Prof G Markets: Inflation’s Descent, Sam Altman’s SPAC, and Private Equity’s Latest Target

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0:44Support for this show comes from strawberry.me. Be honest. Are you happy with your job? Or are you stuck in one you've outgrown? Or never wanted in the first place? Sure, you can probably list the reasons for staying, but are they actually just excuses for not leaving? Let a career coach from strawberry.me help you get unstuck. Discover the benefits of having a dedicated career coach in your corner. Go to strawberry.me slash unstuck to claim a special offer. This week's number one. It's the one-year anniversary of Prop G Markets. Similar to my first newborn that I had out of wedlock when I was a very young man.

1:27I'm hoping that at some point I too can sell this for a new car.

1:38Welcome to Prop G Markets. Today we're discussing inflation's cool down, Sam Altman's SPAC, and private equities interest in plumbing. Here with the news is Prop G media analyst Ed Elson. Ed, what is the good word? Where are you? I'm in New York. We're having drinks tonight, Scott. Oh, I knew that. I'm excited about it. Yeah. You seem very excited. Yeah. I'm trying to think, wait, before or after the prostitute? Yeah, I've got it on my calendar. Hold on. Yep. Yep. Good, good, good, good, good, good. Where are we going? I mean, shouldn't you know the answer, I guess, here? No. I think we're going to the Equinox.

2:18They have like some bar in Midtown. We're going to the gym? I think that's right. I think we're going to an Equinox bar. That's right. I don't buy that. I think that's right. I think it's some sort of Equinox spinoff. I'm not going to an Equinox bar. It's called Electric Lemon. Thank you, producer Claire. What's it called, Electric Lemon? Yeah, but isn't that like an Equinox thing, or am I tripping out? I have no idea. I'm not even going to be there. I'm stuck in Chicago because of tornadoes. Dude, just because you're hanging out in the showers at a gym, it's clearly on your mind. What's it called, Claire?

2:49Electric Lemon? Yeah, Electric Lemon. You know, that's interesting. That's all right. That's my favorite brand of edibles. That and Gorilla Panic and They're Coming, They're Coming. Those are my favorite because I like the stuff that makes you paranoid. All right. So what are the headlines, Ed? Let's start with our weekly review of Market Vitals.

3:15The S &P gained, as did Bitcoin. Meanwhile, the dollar fell, as did Treasury yields. Shifting to the headlines. More than 150 ,000 TV and movie actors are striking, along with the screenwriters whose efforts we covered on a previous episode. This marks Hollywood's first industry-wide shutdown in more than 60 years. A federal judge denied the FTC's attempt to block Microsoft's$70 billion purchase of Activision Blizzard. The FTC says it plans to appeal, but if the deal goes through, it will be the largest tech acquisition ever. Disney extended its contract with CEO Bob Iger for another two years through 2026.

3:53That kicks its succession plan further down the road. Shares rose 1 % on the news. Elon Musk launched an artificial intelligence company, XAI, stating that its goal is to, quote, understand the true nature of the universe. And finally, Meta's threads, which we discussed last week reached 100 million users in just five days. According to data from web analytics firm SimilarWeb, traffic at Twitter was down 5 % in the first two days after the Threads launch, and it's down 11 % from the same time last year. Scott, reactions? I think the opportunity here, the meta opportunity for meta is to recast themselves as the good guys, deploy age verification, err on the side of content moderation.

4:37Do you think they'll start running ads soon? Yeah, they'll turn it on. And they have great advertiser relationships. Their advertisers trust them. I'm fascinated by this thing. It just strikes me that only Elon Musk could have starched the hat of Mark Zuckerberg white. He just unintentionally made Mark Zuckerberg a lot less unlikable. the artificial intelligence company xai i think anytime elon must does anything you have to take it seriously because he'll bring so much attention to it by virtue of who he is the statement which i thought was also quintessentially elon was just so oxymoronic and contradictory he says that its goal is to understand the true nature of the universe and then the next statement was i think that existing AI is too woke.

5:24It's like, well, boss, okay, maybe the universe has decided that is the truth. I mean, it's like claiming to be the pursuit of truth means you're open to finding out ideas and that you don't know the truth if you're pursuing it. And then to state that I'm trying to pursue the truth, but I'm going to try and train this thing to pursue my version of the truth. I just don't, I don't get it. But he also said, well, first he said, if I could press pause on AI or advanced AI, I would. But then he said, it doesn't seem like that's realistic. And then he said, he wants to, quote, grow AI in a good way to be, quote, maximally curious and maximally truth seeking.

6:07And I think I was thinking when he said that, it's like, imagine if you walked into a pitch meeting with a VC and you're like, what's your company? It's like, oh, we have an AI company. It's like chat GPT. It's like, what's your key differentiator? oh, ours is maximally curious compared to all of the other AIs, ours will seek the truth. It's just, it's such a ridiculous premise. It's not a differentiator at all. I mean, for me, a lot of this is bubbling up to kind of one notion. And that is, I believe in a wisdom of crowds. I believe in democracy. And a key component of that is no one entity or individual becomes too powerful.

6:41And I just think we've reached a point where, in addition, we have such out-of-control income inequality that we end up with a large part of our GDP doesn't pay taxes because they're so powerful. They weaponize government. Oh, what do you know? You get a tax break in the first 10 million or 10 times your principal for a small business or venture investment. Oh, what do you know? Capital gains is much less than current income. Who registers capital gains? Rich people. I mean, just what it comes right down to is power corrupts. And I'm just not sure any individual should have, I'm sounding like Elizabeth Warren or Bernie Sanders.

7:12I believe in billionaires. I don't, And, you know, I'd like to be one someday. But when people have a couple hundred billion dollars in wealth, I'm not sure that doesn't turn on itself and become a bad thing. Disney and Iger, I think he fucked up. I think he should have played golf and bought more cashmere sweaters. He's literally the guy who signs up for another tour of Afghanistan and forgets how awful it was or that things have gotten worse since the last time he was roaming around. And, you know, he's talking about selling some broadcast assets. It's a really difficult business right now. It's good for the company.

7:45He's a thoughtful person and a grown-up and the markets like him. Microsoft, it's the law, at least antitrust law, is interpreted by the judges. It's definitely siding with, call it, unbridled market forces and capitalism. I like Lena Kahn. I wanted her to win here. I think it's inspiring that they put a young academic in this position of power. If she doesn't get a win pretty soon, the agency just looks flaccid. Did you not feel that during the tech recession from last year, I mean, obviously everything's back up again, but wasn't that sort of a signal to you personally that maybe these tech companies aren't as safe and secure as we'd thought?

8:24like, you know, the fact that you had all of these companies down, what, 80%, 70, 60, 70, 80%, that's sort of a signal to me that they're not completely protected. They don't have total monopoly power. They're still vulnerable. Are you as worried about monopoly power in tech as you used to be? I think it's a fair point in that is, does the market do its job? The biggest pushback I get is that the market is a better arbiter than some, you know, angry professor with ED pushing government or rooting government on. And the market in some senses does punish these firms. But if you look at the real monopolies, Amazon, Apple, Meta, Alphabet, okay, there was a buying opportunity.

9:11I mean, one buying opportunity does not make a healthy market. And now they've all ripped back. And look what's happening with threads. It took a monopoly to take on Elon Musk, that all of these innovative startups, Blue Sky from Dorsey, Post from Noam Bardeen, you know, Mastodon, they've kind of hit this giant windshield because they don't have this cannon of 3 billion users. And there is something uncomfortable about, you know, the monopoly and social meta shows up and boom, gets to 100 million users that it's a larger existential question about concentration. It's just so weird to be rooting for Mark Zuckerberg.

9:51And I think that Twitter, I mean, I was thinking about this, we're writing a post about this for No Mercy No Malice. Twitter is literally the largest self-inflicted wound in the history of big tech. And what do we mean by that? If Elon Musk had never downloaded the Twitter app, he'd be not only the most powerful person in the world, be the most beloved. Because when you see him in interviews, he's more measured. He comes across as thoughtful. He comes across as a reasonable guy and his achievements just sort of speak for themselves. But unfortunately, an app that lets your id take over and reduces all impulse control, what's happened is this app has done something terrible for him.

10:35And that is it has let him reveal his true self. And his true self is he's an asshole. People at the end of the day, I don't want to call it karma, advertisers and employees and regulators don't want to work with, cooperate, or ally with assholes. And think about if he'd never tweeted. Think about if he'd never spent$45 billion and fired six of these 8 ,000 people. He would literally be the Jesus Christ of this generation. And now he's this very polarizing figure. I don't think meta would have launched threads if it hadn't been for Elon Musk. I think they would have just left it alone. Anyways, greatest self-inflicted wound in the history of big tech.

11:18We'll be right back after the break with a look at inflation.

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12:57We're back with Prof G Markets. US inflation fell to 3 % in June. That's its largest slowdown in more than two years, down from 4 % the month before. This is a huge win for Jerome Powell and the Federal Reserve, who've been raising interest rates to tamper inflation since the beginning of 2022. This time last year, we were looking at more than 9 % inflation. Still, inflation has not yet reached the Fed's target rate of 2%. Plus, core inflation, which doesn't include volatile food and energy costs, is proving stickier. Prices are up 4.8 % from a year ago. The Fed paused rate hikes at its last meeting in June, but it's made clear that there will be further increases before the end of the year.

13:40Scott, what's your reaction to the inflation news? I think Times person of the year will either be Zelensky or Sam Allman. Maybe it already was Zelensky. I don't know, but it should be Jerome Powell. It should be Chairman Powell. I think he's been an extraordinary leader. Everyone was second guessing him. People going on CNBC who had interest rate sensitive businesses saying he was creating the Weimar Republic, Silicon Valley Bank. This is a direct result of an increase in Elizabeth Warren. Senator Warren going crazy about the increase in interest rates have resulted in. I mean, this guy has come under huge pressure and he's just been steadfast.

14:14and now our inflation is the lowest, I think, of any OECD country. And they're just not getting around it. When you have a lot of inflation, wages don't keep up with it and people's quality of life goes way down. And he has been steadfast and he's just ignored all the noise, looks at the data and says, yeah, banks failing is bad. Yeah. People's mortgages and credit card bills going up is bad. No doubt. This is a bad decision between bad decisions. But he's like, the worst isn't runaway inflation. You can. Inflation is one of those things. Once it gets out of control, it is out of your control.

14:50And it's how a society and an economy can literally collapse. And he said, you know, not on my watch, girlfriend. And he implemented a series of exceptionally unprecedented and exceptionally painful interest rate increases. And it looks as if it's worked. And it's not all him. I think there's certain deflationary features. The supply chain is getting ungunked. I think even AI is probably responsible for some deflationary forces, as I think the layoffs in big tech and the prospect of AI has probably made some people not quite as confident in their salary negotiations. but I think this is a huge victory and as usual it prompts the following question if you don't think the American economy is strong where would you rather be and so we're bringing inflation down but we have historically low unemployment I mean okay that's pretty much the Goldilocks economy right now so I think it's amazing you included that uh and the Miami-Fort Lauderdale-West Palm Beach area has a nine percent inflation rate more than double the national average I think that's because you and Claire had my credit card at the Strip Club 11.

15:55I think that is, I think that's what's going on here. That's easy two points to that nine points. But look, I think this is, I think this is a huge victory for the U.S. and for Chairman Powell. Yeah, 100%. I mean, you think back to the conversations that we had a few months ago, where we had all of this doomerism around hyperinflation. So Jack Dorsey put out a tweet, He said hyperinflation is going to change everything. It's happening. And then we also discussed that Balaji Srinivasan bet, where he bet a million dollars in March that the US would enter hyperinflation within the next 90 days. I looked up the definition of hyperinflation.

16:34This is what these people were predicting. Quote, rapid, excessive, out-of-control price increases, usually exceeding 50 % per month or 1 ,000 % per year. And we were taking this stuff seriously. and once again the catastrophists and the doomerists have been proven wrong and i guess the thing that i'm feeling on this news is i hope that we remember this moment and then we mark this moment because next time i mean there's going to be another period of relative instability compared to the past and compared to other nations i just i when everyone starts shouting that the fed is corrupt and that people like jerome powell don't know what they're doing they're sort of these bureaucratic idiots who are clouded by their bureaucratic backgrounds or whatever it is that makes people distrust these people.

17:23I just, I hope we remember that the safest, most sensible bet is almost always to trust the experts in the U.S. government. Most importantly, let's bring this back to daddy. And when I say daddy, I mean Prop G. What was my prediction around inflation, as I know you actually follow my work yet? What was my prediction about inflation? Come down fast as it went up? That's exactly what I said. That it was going to come down as fast as it had gone up. My prediction is that inflation is going to fall dramatically. I think we're going to see inflation come down almost as fast as it went up. I think inflation is going to decline as precipitously as it ascended.

17:57So I think this is great. The dollar has come down, which is probably a good thing. You know, depending on what side you are, it probably helps in terms of our export economy. I think we're right to question government, and we're able to do that at the ballot box. and the government gets it wrong all the time. But I find generally the people in government are generally some of the most talented, hardest working people. And I'm very happy. Chairman Powell, Chairman Powell. Are you chalking this up as a W? Like, are we out of the woods? No. I mean, you could see it ripped back. We don't want to declare victory.

18:29Plus their target, I think, is like two, two and a half percent. And some of it was, I guess the biggest factor was rents. Rents have come down or they're slowed down. Is that what it is? Yeah, yeah, yeah. but if you look at air travel weirdly it's down eight percent i wonder if people are running out of money supposedly there was about a trillion dollars of stimulus left and consumers were ripping through about a hundred billion a month meaning that the the end of the party the lights were starting to come on it's like when they play when i used to go out to clubs into the 2000s i used to do it a lot ed i used to go out a lot i used to go out a lot and i'd walk in and i'd get shitty drunk because i'm a lot more confident a lot more likable when i'm drunk and at the end of the night, you know, 2 a.m.

19:11whenever it was closing, 4 a.m., they always played Come on Eileen. That was their way of saying, get out. They'd start playing bad, bad 80s music and this feels like hopefully this is the end of inflation.

19:34Sam Altman, the CEO and founder of OpenAI, is planning to take a nuclear reactor company public via SPAC. As a reminder, SPAC stands for Special Purpose Acquisition Company. It's where you list a shell company on a public exchange with the intention of acquiring a private company at a later date. SPAC's had their heyday two years ago, but have since declined with SPAC issuance down 96 % from the first quarter of 2021 to the same time this year. Now, in Altman's case, the target company is Oklo. Oklo is a nuclear fission startup whose mission is to, quote, provide clean, reliable, affordable energy on a global scale.

20:11Altman invested in the company back in 2015, and the SPAC is expected to raise$500 million at an$850 million valuation. Now, Scott, we've discussed the decline of SPACs on this show before. Is this a signal that the SPAC market could be making a comeback? This is going to be a really interesting battle that kind of indicates or provides some insight into what are more powerful forces, both on the positive and the negative side. So, well, let's just call them opposing forces and not assign which is positive and which is negative. On one side, you have the brand equity of Sam Haltman. He's got an incredibly strong brand.

20:50He's considered much smarter than he is, not that he isn't brilliant, because of chat GPT, and he seems thoughtful and has built kind of this new technology or is kind of associated as the iconic figure around this new technology. So that is very positive or, one side of the force. In addition, you have nuclear. And nuclear is finally getting, in my opinion, warranted attention and renewed interest. And if you're going to move away from fossil fuels, it feels pretty logical that nuclear has to be part of that mix. So nuclear and Sam Altman, peanut butter and chocolate, really a good tasting combo.

21:24On the other side, you have a company that is either pre-revenue or very small revenues, and you have what is arguably one of the worst brands in the financial services sector, SPAC. So which of these forces is more powerful? And what we'll find out is sort of, you know, on the day of the offering and 30 days post the offering, is it like every other SPAC that's gone down 70, 80, 90 %? Or is this going to give, breathe new life into the SPAC market because Sam and nuclear or Suclear, Suclear, which will win here, Suclear or Spevenu. It's just going to be really interesting. And if this thing holds its value or goes up in value, I think what it's saying more, maybe the larger indication or indicator will be that the animal spirits are back, that if people are willing to buy SPACs again, it means we're doing rails in the bathroom again, Ed.

22:18I mean, it's okay, live for today. don't worry you know the markets are back baby this will help inoculate you know be an antibiotic prophylactic against the criticism people soon fall under and that is that these llms are similar to bitcoin consuming a massive amount of energy and someone's going to start doing the math here that these things are warming the earth as we figure out in the voice of scott galloway please Give me some unbeatable pickup lines. Hello, ladies. Hello. Do you believe in love at first sight or should I walk by again? That's it. That's where the magic happens. How about breakfast?

23:00Should I call you or should I nudge you? That's right. Let's focus on this company for a second. Okay. As much as I love Prof. G.A.I. Sorry about that. You know, you'd think that with, you talked about Altman's brand. and he's sort of the prodigal son of tech and AI right now. You'd think that he would be able to go raise half a billion dollars in the private markets from VCs. And, you know, I look at recent big rounds in the venture ecosystem right now. You know, Inflection AI, they just raised$1.3 billion. Humane, which is that secret AI startup that was started by these ex-Apple employees, they raised$100 million.

23:42And then you can say, okay, well, those are AI companies. But then you look at Adam Newman's company, Flow Carbon, which raised$350 million from Andreessen Horowitz. Wouldn't you think that he could go just raise this from a VC? Why is he going for a SPAC? And does the fact that he's doing that say anything about the venture market right now? Because he's hoping the same thing that Branson and Paul Bataille hope, that investors and SPACs are really fucking stupid and will overpay for shares in a company at a valuation that VCs with analysts who have more than an IQ of 110 and don't have the same FOMO that retail investors have.

24:22I mean, essentially, the reason you take a company public is for liquidity, to raise capital for the company, to create a publicly traded stock that you can use for acquisitions. But you're absolutely right. A guy like Sam Altman should be able to raise a lot of money in the private market, but he's decided I can raise money a better valuation, see above stupid retail investors. And also, retail investors, I don't mean to infantilize them, but generally speaking, the valuation you get in the public markets because you have a broader pool of investors, because the markets in the U.S. have greater regulatory scrutiny and more hurdles to go through, and typically or historically have investment banks that have tighter criteria or more stringent criteria, finer filters for taking a company public, you really got to kind of wonder about this thing because investment banks have no IPO volume.

25:11So if this thing had anything resembling a viable business model, Goldman and Morgan would be lined up. Goldman is taking oddity public, which is this kind of AI meets beauty. It's sort of the first example of a consumer product that is leveraging AI for sort of moisturizers and makeup and coloring that is for a sample set of one and takes into account your unique features and comes up with specific science-driven indications of makeup that, you know, make your cheekbones look better. It's like if you had the world's greatest makeup artist, when I went on MSNBC, I'm telling you, I looked fantastic.