Prof G Markets: Epic Defeats Google, Ohtani’s Dodgers Contract, and Argentina Devalues the Peso

0:28Time to check on the skies. Whether you're a founder, investor, or innovation company executive, you need a bank that truly understands your business inside and out. A bank that offers uniquely specialized solutions for your unique needs. A bank like Silicon Valley Bank. Silicon Valley Bank is still the SVB you know and trust. The only difference? SVB is now backed by the strength and stability of First Citizens Bank. Yes, SVB. Learn more at svb.com slash box. This week's number, 1500. That's how many items have been stolen from the British Museum in recent years. Things being stolen from the British Museum.

1:11That's ironic.

1:22Welcome to Prop G. Marcus. You get it? That's what you call intellectual humor, Ed. That something stolen from the British Museum. By the way, I was there with my boys, and they said, can we take pictures? And I'm like, no, you got to leave them on the wall. Little dad humor. Little dad humor. Today, we're discussing Epic Games, the Argentine Peso, Argentina, Buenos Aires. I've been to Buenos Aires. I don't think you have. I'm much older and much more refined than you. And the largest contract in sports history. Here with the news is Prop G media analyst Ed Elson. Ed, what is the good word? Doing pretty well, Scott.

1:56I was in Canada this weekend in a skiing race, which was pretty fun. What? Yeah. Say more? You ski? Kind of, not really. Me and my friends, we sign up for this thing called the 24-hour Tremblant, which is basically 300 teams, and you start at the bottom of the mountain at midday on a Saturday, and you have 24 hours to go up and down the mountain as many times as possible. So there were 10 of us on our team. We split it around. Wait, a chairlift or hiking up the mountain? Chairlift. Oh, who cares? Okay. Yeah. That is not formidable if you were actually hiking. Okay, here's the formidable part, which is you got to go between 2 and 6 in the morning.

2:38So I thought that was pretty impressive of us. And we split it up into two-hour shifts. And I was the final shift. I got a good slot. But we came 13th out of 300 teams. Wow, that's very impressive. So I'm feeling pretty good about myself. That's very impressive. You're such a sexy beast. You go to Tremblant and you ski up and down a mountain. Yeah, man. Oh, my God. I'm just trying to be more like you. Yeah, that's the key. What about you? What did you do this weekend? Nothing that cool. What did we do? We did my favorite thing. We went to the Harrods food court, ranked as the fourth best food court in the world.

3:10That is my son's new favorite restaurant. Love that. But we did that. And then we watched the Tottenham Spurs game. Christmas shopping? No, I don't do that. I have an assistant. Anything you get from me, you should know, has nothing to do with any sort of good will for me. I will keep that in mind. Yeah. Yeah. By the way, I don't give gifts. I give money. That's, that's what everybody wants. What everybody wants this season money. What do your kids want? I don't know. That's up to their mom and one of the several nannies that we outsource all parenting to. You couldn't even, you couldn't even hazard a guess at what they want.

3:41Well, okay. So my, my I'm okay. I'm giving my 16 year old driving lessons. I know that's a really cool gift, but he's dying to learn how to drive. So we're going to Florida and that's really nice. I signed him up for like a crazy amount of driving lessons because the few driving lessons I gave him put a serious strain on our relationship bed. As my son is a, once he gets behind a wheel, is not one with the car. And I'm also very nervous in the passenger seat. So it's just not a good, not a good combo. So I'm outsourcing it to some nice lady. It's a lot more wholesome than money. My youngest is very kind of, he's a little bit, not a little bit.

4:17He's a lot of a terrorist. He's awful, but he's very emotional and very sentimental. And so I got both necklaces from the same stone, and he likes that kind of stuff. He likes that kind of thing. That's nice. Getting the nice, honest view of Scott this episode. I like it. There you go. Anyways, get on with the news, Ed. Start with our weekly review of Market Vitals.

4:44The S &P 500 had its best day in a month. The dollar fell, Bitcoin was volatile, and the yield on 10-year treasuries dropped below 4 % for the first time since August. Shifting to the headlines. The Consumer Price Index showed inflation cooled to 3.1 % in November, down from 3.2 % the month before. The Federal Reserve held interest rates steady and signaled three rate cuts in 2024. The Dow hit a new high after that decision, surpassing 37 ,000 for the first time. Macy's stock rose more than 20 % after an investor group proposed a$5.8 billion buyout to take the company private. The retailer's real estate appears to be the true target.

5:25Its properties are estimated to be worth more than the company's market cap. Pfizer shares dropped 9 % after the drugmaker's forecast for revenue and profit came in below expectations. The company is anticipating decreased demand for its COVID products in 2024. And finally, OpenAI and Axel Springer struck a deal to make news accessible through ChatGPT. The chatbot will use Axel Springer's publications, such as Business Insider and Politico, to deliver new summaries with links and attribution to the original article. Scott, thoughts? Danny Blanchflower, the economist in Dartmouth, said something that really struck me.

6:02He said, since World War II, no modern economy has ever had enduring inflation. because if you have a modern economy and you have responsible Federal Reserve, effectively inflation is a self-correcting mechanism. And that is inflation takes prices way up, which dampens demand, which brings prices down. And that's kind of appears to be what's happening here. And then you have the tailwinds of decreasing energy costs. And I think technology, which continues to further and further permeate every organization is just deflationary. It's you can just do more with less. We're talking, I mean, here at PropG, we're talking about our 2024 plans and we're talking about growing our revenues 20 to 30 % and we're not gonna hire very many new people.

6:49And a lot of what we're talking about, you know, we use our synergy and plus, you know, the guy who runs the company is a total asshole, but we're trying to figure out ways to leverage technology and what have you to, including AI, to make us more efficient such that we can maintain our pace of revenue growth, but the whole point is increased revenues at a greater pace and you increase your costs and your profits go up. So I think it's been a lot of things, but I would argue that Times Person of the Year should have been Chairman Powell. I think he is, I mean, Jesus Christ, what do Americans want from the economy?

7:27It's the fastest growing economy, a large economy in the world right now with the lowest inflation. I mean, how do you even do that? That makes no sense to me economically. So I was looking back at some of the headlines from a year ago. Let me just read some of these to you. Bloomberg, U.S. recession this year, more likely than not. Forecast for U.S. recession within year hits 100 percent. 100 percent. Every economist they surveyed said there was going to be a recession. Now, here we are year to date. Dow Jones up 12 percent. S &P up 23 percent. NASDAQ up 42 percent. Unemployment rate 3.9 percent.

8:00And inflation's down to 3.1 So I think Jerome Powell should go down in history as one of the greatest policymakers of all time. Huge win for Jerome Powell. Yeah. So it sounds like you're going to start making bracelets that say you're a Powley or a Jeromey or whatever it is. That's right. That's right. Yeah. He's definitely going to go down in economic history. All the dorks in business school are going to be talking about Jerome Powell. The market is essentially a vehicle for discounted cash flows and also attempting to estimate future cash flows. It's constantly trying. It can't look around the corner, but it tries to sense or hear what is going to happen around the corner.

8:37And what it hears is rate cuts. It believes there's going to be three rate cuts. And then boom, projects make new sense, more people spending, more people borrowing. And again, the market is a forward-looking prediction machine, and it's predicting that the punch bowl is coming back. So we've seen new highs. I think Apple touched a new high. Macy's I kind of wish Macy's would just go away I'm sick of talking about it and here's the thing all of these activists have been threatening to take over Macy's for 20 years because their whole thing is the core business is okay but the markets hate it and what you have with Macy's is that they purchased all of this high-end real estate through the 70s, 80s, and 90s and that that underlying real estate because of the real estate boom is worth more than the company okay but that's like saying ed your kidney is worth a quarter of a million dollars and a quarter of million dollars is worth more than anything ed elson does right now but we have to go in and get the kidney that's the hard part and that was crazy i actually like it though it's actually it's kind of but just because here's the thing whoever i to go in and get the kidney for me macy's to go in take control of this company start shutting down stores and sell the underlying real estate, you know, that is not an original idea.

9:59Let me bring up one of your wrong predictions from a long time ago that you got a lot of shit for, sort of been memed to no end. But in 2015, your prediction was that Macy's will be the most successful retailer of the next five years, not Amazon. So at the time, Macy's was around$22 billion market cap. It's now being sold for around$6 billion. I just I'd like to get your official take here on this pod what would you say to your 2015 self who made that prediction what did you get wrong or or right. Well, if I could speak to my 20, 15-year-old self, I would be like, you know, take prostate shrinking supplements and buy NVIDIA and Netflix.

10:45But see, I don't get to do that, Ed, nor do you. And you're referencing a speech I gave at DLD. And my point was Macy's had just started an e-commerce site. And the point I was trying to make was that multi-channel retail was the future. And at that point, Amazon didn't have stores. I don't remember making a call on the stock. What I remember saying was with the future look more like Macy's than it look like Amazon. And that is the future look like multi-channel retail. And just a quick reality check. I have never owned Macy's stock. My largest holding is Apple. And my second largest holding is Amazon.

11:22So I get a lot of shit for that. But what the larger point I was trying to make was the future was about multi-channel retail. Pfizer. Yeah, look, it's, you know, the pandemic was great for pharmaceutical stocks that were in the business of vaccines. I think it makes sense. I don't know what to say there other than I hope their stock continues to go down. I don't miss the pandemic. I've had a fairly serious cough and it was really interesting. I went for the first time, I'm like, I need to take a COVID test. And for the first time, I did not have COVID tests in the house. I usually have like eight of them everywhere.

11:57I used to test all the time. And I remember thinking, I don't think I have it because I'm too sick. Yeah, especially a lot of people who get it now aren't getting as sick. But God, that just feels like a dream at this point, doesn't it? And let me say out loud what no one wants to say, especially if you lost people. Those two years were likely the best two years of my life. And the pandemic for me was time at home with kids, no traveling, Netflix, and my stock skyrocketed. We basically figured out a way through government programs to make sure that people that already had money, already had homes, already had stocks and already were in relationships, that their life got better.

12:37And we did that by juicing it with$7 trillion on our kids and our grandkids and our credit cards. I think our government's response to COVID was morally corrupt. But the best two years of your life. 100%. Yeah. Okay. I've been on the road 180 days a year. And then all of a sudden I'm at home and I can go boogie boarding with my sons after school. And oh, but wait, what happened to your portfolio? you, it's a global pandemic. Oh, it's doubled. I mean, and then the majority of America has to put their diabetes medication and Diet Cokes in a cooler and head out with their fucking Uber app and, you know, get COVID.

13:15Our economy has decided to spend other people's money to shield the most fortunate from anything bad happening from them. The biggest big story this week was this story about Axel, Springer, and OpenAI, and that is, my belief is that the actual LLMs will not be that differentiated, that AI itself will ensure that the underlying technology, no one ever gets that much advantage. But what this does is, it's a watershed moment, because it acknowledges their ability to crawl this data has value. That sets a really healthy precedent. And I think you're probably going to see companies like the New York Times company and maybe even Gannett and some of the newspapers at Hearst, I think you're going to see traditional media stocks go up in value because I do think that the level of misinformation and disinformation has reached a boiling point and people are going to, and this might be just me projecting and being a boomer or aspirational, but I do think people are going to say that the newsroom of the Washington Post and the New York times in the investment they make in fact-checking does have a renewed sense of value.

14:24And whoever has access to that, whatever generative AI has access to that, it's going to be worth a lot to them. We'll be right back with a look at Epic Games.

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16:19We're back with Prof G Markets. Epic Games won its three-year-long antitrust case against Google. The unanimous jury found that Google's App Store policies violated antitrust laws and maintained a monopoly. The result is a stark contrast to Epic's similar suit against Apple, which it lost in 2021. Scott, what do you make of these differing outcomes for Epic? I think this is big. This is a perfect example of monopoly abuse. It'd be like you fly Delta. say Delta was, there were only two airlines that went to Europe and you wanted to go home to visit your mother and your family and I don't know, do some crazy like nighttime ketamine inspired athletic competition.

16:59And there were only two airlines. You could either fly Delta or KLM in the same network, both fairly mediocre airlines. Delta has an okay domestic product, but international shit. And if you flew one of the two airlines while you're over there, had to use their credit card. And the fee wasn't 2%, it was 30%. That is effectively, we've gotten used to it, but the fact that you can, or the idea that you can download Fortnite in the App Store, and then anything after you've downloaded that you buy in the app, whether it's skins or additional unlocking different games or whatever it is, unlocking different characters, do you have to pay a 30 % tax to Apple?

17:37Barry Diller had this right. They provide underlying technology, security, safety, protection from cyber attacks, a uniform, scalable kind of utility-like processing. All of that is what the app stores do. They deserve something. The credit card companies charge between one and a half and 3%. These guys charge 30. So this is big. It'll give judges the confidence to have more rulings against these guys. What was interesting was this was a jury trial. The fact that the Google attorneys allowed for a jury trial was just stupid. and it represents that i think the kind of the public complexion against big tech has shifted somewhat and there's i think it's ultimately the release or relief from what is one of the most onerous unfair taxes on the entire ecosystem that is the apple uh the app store and the google play app store so i think this is huge and i think it's important and i think it was the right decision What are your thoughts, Ed?

18:33You mentioned the jury trial, that Google opted to have a jury trial. They then went back on that decision. They said, actually, we want to go for a bench trial, which the judge denied. And in addition, there were all of these internal communications that Google basically deleted and, you know, tried to get rid of this paper trail, which was then brought to the attention of the judge. One thing that Tim Sweeney said, who's the CEO of Epic Games, He said, the big difference between Apple and Google is Apple didn't write anything down. So when you look at this, what does this tell us about Google and how Google runs its company compared to Apple?

19:13That it's poorly managed. It's obvious that Apple has basically orientation that feels like a re-education camp that says, okay, you don't ever say anything negative about a competitor. Anything as it relates to a competitor, you don't write down. I mean, essentially, Apple's run like a panzer tank division. There just isn't a lot of room for error. And it seems like Google is a plaintiff's attorney's dream. Have you noticed there aren't a lot of Apple influencers saying, hey, this is my day at Apple. I'm here at the cafeteria. and check out how cute my outfit is from Cupertino. Hey, everybody, want a spin of the Apple spaceship?

20:01And they're like, okay, that's really fucking adorable. Here's this really well-designed, elegant, user-friendly severance letter. And they just don't, it's clear that they manage all communications, all touch points really tightly, whereas Google is much more, Or, hey, Sergey and Larry are coming by. Let's all go to Burning Man. That really might be the difference between these two decisions, is the way these employees handle themselves and their communications. In sum, loose lips sink ships. In this case, loose lips sink your app store. Final note, I mean, you're an investor in Epic. Just at a general level, do you have any thoughts on the gaming industry over the next few years?

20:46Are you, I assume as an investor, you're very happy about this decision? Yeah, but it's strange. You think, oh, Epic, I've done really well. I invested, I think at the beginning or right before COVID, I invested$5 million in a secondary from Epic. Some enterprising Stern student found shares on the open market from Epic employees, bought a bunch of them and then parsed it out and is taking, I think, 10 % of the upside and put it into an LLC or some sort of SPV structure. I invested and I think I invested at a valuation of 22 or 23 billion and I don't think I've made any money I think the company I mean this was when all the stocks were riding really high and people thought Epic was going to go public that year I would bet that I'm sort of even on that investment it's an amazing company it has Fortnite it has the Unreal Engine which is the underlying sort of I don't know tool or operating system for how a lot of gaming companies build games.

21:48It's a really well-managed company. They just laid off a bunch of people, which I like, quote-unquote, year of efficiencies. This could do nothing but help in terms of offering them additional incremental, very high margin revenue. So I'm hopeful. And I wanted exposure to the video gaming space. It's such a huge industry. It's growing. I see the level, the grip it has on my kids. I also don't actually mind it as much. They play with their friends. I mean, even now, I get a huge kick. My kid, when he plays Fortnite, he'll yell out this battle cry. He'll go, yeah! And it just makes me happy. That's awesome.

22:25Yeah, it's just when he kills a friend of his or something. But they play together. What I like about it is his friends come over and play with him. And also, the research shows that there isn't a correlation between depression and video game usage. There is a correlation between social media usage and depression, but not between video game usage and depression. So I'm actually kind of a fan of video games. I wanted exposure to the space. Did you play video games, Ed, three years ago when you were 11? Oh, yeah, 100%. 100%. Same thing. Got online with all my mates. What did you play? We're big FIFA guys.

23:02Oh, yeah. I love FIFA. I think it's amazing. Have you played? Oh, yeah. I like FIFA a lot. You should play sometime. Yeah. I'll have to invite me. But I'm old and I get confused and I just start hitting every button as fast as possible. When you play FIFA, what team do you? Chelsea. You're Chelsea. Yeah, of course. That's been rough. Yeah. By the way, I can't believe you switched from Chelsea to Arsenal. I don't really understand it. But anyway, let's move on that. The sublime power of Ukayasaka. And they have a guy named Jesus on their team. Jesus. How can you not root for a team with Jesus? And Martinelli?

23:36Oh, love. Love the Gooners. You're the bandwagon, mate. that's not i was in our i was in our bandwagon bandwagon i've been rooting for rangers chelsea and then we and then we fell to 10th and suddenly you're an arsenal fan no i've never really been i'm actually the team i'm kind of warming to i really like i'm actually kind of fond of spurs just switching between all the london rivals well get back to me when you actually have a team that you support. Daddy is polyamorous. By the way, did I tell you I was dating a chick from Netflix? It was amazing. After we had sex, she would recommend other chicks for me to bang.

24:14That's good, Ed. That's good humor. That's in three, two, one.

24:28Argentina has devalued its peso by more than 50%, bringing its value to 801 per dollar. The move represents the newly installed government's first attempt to jumpstart its faltering economy. The poverty rate is roughly 40 % right now, and inflation is on pace to hit 200 % this year. Argentina's new president, Javier Millet, also plans to cut public spending, as well as energy and transportation subsidies, as the government works to bring its deficit to zero. So this is President Millet's solution, and he's calling this, quote, shock therapy. And that is, let's get rid of all of those currency controls, total free market guy, let's let the peso collapse to its true value.

25:12And to be clear, that's going to mean even more inflation, at least in the short term. I mean, literally overnight when this happened, prices doubled for Argentinians. But then the idea is that once you've absorbed all that pain, you can start fresh with tighter fiscal policy, more responsible spending for the long term. Plus, you don't have this artificial, essentially fake number on the value of your pesos. It's set by the free market. That's the idea, at least. So, I mean, a lot in there. But my question to you, Scott, would be, do you think that will work, this kind of shock therapy strategy that this guy's going for?

25:48Do you have faith in this plan? I would say theoretically it should work, but it won't work because it's Argentina. I mean, Argentina literally never fails to disappoint. In the 1940s, Argentina ranked among the top 10 wealthiest countries in the world ahead of France, Germany, and Italy. Get this. Argentina was ahead of France and Germany. You know, it should have been Brazil, but with even cooler culture. And I don't know if that's possible. Brazil has a pretty amazing culture. But Argentina has just been the country that always fucks it up. and a series of populist governments that print more money to try and get reelected in the short run, massive inflation, just reckless, negligent, derelict management of their economy, a populist that keeps going for whoever promises them.