Prof G Markets: OpenAI’s Exodus, the Rise of Palantir, and the Longshoremen’s Strike

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1:25Please drink responsibly. Hard seltzer with flavors. 8 % alcohol by volume. White Claw Seltzer Works. Chicago, Illinois. Today's number, 6.5 million. That's how many liters of beer festival attendees consumed at Munich's Oktoberfest in 2023. Ed, I didn't know if you know this, but my wife is German, and I have her rank me on a scale of 1 to 10 whenever we have sex. And the other night when I tried anal, she went, 9, 9. So, Ed, I think I'm improving.

1:57Ed,

2:02I just, ass play never gets old for me. It never gets old. Yeah, I could tell. It's my go-to. It's my go-to. Yep. I could tell that, too. You are in Germany right now. You're in Munich. How's it going? Good segue, Ed. Yep. You're welcome. I am in Munich, and I'm staring out the window here at the Haasenplatz, or I forget what it's called, Masterplatz. Anyways, and there's a giant Ukrainian flag and a giant Israeli flag. I absolutely love Germany. I think Germany is one of the more progressive, like, shit-together countries. If I spoke German, I would live in Munich. I absolutely love it here. I think it's a wonderful society, fantastic football, very progressive.

2:42They know how to make amazing cars. They work hard. They party hard. I just, I love it here. Have you spent much time in Germany, Ed? I was in Germany with you that one time. Oh, yes. I'll never forget it. When was that? You and I and our team went to Munich for DLD. Oh, that's right. DLD. and we went out and we partied in the basement of the what was that hotel called the byrof for whatever it's called byrof yeah that's right um so yeah no i love you too but importantly are you gonna be able to experience oktoberfest i'm going to attend tonight if i get no mercy no malice done but uh yeah i'll probably go for tonight i'm not a huge oktoberfest fan why do i not really believe you well i don't here's the thing i don't look good in shorts you need to wear a kilt.

3:24You look good in a kilt. Yeah, I could do that. Except my kilt, I have the big black kilt. It's really hard to travel with. It's giant. It's literally like traveling with drapes. It takes its own suitcase. Anyways, enough of this shit. Get to the headlines, Ed. Stop stalling. Nine! Nine! Stop stalling. Let's start with our weekly review of Market Vitals.

3:49The S &P 500 rose, the dollar was flat, Bitcoin climbed, and the yield on 10-year treasuries increased. Shifting to the headlines. The Justice Department is suing Visa for allegedly monopolizing the debit card market. Officials say Visa used various anti-competitive practices, including paying competitors to stay out of the market. The complaint marks the Biden administration's first major antitrust case in the financial services industry. Meta unveiled a new prototype of augmented reality glasses at the Meta Connect conference. The new product, Orion, will use eye tracking and a wristband to help users navigate apps with movements.

4:26And finally, OpenAI's chief technology officer, Mira Murati, along with multiple other executives, has resigned. The exits come as OpenAI considers transitioning to a for-profit company and giving CEO Sam Altman a 7 % equity stake. Scott, your thoughts, starting with this new complaint from the DOJ. So I've never met a breakup I didn't like. And my sense is it's impossible. There's a general cadence here. And that is, in most societies, what happens is there's a group of talented, hardworking, and lucky people who get very successful and very wealthy. And they can't help, but unwittingly. And there's nothing malicious here, but they start becoming close to government officials.

5:07And effectively, the same thing happens with corporations. And that is one is so good and so talented, and they get, as a result of that success, are able to attract cheaper and cheaper capital that other people just can't compete with, and they can overinvest and kind of run away with it. And people will argue, well, okay, but the icons of yesterday never survive. But along the way, they can do a lot of damage and squelch innovation, right? When AT &T was broken up, we found out there was cell, fiber, data analytics all trapped at AT &T Bell Labs, but they didn't want to compete with their very lucrative long-distance business.

5:42So I generally find that by the time something ends up on the FTC or the DOJ's radar, it's oftentimes more too late than too early. So the fact that they're paying people not to compete with them, right, using predator pricing, and then basically paying people to be the default card and playing real hardball, that this is probably a good example of something pretty boring that has gone flown under the radar for a while. What are your thoughts? You know, when you look at the complaint, they're sort of saying that Visa is just ubiquitous in debit card processing. They control 60 % of the debit transaction market.

6:22and as you point out, they're sort of, they're using these partnerships that they have with financial institutions to box out competitors. Now, just one side note, they say that they're boxing out young companies and startups, but who they're really boxing out is PayPal and Apple. I mean, these are not really small companies. These are huge companies. And I get the complaint, but I'm sort of like, well, what else is Visa supposed to do? Because, you know, when you're a payments processor, there isn't really much you can do to innovate in that space other than maybe bringing down prices, which they are already doing.

7:00Their prices are actually very low. And if you want to maintain, you know, growth, and if you want to maintain market share, you know, yeah, you want to maintain your partnerships. And maybe that means paying them more and trying to box out your competitors. And it feels like what's happening with Visa is exactly what has happened in the utility industry. And that is, you know, once upon a time, there were these electrical companies and these water companies and telecom companies that they're all, you know, considered normal products. And eventually they developed into these natural monopolies.

7:31And at a certain point, the government was like, OK, this is a utility now. This is a different type of product and we're going to regulate it differently. And so what I'm seeing here with the payments processing is I feel like at this point, processing debit cards and and credit card transactions is essentially a utility. It's the same as telecom. It's the same as water services. And it feels like that's how we should be treating it from a regulatory standpoint. It feels like we should be considering it an essential part of societal infrastructure, and we should start regulating this as if it were a utility.

8:08I think that's a really solid argument. And that is being a monopoly is in and among itself illegal because in some instances, like, it doesn't make sense to have two power companies in Orlando because it's very expensive. The infrastructure is very expensive. It makes sense to have one company providing the power or generating the power. And there might be good arguments for why this is a business to scale payment processing and the investments, requisite investments you need to make in security and liquidity and maybe scale lets you bring your prices down. I think you're making a solid argument.

8:41However, I think most retailers would say, we have to carry Visa. We have no choice. We just have no choice. And we'd like alternative options, but these guys show up and we have to, as a merchant, we have to work with Visa, which gives them too much pricing power. In addition, you mentioned something, you said, okay, say in fact that scale does have its benefits and they can show that as they grow bigger and bigger, the third-party merchants and consumers both benefit through lower fees. Okay, fine, but use the word utility. And utilities have a government official regulating them and actually providing input and supervising their strategy and their price increases or decreases, right?

9:21Because they can't have all of a sudden the utility that's given government approval to basically be the only power supplier say, you know, we're going to raise rates 8 % a year when inflation is going up 2 % a year. So this is an interesting one. I think your points are valid. Curious though, what credit card do you care? What does Ed Elson pay with? Because your payment system, there are certain brands that are self-expressive benefit, your shoes, your watch, the university you went to, the company you work for. Like if you work for a cool podcasting company, you finally get a girlfriend is what I've heard.

9:55But what is the credit card you use and does in your mind or payment system, does it have any sort of self-expressive benefit for you? I use Amex and the answer is absolutely yes. Do you have a green card, a platinum card? What do you have? Platinum, baby. Oh, you're platinum. And do you use it for signaling or do you use it because of the benefits? Because it costs, what, three or 500 bucks a year? It really is all signaling to me when I think about it. I mean, I don't care that much about the benefits. I really think that it's, I think these benefits and I think this signaling is kind of the greatest scam in history.

10:25I mean, it really is. I like that it's made of metal and I like that it looks cool and I like what it says. So, I mean, just to be completely transparent with you, I think it's pretty much all signaling for me. But I know that it is the same for you, right? Well, I was going to say, what you just said is really pathetic. But if you want to understand really, really pathetic, like uber pathetic, imagine taking your platinum card, literally just spray painting it black, and then charging dudes$5 ,000 a year. And I have paid that. I figured it out. If I had taken all the money I'd spent for the pleasure of owning a platinum card that's been sprayed painted black and invested it in the S &P, I think I'd have like$1.3 million.

11:10So my friend, a bunch of us young entrepreneurs back in the 90s used to get together and we'd go out to dinner. And I remember once my buddy Greg Shove, who was working at AOL, who was a big cheese at AOL, goes, it's my turn. I got this. You know, we were all trying to signal to each other where it was like fighting for the bill, like not because we were generous or nice, but because we wanted to pretend we were ballers. And he threw his credit card out and it hit like a fucking wrench. It went gunk, gunk, gunk. And it was this weird titanium black thing. And we're all like, what the fuck? And we pick it up and we're all passing it around.

11:45And the thing was impossible to break. It was like a weapon. And it was an Amex and Turin card. And I'm like, oh, my God. But anyway, so I called them and I said, my name is Scott Gallow. I'm kind of a big deal. I've heard about this thing called the Centurion card. I'd really like to apply for one. And this is what they said. They said, hold on a moment. They transferred me. And the person came on. I said the same thing. And the person said, I love this. They said, sir, we value your business, but we can neither confirm nor deny the existence of so-called black card. And I'm like, oh, my God.

12:15I must have one of these things. So I went on. I did some research before there were blogs. And I found out all you need to do to get a black card, there's no status in it. You have to spend$250 ,000 on any one American Express account. And if you spend$250 ,000 in a calendar year, the person whose card that is gets an invitation to Centurion. So I was running profit at the time, and I forced everybody to— If you went to fucking Chipotle and didn't use my gold card, which was just so ridiculous. You want to talk about cheesy? Gold card. what the hell does a gold card mean anyways so finally it came finally came and it was beautiful and the my assistant i was on vacation she opened everything and she threw it out i'm not exaggerating i called them and said send me the goddamn invitation again they denied it even existed i went down to the trash looking for that thing i dug through the trash looking for my invitation the centurion card anyways finally got one and i've had it for gosh i guess about 27 years now And I find that it was good in two situations.

13:24One, if you're recruiting somebody, I thought it was powerful because a young person is impressed by that stuff. And if you're paying for lunch, they see you have a black card. It kind of says, okay, the guy I might be coming to work for has his shit together. And also, quite frankly, for mating. Any high margin product, any high margin product is signaling. We were talking about universities, Ferraris, anything that has more than 60 or 70 points of gross margin is meant to make you more attractive to the other sex, it's either software or it's meant to make you more attractive to the other sex or make you feel closer to God.

13:56A lot of beautiful artisanship has been sequestered to religious institutions, so it's been hardwired into our psyche that if you hear beautiful music and smell candles and see the most beautiful frescoes on the ceiling, that there's a decent chance God hangs out there. And so when you see the slope on the back of a 9-11 or the mesh of a Bottega Veneta bag, I do think it stills you and makes you feel like you're in the presence of something supernatural. Anyways, what's our next story here, Ed? Let's get your reactions to the new Meta AR glasses, the Meta Orion. What do you think of that? Look, let me go this way.

14:28They came out with a product, I think that's 250 bucks. So it's a tenth of the price of the mixed reality headset. I think if you go Meta on this, if you will, it all goes back to Mark Zuckerberg figured out about eight years ago, he was always going to be Sindhra Pashai or Tim Cook's bitch, as long as they controlled the vertical interface via the phone with the end consumer, that he was always subject to someone else's blood sugar level if he didn't control the end device. And so they've tried a lot of things. They tried the portal, they've tried a phone, they're trying to figure out a way to go direct to consumer and go vertical and control the distribution.

15:06And typically a brand, once again, above a certain dollar volume starts opening its own store so it can take greater command or control of its own destiny through vertical distribution. And Zuck's been trying to do this for a long time and has burned tens of billions of dollars trying to establish the headset is vertical distribution. This probably will at some point succeed once it gets to the point. I think they were smart to partner with Ray-Ban. But once they get to the point in probably five to 10 years where the cameras are sophisticated enough and the microprocessors are powerful and smart enough to be elegantly seamed into your glasses or your sunglasses fine.

15:43This is going to put the mixed reality set, I think, pretty much out of business. It's 60 or 70 % as good as the mixed reality headset from Apple, and it's 10 % of the price. On a product value relative to the Apple headset, it's just a superior offering. What are your thoughts, Ed? I think Mark Zuckerberg's been listening to you. I mean, I think you said that VR headsets were stupid because they're too uncomfortable and they make you look stupid. They make you look uncool. And so this is his response is he's come out with a headset that isn't uncomfortable. It weighs six times lighter than the Vision Pro.

16:22It's 100 grams. And that was actually one of the first things that Mark Zuckerberg said about it at the event. And also it looks cool-ish. You know, it passes as perhaps a style statement. Now, I don't think it looks cool enough where people are actually going to wear it, but credit to Zuckerberg because the best thing he said at this event, in my view, was, quote, the right way to look at Orion is a time machine. These glasses exist. They are awesome. And they are a glimpse of a future that is going to be pretty exciting. In other words, I think what he's saying is this isn't the product that's going to change things.

16:58This isn't going to affect our business materially. But what it does do is it sends a message to Apple, to Microsoft, and to Wall Street that augmented reality is coming and do not get it twisted. Meta is going to be a leader in that space. And it was reflected in the stock movement. The stock increased right after the event. So I think Mark Zuckerberg is kind of crushing it right now. He seems rational in a way that he hasn't been before. He seems relatable and weirdly cool in a lot of ways. And you look at his favorability scores, especially among people my age, it has skyrocketed in the past year.

17:38And it all happened after he started getting into gold chains and t-shirts and going on podcasts and talking about jujitsu. So he has committed what I think is probably the best rebrand of the decade so far. Let's just wrap up here on the headlines with what's going on with OpenAI. Mira Murati has just resigned. And I just want to go through the timeline of the OpenAI management team here because it's very strange. I mean, you'll remember a year ago, Sam Altman was fired, and then he was promptly rehired. And soon after that, the president, Greg Brockman, resigned. And later, the chief scientist and co-founder, Ilyas Tsitskiva, resigned.

18:20And then in August, another co-founder, John Schulman, left, and he went to go to Anthropic. And now the CTO has resigned. So my question for you, why is everyone leaving OpenAI? I don't think they're doing it voluntarily. there's that saying, if you stab the prince, you better kill him. I mean, essentially, these people were either directly or indirectly involved in his ouster where they didn't kill him, where Satya Nadella said, okay, that's really adorable and cute guys, but he's going back on the board and he's going to be the CEO. And I think they were all on the green mile. And I don't know what her role is in it, but basically my guess is they said, look, we're going to let things calm down.

19:00And then I'm going to bring in my folks. I think they're also about to give him 7 % of the company, which will be worth, according to the most recent valuation, around$10 billion. So he's sort of, I think, earned the trust and the credibility of the marketplace. He really is kind of the Bill Gates or the Steve Jobs of this generation. And I think he gets to do what he wants. And I think with the equity he has at his disposal and the money has at his disposal, He just wants to bring in his own team. And my guess is the past few years have been very exhausting or trying for a lot of these people and they all want to go do their own thing or I don't know.

19:36But I would bet once he returned senior management. Sorry, guys, you tried to kill me and you didn't. You're you're on the green mile. From my understanding, though, Miro was one of his advocates. Does that change your view? I don't know, but initially when this company started, it had sort of this crunchy granola AI to save the whales. And it was meant initially to be a think tank to try and provide a check and research about the dangers of AI and its role in society. When they figured out there were tens or hundreds of billions involved, they all decided, well, yeah, let's save the dolphins on weekends.

20:11This is an opportunity for all of us to get our Gulf Streams, and it's quickly pivoted to being a for-profit. And my guess is a lot of the senior managers who probably are going to reap tens of millions, maybe even hundreds of millions of dollars from their time there and their tenure there and their stock options. For those of them that are thinking, you know, I just don't want to be around for the next evolution of this. I don't know if they're – I would guess that it's a combination of them being forced out or saying, like, it's time for you to go on. I want to bring in my own crew that's not going to stand by and let a coup happen.

20:39I don't know what a role was or wasn't in this, but it's not shocking to me that he's totally changing over the management team. When you have that kind of capital and that kind of equity and that kind of brand equity, and I just did an AMA section, and one of the questions was, I have an offer to go run AI at a Fortune 500 company that's not that prestigious, or I can take a much more junior role at OpenAI. And I'm like, oh, go to OpenAI. when there's a rocket ship taking off even if you have a shitty seat in economy you get on the rocket ship and you'll be branded for the rest of your life as someone who worked at OpenAI in the fairly early days which is like getting an MBA from Wharton or Stanford so I don't think this is going to have any impact on the company I think they just have so much momentum I think he's such an outstanding leader and the fact that they're able to raise money to$150 billion means they're just going to have all the capital they need to kind of keep on trucking so to speak I just want to end the headlines with just a callback to a prediction that we made.

21:40People might remember he was saying over and over, he has no financial stake in OpenAI. It's a not-for-profit company, et cetera, et cetera. And our prediction was pretty simple. There is no way he isn't going to make out with a shit ton of cash from this operation. This is the easiest prediction ever. Sam Altman, directly or indirectly, is going to make billions of dollars from OpenAI. So, yeah, he got rich off OpenAI. And shocker. Yeah, don't you remember that Senate here? Well, Senator Kennedy from Louisiana. I don't have any equity. You make a lot of money, do you? I make, no. I paid enough for health insurance.

22:19I have no equity in OpenAI. Really? That's interesting. You need a lawyer. I need a what? You need a lawyer or an agent. I'm doing this because I love it. I'm only interested in saving the world. Don't regulate us. There's no need to. I don't like money. I don't like money. Yeah. Uh-huh. We'll be right back after the break with a look at Palantir.

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24:18We're back with ProfG Markets. It's been a banner year for Palantir. As we've discussed previously, the data analytics company is uniquely positioned to leverage AI as a government contractor. Its stock is up 125 % year-to-date, thanks in part to the AI wave, and has almost quintupled since 2022. And as of last week, the company has officially made it into the S &P 500. Meanwhile, the CEO, Alex Kopp, has garnered a cult following. On Reddit, he's known as Daddy Kopp. And by making pro-America proclamations such as, quote, we founded this company to be a ray of light to America and our Western allies, he has rallied a base of retail investors who hold about 40 % of the company's shares.