Prof G Markets: The Texas Stock Exchange + Is Short Selling a Dying Strategy?

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1:12Today's number 19. That's the percentage of employers who claim to have had a recent college graduate bring a, get this, parent to a job interview. Ed, true story. I figured out that my parents favored my twin brother when they asked me to blow up balloons for his surprise birthday party.

1:38hold me ed little twin humor little twin neglected dog humor that's right we're trying to clean it still pg-13 still pg-13 welcome to prop g markets today we're discussing the texas stock exchange and the dying breed of the short seller. Here with the news is Prop G media analyst Ed Ellison. Ed, what is the good word? I'm just pretty shocked by that stat. 19%. Makes no fucking sense. Makes no way. You think that's right? I don't know. Surely there was something wrong with the survey there. Unless I'm just completely out of touch. It's unbelievable. Yeah, no. I asked my parents if I was an accident.

2:17And I said, no, it's really more of a tragedy. That could have been our opening joke too. Yeah, there you go. You were in Scotland yesterday. How was that? And this morning. It was great. Went up there for the night to a place called the Fife Arms in Aberdeen. By the way, one of my favorite things to do is when I look at your schedule, I will look at the hotels you're staying at and Google them and look at all the photos. So I've already seen the Fife Arms website. I know what all the amenities are. It looks quite nice. Yeah. Yeah. What do you think? What should we have done? We pretty much just drank whiskey and had a long dinner.

2:52We didn't even take a walk. We're going to go outside. Also, I don't know if I told you this, but actually speaking of parents, my parents treat me like a god. And that is they don't believe in me, Ed. They don't believe in me. Back to the five farms. Do you have like a jokes website pulled up in front of you right now? Where are these coming from? 100%. So what place am I going to that you're most excited about? I love that you're stalking me. I love doing that. I don't know. First off, where are you guys going? Where's the team going? Oh, we're going to St. Barts. That's right. That's what happens when you work for the dog.

3:23That's right. That's right. He sends you the same bar. I tell you once I walked into my parents having sex. Seriously, Ed. Seriously. I'm not joking. It was the worst 45 minutes of my life.

3:36You've told that one before, but yeah. Never gets old. And just a reminder, just a reminder, just a reminder to go listen to the Prof G Markets feed. Prof G Markets. Go subscribe. All right. Get to the news. Gladly. Get to the news. Let's start with our weekly review of Market Vitals.

4:01The S &P 500 hit a new record. The dollar declined. Bitcoin topped$70 ,000. And the yield on 10-year treasuries fell. Shifting to the headlines. Spotify is increasing the cost of its premium subscription plans, including the Family, Duo, and Student plans. That's its second price hike in a year. Meanwhile, Warner Brothers Discovery also announced a price hike for Max. Morgan Stanley's trading platform E-Trade is considering banning Keith Gill, also known as Roaring Kitty, over concerns of potential stock manipulation. The company is concerned that Gill's influence can enable him to pump up stocks like GameStop for his own gain.

4:39And finally, NVIDIA became the first computer chip company ever to reach a market cap of, wait for it,$3 trillion. As of Wednesday's close, the company surpassed Apple as the second most valuable company in the S &P 500, also in the world, behind only Microsoft. Scott, your thoughts? I think that the subscription space is just such a fascinating lesson in economics and markets. And essentially what you had is everyone figured out that the future is in streaming. And it's also consistent revenue. It's not ad revenues where if there's a recession, everyone stops advertising. Even though it was a recession, people usually don't cancel their Netflix or their Spotify.

5:18And so the market got drunk on it. This is the future and gave these companies an enormous valuations. And then the ones with the biggest market cap, specifically Netflix, started reinvesting that capital to take an Amazon-like strategy of just using capital as a weapon and pull away from everyone else. And Netflix got up to$17 billion a year and spent on content, which no one could match. And then the markets got less excited about the space because it didn't appear anyone was very profitable and that the space had been overinvested in because everyone was trying to catch up with Netflix. So it was a great time to be a gaffer.

5:52It was a great time to be in the business of production. But at some point, the music was going to end. And it ended about, I think, about two years ago when Netflix crashed. And all of a sudden it became clear that things like Paramount Plus just might not survive. And the market has done two things. It's consolidated, and it's also, based on the consolidation, given some players, specifically Netflix, the cloud cover to raise prices. And this cloud cover and the consolidation, because there's fewer and fewer options at the very high levels, has given this pricing power back to the organizations.

6:26And Spotify has increased prices. I think it's going to be twice now. And Spotify, for the first time, I think in a while, their stock is performing really well. The individual dual and family subscriptions will increase$1,$2, and$3 respectively. The stock popped 5 % on the news. Its performance to date has been underwhelming, and it's 25 quarters as a public company. It's only been profitable with eight of them, but things are looking up. The stock has doubled in the last 12 months. And you're also seeing Max is increasing its prices on ad-free plans. So the companies that come out the other end of this will be the Consolidate Ores as opposed to the Consolidate Ease.

7:02I think it'll do well. And that's one of the reasons our three stock picks for 25, again, invest in index funds, but it's fun to follow stocks, are Alphabet, which is up, I think, 25 % or 26 % on the year, and then Warner Brothers and Disney. And Warner Brothers has been a lagger. Disney's done okay because I think that the pricing power that they will register at Disney Plus and at HBO, respectively, will start to give the markets a reason to look at them again. But this is just a case study in overinvestment and then a crash and then consolidation and then pricing power coming back. Any thoughts?

7:37I just couldn't believe the stock performance of Spotify. It's up 110 % in the past year. It's doubled. It's pretty fascinating to me. I mean, we discussed their earnings from last quarter on this podcast, which was also pretty phenomenal, 20 % revenue growth. They had this massive reduction in spending. and now they're doing what great companies get to do, which is raise prices. So I think we'll see how that will affect the usership in the next earnings. It's got its next earnings call a month from now, but I have a feeling that it's not really gonna hurt MAUs that much. I feel like price hikes are always less damaging than people predict.

8:15And that's certainly been the case for Netflix, as you pointed out. Thoughts on Keith Gill and E-Trade. So I thought this was really interesting. When we first talked about it in the editorial meeting, I thought, this is bullshit. It's the SEC's job to decide what market manipulation is, not E-Trade. And then it dawned on me, E-Trade is full of shit. This is what's going on, or what I think is going on. E-Trade is worried about what happened to Robinhood. And that is, when the meme stock phenomenon went just literally parabolic, the ability to pair trades on these highly risky, highly volatile stocks meant that the trading or the clearing firms asked them to have a certain amount of capital reserved in case the stock accelerated before they paired it with another trade.

8:59And I think E-Trade is worried that they might get caught with their pants down. Because if you remember what happened to Robinhood, they effectively said to people, you cannot buy GameStop, or I forget which equity it is. And to a certain extent, they probably should have gone out of business when they did that. And I think E-Trade looks at what's happening and says someone in their compliance or their risk department comes back and goes, if this shit gets real again and it starts going fucking crazy, we could potentially find ourselves in a Robin Hood-like position where the people who clear our trades demand so much equity that we don't have it.

9:34But this notion somehow that they have decided they're the arbiters of market manipulation makes absolutely no sense to me. What are your thoughts? Yeah, I found it really interesting, the debate that's going on at Morgan Stanley as to as you pointed out, you know, why they should ban him, but also why they shouldn't ban him, because it actually isn't a question of legality for them, because their terms and conditions are very clear. They can basically restrict whoever they want. That's what you sign up for when you sign up with their platform. But their concern is that if they do ban him, that they're going to make enemies with the Reddit army, and that by antagonizing him, it's going to start this chain reaction, and all of his hundreds of thousands of fans are going to leave and follow him to a different platform.

10:19And I just find it so interesting that this issue is kind of becoming a theme for every platform. And the first obvious example that comes to mind is Trump. But it's sort of like, you know, if you're a platform, if you have users, you have to develop a strategy for dealing with these larger-than-life characters with these huge followings who misbehave. because even if you rightly punish them, you risk losing millions of users and eventually probably millions in revenue. So it's interesting to me that a stock trading platform could be dealing with the same issues that we've seen over and over again on the social media platforms like Twitter and Facebook.

10:59And I just think that every platform, no matter what industry you're in, should have a game plan for situations like this because it feels like it's happening more and more frequently. Your analysis is the right one, But the folks at Morgan Stanley are really smart. And they sat down and said, okay, what are the risks of a Robin Hood-like moment for us? That is a terrible scenario for us. What are the risks we're going to lose a bunch of meme stock traders? They probably looked at their, I would imagine, their trading base and said, it's not a big part of our business. I think they would have rather not done this, all things being equal.

11:31But I think they decided the risk, the kind of tail risk or the black swan risk of an event where the stock goes to, you know, one of these meme stocks goes absolutely parabolic. And there's just, you know, 30, 50, 100 X increase in volume. And all of a sudden the people clearing their trades freak out and say, you need 30, 40 X the capital reserves here. They thought, OK, that's just not a scenario where we all want to be woken up at 2 a.m. and try to figure out how to get more liquidity. okay so we piss off roaring kitty and his followers or some people on reddit they probably did some analysis and tried to figure out what percentage of our trading volume is these individuals and they said no we'd rather piss off this small group of people and not be subject to this to this tail risk thoughts on nvidia to three trillion dollars in market cap i just i've never been a company this successful if you define success by the ability to add that type of value in a short period of time.

12:31It's added$1.8 trillion year to date. It added three quarters of a trillion dollars in May. So it's now larger than the entire stock markets of Canada and South Korea. Its market cap is larger than the GDPs of all but six countries. I mean, we were talking with Bill Cohen about Paramount. We're talking about$5 billion is worth$15 billion. You know, this company loses that in a trading hour or gains it. And it just, it's absolutely striking. And we're going to see all sorts of stories here about thousands of employees in the Bay Area who are now worth$10,$50,$100 million. The numbers here, people can't even wrap their head around what the numbers here are.

13:12And then one of the things that Mia pulled up that just fascinates me is I believe that the S &P is up about 13 % or 14 % year to date. But half of that gain is NVIDIA. So the S &P outside of NVIDIA is basically up a little bit more than inflation. So essentially, if you have money in the S &P, you're kind of flat if you don't own NVIDIA. But if you own NVIDIA or you're part of an index fund, and this is why you should be in an index fund, because you're balanced across based on a weighted adjusted ratio of the market cap, you're up 14%. But if you're buying individual stocks, most likely you're probably not doing that well unless one of those stocks was NVIDIA.

13:57And it goes back to, I think it's a lesson in the power of index investing because what I have found, having been through a lot of ups and downs financially, is that the pain of losing a lot of money is much greater than the joy of making a lot of money. and so diversification and index funds and getting that 14 feels really good now it doesn't feel as awesome as getting 300 but what really fucking sucks is being the guy that's that's not beating inflation or has lost money so this thing is an absolute phenomena you know josh brown had a really interesting point i said this is cisco all over again he said yeah there's a key distinction though, and that is as the market cap is accelerated, the PE has actually come down, which means that their earnings growth has been greater than this exponential market capitalization growth.

14:49I think this is a bubble. I think it's a matter of when, not if, but I think it's going to happen when a company, a big company who's a big purchaser announces they have their own ship and that it's pretty good. Or when, you know, Mary Barra from General Motors says, we're dramatically decreasing our spend in AI while it's still important to us. We've realized that it's not going to revolutionize everything we've done. That's when I think you see the bubble pop here. But this is, as of today, this is the most successful company in history as registered by an acceleration in value. What are your thoughts?

15:25I just love seeing the star power that Jensen Huang has accumulated in the past year. two awesome examples of that one that viral photo of jensen signing a woman's shirt who comes and accosts him while he's walking out of an interview if you haven't seen it yet you you should go check it out he literally looks like a rock star i mean he's he's wearing the leather jacket but it's sort of like it's cristiano ronaldo like justin bieber level fame and the second thing that i found also pretty interesting is what he did to Samsung's stock. And that is, Samsung rose 4 % in one day after Jensen said in an interview, not that he was partnering with Samsung or that he was even conducting any sort of business with Samsung.

16:10All he said is that he has been looking at the chips that Samsung has been producing. And through that comment alone, he was able to create$15 billion in market value and increased the stock 4%. Here's a question for you. Do you think Jensen Huang is at this point the most powerful non-politician in the world? It's a really interesting question. I think some people would argue that it's Mark Zuckerberg or Satya Nadella because of their control over such huge swaths, huge businesses, and also their ability to sway elections or not sway elections or depress teens or whatever it is they do. But what Jensen, in my opinion, sort of indicates is the financialization of everything.

16:53As a society becomes more capitalist, what it offers is different gradients of life. What do I mean by that? When I was younger, my dad would have people over who worked for him, and then we would occasionally go over to his boss's house. His boss had the nicest house on the block, but it was still the same neighborhood, and we were all still members of the same country club. And he had a Cadillac, right? Instead of a Thunderbird, had a Cadillac. My dad had a Gran Torino, but his boss had a Cadillac. But now, the guy who runs a company flies private and stays at a series of hotels that 99 % of people could just never even afford.

17:32The Fife Alms, yeah. Well, not even that. I mean, what you can do with money now, that wasn't even an option back in the 70s and 80s. Money bought you some stuff, but it didn't buy you what it buys you today. And so I think the reason we're morphing to a different species is one, mostly because of loneliness, but two, the financialization of everything has created different criteria. What do I mean by that? The sex symbols used to be military. Your ability to protect the tribe made people attracted to you. Now, the people we're most attracted to are the people who can offer a better life to the entire tribe.

18:07And that is, if you're very wealthy, you have power, a ton of power, and you can offer such an extraordinarily different life to not only your immediate family, but the people around you, your employees, that these people have become the new generals, the new athletes, the new movie stars. They are the sex symbols. They are the new heroes in a species that has evolved. Also, because they're in the technology field, they're the closest thing we have to a god because we don't understand this shit, similar to the way we don't understand religion. But I feel like we're evolving to a different species with different criteria and different heroes.

18:44And Jensen Huang is an example of that. And here's our strategy. I did get that picture with him and Ken. He came up. I told you this story. He said, I like your videos. I'm like, do you want a picture? I thought he was a fan, took a picture, he walked away. I'm going to find that picture. And I'm going to announce that Prop G has entered into an exclusive relationship with NVIDIA. And then we're going to SPAC. We're going to SPAC. Hell yeah. I love that. We're going to smack. I'm going to get Chamath as an investor. I'm going to have him go on CNBC every other fucking day, and they're going to pretend what he says is gold so they can fill up 18 hours of opioid-induced constipation network, and they'll bring on any carnival barker to talk up any chicken shit.

19:23I love that. We'll be right back after the break with a look at the Texas Stock Exchange.

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21:14We're back with Prof G Markets. A new national stock exchange is preparing to set up shop in Texas. A group of investors, including BlackRock and Citadel, have raised$120 million to establish an alternative to the New York Stock Exchange and the NASDAQ. Those exchanges, according to the group, are too regulated. The Texas Stock Exchange plans to file with the SEC later this year, and it wants to start trading in 2025. Scott, the NYSE and the NASDAQ have had this duopoly on the U.S. stock market for years now. How do you think the Texas Stock Exchange could affect the financial markets? Well, I like this in the sense that I think we need more competition.

21:55I just think it's a good idea to have more than two options in what is the largest equity market in the world. The U.S. markets trade more than$360 billion in value each day. And that's more than four times the liquidity of all European markets combined. So they are, it really is at this point, a bit of a duopoly. And then what you see is because the criteria and the risk disclosure that the SEC mandates to trade on these exchanges results in a series of companies that have a halo. of prestige that if you're a publicly traded company on the nyc or nasdaq it says something about you it's like going to princeton for example it says that you're smart you're probably mentally fit and probably an entitled douchebag but still but still despite this the average pe in london the is 13 the average pe on the shanghai index is 13 also and new york city it's 26x that's the combined or the average PE of firms on the NYSE or the NASDAQ.

22:55So these companies offer an incredible brand halo, and they also get paid for it. So the minimum fee to the exchange for listed companies in London is$14 ,000 and Frankfurt at$17 ,000. And here's the juopoly gets their pricing power. The NASDAQ and the NYSE are$52 ,000 and$80 ,000 respectively. So I like competition. The thing I don't like about this is, of course, this is the politicization of everything. This has very much a red state feel, and they're trying to say NYSE and NASDAQ are blue state. And I thought, God, I never thought of them as blue. I just thought of them as financial. But it feels like everything is being politicized, right?

23:33Just as we were talking about the financialization of everything, we have the politicization of everything. And I would bet, I would bet that the person behind all of this who said, I'll be your anchor tenant is Elon Musk. I think he's so pissed off about what's happened with the SEC and his pay package. I bet he can't wait to move all of his shit and trade on the Texas, whatever it's going to call the Yeehaw Stock Exchange or the Texas Stock Exchange. So it's sort of discouraging that my guess is, intentionally or not, they're going to position it as red state versus blue state. What are your thoughts?

24:09Well, I think it's interesting to go over what the complaints about the NASDAQ and the New York Stock Exchange actually are. So there have been complaints about costs, particularly costs around trading data access and financial data. But that's mostly an investor complaint. It's less of an issue for a company listing itself. And, you know, there's obviously the listing fees and the annual fees, but those numbers are pretty small. There's also been complaints around regulatory overreach, just that there are too many rules and too many regulations for both exchanges if you want to list. But the most common complaint that I'm seeing, and this is what I find so interesting about this story, is that both exchanges are too woke.

24:53Like, every written opinion on this topic, there's this one fact that they love to talk about, which is that the NASDAQ has these rules around board diversity. And the rules are that one, your board has to have at least one female director. And two, your board must have at least one non-white or LGBTQ plus director. I think those rules are ridiculous, personally. But I also find it pretty ridiculous that you would go out and create an entirely new exchange, basically just despite these other exchanges that you think have become too woke. So I agree with you. I'm not, I think it's important to have a board that looks at least somewhat representative of your customer base and your employee base, but the exchange is mandating it.