Prof G Markets: Breaking Down 2024 Predictions + Audience Comments and Pushback

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1:22Welcome to PropG Markets. Ed, what are we discussing today? We're going to go through your 2024 predictions, Scott. And we're also going to share some questions and comments that we received from the live stream audience. And by the way, one of the most frequent comments that we saw on the live stream were requests for you to slow down. So that's what we're going to try to accomplish today. We're going to do a deeper breakdown of your predictions. Sound good? Yeah, sounds great, except for the slow down part. Let's start with your first prediction, which is housing sales boom. What do you mean by that?

1:57Sales will accelerate. Look, there's pent-up demand, death, disease, divorce, household formation. People want to procreate. They want to buy a home. Interest rates have come down about 100 bps in the last 60 or 90 days. And I think they'll come down further. And in addition, you're just going to see certain mortgages roll. So the incentive to stick around, you can either refinance your house at a much higher interest rate or you can go buy a new one. but it just strikes me that it won't return to pre-pandemic levels but it's going to be substantially up i also think and mia did some interesting research here there's going to be alternative all sorts of alternative housing we see all of these vcs and i think this is a good thing incorporating whole cities they're literally just going and buying tens of thousands of acres incorporating it as a city to avoid all nimbyous restrictive bullshit zoning requirements that basically just entrench and transfer wealth from people looking for a home to the incumbents that already own a home.

2:57So I just don't think this is sustainable. And I think we're going to see a lot of pent up demand come into the market. And I think you're going to see a housing boom in 2024 or a housing purchase boom, I should say. Question from Philip. What about young people who can work remotely? Do you think they will move to so-called second and third tier cities where life is less expensive? It's a complicated question. It depends where. So for example, a lot of people who moved to Austin are now moving to other cities in Texas because they've been priced out of Austin. Anyone who could engage in the remote work arbitrage has kind of done so.

3:29And I actually believe you're going to see a little bit of an uptick or a little bit of a return to the office. We've been thinking about that approximately here. I believe that 2024, we need to have more people, I don't want to say in the office, but we need to have a more formal means of getting more people together more regularly. I don't know. I sound like David Solomon or one of these boomer investment banking guys, but I do think you lose something. I think you're going to see a slight uptick in occupancy rates back in offices. The market for cities is like the market for products. San Francisco prices itself out of the market and is unable to address the homeless problem.

4:09So it's both bad and expensive, which means people leave and you see basically the commercial real estate market has collapsed there. And even the rental and housing market for the first time is starting to decline. So I think you're going to see there's certain lifestyle arbitrage cities. You'll see more of those in Texas and Florida because of the lower tax rates. I think Mexico City and Madrid still offer the best lifestyle arbitrage in North America and Europe. But yeah, that's not anything unusual, but people who still have real money and real ambition, and sometimes it's more important to have the latter than the former, are going to do their best to get to a super city.

4:48And one of my big pieces of advice to young people is before you collect dogs and kids, get to a super city, because that's the density of opportunity, the crush of humanity and capital that results in that opportunity. You have two stock picks that you call the streaming laggards, aka Disney and Warner Brothers Discovery. Why are they your stock picks for 2024? I think Disney is going to get put in play. It stocks at a 10-year low. It's got iconic, inimitable assets, and it has a park business that's doing$10 billion in EBITDA that really is singular. The park business, in my view, now, granted, you would argue that the figures or the IPs, the real moat here, but they leverage their IP with rides at Disney and also just the moat of building several hundred thousand acre park.

5:36That takes decades. It doesn't, you know, Netflix can't do that, or at least they can't do that within 10 or 20 years. And other than MGM Universal or Universal Orlando, nothing even comes close. And so these are iconic assets. It's underperformed. So the stock either has to go up or it's put in play or starts getting hostile bids from potential acquirers. So I think that stock goes up this year. And then I think Warner Brothers Discovery has basically been a debt story. And that is it has such a huge amount of debt. And David Zaslav, to his credit, has paid down that debt pretty aggressively.

6:12And when he pays it down, then the enterprise value, if it stays the same, that means the equity value should go up. because the enterprise value of a company is what people think is the value of the company minus the debt plus the cash. So as the debt gets reduced, the value should go up. I also think that there's a consolidation in the streaming market that will give Macs, or better known as HBO, more pricing power. There's going to be fewer players. They're consolidating. Netflix has already raised prices 15 to 30%, which will create cloud cover for HBO to raise prices. and they're all cutting costs.

6:47They're all reducing their programming lineups dramatically. And the writer's strike was nothing but a gift to them that gave them the opportunity to take a pause and recalibrate their costs. So I like both Warner Brothers, Discovery, and Disney as kind of safe plays. I think their downside is somewhat limited. And I think they offer kind of, I don't know, 30 to 60 % upside. You also have a side prediction that an activist investor is going to come and approach Warner Brothers. Why do you think that? Well, there's a scene in Wall Street where Charlie Sheen keeps saying, why do you need to wreck this company?

7:19Because it's wreckable, all right? And Warner Brothers Discovery is breakable in the sense that it has a single class of shares. What John Stanky at AT &T demanded was that if he was going to take stock in exchange for selling Time Warner to Discovery, that he wanted to be a single class of stock such that the likelihood that a takeover might happen is always there. And therefore, there's a takeover premium in the stock. So a lot of stocks that have dual class shareholder structures technically traded at discount because even if the stock gets really cheap, for example, at Peloton or something like that, or in New York Times, nobody can come in and make a bid like they did in Macy's that sends the stock skyrocketing because some, you know, the Salzburgers own 2 % of the shares, but they control the company.

8:03So there is no takeover premium or takeover possibility premium in the New York Times stock. And Stanky said, I don't give a shit about your headaches as the CEO So fending off activists, I want to maximize the value of my shares in the company. So I want it to be a single class of stock. So long-winded way of saying Warner Brothers Discovery is breakable. And that is somebody could come in and say, I want to take the company. I want to split it up. I want to sell these assets or I want to swallow the whole thing and make it part of whatever, you know, make it part of my telco again or who knows.

8:34Somebody's going to pop up, an activist or an acquirer, if this company continues to pay down its debt, which I think it will, even if it's not at the same rate, and shows signs of life and bouncing off the bottom. I also think CNN, which gets a disproportionate amount of attention because it's arguably the most iconic asset, maybe with the exception of HBO, is going to have a great year because everybody's going to be watching whether or not Trump gets sentenced or whatever dipshit thing Elon says. I think that CNN during an election year is going to print money. Are you personally buying these stocks?

9:07No, I don't buy and sell that many stocks. I'm kind of saving my dry powder for some private investment opportunities. And I'm also thinking about selling some stocks. I have my biggest holdings are Apple, Amazon, and Airbnb. I've experienced really solid, even extraordinary gains in those. And I'm thinking of getting out of them and diversifying out of tech. I have a lot of tech, public tech stocks into credit. it strikes me that for the first time in a long time you're being paid to be in credit and i have some friends in the distressed credit business and you can get kind of unlevered 12 to 15 returns and i'm in a position in my life where i want to de-risk and i think one way of doing that i mean i'm very invested in tech through a lot of my private investments so i'm thinking of transitioning out of many of my tech holdings into credit instruments let's move on to the next prediction And TikTok comes for Netflix and Spotify.

10:01I think the implication is pretty clear there, but how do you see TikTok's ascent playing out in the traditional media ecosystem? TikTok just continues to garner more and more mindshare, more and more people's time. And I don't know if you remember those charts that showed that people were still, like newspapers were getting 15 % of all ad dollars, despite the fact they were only getting 6 % of people's time. Eventually, money matches time spent or eyeballs. And every year, every day, TikTok is garnering more and more time of the most valuable consumer in the world. And that is a young male who buys stupid high margin products.

10:38And the data I saw that was really compelling was that Netflix consumption has actually leveled out for not only kids, but also for adults, while YouTube and TikTok continue to go up. in addition i think that tiktok offers something so singular and so powerful that we miss it and that is it's one channel there's no choice it uses the signal liquidity of all the different actions you provide to the algorithm the ai driven algorithm of what you're enjoying or not enjoying and it begins to calibrate in on content that is just extraordinary and why do you need 400 channels you don't you only need one as long as it's the right channel and it knows exactly what you want.

11:20Consumers spend something like 50 minutes a week deciding what to watch on Netflix. So how much would someone have to pay you to say, all right, this week, you're not taking a vacation. You're sitting in your living room and you're deciding what you're going to watch for the rest of the year on Netflix. We wake up Monday at 9 a.m. and until 5 p.m., you do nothing but decide and plan out what you're going to watch on Netflix for the rest of the year. And then Tuesday, you do the same thing Wednesday, Thursday, Friday. That is the tax that choice places on you. And even though Netflix has an outstanding recommendation engine, it's dwarfed by the recommendation that is one channel called TikTok.

11:59Side question from Laith. Laith? Hope I pronounced that correctly. Apologies if I didn't. What do you think of Netflix moving into sports? It strikes me that, I don't want to say it doesn't make sense, but the reason why sports captures so much revenue and such extraordinary rights fees is because it's one of the few media vehicles that people still want to watch live, meaning it's some of the few media vehicles that people will endure advertising. It's the same reason Netflix isn't in news, and that is news and sports have a perishability about them. And Netflix is in the business of non-perishable content.

12:38I'm watching Squid Games. I think that's two or three years old, but it doesn't matter and they have it all and it's all queued up and ready to go and I can binge watch it. Whereas when you watch CNN, you don't want to watch day old CNN. And that's part of the reason it's powerful because you're willing to watch it live. You want to hear Farid's take. And so you're willing to watch a commercial telling you have opioid induced constipation or restless legs. We'll be right back. Thank you.

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14:20We're back with ProfG Markets. So I'm just going to move us to the next one, which is peak AI. You say we've reached peak AI. And by By the way, last year you said that AI would be tech of the year, which I count in that prediction is correct. You also said open AI's valuation is going to come down and that the quote empires will strike back. What did you mean by that? I don't think we've hit peak AI in terms of its impact on business and the economy. I think we've hit peak open AI valuation. I don't think that valuation won't maintain its velocity. I think$90 billion and the valuation that the whole Magnificent Seven that's been AI-driven has kind of been fully incorporated.

14:59I think OpenAI is an amazing company, but I think at$90 billion, a lot of that kind of amazingness, if you will, has been factored into that price. Now, it might, in fact, do really well in 2025, but I feel like, I don't want to say it's gotten ahead of itself, but it is definitely, that is a forward-looking valuation. there's a lot of promise built into that valuation that i think it'll recognize i just don't think the performance can live up to the promise in 2024 so i think that a lot of those stocks nvidia microsoft open ai that have largely been run up based on kind of the ai hype i think that the hype if you will is going to continue but i don't think they're going to maintain that sort of those sort of gains in 2024 who's the empire striking back then i think it's Alphabet, and that's my big tech stock pick.

15:49I think Gemini and its access to proprietary data, including your Gmail account, YouTube, your calendar, I think it's going to give them a leg up and have all sorts of really interesting applications that'll get people excited again about Alphabet. Also, on a relative valuation basis, it looks reasonable compared to the other guys. Is there anything else beyond AI that makes you optimistic and bullish on Alphabet? I think one thing you mentioned may have been YouTube. Yeah, YouTube is effectively the fastest growing media platform outside of TikTok. And that is YouTube and TikTok are taking share basically from everybody else.

16:26And YouTube is now bigger than any cable channel. It's growing double digits. It attracts that kind of elusive great white rhino, and that is young men. And they're getting into TV and the user reviews are great on it. It just strikes me that YouTube is sort of, you know, the big engine that could and continues to take share from the cable guys. Its ad model is outstanding. The ads that to me there aren't quite as offensive because of that whole five second you can skip ads. I think that Alphabet still has the largest toll booth in the world in the form of search, has growth vehicles in terms of YouTube.

17:01And I think that it's about to recognize that AI inspired bump party that they were sort of left out of. Even though the The stock's up, I think, about 33 % or 35 % this year. So it hasn't underperformed the market. It's overperformed. But I don't think it's had the same kind of champagne and cocaine up draft that everyone else has had. And I think it's going to register that in 2024. Okay, next one. Tech of the year. GLP-1s, i.e. weight loss drugs. Take us through that. I think this is going to have all sorts of impact. And the diabetes or the obesity economy is$1.7 trillion. dollars. It's, I mean, what is that?

17:39That's like 8 % of the economy. And if you look at McDonald's, PepsiCo, General Foods, if you look at Coca-Cola, they're literally obesity indices. As obesity has gone from 30 to 40%, as morbid obesity has gone from 5 to 10 % in the last 10 years, these company stocks are up 7, 10, 20 fold. And when you see a decline in obesity and morbid obesity, I think you're going to see the same type of deceleration in these stock prices. I don't think we've even scratched the surface in terms of companies that are kidney dialysis companies, medical equipment manufacturers, companies that produce all those motorized vehicles for people who have become too obese to get from Tomorrowland to Fantasyland at Disneyland.

18:26I think it's just going to be enormous and there's going to be all sorts of benefits and weirdness and we're going to see from these drugs. Tech of the year, GLP-1 drugs. Comment from Andres, quote, I don't buy this prediction. Scott isn't considering access to GLP-1s. That's a great point. So bottom line is it's not getting to the obese. It's getting to ladies of lunch who want to lose that last 10 or 15 pounds. Having said that, and that's who I know is on GLP-1, is basically rich housewives. And fat dudes are my friends who are wealthy and just very overweight. Guys who are very overweight and women who are modestly overweight that have money.

19:05That's who I see using it. Maybe that's just the people I hang out with. But anyways. I was going to say, I think those are the only people you know. Probably true. But I do think there is so much money in R &D. I do think the market's going to do its job here. And there will be all sorts of innovation and specifically lower price drugs that do start to permeate or melt into the region's neighborhoods and demographics that could most benefit from this. So I also think the government's going to get involved and start probably saying this qualifies for Medicare or Medicaid or what have you. So it'll take a while.

19:39It's definitely not getting to the right people now, but I think it will eventually. Let's hear it for the ladies who want everybody right.

19:50Next prediction, India is the new China. What does that mean? This year, India will bring more people into the middle class than China. It's now the most populous nation in the world, and it doesn't have the same demographic problems that China has. In addition, it's growing off of a smaller base. And all the things we said about India 30 years ago still hold true. It's a democracy, more English speakers than any other nation in the world, I think, more PhDs. And it's kind of a swing vote in terms of where it is geographically. I think India is, I think just as people were looking to China for, you know, incredible manufacturing might and to invest there because of an emerging middle class, I think that the same excitement and the same dynamics are forming in India.

20:42And I think America is going to say, and a lot of Western nations are going to say, we probably, it's not probably a bad idea to diversify away from China and make some big bets in India. So I think all the moons are lining up for India. Are you going to try to expose yourself to any Indian stocks and take part in that ascent? I'm going to resist the answer to the question you're going to try and expose yourself. That's just too easy. That's just too easy, Ed. Anyways, am I going to try and expose myself to India? I haven't so far. What I do want to do, I want to go to India. I have a lot of my closest friends are—see, I'm not a racist.

21:21Some of my closest friends are Indian. Yeah, no, I'm being very honest. My closest friends at Stern are Indian, and I've always wanted to go there. I'm interested in the culture. I've always been a little bit intimidated by it, but it's definitely the one country, the biggest, most important nation that I haven't been to. So I don't know if I'm going to invest, but I'm definitely going to make a couple trips down there in 2024 and try to get a feel for what's going on. Next prediction is a geopolitical prediction. Saudi Arabia and Israel normalize relations, and then also U.S. and China relations thaw.

21:55Let's start with Saudi Arabia. What do you think is going to happen there? I think the kingdom is making reforms at a faster pace than any nation in the world. And granted, that's from a bad place, but every three to six months, MBS rolls out new reforms, whether it's, and this sounds incredibly primitive, but women being able to travel without the permission of their male guardian or women being able to drive or alcohol, whatever it is, they are reforming faster than any nation in the world. And the other kind of anecdotal observation I would make was when I was in Mykonos, I noticed that at all the clubs, all the tables were filled by kids from the Gulf.

22:29I think they are pivoting towards capitalism. And the other large economy in the Mideast is Israel. They need tech. Israel needs capital. It seems to me like a marriage made in heaven. And I think that, if you will, MBS is trying to pull off the ultimate pivot away from fossil fuels, but also a pivot away from extremism and fundamentalism to capitalism. And it strikes me that in these talks and this kind of thawing or whatever you want to call it is well underway. The conflict in the Middle East has put that off. It may not happen next year, but I think it'll definitely happen in 2025. And also, if you look at the Kingdom, Ed, they've been remarkably quiet.

23:06They haven't been shitposting Israel or putting out a lot statements of outrage or indignance about the bombing in Gaza. It just says to me that they're like, okay, this set us back. We got to wait. And that'll be the ultimate Iron Dome for Israel. So I'm actually quite excited about the prospect of the kingdom and Israel normalizing relations. I think it makes sense for both of them. And I think it'll be good for peace in the Middle East and good for the world. And then with respect to China and the US. Sorry, before we move on to China, I just want to interject with a comment from Jeffrey. He says, quote, I wish Scott was as critical of Saudi Arabia as he is of Elon Musk.

23:48What's your response to that? Well, I wish I had a bigger dick and a lot more money.

23:55I wish for a lot of things that I think I call it as I see it in the kingdom. I think the kingdom, I think the kingdom, if the West wanted to write a script for how it wanted the kingdom to behave, a pivot to capitalism, reforms, buying a shit ton of products, it just strikes me that the kingdom is kind of coming to us. And so, I mean, keep in mind, the kingdom used to spend all of its money on funding a cold war with Iran and a hot war in Yemen. and instead now it's spending its money and trying to pivot away from fossil fuels to education, manufacturing, investing in tech companies. We have access to incredibly cheap capital in the US.

24:44And with respect to Elon, look, I wanna acknowledge that he is a remarkable innovator. I think he's great at what he does. And I also think it's a Jew baiting absentee father. And I just call it as I see it. And I'd like to think I call it as I see it in the kingdom. But from an American interest standpoint, I think the kingdom's move and MBS as a reformer is arguably one of the best things to happen for the West. If the world is becoming bipolar, that is China and Russia versus the U.S. and Europe, the two key swing votes, just as less than 100 ,000 suburban moms are going to decide who the next president is.

25:20Do you realize a bunch of moms in the suburbs of Akron, Ohio are going to decide the war in Ukraine? Basically, they're going to decide who wins because whoever wins president, if Biden wins president, Ukraine probably wins the war, or at least it's at an extended stalemate. If Trump is reelected, Putin has won. And the soccer mom or the suburban mom in Akron, Ohio is India and the kingdom, to a lesser extent, Indonesia and Turkey. but effectively for our own self-interest just being very selfish about american interests i think that we want to embrace india and the kingdom and with respect to elon i just think he couldn't be a shittier role model for young men i think what jeffrey would probably respond to your comment there is like you know your point is the soccer moms decide in this case Saudi Arabia is the soccer mom, and so we got to play ball with them.