2024 Predictions

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0:53Welcome to the 281st episode of the Prop G-Pod. We'll be back with our regularly scheduled programming next week, But to kick off the year, we're sharing our 2024 predictions. I do a predictions deck every single year, and it's a ton of fun thinking through what we got right or wrong from the year prior and what we can expect in the year to come, or what I think we can expect. What you're about to hear comes from the live stream we did with our higher ed startup section back in December. We cover everything from predictions on the housing market to geopolitical pensions.

1:26We have approximately 3 ,600 seconds and 193 slides, so let's light this candle. So the first thing we're going to do is we're going to take ourselves, or we're going to go through the predictions from 2023 and try and hold ourselves accountable. We'll then bust into our 2024 predictions and we'll try and summarize. So holding ourselves accountable. Keep in mind when we made these predictions, it was over 13 months ago. And the difficult thing about being in the business of predictions is that it's a shitty business, because if you predict that meta stock is going to triple, all the events leading up to its tripling make its tripling seem somewhat mundane and obvious, as opposed to if you get it wrong, that it seems obvious to get it wrong.

2:09So it's just the stuff you get right doesn't seem that provocative or that interesting in retrospect, and the stuff you get wrong just seems wrong. Anyways, first prediction we made last year was that Disney acquires Roblox. Obviously, that did not happen. I do believe Disney is going to be part of a merger. They'll either acquire or be acquired this year, as even Disney isn't big enough to survive and thrive in what is a quickly consolidating streaming market. So we got that wrong. ByteDance breaches$1 trillion in value. We got that wrong. I was offered shares in ByteDance literally this morning for a valuation of$212 billion.

2:47I think it's mostly geopolitical risk that's holding this firm back, and I continue to believe it's the most ascendant tech platform in history, perhaps with the exception of OpenAI. I would argue that at that price, I need to sort through my own ethics about whether I should invest in what is the ultimate propaganda tool for the CCP. But in terms of valuation, it is dramatically undervalued right now. It has a run rate of$116 billion versus$136 at Meta. Meta's growing 23%. ByteDance is growing at 40%. So you have similar revenue companies, but one is growing much faster, and yet one is trading at approximately one quarter the value of the other.

3:24So it's just hard not to, by any reasonable metric, argue that one, either ByteDance is dramatically undervalued or Meta is dramatically overvalued. overvalued. Tesla posts record revenues and profits and the stock gets cut in half. Okay, so this looked like it was going to be our first correct prediction, and that is about the moment we made this prediction, within about three months, Tesla stock was in fact cut in half. However, however, it has since rebounded aggressively and it's kind of back to where it was, but I think we have to say we got that wrong. It does appear that the EV market is attracting a lot more competition.

4:02And while the revenues have grown dramatically, their margins are coming under substantial pressure and they're having to cut costs, as evidenced by the fact that their net income has not kept pace with revenue. Typically, when you see this sort of revenue acceleration, you see a dramatic sort of slingshot effect with net income. We're not seeing the benefits of scale here, but still, nonetheless, we did get that wrong. The margins, the net income margins have in fact grown, but not at the same scale. Best performing stocks we predicted can't help but be in the shitty business of predicting stock prices.

4:34But we predicted last year that the three stocks we would go long on would be Airbnb, Meta, and Chinese internet stocks. So let's look at each of those three. We gave ourselves sort of a thumbs sideways, if you will. NASDAQ had its best first half in 40 years, and it's had one of its best, I think one of its best three years in the last 20 years. Airbnb was up 66 % versus 39 % for the Nasdaq. So we got that right. And then if you look at Meta, Meta was up a whopping 167%. That felt like the easiest call. Meta had been dramatically over-punished because of the consensual hallucination Mark Zuckerberg continued to have with his investors that people wanted to hang out in an incel panic room called the metaverse where more people were showing up to MySpace every day than to Horizon's world, but they over-punished it.

5:26It's still a cash volcano, still two-thirds of all social media and growing its business quickly. And then the year of efficiencies cut in costs while maintaining the great taste of revenue growth resulted in an explosion in earnings and an explosion in the stock price. And then where we got it wrong, so we were two for three. Where we got it wrong was around Chinese internet stocks. And as you can see, Chinese public companies continue to fall under pressure. Streaming consolidates. We got that right. This is just a perfect example of economics class. You could teach the basics of economics just on what's happened with streaming.

6:03No competition for a long time, then way too much competition over investment that's totally unsustainable. But the market is still growing. This is clearly where the market is headed, but there was just way too much capital to pour into this. That spells two things. It spells cost-cutting and consolidation. And we're seeing both of those things. Paramount and Apple are likely pairing up or at least bulking up, if you will. We're also going to see Disney consolidate with Hulu. And it looks like even Netflix and HBO are talking about having a similar or a bundled offering to telco, specifically Verizon.

6:36So we're seeing massive consolidation and cost-cutting because all of these companies recognize that this is a great business. is just economically unsustainable based on the investments they were making and based on subscale. And so we're starting to see a rationalization in this business. We predicted that 2023 would be a Patagonia Vest recession. The calls for a recession were greatly exaggerated. But the one part of the economy that would incur a recession was the growth economy. And we got this one right. Keep in mind, last year in November, when we said there wouldn't be a broader recession, 100 % of economists who were surveyed were calling for a recession.

7:11And it just didn't happen. However, we did see layoffs in the growth part of the economy. It has to be set in context, though. This is the actual layoffs. Seems like a lot of people, and if you're one of those people, it seems like this was devastating. However, however, this has to be set against the amount of hiring during the pandemic. I think this sort of embodied peak growth economy, if you will. Amazon, Alphabet and Meta have their most profitable year. We got this right. When you combine the great taste of cost cutting without the calories of reduced revenue growth, you have an explosion in operating income.

7:49So Meta embodies this. They actually reduce their expenses by 7 % while managing to grow their revenues 23%. I don't think I've ever seen that before. The result was an explosion in net income. See above, their stock is triple. The Amazon's not quite the same scale, but still pretty impressive. A 6 % increase in operating costs with a 13 % increase in revenue and a dramatic increase in operating profits. Our other big prediction in November of last year is that we had hit peak personal genius, that our idolatry of innovators had probably peaked. What was interesting today is the Epic Games victory over Google.

8:29Keep in mind, Apple won or Epic lost in a similar trial against Apple. The big difference, though, and it kind of embodies my point here, is that one was decided by a judge. The other was decided by a jury. And the case decided by a jury found in favor of the plaintiff against Google. I think people are having a healthy immune reaction and a gag reflex against big tech. And this is embodied by the fact that we are no longer worshiping at the idol of many of these quote unquote geniuses. I think we got this right. A lot of individuals are going to jail. This also punctures the basic bullshit notion that regulation hampers innovation.

9:05Bitcoin and Ethereum and Coinbase have skyrocketed based on the fact that they're bringing some regulations and protocols and some rules and rule of law into what has been a Wild West and basically a levered Ponzi scheme. And the SEC is kind of a regulatory agency that sort of refound their macho, if you will, or their mojo. Also, the decline in the favorability of Tesla and of Elon has declined dramatically. I think people are getting sick of that rap. Anyway, that ecosystem faces chaos. We predicted this last year. That wasn't a very bold prediction. I think we got that right. The number of homes with cable TV has fallen under 50 % for the first time ever.

9:44And we're also seeing a dramatic decline in revenues. These aren't even inflation-adjusted. If you look at inflation-adjusted numbers, essentially, just in the last four years, you've seen about a 30 % to 40 % decline in broadcast advertising spending. That is legitimately a meltdown. We're seeing digital video. Obviously, you serve analog video. The SAG-AFTRA and Rider Strike was nothing but a transfer of wealth from traditional linear companies to Netflix. These individuals will make less money than they were making before. They struck at exactly the wrong time. In contrast to when the automobile or the UAW struck, the auto industry is actually fairly healthy.

10:24There aren't a lot of people that want to install heated car seats, but every kid who wins most popular or best actor in high school ships off for Hollywood. There are 170 ,000 people in SAG-APTRA, and only about 20 ,000 actually make a living. Only 12.5 % of those union members even qualify for health insurance, meaning they make more than$23 ,000 a year. Here's an advice to you kids. If you go into an industry, go into an industry that has greater than a 10 % or 12 % employment rate. But ad revenue continues to be a zero-sum game. It always hovers somewhere between 1 % and 1.5 % of GDP. And the 10-ton elephant in the room here, Simple, is the largest propaganda tool in history, TikTok.

11:05We predicted that the tech of the year would be AI. This seems obvious in retrospect. It wasn't as obvious 13 months ago. We got that right. The U.S. reasserts dominance. I think we got that right. We have essentially the Goldilocks economy here in the U.S. We have the lowest inflation across the G7, yet we have the strongest growth. That is almost nearly impossible. Let me repeat that. The strongest growth of any G7 country while maintaining the lowest inflation. That's almost economically impossible. It is literally the Goldilocks economy here. Now, granted, we aren't sharing that prosperity with young people as through a series of policies weaponized by people of my generation.

11:47We shove more capital from young people into the hands of old people. We have done nothing over the last 40 years if not transferred wealth from young people to old people who can no longer afford a home. They can no longer afford education. They can no longer afford health care. But we got to take care of our seniors. It is literally criminal. It also appears that those three quarters of a trillion dollars we spend each year on the military, more than the next nine largest militaries combined, does have some benefits. I would argue that the thing that has cauterized the conflict in the Middle East from spreading to a regional conflict is the two carrier strike forces sitting off the coast of the Mediterranean that are basically saying, we'll rain violence on anyone that starts a multi-front war with Israel.

12:28And essentially, I think a lot of the problems in the Middle East are a function of the void left when we vacated from the Middle East. I think this was a huge geopolitical error. It was supposed to be a pivot to Asia. It wasn't. It was an excuse just to get out of the Middle East. And it's created an enormous power vacuum. But still, we can deliver more military firepower than any nation, but with the exception of two or three, within five days to any region in the world in terms of our carrier strike forces. So what did we get right? Ad ecosystem faces chaos, tech of the year, AI, U.S. reasserts dominance in streaming consolidates.

13:02What we got wrong was ByteDance reaching a trillion dollars in value and Disney acquiring Roblox. We also got the Patagonia Vest Recession, correct? Amazon, Alphabet and Meta would have their most profitable years. Best performing stocks, we're giving ourselves sort of a sideways. We got two of three there. Peak personal genius, I think we got that right. Tesla posts record revenues and profits in the stock halves. We probably got that wrong.

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14:282024 predictions. Okay. The metaphor we're going to use here is what is kind of the ground zero explosion or detonation, and what are the second order effects as a means of talking about our predictions. So there's a housing crisis. One of the unintended consequences of raising interest rates, 500 bps in 15 months, is that essentially Chairman Powell planted all these IEDs, unexploded IEDs, in every home because people can't move because of the low interest rate mortgage they have. As a result, there's been a lack of liquidity despite interest rates skyrocketing, believing, or logically you would think that increases the monthly expense on a mortgage, meaning that the prices would have to come down, make them more affordable.

15:10That hasn't happened because there's no supply. So I do think this is going to end as more mortgages come up and as more individuals, the pent-up demand of death, disease, divorce, household formation creates just an inability to stay put, if you will. I think 2024 is going to see a vast acceleration in home sales. We're also going to see, you're going to hear a lot of business stories about the rise of alternative housing, and that is new forms of smaller modular homes as people decide they want to have some sort of household formation or own something that needs sort of more innovative ways of entering into the housing market.

15:51I also think that the travel market is going to continue to boom because a large portion of 20 and 30-somethings have effectively given up on saving for a house, so they spend the money on going to Coachella or going to Thailand. So I think you're going to see travel stocks continue to boom. Expedia, I think, had the best performance in the S &P 500 outside of Meta, largely because they have wins at their back because people are no longer, young people are no longer saving for a home. They've just given up. We're about 3 million homes short every year of what we need to meet demand. Just some examples of how we are, I don't know what's the term, fucking the young.

16:26Essentially, the median house price is up 2x, median monthly rent up 3x, and the median income is up basically flat. So me and my colleagues have figured out a way to on an inflation-adjusted basis triple the cost of education. Gasoline's up 40 percent. Rent and housing are up. All the things that young people can't avoid, and yet we've decided not to pay them more. We still have a minimum wage of$7.25 an hour. And what do you know? They're not having kids. We are going to enter into what I think is an existential crisis, and that is we're not going to have enough young people supporting old people who continue to vote themselves more money.

17:02And pretty soon, we're going to have nursery schools. They're going to have all these seniors outside the school looking to catch a glimpse of this rare snow leopard tiger called a young person. And in Japan, there are now more adult diapers sold than diapers for babies. The American dream has become a hallucination. Medium home prices continue to vastly accelerate well beyond the pace of median household incomes. The only way you could bring housing back to affordable levels is if you saw a 35 percent correction, a 4 percent decline in interest rates or 55 percent growth in income, which basically means we're in for a long road here in terms of affordability.

17:40It's unlikely any of those three things would happen. the median age of homebuyers has gotten much older. This just struck me. Repeat buyers, average age is 58. All buyers, the average age is 49. About 40 years ago, that was high 20s or low 30s. And now the average age of all buyers of homes is almost 50 years old. In addition, almost 40 % of them pay all cash, which just gives you a sense that basically the American dream has been sequestered to older people who have a lot of money. Also, old people aren't dying. and they aren't moving into assisted living facilities. They're staying at home, which has also reduced housing stock.

18:18This is difficult or will probably have some knock-on effects in terms of the strain on government resources as we have more and more old people. And over the next several decades, they won't have the same savings vehicle or forced savings vehicle that is a home. The majority of Americans cite their home as being their biggest asset. And it's not necessarily because housing outperforms other investments, But because it is a form of forced savings, consumers will generally or people will generally spend all of their current income. And the mortgage is, if you will, sort of a forced 401k, if you will, because people are very remiss not to make their mortgage payment.

18:56And we're going to lose that forced savings vehicle if a lot of people don't start investing and forming homes and acquiring homes with our traditional mortgage-backed homes. The pending home sales index is at its lowest point in 20 years, and it looks like it's going lower. for the next three to six months. I think you'll see a boom in housing in the back half of next year. As you can see, there seems to be a rhythm to it, and we seem to be at the trough part of the cycle, if you will. Alternative dwelling unit permits are skyrocketing. The market is responding around different types of alternative housing, and I think you're going to see a lot of this type of new sort of innovative housing produced.

19:36In California, you get up to$40 ,000 if you apply for one of these permits, Vermont 50 and New York 125. There's also a lot of people trying to fill this void by doing things as bold as starting actual new cities, starting and incorporating new cities to bring on literally hundreds of thousands of new units. They've gotten a lot of shit for this, and people don't trust these people because of their association with big tech. I think it's a good thing that these individuals are thinking about ways to create massive amounts of new supply and housing. And it's no longer the American dream. People just started giving up on it.

20:12It used to be nine and 10 people saw it as the American dream. Now about half of America have just sort of given up on it. The result is, again, I think that travel stocks are going to outperform the market over the next 12 months. Because if you finally just throw in the towel and say we're never going to afford a house, well, fuck it. Let's spend three months on the road. Let's do Airbnbs or let's travel. let's go to Rio this year because we're no longer putting away$3,$500,$1 ,000 a month hoping to saving for a house as that has become, again, out of reach. The most dominant sort of blast zone, if you will, in media is a 17-year-old TikTok consumer and creator.

20:51There's 1.7 billion people on TikTok. Half of them are creators or 850 million creators on TikTok. There's a half a million people working in streaming media, 850 million versus half a million. Now, granted, these people are not as talented as these people, but let's assume 1 % of TikTok creators are as talented as the median person working in streaming media. That means there's 8.5 million very talented people producing content for my TikTok feed instead of when I go upstairs and watch Squid Games. Over time, that will wash over traditional media. And guess what? These individuals don't go on strike or they're not demanding health care, at least not yet.

21:27But this is creating huge pressure on Hollywood and traditional media. It's not Bob Iger or David Zaslav paying themselves tens of millions of dollars that is hurting traditional media, the traditional media ecosystem. It's a 17-year-old that has no desire to watch cable TV or even Netflix, and has decided just to stare at their phone. If my 13-year-old had his way, he would go into his room, put on diapers, and watch TikTok until he passed out and not have to take bathroom breaks. The Hollywood ecosystem is going to continue to struggle It's going to invite an activist Warner Brothers or Discovery Warner Brothers That stock has been beaten up pretty badly And we're going to see a ton of continued consolidation and mergers Why?

22:10Simply put The most important person in the world in the ad ecosystem A young male Why are they most important? Because they buy stupid shit because they're in their mating years So they're most important to advertisers who sell stupid products At a high margin that we don't need And those individuals just aren't watching broadcast or ad-supported television anymore. Other than sports, maybe, they're watching TikTok. So who are the big losers? Ad-supported media, Hollywood creatives, linear TV, obviously, and the winners. Sports, still the only media that people watch live, such that they can voice commercials around South Korean cars and light beers and opioid-induced constipation medications on you.

22:48YouTube is one of the more underrated platforms. It continues to garner share. I still think TikTok is the most ascended platform in technology, or essentially in media. And then Netflix continues to win, although I do think we're going to see increased pressure on Netflix in 2024, but we'll talk more about that. And obviously, Genitive AI is a winner. ChatGPT is not good for the creative community. It's not going to displace jobs. The person who understands ChatGPT is going to take your job, but we've already seen some pressure. So the percentage change in monthly freelance jobs, you can see a distinct decline in the number of these freelance jobs when ChatGPT was launched.

23:26And we're also seeing that the earnings is starting to fall off a cliff once ChatGPT was there. So my stock picks, and this might seem a little contraindicative, I think Disney and Warner Brothers Discovery are going to do really well this year. I think they're both going to be put into play. They have become distressed assets. They are now trading at some of their lowest multiples in history. It's not because these guys will do anything that deft or that brilliant. It's because, quite frankly, they've just gotten so cheap, they're going to attract a lot of sharks. They also are single class shareholder companies, meaning that they're breakable, if you will, that someone can come in and start rattling their cage.

24:02I think Warner Brothers Discovery probably gets an activist investor in the next 90 days. Prediction for 2024. TikTok comes for Netflix and Spotify. I think this platform is so ascendant and the idea of not having choice is so powerful that TikTok will start expanding and coming after. It will start being the disruptor of disruptors. And I think it's going to actually start to eat into Spotify and even start to eat into Netflix's business in 2024. There will be evidence that Netflix's growth is slowing, especially in the U.S., because of pressure from people who began to get their media from TikTok.