Prof G Markets: Apple’s Headset Bet, Sequoia’s Big Breakup, and Hypocrisy at the PGA Tour

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1:06This week's number,$10. Salesforce is donating$10 to local charities for each day an employee shows up at work. I give at least 10 % of my earnings to charity, another 5 % to Destiny, and a few percent to other strippers.

1:31Welcome to Prop G Markets. Ed, you love that. Yeah, that was good. That was actually pretty good. Today, we're discussing Apple's headset, Sequoia Capital's spinoff plans. That should be interesting. And the PGA Tours merger with Live Golf. Here with the news is Prop G media analyst and stage name Ed Elson. Ed, step away from the poll. Tell us about the markets. Before we do that, Scott, I just want to let you know that I would happily accompany you to the Champions League final this weekend. That's right. Just going to put that out there. I'm taking my 12-year-old son to see Man City versus Inter Milan.

2:09And I said to him, I said, who should we support? And he was just disgusted that I would even ask. And he's like, Man City is the enemy. He's not a Man U fan, is he? He's Tottenham, right? Yeah, my oldest is Tottenham. My youngest is Chelsea. But they both were sort of Man U for this one versus Man City. I didn't realize how many people dislike Man City. Well, they just bought their way to success. That's how it goes though. There you go. That's why this podcast is called Markets. All right, get on with it. Let's start with our weekly review of Market Vitals.

2:46The S &P 500 was up and Bitcoin tumbled before paring back some of those losses. Shifting to the headlines. Instagram was found to be hosting and promoting accounts used to commission underage sex content. European Union Commissioner Thierry Breton demanded that parent company Meta take immediate action to combat child pornography on its platform. Meta stock fell 4 % on the news. CNN ousted its chairman and CEO Chris Licht, sending Warner Brothers Discovery shares up 8%. His tumultuous 13 months on the job started with shutting down CNN+. GameStop also fired its CEO and promoted Ryan Cohen to executive chairman.

3:25That sent shares down more than 21%. and it erased roughly half of the stock's gains for the year. And finally, the Securities and Exchange Commission sued both Coinbase and Binance, accusing them of operating unregistered securities exchanges. The SEC is also accusing Binance of mishandling funds, lying to regulators, and alleges that its CEO, Changpeng Zhao, committed civil fraud. Scott, what are your thoughts? I don't think GameStop will be around in 10 years. It became a meme stock and brought a lot of attention to it. And people keep hoping at some point tomorrow will be today regarding the future of GameStop.

4:02And a store-based video game retailer just absolutely makes no sense to me. I know they do more than that. But if you look at the four-wall unit economics of this company, even with its crash in its market capitalization, it is still wildly overvalued. CNN is interesting. The thing that struck me is they fire Chris Licht and the stock goes up 8%. So why does the market take this company up a billion dollars in value because they fire the head of CNN? And what I think it says is not that they're excited about a new person, but that the market thinks that there is no room in the middle and that trying to be a centrist organization doesn't work in this media environment.

4:41And they should go back to throwing red meat at the far left and just embrace who they are, just be themselves. Such a shame, I think. I think it's a shame too, but it's, I think the market is kind of spoken that, you know, go, go centrist, go broke. And if you think about the shit he got in a lot of trouble for the Trump, the Trump town hall, the firing of Don Lemon, the firing of Byron Stelter, I would argue that these things are, you know, quite frankly, just upset the left. and so the reason he's out of there, they say he quote unquote lost the room, that the journalists and the people in the newsroom just lost faith in him.

5:19Actually, the real reason is he spoke to me and offered me a show, no joke, about three and a half weeks ago, true story, which gets anyone fired. Literally, I'm the typoed Mary of television. But what he was doing kind of made sense. He wasn't a bad guy. I don't know him well, but I know him. Some of the execution was very ham-handed. he did not acquit himself well. But for the market to go up a billion dollars based on the head of one division stepping down means the market sees something deeper. And the only thing I can figure out is the market said, go back to being the far left and go back to commentary and entertainment as opposed to news, because that is what rings the register.

6:00The most disturbing news here of all this is Instagram, that a lot of accounts were used to commission underage sex content. And I want to be clear, I would imagine a lot of people in Meta, most people in Meta are horrified by this. I bet Mark Zuckerberg's horrified by this. But what plagues American corporations is not immorality, but amorality. And that is if there's enough distance and enough money in between me and the people this is impacting, my technology, I sort of ignore it. Or I come up with reasons not to feel like I'm making immoral decisions. They weaponize government. They've gotten away with so much.

6:39Their optimization for profitability over any sort of moderation or fact-checking of content, they know what's going on, but they ignore it. Meta continues to be the mendacious fuckery of mendacious fucks. And the saddest part about all of this is that when a company or an individual does one or two really bad things, It horrifies people and they risk real retribution. But if you keep doing terrible things, people become numb to it. They begin to expect it. And that's what's happened with Metta. You can't even name the number of times you thought that the government should move in. And I've said this a bunch of times before, and the letter of the law should be followed here.

7:24But until somebody does a perp walk, I don't think any of this changes. I'd actually like you to go first on Binance and Coinbase. Well, the interesting part, I think, Scott, is what they're accusing both the companies of. So if you look at the complaint, they're saying that each company is operating as a securities exchange, a broker, and a clearing agency. And the SEC says that if you want to be any of those things, you have to register with the SEC. Neither of them have done that. So what's implicit in that complaint is that both of these exchanges are trading securities. And the US definition of a security is anything that involves a person investing in a common enterprise with the expectation of profits based on the effort of others.

8:08That's the definition. And the SEC has decided these are securities. Now, here's my question. If the SEC believes that these are securities and that these companies are securities exchanges, why did they approve Coinbase to list itself as a publicly traded company, which they did back in 2021? So I was trying to figure out the answer to that question. I found something really interesting in the SEC complaint. So the SEC said this, quote, declaring effective a form S1 registration statement does not constitute an SEC or staff opinion on or an endorsement of the legality of an issuer's underlying business.

8:50Now, this struck me because I have always thought that that is exactly what the SEC's job is, that before a company goes public, the SEC has to determine, is this thing legal? And if that's not the case, the thing that I find most disingenuous is the fact that only now is the SEC deciding that they care about the legality of this business. Only now, once the damage has been done, the bag's been dumped, after countless frauds and Ponzi schemes that have collapsed, millions of retail investors have lost literally billions of dollars. Only now do they care about what's legal and what isn't. Honestly, the only explanation I can come to is that back in 2021, the SEC, like the rest of us, just didn't fully understand crypto.

9:36I feel that the SEC should be real with themselves and recognize, maybe publicly recognize, we made a mistake and we should never have let this thing list on a public exchange. I think that's really powerful, Ed. And I would bet that the volume of trading and the financialization of everything has vastly outpaced the resources that the SEC has allocated by a Congress that doesn't want enforcement because the people who usually violate these laws and the reason the SEC is there are rich people. But I would bet that the SEC, one of their defenses would be saying, folks, we're dealing with so many different, everything from SPACs to crypto to an unbelievably robust IPO market through 20 and 21.

10:22You know, we're just, we're barely keeping up. Having said that, the SEC is supposed to, they will tell you they're supposed to protect investors. In this instance, they didn't. I mean, a lot of investors, a lot of retail, I've always said the SEC doesn't protect investors, it protects management. It's there to create a series of terms and there to essentially ensure that management has access to the public markets. But I've always thought the SEC erred on the side of companies versus investors, that they weren't true to their mission. But I think your point is a really valid one. It's like when the sheriff shows up after the bank has been robbed and everybody's dead.

11:03It's like, well, okay, it's good you're here. I agree with you. I think that these agencies have some explaining to do. And there was such a movement that made you feel lame and old if you question the brilliance of these companies and their promoters, even as it was just pretty clear. I remember this conversation where I asked you when FTX went down, what's the difference between FTX and Binance? And you basically said, I don't think there is any. Binance is next because the thesis here is very simple. If your business is predicated on existing outside of the law, and generally that means existing outside of the U.S., which has probably the strongest regulatory environment in the world.

11:41If that's the first pillar of your business and second, your sector is in structural decline, there's just no way that you can win this game. I just want these things to go away. I think that there's Bitcoin does have some utilities to store value, helps people get out of volatile currencies. Other than that, I'm just looking forward to not speaking about this shit again, because it's a fairly unimportant market. It's worth, what, a trillion dollars? Apple's worth$3 trillion. Can we just all can we all just move on? We'll be right back after the break to discuss our reactions to Apple's headset.

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14:08We're back with ProfG Markets. Apple unveiled its most ambitious hardware product since the iPhone. The Apple Vision Pro, a mixed reality headset controlled by your hands, eyes, and voice. The headset has a variety of uses, from watching movies to browsing the web to FaceTime. And unlike other headsets, it has a feature called EyeSight that makes the user's eyes visible from outside the device. However, it's very expensive. The Vision Pro will cost$3 ,499, even more than analysts had expected, and nearly 12 times the price of Meta's Quest 2 headset. Apple shares briefly hit an all-time high the morning of the announcement, but soon dipped and closed the day down 0.8%.

14:50Scott, last week you predicted this headset would be one of the biggest tech failures and that it would be the final nail in the coffin for the AR, VR headset category as a whole. Now you've seen the products, where do you stand? It's impossible not to think that any product that Apple launches on that day doesn't have a real shot at success. Yes. First of all, every product they've launched in this millennium has gone on to be just a seminal consumer product globally, whether it's AirPods, the iPod. I mean, everything they do kind of is gold. But a lot of people would argue, well, that means this will work.

15:25I would argue it means that this is likely to fail because I think reversion to the mean is one of the most powerful forces in the universe. In addition, I'm sticking to my guns here. I think this thing doesn't work. and just as like, can we all admit that crypto outside of a couple things was mostly a levered Ponzi's game? Can at some point we just admit that people don't want to put shit on their head? And I think it's just a violation of basic anthropology. And that is the only things we will put on our face are devices that make it less likely we will be eaten because we can see and or make money because we can read, that is glasses, or that make us more likely to have of a random sexual encounter because they increase the elevation of our cheekbones, which makes us more attractive to mates.

16:12And also, I just wanna be honest, I have a bias here, and I'm really freaked out that people of your generation are slowly but surely being sequestered from each other and life in general through these reasonable facsimiles of the real world on Coinbase, on YouPorn, on Twitter, on Netflix, on Tinder, that essentially creates lower risk, lower calorie life, and that people have less and less reason to not only leave their home, whether it's Zoom or whether it's a dating app, and less reason to engage with people, endure the rejection such that ultimately they can understand the victory of real friendship, of real mentorship, real romantic partnerships, and develop the skills that they need for the rest of their lives.

17:02And also, I think it just makes people more depressed. And whether you're an orca, Whether you're a dog, the worst thing you can do to a mammal is to sequester it. Leave your dog alone. See how he or she reacts. Put an orca in a tank alone. We are not meant to be alone. We're not meant to have anything getting in the way of our ability to look each other in the eyes. So I find all of this trend, whether it's shooting people to Mars or into a metaverse and these devices and these platforms, really disappointing. I also think it's a no man's land in terms of a price. at$3 ,500 with sales tax, you're up towards$4 ,000.

17:39And I would imagine the technology here is so cutting edge that it gets perishable pretty fast. So the way I look at stuff is the useful life of a product. A computer costs$1 ,000 now, lasts four years, five years, you're losing$200 to$300 a year. A pair of sunglasses costs you$200, hopefully hold onto them for five years, that's$40 a year. this thing i can't imagine this thing isn't going to be outdated within 12 months so let's give them benefit of the doubt let's say 24 months so it's 2 000 bucks a year to have a headset yeah i think once you get above once you get to this weight class in terms of price it needs to be more enduring technology i mean you're getting to the point now at 2 000 bucks a year that's the cost of a lease on a Toyota or a Hyundai.

18:28So what do you want? Do you want a Hyundai or do you want a mixed reality headset from Apple? What if it weren't a headset? What if it looked like the Google Glass? You just wear the thing, you're free, you've got your peripheral vision and it has all of the same features and you use your hands and your eyes to select things. And it basically just works as a phone, that is an interface that you just see in front of you. Game changer, game changer. I think that works. I think if I can put on a pair of effectively Ray-Bans or Persols and it has this sort of technology built into it, boom. But supposedly the technology just isn't there, that it's about a decade away.

19:08Finally, last year we wrote this post where we tried to picture what Apple would need to do if it hit a trillion dollars in revenue, which no company has ever done. We suggested a lot of different categories. as we said, banking, search, health, fitness, home products, also cars. Apple trades at 30 times earnings. If you compare that to Tesla, Tesla trades at 66 times earnings. We did not mention headsets or spatial computing or VR. But if you were Tim Cook, what would you be focusing on? Three things, a car, a car, and a car. Tesla's taken a low margin manufacturing-based business to a high margin software-based business.

19:47And that all spells Apple. And the ultimate self-expressive product is probably, other than where you went to college, is probably your car. It says a lot about you. And then maybe number three is your watch. And the car is so self-expressive in terms of what it says about you for so many people, not as much for people of your generation, but people of my generation. And I think the most valuable waiting list ever assembled would be the day that Tim Cook announces a car and opens the waiting list. I think there are a ton of automobile manufacturers with excess capacity that would partner with Tim Cook and, you know, co-pilot on the design, an electric vehicle that had some autonomous technology.

20:26I just, I'd buy one. I think anyone who makes over a certain amount of money would get on that waiting list. I think it'd be the mother of all waiting lists. And the auto industry, there are just very few industries that move the needle for Apple. And the automobile industry is one of the biggest in the world. and I think Tesla is ripe for disruption. The disruptor should be disrupted. Its design to me has gotten stale. I don't think their products look especially appealing. I think it was a truly differentiated design six, seven years ago. There's a sameness now around Tesla and I think Apple has, and specifically Tim Cook because brands get personified, has such a better brand, I think right now, than Elon Musk and Tesla.

21:06So I would have just loved to have seen Apple and they still might. They still might. Completely agree. I mean, you look at the sales of this headset, it's projected to do 150 ,000 units in its first year. If you assume those projections are correct, that means that the headset's going to bring in$525 million. That's 0.1 % of Apple's annual revenue. Apple makes$395 billion a year. So, I mean, it better be the greatest long-term play of all time, because based on its first year, this is going to do absolutely nothing to the company.

21:50Venture capital firm Sequoia is spinning its China and India units into two new entities distinct from its US and Europe operations. The firm said sharing the Sequoia brand across borders has created market confusion and portfolio conflicts. This, of course, comes amid an increasingly tense US-China relationship. Biden has been working to restrict investments in China, and TikTok is under intense scrutiny, with Montana taking steps to ban it. Meanwhile, one of TikTok's biggest investors is Sequoia China. It has a 10 % stake in the parent company ByteDance. In other words, running a global investment business has become, to quote Sequoia, increasingly complex.

22:28The split will take effect by next March. The China unit will be renamed Hongshan, the India unit to peak 15 partners, and the US-Europe unit will remain Sequoia Capital. Scott, what's your reaction to this? So that sentence in there, the firm said sharing the Sequoia brand across borders has created market confusion and portfolio conflicts. That's a bald-faced lie. That has nothing to do with this decision. This decision is that they are worried that they're going to get caught in the crossfire of a US-Sino conflict where American investors might not be able to invest or register a gain from ByteDance if ByteDance doesn't comply with U.S.

23:07regulations. And what they're sitting on top of is potentially$100 billion in gains. And the partners at Sequoia want to make sure they have access to that. So they'll create a Chinese unit that's subject to Chinese laws or international laws, of which there are very few, not subject to the long arm of Uncle Sam or regulations, or they can do whatever they want and they won't come under fire for it. Full stop. It has nothing to do. Oh my God, that's hilarious. It's increasingly complex to run a decentralized global investment business. So we're going to simplify by splitting into three different entities.

23:40Yeah, that'll simplify things. Do you think that there's an argument to be made that this is sort of a good thing from a national security perspective? And that is, Sequoia is arguably the most iconic influential VC firm in the world. the fact that they're doing this will probably set a tone that going forward, US VC firms shouldn't invest in Chinese companies and vice versa. They'll probably just be less cross-border investing at this point. I don't know. I think that VCs will go where the money is. And I think there's a benefit to this. And that is there are people who will, in organizations that will just pursue a return on invested capital and moral clarity for them isn't high up on their list.

24:22That's not to say there aren't a lot of great citizens out there who run companies and try and do the right thing every day. But if there is opportunity in tainted baby milk and it's not regulated, there will be a VC who will fund it. And I'm not saying it's Sequoia Capital because they're so rich that they probably, you know, can be a little bit more selective and not get involved in stuff like that. But, I mean, Christ, look at the people. Look at the people of these investment banks. They're good people. I know them. Look at the shit they took public. They knew retail investors were going to lose a ton of money.

25:00They knew it. They knew this stuff was shit. And they still underwrote it. I mean, look at the people in crypto. Not bad people. They really think that, you know, Cum Rocket is a place to store value. You know, you want to be a good citizen. You want to have some fidelity to the Commonwealth. You want to be a good employer. But for-profit entities are primarily there for profit and to create economic security for them and their shareholders. We'll be right back after the break to discuss the PGA Tours merger with Live Golf.

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