Prof G Markets: Can A Podcast Change Southwest Airlines? + The College Consulting Business

0:00Rinse takes your laundry and hand delivers it to your door. expertly cleaned and folded. So you could take the time once spent folding and sorting and waiting to finally pursue a whole new version of you. Like tea time you. Mmm. Or this tea time you. Or even this tea time you. Said you hear about Dave. Or even tea time, tea time, tea time you. Mmm. So update on Dave. It's up to you. We'll take the laundry. Rinse. It's time to be great. Today's number,$250 ,000. That's the base salary for a quantitative research internship at Jane Street Capital. True story, Ed. I was a virgin at 19, and my father offered to buy me an escort, and I thought, what is a shitty car from Ford going to do for me?

0:55Ed, that has nothing to do with the number, but I just like the joke. I am kidding. Ask your parents. The Ford Escort was a shitty car in the 80s. Okay, got it, got it, got it. Yeah, it was either that one or last night I had a prostitute and on the way out the door I said to him, it was a business doing pleasure with you. You like that one? You get the simple stuff. I'm a simple man. Ed, what's going on? Not much, Scott. That number is really incredible to me. And, you know, I feel like we see these kinds of numbers a lot and I'm always sort of suspicious of them. But I will say I have a friend who works at Jane Street, which is the quant trading firm that Sam Bankman-Fried worked at.

1:35And I can vouch this individual who has worked at the company out of college for maybe two years is going to make a million dollars this year. Just unbelievable the amount of money this company is printing. So as someone who worked in investment banking and all my friends were jealous of me out of school, Well, I told you why I went into investment banking, right? My roommate, Gary Lushko, desperately wanted to be an investment banker. And I was competitive with Gary. And I thought, well, if he wants it, I'm going to get it. I had no idea what investment banking was, but I thought, I've got to get it.

2:07I think that's every investment banker, by the way. Pretty much. I had no idea what it meant. I literally had no idea what it meant. And I interviewed. And as you can imagine, I'm a monster interviewer and also lied about my grades. Not proud of that, but that's why I probably can't run for Senate. Dad and I just don't have the hair for it. But I got a job at Morgan Stanley and I made really good money and it was a great line in bars that I worked at Morgan Stanley Investment Banking. It's a fucking awful job. So the reason why these folks make so much money is because they generate a lot of economic value.

2:38But two, it's just most jobs are one of two things. They're either boring and low stress, you know, a night watchman or, you know, they're just pretty rote but boring. Or they're very interesting but they have a decent amount of pressure to keep you up on your toes. was investment banking was this incredible combination of a radically boring material with a ton of pressure placed on it. It was just, and not only that, as bad as the work was, the people were worse. Everybody hated being there, but couldn't leave because they were gonna have to take a 60 % cut in salary to go do anything else. But this is my long-winded way of saying, stop your bitching.

3:15You work for a podcasting company. You get free lunch. That's not true. We don't get no free lunch at Prof G Media, but maybe we should start that. We're talking about even at some point giving you a salary and maybe health insurance. And I think your friend at Jane Street is jealous of Ed Elson. That's true. I've seen the fans that come up to me like, Ed, let's take a selfie. Oh, you're British. Oh, you look like Scott's younger son. Oh, my God. Jesus Christ. Oh, God. Oh, God. Yeah, we have free coffee at Prof G Media too. I don't know if Jane Street offers that. It's pretty good. Pretty good.

3:50Really free coffee? at the co-working place you're at? That's right. I've never been to the co-working space because that's the kind of boss I am. But I'm convinced you guys, whatever co-working space in Brooklyn we're at, it has the hottest guys because this firm is run by young single women. And I'm pretty sure there's a bunch of guys roaming around with like dogs and shit like that who are like very available and very single. Yeah, I think you pretty much nailed it. Yeah. And we love it. And free coffee and free bananas. So, you know, screw Jane Street. There you go. Should we get to it? Go ahead.

4:20Before we get started, just a quick reminder that Prof G Markets has its own dedicated feed now. So type in Prof G Markets wherever you get your podcasts, hit follow, and you'll be getting two episodes, not one, two episodes of Markets every week. And now let's start with our weekly review of Market Vitals.

4:43The S &P 500 hit a new record high, the dollar climbed, Bitcoin rose, and the yield on 10-year treasuries jumped. Shifting to the headlines. Americans can now bet on the presidential election after a federal appeals court cleared the way for prediction market Calci to list election contracts. The Commodity Futures Trading Commission has filed an appeal, but the court won't make a decision until after the election. Third quarter earnings season continued with Bank of America, Citigroup, Morgan Stanley and Goldman Sachs all beating analysts' expectations. That was in large part due to gains in their investment banking divisions.

5:17the banks have benefited from increased dealmaking as a result of the Fed's interest rate cut. Chipmaker ASML's stock fell 16 % after the company cut its 2025 sales guidance. That report caused a sell-off in the global chip market, resulting in a$420 billion loss in value. And finally, Amazon and Google have announced plans to invest in nuclear energy to fuel their data centers. They're focused on developing small, modular reactors, which experts say may be cheaper than the large reactors like Three Mile Island. Scott, your thoughts, starting with this new ruling from the courts that allows Americans to bet on the presidential election.

5:57We discussed this briefly in the past, but now it is confirmed you can trade on this election. I don't see how you could not let people do this. I mean, if you're going to allow them to bet on a college football game, I'm not sure why they shouldn't be allowed to bet on a presidential race. What was interesting is that Calci shows Trump at 57%. and 20 million has been placed on this bet as of Thursday morning. We shouldn't necessarily take this at face value. The betting market got the 2022 election wrong and other polls outside of the betting market show an even, show a more even matchup here.

6:30I'm worried about this because there is evidence showing that states that legalize gambling immediately see an uptick in bankruptcies. And also, I mean, if you think about the stock market, it's become a giant, I don't say casino, but there's$3 trillion a year in transactions or trades. And the stock market is supposed to be a source of financing for companies. And about$300 billion of that is IPOs and secondary. So 90 % of trades in the markets are one person betting against another, saying, I know more than you. I think it's going to go down or I think it's going to go up. That is a form of gambling.

7:09So I don't like this. I don't like the gamification of everything, but I don't see one, how you stop it. And two, I don't see why you shouldn't be able to bet on the presidential race. One last thing, the thing I find fascinating, and I think it's the best indicator or the most interesting indicator of the likely outcome of the election is just Donald Trump media stock. And that is after the debate with Biden, when it thought like, okay, we have an old man who is in serious cognitive decline and he's going to get his ass kicked by Trump. Trump media was about 45 or 50 bucks a share. After the debate with Vice President Harris, where he now looked like the old feeble man and she kind of destroyed him, the stock went down to 12.

7:51I find in some ways it's a pure litmus test. And right now, with the stock at 30 bucks, I think the market at least is saying they're giving the edge to Trump. What are your thoughts on Kalshi? So a lot there. And side note, I will be interviewing the CEO and founder of Kalshi on First Time Founders. So I'll be asking all these questions. It'll be interesting to get his take on your point that the markets are pricing in a Trump victory. So you're exactly right. On Kalshi, his odds of winning are 57%. And on these other betting markets that, you know, not based in the US on Polymarket, for example, his odds of winning are 62%.

8:31And that's way higher than his odds in the traditional polls where he's polling at around 47%. And a lot of people are saying, to your point, that the betting markets are more accurate because unlike polls, there's actual money on the line. You're more likely to have a more informed take because you're at risk of losing something. I would like to propose an alternative view. So women make up 50 % of the population. but i think one thing to remember is that the vast majority of people who are placing bets on these platforms are men and these markets are very interesting because it's sort of a mix of investing sort of trading but also gambling and the reality is that in the gambling world 64 percent of gamblers are men and so i sort of look at what's happening here and regardless of there being money on the line, the reality, in my view, is that biases do have an effect on markets.

9:34And the biases at play here in this election are actually very simple. Kamala's got a 13-point lead among women, and she's lagging by eight points among men. And so, to me, this is more of a reflection not of the true electoral picture, but of just how much gender is likely influencing this race. And I think when it's all said and done, we will look back at the election and we will all kind of nod our heads and reluctantly recognize that most of this came down to one thing, which is, are you a man or are you a woman? Well, what if you're non-binary, you racist bitch? Jesus Christ. No wonder you ended up at a low-paying podcast job.

10:14Anyways, go ahead. That's my wrap. And I'd like to get your reaction. I know there will be a lot of conservatives who will call me an idiot for saying that these markets are biased towards men. But I just I think it's a pretty reasonable assumption that if the majority of the people placing wages are men, I think they're going to have a built in bias to think Trump's going to win. The market reflects everything, including our biases. What I don't get, though, is that, for example, one of the bets on Calci, MIT's president leaving this year, 5 % chance or put another way, 20 to 1. So if I'm the president of MIT, maybe I scrape together a half a million bucks, bet on me against, you know, take the over on that 20 to 1 that I'll leave.

11:03and then I announce I'm retiring and I collect my 10 million bucks and I peace out to Tulum. I'd like to live in Tulum. I would teach yoga. People would love me. I would just be that old guy roaming up and down the beach, selling ceramic monkeys and offering yoga classes. Exactly. That's how I see it. But it feels like it's just right for some form of insider trading, no? Well, I think that's the other point here is also what is stopping Elon Musk from taking$20 million and betting on Trump and tilting the odds. I mean, markets are subject to manipulation, and we see it all the time, which is why I'm just a little bit hesitant and critical of the viewpoint that these prediction markets offer a clearer view of what's actually going to happen.

11:53And I think we're forgetting that actually markets are a little bit flawed. They might draw out the wisdom of crowds, but how wise is the crowd? This is the reason I don't think you want to do this. And that is my friend Todd Benson used to come to my class in business school and he would say the following. He'd say, all right, does anyone believe they can eat a slice of bread within 30 seconds? And inevitably a bunch of people put their hands up. And it ends up that when you try and chew a piece of bread fast, it turns into its more natural form of dough and there's just no way to eat it within 30 seconds.

12:25And he said, look. Really? I think I could do it. Well, there you go. There you go. So he, but his point was, you should never enter into a bet with people who probably have more information than you. And it strikes me that whenever you put a bet in here, that there's a decent amount of money in here that has more information than you. And it's like that saying, if you don't know who the dumbest person in the room is, that means it's you. This feels like anytime you go in here without some sort of insider information, you're likely on the wrong side of the trade. 100%. Let's move on to these bank earnings.

13:02Any thoughts? It's sort of a continuation of the bank earnings we saw last week. We're seeing dealmaking coming back. Goldman's investment banking revenue rose 20%. Citigroup's rose 30%. Morgan Stanley's rose 50%. It appears that M &A has returned. Any thoughts or reflections on the end of the bank earnings? Well, it's nice to have a franchise with different businesses. The wealth management business is a less volatile, kind of slow-growing, nice business, and the markets love it because it's more predictable, consistent revenue. At the same time, they have these franchises in trading and in investment banking, and that gives them a lot of diversification because for the last several years, investment banking has just been the worst.

13:46It's been the dog of these companies. There's not a lot of deal flow. There's a lot of antitrust scrutiny. Companies are afraid to make big acquisitions. So kind of the big monster deals with huge fees have been pretty much non-existent. And now it appears that some of those deals are back. The thing that is inspiring those deals is that interest rates coming down gives private equity players and acquires more confidence to go out and borrow money at lower rates to finance acquisitions, which has kind of kicked up acquisition activity. But this is why it's nice to have a diversified franchise.

14:18Any thoughts? I think you nailed it. And I think it's going to be nice to be an investment banker again. I think we're going to start seeing some big numbers on those bonuses. It's just a good time to be a banker. Your thoughts on the ASML report? This chip maker in the Netherlands, stock dropped 16 % and caused a wider route in the chip market. Quite remarkable. when i saw this i thought back to the nvidia earnings that we saw a month ago where nvidia had a decent-ish quarter i say decent it had a great quarter uh revenue doubled it beat on the top line it beat on the bottom line but they they pointed out that growth was slightly softening and the stock dropped around six or seven percent the market was very upset about it.

15:10I'm seeing a similar thing here. And it reminds me also of what happens with tsunamis. So one of the first signals that a tsunami is coming is that the water will start to recede away from the shore and it forms what is called a trough. And that happens long before the actual tsunami comes and hits. And to me, this is the trough. Because aside from the guidance, which was not great. The earnings were actually not that bad. Revenue grew to more than$8 billion, which was a beat. The net income grew to more than$2 billion, which was a beat. But because of this very simple and not that dramatic cut on guidance, Wall Street internalized that and they thought, hold on, maybe this AI thing isn't going to work out the way we hoped.

15:58And what should have been a slightly disappointing quarter was instead a disaster. The company lost a fifth of its value. It caused every other chip stock to slip as well. AMD fell 5%. Broadcom fell around 5%. ARM fell around 7%. NVIDIA fell around 5%. It recovered, but initially it fell. And in total, almost half a trillion dollars in market value was just erased from the chip market. And it was all because this chip maker, as you say, which was in the same neighborhood as these other chip makers from the Netherlands, cut its guidance. And so the question that I think I'm asking again, which we asked when we saw NVIDIA's earnings, is what is going to happen when one of the big chip companies has a bad quarter?

16:45What is going to happen when NVIDIA comes out and says, hey, growth is looking flat, possibly down? because based on this reaction to what is essentially a cough at ASML and what was essentially a hiccup at NVIDIA, I think what we should expect, should that bad quarter occur, is basically a market meltdown in the tech sector. So that's why I call this a trough, not because of the earnings themselves, but because of the market's reaction to these earnings. The market had a panic attack. And that, to me, is the indication that our expectations for AI are too high, but more importantly, very, very unstable.

17:28We see one little piece of news and then we start selling like crazy. That to me is a very unstable market. Yeah, I would just start saying that we could have hail the size of tomato soup cans. I think that's a better metaphor. Look, I think you're right. I think the expectations here are, they expect these companies to kind of, I mean, you pointed this out, a few months ago, that if you just meet expectations, you're not meeting expectations. You're supposed to. The expectation is that you're going to beat expectations. Yeah. And it's just remarkable to me how willing the market is to be optimistic about AI, but also how willing they are to be pessimistic about AI.

18:13But we'll see, and we'll keep monitoring it. Let's just wrap up here with this Amazon and Google headline. They are both investing in nuclear, as we discussed a few weeks ago. Microsoft is investing in nuclear as well. They're basically rebuilding Three Mile Island. You predicted that nuclear would make a massive comeback a few years ago. I think this is sort of the evidence or the final proof or final confirmation that we need. Nuclear is back. It's not coming back. It is officially back. Any reactions to this headline? So, you know, every year we do this predictions deck and we do it in November.

18:50Shit, it's coming up. We'll start hallucinating or taking more edibles. But every year we pick a technology of the year. 2022, we said it was AI. 2023, we said it was GLP-1 drugs. My technology for 2024 is going to be nuclear. And these companies have correctly identified. They've gone up and down the supply chain. And I think this is a useful exercise for any startup or any company that's kind of not even a startup, a company that's got some scale. What is the friction point in our business? And it's clear that some of the deepest pocketed companies in the world have decided and zeroed in on the friction point.

19:26And the friction point for them is energy production. And that is they're going to need so much incremental power that their energy needs are going to explode. And they also think, okay, well, I'm going to need more energy. I don't want to be known as a climate terrorist. I pretend to give a damn. I have all these woke people that do walkouts during lunch. So I can't just massively up liquid natural gas, although LNG isn't as bad as traditional fossil fuels. And all roads kind of lead to one place in my mind, and that is nuclear, which is probably the worst managed brand of the last 30 years. and just some facts about nuclear.

20:05We talked about its reliability. The waste can actually be recycled. Nuclear waste can be reprocessed and recycled. If all nuclear waste from the past 50 years in the U.S. was recycled, it could power the U.S. for get this at 93 years. I love this. And there's some incredibly, not only the deepest pockets investing here, but the deepest minds. Bill Gates is all in on nuclear. Sam Altman is going big on nuclear startups. So word is out on nuclear, Siemens, GE, Vernova, and Mitsubishi, who make the steam turbines and generators for required for nuclear power generation, their stocks are up 92%, 109%, and 176 % year to date, respectively.

20:48So it's too bad we didn't make this prediction. It's too bad I didn't actually invest against this prediction two or three years ago. But the biggest, I think, transfer or reallocation of or reshaping of energy production in the U.S. is going to be inspired by the need for massive incremental energy due to the AI boom. So AI is going to have a lot of externalities, but one of the first ones, or knock-on effects, but one of the first ones is that when the history of this decade is written, they will say that AI basically reignited a boom in nuclear or renaissance in nuclear. We'll be right back with a look at a new podcasting strategy from Elliott Management.

21:33And if you're enjoying the show so far, make sure you're following Prof G Markets to get two episodes from me and Scott every week.

21:48There is a lot to talk about when we talk about Donald Trump and Jimmy Kimmel. One big question I've got is why in 2025 are late night TV shows like Jimmy Kimmel's show still on TV? Even in our diminished times, Jimmy Kimmel, Stephen Colbert, they're just some of the biggest faces of their networks. If you start taking the biggest faces off your networks, you might save some nickels and dimes. But what are you even anymore? What even is your brand anymore? I'm Peter Kafka, the host of Channels, and that was James Ponowozik, the TV critic for The New York Times. This week, we're talking about Trump and Kimmel, free speech, and a TV format that's remained surprisingly durable for now.

22:37That's This Week on Channels, wherever you get your favorite podcasts.

22:48We're back with Procter Markets. Elliott Investment Management launched a podcast to advance its attack on Southwest Airlines. As we discussed back in June, Elliott took an 11 % activist stake in the airline and called for the CEO and chairman to step down. Last week, the firm requested a special meeting for shareholders to vote on its slate of eight board candidates in December, and then it dropped its first podcast episode. The Stronger Southwest podcast will feature a conversation with one candidate per episode in the weeks leading up to the vote, aiming to introduce them directly to shareholders.

23:26So Scott, this is the first time we're seeing a podcast used as a weapon in a boardroom battle. What do you make of Elliott's strategy here getting into podcasting? I think it's really smart. It's a chance for them. I mean, traditionally what they do is they have comms people who try and reach out to CNBC and Stephanie Ruhle and Barron's and Wall Street Journal and try and frame the issue and say, these are our candidates are so strong. And this is a chance for them to take their story directly to the end consumer. Now, I don't know if this is going to make great listening, but if you're an investor, if you work at Southwest, if you're an IR firm, I mean, there is an audience here that wants to listen to this.

24:08I remember I was an activist investor in the aughts. And I always thought if I did another activist play, I would do a presentation. I'd have Catherine Dillon and her team bring the data to life. I'd make some jokes. I'd film something and I'd put it on YouTube. Instead of press releases and doing interviews and going to ISS, I would just go straight direct to consumer. And if you think about it, the dispersion of content straight to the end consumer has been arguably has reshaped media, right? It used to be that cable companies spent billions of dollars on fiber optic cable and had regulatory capture and you had to go through them.

24:42And all these guys, creatives, shareholders, people who own these cable companies took a huge, huge vig. And now with net neutrality, everybody has access to homes through the internet for basically free. And all you need now is a phone to create your own content and there's platforms to go direct to consumer. And these guys are saying, all right, We're going to go direct to the end consumer, that is potential investors or potential media with podcasts. Also, and I've said this before, every election seems to have kind of a medium that it elevates. Kennedy and TV, FDR and radio, Trump and Twitter, Obama and Google.

25:20I think this is the election of podcasts. And what struck me is that Vice President Harris went on Fox last night. And by the way, I think that's why Donald Trump media stock is down. I think she actually did fairly well. But I mean, there's just some crazy stats. If Vice President Harris were to go on Joe Rogan, which I believe she's going to do, she would reach roughly five times more people than she did on Fox primetime. So she could go on Fox primetime every night for a week just to catch up to where the exposure she would get if she goes on Joe Rogan. And this is the two most kind of seminal media moments for the candidates, in my view, were Trump on Alex schultz andrew schultz oh it's andrew schultz excuse me yeah he said on twitter i was spreading misinformation about joe rogan when i said joe rogan was spreading misinformation about vaccines so i hate him i hate him actually he did a great job he was i thought it was a great interview and then uh when vice president harris went on caller daddy so it highlights a couple trends one you have guys going direct to consumer you have these things we want to cut out the middle man, we're sick of kissing the ass of some assignment producer or some reporter making, you know, that went to Columbia Journalism School and doesn't understand our business.