Prof G Markets: Live From SXSW

0:26Race the rudders! This week's number, 26. That's the percentage of the nation's wind energy produced in Texas. Number one in the nation. Ed, true story. I have a site where I send out pictures of my windmill. I call it Only Fans. It's actually surprisingly tame. I had a really dirty one and I told it backstage. I'm like, no, don't do that. Don't do that.

1:01Are you sure?

1:10Actually, I don't know if you heard this, Ed, but you know how a woman in Texas gets access to legal abortions? How's that? Trespass. You asked for it. You asked for it.

1:32Welcome to the Austin office of Atlassian. By the way, who came up with that name? Whoever came up with that name either was a bully or was bullied a lot. Atlassian? That is serious. I mean, I'm on testosterone. Atlassian? Anyways, here we are at the Austin office of Atlassian for South by Southwest. Is that right? That was amazing. That was perfect. Yeah, I can tell Atlassian's probably already regretting this sponsorship, but that's okay. We don't have much time, so we're just going to get straight into this. I'm going to start with our weekly review of Market Vitals.

2:18The S &P 500 hit a new record. The dollar fell. Bitcoin reached an all-time high, and the yield on 10-year treasuries dropped. Shifting to the headlines. In his House testimony, Fed Chair Jerome Powell said the central bank is still on track to cut interest rates this year. However, he remains cautious around the timing of those cuts. Wall Street now expects that the first rate reduction won't come until June. China set its GDP growth target for 2024 at 5%. That's the same target rate it set last year when growth came in at 5.2%. However, Beijing did not offer specific details on how it plans to achieve that goal.

2:58The EU fined Apple$2 billion for anti-competitive conduct. Regulators said Apple has been using its app store to obstruct competition with its music streaming rivals, mainly Spotify, for a decade. And finally, Elon Musk sued OpenAI for abandoning its founding goal of benefiting humanity and instead prioritizing profits. In response, OpenAI published past emails from Musk which encouraged the company to raise$1 billion in funding and become, quote, less open. Where should we start? So let's start. I just saw Elon. I was over at the Four Seasons and I saw this guy in a cowboy hat. And I saw Trevor Noah.

3:42He's so handsome. I couldn't stop staring at the guy. And then there was Elon Musk. Anyway, so look, if you look at the emails, he's basically suggested that he made a play for the company, wanted to take it over, and said that he actually suggested that it turn into a for-profit. And they said, that's a great idea, but we don't want you involved. He made a play to be the CEO and the largest shareholder. And they said no. And I joke that I sold Netflix at$10 a share. It's now at$5.20. So I'm angry. I've lost power. I've lost wealth. So i'm going to sue netflix There is no written agreement between the two between elon musk and the company that they would pursue any any specific vision so this is nothing but a nuisance lawsuit And this is bad for the economy because if you start a small firm and your old firm or other firms start Legally harassing you.

4:37It's very difficult to raise money. It's very difficult to attract employees under the auspice of a lawsuit So I just think this is all around that Hopefully a judge will recognize it for what it's it what it is and dismiss it right out of hand now What are real binding contracts when you tell someone? That you're gonna buy their company for 44 billion and you sign up and down that you're buying it And then you decide that in a fit of mania you may have overpaid for something worth 10 billion and you try and get out That's an enforceable contract When you agree to pay people severance if you fire them And then you say no i'm not paying you that's an enforceable contract What he's claiming is not in for there is no contract.

5:16So I just think it's a nuisance lawsuit And kind of the love language of elon musk and donald trump appear to be lawsuits So anyways, I think that goes nowhere exactly and the the point is that the suit is for a breach of contracts But as you mentioned you look through the lawsuit and you get to around page 41 You start to realize that actually there was no contract at all. All they have is an email chain where Sam says, oh, it's going to be open source. It's going to be non-profit. This is going to be good for humanity, et cetera. And then the quote unquote agreement that they talk about is an email from Elon Musk saying, I agree.

5:54And that's it. And so every legal analyst will tell you that is no sufficient grounds for a breach of contract lawsuit. Should we move on to the Fed chair and his statements in the house. So Chairman Powell, I think I thought it was wonderful that Taylor Swift was Timesperson of the Year. I can't I cannot stand her music, but I'm a total Swifty. I think she's an inspiration. I can't imagine a better role model for a young woman than Taylor Swift. You know, she's nice, pays her people well, you know, doesn't have profanity in her songs, doesn't appear to have had a shit ton of surgery, seems to be in a healthy romantic relationship, is a baller billionaire.

6:34I mean, how could you carve a better role model out of a factory of lesser role models for young women? So I'm a huge Taylor Swift fan. She won Person of the Year. In terms of who's had the most impact last year, I would argue it was actually Chairman Powell because inflation is how revolutions start. They don't start because of an invading army or people are upset about laws being passed. They start because every day someone shows up and they say, I can no longer afford beef. I need chicken. I can no longer afford chicken. I need rice. Their purchasing power goes down. That's literally how societies digress into chaos, or most often it's this boring thing called inflation.

7:13And Chairman Powell raised interest rates 500 basis points in 15 months. That is historic. No one's ever done that before in a Western economy. And he got all sorts of shitposting from senators on the left saying that, well, people can't afford their mortgages and their credit card payments, and inflation has dropped down below 3%. And here's where we are with our economy right now. We have the highest GDP growth of any large economy in the world with the exception of the Kingdom of Saudi Arabia, while having the lowest inflation. That's almost impossible to pull off. We have the most dramatic job growth in history in the last year.

7:51I mean, it's literally, if you showed these numbers to an economist, they would say that's impossible. You can't do it. The market's touching new highs. Now, the problem is similar to technology or what William Gibson said about technology is prosperity is here. It's just not evenly distributed. And so a lot of people are upset and they, you know, they have every right to be upset, but that's a function of policy choices. That's a function of income inequality because of tax structure that transfers money from lower middle income households to rich households. But if you were to try and architect an economy, I mean, literally, this is it.

8:26And just speaking in terms of America right now, we're food independent. We're energy independent. Harmless, friendly Canada to the north, harmless Mexico to the south, oceans protecting us. No one is lining up for Chinese or Russian vaccines. The greatest technological innovation of the last 20 years is within a seven mile radius of San Francisco International Airport. So for all the ship posting in California, they basically recreated the entire global auto industry in terms of market capitalization in the last six weeks. So something is working here. And we're also in striking distance, as much controversy as there is around some of the things going on campuses.

9:02We're in striking distance of becoming the first multicultural democracy in the history of the world. 51 % of Harvard's incoming freshman class is non-white. I mean, we are, everyone, every nation in the world would kill for our problems. Remember how China was supposedly gonna kick our ass and was gonna surpass our economy? In the last three years, the Chinese stock market has shed$6 trillion in value. There are seven companies in America that have added$3 trillion in the last 12 weeks. So you may not like America. And I worry that we're raising a generation of people because media likes to catastrophize.

9:36We're raising a generation of people that don't like America. And that's fine. But we're least bad than anywhere in the world right now. And I think a lot of that reverse engineers to very bold actions taken by the Fed chair. So as much as we were hoping the kind of the punch bowl was going to be put back in front of us Such that we could have really low interest rates to drive growth, which is great Which is fun, especially for wealthy people who can borrow against their stocks and make more investments This guy I defer to him He has pulled off a master class In how to essentially create a Goldilocks economy under the awesome.

10:10You got to give the president some credit here But the economy here and the level of prosperity is staggering unfortunately because of tax policy or idolatry of innovators and sort of a lottery optimistic economy where we all believe we're going to be in that one percent and i can prove to all of us mathematically that 99 of our children will not be in the top one percent we have a massive amount of prosperity but it hasn't translated to progress right and that is lower and middle income households are actually doing better but not nearly as better as the amount of prosperity recognized by other people.

10:46And we're reminded of that benchmark and that we're not doing well every day by algorithms. Long-winded answer. I think he's doing a great job. We should move on to the EU finding$2 billion for anti-steering violations. One of my heroes is EU competitive commissioner Margaret Vestier. She's just not impressed or scared of these guys. And if you think about the US, you would not want to give up big tech for all of their downsides, weaponization of our elections, right? Income inequality, teen depression. I mean, there's a lot making our discourse more coarse. There's a lot of negatives. On a net level, they're positives.

11:26They add tremendous prosperity, create a ton of good jobs, a lot of utility, right? The problem is with the word net. And that is we tend to make binary decisions because that's the easiest way to process information when we say, well, if they're a net good, then leave them alone. Well, pesticides are a net good. Fossil fuels are a net good, but we still have an EPA and an FDA. So we should absolutely hold them accountable. Go to Europe. They don't have nearly the upside. They get all of the downside. They get all of the teen depression and weaponization of their elections and the coarse discourse.

11:56They get a fraction of the upside. There are very few hospitals or universities with names on the sides from Facebook or Google billionaires in Cologne or Glasgow. So like we get all the shit we're the sewer system, but we're not getting clean water. And so that is stiff in the backbone of EU regulators. And their innovation, quite frankly, is regulation. What was interesting about this fine is that estimates were going to be that it was 500 million. It was 2 billion. Now let's talk about why they were fined. They were fined because Spotify has said, we can't compete. This is anti-competitive behavior.

12:32And it goes something like this. If Visa, think about the app store at Apple, I think of the best analogy is a credit card company that provides security, easy transfer of information, right? The user or the merchant gets paid, the consumer knows or has incredible utility, I give a credit card. So there's a lot of technology, trust, safety, security, right? In exchange, Visa or Amex get somewhere between one and a half and three percent of the transaction. That is effectively the role the app store plays. Surety of the transaction, security, certain safety checks, quality control, and they take between 15 % and 30%.

13:10Now, what if Visa charged 30 % credit card fees, 30 % to every retailer? And then they decided, you know what? We see opportunity. We're going to go vertical into retail, and we're going to buy Lululemon. And if you shop at Lululemon, we, Visa slash Lululemon, don't have to pay the 30%. So Lululemon can price their products 30 % below Aloe or Nike. No retailer could compete with Visa slash Lululemon. That is exactly what happens when Apple goes into the music business and Spotify has to pay that 15 or 30 % tax, but Apple Music doesn't. So when a company that owns the rails starts competing directly and going vertical, that is the definition of anti-competitive behavior.

13:58And marguerite vestier saw this and his find them two billion dollars and these fines are perfect except they have one flaw They need another zero And that is two billion dollars sounds like a lot of money. It's not it's basically their free cash flow for I think about nine days if you had that's not an exaggeration at Apple If you had a parking meter in front of your house They cost a hundred dollars an hour, but the parking ticket was 25 cents you would break the law. And that's the series of incentives we have in the United States. We spend years going after these companies. We fine them nine days, nine weeks of their cash flow.

14:38In exchange, they continue to engage in this behavior where they make hundreds of billions of dollars in shareholder value. So the fines are fine. They just all lack a zero. This was the biggest in a while. I think it's a great thing. We'll be right back.

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15:35We're back with Prof G Markets. As we've discussed previously, Disney has been battling a proxy fight with activist investor Nelson Peltz. He wants to replace two board members and issue a new plan for the company. Well, last week, his firm Triand Partners released a white paper that laid out that plan. The document recommended, among several things, merging Hulu with Disney +, reducing Disney's production of sequels, establishing a CEO succession plan, and, quote, taking more shots on goal. Disney shareholders will vote in three weeks whether to appoint Nelson and his partner Jay Rasulo to the board.

16:14Now, Scott, I'm going to turn this to you. Back in October, you predicted that Nelson Peltz would successfully secure a board seat on Disney. We'll find out in three weeks. But for now, I'm just wondering, has your position at all changed? So I don't know if he's going to get the seat. What I would say is the following, that the analysis should be done through the lens of governance, not who's more popular or who's more like, Bob Iger's really likable. Got these great cashmere sweaters, super handsome. You know, he's very good at media. Do you want to come to the premiere of Frozen? I mean, he's really good.

16:47Like all of these guys, basically every CEO you meet was the fraternity rush chairman. They're really likable. Nelson Peltz is not as likable, not nearly as likable. Bob Iger should absolutely give Nelson Peltz a seat on the board. Fiduciary is a wonderful word. As a board member, you're supposed to be a fiduciary for all stakeholders, the community, shareholders, employees. You get your options, you get your pay, and then you're supposed to think about other people. A great way to create a sense of being a fiduciary on a board is if someone buys a lot of stock. That puts them in the shoes of other shareholders.

17:22The total amount of shares owned by all of the board members on Disney, many of whom are very wealthy, is$15 million. Peltz is about$800 million. I think right there, he gets a seat on the board. Now let's look at the numbers. The S &P is up, I think, 80 % in the last five years. Netflix up 70%. Disney's down 1%. And yet they've managed to pay themselves a lot of money. So if someone shows up and buys$800 million worth of stock, they deserve to be on the board and as someone who has served on a lot of public company boards the easiest way to get someone to shut up is to put them on the board because then they have access to public non-public material information and they have to stop shit posting the company the other thing you find i'll use an example this will be the weakest flex in the world i bought here we go i bought 17 percent of gateway computer remember them when i say i raised like 80 million bucks and I'm like, cow spots, I'm a brand guy.

18:22I get it. They have shelf space at Best Buy. We're gonna buy this thing. It was trading at a buck 50 a share for 78 million bucks. We bought 70 % of the company and I showed up and I said, I demand two seats on the board and around a proxy fight. I got my two seats on the board and I showed up and I first board meeting went through this long presentation. We have a nice brand. We should sell it to Acer. I already know the people there. We can sell it three bucks a share. Everybody makes enough money. We're off, we're gone. And they listened very quietly, very politely. And then they said, Scott, we engaged Goldman Sachs two years ago to sell the company.

18:53And we've been trying for the last 24 months to sell it. And the lesson I learned, and I'm still learning, is that when you come into a situation from the outside, what you generally find is that you're not as smart as you thought. And they're not as dumb as you'd hoped. So what I would suggest to Bob Iger, he says to Nelson, come on in, the water's fine. and his ideas are all sort of, they're out there. It's nothing that unique, right? But instead, like almost every, I would say 50 to 70 % of really brain dead corporate decisions that make no sense, it involves a man in a midlife crisis because ego gets in the way.

19:37This is easy. Negotiate, fly down there, tell him he's great, play golf with him. Interesting idea, what you think we should merge Hulu and we've been thinking about that, But I'd love to hear your ideas. Would you like a seat on the board? I can't give you two. Would you like one? I'm sure we could figure this out together Put them on your board and then stop this nonsense Distracting everyone in the company. It's gonna cost tens if not hundreds of millions of dollars It's gonna take every senior manager Tens of hours each week to deal with this shit and move on but now it's become about ego I almost I ruined a company doing this I started coming to go red envelope and And basically, the guy who took my job as chairman was a guy named Mike Moritz, arguably the most successful venture capitalist in history.

20:25And my partner wrote a memo saying that Mike was using Red Envelope as the dumping ground for the failed products of Sequoia portfolio companies. And I got all angry and said, Mike, you are not serving up to your fiduciary duty. Two days later, I was kicked off the board. So I was kicked out of the band that I started. And I was very bored at the time. I was living with my mother, longer story. And a lonely guy, lonely board guy with a little bit of money is a dangerous person. So I thought, I'll start a full-scale proxy fight to replace the entire board because I'm pissed off. And we put, and Mike, who was a master of the universe, decided, oh no, our CEO was incompetent, but he decided because I wanted her out.

21:05She was amazing. The two of us literally ruined the company. literally ruined it because I was so insecure and angry and he was so insular and master of the universe that neither of us would just go, well, okay, what would be best for the company right now? Why can't we come to some sort of solution and get back to building shareholder value? It was a really good company and we just fucked it because of our egos. These guys are doing the same thing. Disney's much stronger and has much more immunity than a red envelope, but they are wasting time. They are wasting shareholder value. Put on your big boy pants.

21:43Put them on the board. Move on. You know, I had a lot of follow-up questions, but that was about 10 minutes. So we're going to move on. Okay, sorry. Sorry.

22:00A House of Representatives committee unanimously advanced a bipartisan bill last week that would force ByteDance to divest TikTok. And if it doesn't, the app will be banned. Ahead of that committee vote, TikTok pushed a pop-up screen on the app, encouraging users to call their representatives and tell them to vote against the bill. It said, quote, don't let the government strip 170 million Americans of their constitutional right to free expression and then users flooded Congress with calls. So we'll see if that sways anyone when the bill heads to the floor vote this week. Scott, in July of last year, you called for a ban on TikTok.

22:42Yep. You said, quote, do I have your attention? You do. I'm going to pull up a text that's related here. Okay, good. Go ahead. Sorry, I'm getting bored. He's got to head out. I'm bored. Is the bar open? I get it. I got it. Hold on, hold on, hold on. Let me just read your quote, which is, the platform's potential for espionage is a concern, but its use for propaganda is a clear and present danger and real action is needed. So is this the kind of action you're looking for? So just big picture. Yeah. The best thing in terms of playing offense that could happen in the world economically, and maybe from a defense perspective, would be if the two largest economies kissed and made up.

23:24The fact that China and the U.S. are withdrawing from each other is dangerous. and also literally the largest tax cut in the history of the modern world would be if we re-embraced and this Cold War was thawed. Because about 30 % of everything in this room either came from or came through China. And if we can figure out a way to take our innovation, our consumerism, our capital, and their unbelievable supply chain and labor force, that's just a champagne and cocaine combination that makes everything cheaper in the world. And it also makes us less likely to start firing missiles at each other over the Straits of Taiwan.

24:02So I see a strategic imperative and real benefit to China and the U.S. a thaw in the relations. We should just get along. They have an unemployment problem. We have an inflation problem. They have a growth problem. I mean, we can solve each other's problems. The company, BYD, is that it? The EV company? They should absolutely come into the U.S. They're not a security threat. We should have more cheap electric cars. We should have more competition. That's a great thing. They should that's not a security threat How are they gonna all of a sudden lock the steering wheels and drive us to Beijing? I mean what's gonna happen?

24:38I What that's we can figure out if they're transmitting data She in This low-cost apparel manufacturer sustainability. I think young people some in this room You're purchasing power has been cut in half over the last 40 years as people my age sequester more and more wealth You should have the opportunity to buy cool fashion and feel good about yourselves And I think that's important. And this company is probably, I think, that this amazing supply chain, they are not part of the CCP as far as I can tell. Shein should, in my opinion, we've lost a huge opportunity not taking the public on the NYC, the NASDAQ.