Prof G Markets: The Nasdaq’s Rally, Threads vs. Twitter, and Yahoo’s Return to the Public Markets

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1:12This week's number,$2.3 billion. That's the estimated record amount Americans spent on fireworks this year. Three times more than in 2012. Fireworks are like sex for me. I'm always pleasantly surprised when it goes longer than a few seconds.

1:42Welcome to Prop G Markets. Today, we're discussing the NASDAQ rally, Meta's Twitter competitor, and Yahoo's potential comeback. Here with the news is Prop G media analyst Ed Elson. Ed, what is going on? Not much here, but I want to hear the entire rundown on Mykonos. How's Greece treating you? It's great. Mykonos is a cross between Saint-Tropez and Ibiza, sort of somewhere between douche and bag, like that space in between those two words. Yeah, the Arrested Adolescence tour continues. The water's beautiful. I'm here with my family, a lot of water sports. And then the adults head out and we saw some DJ the other night.

2:21I don't know, just pronouncing the DJ's name, I could slip and break a hip. Anyways, wonderful. Where are you, Ed? I'm in New York. I'm going to be in Mykonos at the end of the month there. Really? So you got to give me all the recommendations. Yeah, that's right. Yeah, I get the sense you and I are probably not going to hang out at the same places. I get recognized by students. I have 5 ,600 alumni of my brand strategy course. And some statistician told me that anywhere in the world where I am in a room with more than 300 people, there's like a 40 % chance I have a student in the room. And it inevitably happens when I'm in a place like this.

2:55And it's always the same thing. I hear this very surprised voice go, Professor Galloway, which is their way of saying, what the fuck are you doing here, old man? You're not supposed to be here. Anyways, break down the headlines. Let's get back to the markets. Let's start with our quarterly review of Market Vitals.

3:21The S &P 500 gained 8%. The dollar rose marginally. Bitcoin was up 7%. and the yield on 10-year treasuries rose 9%. Shifting to the headlines. The Screen Actors Guild, which includes some of Hollywood's biggest stars, is poised to join the writers on strike if the union and studios don't reach a contract agreement by July 12th. Meanwhile, negotiations between UPS and the Teamsters Union, which we covered in our last episode, fell through. It's looking more and more likely that UPS's 340 ,000 workers will strike at the end of the month. Goldman Sachs is looking to end its partnership with Apple.

3:59Goldman has provided banking for the Apple credit card and the Apple high-yield savings account for the past four years. That move was part of Goldman's effort to get into consumer banking and lending, an effort that has largely failed. Separately, supply chain sources are claiming that Apple is slashing its production forecasts for the Vision Pro headset. It has also reportedly pushed back its plans for a more affordable version of the device. Apple unveiled that product just one month ago. And finally, furniture company Overstock is rebranding its U.S. website to Bed Bath & Beyond. Overstock purchased the company's intellectual property assets in a bankruptcy auction in June.

4:38And after announcing the rebrand, Overstock shares popped 65%. Scott, any reactions? So there's bias all over my comments here. The first bias is I have a bias for or toward Goldman. I like them. They manage my money or they play a role in it. And I generally find that it's smart, good people doing great work. So I have a bias toward Goldman Sachs. I know David Solomon and I like him. I think that this is, there's just no getting around it. You don't want to do anything that costs where you lose$3 billion. But I would argue a firm like Goldman should be on a regular basis trying new things that are, you know, feel mildly crazy at the time.

5:17I think Goldman Sachs is the best brand in B2B. I don't think there's any self-expressive benefit brand like Goldman. And every entrepreneur in the 90s that I hung out with, we all dreamt of taking our companies public, but specifically have Goldman Sachs on front and left on the prospectus cover. So I think they do a great job in B2B. There are four reasons in B2C. You could argue. You could argue, say, well, all right, this is an amazing brand. It's a global brand. There's a lot of people that would like to engage with the Goldman Sachs brand. And there's a lot of companies in the payment space, et cetera.

5:47It makes sense for Goldman to try and get in it. So in the military, they base or they assess an officer's performance based on his or her decisions at the moment, given the information available, not the outcome. But they try to say, distinctly the outcome, based on the information this person was given or had to deal with at the time, did they make the right decision? And I would argue that trying to innovate or experiment around consumer, whenever it was three or five years ago, was probably the right move. And what's also the right move, quite frankly, is saying this didn't work and pulling the plug because$3 billion is real money.

6:23But for Goldman, that is not – that doesn't even kind of ruin the year. That's not a ton of money for them. Look at Meta, which is burning$1.2 billion a month on their fever dreams of a headset. So, again, some bias here, but I think innovating, trying new stuff, and then when it's not working, pulling the plug is the sign of a firm that's doing something right. Right. If they keep doing that, if they keep swinging and missing, obviously, they've got to change their approach to the business or change management. But I don't see this as any reason why you'd want to target the firm or change management or anything like that.

6:56What do you think of David Solomon's reputation right now? Because he's been in a lot of hot water. I mean, he hasn't ruined anything by any means, but he's reduced partner bonuses. And then there was that story that came out that Lloyd Blankfein, who's the former CEO of Goldman, has been criticizing him specifically for not spending enough time at the company, jetting around on the private planes, and most of all, being a side hustle DJ, DJing at nightclubs and festivals and DJing at Coachella this year. So first off, it says more about Lloyd than it says about David. And that is, it's just bad form for the former CEO to ship host the new CEO.

7:32Yeah. It wasn't a public statement, but he said it. I mean, it was leaked to a reporter. Okay. So he went on background or whatever it was. It just, it makes, when you are at an organization in your successor, an organization that made you very wealthy and your successor's there, you just demonstrate some grace. There's no upside for him to shitpost his successor. Would they rather he played golf 12 hours a week? I mean, what is the problem? It offends their waspy old man sensibility that this guy likes to DJ. Yeah. Yeah. And I would like to see Lloyd's jet use while he was CEO. The bottom line is when you have access to a jet, this is what you do.

8:12You use it. And I would make an argument that every Fortune 500 company should have jets because if they can get the CEO to somewhere and back and save one or two days of that person's time every month, it pays for itself. But the thing I just don't get is, okay, he should be playing croquet or drinking Pim's Cups and Aperol spritzes and I don't get the issue around DJing. It's fun. I've made fun of him for it. And the truth is in the numbers. Goldman has outperformed his biggest competitor, JP Morgan. The five-year performance for JP Morgan is 37%. For Goldman, it's 41%. So while Jamie Dimon is like literally like poster child of the year for management and people saying you should run for president, everyone's talking about David Solomon DJing on weekends.

8:58And in terms of some of the other stuff, The reports or the rumors that the production units ordered for the mixed reality headset have been cut back dramatically. Jason Stavros, our editor-in-chief, pointed out that you can't draw anything from these rumors, that he immediately forwarded articles with all sorts of inaccuracies based on unit production volume demand forecasts from various sources. However, however, because I want to talk my own book here, I think that these are in fact true and that this is what I'm more confident in. Whatever Apple does here, whatever they produce, they have to produce less in demand because Apple is a luxury brand and key to being a luxury brand is the illusion of scarcity.

9:38So their economists with their econometric models and their demand forecasting have said, we think that the demand for this product on day one will be X. that means we need to produce 0.6x because we need to show lines. We need to see online chatter that not everyone can get one. That is the entire shooting match around a luxury brand. And the fact that they have reduced that number, if you believe they have, and then tried to blame it on manufacturing or supply chain. First off, if Apple can produce one of anything, they can produce a million of them. Apple has the strongest supply chain in the world.

10:12That was Tim Cook's background. So, you know, I'm using this data more like a drunk uses a lamppost more for support than illumination, but I'm assuming it's true. And that the thing, this thing so far, this value proposition at this price point doesn't make, doesn't make a whole, a whole lot of sense. What are your thoughts? Well, I think what Jason was pointing out isn't necessarily that the data is false, but just that it's meaningless, which I basically agree with, because he sent all of these articles showing throughout history, this article always comes out. So in 2013, Wall Street Journal headline, Apple has cut its orders for iPhone 5 components due to weaker than expected demand.

10:47In 2015, Apple has cut as much as 10 % of its component orders driven by weak demand. 2018, Apple to cut iPhone 10 production in the face of weak demand. And, you know, there are like 10 of these articles going through every single year. And it seems like every time there is a supply chain issuer who is saying, yeah, we got around 10 to 20 to 30 percent less production orders. So we think that it's a signal of weaker demand. I think his point is basically like, we've seen this a thousand times. It almost never has a meaningful impact on Apple stock or on demand as a whole. so like we can't draw any conclusions from it which i've i was i liked the thesis and now i pretty much completely agree with the thesis well i love how you use the word thesis over and over so in the final story i thought that kind of the most innovative move was overstock rebranding bed bath and beyond i think that's genius yeah they bought this thing for pennies on the dollar and if you look at overstock overstock has always been like the cockroach of the internet like none of us got it.

11:51It was always the little engine that couldn't and then could. And somehow it's just survived through all this shit. They had this crazy founder who would always do this nutty, I think it was a crazy Mormon guy, which is redundant, which is a hate crime, which by the way, which by the way demands disclosure that Ed, I fucking love Mormons. I grew up, let me tell you a story about Mormons. I grew up, my closest friend in junior high and high school was Brett Jarvis from the Jarvis family, this lovely family. And I used to play on all the church's sports teams. One of my first dates was with a woman named Elizabeth Pettit, who was a Mormon.

12:23So not a lot of action there. Not a lot of action there, Ed. One of the reasons I think I lost my virginity at 19 is I hung out with Mormons for way too long. But in general, I don't think it's a bad idea for the son of a single mother who's kind of an underachiever to be hanging out with Mormons. They're super into sports. They don't drink. They're super into family, nice people, very achievement oriented. Anyways, don't know how I got here. Boverstock was always like, they've always survived. They literally are like nuclear winter couldn't take these guys out. They've been around for 20 years.

12:56And what a genius move. I think their stock is up since renaming it. I think it's a really, really fun and innovative and out of the box way to think about it. So we are changing the name of this podcast to the Bed Bath & Beyond pod. Got to buy that intellectual property first. We're the Lululemon pod. Pick your favorite. No, no, no. We're the Kmart podcast. There we go. We'll be right back after the break with a look at the NASDAQ.

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15:08We're back with Profit Markets. The Nasdaq closed out the first six months of this year up 32%. That's the best first half for the tech heavy index since 1983, when it rose 37%. Now, this rise was largely fueled by big tech stocks such as Meta up 140%, Nvidia up 190%, and Apple, which recently hit$3 trillion in market cap, the first company in history to do so. The Nasdaq is riding multiple tailwinds. For one, it's coming off the back of a massive drawdown in 2022, which saw the index lose a third of its value. It's also benefiting from widespread cost-cutting measures in the tech industry. We've seen mass layoffs, for example, at Google, Meta, and Amazon, among others.

15:51And of course, there's the AI wave, which has re-injected speculation and optimism back into the market. But Scott, in your view, what's been the biggest driver of this year's bull market? Well, they say markets climb a wall of worry. And we've been a month away from this recession for 18 months, and the recession just never showed up. But at the same time, it provided big tech companies cloud cover to cut costs. And these were companies that had grown their expense line for 20 years and then given the chance and the opportunity to lay off 10, 20, or in the case of Twitter, 80 % of the workforce.

16:26And the majority of their costs are people. It's not planned property and equipment. So almost all of this cost just flowed straight to the bottom line. So this year of efficiency, as Zuckerberg called it, has really been the theme across a lot of internet stocks. And we said at the beginning of the year that our prediction was Q4. You would see these companies, their revenue growth would be good, not great, but they would have their most profitable quarters in history. So these companies are in fighting shape, and the economy is actually much stronger than anyone anticipated. And then the chaser, the chaser for all of this is the greed glands and the animal spirits inspired by AI.

17:07And as a few stocks go, there goes the NASDAQ. NVIDIA is up. NVIDIA has tripled this year. Meta is up 145%. Tesla, 129%. Apple, Amazon, and Google are all up 40 % year to date. So when you have companies, you know, I think Apple's 5 % of the NASDAQ or something like that. And when these companies are performing this strongly, it means the NASDAQ is up. But there's no getting around it. The best first half in, what is it, 40 years for the NASDAQ? That's striking. And now what does that mean? What does that mean? The back half of the year is going to be the best back half in a long time for IPOs.

17:50So we're setting up a flurry of new issuances. We're setting up a flurry of investment banking activity. And by the way, investment banking activity has been just dormant for the last 12 or 18 months. So what's interesting is not only what happened when the first half of the year is the best in 40, but what that means for the last half of the year. Yeah, I mentioned the phrase bull market, which around 60 % of investors would say that we are in a bull market right now. And then we had this historic NASDAQ rally. But you also mentioned the weighting of those tech stocks. So if you look at Microsoft, Apple, Google, Amazon, NVIDIA, Meta, Tesla, they make up 50 % of the total weight of the NASDAQ.

18:31And Microsoft and Apple alone are a quarter of the NASDAQ's market cap. Then you compare it to the S &P 500, which is up 15 % in the first half of this year, which is pretty good. But then you compare it to the Russell 2000, which is the 2000 next biggest US companies. And that's only up 7%. So it sort of feels like this is purely a big tech rally that's happening right now. Do you think that we have officially entered a bull market or is this just a bear market rally that's being buoyed by the big tech companies? Well, a couple of things. Size matters. These companies just sort of dictate what...

19:11I mean, keep in mind, Apple is bigger now than the entire UK stock market, just one stock. So these companies are so big and these are indices, meaning they're weighted. So when Apple goes up 20%, that probably means the entire NASDAQ is up 2%. Also, it's your entry point. So NASDAQ shed a third of its value in 2022, which means just to get back to where it was in its highs of 2021, it needs to go up 50%. So it going up 50 % just means it's back to 2021. So it's bouncing off of lows, if you will. So will we see a bit of a reversion to the mean? Or are we off to the races again? Are we back to the go-go days?

19:55And I would argue that for the next six months, whether we are or we aren't, it's going to feel that way because the market has decided. The market feels like it's got permission again to head to the men's room and do some rails. It's like, okay, it's fucking party time. Let's lever up. Let's buy some margin. We don't want to miss out. And the animal spirits are back. Yeah, I just want to bring it back to small cap companies that I mentioned in the Russell 2000 index. So if you look at the NASDAQ, the average price to earnings ratio across the NASDAQ 100 is 31 times right now. And a year ago, it was 25 times.

20:30So it's a 25 % increase. And if you look at the Russell 2000, the average P-E ratio is 27. And a year ago, it was 46. So that's a 40 % decrease from a year ago. And basically, what it feels like is all of this momentum that was in small cap stocks has basically just been stolen and injected into the top 100 mostly tech companies. And I'm wondering, from your perspective, it feels like we are returning to this big, big, big tech era. Do you think that this is overall a good thing for the markets? I mean, it's probably a good thing for investors. Investors are feeling more optimistic now, but it also means that the power and the wealth is getting concentrated into a smaller number of companies at the top.

21:16Yeah, I think that's the correct question. It's good for the markets if you're just invested in index funds because these index funds are dominated by these big players and the big players are way up. You're probably feeling pretty good about your 401k now. The problem is, is the ecosystem healthy? And that is in an ecosystem, you need a diversity of species. And it's just, I've been watching all of these nature shows and, you know, there are more birds in captivity now than there are birds in the wild because of chickens, because we have so many chickens being raised and then slaughtered for, you know, our chicken gyros.

21:48But in there's like, I think the human mass or the mass of humans and their pets now surpasses or is greater than the entire mass of every mammal on the planet. I mean, there really is an extinction taking place. I look at basically the big tech companies, and they're the apex predators. And small companies, the ecosystem, they try to bubble up, they try to survive. But this is really a segue to our next story. There's nothing like the bundling power and the capital and the brand equity of an apple or a meta. The good money is always on the big tech incumbent right now. They are just, I think everyone's looking back and thinking, okay, when Meta was trading at six times earnings in November, six times earnings, it was probably a pretty good buy.

22:35You know, distinct of his hallucination around the headset. And now it's trading at 19. The stock has practically tripled or it has tripled in the last eight months. So the opportunity to ever buy into kind of big tech at what looks like a reasonable multiple, it's just that. It's an opportunity.

23:00Meta launched its own rival to Twitter, a text-based social media platform called Threads. Within the first seven hours, it had 10 million users. The app works just like Twitter. It lets you publish short-form written posts, like them, and reply to them. And it also links directly to Instagram, meaning Instagram's 2 billion monthly active users can easily transport their username and followers onto the new platform. Now, Threads is one of several new Twitter competitors to emerge in recent years. There's Mastodon, Jack Dorsey's Blue Sky, Trump-backed Truth Social, and Scott's own portfolio company, Post News.

23:37However, none have yet been able to rival Twitter's user count. As of 2022, that user count was 240 million. Scott, basic question, do you think Threads will be a success? I think Threads is going to be the best, arguably the best product launch of 2023. Round one of the cage match between Musk and Zuckerberg. Zuckerberg is kicking the shit out of Musk. I mean, here's the problem with Post, with Mastodon, with Blue Sky. that is their feature functionality is really strong. They have great innovators. Jack Dorsey is a great product guy. Noam Bardeen is arguably the best product guy in the world.