should be worth, I don't know, 80 or 90 maybe.

23:56So the Tesla valuation actually makes a lot less sense than the SpaceX valuation, which at least has a decent business in there. Yeah, but do you think Starlink is the business of tomorrow or the business of today? Do you know what I mean? Like, I mean, if you're buying into it now, are you buying into it when you're about to buy a diminishing business or you think that it's still going to be good tomorrow? I think, I clearly don't think it's worth a trillion dollars. I think Starlink's a best$300 billion business, maybe like a 150, but I think it's still more valuable than Tesla. I get that. But do you think its best days are ahead of it or its best days are today?

24:29I think its best days are in like five years' time, five or seven years' time. You're right. There's a point where people will catch up to Starlink. I just think that's at least five years in the future. People have caught up to Tesla and have gone past it. You're right. So it's not as if you can argue. Your point is right. It's just that Tesla's worse relatively is more my point. Since we're talking about Tesla, we should do something for about three minutes, which is a world first, which is a very, very brief quiz on a Saturday episode. That is first time ever in history that that's been done.

24:59And this quiz. From you, no less, the quiz hater. The quiz hater. And this quiz is called, what are the 10 top selling car models in Australia in June 2026? We're going to do this super quickly, but since we've raised Tesla and we've slammed them as, you know, like they're losing their powers or whatever, what do you think the number one best-selling car in Australia was in June 2026? What model of car? Actual car. I think the Tesla Y is still killing it. You are correct. The Tesla Y sold 8 ,000 units and number two, almost 8 ,100 units. It's up 133 % on the previous period, which sadly I can't tell you what that is.

25:43And what do you think number two is? It's a car that could not be more different to the Tesla. Oh, like a – is it a Hilux or something? Hilux is three and the Ford version of it is number two. Do you know what that's called? Oh, like a Ranger maybe or – Oh, you are very good at this quiz. I'm shocked. You've got no interest in cars and you've never lifted anything in your life that would require a ute. So that is very impressive. I'm on Safari. What are you talking about? It's Mr. Car. You're being driven around in probably some like Rolls Royce version of a - A Land Cruiser. No, these Land Cruisers literally drive over trees.