Prof G Markets: Carta and the Secondary Market, Bitcoin ETFs, and Scott’s 2024 Investment Strategy

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1:19Welcome to Prof G Markets. Today, we're discussing the SEC's approval of the Bitcoin ETF, a scandal in the startup world and my investment strategy for 2024 there was a segue here with the news is prop g media analyst ed elson ed what is the good word just you're you're such an old bloke

1:46you should have seen you should have heard me on pivot this morning or actually you won't they're literally like it's me kara and three producers for all women and they literally like every other minute they're like, oh, we're editing that out. Stop, Scott. We're editing that out. We can't say that. We can't say that. Claire, what do you think? I think it's a good start to the year. What do you think, Claire? No, that's staying in. Yes. Claire. Gangster Claire. Taking risks with my career. That's right. Good. Okay. Go ahead, Ed. What's going on? What's going on the market? Let's start with the market vitals for 2023.

2:24The S &P 500 posted a 24 % gain for the year and saw its longest winning streak since 2004. The dollar ended the year down about 2 % after tumbling on potential interest rate cuts. Bitcoin gained more than 150 % as hopes for a Bitcoin ETF grew. More on that later. and the yield on 10-year treasuries finished 2023 back where it started despite peaking above 5 % in October. Shifting to the headlines, here's what's been happening over the last few weeks. Adobe abandoned its$20 billion acquisition of Figma after hitting regulatory roadblocks in Europe and the UK. We discussed that acquisition back in 2022 on our September 26th episode.

3:03The New York Times is suing OpenAI and Microsoft for copyright infringement. The Times alleges millions of its articles were used to train chatbots that now compete with the newspaper. OpenAI has said the lawsuit is, quote, without merit. A Boeing 737 MAX lost a door-sized section mid-air during an Alaska Airlines flight. Since then, more than 170 Boeing jets have been grounded, and the company's stock is off more than 10 % to start the year. Activist investor Elliott has built a position of about a billion dollars in Tinder owner Match Group. Elliott intends to improve the company's performance and boost its stock.

3:37Those specific demands were not disclosed. Match Group stock rose by as much as 12 % after the news. And finally, the consumer price index rose 3.4 % year over year in December. That's higher than expected, and the most in three months. Housing contributed to more than half of the overall increase in the CPI. Scott, welcome back. Any thoughts? So we talked about Adobe Figma and the idea of the new upstart innovator disruptor being purchased by the Death Star, Adobe, which is a great firm, it does a great job, you can just expect that naturally over the next few years, you'd have higher prices and a concentration of power.

4:18So one, I think it's the right decision. What's probably most interesting about this is that the EU would constantly stamp its feet and get angry at big tech. But the general consensus was it doesn't matter. It's a nothing burger because they can't break up a company that's domained or headquartered in another country. But effectively, the EU was the one that weighed in here, and they killed the acquisition. Because Adobe said, if we're not going to be able to operate this company in Europe, we can't do this. And they paid, I think, a nine-figure breakup fee. At the time the purchase agreement was announced in September, the$20 billion represented 12 % of Adobe's market cap.

4:57And European regulators are effectively putting on a masterclass and saying, look, just because you guys are either obsessed with big tech or that they have weaponized government or that you're so old, you don't understand this technology, or you want to feel like you're younger again and being pro big tech feels like, you know, Botox in your face, we don't have to go that way. And so I think this was the right thing to do. I think it's interesting that the regulators were the one that inspired or got in the way of it. And I think the design market and the creative market benefits from having lower prices and competition here.

5:33The Boeing crisis. Just on Adobe, that$20 billion number, and you mentioned it's 12 % of the market cap. It feels like that was the major clue here because at the time they made that bid, the company's last valuation was$10 billion, and at the time it was making$450 million a year. So that's 45 times sales. So I think the question that probably the regulators were asking themselves is like, what is this premium that Adobe was willing to place on Figma, and why were they willing to pay it? And in my view, it's like, it's a monopoly premium. I think that's exactly right. I think if they had both the kind of subscription-based creative, you know, kind of creative tools with relationships with the biggest companies in the world, and then they own the upstart disruptor innovator that everyone is excited about that has better future functionality, they kind of own it.

6:29I love that the EU here has stepped in and gotten in the way of an acquisition or a merger. Yeah, it's an acquisition, not a merger. That just shouldn't have happened. It would have been bad for consumers. So let's talk about Boeing. It makes for a great headline. I would argue that Boeing is probably a good buy right now because while I think their primary business is commercial jet manufacturer, they're a big defense contractor. I do think it's a well-run company. Nobody was hurt. And my guess is more people were killed by EVs yesterday. It's just it's very dramatic to see the side of a plane bust open.

7:11and the 737 plays such a critical role. The 737 is really the workhorse of the skies. And so there's a real vested interest on the part of airlines and manufacturers and parts manufacturers to get 737s back in the air. But the thing about it is, speaking of a concentration, the commercial jet manufacturing business is really a duopoly. It's Airbus and it's Boeing. So I think Boeing is gonna be fine. Its stock is down. I mean, what happened here? a teenage passenger had his shirt sucked off his body. That sounds like a pretty good TikTok. I hope someone was filming that shit. But I don't know why the idea of a piece of the fuselage just coming off randomly like mid-flight, I find that funny.

7:59I don't know why. I imagine it was terrifying. I mean, you're really not expecting that. It's like you're sitting in the aisle seat and you hear a sound and you look over and all you see is terrain because there's no longer a fuselage? I mean, how do you even process that? How do you, I'm glad no one was hurt. You don't have to laugh at all. No one was hurt. You gotta think that those people might have a wee bit of a fear of flying for a while. Like, it's just not easy. Like, imagine how many drinks those people are gonna order the next time they get on a flight. By the way, if you have a fear of flying, just, I find that Bloody Marys, there's something about tomato juice, and vodka that helps in any situation but i find it really helps i had a bit of a fear of flying for a couple years no idea why i don't have it anymore but yeah i think boeing i think boeing's going to be fine and i think this makes for i mean to be fair it's the it's the it is the third crisis in five years for them and the previous two and the first one was in in 2018 when the max 8 crashed and it killed almost 200 people, and then the other one was in 2019, when another Max 8 crashed and it killed close to the same amount.

9:13So, I mean, there's been some serious damage and lives have been lost in the past. I guess the question is, does the image of the fuselage falling off, is that enough for buyers of the commercial aircraft, i.e. the airlines, to say, we don't really trust Boeing anymore, this is the third crisis in five years, and we're going to switch to someone else. And as you point that, it's probably their only other option is Airbus. The purchase cycle for these things is so intense and long. I mean, if you're selling an Airbus, if you're a salesperson for Boeing or Airbus, you're literally talking to people 10 years before they take delivery of the aircraft.

9:51These are such enormous purchases. They're so complicated. And the 737 is so intrinsically rooted in airlines, businesses from their operations, their parts, everything. even the jetways that are calibrated for a certain type of aircraft. So I think everybody has a vested interest in getting these things back in the air. The loss of life from the 737 Max's that crashed is tragic. But the question I would have back is how many people died in General Motors cars this past week? And what's interesting is that it's all relative and it's based on expectation. And one of the gangster moves of business in the FAA and Boeing was early on, they created a set of safety standards that were just unparalleled in the world of transportation.

10:39When you think about it, flying, technically, to skirt along the atmosphere and near the speed of sound, technically, you'd think if you didn't know anything, it would be more dangerous than driving 30 miles an hour around your town. But guess what? It is a fraction is dangerous. It's exponentially more dangerous to drive to the airport than it is to fly 3 ,000 miles once you get there. And so our expectations have been sort of zero tolerance for air travel. And there have been entire years where there has not been a single commercial airline disaster. And that is such a remarkable victory. And it makes flying just the whole concept.

11:18I mean, I don't know about you, but occasionally I'm up in the air and I'm looking out the window, And I'm like, what the fuck? How does this thing? It's crazy. How is this thing even up here? And I start freaking out and I start ordering more drinks. And like, this just makes no sense. Yeah. And the fact that 98 % of the public is willing to get in this steel tube with recirculated oxygen and skirt along the atmosphere and feel fairly relaxed is just a remarkable achievement. So I think this will go away hopefully as fast as it popped up. Let's talk about New York Times and the AI lawsuit. I think that thing's crazy and worth talking about.

11:52What are your thoughts on it? Well, so I don't know if you know this, but I was on the board of the New York Times. Bingo. We need a sound effect every time. There you go. Every time I say that, it should be a drinking game. Every time I remind people I was on the board of the New York Times. Yeah. Actually, please, if you're listening to this, please take a shot every time Scott says that. So no joke, in the second board meeting, I said, all right, I'm not going to say anything in the first board meeting. and the second board meeting, the chairman, Arthur Sulzberger, says, what are your thoughts?

12:22What do you think we should, you know, any suggestions? I'm like, we should immediately call all the major publishers and form a rights group, a consortium, and we should turn off Google. And I basically got laughed out of the room because they thought, oh, they're going to send us a ton of traffic and we're going to do ads. And it was pure idolatry of innovators and us pretending that we were younger than we were. And that was the time to have done it. And we could have all bound together and then pitched all of the content from Conde Nast, Pearson, News Corp, New York Times, Washington Post as one unified group, and somebody would have bid a lot of money.

12:55This is that moment for AI, specifically the Washington Post, New York Times, and they're making the same mistake again, and that is they're going about it alone. Reuters just cut a deal. The New York Times is thinking they should do their own deal, and the New York Times now, like then, is incredibly arrogant and doesn't recognize that they alone are much less powerful and important than these AI folks, that it needs to be almost everybody speaking with one voice. And somebody, it might be an anthropic that is trying to catch up to open AI, might say, we're raising money at a$30 billion market cap.

13:27Dear consortium, if you give us all of this amazing content to feed into our LLMs, Penguin Portfolio Random House, Axel Springer, all of them, right? We will give you 3%, 5 % of our shares We'll give you a billion or a billion and a half dollars for a three, four, five year exclusive. So they need to get real cheddar. And the problem is none of them want to cooperate or coordinate. They all have an outsized sense of their own importance. And I worry the same thing's going to happen again, where they're going to atomize it. So I think this is a unique moment in time, and I hope they don't fuck it up again.

14:01Any thoughts on Elliott and Match? Well, Elliott now arguably has the best brand in activist investing, because right on the announcement, the stock's up 12%. And I think they do a great job. I think Jesse Cohen does a great job. And they embody what is the key approach to activist investing. And also to be learned a lot in terms of negotiating. And that is, when I was an activist investor, my counsel was a guy named Stuart Stein at Hogan and Hartson. And now it's Hogan Lovellis. And this guy was just, is brilliant. And he used to advise me on how to handle these things, write the letters, or I would draft them.

14:36He would edit them. And he said something that has always stuck to me. He said, you always want every campaign and every communication when you're cognitive of the company, you want to be two things. You want to be forceful yet dignified. You never want to make it emotional. You never want to make it personal or win-lose, but you want to stay your objectives very clearly what you want, be very forceful, but be dignified. And that, I think Elliott reeks of that. They're not writing poison letters. I know some of their targets. I've talked to some people they've taken stakes in, including AT &T.

15:10And generally speaking, the CEOs like those guys. Having said that, if they don't do what they want, they're not afraid to nominate directors. So the market clearly has a lot of respect for them. Whenever they do something, I think I wish I'd thought of that. Because the match group, you know, it's done okay. but the whole market cap for what is kind of the leader in what is the way people meet now is 11 billion dollars so it's it strikes me that there's opportunity here and you know i think they're going to do really well i think they're the investors in elliott and i think in this situation they're going to make money what do you think yeah just to add on i think the other thing that you got to recognize with match group which i don't think people talk about enough it's kind of like the least discussed monopoly in business because match group owns basically every major dating app apart from bumble and grinder it owns tinder it owns hinge it owns okay cupid match.com and then if you put all of its assets together it makes up around 60 of the american dating app market so i would bet elliot looks at this it sees it's trading at like three and a half time sales compared to Bumble, which is at two.

16:25So it's higher, but still comparable. In addition, it's offering competitive pricing, like a Tinder subscription costs five bucks a month and Bumble's at something like 10. I can imagine one strategy they would employ is just, let's just raise the rent. Like we have a virtual monopoly on this space. We have more pricing power than anyone in the industry. So all we have to do is jack up prices and make sure that we don't get broken up. I mean, what you just said is really powerful. 60 % of the online dating market. I mean, when you think about if half of people are meeting, relationships are important.

17:03Young people are stupid in the sense that they'll spend a lot of money on high margin products, right? Thanks. And they also like to switch a lot. They're not very loyal. A cursory view, you'd think, well, this thing is undermanaged. we have we have monopoly like share in what is an increasingly important market in a category that has a lot of emotion and emotion is latin for margin right people don't have a lot of emotion around cleaning products or toilet paper they have a lot of emotion around the shoes they wear and so one is low margin one is high margin and anything you know i hear when i hear young people such as yourself, they kind of identify, they'll say, oh, I'm on the league.

17:50What's the new one? Era or Ara or? Raya. Raya. Shit. And they say it as if almost in the same breath where they say they went to school. Well, the league is literally, you have to go to an Ivy League to get on the league. Well, that's it. It's literally the same. Yeah. Or it's like saying that you're from an incredibly privileged background and really haven't earned any of your achievements, i.e. you went to Princeton. And the fact that Match has been able to aggregate 60 % of the market without having Lena Kahn run around with her hair on fire and try and break them up, I like this a lot. I would even say after a 10 or 12%, whatever it is, bump, that this is a good play.

18:33And I think they're going to do really well here. We'll be right back after the break with a look at the SEC's approval of the Bitcoin ETF.

19:08We'll see you next time.

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20:09We're back with ProfG Markets. As we discussed last month, the SEC has been reviewing 11 applications to issue Bitcoin ETFs on US exchanges. Last week, the SEC approved all of them. The decision allows more everyday investors to invest in Bitcoin through standard brokerage accounts instead of crypto exchanges. Bitcoin was volatile in the hours after the announcement, spiking and then dropping dramatically. This wasn't without its standard crypto drama, though. On Tuesday, two days before the approval, the SEC's official Twitter or X account was hacked and announced that the ETFs had been approved.

20:44Bitcoin then soared to a 19-month high before Gary Gensler revealed the announcement was false and it fell back down 6%. According to X, the hacker obtained access to a phone number tied to the account and the SEC had not enabled two-factor authentication. So Scott, we'll discuss what this approval means for the markets in a moment, but I first wanted to get your take on the hacking scandal. What does this say about X? What does it say about online security and about government communications at large? Well, immediately, I think X tried to position it as a failure of the SEC. It said if they'd only follow two-factor authentication.

21:23My viewpoint is this poses a question in that should any government agency that can move markets, including the SEC, have an account on Twitter? or should they only be going through more secure channels? I thought what was most interesting about this, just speaking about the Bitcoin now has this spot ETF market, markets have been approved by the SEC, is that there's a lot of big winners here. I think crypto and specifically Bitcoin get some legitimacy. The SEC has kind of said, blessed it and said that it's a legitimate asset. People who trade Bitcoin are going to see much lower fees because immediately the biggest players are going to come in and they're going to try and incorporate or attract a new customer set, kind of young crypto folks.

22:08The question is who is the biggest loser? And I would argue that the biggest loser is Coinbase. And the analogy I would use is that Coinbase is the AOL of this generation. And that is in the 90s, you really didn't know how to access the web. I had no, I mean, people just didn't know how to get on the World Wide Web. But people had inserted a floppy disk that they got on their cereal box from AOL, and it was friendly and had a good user interface. Welcome. You've got mail. AOL was a safe place to enter the World Wide Web. And I think that's what Coinbase was for crypto. And that is, I think if you ask 90 % of people that didn't already own Bitcoin, how do you actually buy it?

22:47I don't think they knew. So in the first place they would figure it out was, well, if I go on Coinbase, this large public company run by good management, they seem legitimate, they seem a lot less sketchy than FTX or these other guys, it appears to be a safe on-ramp into the worldwide web of crypto. Now, when all of a sudden you can buy through Schwab and JP Morgan and Vanguard and Fidelity, Coinbase is no longer the best on-ramp into Bitcoin. There's going to be much more credible on-ramps. Now, having said that - To be fair, sorry, just to be fair, Coinbase is a co-issuer of several of those ETFs.

23:27I think it's - I think eight of the 11, right? Yeah, exactly. But the problem is the dislocation in the market created, I would bet, really healthy margins around trading and crypto. And those margins are about to get starched out as the bigger volume, low-cost players come into the market like a Schwab or who have you. And in addition, just generally speaking, Coinbase did 3 billion in revenues. and it has a$30 billion market cap, I mean, relative to other financial exchanges, it's just, in my view, it is insanely overvalued. So I think it's a good company. It'll probably benefit a little bit from this, but it's got new competitors.

24:08A lot of the margins will get starched out, and this company is wildly overvalued. So I think, quote unquote, the biggest loser here over the long term will be Coinbase.

24:28Carter, which makes popular cap table management software, is in hot water for how it tried to grow a new line of business, its secondary markets platform. A Carter salesperson used confidential customer information from its cap table business to make sales calls for the secondary markets business. This sparked outrage in the startup community, which counts on Carter to protect highly sensitive information about investors and their stakes. Now, as a result, Carter is exiting the secondary markets business. Now, before we get into this story, just some quick definitions. First off, what is a cap table?

25:00It's basically a list of a company's owners with all the data on their ownership and their ownership stake. And second definition, secondary markets. Broadly speaking, this is any market where you buy assets from someone who isn't the original issuer of said asset. The Nasdaq, for example, is a secondary market. You buy and sell from other investors instead of buying directly from the company issuing the stock. In this case, though, we're talking specifically about private companies. Carter was essentially trying to build the Nasdaq of private markets before it got shut down. Okay, Scott, many are saying this is the end of Carter, which is one of the most well-known names in the startup community.