Prof G Markets: Mutiny in Russia, Adobe’s AI Rally, and the Threat of a UPS Strike

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1:06This week's number,$2 ,600. That's the average resale price for a ticket to Lionel Messi's Inter-Miami debut next month. It's gonna be tough for him, man. In Paris, you go to the bathroom and you piss. In Miami, what do you do in the bathroom? Cocaine.

1:33That was good. That's good Miami humor. Ed, welcome to Prof G Markets. Today, we're discussing the housing supply rebound, FedEx and UPS and Adobe's AI hype. Here with the news is emerging Twitter star and influencer, Ed Elson. Ed, what's going on? Not much, Scott. I want to hear everything about Cannes. I've seen all the pictures and it looks incredible. What have the highlights been? I'm legitimately a B-list celebrity there. So I'm sort of like a Kathy Griffin or I don't know if it's a B-list celebrity. Like, you know, the guy that was on that 80s show but got replaced after the second season.

2:13I don't even know if that's a real person. But I get stopped and people say the same thing. One, where's Kara? And two, what about the Hawks? I did a big thing on how I'm staying at this hotel called Hotel du Cap, which is lovely, Ed. And they used to have these guys come out and take the hood off a peregrine, I think it's called, a falcon. And it would kill a seagull, no more seagulls. And I feel gypped for 2 ,800 euros a night. They have now these ceramic owls that the seagulls don't appear to be too scared of, as I saw one humping one of these things. In addition, I had a seagull, no joke, fly around.

2:48I was filming it and then come on my table and take a croissant. Yes. Are you going to finish that croissant? So you almost had a professor leap out of his chair and try and strangle a seagull after stealing my 18-euro croissant. Croissant. But it's very, for all the stuff about Europe being socialist, it's more stratified here at Cannes than any place I've ever been to. And I'll use as an example. So yesterday, I walked along trying to find food, but all the beaches are sponsored beaches. There's a Microsoft Beach, the WPP Beach. And I basically tried to find someone or someone somewhere that recognized me so that I could go into their beach club and eat food.

3:30And Spotify loves me. I've made friends with the folks at Spotify. This woman came up to me, recognized me and said, oh, Scott, Professor Gowett, it's so great to be here. Do you want to go to the VIP area? And I'm like, wow, there's a VIP area. And I'm not someone who spent a lot of time in the VIP area of clubs. that. I know that sounds hard to believe. So they put this silver band on me and I go to the VIP area. Very nice on the beach. And it would appears to be nicer, younger people bringing me my drinks. And then I say, can I go to the bathroom? Like, well, the only bathroom here is upstairs in the VIP room.

4:00And they get me another band. I go up there and I hang out. I hang out with the cast from SNL. I posted a picture. That was really fun. They're all super nice. And like, they're They're like 17. They're so young. Did they know who you are? Oh, no. They could give a shit. No way, right? No, absolutely no idea. But they assume I'm rich, so they're nice to me thinking I might, like, that my wife might produce movies or something. And then, out of nowhere, these huge guys come along and set up another rope for the VVVIP. And then a woman who looked like she was about to literally give birth comes rolling in, and her and her posse, and it was Rihanna.

4:38No way! Yeah, so I hung out with the SNL cast. She knew who you were. Oh, yeah. Yeah, Rihanna absolutely is a huge fan. Let's break it down. What's going on with the news, Ed? Oh, first off, wait, first off. So you had about 8 ,000 likes, which validates you as a human. On Twitter, you said that Governor Newsom put on a master class in debating and communication. And the reason I do think this has a link to the markets is I believe the markets, because the majority of companies that now go public are not profitable is about storytelling. And part of storytelling is engaging in an active conversation and sometimes debate.

5:14And you broke down how Governor Newsom was incredibly deft in terms of him pushing back on Sean Hannity of Fox News. So anyways, over to you, Ed. Yeah, I mean, you look at this interview and Governor Newsom is literally a human spreadsheet. I mean, he has all of the data in his head and he just pulls it out seamlessly. And there are all these examples that we could go through. I mean, Hannity points to inflation, for example, which we've talked a lot about on this podcast, and he blames Biden for it. He says it's a result of reckless, you know, liberal fiscal policy that we're spending too much.

5:49And that's, you know, driving prices up because there's too much cash in the system. And then Newsom makes the point that actually, this is a global issue. Let's talk about inflation. It's down 40 % since last summer, 10 months in a row, 4.9%. He was just with the UK prime minister at 6.9%. Is that because of Biden's Fed policy? I think Biden's economic and energy policy directly impacted the UK's inflation? No. Or the fact that France is 5.5 % or Germany's at 6.1 %? On inflation, we're moving in the right direction. And he makes the very simple point, using data, it's an informed response, that actually if you're going to look at inflation, you're going to talk about macroeconomics, you have to look at our country in relation to other countries.

6:30Now, here are just some main takeaways, and I want to be clear, I'm not a Newsom supporter. I just think that when you look at what he says and the way he debates, it's inspiring. So, the first takeaway is that, one, in a debate, you should always let your opponent make their full argument. And I feel like recently people feel like in the Trump era that there's no space to do that because Trump will interrupt you, people interrupt you. but Newsom shows that if you let someone make their full argument and you don't blindly disagree or agree with them you listen to the full analysis you gather all the data you synthesize it you can actually use that to build your argument and the best part is that you'll be rewarded for it so if you look at the the Fox News comments on the on the YouTube channel literally all of it is wow I never respected Governor Newsom until now this guy this guy has a point this guy took Hannity to town The second thing is, it's very powerful to own your mistakes.

7:27There are a lot of times when Hannity pointed out the issues that Newsom has had to deal with, for example, homelessness. And I think he set it up expecting Newsom to say, no, that's a lie. You're framing it wrong. I don't agree. Instead, Newsom just says— It's a disgrace, the homeless issue. In 2008— He says, I own this. and it's so rhetorically powerful because it builds credibility and trust in newsom that he's actually looking at the facts and then it brings up this point which is you should think of every mistake that you make as an opportunity to own up to it and the final point i'll end with is it is the number one job that newsom exemplified of any leader whether you're in business whether you're in politics, whatever field you're in, you have to know your shit.

8:19You have to know all of the facts and all the nuances of the facts to be a decent fiduciary to constituents, to your shareholders, to whoever it is that you're representing. So how did Governor Newsom respond to the notion that he's an insurrectionist and has assaulted 29 women? Oh, wait, that's Trump. That's Trump. Never mind. Anyways, Ed, speaking of knowing your shit, talk to us about the headlines. Let's start with our weekly review of Market Vitals.

8:48The S &P 500 was down, the dollar slipped, Treasury yields gained, and Bitcoin rallied. Shifting to the headlines. UK rents rose 5 % last month, the highest increase in seven years. Virgin Galactic will send three members of the Italian Air Force on a space mission this week. That's the company's first revenue-generating space tourism flight, and the stock popped 50 % on the announcement. OpenAI is considering launching an app store that would allow people to buy and sell customized AI models. Tesla stock sank 6%, its worst drop in two months after a Barclays analyst said the stock is overvalued.

9:29Tesla has rallied around 140 % year to date. And finally, SoftBank founder and CEO Masayoshi Son gave his first major investor presentation in more than nine months. He said he wants to lead the AI revolution and added that the firm is, quote, ready to shift to offense mode. Over the past few years, SoftBank's Vision Fund has hemorrhaged billions of dollars in its venture investments. Scott, do you have any thoughts? So the UK is really, I mean, as you pointed out, Governor Newsom said, with respect to inflation, who's doing it better? I mean, we keep talking about this, but they somehow figured out a way to decrease productivity while increasing their costs with Brexit.

10:11So it's stagflation, whatever you want to call it. It's the worst of all worlds. I think Virgin Galactic is really interesting. And it popped when they announced they were about to commence their commercial flights. So one of the biggest stories that's sort of gripping the world is this submersible. You know, this is, and I don't mean in any way to make light of this, this is a tragedy. I think that this is the end of virgin galactic Because what I think it will point out is that just because you're wealthy Doesn't mean you should make these types of irrational decisions that can result in tragedy And I think that people are gonna as soon as they stop Their fixation on what's happening here.

10:53They're going to turn their gaze to virgin galactic because The reality is people probably shouldn't unless they're highly trained and willing to take these risks this type of exploration at this level of danger is not a consumer item. I don't think it's a consumer experience, and I don't think it should be. Tesla, I mean, it's added in the last 30 days. It's added the value of GM, Ford, Volkswagen, and throwing Honda and BMW. And I'm trying to rationalize it because it has nothing to do with the car. It has nothing to do with the fundamentals. It trades at 50 times EBITDA versus five for all the other automobile companies.

11:29I reverse engineer to Sachin Adela's investment in open AI, which I think will go down as the greatest corporate VC investment of all time. And AI has unlocked this new hope that the markets, the tech markets might go on a tear again. And people are looking for kind of AI-ish, tech-ish, unicorn-ish, exciting companies that have sort of detached from all fundamentals of reality to get on a rocket ship, if you will. And everybody's favorite kind of irrational investment that is an amazing company with amazing products that has kind of an AI-ish feel to it through autonomous driving is Tesla. And I think there was a lot of capital on the sidelines thinking that maybe we'll take a wait and see attitude in the equity markets.

12:11And now they're thinking, I don't want to miss out on this recent AI unlock or boom, because it's multiple yet again, makes abso-fucking-lutely no sense. SoftBank founder and CEO Masayoshi-san, I don't know, he's slept off the hangover and is back. This guy, he is the luckiest investor in history. He invested, I think,$20 million in Alibaba and got a$50 billion back. And so people assumed, oh, he's not lucky. He's a genius. No, he's just really fucking lucky. I think it is literally taking money into the street and burning it. I think he has the same meth dealer as Cathie Wood. I think these individuals make no sense whatsoever when you hear them talk about their stocks.

12:54And then OpenAI launching an app store. I think it's a great idea. I hadn't thought of it. I don't understand what their advantage would be over the dominant monopoly in apps, and that is Apple. Well, I think it would be, it's a platform for AI models that aggregates all of those products in one place. And I think that there's already a platform that's doing a similar thing called Hugging Face. But yeah, I think it's a great idea. I mean, there are so many different AI products out there. I would love to go to a sort of clean UI where I just check out the latest new AI products. I mean, we're constantly talking about like, oh, we should be on top of AI.

13:34We should know what the new products are. Well, this would solve our problem, right? Just a dashboard. It's like, here are the top 10 AI model applications that have been downloaded today. You should check them out. We'll be right back after the break with a look at how the attempted mutiny in Russia may impact global markets.

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15:42We're back with Prof.G Markets. Now, just a note before we get going, this story broke after we wrapped our last recording. So we're recording in different locations, and that's why we sound different. On to the story. So over the weekend, an attempted mutiny occurred in Russia. Things kicked off on Friday when Yevgeny Prigozhin, the leader of a private Russian military company known as Wagner Group, released a video criticizing Russia's war efforts. The next day, the Wagner army was on its way to Moscow, and Putin mobilized his own troops to defend against this armed rebellion. And then, in a surprise time of events, Mr.

16:19Prigozhin announced he was turning back around after agreeing to relocate to Belarus. Now, the question is, how does this affect the markets? The short answer is we don't know. We're recording this before market open on Monday, but we still want to discuss what to expect in the weeks ahead. So, Scott, let's just break this down from a markets perspective. What should we be paying attention to as this news unfolds? So, first off, this is just... I don't think I can, in my wildest dreams, contemplate an analyst predicting this, that a mercenary army, which, by the way, reflects weakness on the part of the Russian military that it needs a mercenary army to begin with, turns around and starts marching back and is threatening to wreak violence and deliver chaos to its native country that it's supposed to be fighting for.

17:15I find that the most interesting thing of all of this was that they went into Rostov on Don and they faced no resistance. And that struck me as just really telling about how weak Putin is right now. In terms of the markets, the stuff that seems sort of obvious, and that's not to say that it'll happen, but the stuff that we'll start to see a lot of conjecture around is that you'll see food and grain and oil prices probably go up. If the supply chain out of Russia gets disrupted or there's volatility there, you can see crude oil futures accelerate. You can see food and grain markets more unstable.

17:55You'll see the ruble has already started to decline. The question or the more interesting question is what are the second order effects? And this is total conjecture, but I would bet, I would bet the big losers here on a macro basis are, it looks like China bet on the wrong dance partner. and that is China has been importing a lot of food and a lot of oil from Russia. And in addition, I just can't, and we hate, or I should say, Americans' favorite pastime is to love to hate ourselves. The U.S. just comes out of this, and the West has come out of this huge winners. We have shown that our resolve, our resources, our superior weapons, all backing the heroic Ukrainian military, this feels like masterful.

18:43And I would just personally like to say to all of these libertarians and Republicans who are mimicking Donald Trump and pretending that they love Putin that, you know, that, okay, guys, go fuck yourself. This could not have played out any better for America and is a total testament to the unity of the West and what the West has done and pulled together here, Europe as a union for the first time. So I think you could see American markets and European markets actually tick up here because it feels as if our enemy, Russia, has been seriously emasculated and that our adversary, China, bet on the wrong cowboy.

19:21So, you know, the third order effect would be that somehow this erupts into a larger crisis that roils the larger markets. But this is this really is a historic moment. So some analysts are saying that this would actually trigger a sell-off in the U.S. stock market. And the thesis there is that there's going to be this renewed flight to safety. People are going to be going to safe haven assets. I agree with you that I think this only spells a good thing for the U.S. stock market. Because my question is sort of like, well, what's safer? What is the ultimate safe haven asset here? Is it treasuries?

19:57Is it gold? Or is it Google? Right, exactly. I mean, some of you say, oh, it's Bitcoin. I mean, what could be better than getting into NVIDIA right now or, as you say, Google? I mean, what do you consider to be your ultimate safe haven? Well, I think the academic answer would be U.S. Treasuries, because given that we're two-thirds of the world's reserve currency and we can just print more money, it's unlikely, despite all the posturing by the crazies in Congress who occasionally threaten to not pay our debts, it's unlikely our debt, Treasuries, would ever be in default for very long. and as personal matter my kind of safe haven if you will is unlevered real estate and that is it's tough for me to hold cash because the reason why cash might be a safe haven or treasuries are safe haven but the fear is that you get deflated or inflated if you will out of existence you're you get negative real interest rates they pay you you know right now they're paying five percent but usually they pay 2 % and inflation is 2.8.

21:01And so slowly but surely your purchasing power just goes away and you go broke sticking in cash or T-bills. But my go-to, if you will, around what I consider a flight to safety for me or a safe haven asset, it would be unlevered residential rental real estate. Because typically with population and productivity growth, you have GDP growth, and that all spells an increase in housing prices. And if you can hold on to residential real estate for longer, say, than 10 years, and what that means is you don't lever up so you don't get caught short, if you will. Generally speaking, personally, if I want to sort of de-lever, I put money into real estate.

21:45And so do you take this news seriously in terms of how much you're exposing yourself to risk in the markets? Is this the kind of event that would trigger your interest into moving into safe assets, such as residential real estate? Or is this just interesting news to you? In terms of the markets, I'm not selling. I think Russia has always punched above its weight class from a propaganda standpoint. And that is, I believe what John McCain said, this is essentially a gas station posing as an economy. And the only reason we take it seriously is because they are very aggressive, they are very good with propaganda, and they have 10 ,000 nuclear warheads.

22:26It's a tiny economy that's not growing. It's a series of different people who grift off of the population and organize around grift. It's not, in my opinion, a society or even really an economy. It's a group of people who steal from their populace and essentially molest the nation for its resources. And then they fall, and then a new group of griptors comes in and fills the vacuum. But I don't see it as a player on the global stage other than what is always perceived as the nuclear threat here. Yeah, so you look at what's happened to the Russian economy since Putin invaded. First off, the ruble fell around almost, it dropped almost half in value, it fell around 40%, and then it rebounded.

23:09But then there have been other implications. For example, Europe is no longer Russia's top client in terms of oil exports. um eu imports of russian oil are down 90 this year and then you look at outflows of russian money from the the russia's domestic financial system into foreign banks and those outflows are five times higher than they were before the war now it feels like things could get even worse the russian stock index is down but say there were a situation that resulted in a change of leadership which it feels like that's not totally out of the question now. It's like Putin's power is as fragile as it's ever been before.

23:50What do you think the macroeconomic implications of such a change in leadership would be? How would that affect us and the world as a whole? I think it would make for great news, but I don't think it would have as much of an impact as the headlines would catastrophize because it's happened several times. I mean, whether it's, you know, Yeltsin, then Gorbachev, then Putin. I mean, it's just Russia falling, so to speak, or breaking apart or reasserting its strength is just something that is not that historic, if you will. You know, the interesting thing here is that China is probably loser because of the immense bear hug here.

24:34A winner through all this has been India because India has been able to take advantage of the blockade or the restrictions on importing oil into what was used to be their largest customer. And that is Europe and is getting cheap oil and cheap agriculture. And they've managed to stay somewhat neutral. And Biden, you know, Biden, it was no accident that Biden invited Modi over and went to his yoga classes and talked about how close they want to be. Because here's the bottom line. The world was shaping up as China and Russia versus Europe and the U.S. And the swing votes, the swing votes, and like any election, it's the swing votes, the moderates who decide the election.

25:16The swing votes that will likely decide the future of the global economy are India and the kingdom of Saudi Arabia, because they've managed to stay somewhat neutral. Their idea is, we're going to play you off each other, and we're going to continue to do business, China is probably regretting going all in on Russia and alienating us. Russia, staggering capital L loser here. And the biggest winner of all, hands down, is the U.S. Okay, thanks, Scott. We're going to switch gears now and discuss the U.S. housing market.

25:54New home construction, a key indicator of economic sentiment, has been in a year-long slump. Back in 2021, almost 2 million homes were constructed each month. This year, though, that number's been closer to 1.4 million, and economists have expected it to continue to decline. But last month, something strange happened. Data showed 291 ,000 new homes were constructed in May, a 22 % increase from April. That's the largest percentage increase since 2016, and the largest absolute increase in more than three decades. Meanwhile, home builder sentiment has advanced to an 11-month high. So, Scott, the housing market is still hot.