Prof G Markets: The Demise of Bud Light, the Fed Pause, and Andreessen Horowitz’s London Office

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1:26Welcome to Prop G Markets. Today, we're discussing U.S. interest rates, what Andreessen Horowitz's new London office means for the U.K., and the top beer brand in America. Ed, I came up with that joke on my own. It's pretty good. All right? I think we should keep it. How's the countryside? It is lovely. I'm here in the Cotswolds, which is a place I've never been before. The British countryside is beautiful. It's spectacular here. I'm with a bunch of—I'm at something called Founders Forum. A lot of founders. This guy named Brent Hoberman, who's a lovely guy. And a lot of interesting people kind of, you know, doing their thing, finding out what you do and if you can invest in their company, their new disruptive jello making company or whatever it is.

2:10It's nice to be around young people. It's strange though. I feel very old here. So I may not come back again. But the British countryside is striking. It's gorgeous. Yeah, it's beautiful. I want to go like, I don't know, shooting something or taking pictures of birds or taking long walks or something. I'm mostly thinking about running against Rick Scott for senator in Florida, and I feel like any Democrat, I have to pretend that I'm actually down with gun ownership and have pictures of me killing terrified foul. Yeah, exactly. Anyways, let's talk about the news ad. Let's talk about the markets.

2:44Let's do it. Let's start with our weekly review of Market Vitals.

2:54The S &P gained and Bitcoin and Treasury yields fell. Shifting to the headlines. The FTC filed for a temporary restraining order to block Microsoft's acquisition of Activision Blizzard. The deal must be completed or dissolved by July 18th and Microsoft will have to pay a$3 billion termination fee if it falls through. European Union regulators charged Google with violating antitrust laws. The EU accused the company of abusing its dominance in the market for ads on third-party websites. The U.S. Department of Justice filed similar charges against the company in January. The Justice Department is investigating the PGA Tours merger with LiveGolf.

3:33We discussed that merger on last week's episode. The investigation could delay the transaction by more than a year. Mediterranean restaurant chain Carver went public as we previewed on this show a few weeks ago. Shares popped more than 100 % in its market debut. Thousands of subreddits went dark to protest Reddit's new API pricing model, which charges fees for third-party data access that can be used to train AI tools. The new model has also killed off third-party apps that avid Reddit users rely on to access the site. And finally, the Consumer Price Index showed inflation cooled to 4 % in May.

4:08That's down from 4.9 % the month before. Inflation is now less than half of what it was at its peak in June of last year. Scott, reactions? The 4 % number is a victory for the U.S., and it's a victory for Chairman Powell. Our inflation in the U.S. is lower than I think any Western country or one of the lowest. So I think that's the definition of leadership is sticking, kind of sticking to the right course, regardless of the second guessing and the pushback. So I feel really good about that number. And the target is 2%, but 4 % is a long way from wherever it was, 7 % or 8%, just what feels like a few months ago.

4:48Thousands of subreddits went dark to protest Reddit's new API pricing model. The market has pivoted from a desire for growth to a desire for profits. Now, ideally, you have both, but it used to be growth at any cost, even if it meant losing hundreds of millions of dollars. That has totally flipped. flipped and now companies, even software companies are valued on a multiple of cash flow. So they have to make more money. And I see it as fairly straight. The thing that really popped out to me, was Kava popping a hundred percent in its market debut. I mean, that might be the starting gun for the IPO market.

5:24And maybe I'm missing something here, but it was priced and it doubled. That is striking for a restaurant company. Now, what does it say? Does it say the IPO market is back or does it just say that this thing was terribly mispriced or that people are looking for consumer companies that are a little bit more stable, that kind of take advantage of the main street economy? There was a really interesting view from the Apollo CEO where he said we might be entering the non-recession recession. And what he meant by that was that asset prices might take hit, real estate and stocks, but the vast majority of that is owned by the top 1%, meaning that wages and employment will be fine.

6:01And I wonder if Cava is the beneficiary of the belief that, in fact, a recession, even if it quote unquote comes, isn't going to hurt its customer. The Justice Department and the PGA, you know, the Justice Department probably should have moved in on the PGA before this. These companies are monopolies. I've never understood how they maintain. I mean, there was a law that I guess exonerated major league baseball, I guess, from competition, but it strikes me there's a ton of monopoly abuse or monopoly like abuse in professional sports. I don't know how politically motivated this is. I think it's actually good for golf.

6:38I mean, it would have been good if there were two competitors. I don't know. Maybe, maybe, maybe it's better if there's two of them and the competing against each other, that was probably healthy. It took athletes pay up, which I think is a good thing. I mean, athlete pay just went down. With Liv purchasing the PGA, and let's be honest, it's kind of a creeping takeover, that creates fewer buyers for your services. So if you're a golfer, you now have one bidder versus two. So I'll be interested to see how this unfolds, but my initial reaction is the Justice Department should look at it. EU regulators charging Google with violating antitrust laws.

7:13The EU has been out in front on regulation. It's no news that Google is a monopoly when it comes to digital advertising. They're both the buyer, the seller, and the market maker. It's very hard to convince a company or to break up a company that's not domiciled in your region. So I don't know if it matters for the broader company. What they could do is decide that they're guilty of antitrust and prohibit them from operating in the European markets or start finding the shit out of them. But the larger question is, are we seeing the peak? Are we at peak of big tech? When big tech starts to bump up against 30 % of the market cap of the entire S &P, when Apple's hitting$3 trillion, when you have so much regulatory scrutiny, when consumers are realizing that their kid is addicted to their phone and that these apps don't have their best interest at heart and they aren't connecting the world, have we in fact maybe hit peak big tech?

8:13And we'll see. But the EU has been a leader around this stuff, and I say more power to them. And around the temporary restraining order to block Microsoft acquisition of Activision Blizzard. What's interesting is the market doesn't seem to care. The market seems to not like the acquisition. And despite the$3 billion exit fee, the market has taken Microsoft stock up. It appears that the market believes that either Microsoft was about to overpay or just doesn't care. It just feels like the core business is so strong. So to me, that makes for good news, but I don't think it's actually that important for Microsoft or for Activision.

8:42Activision will go down in value, but this to me is not you know not a big deal what are your thoughts ed you covered everything uh let's see i mean carver i think is pretty interesting because we've been talking about we said that instacart would probably be the the ipo that would jump start the ipo market what i'd be interested to see is how much retail interest was pouring into carver when carver went public as you said there's this idea that it may have been mispriced but also they could have just miscalculated just how much retail interest there is. What we've been seeing over the past few months is that retail investing is basically coming back, and people thought that it was dead all of last year.

9:22So I wonder if Carver is sort of the green light on retail investors getting back in the market. And it's possible that it is with a 2x on the debut. There you go. We'll be right back after the break with a look at the Fed's rate hike pause.

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11:16We're back with Prof G Markets. For the first time in 15 months, Fed Chair Jerome Powell decided not to raise interest rates. The Fed has instead chosen to hold rates steady, but signaled it will raise them again next month if inflation doesn't come down further. This decision comes after the release of mixed economic data. On the one hand, inflation appears to be slowing. On the other hand, the job market is still very hot. U.S. employers added nearly 350 ,000 jobs in May, and the unemployment rate still remains near historic lows. Despite the pause, policymakers expect two additional quarter point increases this year, and that would lift the Fed funds rate to a target range between 5.5 and 5.75 percent.

11:58Scott, the market had priced in a pause this month, and Jay Powell delivered. Was that the right move? I think so. I'm just heartened that there's really bright, high-character people like Chairman Powell to handle this shit. It's really interesting because if you go one level down, if you go to the president or representatives or the Senate, we get a lot of crazies. When it comes to the treasury secretary or the head of the Fed, it's as if everyone says, okay, playtime is over. We need an adult. And even the president is partisan. They are, They usually leave that person in place. Some of it's because they're appointed for longer tenures.

12:38But I think what they're saying is, okay, there's partisan politics, there's even laws, and then there's the economy, and this shit's for real. We need to have really thoughtful people who don't scare that easily. So you're right, the market was expecting a pause, and everything's heading its way. Yeah, I mean, you point out that he's one of the non-crazy. I think that's just a function of the fact that the Fed chair isn't democratically elected. The Fed chair is appointed by the president. But something we were talking about a couple weeks ago relating to interest rates is just this general sea change for investors.

13:13two years ago you'd get a 0.5 percent yield on a two-year treasury and just across the economy there was basically a near zero incentive to go into any fixed income investments and today a two-year treasury gets you 4.7 percent you can get a one-year bond from apple yielding 4.8 percent and then you compare that to the s &p last year which accounting for dividend payments returned negative 21%. So for the first time in more than a decade, it's like bonds are the new stocks. From an investing perspective, what are some of the main macro effects that you're seeing as a result of non-zero interest rate environment?

13:52And have any of those effects in particular surprised you? The obvious one is what happened to Silicon Valley Bank. I don't think anyone saw that coming. And I don't know if that was a function of the massive interest rate acceleration or banking in a handheld world where you can get all of your capital out in about three minutes. The impact on the economy might be when corporations and homeowners have to roll and refinance. I have a 2.375 % mortgage on my home in Florida. I'm going to have to refinance it at about, I think, 5.5 % or 6%, which will increase my mortgage by 50 % plus. that's the same boat a lot of people are in and will likely reduce their spend across other categories.

14:39The shit you worry about is usually not the stuff that gets you. It's the stuff you're not worried about. And everyone's talking about the implosion of commercial real estate. And my guess is that's turning into another thing like this illusory recession, that if we talk about it enough, banks will plan for it. Entrepreneurs will step in with ideas for repurposing. As a consumer, I had one of those moments where I have never owned a bond. I've just always been in stocks because, A, when I was younger, I had a much more aggressive risk profile and I wanted to own investments that could double in value theoretically in six months.

15:10And the idea of owning a bond just seemed so boring and lame to me. And then over the last 10 years is the idea of steady cash flow and diversifying or de-risking. Sounded good. You didn't get paid for it. I've been on boards. I remember I was on the board of Urban Outfitters and we had a bunch of cash. So we were doing stock buybacks. And someone said, we can borrow money. at like two or two and a half percent. I'm like, well, just borrow money then. I had some money. I had a big win recently and the money got wired in, I don't know when it was, last week. And I immediately thought, oh, I need to put it to work in something.

15:44I need to start figuring this out. And my guy who handles my account called me and goes, well, right now we just have it in, I think it was this treasury or six month treasury account and it's yielding 5.4%. And I'm like, really? I'm getting 5.4 % in what appears to be fairly risk-free securities? He said, yeah. And I said, what was it last year? And he said, I think it was like 60 basis points or 30 basis points. So what it did for me was I immediately didn't feel a need to go out and try and find investments in stocks. So I would think credit feels undervalued right now and stocks probably feel overvalued.

16:20Now, I don't know what that – when stocks generally do really well in a low interest rate environment because bonds aren't as appealing. Now that bonds are really appealing, does that mean stocks are going to come down? I don't know. I don't know. But it has changed my – it absolutely has changed my kind of investment complexion. For the first time, I own bonds. I own six-month treasury. If someone had said to me, you're going to own six-month T-bills, I would have said, okay, that means I have prostate cancer and I'm on a cruise. I mean, that just means not that there's anything wrong with either of those things, but I own six month treasuries and I like the idea of being more patient and opportunistic around if and when, you know, shit gets real and I can swoop in and buy a Gulfstream for a dollar down.

17:05You know, it's fun to have cash. I never have cash. I've never, I always thought put money to work. That's always been my mantra. Put it to work, get it to work right away. Yeah. in a company, a small company, an investment, something, a stock. And this time I'm like, well, let's just wait till something really fun comes along.

17:29The UK is facing difficult economic conditions with sluggish GDP growth and inflation at 8%. But Prime Minister Rishi Sunak recently found reason for optimism with the opening of a new business in London, venture firm Andreessen Horowitz's first international office. The firm's new UK outpost will focus on crypto startups, a bet that the British government will offer kinder regulation than the US. Prime Minister Sunak described the new office as, quote, another huge vote of confidence in the UK. He later added, quote, as we cement the UK's place as a science and tech superpower, we must embrace new innovations like Web3 powered by blockchain technology.

18:10That's why I'm thrilled world-leading investor Andreessen Horowitz has decided to open their first international office in the UK. So, Scott, a big deal for Andreessen Horowitz, apparently a pretty big deal for the prime minister too. The way I would summarize this is the incredible shrinking United Kingdom. Can you imagine the president or President Biden announcing and making a big deal around, I don't know, NASPERS, or I don't know who the biggest hedge fund in Europe is, opening a headquarters in New York. He wouldn't care. He wouldn't. I mean, it just strikes me when I read it, it made me just feel sort of bummed about the United Kingdom, that this is the best they can talk about.

18:56This is their lead story. Hey, a VC is moving here. I mean, I'd be curious to know, maybe you know this, how many employees, how many people are actually moving here? What is it, 50 or 100? Well, so for one, I mean, Andreessen Horowitz has around 500 employees. So, I don't know, assume like 10 % of them move. That's 50 people that he's celebrating. But yeah, I agree. So why didn't we get an announcement when I opened L2 in London? We had as many people here, Prime Minister. Exactly. Well, I think the main thing that you mentioned that the UK's economic situation is bad. It's really bad. I mean, 8.7 % inflation, that's one of the highest in Europe.

19:34Plus, you've got really low unemployment, wages still rising. It's sort of the worst of both worlds when it comes to inflation. And then the other thing that I saw recently is that the yields on short-term gilts, and that's the UK's equivalent of a treasury, the yields on those gilts have exploded in the past few months. In other words, investors are pricing in the fact that interest rates will have to keep rising. And I don't know if you remember in September, we discussed those guilt yields after Liz Truss announced her mini budget, which was basically an economic disaster. It tanked the UK economy and sent yields soaring.

20:08So currently, the yield on short-term guilt is higher than they were in September. So it's just a disaster. And then you look at the UK more generally. Since the pandemic, the UK's economy, its GDP has shrunk 0.5%. It's the only major economy in Europe to do that. Tech investment is down almost 60%. And then there's this crazy stat about the IPO market. Seven of 10 UK IPOs in the past decade have lost money. That is, the stock is now trading below the IPO issuance price. So yeah, you have an economy that's basically burying its own grave. And then the prime minister comes out and proudly announces that this VC firm with a pretty ubiquitous reputation for backing some of the biggest grifts of all time is opening an office in london and then he calls it a huge vote of confidence i agreed i can't think of a smaller and worse vote of confidence than this in addition andreason horowitz is raising or has raised about eight billion dollars across four get this crypto funds and so i would imagine just as the uk had a massive inflow of capital after they passed very strong private property laws that basically said, are you a Russian oligarch with billions?

21:23This is your new home. We love you. Welcome to London. And to be fair, I think it's been great for London. I've been coming to London one to four times a year for 50 years. I used to come here as a little boy, and it's gone through a multi-trillion dollar facelift over the last 50 years. And I'm not sure it's been because of British innovation. I think the innovation has been creating a great culture, an amazing city, really strong education system. So I guess you could argue that's innovation. You know, billionaires have kind of two things in common or one thing in common. They own homes in New York and London and they bring their money in because their money is safe in London.

22:05It's kind of out of the reach of people. And also it has good food here and and a nice environment a progressive culture but is there really any underlying innovation here and again this feels a little bit like what was that book butler to the world you know uk and that is they've said oh regulation got you down in the u.s come to london wink wink we'll be more hands off yeah no exactly and that's what we wrote about last year when we were talking about, you wrote that post, Wash, for No Mercy No Malice. And yeah, London has it all. It's got lax financial regulation, it's got the lowest corporate tax rate in the G7.

22:44They have pretty aggressive tax credits, protections on trusts. We brought up this historical example, which is that in the 1700s, the King introduced this law called the non-domicile tax system, which basically said that anyone living in in the UK whose quote-unquote real home is abroad doesn't have to pay taxes. And that still exists today. And the Prime Minister's wife is a non-dom. She recently had to revoke that status because there was so much controversy over it. But she's the heiress of an Indian billionaire whose real home was in India and never had to pay taxes. So, yeah, I think that's exactly what's going on here.

23:24The only thing that I would offer that I'd like to get your take on is, you know, Mayor Suarez of Miami, he sort of did this play, and it kind of worked. He said, you know, bring low regulation here, low taxes, bring in all the tech, bring in all the crypto people, and people moved there, and it did sort of jumpstart the economy. So, do you think that it's reasonable for Rishi Sunak to be basically doing the same play? Yeah, look, trying to attract companies and capital, good for him. It just strikes me that the crypto bro movement in Miami has probably backfired on the Miami brand because it just comes across as sketchy.

24:09it just there's a certain kind of bro we like just like too much or too little testosterone feel to all of it and i don't think of the long run it might have been a short-term kind of sugar high i think when all said and done crypto jesus fucking christ can we just stop talking about crypto let's like talk about a market that's bigger like pastel lampshades or something it I'm just, who cares? Who cares? Yeah, I don't know if you saw, but on the door of 10 Downing Street, the comms department installed all these other zeros and ones to be like a binary code message. We're now the tech hub. What do you think of that as a parliamentary comms strategy?

24:55I don't know. It feels a little bit gimmicky. you know whatever i can't see again i can't see the white house you know putting putting windmills in its front lawn or paper mache windmills to say we're the new renewable capital maybe who knows we'll be right back after the break with a look at the american beer market

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